Archive for September, 2009

Reliance Industries: The Success Story Continues

Wednesday, September 30th, 2009

Dhirubhai was a karmayogi. He always believed in karma and his work spoke louder than announcements. He has delivered some of the marvels to Indian industries. Keeping up with his tradition, RIL has implemented several world class projects during last few years.

RIL, in the past four years, has set up a world class refinery in record time with investment of $6 billion, one of the most cost competitive refineries in the world. The second unit of Jamnagar Refinery is the sixth largest single location refinery in the world. With the commencement of 29 million tones per annum (MMTPA) new refinery, Jamnagar Refinery has become the world’s largest refinery complex. The second unit of Jamnagar Refinery has special features like World’s Largest FCCU, World’s Largest Coker, World’s Largest Aromatics Complex, and India’s largest Sulfur Recovery Complex. The refinery also has a large sized captive power plant of 450 MW.

It has also developed world class oil & gas exploration project off the coast of Andhra Pradesh in record time with investment of Rs 34000 crore. KG D-6 is one of the world’s fastest developed projects, 2.5 years less than world average of 9 years for similar projects. Field development cost of KG D-6 is about $5 billion oil equivalent (boe), much less than the world average of $10 - $12 boe. Despite the manifold rise in the commodity, equipment and rigs cost, operating in harsh weather conditions, RIL has managed to contain its capital cost for the project.

During all this while, RIL forayed into retailing and opened its first store in November, 2006. Within 30 months time of opening up its first store, RIL has set up a retail network of more than 900 stores of 17 formats, across 77 cities of the country, with more than 4.2 million square feet area. In the meanwhile, RIL also launched India’s largest hypermarket in Ahmedabad in 2007.

All these projects have become reality, not only dreams or announcements, in record time.

RIL shareholders and stake holders trust its intent as it has always delivered what it said before time and in most economical manner thus, keeping the trust built by Dhirubhai alive. RPL shareholders gained (not lost), both in short term as well as long term, by their investments in the stock, keeping up the tradition of Dhirubhai of handsome returns to shareholders.

RIL has not only made money for its shareholders but will also save $9 billion each year of Government which goes out in importing the oil. Gas from RIL operated KG D-6 block will increase India’s GDP by $103 billion at peak production and will improve country’s current account deficit by 0.60% by 2014. KG D-6 gas will also substitute 7% of India’s oil consumption in FY2010 and about 10-11% during FY2011-14.

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RIL Justifies Levy of Marketing Margin on Gas sale

Tuesday, September 29th, 2009

Reliance Industries has justified the levy of marketing margin on gas sale saying it was essential to cover risks and costs incurred in marketing of gas.

“The marketing margin being charged by RIL on sale of KG-D6 gas is fair and justified consideration for the risks and costs undertaken in the GSPA including such risks and costs beyond the delivery point,” RIL President (Gas Business) wrote to Power Secretary H S Brahma.

Terming as illegal the market margin, Anil Ambani group firm Reliance Infra had refused to pay the levy prompting RIL to issue a notice for suspension of fuel supply for “default”. NTPC has sought to know whether the margins levied by RIL had government’s approval.

RIL said the USD 0.135 per mmBtu marketing margin over and above the price was to cover risks like sellers liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on quality, quantity or terms of the GSPA.

While marketing margin is a charge for creation of market and servicing sale contracts, RIL had undertaken extensive activity to identify customers, execute and manage gas sales and purchase agreements (GSPAs), gas sales planning, daily gas sales operations, gas accounting and invoicing and collection, Sharma wrote.

Reliance Infrastructure had from this month stopped paying the levy to RIL, leading to the Mukesh Ambani firm RIL slapping a discontinuation notice.

Other gas marketers like state-run GAIL India also charge marketing margin. It charges USD 0.18 per mmBtu margin on sale of regassified-LNG and about USD 0.12 per mmBtu for gas from fields like Panna/Mukta and Tapti and Ravv.

“GAIL is negotiating to increase the marketing margin these fields to about USD 0.18 per mmBtu to bring it at par with marketing margin it charges on sale of R-LNG,” Sharma wrote.

RIL said it had in its application to the government for approval of the price of KG-D6 gas had indicated that marketing margin would be charged separately to cover costs and risks in sale of gas.

