RIL, Govt Dispute over CBM Pricing

India’s Reliance Industries has termed oil ministry’s endeavour to tighten controls on pricing and marketing of coal bed methane as financially damaging contractual violation, some media reports in the country said Monday.

This new development is likely to worsen the already strained relationship between India's biggest private oil company and the petroleum ministry.

Last week, the company had slapped an arbitration notice on the authorities fearing financial penalties for the fall in output from India's biggest gas field, KG-D6.

RIL wants to price CBM from its blocks using the same formula that state energy companies use to sell liquefied natural gas (LNG).

However, the government intends to first identify the customers, and then wants the company to negotiate prices only with them. RIL believes this move would severely limit Reliance's ability to sell gas at market rates and recover its investment.

The company is of the view that customers already chosen by the government would have the power to ask for artificially low prices.

Natural gas produced from KG-D6 is also sold to customers identified by the government, but only after the price was agreed upon.

The government has so far not accepted Reliance's pricing formula, which would price the CBM gas at about $13 per unit, and the Directorate General of Hydrocarbons (DGH) has sent a notice to the company asking it to confirm if the company is following the ministry's directive.

The ministry has also asked Reliance that in pricing CBM gas, it should bear in mind the price of $4.2 fixed for natural gas from D6.