BP asks India’s petroleum ministry to clarify pricing structure

With the assurance of its commitment to be India’s long-term partner towards energy security, BP has requested the petroleum ministry to clarify the pricing structure for future projects to help the company in making investment decisions. BP Region President & India Head Sashi Mukundan said that the company will work with its partner Reliance Industries Limited (RIL) and the petroleum ministry to maximize recovery from existing fields D1/D3 and MA in KG D6 accelerate the development of already-discovered gas in KG D6 and NEC25, which are awaiting approval. BP said all these could add 25-30 million standard cubic feet per day of potential production in the next 3-5 years. This could unlock US$50-75 billion of value to the nation through import substitution.
However, the company said that to unlock India’s energy potential, long-pending issues have to be resolved. In order to make these investment decisions, it is important to have clarity on the pricing structure, BP emphasized in a letter to the petroleum ministry. It also requested the ministry to expedite approval of various exploration projects in different blocks.
Mukundan added that the Production Sharing Contract (PSC) allows for arms-length market determined prices. “Oil produced from Pre NELP/NELP blocks are priced at import parity. With the Gas Utilization Policy, priority sector consumers have no incentive to participate in a transparent market pricing process. Given this, the liquid petroleum products linked pricing most appropriately represents a market linked price as it tracks alternate fuels that gas would replace in the first instance and the cost of exploration and production services. The pricing structure needs to be flexible and reflect the market for alternate fuels that it would replace in order to ensure that the gas sold remains competitive at all times,” he emphasized.
Counting on BP’s experience in exploration, the BP-RIL partnership is also starting to renew its exploration-drilling program to find more resources in identified prospects. If successful, the yet-to-be-found resources can add over 10 tcf with the potential to unlock US$100-150 billion of value through import substitution. (December 5, 2012)