India says gas wellhead price not capped for all

NEW DELHI (Reuters) - Energy firms already awarded Indian assets may receive a higher wellhead price for their gas than the $4.2 per million British thermal units approved last week for a Reliance Industries block, oil ministry officials said.

Although the gas price formula approved for an offshore block operated by Reliance will be applied to all producers, other companies will be allowed to charge customers a premium -- or biddable component -- for their gas.

So will Reliance when agreeing deals with new clients for gas from other blocks, they said on Monday.

"In this (Reliance) case, they had gone to the bidders before getting the formula approved," India's oil secretary, M.S. Srinivasan, told Reuters.

The government decided to keep the premium at zero as Reliance and its customers had assigned it different values.

Another official at the ministry, who could not be named, said the price approved by the government would apply only to bids already received by Reliance.

"Its not that we have capped the price at $4.2 mmBtu (for all blocks).

The formula will not apply to assets handed out in future auctions. Instead firms will be expected to get a specific agreement before inviting bids.

With the clarity emerging on gas pricing in the country, India is all set to announce its next oil and gas auction in November, after it was delayed from August.

Global firms including BP and Cheveron were waiting for the decision, which could influence their investment choices in a sector where pricing needs government approval.

Reliance is developing two deep-sea gas fields in its D-6 block in the Krishna Godavari basin off India's east coast.

It aims to produce up to 80 million cubic metres of gas per day (mmscmd) next year.

The initial formula submitted by Reliance had four components -- a constant or fixed price of $2.5, the price of crude, the rupee-dollar exchange rate and the so-called biddable component.

India has capped the price of crude at $60 a barrel and the floor price has been kept at $25 a barrel. For the exchange rate, the company will take into account the central bank reference rate for the last one year.

Srinivasan said on Friday the government would ask Reliance to sell its gas to fertiliser firms first and then power companies. However, the government is yet to announce its policy on commercial utilisation of gas.

The final selling price of the gas would be determined after factoring in transmission charges, local levies and marketing margins, he said. The latter would be set by the oil regulator.