Gas Pricing : Govt. Approved Formula( RIL / Anil Ambani)

Government approved price at US$ 4.2/mmBtu

In September 2007, the empowered group of ministers approved RIL’s proposed formula for KG-D6
gas with minor changes. The approved price of the KG-D6 gas is US$4.2/mmBtu, which will be valid
for the next five years, after which it will be open for revision.


Gas pricing formula approved by the government

Selling price of gas (US$/mmBtu) = 2.5 + (CP – 25) ^ 0.15

Where:
SP is the sales price of gas in US$/mmBtu (NHV basis).
CP is the annual average Brent crude price for the previous FY, with a cap of US$60/bbl and a floor
of US$25/bbl.

Government’s NPV is optimum at a price >US$4.0/mmBtu

The government’s NPV depends on the investment multiple (IM) and subsidy on user sectors.

Investment multiple for the government is dependent on the price of gas as well as on capital cost.

The mathematical expression for the investment multiple is as follows.
IM = Cum NCIF / Cum ED
NCIF = Cost petroleum + Profit Petroleum + Incidental incomes – Production costs – Royalty
payments (NCIF: Net cash inflow)
ED = Exploration costs + Development Costs

____________________________________________________________________________________