April 1, 2014, could see the gas price from the Reliance Industries-operated D6 block to be in the range of $13/mmBtu if the Government approves a proposal for new sales contracts submitted by Reliance and its partners — BP and Niko Resources.

Gas from the block is currently sold at $4.2/mmBtu (landfall point). Partners in the block have been seeking a price revision. In fact, it is being alleged that they were not increasing output from the block as they wanted a higher market-determined gas price.

“In June 2012, the operator submitted to the Government for approval a proposal for a new crude oil-linked pricing formula to be used in new sales contracts for the period commencing April 1, 2014,” Niko Resources, said in a statement.

The proposal was based on the pricing formula under a contract for long-term import of LNG into India, Niko said, adding that the formula was universally accepted by arm’s length buyers who bid in large numbers in an open price discovery process, it said.

The proposed formula: Gas Price ($/mmBtu) = 12.67 per cent x JCC (Japan Customs cleared Crude) + $0.26, where JCC is the average price of customs cleared crude oil imports into Japan, as reported in Trade Statistics announced by Japan’s Ministry of Finance for the month previous to the one in which supplies are made.

“If the formula is approved, it would result in a gas price of slightly under $13.00/ mmBtu based on current JCC price levels of around $100 a barrel,” Niko said.

In January, the operator wrote to the Indian Government requesting that the parties discuss a revised price formula consistent with the terms of the production sharing contract and the principles established by the New Exploration Licensing Policy and the Ministry of Petroleum and Natural Gas of India, Niko said.

This July, the Government appointed the Rangarajan Committee to study and make recommendations on issues relating to production sharing contracts in India, including the structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas in the country.

In May 2007, Reliance discovered an arm’s length price for the sale of gas on a transparent basis with a term of three years (based on a production-sharing contract) and accordingly, proposed a gas price formula to the Government. In September 2007, it was approved with some modification. The approved pricing formula was declared effective for a period of five years (from date of gas production – April 2009) rather than the three years proposed by Reliance.

“We have signed numerous gas sales contracts with customers in the fertiliser, power, steel, city gas distribution, liquefied petroleum gas market and pipeline transportation industries, and all of these gas sales contracts expire on March 31, 2014,” Niko said.

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