Any such move will delay investments in fuel production, company tells govt panel
Mukesh Ambani-led Reliance Industries (RIL) has asked a government-appointed panel to desist from putting price caps on domestically produced natural gas, arguing that any such move would be retrograde and would delay investments in fuel production.
The panel headed by former Planning Commission member Kirit S Parikh was set up last month, just ahead of the October gas price revision, with the task of suggesting a “fair price” for the fuel after taking into account the needs of both producers and users. The panel was to submit its suggestions by the end of September, but now it has asked for more time, informed sources said.
In a submission to the committee, RIL detailed how the economics of its about-to-start field in the KG-D6 block, where billions of dollars have been spent to recover reserves lying several kilometres below the seabed, would be impacted under different prices. The mid-course changes through price caps not just go against pricing and marketing freedom contracts and government policy promises to companies but also add uncertainty to a fiscal regime, sources said.
While the government hiked the price of natural gas by 40 per cent last week in line with international prices, user industries, including city gas distributors, asked for rates to be rationalised, citing inflation concern.
City gas operators such as Mahanagar Gas in Mumbai increased the retail price of compressed natural gas (CNG) and piped natural gas (PNG) this week by Rs 6 per kg and by Rs 4 per standard cubic metre each. This came after the hike in natural gas price.
Brokerage firm Jefferies said in its report released this week that the sharp increase in domestic gas prices, while bringing relief to oil and gas producers, will hurt the margins of city gas distributors.
Officials at RIL were not immediately available for comment. The company is a seller of gas from its largely offshore projects, accounting for a third of the country’s domestic production.
RIL, said sources, indicated to the panel that the introduction of price caps would also hurt the government’s move to be self-reliant in fuel production.
India aims to more than double its share of natural gas to 15 per cent in its overall energy mix by 2030 from the current level of 6.7 per cent. RIL noted in its presentation that for this to happen, at least Rs 3 trillion would be required in terms of investment, which would be possible with a market-led pricing policy.
The government bi-annually fixes gas prices based on rates prevalent in surplus nations. Rates according to this formula have stayed below the breakeven price of $3-3.5 per million British thermal units (mBTu) for six years starting October 2015.
It, however, jumped significantly after the Russia-Ukraine war broke out earlier this year. It first touched $6.10 per mBtu for old fields in the first half of FY23, moving to $8.57 per mBtu in the second half of the current fiscal.
The rate for difficult fields, on the other hand, has jumped from $9.92 mBTu in the first half of FY23 to $12.46 per mBtu now.