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Oil import bill may fall by $8 bn as RIL prepares to pump gas

Oil import bill may fall by $8 bn as RIL prepares to pump gas
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First Published: Tue, Mar 31 2009. 12 23 AM IST

Promising prospects: KG control and raiser platform. The company has so far drilled only an estimated 15% of the field.
Promising prospects: KG control and raiser platform. The company has so far drilled only an estimated 15% of the field.
Updated: Tue, Mar 31 2009. 12 23 AM IST
Mumbai: Natural gas production is set to begin anytime now from Reliance Industries Ltd’s vast D6 block in the Krishna Godavari (KG) basin off the eastern coast, promising to transform the energy scenario in India and result in substantial savings on the country’s import bill, analysts say.
Promising prospects: KG control and raiser platform. The company has so far drilled only an estimated 15% of the field.
Gas production from the field “will lead to reduction in the oil import bill by $8-$13 billion, add $2.5-$4.5 billion annually to the exchequer, lead to cost savings of $2-$4.8 billion across various industries” between 2010-11 and 2013-14, Goldman Sachs analysts Nilesh Banerjee, Durga Dath and Karthik Bhat wrote in a 24 March note to clients.
The Goldman note also said production would “improve the current account and fiscal deficits somewhat and provide some downside protection to GDP (gross domestic product) growth”. The government will gain from its share in gas output, state levies and savings in fertilizer, auto and cooking fuel subsidies, it added.
In a 25 March Citigroup note, sector analysts Rahul Singh and Saurabh Handa wrote that KG-D6 gas could eliminate urea imports.
Fertilizer ministry secretary Atul Chaturvedi said on Friday that the gas sales from RIL’s fields to fertilizer firms could likely reduce fertilizer subsidies by as much as Rs3,000 crore.
All this when the billionaire Mukesh Ambani-led company has only drilled an estimated 15% of the field, one of the world’s top 10 reserves.
Data from other exploration blocks off the eastern coast, provided by the company, suggests that the conglomerate could reap a windfall from its potential hydrocarbon reserves.
A Macquarie Group report said “recent studies carried (out) by upstream exploration companies have shown that the geological plays present in the KG-D6 block extend through to the large area of the KG basin.”
And there are several promising prospects in the Mahanadi and the Cauvery basin. “Reliance’s Mahanadi block MN-D4 could itself be multiple times larger than the KG-D6,” it said.
An RIL executive in Gadimoga, Andhra Pradesh, who didn’t want to be identified, said KG-D6 was expected to start pumping gas anytime now, and added that the oil production facility had been shut to add at least two more wells to the existing four to raise the output to 40,000 barrels a day.
An RIL spokesperson said in an email that the company was “expecting to start the gas production from KG basin shortly” but declined to specify a timeline. The Economic Times had on Monday reported that gas production from the KG-D6 basin would start in 24 to 48 hours.
The executive in Gadimoga said initial gas output will be 10 million standard cubic metres of gas a day (mscmd).
The gas will be pumped from undersea well heads through ducts into a floating control and raiser platform on the sea surface which compresses it and sends to the onshore Gadimoga terminal. At the terminal, end-stage cleaning is carried out before the gas is piped to 15 fertilizer firms that are RIL’s first batch of buyers nominated by the government for 15mscmd gas.
The peak output, expected by end of 2009, is estimated at 80mscmd. The company is looking to break even on its $8.8 billion development cost in 3-4 years after the start of production, RIL’s president and chief executive for its oil and gas business, P.M.S. Prasad, said at the end of February.
According to policy, fertilizer plants will have first right over the gas flow from the block, followed by existing liquified petroleum gas (LPG), petrochemical and power plants, and finally city gas distributors.
The gas will be sold at a government-mandated $4.2 per million British thermal unit plus transportation charges. That’s more than twice the price fixed by the oil ministry for supplies by state firms, but the delivered price for customers of the new gas would be up to $6.5 per mmBtu.
Industry experts are also looking out for exploratory drilling in RIL’s KG-D9, KG-D3 blocks —both in the KG basin—as well as NEC-25 in the Mahanadi basin and CY-D5 in the Cauvery basin. RIL’s minority partners Niko Resources Ltd. and Hardy Oil and Gas Plc. have spoken highly of these blocks’ prospects at meetings with investors and analysts.
Reuters contributed to this story.
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First Published: Tue, Mar 31 2009. 12 23 AM IST