“It has also been clarified by Petroleum Ministry that marketing margin has to be discussed and settled between seller and buyer of gas in settlement of the terms of the Gas Sales and Purchase Agreement,” Sharma wrote.

Quantum of marketing margin is agreed between seller and buyer of gas based on the cost and risks perceived under the PSC.

For KG-D6 gas, RIL had initially proposed USD 0.12 per mmBtu as marketing margin but when customers sought multiple changes to increase RIL’s risks and liabilities, the levy was raised to USD 0.15 per mmBtu.

The same was again discussed with buyers in the fertiliser sector (who were given the top most priority to receive KG-D6 gas) and the Department of Fertilisers and finally a marketing margin of USD 0.135 per mmBtu was agreed with the buyers, it added.

Source: ET

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Reliance May Stop Gas Supply to Anil Ambani Company on Payments

Friday, September 25th, 2009

Reliance Industries Ltd., India’s most valuable company, issued a notice to suspend gas supplies to Reliance Infrastructure Ltd for defaulting on payments. The notice, issued on Sept. 22, is for gas supplies from the KG-D6 field off the nation’s east coast to Reliance Infrastructure’s power plant in Andhra Pradesh state, Reliance Industries said in an e-mailed statement today.

Anil Ambani, chairman of Reliance Infrastructure, wants to enforce a 2005 agreement requiring Reliance Industries to supply natural gas from the KG-D6 field to a plant in Uttar Pradesh state in northern India at 44 percent cheaper than a government- approved price. The Supreme Court is scheduled to start final hearings in the four-year-old row from Oct. 20.

Reliance Infrastructure is paying the government-approved price of $4.2 per million British thermal units, the company said in a Sept. 24 letter to Reliance Industries that was made available to Bloomberg News. The company is not paying marketing margins, which is “illegal and unauthorized,” according to the letter.

Reliance Industries was little changed at 2,100.95 rupees in Mumbai trading today compared with a 0.1 percent decline in Reliance Infrastructure. The benchmark Sensitive Index of the Bombay Stock Exchange gained 0.4 percent.

Reliance Industries, run by India’s richest billionaire Mukesh Ambani, signed an agreement with Reliance Infrastructure for supply gas to a plant in the southern state of Andhra Pradesh on April 28.

India designated fuel-starved power producers and fertilizer-makers as priority customers for the gas to be produced from Reliance’s Krishna-Godavari field, which is expected to more than double the country’s output of the fuel. Production, which started in April, may double the South Asian nation’s supply of the fuel when its reaches a peak rate of 80 million cubic meters a day, according to R.S. Pandey, the government’s oil secretary.

It seems that ADA Group does not want to comply with contractual agreement which was singed ADA Group. After bashing Indian Government recently ADA Group trying to take rules and regulations of the country under its control. The Group intentions are not very clear.

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NTPC signs pact with RIL for buying part of K-G D6 gas for $4.20

Thursday, September 24th, 2009

State-run NTPC, India’s biggest power producer, today signed a pact with Mukesh Ambani-led Reliance Industries to buy a part of natural gas allocated to it from K-G D6 fields at a rate of USD 4.2 per mmBtu.

NTPC will buy 0.61 million metric standard cubic meters of gas a day for its plant in Anta in Rajasthan, an industry official said. The gas will start flowing in the next 7-10 days, the official added.

The volumes are less than one-fourth of the 2.67 mmscmd gas the Government had allocated to NTPC.

The state-run power utility signed a Gas Sales and Purchase Agreement (GSPA) with RIL and a separate Gas Transportation Agreement with Reliance Gas Transportation Infrastructure Ltd.

The government had last year allocated 2.67 million cubic metres per day of K-G D6 gas to NTPC’s Kawas and Gandhar in Gujarat and Anta power plants in Rajasthan

NTPC does not want to take RIL gas for Kawas and Gandhar plants because of the pending legal dispute over supply of gas at USD 2.34 per mmBtu price quoted by RIL in a 2004 tender.

“Against an allocation of 2.67 mmscmd, GSPA for only 0.61 mmscmd of gas for Anta unit will be signed for now,” he said.

“Government will have to take a call on reallocating the remaining gas to NTPC’s other plants.”

NTPC, which unlike the 40-odd other customers of K-G D6 gas was initially opposed to paying USD 0.135 per mmBtu marketing margin to RIL, has agreed to pay the levy.

