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.
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.
Reliance Industries Ltd (RIL) said on Wednesday that the government's move to disallow it recovery of certain costs relating to the D6 gas block in the Krishna-Godavari basin (KG-D6) did not amount to a penalty and was also not in line with the contract the two had signed.
The output was behind target in 2015-16 as well and the government is yet to issue a cost disallowance notice for that
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.
Govt notification on $8.4 a unit price likely by month-end
Post-cessation, activities related to the safe shutdown of the field are underway.
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.
Gas price hike seems to be a distant dream for Reliance Industries and its partners--Niko Resources and BP.
Oil Min rejects RIL arbitration notice.
In the run up to the general election, Aam Aadmi Party had alleged that RIL's partner Niko Resources was selling KG-D6 gas in Bangladesh for half the $4.2 per million British thermal unit rate that India pays them.
RIL and BP completed the initial exploratory work on the 21 blocks, but decided to retain only four of them.
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.
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.
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 company will invest $747 mn to increase production from D1, D3 and MA fields.
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.
The move is likely to force the government to take a faster decision.
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.
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The 25-year production sharing contract, however, ends in 2029.
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 has denied knowingly producing any gas from the ONGC block
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.
RIL has more than half a dozen undeveloped discoveries.
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.
Gas pricing guidelines stipulate that a new gas price will apply to all producers except RIL.
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.
Sensex ended up 41 points at 29,136 and Nifty gained 4 pts to 8,809.
RIL has been selling gas from KG-D6 at the same price since it started production in April 2009.
The commission asks for notification to be deferred; RIL's KG-D6 pricing issue may return to Cabinet
Reason behind for the change in his stance: gas price increase.
The company will wait for sizeable user base for better valuation.
The Mukesh Ambani-led Reliance Industries Ltd (RIL) might take a write-down on the KG-D6 block.
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