Setting aside contentions by the fertiliser ministry that it has introduced new components that will escalate gas prices more than the rate approved by the government, Reliance Industries Ltd (RIL) on Monday said the terms that will lead to a higher price were part of the cabinet-approved formula.
RIL currently charges $4.205 per unit for the gas it supplies, on Net Calorific Value (NCV), basis as fixed by the government. RIL’s current 5-year contract with power and fertiliser companies for supply of natural gas expires on March 31.
The gas sale and purchase agreement that it has circulated to fertiliser companies for sale of its KG-D6 gas from April 1 is based on a new method that uses gross calorific value (GCV).
This is estimated to take the gas price to over $9 a unit as against the estimated $8.3-$8.4 a unit price if the NCV method is followed.
The fertiliser ministry has objected to the GCV method as most of the gas produced domestically is currently priced on an NCV basis.
“The components in the Cabinet Committee on Economic Affairs approved Rangarajan price formula include Henry Hub price in USA, NBP price in UK and net back of LNG prices to Japan and India... since the pricing of all these components are on GCV basis, naturally the resultant price is also on GCV basis,” the company said.
RIL’s statement also said, “RIL does not propose to apply any factor of increase or decrease to the price approved as per the Rangarajan price formula.”
The heat produced from natural gas is measured in calorific value, either in gross (GCV) or net (NCV) basis. One GCV equals 0.9 NCV. So, on a like to like basis billing, the new price of $8.3 per unit on GCV would mean an actual rate of $9.13 on NCV basis.