03 April 2009

RIL’s D-6 block output set to redraw country’s energy map

RIL’s D-6 block output set to redraw country’s energy map

NEW DELHI: The beginning of gas flows from the deep waters of the Bay of Bengal is set to script a new screenplay for the country’s energy


For, the gas production by Reliance Industries (RIL) from the Krishna Godavari basin, the largest natural gas field in the country, is not merely about doubling natural gas production in the country and meeting 90% of the current shortage. It also marks the beginning of a functional gas market in the country. Till now, for the most part, public sector companies have been selling gas at controlled prices. Further, the economy would turn a shade greener, as more factories run on a cleaner fuel and more motorists tank up on compressed gas.

The RIL gas — which is set to be sold to the first customer, Nagarjuna Fertilisers in Andhra Pradesh, in a few days — will be the first unit of the natural green fuel to be sold at a market-determined price. While it is true that the government played a crucial role in vetting the price and even modifying it marginally, this is the first time a consumer will buy gas at a price based on price bids by major consumers.

RIL had asked potential fertiliser and power companies with idle capacity along the pipeline to bid for the gas. The price of gas at $4.20 per mmBtu has been finalised based on the bids submitted by these consumers. The gas produced by all government-owned companies is sold at controlled prices.

Most of these customers have been either buying gas at a controlled price of $2.40 per unit or other alternatives like liquefied natural gas and naphtha that come at relatively high prices ranging between $4 a unit and even $8 depending on global prices. While several power plants — like those of NTPC, and private companies like GVK, GMR and Lanco, among others — have been forced to remain idle for years, fertiliser companies have had to import urea and run their plants on expensive naphtha. The RIL gas will provide customers a choice of the fuel, more availability and cheaper options.

For the government, the RIL gas will bring in a steady flow of revenue to the government in the form of profit petroleum. It is estimated that RIL will contribute $14 billion over the 11-year period for the 80 mmscmd that RIL plans to produce in the first phase. This comes at a time when the government’s finances are under severe pressure with a slowdown in the economy — fiscal deficit estimated to be around 6% for 2008-09 — and revenues dipping — estimated shortfall of Rs 20,000 crore from the revised targets.

RIL’s gas comes ahead of the government’s next round of exploration bidding. The petroleum ministry is working on the new schedules for the next round and the commercial production from KG basin will help provide investor confidence to potential players.
Energy boost for India as KG gas flows

NEW DELHI: In a development slated to enhance India’s macroeconomic health as well as energy security, Reliance Industries (RIL) has commenced

natural gas production from its D-6 block in the Krishna-Godavari (KG) basin. The gas started to flow late on Wednesday evening. The development will reduce India’s trade deficit, cut the subsidy burden on fertilisers, and improve chances of oil multinationals investing in oil and gas exploration in Indian seas.

“The company has started producing 2.5 mmscmd of natural gas from the D-6 block on Wednesday evening. The output is expected to go up to 5 mmscmd in a day. Production will gradually increase to reach its peak of 80 mmscmd within a year, which would double the country’s gas production,” petroleum secretary RS Pandey said on Thursday. Along with the oil it produces, the field would meet about one-sixth of India’s total oil and gas consumption, he said. The country’s annual consumption of petroleum and natural gas is equivalent to 175 million tonnes of crude oil.

RIL’s KG gas will reduce the country’s import bill by $9 billion annually during peak production at current prices. In 2007-08, the crude oil import bill was about $68 billion. The value of the gas over the 11-year life of the project is estimated at around $42 billion at $4.20 per mmBtu, and at this rate, the government’s share is expected to be about $14 billion. With $2 billion going to RIL’s bottom line every year, as ET had reported on March 30. Of course, prices would change, and so would these figures.

Engineering complexity and financing challenges were not the only hurdles the project had to clear: a wrenching legal battle arising from the bitter fallout between the two brothers who inherit the Reliance name was the final obstacle. “Reliance has created history and has once again demonstrated its ability to implement complex projects on a par with the best performance benchmarks in the world,” RIL CMD Mukesh Ambani said in a statement.

RIL, with its partner Niko Resources of Canada, had bagged this block in the first round of the new exploration licensing policy (Nelp-1). RIL holds a 90% interest in the block while the balance is held by Niko. The gas was discovered in 2002 and production commenced in less than seven years of the discovery.

According to Mr Pandey, the KG gas will first reach the Nagarjuna fertiliser plant in the eastern part of the country (near the KG basin) in 4-5 days, and will be supplied to the farthest fertiliser plant in western India within 15 days. As per the government’s gas utilisation policy, the first 15 mmscmd gas from the KG basin will be supplied to fertiliser units situated around the natural gas trunk pipelines. “At peak level, it would amount to 44% of the current oil and gas production taken together,” he said.

Commenting on the development, global consultancy firm KPMG’s head of Infrastructure & government, Jai Mavani, said: “This is the first

time, deepwater production of natural gas shall commence in India. Hopefully, this should also establish the commercial viability of the deepwater play in India. The huge volume of natural gas slated to come onstream from D-6 shall go a long way in mitigating the supply shortage in the country. In these times of ballooning current account deficit, the forex savings that this gas production will bring in is indeed welcome.”

The initial production of gas from the Dhirubhai 1 and 3 discoveries of the KG D-6 block will be sold to existing gas-starved fertiliser and power companies, resulting in substantial reduction in subsidy burden of the government, the statement said. As per an official estimate, the allocation of 15 mmscmd gas to the fertiliser sector will help the government save the fertiliser subsidy bill of Rs 3,000 crore.


Govt receives first instalment of profit petroleum from KG basin

NEW DELHI: The government has started receiving its share of profit from Reliance Industries (RIL)-operated D-6 block in the Krishna-Godavari

(KG) basin. It has booked $218,960 as its first profit share for the quarter ended December 31, 2008, by selling crude oil produced from the block, a petroleum ministry official said. The block started producing natural gas recently. The profit was generated from the sale of crude oil produced from the block beginning mid-September at an average price of $50.80 a barrel, said the official who didn’t wish to be named.

In the quarter ended December 31, 2008, Reliance Industries (RIL) earned $21,896,016 by selling crude from MA oil field in KG-D6 block. As per the contract between the government and RIL, the contractor was entitled to keep 90% of the sum towards recovering huge investments made by it in developing the field. The balance amount was distributed between the contractor (RIL) and the owner (the government) in a mutually-agreed proportion.

The official said that RIL has spent $6.26 billion in developing the KG basin block. The government has approved $8.84-billion expenditure to produce 80 million standard cubic meters per day (mmscmd) of natural gas from the block. This also includes creation of an excess infrastructure capacity for producing 120 mmscmd of natural gas from the field. An email query to RIL in this regard went unanswered.

The directorate general of hydrocarbons — the technical adviser for upstream activities in the petroleum ministry — didn’t confirm or deny the figures. As per a DGH figure, the contractor had spent $4.65 billion for developing oil and gas fields up to March 31, 2008.

According to an estimate by the petroleum ministry, the field is expected to generate a revenue of $42 billion over the life of the field, which is 11 years. The government is expected to earn $14 billion from the D-6 block. “However, the figure is based on assumptions. It is calculated by keeping gas price at $4.20 per million British thermal unit (mmBtu) which is dependent on a formula with variables,” the official said.


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