United Kingdom's BP Plc, which along with it's partner Reliance Industries is seeking import equivalent price for natural gas from eastern offshore KG-D6 fields, on Monday said current gas prices in India are "artificially depressed" that do not encourage investments.
Gas "prices (in India) are artificially depressed... Prices should be left to forces of demand and supply instead of leaving them to administrator," BP's chief economist Christof Ruehl told reporters in New Delhi.
RIL-BP currently sell natural gas produced from Krishna Godavari basin deepsea fields at $4.205 per million British thermal unit, a rate fixed by the government for first five years of production that began in April 2009.
The two firms, however, feel the rates are lower than market price and are seeking rates equivalent to the rate at which the country imports gas in its liquid form (Liquefied Natural Gas) from Qatar on a long-term contract.
At $100 per barrel oil price, the KG-D6 gas, according to the formula proposed by RIL-BP, will cost $12.93 per mmBtu.
"In India, prices are not remunerative enough for (putting) more investment," Ruehl said, adding when prices are kept artificially low, it "depressed domestic production".
Low prices "depresses domestic production and increase domestic consumption," he said, adding the government should target subsidies to the priority sector instead of a blanket low-price regime.
He said the KG-D6 block may hold gas reserves that can be exploited only at higher gas price.
KG-D6 gas production has dipped to 27.91 million standard cubic meters per day instead of rising to 80 mmscmd projected for this time of the year.
The oil ministry and its technical arm DGH blames non-drilling of enough wells for the drop in output from 61.5 mmscmd achieved in March 2010 but RIL-BP see no point in sinking more wells in the currently producing fields that have faced uncertain geology and high and sand ingress leading to drop in production.
They want to invest in newer areas within the block but want a higher gas price.
Ruehl said US has seen the biggest growth in oil production outside of the oil cartel OPEC due to advent of shale oil.
Its shale oil and gas reserves are less than China but the shale revolution happened in America because it provided an open market that "breeds new technology" and made production from these unconventional resources possible, he said.
Similarly, shale oil reserves in Canada are far less than Venezuela but the former provided open market. "You need these kind of market mechanism to drive up supplies," he said.