Gas price in India artificially depressed, discourages domestic production: BP chief economist

NEW DELHI: Natural gas price in India is "artificially depressed," which discourages domestic production and increases its consumption, said Christof Ruehl, chief economist of BP. The British energy major is a partner of Reliance Industries-operated KG-D6 block, which is facing steep decline in gas output.

"Prices should be left to forces of demand and supply instead of leaving them to administrator,"" Ruehl told reporters here on Monday at a round-table on the global energy outlook.

RIL and BP are demanding that price of the D6 gas should be aligned with imported gas, which is about three times costlier. The government has fixed D6 gas price at $4.20 per unit for five years ending March 2014.

According to the formula proposed by RIL and BP, market price of D6 gas should be about $13 per unit, government and industry officials said.

Ruehl said pricing freedom had encouraged shale gas revolution in the US that saw significant drop in gas prices. "In India, prices are not remunerative enough for investments," Ruehl said.

D6 gas output has dropped to about 28 million standard cubic meters per day after achieving about 62 mmscmd in 2010 and as per the plan it should have achieved a peak of 80 mmscmd by now.

The oil ministry held RIL-led consortium responsible for a fall in the output and imposed over $1 billion penalty. RIL and its partners have contested it at an arbitration saying that the drop in output was because of geological complexities.

While the ministry insists on drilling more number of wells in the gas field to augment output, RIL says drilling more wells in the same reservoir would not yield any positive results and it should be allowed to explore and develop newer areas in the block.