Ril’s KGD6 adding contribution to India’s GDP

The recent CSO estimate of India’s GDP for the second quarter of 2009-10 came like a whiff of fresh air amidst the gloomy scenario that was painted last week by the Dubai debt crisis. GDP growth has received its surprising but much-needed impetus from a booming mining and quarrying sector, which grew by 9.5% in the second quarter of 2009-10 as compared to 3.7% recorded during the second quarter in 2008-09. This has largely been attributed to a bolstering growth in output from Reliance Industries’ Krishna Godavari (KG) basin, whose gas output alone is expected to shore up India’s GDP by nearly 0.3% every year.

India’s natural gas output from domestic fields has now reportedly exceeded the threshold figure of 100 million cubic metres per day (mmcmd) of output as KG D6 has started operating in full swing. The upstream natural gas sector in India is a classic example of duopoly and comprises two major players, namely RIL and ONGC. Despite holding a couple of big road shows within and outside the country, the much-hyped latest round of NELP could hardly make any perceptible difference in terms of increasing the number of players in the upstream sector. Interestingly, RIL’s latest reported output of 50.15 mmcmd from KG-D6 fields in the KG basin surpassed 49.6 mmcmd of natural gas output reported by ONGC, thus making RIL effectively the largest player in the natural gas upstream sector. The lion’s share of ONGC’s gas output comes from its Bassein and Mumbai High fields, which reportedly account for 42 mmcmd of natural gas output. A relatively meagre 16 mmcmd of output has been reported from Panna/Mukta and Tapti fields of BG India, which again is a joint-venture between the BG Group, RIL and ONGC. The residual amount comes primarily from the Rawa field, where stakeholders include Cairn Energy and ONGC.

RIL’s natural gas generated from KG basin in Bay of Bengal has heralded almost a new era in India’s energy sector with far-reaching implications for India’s ‘clean energy’ security, especially in view of the heightened concern for climate change. RIL has already developed the D-1 and D-3 fields in KG basin and is pursuing a new integrated development plan for its R-series of natural gas finds and nine other satellite discoveries in the D6 block. The combined potential for these gas finds and satellite discoveries has reportedly been estimated as lying between 2-3 trillion cubic feet. Until the middle of this year, ONGC and its western assets in the Mumbai offshore area have dominated India’s oil and gas industry. However, ONGC is now resorting to a look-east policy as the production of Mumbai has started deteriorating and it is planning to recoup its losses by developing its eastern assets (oil and gas discoveries in the KG basin off the east coast). Moreover, RIL’s D6 block development in record time has also posed a serious challenge for the public player.

Meanwhile, ONGC has also stated on its Web site that a draft proposal on revision of Administered Price Mechanism (APM) gas produced by national oil companies has reportedly been circulated by MoPNG on the basis of recommendation of Tariff Commission (TC) for consideration and approval by the Cabinet Committee on Economic Affairs. The TC essentially wants to bring parity between the APM price and the price of the gas produced from KG basin by 2013 in a phased manner. The price of natural gas, which is produced by public players like ONGC from government nominated blocks, is governed by APM and lies well below the free market price of natural gas. This leads to a substantial loss for them. The loss in the last financial year itself has been reported at Rs 47 billion. Thus, ONGC is expected to benefit considerably if the proposal gets finally approved. Under the proposal, ONGC’s APM gas price would be Rs 4,142 per thousand standard cubic metres (mscm) {$2.32 per million British thermal units (mmbtu)}, up from Rs 3,200 mscm ($1.79 mmbtu). This is indeed a welcome proposition and would provide a big push to the public sector gas producer. However, MoPNG should also get back to its agenda of complete deregulation of prices of refined petroleum products, especially auto-fuels like petrol and diesel; otherwise after revision of APM gas price, CNG might just lose out on its competitive edge as a cleaner and cheaper automobile fuel in the cities that are currently receiving it.

The development of indigenous source of cleaner and cheaper fuel like natural gas would serve the dual purpose of reducing our unhealthy dependence on imported oil and enhance our ‘clean energy’ security, besides boosting our GDP. Furthermore, the International Energy Agency also recently reckoned that there would be a continued glut in the natural gas market, which would depress the gas price in the near and medium term.

Thus, the international liquefied natural gas producers are expected to look eastwards, especially towards India and China as first ports of call. This would provide a great opportunity to India in reducing its dependence on highly priced imported oil and shift to an environmentally benign fuel, and thus, save largely on its precious foreign exchange.

Source: Financial Express 

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