RIL can produce over 60 mmscmd of gas from K-G D6 fields but is restricting output to 37 mmscmd in the absence of offtake from existing customers like NTPC and failure of the government to name consumers beyond the initial 40 mmscmd.

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RIL speaks out on the gas war

Thursday, September 24th, 2009

This is KG-D6, the deepwater block in the Bay of Bengal, which has the potential of reducing India’s fuel import bill by 20% or Rs 55,000 crore. Seven years ago, in 2002, Reliance made the largest gas discovery here. This gas field can produce 550,000 barrels of oil equivalent or nearly 40% of India’s current oil and gas production. Spread across 330 square kilometres, the reservoir of KG-D6 is located 2 kilometres below seabed, which is another 1.2 kilometres below sea-level, far too deep for humans to access.
So, almost straight out of a sci-fi movie, high precision operations are carried out by robots. A single mistake, as simple as that of a screw or a valve being ill-fitted, can result in a loss of billions of dollars. While Reliance has won kudos from the world’s E&P industry, the commissioning production in six and a half years from the time of discovery versus the average of nine years and at a cost that is the third lowest in the world.

Not too many people know, this platform was actually preassembled in Morgan City in Louisiana and Dubai before being installed here. With no in-house expertise, Reliance had to go in search of global talent. Soon 200 consultants from 12 locations around the world were on board for engineering, procurement and construction. Almost 18,000 expats have worked at the KG-D6. None of this comes cheap. Neither do the 85 marine construction vessels, and 4 deepwater rigs that were deployed by Reliance.

For instance, this rig costs USD 1 million a day and USD 1 billion over five years. Reliance says it realised the capex would have to be hiked and that too at a time when commodity prices were spiralling. Anil Ambani has publicly questioned Reliance’s capex claims and has even asked the Prime Minister’s Office to order an audit by the Comptroller and Auditor General of India or the CAG.

So, as I make my way to the floating production storage oil vessel where oil is collected before being shipped out, I talked to PMS Prasad about the charge of inflating the capex.

Prasad: Our drilling costs have gone up by 300-400%. But that’s not the only thing, even the engineering services costs, per man hour costs have gone up USD 100-200 or even more. So the engineering man hours and some of the installation crew, we pay them USD 2,000 to 2,500 a day and this was not the kind of rates that were being paid in 2003-04 that is simply because the world didn’t have enough experienced people to do this kind of work. So people were scarce and we had to attract them to come here by incentivising them and by paying higher salaries.
In addition, all the installation vessels, there are very few installation contractors in the world of the quality that we needed and we have employed some of the best. On this field we had Allseas, we had Technip, we had Helix. These are some of the best installation contractors in the world. Technip is from France, Allseas is from Netherlands and Helix is from the US, and to get them to work here and considering the weather vagaries and the downtime that we have had because of the weather.

Q: Didn’t you factor all that in 2003?
A: We didn’t know much about this in 2003 and unfortunately just one year after the discovery we didn’t know much and we could not foresee a kind of increase that was going to happen. In 2003, we thought drilling rig and services per day would cost maybe USD 225,000 to USD 250,000 a day. But in reality when we ended up paying a million dollars a day, we were shocked. The same thing the peak of the commodity cycle that happened between 2005 and 2008, still prices went up and everything went up, steel prices, installation expert costs, engineering costs, installation spread costs and the fact that the steel costs went up by about 100%. So, we were kind of caught in this upward spiral.
So, the costs were not under our control and I think this was a universal phenomenon. Why only talk about Reliance. Look at the other comparable field costs. Everybody had to go through the same price spiral. But even today, though the commodity prices have somewhat softened, but the services cost we still pay USD 1 million a day for drilling rates. They have not come down.

Q: You made the largest gas discovery back in 2002. You have constructed this engineering marvel. But do you think that since the commissioning, how do you feel about the fact that it has been a little hijacked by the entire controversy? Has that overshadowed the engineering marvel?
A: In fact if there is any regret, that is really my regret. We think that we have built a great asset and as you rightly said it is an engineering feat and something that the country and the E&P industry in the country should be proud of. It has added so much value. Unfortunately, it is this avoidable controversy that kind of overtook all the glory and the shine off. I am really unhappy about this because this is not the right level or the right kind of recognition that all the Indian professionals that having worked very hard and created something like this, they don’t get recognised. I am not happy about it, but that is the way life is.
So, I do believe that once the controversy blows over one way or the other that there will be recognition and I am happy that atleast people like you are coming and seeing this. This way atleast there is an opportunity for us to showcase this to a much larger audience who otherwise would not know about this. The fact that we have doubled the production of the gas in the country goes unnoticed because of the media controversy.

