Mumbai: Reliance Industries Ltd, or RIL, India’s most valuable firm by market capital, has set a January date for producing gas from the Krishna-Godavari basin, off the country’s east coast, but needs a legal dispute to be settled first before it is able to sell the output.
RIL, controlled by Mukesh Ambani, can produce 80 million cubic metres per day of gas from the basin. The firm aims to supply more than 40% of India’s requirement of oil and gas in about 18 months, having become one of the world’s largest deep-water oil well developers.
But a court stay is in place preventing RIL from selling gas from the Krishna-Godavari basin as it is locked in two lawsuits with state-run power generator NTPC Ltd and Reliance Natural Resources Ltd, or RNRL, owned by Mukesh Ambani’s estranged younger brother Anil Ambani.
The two firms want gas to be supplied at $2.34 per million British thermal unit (mBtu) for 17 years. RIL wants to sell at $4.21 per mBtu set by the government. The case between RIL and RNRL will come up for hearing in the Bombay high court on 30 September.
Looking ahead: Mukesh Ambani. Abhijit Bhatlekar / Mint
“Right now, the gas is not going to be stored,” said P.M.S. Prasad, chief executive for oil and gas at Reliance Industries. “We are injecting the gas back in the basin for the next three-four months” so the firm can extract it later when the dispute is resolved.
The Krishna-Godavari basin is expected to more than double India’s gas output. The country imports 70% of its energy needs and doesn’t produce enough natural gas to meet demand from power and fertilizer makers.
“We have much more natural gas than crude…a huge advantage because natural gas is the fuel of the future,” Mukesh Ambani said after officially announcing the first flow of oil from deep-water wells in the basin.
The company sees potential for large quantities of natural gas in much of the country’s east coast—the Krishna-Godavari basin off Andhra Pradesh, Cauvery basin in the south, and Mahanadi in Orissa. “This is our Gulf of Mexico,” Ambani said.
The date of launch was on course with the official timeline given by the firm, said Prasad, though India’s upstream regulator said last week RIL would start producing gas from the KG basin by the end of November, with initial production of about 15 million cubic metres per day, as reported by PTI.
“The delay in gas production is by a few weeks. We have always said that gas production will be from the second half of this fiscal,” he said, admitting that the “internal target was third quarter (of 2008-09) but yes, we are sure we are going to produce by the second half.”
An analyst with a domestic brokerage counted the clarity on the launch date as a positive but expressed disappointment over the delay.
“They have put forward the facts. Gas was supposed to flow by November-December this year but it has been postponed to the next quarter. It is negative for the company stock but the announcement clears the uncertainty,” said the analyst who didn’t want to be named.
Terming the oil production from the Krishna-Godavari D6 field as a big win for India in the “battle for energy security” 40 years after Bombay High was discovered, Mukesh Ambani said output would go up from “an initial flow rate of 5,000 barrels per day of crude to 550,000 barrels of oil equivalent per day (boepd) in the next six quarters.”
Of the total hydrocarbon reserves, 85% is estimated to be gas and the rest, oil. India currently produces about 1.3 million boepd.
With Reliance’s output, India’s indigenous production of hydrocarbons will increase by more than 40% in the next 18 months and will save a foreign exchange outflow of $20 billion, Mukesh Ambani said. The oil will be sold “on a spot basis” to Hindustan Petroleum Corp. Ltd and Chennai Petroleum Corp. Ltd, said Prasad, explaining that crude would have to be domestically traded as it cannot be exported under current laws.
Bloomberg contributed to this story.