The company had sought $6.75 per mmBtu, a price it had discovered by inviting bids from consumers in the region.
The government is likely to raise the price of natural gas produced from Cairn India's eastern offshore Ravva field by 20% to US $4.2 with effect from June 2010.
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. Cairn gets US $4.3 per million British thermal unit (mmBtu) for gas from Ravva Satellite field while it gets US $3.5 for Contract Area-1.
"Even though Cairn gets US $3.5 for Contract Area-1, GAIL India sells the same gas to consumers at US $4.2 per mmBtu.
The difference is credited to a gas pool account," a government official said.
He said when consumers are charged US $4.2, the producer too should get the same price. "There certainly is a case for revision in price as is being demanded by Cairn," he added.
Once approved by competent authorities, Cairn will get the US $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 December 1, 2008.
According to the production sharing contract for the Ravva fields, gas prices were to be revised from the aforesaid date, the official said.
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 is inclined to fix the rates at US $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.
Cairn says it is entitled to a higher price of gas from December 1, 2008, till when the $3.5 per mmBtu rate was valid.
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 US $6.75 per mmBtu rate.
The official said GAIL has been asked to negotiate with Cairn on US $4.2 price from June 2010.
The Ravva production sharing contract (PSC) was signed on October 28, 1994, with Cairn as the operator with a 22.5% stake. State-owned Oil and Natural Gas Corporation (ONGC) holds 40% interest while Videocon Industries has 25% and Ravva Oil 12.5%.
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