After withstanding accusations of corruption, fraud, incompetence and corporate greed for the past few years, India’s Reliance Industries wants to set the record straight about its infamous Krishna Godavari D6 (KG-D6) Block.
“People without even a fleeting understanding of the sector have touched off a debate over the KG-D6 Block to suggest that Reliance is making windfall profits,” said Reliance, which is owned by India’s richest man, Mukesh Ambani.
In response, it released a 12 megabyte, no-nonsense report this week – India has never been here before: Facts you didn’t know about the KG-D6 – providing facts to counter the “rhetoric and illogic” it fears will drown out serious talk about the country’s energy security.
If you haven’t followed the KG-D6 saga, here is the short version: After the deepwater block was discovered in the eastern Bay of Bengal in 2002, it was hailed as India’s saving grace – capable of doubling its gas supply by providing up to 79 million cubic metres per day (MMcm/d).
Since then, it seems, the KG-D6 has done nothing but disappoint. Production started behind schedule and has fallen from roughly 66 MMcm/d in 2010 to 13 MMcm/d this year. Meanwhile, as Reliance and BP work to develop new fields, they have been calling for a hike in the domestic gas price to justify the big investment required.
The necessary investment is indisputably big, Reliance said in the report. It can cost more than INR 7 billion ($116.2 million) to drill one deepwater exploration well, and another $199-232 million for a development well.
“Against such odds, Reliance developed the block in just six-and-a-half years, redrawing international standards of a 10-year development timeline,” it said.
But contrary to claims from opponents, it is the Indian government that would reap the biggest benefit from a higher price – not Reliance, the company said.
The government is considering introducing a market-based formula that would double the KG-D6 price from the $4.2/MMBtu level fixed in 2008, to $8.4/MMBtu. This, however, is still on the lower end of the $8-12/MMBtu range IHS Cera estimates would be needed to make a deepwater or ultra-deepwater project economically viable.
If the new pricing formula does take effect, the government will recoup 46% – or $19 billion – from all new gas production revenue through taxes, royalties and its share of revenue. Reliance will earn around $498 million from its own output.
And while India is embroiled in this “debilitating debate” over the domestic gas price, China is locking down future supplies with hundred-billion-dollar deals, Reliance said, pointing to the China-Russia pipeline contract signed last month.
For one thing, China’s pipeline connections with Russia will pose geopolitical implications for India, it said. “But here’s what is of immediate relevance to India’s gas price debate: China is buying gas at about $11/MMBtu from Russia, which is almost the same as its domestic prices. In India, an approved rate of $8.4/MMBtu is on hold while we import gas for $14-18/MMBtu!”
The report is marked as the first volume in Reliance’s Flame of Truth Series, which Wildcat will take to mean there could be more to come in the future. At least we certainly hope there will be, considering its departure from Reliance’s usual tight-lipped response to any questions about the KG-D6.
Source: Interfaxenergy
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