Reliance gas output may get delayed

Reliance gas output may get delayed

Mumbai: Bad weather in the Bay of Bengal may delay natural gas production off the Krishna-Godavari (KG) basin by Reliance Industries Ltd (RIL), the sector regulator said in a note sent to the ministry of petroleum and natural gas.

The 27 November note, written by director general of petroleum and natural gas V.K. Sibal, said RIL had “expressed concern that the disruption of activities" in recent days by unfavourable weather, including cyclonic conditions, may upset the production schedule.

“We had announced that the gas production is expected in the first quarter of 2009. All efforts are being made to ensure start of production in this time frame," said a RIL spokesperson who added that the company was working to overcome the tough weather conditions.

While announcing the start of crude oil output from the gas-rich basin in September, RIL had said the earliest gas production could be expected to start was in January 2009. Chief executive (oil and gas) P.M.S. Prasad said then that a delay “by a few weeks" was possible in gas production and the company had maintained that its deadline was in the second half of this fiscal. Prasad, however, had admitted then that the “internal target was third quarter (of 2008-09)".

Sibal’s note cited RIL’s concern that the bad weather may have a “cascading effect on the project schedule" because some vessels engaged in the project “may have to leave before completion of the job to meet their next requirements on other projects."

An official at the directorate of hydrocarbons confirmed the delay in gas output from the eastern coast and said weather conditions could upset schedules. He did not want to be identified because RIL, owned by Mukesh Ambani, and his estranged younger brother Anil Ambani’s Reliance Natural Resources Ltd (RNRL) are litigating over the KG basin gas reserves and a court ruling is still pending.

“There is another cyclone building up in the area. There are bound to be some disturbances in the schedule...but I can’t say when will the output get pushed back to," said this official. According to him, a review to gauge the latest situation will be undertaken in next three-four days.

The official also said that monthly updates on the project were routine and part of standard procedures.

RNRL is claiming 28 million metric standard cubic metres of gas per day at $2.34 per million British thermal unit (mBtu) for 17 years—a claim RIL is contesting. The government has fixed the gas price at $4.2 per mBtu—almost 80% higher than the price RNRL wants it at—and in its filing with the Bombay high court said its price applied to “all consumers" of gas. The case will come up for hearing on 11 December.

According to analysts, gas will be the next big revenue earner for RIL and a delay could postpone the revenue upside. The company has had a tough October-December quarter, up against shrinking gross refining margins with crude oil plummeting to $43-44 a barrel; dwindling demand for petrochemicals forcing it to give discounts on key products; and a delay in commissioning its new refinery.