Reliance Industries Limited and its partner BP Plc are all set to begin their next phase of expansion at the Krishna-Godavari. In April, the Mukesh Ambani-led company invited tenders for drilling and recovering gas from three deep-sea clusters off the east coast of India including the R-series, Satellite-series and MJ-1 fields. But the most important aspect of any gas recovery by RIL and its partners is the pricing of gas.
Sources in the government said that executives from both RIL and BP have met oil ministry officials to initiate talks of withdrawing the gas-pricing arbitration pending in Supreme Court.
“These are deep-sea areas and RIL will get marketing and pricing freedom, that is, a higher price for gas from these areas, if they withdraw the litigation with the government,” said a source in the oil ministry without wanting to be named.
He confirmed that the company has assured the government that it will initiate the process of withdrawing the litigation. Sources said that BP has been advising RIL to withdraw the litigation and the entire matter will be resolved by the end of the year.
On March 11, the Union Cabinet had allowed free pricing of gas to developers drilling difficult terrains including deep-sea and high-pressure zones. During this decision it was also made clear that if the developer was engaged in a gas-pricing litigation with the government then this liberal pricing mechanism will not be applicable to them, unless the arbitration is dropped.
According to the new pricing formula, from April a unit of gas produced from existing wells will fetch $3.15 per million British thermal unit (mmBtu), but gas from new deep sea wells will get $7 per unit.
A presentation by the oil ministry said that the recent pricing freedom allowed by the Cabinet, will help monetise 6.5 tcf (trillion cubic feet) of gas valued at $28.35 billion, or Rs. 1.8 trillion. Of this, RIL has eight discoveries with 2.5 tcf of gas.
BP is 30% partner in RIL’s 21 gas blocks, including the KG D6. Canada’s Niko Resources has 10% holding in KG D6. It was in 2014 that RIL proceeded with an arbitration demanding immediate implementation of the gas pricing formula as devised by the previous UPA regime