Reliance Industries Ltd expects natural gas prices in India to rise again in October but wants government-mandated limits gone in an effort to align domestic prices with global fuel prices. The conglomerate, controlled by billionaire Mukesh Ambani, expects its KG-D6 gas sales price to rise above the current USD 9.92 per million British thermal units, senior vice president for exploration and production Sanjay Roy said in an investor call. After the firm’s quarterly earnings announcement on Friday.
After being a loss-making provision for several quarters, Reliance’s gas exploration business has started reaping the rewards of the global rise in fuel prices, which have already pushed rates to record highs. The government fixes gas prices every six months based on international rates.
Gas prices for old or regulated fields have doubled since April 1 to a record USD 6.1 per mmBtu, and for difficult fields such as those in the deep sea to USD 9.92 per mmBtu.
Rates will be revised in October. Gas prices from state-owned Oil and Natural Gas Corporation (ONGC)’s older fields are expected to be hiked to around USD 9 per mmBtu, and the threshold for distressed fields is expected to rise to double digits. Reliance produced about 19 million standard cubic meters of gas per day from its new fields in the east offshore KG-D6 block during the April-June quarter. The KG-D6 block is located in deep sea and hence fetches a price equivalent to difficult fields.
“The price ceiling for KGD6 (R-cluster/Sats) has been revised to USD 9.92 per mmBtu for H1FY23 (April-September 2022), which is expected to rise further for H2FY23 (October 2022 to March 2023),” Roy said. But this rate is disconnected with global prices.
“We see domestic price ceiling disconnection, whether prices are high or prices are falling. And you know we are continuing our advocacy for the removal of ceiling prices. Overall, we expect higher gas price realizations in FY23 and the coming quarters,” he said.
Reliance has quoted a price of USD 22.48 per mmBtu for 0.7 mmscmd of gas produced from coal seams (CBM) from Madhya Pradesh blocks. There is no cap on CBM gas price. Higher gas prices fueled an 80.5 percent rise in revenue from the business to Rs 3,625 crore and a 76 percent jump in EBITDA (earnings before interest, taxes, depreciation and amortization) to Rs 2,737 crore during the April-June period.
Roy said the company expects the MJ field in the KG-D6 block to come on stream by the third quarter of this fiscal, which would help take production from the block to around 30 mmscmd. “Overall, once the MJ field becomes operational, we should move progressively towards delivering one billion cubic feet per day (30 mmscmd) by FY24 (April 2023 to March 2024),” he said.
On top of increased global gas prices, a shift in European demand from Russian gas to LNG and some supply disruptions are driving up prices, he said. Current prices of benchmark JKM are ruling at USD 38 per mmBtu.
“Therefore, prices will continue to rise and that is expected given today’s challenges,” he said.
The outlook for the Indian gas market remains robust, he said, adding that availability of domestic gas is one reason. “Because domestic gas especially as in KG-D6, there is a price ceiling and it is in high demand compared to the prevailing market prices at the moment,” he said.
He further observed, “Now, in terms of price ceiling, as you know and as I said earlier, the price has to go up and we will see more realisations. Based on higher fuel prices, it is expected to increase further. Reliance and its partner Bp plc of the UK will produce about 19 million standard cubic meters (mmscmd) of gas per day from two sets of new fields in deepsea block KG-D6.
Reliance-bp currently generates about 20 percent of India’s gross domestic product and MJ will help increase this to 30 percent.