Q: So, how much are you producing today?
A: Right now about 36-37 million cubic metres. We had started production on April 1 and we are about 4 months into production. Check any other comparable field start-ups, in four months I am sure they would not have reached the near 50% capacity that we have managed. We are very happy about the smooth ramp-up in production. This is something that speaks for the quality of the engineering and equipment and the installation that has been done.

This is the onshore terminal, built on part of the 200 acres belonging to Reliance. It is here in this giant facility that the gas is separated from its impurities. This is the central control room or the nerve centre of the KG-D6. Since everything is automated, only 250 people are required at any given time to manage all offshore and onshore operations.

Gas production at KG-D6 commenced in April this year. After traveling through all the major facilities I felt the time was right to ask Prasad when production would be ramped up from the current 37 mmscmd to the 80 mmscmd. After all, another allegation made by Anil Ambani is that Reliance is hoarding gas and creating an artificial scarcity.

Q: When are you going to hit that 80?
A: We are ready to produce more than 60 million and we are waiting for the government to give us more linkages to customers. Right now, they have given us linkages up to 40 million. We have signed all agreements with National Thermal Power Corporation (NTPC). We are also almost delivering gas to people except one or two customers like Essar and Gail who will be taking gas probably next week. Dabhol, Ratnagiri Gas and Power Pvt (RGPPL) would start taking gas from October 1. But otherwise we are almost there at 40 million. So, now we are eagerly waiting for the new EGoM to be formed so that the government can give us more linkages.

Q: Is the government giving you a timeframe? Do you lose money if you do not ramp up?
A: We do, a lot. The Rs 35,000-36,000 crore that we have invested is Reliance’s money. It is Reliance’s shareholders money, the money that Reliance borrowed from the banks and if we are not able to earn revenues from these investments, it is a loss of present value.

Q: One of the allegations that you are purposely not ramping up production, you are holding gas, you are artificially creating a scarcity, what are your thoughts on that?
A: I can only laugh because no-one after having invested this much money would want to not produce. For the next five years, the gas price is fixed. So, how does it help me? Secondly, I have to repay my debt, so how does it help me not to get the revenues today. The only reason that we are not able to produce more is because of the procedural delays in forming in new EGoM and then giving us more allocations.

Q: Because of what the government is not being able to fastrack, you are not able to ramp up the capacity?
A: Absolutely. So in a light of view, it is the government which decides to hold the gas not Reliance.

Q: The other thing which has gone against you in the recent few months has been the clarification that has come that now seven year income tax holiday does not stand, what does that mean for you? What kind of a big hit you will take?

A: It is a big hit because in the production sharing contracts and also in other supporting documentation, it is very clearly mentioned that both oil and gas are eligible for tax holiday. We can give a new definition to the mineral oil just for the sake of 80IB and then say, this doesn’t include gas. But I think it is unfair and we have been made a promise based on which we all took so much risk and then put in these big investments and then when the investments are about to fructify, saying that the gas is not entitled to a tax holiday, I think is a bit unfair.

Q: Can you give us a broad range, what could it mean for Reliance Industries?
A: It would be of the order of a couple of billion dollars over seven years, but I need to re-check the numbers. You are a financial channel, so you love to have the numbers but I hate to give out numbers because these are very sensitive information.

Q: But if you don’t get that income tax holiday, would you consider arbitration? What would be the next step?

A: Yes, arbitration is the last resort but right now the government has said that since this matter is subjudice, let the courts decide. So, we will wait for the courts to decide in some of the pending issues. But if that decision doesn’t come through, then we do have to look at other means including arbitration.

Q: Are they inviting you for partnership overseas, for new projects?
A: I can only say that if there is an opportunity it has to be good for both. So I am sure some of them may want to partner us here and equally we may want to partner them but then that is a different discussion. Right now, we are just focusing on getting the production.
Q: Is there anything on the table?

A: I cannot talk about this now. It is not that there is anything on the table. Opportunities do come all the time but then they need to be good for both. What is not good today may be good tomorrow or what was not good yesterday may be good today.

