May 12: There is now an overreaching conviction in the government that the price of gas must be raised, at least for new offshore production to come on stream. There is also a consensus within the government on providing more flexibility in interpreting the Production Sharing Contract to tackle special situations that may come up while production is on in a block.
8Concessions are now being extended to all producing blocks, including RIL's controversial D-6 block.
8But the consensus within the government notwithstanding, the Parliamentary Standing Committee attached to the petroleum ministry, in its latest report, has urged the government to "strictly" apply the conditions of the PSC for RIL's failure to deliver committed production of gas from the D-6 block.
8The Standing Committee seems cynical of RIL's intentions.
8It has urged the ministry "to satisfy itself and convince the nation that the fall in production of natural gas in the KG D-6 block is not due to commercial considerations or price at which the gas is sold".
8The Committee urged the ministry to "take urgent steps to increase output as per projected production in coordination with the DGH".
Comment: It is now well known that the D-6 failure is due to water and sand ingress and lower reserves estimates. There is also the question of price of gas though not in the way that the Standing Committee has meant it. The $5 billion investment is in new discoveries where, without an adequately higher price, production would be unviable. It is also perhaps unviable to drill wells within the D-1 and D-3 fields at the current price of gas but RIL's argument is that drilling more wells in these channels will not make a difference. Some of the wells have shut down and there is need for workover jobs in some of them. Whether that too is related to the price of gas is not known yet. One thing that comes out clearly is that RIL does need to give a proper public explanation in some detail about what is going on in the D-6 block, There is not enough clarity and unless the air is cleared, questions will continue to be asked.