The near-doubling of gas prices to $8 per million British thermal units that will kick in from next month will accrue to all producers in the country.
The withdrawal of the arbitration will now entitle the two companies to marketing and pricing freedom on the natural gas they produce from newer fields in the deep sea at an investment of Rs 40,000 crore by 2022.
Reliance Industries and its partner BP Plc on Thursday won approval to invest $3.18 billion in R-Series gas field in the flagging KG-D6 block.
If proved correct, MJ-1 would the third biggest gas field in KG-D6 after D1&D3.
The Election Commission asked the government to defer announcement of the new price till completion of the polls and so RIL was asked to continue selling the gas at old rates.
RIL and its partners BP Plc of UK and Canada's Niko Resources had last month spud the seventh well on the MA oil and gas field in the KG-DWN-98/3 or KG-D6 block in the Krishna Godavari basin.
RIL and its partners BP plc of UK and Canada's Niko Resources have spud the seventh well on the MA oil and gas field in the KG-DWN-98/3 or KG-D6 block in Krishna Godavari basin.
RIL and its partners BP plc of UK and Canada's Niko Resources plan to produce about 13 million standard cubic metres per day of gas for 13 years from D-34 discovery, known as R-Cluster, in the KG-DWN-98/3 or KG-D6 block by 2017-18.
With this, the total penalty on RIL for missing the target in four fiscal years beginning April 1, 2010 now stands at a cumulative $2.376 billion, the Minister informed the Lok Sabha on Tuesday.
The government had disallowed as much as $1.005 billion of its investment as KG-D6 output lagged targets.
The Cabinet Committee on Economic Affairs had first on June 27, 2013, and then on December 19, 2013, decided to price all domestically produced natural gas, including unconventional fuels such as coal-bed methane and shale gas, at an average of international hub rates and the cost of importing liquefied natural gas.
Sources said the Cabinet had in December last year stipulated that the new gas rate will apply to all producers excepting eastern offshore KG-D6 block where the contractor, which is fighting government against levying penalties for output shortfall, will have to give bank guarantees equivalent to the incremental revenue it would get from the new rates.
A market-based gas pricing regime is to kick-in from next month.
The company will invest $747 mn to increase production from D1, D3 and MA fields.
The move is likely to force the government to take a faster decision.
The government on Thursday decided to join the arbitration initiated by Reliance Industries and its partners over delay in revision of natural gas prices, and named former Supreme Court judge G S Singhvi as its arbitrator.
Reliance Industries Ltd (RIL) has refuted the allegation in the Supreme Court that it is deliberately reducing production of gas in KG basin in anticipation of a higher gas price and said it has taken all steps for arbitration proceedings with Centre to sort out all disputes.
According to a source close to the development, the government is set to come out with a notification in this regard by the end of this week.
BP, which bought a 30 per cent stake in RIL's 21 oil and gas blocks, including KG-D6, for $7.026 billion in 2011, is working with RIL to arrest the output decline in the fields.
RIL and BP completed the initial exploratory work on the 21 blocks, but decided to retain only four of them.
Reliance Industries would repair a third of the wells shut at its main gas field in the eastern offshore KG-D6 block to boost output in the first quarter of 2014.
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The 25-year production sharing contract, however, ends in 2029.
RIL's Dhirubhai-34, or R-Cluster field, in the flagging KG-D6 block was to produce about 13 million standard cubic metres per day of gas, equivalent to present day output from D1&D3 as well as MA fields, by 2017-18.
The Directorate General of Hydrocarbons last month recommended to the Oil Ministry that $792 million of the cost RIL has incurred in KG-D6 fields be disallowed for producing only an average of 26.07 million cubic meters per day of gas as against the target of 86.73 mmcmd in 2012-13.
RIL may go to arbitration which may lead to further delay in production and extra cost associated with the arbitration.
RIL produced a total of 13.58 mmscmd of gas from Dhirubhai-1 and 3 gas fields and MA oil and gas field in the KG-DWN-98/3 or KG-D6 block in Bay of Bengal in the first week of February, which rose to 13.63 mmscmd in the following week.
Sensex ended up 41 points at 29,136 and Nifty gained 4 pts to 8,809.
The Cabinet on Thursday decided to allow Reliance Industries to almost double the price of natural gas from April provided the firm gave a bank guarantee to cover its liability if gas-hoarding charges are proved.
RIL estimates output from KG-D6 could reach up to 60 mscmd in the next five years, when all satellite fields are brought into production.
RIL has been selling gas from KG-D6 at the same price since it started production in April 2009.
RIL has denied knowingly producing any gas from the ONGC block
Govt notification on $8.4 a unit price likely by month-end
RIL has more than half a dozen undeveloped discoveries.
Gas price hike seems to be a distant dream for Reliance Industries and its partners--Niko Resources and BP.
The Mukesh Ambani-led Reliance Industries Ltd (RIL) might take a write-down on the KG-D6 block.
The company will wait for sizeable user base for better valuation.
The Oil Ministry is seeking Cabinet nod to allow Reliance Industries to retain three gas discoveries worth $1.45 billion in the eastern offshore KG-D6 block even after expiry of timelines.
Reason behind for the change in his stance: gas price increase.
Oil Minister Dharmendra Pradhan had last month told the Parliament that his Ministry has disallowed RIL from recovering $2.376 billion invested to develop offshore Krishna Godavari gas fields as output has fallen drastically and was way below the promised volumes in past four years.
The committee said whatever benefit RIL received in terms of the migrated gas is liable to be returned to the government.
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