RIL’s gas from Krishna Godavari basin to cost $ 4.4-4.6 per mm Btu

Jun 12, 2007 02:00 AM

Reliance Industries Ltd.'s (RIL’s) gas from its prolific Krishna Godavari (KG) basin field will cost between $ 4.4 to 4.6 per mm Btu, much on the expected lines and may get the government nod by in July.
The company presented its gas-pricing formula, based on quotes it had invited from main consuming power and fertiliser companies, to the Petroleum Ministry for approval.

Sources said the RIL formula links the price to Brent crude oil price, with a floor and cap of $ 25 per barrel and $ 65 per barrel respectively. At the maximum, the delivered price of gas will come to over $ 6.8 per mm Btu in Maharashtra/Gujarat after adding the transportation cost, marketing margin and 4 % central sales tax.
The price, sources said, will be calculated based on a years average of Brent crude oil price and the company was offering gas sale contracts of up to 3 years. RIL CEO (oil and gas) P.M.S. Prasad, who made a presentation on gas formula to the Petroleum Secretary M.S. Srinivasan before an interactionwith key consumers, declined to give any details of the pricing.

"We are at a very critical stage and I will not like to say anything. We are in discussions with the Oil Ministry and the consumers. As per our contract (for the KG block), a gas formula has to be approved by the ministry one year prior to beginning of the production.”
“We expect our gas price formula approval by in July, as the company was on schedule to produce first gas from the KG-D6 block in July 2008, beginning with an initial output of 32-40 mm cmpd. Peak output of 80 mm cmpd was targeting in 2009. We are trying to advance it (the peak production) as much as possible."

Reliance has diverted rigs meant for finding oil for developing the Dhirubhai-1 and 3 gas fields, first two of the over a dozen discoveries in the block, by next year.
"We hope to get some relief from the government on exploration work commitment on other blocks," Prasad said. Global rig shortage has led the government to mull giving a two-year extension to companies to complete the exploration commitment.
"New rigs are to arrive in 2008. Five rigs are to be added between now and September 2008," he said adding the two rigs on KG-D6 will drilling continuously to put 18 producing wells.

The company is building a 1,400-km pipeline from Kakinada in Andhra Pradesh, the landfall point of the gas, to Ahmedabad in Gujarat. In Maharashtra, the pipeline will connect to the state-run gas utility Gail's existing network at Maskel to take gas to consumers especially power and fertiliser plants.
A similar inter-connect point in Gujarat will help the gas travel through Hazira-Vijaipur-Jagdispur pipeline to the North.

Prasad said oil production from the KG-D6 block may be delayed from the previously planned February 2008 deadline.
"We are trying to see if we can begin oil production just before gas comes on stream or may be even along with gas production." Rig constraint may even force the company to delay till the end of 2008. Initial production planned is 30,000 to 40,000 bpd, going up to 50,000 bpd.

The delay is being attributed to the acute shortage of drilling rigs and allied services.
"We plan to submit a development plan for the oil find in KG-D6 by in July and will begin work after regulatory approvals," he said.

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