Reliance makes one of largest global gas discoveries this year

Nov 13, 2002 01:00 AM

If there's one thing common to every development in India, it's controversy. This aphorism can't be borne out better than India's Fortune 500 business conglomerate, Reliance Industries Ltd's (RIL,) recent claim of a gas find of 7 tcf, or 198 mm cmpd, off the eastern coast of India.
While the media bannered the news a day prior to the official announcement, simultaneous confirmations from RIL in Mumbai and Canadian Niko Resources, in Calgary, Alberta, fleshed out the details of the find the following day. The latter firm is an oil and gas developer in India and Bangladesh and holds a 10 % interest in the 1.9 mm acre block that contains the new gas find.

The joint venture partners pegged the gas reserves at 7 tcf. They projected a gas production of 1.4 bn cfpd within the next three to four years, going up to 3.5 bn cfpd over a 10-year period. To give credence to the find, they had it certified by US-based oil consultancy firm, McNaughten. "It is the biggest gas discovery in India in nearly three decades and one of the largest discoveries in the world this year," RIL chairman Mukesh Ambani said while announcing the discovery. The gas was discovered in the first well drilled in the deep water block, D6, off the coast of Andhra Pradesh.
The news set the stock counters buzzing. The ovation, predictably, came immediately from the capital markets. A day later, when the dust had settled and the jubilation had waned somewhat, experts were divided on the significance of the find. While market watchers and analysts, backed by the Reliance group, sent out the message that this find was significant enough to impact India's energy economics, the oil Public Sector Units (PSUs), backed by the government, began questioning the veracity of the claim.

Interestingly, none of the attacks were direct. Instead, they were typical of the internecine shadow boxing that marks public and private sector coexistence in India. Ram Naik, India's minister for petroleum, was officially non-committal to the media's anticipatory fireworks. "With the Reliance find and ONGC-Videsh' acquisitions in Sakhalin, Vietnam and now Sudan, India has moved closer to securing its energy needs after deregulation," he said while announcing the actual signing of an agreement for ONGC-Videsh' acquisition of a 40 % stake in a Sudan oil field for $ 720 mm.
The country at present imports 70 % of its crude requirement, worth $ 12 bn a year. Few present were taken in by the surface calm. ONGC-Videsh is the overseas wing of India's state-owned Fortune 500 company, ONGC. Naik's penchant for merging the oil PSUs and creating a world class oil conglomerate is not unknown to the public. It is also a fact that Naik is not alone in holding this viewpoint. Expert groups, like the R-group, too, have outlined this course of action for the growth of the oil PSUs in a deregulated era.

To glean the diverse interests at play underneath the surface, one needs to understand the dimensions of the discovery. In terms of scale, it is roughly 40 times the Bombay High strike of ONGC. In terms of production, 1.4 bn cfpd is double the current gas production of the oil PSUs. At another level, the RIL find is comparable with ONGC's Vasai gas find of 8.9 tn cfpd. On a global scale, it is comparable to past gas discoveries in the Gulf and the Sakhalin Islands, Vietnam.
As the numbers go, the figures are large enough to be unsettling. India's gas demand in 2001-02 was estimated at 5.3 bn cfpd. This demand is projected to double to 1.1 t feet per day by the turn of the decade. As against this, India's gas production, representing about 7 % of the energy used, stood at 2.7 bn cfpd in 2001-02. Its supply was pegged at 2.3 bn cfpd during the same period.

Of the total natural gas produced and supplied in the country, two PSUs, ONGC and Oil India Ltd (OIL), together accounted for 2.3 bn cfpd. The rest -- 392 mm cfpd of gas -- was produced by other oil joint ventures. Such glaring differences also mark the supply data. The oil PSUs supplied 1.9 bn cfpd of gas. The joint ventures merely supplied 371 mm cfpd during the same period.
The RIL find has to be viewed in this context. If the estimates of the reserve and yield are accurate, RIL would begin to pump in an additional 1.4 bn cfpd of gas within the next three years, going up to 3.52 bn cfpd by 2010-11. The oil PSUs could well lose their dominant position in the LNG market, though ONGC's acquisition in Sakhalin, and the gains from this deal, could further reshape the contours of the existing oil economy.
Simultaneously, Petronet, Shell, British Gas and/or IOC could also figure on the list of potential victims, with some of them being forced to set aside LNG projects already in the pipeline. On this list could be Petronet's Kochi project, Shell's Hazira LNG plant, British Gas' plans for India and IOC's power-cum-oil venture in Kakinada.

A third dimension to this drama is added by the possibility of the Indian government being forced to review its gas import plans. This could happen if one reads several recent oil sector developments together, along with the RIL find. This includes ONGC-Videsh' acquisitions in Sakhalin, Vietnam, an earlier gas discovery reported by the UK-based Cairns, and a hydrocarbons find by ONGC.
RIL's sudden entry with a find could thus not only hurt ONGC, but also several gas import projects. Prime on this list are US oil major Unocal's plans for India and an India-Iran gas pipeline project. The former is planning to pipe gas to India from Bangladesh. In the latter case, Iran wants to pipe gas to India, bringing it either over land or under water. Both these projects have been conceptualised against an estimated shortage of about 1. 6 bn cfpd of gas in the country.

