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The Narendra Modi government's oil minister will have to learn to swim in the deep end. Trillions of cubic feet of natural gas are trapped in deep-sea geological formations, only a small part of which have been tapped. The bigger chunk is waiting to be extracted and flow into factories and homes - if the price is right. Under the UPA regime, deep-sea fields have generated much more political heat than gas, which the country needs to fuel its expanding economy.

An estimated 64 trillion cubic feet (tcf) of natural gas is waiting to be discovered, almost as much as the 69 tcf of of proven and probable recoverable gas reserves discovered since 1950, according to a 2013 study by US-based consultancy IHS-Cambridge Energy Research Associates (CERA).

About 27 tcf of discoveries made so far are still to be developed, but this requires prices of at least $8 per unit for some discoveries and $10-12 for those in ultra-deep regions, according to IHS-CERA, which advises governments and companies globally. The higher the price, the greater the incentive for exploration. IHS -CERA anticipates discoveries of 24 tcf at a price of $8 and about 55 tcf at $12.

Gas reserves that have not been developed include fields discovered by India's top two exploration firms, state-run Oil and Natural Gas Corporation (ONGC) and Reliance Industries (RIL). While ONGC is yet produce any gas from deep-sea fields, RIL  has pioneered India's efforts in producing natural gas from challenging terrains in the KG-D6 block, which saw the world's largest gas discovery in 2002.

It is also the most notable discovery of hydrocarbons in India - apart from Cairn India's Rajasthan oilfields - since the discovery of Bombay High decades ago. Producing oil and gas in such terrain is a high-risk and costly business. Oil industry executives frown at comparisons, made by the likes of Arvind Kejriwal's Aam Aadmi Party, with a discovered onshore field in Bangladesh, where Reliance's partner Niko sells gas for $2.3 per unit.

Exploration companies say that the deepsea is a totally different ball game, and to invest risk capital in such challenging conditions, exploration companies, including BP Plc, its partner Reliance, ONGC, and Cairn India, which found deep-sea hydrocarbons in Indian and Sri Lankan waters, demand regulatory clarity and reasonable returns. Analysts are almost unanimous that the new government will raise gas prices.

"Post election, we expect the new government to decide fast on the gas price issue (KG-D6 price/contracts expired on March 31). In our view, an easy way out would be to adopt the already notified Rangarajan formula," said a Nomura report. UBS is equally confident: "We expect the new government to notify the higher gas price shortly by June '14 as we believe (1) rationale of gas price has been well debated for developing new gas fields, (2) raising domestic production to offset imports of higher priced LNG."

Source-On Request