RIL refuses to hike gas production till price is hiked

Though RIL has Rs 9,000 crore in cash, it is unlikely to use any of that immediately to hike its KG-D6 gas production. CNBC-TV18's Nayantara Rai explains that while RIL pleaded inability to hike production on refusal of the government to approve its budget and development plans, it seems that RIL will not hike its gas production even after being granted the government approvals.

It all seems to be boiling down to the price of gas. The empowered group of ministers (EGoM) and the government decided that the current gas price formula till April 2014 would be USD 4.2 per mmbtu. Reliance  (RIL) has been repeatedly demanding an increase in that price. This was firmly opposed by the oil ministry. However, sources in  the oil ministry indicate that there was no reason for Reliance to at least try not to increase KG-D6 production.

The ministry is not convinced that the gas production is not being ramped up because of geological reasons. The ministry believes that it just boils down to the price and wants Reliance to delink that from attempts to hike gas output. But BP president and head of commercial development, Alan Haywood, said that he would continue to increase production out of the existing fields.

So, both Reliance and its 30percent joint venture partner BP have stated that they would make an attempt to increase production given the gas price of USD 4.2 per mmbtu.

However, the oil ministry wants RIL to start work on increasing production immediately. RIL said it could actually augment production from the R-series and satellite fields of the KG-D6 by 2016. But the question remains, if the gas price is till 2014 and is expected to be increased after that, why is RIL not beginning work now?

RIL, on its part is very clear and has stated that even if the approvals were granted it would not increase its investment to increase the KG-D6 gas production until the gas price is hiked.