Why KG Basin could trigger a showdown between the government and RIL in 2026

The Krishna-Godavari (KG) basin, India’s largest offshore oil and gas exploration province, is likely to emerge as a flashpoint between Reliance Industries Ltd (RIL) and the central government in 2026 as two long-pending disputes are set to come up for legal deliberation in the coming months.

RIL and its partners cumulatively invested over $10 billion in the hydrocarbon blocks, off the Andhra coast, since its discovery in the early 2000s. Considering the near peak gas production, high depreciation and the government administered pricing mechanism in place, the operator and its partner witness slow cost recovery. 

While RIL and its existing partner UK-based BP Exploration (Alpha) Ltd and the former partner Niko will contest the central government’s gas siphoning allegation in the Supreme Court, the operator RIL will simultaneously defend a $247 million claim by the government for additional profit petroleum in arbitration procedure.

Starting February 25, the Supreme Court will hear appeals filed by the Mukesh Ambani-led firm and its partners challenging a Delhi High Court ruling in the KG-D6 gas migration dispute.

RIL has challenged the High Court order that upheld the Centre’s claim that the operator and its consortium partners siphoned gas from deposits belonging to a neighbouring ONGC block. In a setback for RIL, the Delhi High Court in February overturned a 2018 international arbitral award that had ruled in favour of RIL and its partners.

The long-running dispute over the government’s $247 million claim arose after the Centre disallowed recovery of a portion of the capital expenditure incurred by the RIL-led consortium, citing delays in achieving production targets. Low gas prices were another reason that discouraged further investment by operators for a prolonged period.

In 2023, the government approved a revised gas pricing regime aimed at protecting consumers from volatility. A new Administered Price Mechanism (APM) for natural gas was introduced, linking prices from old fields to 10% of the Indian crude basket. After the last price revision from April 2025, the rate for difficult fields such as RIL’s KG-D6 was set at $10.04 per metric million British thermal unit (mmBtu) for six months beginning April 1, compared with $10.16 per mmBtu in the preceding six-month period.

India’s natural gas output has shown a muted performance over the last two financial years after three consecutive years of growth, as the production outlook remained uncertain at RIL’s KG Basin fields, which had earlier been at the forefront of the industry’s expansion. 

RIL reported that its E&P business delivered an EBITDA of ₹21,188 crore in FY25, up around 4.9% year-on-year, supported by higher gas and condensate production from KG-D6 and the CBM portfolio. The average price realised for KG-D6 gas was $9.65 per mmBtu in FY25, compared with $10.1 per mmBtu in FY24. The average price realised for CBM gas was $10.95 per mmBtu in FY25, versus $14.43 per mmBtu in FY24. The depreciation was high at ₹5,348 crore. It further increased in the first half of FY26 to ₹2,900 crore as against ₹2,687 crore in the same period of previous year.

In the second quarter of FY26, the average price realised for KG-D6 gas rose to $9.97 per mmBtu. Despite this increase, EBITDA declined 5.4% year-on-year to ₹5,002 crore due to lower revenues and higher operating costs linked to periodic maintenance activities. Average KG-D6 production in 2Q FY26 stood at 26.1 MMSCMD of gas and 18,746 barrels per day of oil and condensate.

In 2011, BP Plc acquired a 30% interest in RIL’s portfolio of exploration and production assets in the offshore, which include KG D6. RIL and its partners, in 2019 announced an investment of $5 billion to develop three deep-water gas discoveries in KG-D6—the R Cluster, Satellite Cluster and MJ fields. The R Cluster began production in December 2020, the Satellite Cluster came onstream in 2021, and MJ started production in 2023. In earlier annual disclosures, the KG-D6 fields were cited as collectively producing around 30 MMSCMD of gas, accounting for a significant share, estimated at around 30%, of India’s domestic gas production.