Govt likely to hike Cairn India's Ravva gas price to $4.2 per mmBtu

The government is reported to be weighing a 20-per cent hike in the price of natural gas produced from Cairn India's eastern offshore Ravva field to $4.2 per million British thermal unit (mmBtu) with effect from June 2010.

This will bring some parity with gas prices for the other contract area in the Ravva Satellite field where Cairn India is paid $4.3 per mmBtu.

Against this the current price for gas produced at Contract Area-1 is $3.5 per mmBtu.

The Ravva field is divided into two - Contract Area-1 which produces about 8 million standard cubic feet per day of gas (mmscfd) and Ravva Satellite that generates around 20 mmscfd.

While Cairn gets $3.5 for gas from Contract Area-1, GAIL India sells it to consumers at $4.2 per mmBtu. The difference is credited to a gas pool account.

Cairn is entitle to the $4.2 price from June 2010, the date from which GAIL has been selling Ravva Contract Area-1 gas at rates similar to the one fixed for state-owned ONGC.

Cairn has been demanding revision in price of gas from the Bay of Bengal fields effective 1 December 2008.

The company had sought $6.75 per mmBtu, a price it had discovered by inviting bids from consumers in the region. But the oil ministry fixed the rate at $4.2 per mmBtu for the period from June 2010 to November 2014, when a new international hub-based rate came into effect.

This price will be before addition of transportation charges, marketing margin and local taxes.

State-owned gas utility GAIL India, which buys all of the gas produced from Ravva and the adjoining Ravva Satellite fields, was opposed to paying $ 6.75 per mmBtu rate. GAIL has been asked to negotiate with Cairn on $4.2 price from June 2010.

The Ravva production sharing contract (PSC) was signed on 28 October 1994, with Cairn as the operator with a 22.5 per cent stake. State-owned Oil and Natural Gas Corporation (ONGC) holds 40 per cent interest while Videocon Industries has 25 per cent and Ravva Oil 12.5 per cent.