State-owned Oil and Natural Gas Corp. Ltd (ONGC) expects the cost of replacing its exploration and production infrastructure in Assam — including old pipelines and crude oil gathering stations — to nearly double to around Rs4,000 crore due to rising steel prices.
Surging costs: Oil pipelines in Russia. ONGC’s three oil fields in Assam yield 11 million barrels of crude oil annually. The project to replace the infrastructure has been delayed due to violence by insurgent groups.
“We had earlier estimated the project to cost Rs2,300 crore. However, with steel prices skyrocketing, the cost is now pegged at around Rs4,000 crore,” said a company executive who did not wish to be named. “The project, which has remained in a limbo for a long time due to law and order problems, has seen interest from some nine companies, including Larsen and Toubro Ltd and Punj Lloyd Ltd,” he added.
Steel prices have risen sharply since January on account of a jump in input costs. “Steel prices are not going up because of demand but due to supply side issues,” said Pawan Burde, an analyst with Mumbai-based Angel Broking Ltd.
“However even as international steel prices have increased by around 60% this year, domestic steel price increase has been around 30%,” Burde pointed out.
Trends in domestic steel prices are dictated by those set in international markets. Over the past few years, demand for steel has risen following India and China making significant investments in developing infrastructure and manufacturing. This, coupled with rising costs of iron ore and coking coal, has put pressure on global steel prices.
The company’s efforts to replace its exploration and production infrastructure is part of its Assam Renewal Plan, which is aimed at doubling its annual production of 11 million barrels, as reported by Mint on 9 March 2007.
The project has been delayed due to violence orchestrated by insurgent groups such as the United Liberation Front of Assam, the Muslim Liberation Tigers of Assam and the National Democratic Front of Bodoland and the Bodo Liberation Tigers.
ONGC, which started operating its fields in Assam in the mid-1960s, hasn’t done much infrastructure-related work there, raising environmental and safety concerns.
The oil exploration giant has three fields — Rudrasagar, Geleky and Lakwa — in Assam, with an annual crude yield of 11 million barrels, or 1.5 million tonnes.