Niko sees scope for higher gas prices in India

Press reports indicate that India’s government has decided in principle that the price of gas from the D6 block offshore in the Krishna-Godavari basin can be raised, said minority owner Niko Resources Ltd., Calgary.

A recent high-level meeting convened at the prime minister’s office concluded that Reliance Industries Ltd., operator of the D6 block in which Niko has a 10% working interest, can begin negotiations with the petroleum ministry on fresh pricing for the gas now being sold at $4.20/MMBtu, the reports said.

The press also reported that the government plans to initiate the tenth round of auction under the New Exploration Licensing Policy regime after making changes to the existing policy to attract more domestic and foreign investors.

Oil Minister S. Jaipal Reddy was quoted as saying, “We look forward to a more investor-friendly regime before the next round both for investment and from the point of pricing. We have referred the issue to a committee headed by C. Rangarajan.” The committee is likely to submit its report on Oct. 31, Niko said.

Niko believes that gas market demand fundamentals are strong in India, where gas markets have historically been supply-constrained. Despite increases in liquefied natural gas imports and domestic production, the gap between supply and demand in India has remained high and the company believes the gap could grow in the future.

Niko noted that Reliance in June 2012 submitted to the government a proposal for a new crude oil-linked pricing formula to be used in new sales contracts for the period starting Apr. 1, 2014. If the formula were approved, Niko said, it would result in a gas price of slightly under $13/MMBtu based on current crude oil price levels and apply to current and future developments in the D6 block.

The revised field development plan for D1 and D3 gas fields submitted in August 2012 to the management committee of the D6 block projected that production from the fields will extend into the next decade, consistent with Niko’s estimates of proved plus probable reserves evaluated by Ryder Scott Co. as at Mar. 31, 2012.

India’s Ministry of Petroleum and Natural Gas said this summer that due to disappointing reservoir performance Reliance had slashed reserves estimates for D1 and D3 fields and raised the estimate for MA field (OGJ Online, Aug. 20, 2012).

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