First dissent on gas price, Gujarat firm demands higher rates

New Delhi, Nov 16 (PTI) In first signs of dissent over the new gas pricing, Gujarat Government firm GSPC has demanded market price for its output from KG basin fields saying it cannot be forced to sell fuel at a rate which is less than the cost of production.

Days after the October 18 government decision to raise natural gas prices to USD 5.61 per unit from USD 4.2, Gujarat State Petroleum Corp (GSPC) shot off a letter to the Oil Ministry, demanding "market determined price" for its ready-to-produce Deen Dayal West (DDW) fields in Bay of Bengal.

"GSPC cannot be put to irreparable harm by directing it to sell at a gas price which is less than the cost of gas production (which includes exploration, development and production cost) from DDW field," the company wrote.

The firm owned and run by the Gujarat government had last year discovered a market formula that gives a price of about USD 10.5 per million British thermal unit at current oil rate of USD 80 per barrel. India is not endowed with rich natural resources and most of the reserves are in ultra-deep water, deepsea, and High Pressure-High Temperature (HPHT) areas which requires investment of substantial capital to develop the gas fields irrespective of time of discoveries. Company, it said, "invested substantial capital in these areas with the assumption of having freedom for marketing the natural gas at market determined price which was the essential and most important feature of NELP contracts".

GSPC had won the Block KG-OSN-2001/3 in the third round of auctions under New Exploration Licensing Policy (NELP), which was launched by the BJP-led NDA government, in 2003. DDW field in the block was discovered in 2005-06.

"Even Government of India recognises the challenges involved in producing gas from High Pressure-High Temperature areas and has proposed premium for gas produced from such fields (in future). It is requested that same principles shall be applicable for DDW gas field and GSPC shall be allowed to sell gas at marker determined price," it said.

This will help substitute the costly imported LNG. GSPC said all facilities of DDW field are under commissioning and currently it was producing about 0.3 million standard cubic meters per day as commissioning gas.

Gas from DDW field, it said, is produced from most challenging conditions like HTHP and low permeability, requiring high capital and technology.

GSPC invested USD 3.2 billion in the field "with the expectation of having freedom for marketing the natural gas at market determined prices which was the essential and most important feature of NELP contracts," it wrote. "It may be noted that GSPC received bids for purchase of 35.96 mmscmd of gas above floor price of USD 8.5 (set in the price discovery process last year)," it added.