Q: After commissioning the - if you are looking to sell stake in six of your overseas blocks, which I understand is part of the regular farming out of stake and things like that but not looking to expand also at the same time?

A: The upstream industry typically people hold – it is a very rare thing that we have done here holding 90% participating interest. Typically they are all around 30-40-50%. So in our overseas blocks that is what we are trying to do. We are trying to reduce our exposure and be under industry guidelines of around 30-50%. As far as the Indian blocks are concerned, we will look at that opportunity at the right time but at this point of time, we are focusing on stabilizing the operations and increasing the production and the reaching the 60 and maybe some time later 80 million cubic meters.
Q: While you are stabilizing these operations, it also happens to coincide with the first phase of NELP VIII. Does NELP VIII excite you?

A: NELP VIII is a good opportunity but at the same time, I have to look at my portfolio. How much of risk appetite that I have. When you look at a portfolio of all your properties and assets, how many oil explorations, how many discoveries you have that need to go into development and how many producing properties. You need to have a fair balance between the producing properties, between the discoveries that need to be developed and the rank exploration purpose. We already have a lot of exploration properties. So our portfolio today is biased towards exploration, so we need to get more discoveries and discoveries into production.

Q: We might not see you bidding at NELP-VIII?
A: No, not that way. We will selectively in NELP-VII. I am waiting for the assessment from my geoscientists. Once they give their assessment, we will look at it how does this fit into our portfolio in terms of the risk exposure that we are willing to take and then make that decision. But I have never said that we will not bid for NELP-VIII. We will certainly look at the NELP-VIII properties.

Source :

NTPC may sign deal with RIL for natural gas at $4.20/mmbtu

Wednesday, September 23rd, 2009

After a series of flip-flops, NTPC is likely to finally sign an agreement with Reliance Industries this week to buy government alloted natural gas at officially approved price of USD 4.20 per mmBtu.

However, the state-run power utility may initially draw less than one-fourth of its allocation.

“NTPC has informed that they have got internal approvals for signing of the Gas Sales and Purchase Agreement (GSPA) and it may be signed in the next couple of days,” an Oil Ministry official said after a meeting called to review unsigned GSPAs.

The government had last year allocated 2.67 million cubic metres per day of KG-D6 gas to NTPC’s Kawas, Gandhar and Anta power plants in Gujarat, a move that drew huge protests from RIL that wanted the pending legal dispute over gas it had committed in a 2004 tender of the state-run firm was resolved.

NTPC vehemently fought back saying its litigation against RIL was for future expansion projects at Kawas and Gandhar and the present supplies were for present plants.

After the allocation was confirmed, it did a volte-face refusing to take gas for existing Kawas and Gandhar plants.

“Against an allocation of 2.67 mmscmd, GSPA for only 0.61 mmscmd of gas for Anta unit will be signed for now,” he said. “Government will have to take a call on reallocating the remaining gas to NTPC’s other plants.”

NPTC, which unlike the 40-odd customers of KG-D6 gas was initially opposed paying USD 0.135 per mmBtu marketing margin to RIL, has agreed to pay the levy.

The official said of the initial 40 mmscmd of output from RIL’s KG-D6 field, NTPC, Dabhol power plant, Essar Power and Oil and Natural Gas Corp (ONGC) are yet to draw a single unit.

RIL can produce over 60 mmscmd of gas from KG-D6 fields but is restricting output to 37 mmscmd in the absence of offtake from existing customers like NTPC and failure of the government to name consumers beyond the initial 40 mmscmd.

At the meeting today, Ratnagiri Gas and Power Pvt Ltd — the firm that runs the 2,150-MW Dabhol power plant in Maharashtra — informed that it will begin drawing 5.67 mmscmd gas from October 1, the official said.

ONGC, which had been allocated 0.4 mmscmd for its LPG extraction plants, was likely to sign GSPA by mid-October as it was yet to arrange for a suitable swap, he said.

KG-D6 gas is lean (only methane) and cannot be used to extract LPG. So this gas will have to be swapped with some users who are currently using rich-gas from western offshore.

The government had allocated 3 mmscmd of KG-D6 gas for LPG plants, and of this state gas utility GAIL has taken 2.59 mmscmd.

Essar Power was negotiating a gas transportation agreement for taking KG-D6 gas at its Hazira plant in Gujarat.

