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BP demands market price for natural gas

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New Delhi:

BP, Europe's second-biggest oil company, has demanded a market price for natural gas to enable immediate development of a huge 10 Tcf of discoveries to help unlock up to $100-150 billion value.

In a 12-page submission to the C Rangarajan Committee, which is examining terms of future contracts for exploration of oil and gas as well as basis for gas pricing, BP advocated a market price linked to liquid fuels like diesel, naphtha and fuel oil.

This "right gas pricing regime" will enable immediate development of about 10 Tcf of discovered resources in the next 3-5 years by various operators, unlocking up to $100-150 billion of value at current LNG prices, BP, which is a partner of Reliance Industries in several oil and gas blocks, said.

"The price so arrived will be legitimate (in line with New Exploration Licensing Policy/Production Sharing Contract), relevant (encourages investment, predictable, ensures smooth transition) and credible (reflects substitute fuels, helps index costs and provides sustainable supply for customers)," it said.

Separately, RIL had told the panel that a price of more than $10 per million British thermal unit is need to
develop around 5.5 Tcf of discovered gas resources with RIL-BP.

It currently gets paid $4.2 per mmBtu for the gas produced from its KG-D6 fields in Bay of Bengal. This rate is lower than what Cairn India gets in the neighbouring Ravva Satellite field in the same basin and UK's BG Group-operated Panna/Mukta and Tapti fields in western offshore.

KG-D6 output has slipped drastically due to a host of problems and the company is arguing that restoring production would need higher investments.

RIL had stated that said only market related prices can provide an incentive to help produce the vast domestic resources that either concentrated in small pools or are located in technologically challenging ultra deepsea.     

"The PSC today provides import parity pricing for domestically produced crude oil, however it does not do the same for natural gas. This makes exploration difficult and more risky as we have ended up with two different regimes for oil and gas," BP said.

The firm, which invested $7.2 billion in buying 30 per cent stake in RIL's 23 oil and gas blocks, said a market price would create the right economic climate to encourage investments in the E&P sector that will lead to potential discoveries of an additional 50-100 Tcf (with over a $1 trillion in value).

"A market price linked to oil will encourage activities and investment, help smooth transition to gas-on-gas pricing and will ensure sustainable supply to build customer confidence," it said.

Story first published on: November 20, 2012 22:18 (IST)

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