It's given these dimensions that the chips are stacked high on both sides. Yet, even as the private and public sector players tighten their girdles for yet another round of slugfest, the pluses of the find are being lost in the bargain. Even assuming that RIL's find is only half the size projected, an additional gas production of 70 mm cfpd to 3.5 bn cfpd in the near to medium term cannot be scoffed at by an energy-deficient country such as India.
Add to this the possibility that the claim is right or that the gas would be available long before RIL's cautious timetable for production. Still, the existing players have little to fear. Even assuming that the flow is immediate, India's LNG production would merely go up to 4.1 bn cfpd. This would still represent a gas shortfall of 1.1 bn per day as against the projected demand of 5.3 bn cfpd at 2001-02 levels of estimates. Further, if the gas flow begins three to four years from now as announced, India's demand would still outstrip its supply. Projections peg India's LNG demand at 8.1 bn cfpd in 2006-07, a gap far larger than what the RIL find can fill.

There's another point, which is also being missed by the doomsday soothsayers. The RIL find is a first of its kind by a private sector developer after oil exploration was thrown open to private sector participation under the Indian government's New Exploration and Licensing Policy (NELP).
The Krishna-Godavari block, where the gas has been struck, is one of 12 concessions obtained by RIL a year ago in the second round of NELP. Reliance is the largest private sector exploration and production company in India with over 177,000 sq km of exploration acreage in 23 offshore and onshore blocks. This is likely to go up by 100,000 sq km, with the firm hoping to win more bids in the third round under the NELP.

The recent gas strike actually sets at rest the allegations made thus far that private oil developers are more interested in wresting control over proven fields rather than in investing long on developing virgin fields. Under the category concessions obtained by the private sector in proven fields fall Panna, Mukta and Tapi oil and gas fields, where Reliance holds a 30 % interest in an unincorporated joint venture with Enron and ONGC. Enron holds another 30 %. The rest is held by ONGC.
Simultaneously, the RIL find could favourably impact on industry by lowering costs. If the fresh availability of domestic gas results in replacing the more expensive naphtha as feedstock for fertilizer plants, it would benefit the fertilizer and petrochemical units. Further, if the additional availability of gas results in discontinuation of naphtha as fuel in power plants, it would favourably benefit the power companies, and ultimately the consumers.

The find could also have some positive strokes for the votaries of clean fuel. India is the world's third-largest user of coal, with about 55 % of its energy use being drawn from this resource. Oil is second, at 30.5 % and its demand is projected to grow by 70 % by 2010. Natural gas accounts for 7 % of the energy used thus far. India is expected to run out of its oil resources by 2010, by when it would have to develop other viable alternatives.
India would like to reduce its dependence on coal and oil. Simultaneously, it would also like to manage its foreign exchange better, if it is able to reduce its dependence on oil, over 50 % of which is imported. As per current estimates, India spends a quarter of its total import bill on oil imports, amounting to about $ 12 bn per annum at current oil prices. A significant domestic find of gas could not only mean substituting imported oil with the domestic gas, but it also holds the promise of better foreign exchange management and self sufficiency in energy resources.

Interestingly, despite such severe scepticism, RIL's find is in line with conventional wisdom and expert forecasts. The US administration's Energy Information Administration in its International Outlook 2002 predicted that natural gas would be the fastest growing component of global energy consumption. It also predicts that the largest increments in natural gas would come from developing Asia and North America, while Africa and the Middle East would only contribute to small increments.
Further, the largest expansion in natural gas reserves between 2001 and 2002 occurred in the Middle East, where 120 tcf was added to the region's reserve base. Of that amount, 115 tcf was attributed to revised estimates of Qatar's reserves by officials of QatarGas and RasGas. Developing Asia also saw an increase in reserves of 23 tcf over the past year.

Among developing Asian countries, the greatest increase in proven reserves was in Indonesia, where reserves grew by 20 tcf. Pakistan and Papua New Guinea, and to a lesser extent the Philippines and Thailand, also saw modest increases in gas reserves. Malaysia was the only developing Asian country with a notable decline in reserves, from 82 tcf in 2001 to 75 tcf in 2002. Indians are, however, given to missing the trees from the woods.
Significantly, while the Indian government and the oil PSUs are busy nitpicking with RIL, the latter could well beat them to the winning post by concentrating on its development plans. At a rough estimate, the company would need $ 1.4 bn to mine and distribute the gas. That could mean big business opportunities for financiers, infrastructure developers and the gamut of service providers, who would get into the act. Since part funding by the public would be imperative, it could also mean another public offering from the Reliance group.

Source: Asia Times Online Co, Ltd.
Market Research

The International Affairs Institute (IAI) and OCP Policy Center recently launched a new book: The Future of Natural Gas. Markets and Geopolitics.

Cover_242-width

The book is an in-depth analysis of some of the fastest moving gas markets, attempting to define the trends of a resource that will have a decisive role in shaping the global economy and modelling the geopolitical dynamics in the next decades.

Some of the top scholars in the energy sector have contributed to this volume such as Gonzalo Escribano, Director Energy and Climate Change Programme, Elcano Royal Institute, Madrid, Coby van der Linde, Director Clingendael International Energy Programme, The Hague and Houda Ben Jannet Allal, General Director Observatoire Méditerranéen de l’Energie (OME), Paris.

For only €32.50 you have your own copy of The Future of Natural Gas. Markets and Geopolitics. Click here to order now!


 

Upcoming Conferences
« June 2019 »
June
MoTuWeThFrSaSu
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30

Register to announce Your Event

View All Events