What Price, Gas?
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    • What Price, Gas?

    If Mukesh Ambani loses, more lawsuits will follow. And everyone will lose, especially the people of India.

    If Anil wins, the government’s power, fertiliser and city supply plans could be starved of gas.

    t’s a national resource that is in danger of being cornered by two individuals—at the expense of the nation. The Ambani brothers are squabbling over the quantity and price at which Mukesh is supposed to supply gas from Reliance Industries’ (RIL’s) D-6 field in the K-G Basin to Anil. The focus of that battle has now shifted to the Supreme Court with RIL filing a writ petition on july4. But the contentious agreement between them also contains clauses that effectively divide the entire gas between the brothers. If that happens, it will make a mockery of a government policy that earmarked about half of the D-6 gas for other players and projects of national importance.

    At full capacity, Reliance Industries’ daily output from the K-G basin will be 80 mmscmd (million metric standard cubic metres per day). The government’s gas utilisation policy of 2007 had promised to provide 15 mmscmd of this D-6 gas to fertiliser plants, 18 mmscmd to power plants, and 5 mmscmd for city gas distribution, and 2 mmscmd for LPG. However, a Bombay High Court decision gives the memorandum of understanding (MoU) signed by the Ambanis in 2005 precedence over the production-sharing contract between RIL and the government. The ruling, if upheld, threatens to take away the government’s legitimate right over its natural resources.

    If the MoU is honoured, Anil’s Reliance Natural Resources could walk away with 28 mmscmd of gas. It will get an additional 12 mmscmd if NTPC is not able to reach an understanding with RIL. That’s 40 mmscmd. And, it will get it at $2.34, well below the market rate of $4.20.

    RIL, in turn, is entitled to 25 mmscmd for captive use. The remaining 15 mmscmd would be divided among the two brothers in a 60:40 ratio, with RIL getting the larger share. Nothing will be left for the government.

    RIL has signed contracts with fertiliser, power and steel companies, and begun supplying them the D-6 gas. The worry is that the MoU will put an end to this supply, forcing the plants to go back to more expensive liquid fuels such as naphtha and high-speed diesel. In turn, this would require higher subsidies and widen the budget deficit. Further, a recent Citigroup report points out: “If the issue lingers, it could discourage the emergence of demand from new power and fertiliser plants.’’

    Ultimately, this could snowball into a massive legal battle. On June 24, Fertiliser Secretary Atul Chaturvedi sent a note to RS Pandey, his counterpart in the Petroleum Ministry. It stated: “If the rights of fertiliser companies are altered to their disadvantage, then the Fertiliser Association of India will be forced to seek legal remedies independently.’’ It is only a matter of time before the power and steel sectors join the raging battle.

    Worse, the High Court order will hit the government hard financially. Total recoverable reserves from the D-6 field have been put at 11 trillion cubic feet (as calculated by the Directorate General of Hydrocarbons). The total revenue generated from these reserves at $4.2 per mmbtu will amount to $47.17 billion. The government’s share of these revenues will amount to $19.68 billion in the initial 15 years. But, if 40 mmscmd is sold to Anil at $2.34 per mmbtu, while the rest is sold at $4.2 per mmbtu, the government will get $10.72 billion—about $9 billion less. The biggest losers, of course, will be the people of India.

    Source: Business Outlook

    For more information, please visit:

    http://oilandgasindia.blogspot.com/
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