KG-D6 Gas Price Arbitration: Reliance, BP Bury The Hatchet Against The Government
Withdrawal of arbitration was a pre-condition to allow exploration in KG-D6 block.
Reliance Industries Ltd. and BP Plc will withdraw the arbitration against the government on the pricing of gas from the D6 block of the Krishna-Godavari basin.
The withdrawal is a requirement for the companies to receive higher gas prices available through a government policy revision in March to encourage development of deepwater fields.
“Yes. The ‘gas price’ arbitration has already been withdrawn,” BP spokesperson told BloombergQuint in an email. RIL hasn't yet responded to BloombergQuint's query. The Economic Times newspaper first reported the news earlier on Friday.
The price for gas from "deep-water, ultra-deep-water, and high pressure-high temperature areas" has been set at $5.56 per unit as against $2.48 per unit for gas extracted from normal fields, according to the latest revision in March. But the policy also states that companies like RIL, which are currently involved in any form of litigation with the government, will not be allowed to avail these benefits.
“Apart from adversely affecting India’s oil and gas output, such disputes have also hurt India’s image as a serious exploration and production destination,” Oil Minister Dharmendra Pradhan told reporters at an event on May 31.
The withdrawal of price arbitration is a sentiment positive as it highlights higher pricing for the deep-sea gas for the company in the future, said brokerage JPMorgan in its report.
KG-D6 Ambitions
RIL and BP announced plans to invest as much as Rs 40,000 crore in the KG-D6 block on June 15. The two companies aim to develop about 3 trillion cubic feet of resources that will result in production of an additional 30 million to 35 million cubic meters a day of gas from the KG-D6 block between 2020 and 2022.
The companies have so far struggled to boost gas production in the deep water area off India’s east coast.