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RIL on its KG-D6 capex increase

Wednesday, September 23rd, 2009

PMS Prasad counters the allegations made by the Anil Dhirubhai Ambani Group (ADAG) and clarifies RIL’s stand. Prasad countering ADAG’s allegation, said that the capex had not been inflated.
Explaining the reasons behind the fourfold increase from USD 2.47 billion in 2003 to USD 8 billion, he said, “The drilling costs have gone up by 300-400% but that’s not the only thing. Even the engineering services costs per man, has gone up to USD 150-200 or more. So we pay USD 2,000 to 2,500 a day to some of the installation crew. This is not the kind of rates that were being paid in 2003-04. That is simply because the world didn’t have enough experienced people to do this kind of work. And we had to attract them to come here by incentivising them and by paying higher salaries.”

“In addition, all the installation vessels, there are very few installation contractors in the world of the quality that we needed and we have employed some of the best installation contractors of the world from France, Netherlands and from the US and to get them to work here and considering the weather and the downtime that we have had because of the weather,” he added.

Source: Money control

No justification for NTPC’s Rs 32K cr savings talk: RIL

Tuesday, September 22nd, 2009

The gas battle continues to rage. Reliance has reacted to National Thermal Power Corporation’s (NTPC) charge that NTPC will save Rs 32,000 crore if Mukesh Ambani led Reliance Industries Ltd (RIL) delivers gas at USD 2.34 per mmbtu. RIL’s sources have very categorically said that there is no justification for NTPC to talk about the savings of Rs 32,000 crore when it is buying gas at USD 11 per mmbtu when it can get gas at USD 4.2 per mmbtu from RIL’s KG D6 basin.

The war of words continues for Reliance. This time it is against NTPC which came out with a statement that it stands to gain or save Rs 32,000 crore. RIL’s sources have very categorically said that there is no justification for NTPC to talk about the savings of Rs 32,000 crore when it is buying gas at USD 11 per mmbtu when it can get gas at USD 4.2 per mmbtu from RIL’s KG D6 basin.

It says that RIL has agreed to sign gas sales and purchase agreement (GSPA) without prejudice to the court case which is in Bombay High Court (HC) but NTPC has refused to sign the GSPA despite the fact that RIL has given an written undertaking that it will be without prejudice to the case.

It also says that USD 2.34 per mmbtu is subjudice and NTPC cannot be asking for gas at that price. It says that NTPC went to court without signing any agreement and so this price is subject to the final settlement in the Bombay High Court. It says that this price of USD 2.34 per mmbtu is also subject to the government approval because that is as per the Production Sharing Contract (PSC) which RIL has to follow because of the agreement which it has with the government of India.

Source: CNBC-TV18
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RIL’s gas output may be 4 times the estimate

Monday, September 21st, 2009

Will reduce the country’s dependence on imported gas

The D-6 fields of Reliance Industries in the Krishna-Godavari (KG) Basin have the potential to produce gas that is over four times the estimated peak output of 80 million cubic metres a day (mmscmd).
VK Sibal, director general, directorate-general of hydrocarbons, told Business Standard, “The 50 wells in D-6 were earlier estimated to produce a total of 80 mmscmd gas (at the rate of 1.6 mmscmd per well). However, each well can produce about 6 to 7 mmscmd, so you can estimate the potential.” Sibal said that the government was usually conservative in approving the proven reserves as the exact potential could be ascertained only after actual production starts.
Sibal had said earlier that 18 wells had been drilled in the D-1 and D-3 gas fields in the D-6 block, but only eight had been opened, while testing was going on at two wells.
Reliance Industries has already stepped up gas production from 28 mmscmd in June to about 36-37 mmscmd now. The production will soon reach 42 mmscmd once the supply to the Dabhol power plant is increased in the first week of October, said a company official.
The Karnataka government has recently written to the Centre seeking 40-45 mmscmd of natural gas for industry in the state.
The two gas discoveries (Dhirubhai-1 and -3) and one oil discovery (in Dhirubhai-26) are amongst the 19 discoveries (18 gas and one oil) announced so far by Reliance Industries in its D6 KG basin block off the Andhra coast.
Reliance owns 90 percent in the venture, while Niko Resources of Canada holds the remainder. In the east coast, about six to seven belts are rich in gas and oil. So far, India has drilled about 0.16 wells per 1,000 sq km, which is very less as compared to 50-60 wells per 1,000 km in West Asia.
The demand for oil and gas is rising 30 per cent per annum. “We are importing about 95 to 96 per cent of our demand. The commencement of production by Cairn Energy will cater to 25 per cent of the demand,” Sibal later told reporters in Gandhinagar on Saturday.
Asked if the Ambani feud will impact NELP VIII, he said that any corporate feud will have a negative impact anywhere in the world. Infact, “The lower gas price (of $2.34 per mmBtu) calls into question the whole viability of the development of deepwater gas in India becuase of the precedent it sets,” according to Bernstein report.

