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RIL plans to invest $5.91 bn more in gas

RIL plans to invest $5.91 bn more in gas
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First Published: Thu, Apr 02 2009. 11 56 PM IST

Undersea reserves: Petroleum and natural gas secretary R.S. Pandey. Madhu Kapparath / Mint
Undersea reserves: Petroleum and natural gas secretary R.S. Pandey. Madhu Kapparath / Mint
Updated: Thu, Apr 02 2009. 11 56 PM IST
Mumbai: India’s largest company by market value, Reliance Industries Ltd (RIL), plans to invest an additional $5.91 billion (Rs29,727 crore) in developing additional gas discoveries in the Krishna-Godavari (KG) basin, an official said on Thursday, a day after RIL started pumping gas from its vast D6 field.
RIL has sought approval for investing the money in developing nine more discoveries and linking them to the ones in production, director general of hydrocarbons V.K. Sibal said. The approval is yet to be given, Bloomberg cited him as saying. The investment would be in addition to the $4.7 billion already spent in the KG basin, it said.
Undersea reserves: Petroleum and natural gas secretary R.S. Pandey. Madhu Kapparath / Mint
The company controlled by Mukesh Ambani began pumping natural gas from the D6 field off the eastern coast on Wednesday, it said on Thursday. The investors’ community gave it the thumbs-up by boosting the company’s stock 5.26% on Thursday, higher than the 4.51% rise in the Bombay Stock Exchange’s bellwether Sensex. Shares in RIL, which at 17.5% has the most weightage on the BSE, rose to Rs1,662.50, from its Wednesday close of Rs1,579.45.
RIL shares have gained 35.7% since 2 March, roughly around the time that investors and analysts had been expecting the gas output to start. Investors had begun factoring in the upside for the past few weeks as gas production became imminent, said an analyst with the Mumbai-based arm of a foreign brokerage who didn’t want to be named.
R.S. Pandey, secretary, Union ministry of petroleum and natural gas, said on Thursday that RIL produced 2.5 million standard cu. m per day (mscmd) of natural gas on Wednesday, and that output could double in a day.
RIL’s output will scale up to a peak of 80 mscmd by the end of 2009 and will be sold to a prioritized list of clients at a fixed price of $4.2 per million British thermal unit, plus transportation levies. Both the priority list as well as the price have been decided by the Union government. The first customer in the fertilizer sector will get gas supplies in four-five days, Pandey said, while the farthest one will get it in a fortnight. RIL last week signed agreements with 15 fertilizer plants, which are at the top of the government’s priority list. Next are power plants, liquefied petroleum gas and petrochemical projects, with city gas distributors last.
An empowered group of ministers will meet next week, after it received the go-ahead from the Election Commission, to decide on gas allocation to power plants. The meeting was to be held last week, but had to be postponed after an opposition leader complained that the ministers’ panel was going to allocate the gas to plants in Andhra Pradesh and Maharashtra, giving the ruling Congress party in those states an advantage in the April-May elections.
At its peak, production from the KG-D6 field off the eastern coast can lead to huge government savings, fire gas-starved fertilizer and power plants and double domestic gas output.
Rashtriya Chemicals and Fertilizers Ltd’s chairman U.S. Jha expects his firm’s share of 3.1 mscmd of gas by mid-April. “Some of our manufacturing plants such as the one in Trombay that has been shut for gas scarcity for last four years, will be restarted now. The ammonia plants that have been working at 70-80% of capacity will achieve full capacity utilization and lastly, substituting cheaper gas for the costlier feedstock naphtha will save Rs1,000 crore,” he said.
The two wells that have begun producing—Dhirubhai 1 and 3 named after Reliance founder Dhirubhai Ambani—in KG-D6 hold 11 trillion cubic feet of gas and have been developed at a cost of $8.8 billion, with a break-even period of three to four years.
“The clean energy from the Dhirubhai 1 and 3 discoveries of the KG-D6 block will be a boost for energy security and growth of India,” said Mukesh Ambani, RIL’s chairman and managing director, in an emailed statement.
A 24 March report from Goldman Sachs had said that besides doubling domestic gas production, supply from the KG-D6 block will likely “lead to reduction in the oil import bill by $8-$13 billion, add $2.5-$4.5 billion annually to the exchequer (and) lead to cost savings of $2-$4.8 billion across various industries between 2010-11 and 2013-14”. A day later, a research division at Citigroup Inc. wrote that the gas supply could entirely eliminate urea imports.
“When the gas output plateaus off, the financial upside could be as much as Rs10,000 crore but that would only be in 2010-11. In this fiscal (2010), the bulk of the revenues will come in the last two quarters,” said the Mumbai-based analyst cited earlier.
Reuters and PTI contributed to this story.
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First Published: Thu, Apr 02 2009. 11 56 PM IST