Reliance D6 Output To Halve To 20 MMSCM/D By March 2015
05/08/2012| 06:27am US/Eastern
-- Reliance output estimated at 28 mmscm/d this year, 24 mmscm/d next year
-- India's gas demand may jump 40% by March 2015, output to rise 8.7%
-- Output decline at Reliance likely to boost LNG imports
(Adds oil minister's comment, background)
By Rakesh Sharma
Gas production at Reliance Industries Ltd.'s (500325.BY) D6 block on the east coast will halve by March 2015, oil minister Jaipal Reddy said Tuesday. The decline will severely hit local gas availability and force refineries, petrochemical and steel plants to seek costlier imports.
Production at the D6 block in the Krishna Godavari basin will plunge to 20 million standard cubic meters a day by March 2015, from 28 mmscm/d this year, Reddy told lawmakers in the upper house of parliament.
India's largest private refiner produced 42 mmscm/d from the block in the fiscal year ended March 31, 2012, well below its original target of 70 mmscm/d.
Declining output at D6 has hurt India's gas-based power plants and investments in the sector, as banks have become cautious about lending due to the absence of committed fuel supplies.
Reliance owns a 60% interest in KG-D6, with BP PLC (BP.LN) owning 30% and Canada's Niko Resources Ltd. (NKRSF) holding the rest.
On May 2, the oil ministry served a notice to Reliance to forego $1 billion in cost recovery as the explorer had failed to meet production targets as per the contract.
The company has appealed to the apex Supreme Court to appoint an arbitrator to resolve the issue, claiming that there is no provision in the production sharing contract that entitles the government to disallow cost-recovery.
The spat between Reliance and the ministry could scare foreign investment away and also hurt future investments by the Mumbai-based company to ramp up output.
Reliance said in April that D6 production has been adversely hit mainly by unforeseen reservoir complexities and water ingression in producing fields.
The company's profit before interest and tax from its oil and gas business, which accounts for more than a fifth of its earnings, fell 39% to INR9.51 billion in the January-March quarter.
Reddy said India's gas demand will rise 40% by March 2015 to 356.16 mmscm/d, while output will rise only 8.7% to 113 mmscm/d.
-By Rakesh Sharma, Dow Jones Newswires; +91-11-4356-3334; firstname.lastname@example.org