New Delhi, Feb 25 (IANS) The Gujarat State Petroleum Corp (GSPC) wants to price the natural gas it will produce from the Krishna Godavari (KG) basin block at a rate indexed to the cost of imported liquefied natural gas (LNG).
In a newspaper notice issued Monday, GSPC invited bids from potential consumers at the price formula at which Petronet LNG gets liquefied natural gas (LNG) from Qatar on a long-term contract.
The company defined the floor gas price gas for its produce from Deen Dayal West (DDW) gas field in block KG-OSN-2001/3, to flow by the third quarter of 2013, as a minimum of $8.50 per million British thermal unit (mmbtu), excluding local taxes and margin.
Petronet pays RasGas of Qatar a price of 12.67 percent of the average price of crude oil imported into Japan called Japan Crude Cocktail (JCC), and incurs a $0.26 per mmbtu cost on the gas transportation.
Under the formula for auction cited, GSPC sought 12.67 percent of the average Brent crude oil price plus $0.26 per mmbtu.
It asked bidders to quote a positive or negative number, called 'V', which can be added to the pricing formula.
GSPC will produce a maximum of 5.24 million standard cubic meters per day of gas from the DDW gas field.
The gas will land onshore at Mallavaram near Kakinada in Andhra Pradesh, and would be available to customers through Reliance Gas Transportation Infrastructure Ltd's East-West pipeline.
"Brent crude oil price will be capped at $110 per barrel and floor of the Brent crude oil price will be $65," it said in the newspaper notice.
"Even if bid value of 'V' is negative, floor gas price will always be $8.50 per mmbtu," GSPC said.
Reliance Industries (RIL) had earlier sought to price coal bed methane (CBM) gas it will produce from its Sohagpur blocks in Madhya Pradesh at 12.67 percent of the average JCC price plus $0.26 per mmbtu.
At a $100 per barrel JCC average, CBM would cost $12.67 per mmbtu plus $0.26 per mmbtu, for a total of $12.93 per mmbtu.
GSPC said it will charge an additional marketing margin of Rs.10.21 per mmbtu while the consumer will have to bear all taxes, duties, levies on sale of gas as well as transportation cost and duties and taxes, as applicable.
GSPC said that as per Production Sharing Contract (PSC) provisions it proposes to discover gas price through the e-auction and bidding mechanism.
The Rangarajan committee in its report on gas pricing has suggested a complex international hub, or market, based pricing formula for all gas produced in the country.
As per its recommendation, the price of gas would come to $8-8.5 per mmbtu.
Domestically produced natural gas is priced in the range of $4.2-5.73 per mmbtu.