Source: Business-standard

Natural Gas/Lower price: RIL/RNRL/NTPC

Monday, September 21st, 2009

Lower price will hurt gas industry: Bernsstein Research
India cannot afford to let lower natural gas price of $2.34 per mmBtu prevail as the rate will hinder development of a natural gas industry in the country, US-based Bernstein Research said in a latest report.
Today, India has among the lowest prices of natural gas in Asia. This may suit consumers who are fortunate enough to have supply, but does not reflect the scarcity of natural gas resources,” the investment research firm said in its report dated September 11.
In its report titled ‘Blood Brothers - There Can Only Be One Answer’, Bernstein talked of the gas dispute between the Ambani brothers wherein younger Anil’s Reliance Natural Resources Ltd is claiming gas from Mukesh’s Reliance Industries at $2.34 per mmBtu, rates which are 44 per cent lower than the government price of $4.20 per mmBtu.
“Step aside Russia and Ukraine - this time it’s serious! Its hard to recall a spat in the world of gas which has been as contentious and caught the public eye as much as the one between the Ambani brothers relating to the supply of gas from the giant Dhirubhai gas field in the KG basin,” it said.
Endorsing RIL’s KG-D6 field cost of $8.8 billion as “one of the lowest cost deepwater gas fields in the world”, Bernstein said, “if the lower gas price of $2.34 per mmBtu is approved and applied to all gas produced from Dhirubhai, we estimate the full cycle IRR would be less than 3.3 per cent, which is below the cost of capital.”

“The lower gas price (of $2.34 per mmBtu) calls into question the whole viability of the development of deepwater gas in India becuase of the precedent it sets,” Bernstein said.
RIL’s gas finding and development plus operating costs comes to “extremely competive” $10 per barrel. “Does this mean RIL will make exorbitant profits? The answer is no.”
It said the full-cycle IRR on Dhirubhai assuming a gas price of $4.2 per mmBtu, was close to 25 per cent. “By comparision with other provinces, this is at the lower end of what would be expected for a deep water development and certainly commensurate with the exploration risk and technical challenges of the project.”
Bernstein said India has one of the lowest prices of natural gas in Asia.
While state-run Oil and Natural Gas Corp (ONGC) sells gas at $2 per mmBtu, neighbouring China has doubled the rates to $4 per mmBtu in past 10 years.
“Rather than helping, low gas prices are hindering the development of a natural gas industry in India,” it said.
“Given that deepwater gas supply would be the key to meeting domestic demand growth in India, any disruption to investment in the exploration and developmnet of the KG basin will slow down the supply of natural gas and increase India’s demand for expensive imported crude oil and LNG,” it added.
Bernstein said RIL would lose over $14 billion in revenue over a 15 year period if the lower price of $2.34 per mmBtu was to prevail.
“Moreover it will set lower expectations in the minds of other consumers on future gas prices and continue to dissuade international E&P majors from participating in India’s gas boom,” it said.
In five years, $4.2 per mmBtu rates would be cheap. “Although RNRL are right to seek the best price possible, we believe they should lock in as much natural gas at this price as they can and focus on developing their gas fired power business which is where the long term value lies,” it said.
The research firm said the only regions with lower gas prices than India are Russia and the Middle East where domestic gas prices were between $1-2 per mmBtu. “Unlike India, these countries also have abundant gas reserves.”
In case of Russia, state-run Gazprom has been forced to use profits from its gas export business to Europe to subsidise the loss making domestic gas supply. In the Middle East, low gas prices had also led to a lack of investment in regional gas exploration and promoted countries with abundant gas reserves to export gas as higher priced LNG rather than supplying regional markets, it said.
“The impact of this has been seen in gas shortages and power outages across Kuwait, UAE and Oman.”
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