Natural gas production to rise by a third if output locked in ONGC

Natural gas production to rise by a third if output locked in ONGC, OIL fields opens up

India’s natural gas production will rise by a third provided the result locked in a dozen fields of state-owned ONGC and OIL is opened up by giving remunerative market prices, people with knowledge of the matter said.

India Presently produces about 90 million standard cubic meters per day (mmscmd) of natural gas and has ambitious plans to double output by 2022 to decrease its reliance on imports and replace some of the polluting liquid fuels to cut emissions. Sources appealed, while the doubling of output would need the huge capital expenditure of close to USD 10 billion in bringing to production discoveries in deep sea and frontier areas, discoveries already created by ONGC and OIL give a low hanging fruit.

State-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) haven’t been able to develop the discoveries or bring them to production as the present gas price of USD 3.36 per million British thermal unit (MMBtu) is way lower than the cost of production. Sources said ONGC has about 35 billion cubic meters of recoverable reserves in discoveries in the shallow sea off Andhra Pradesh on the east and off Gujarat and Mumbai on the west coast blocks.

The three blocks in Krishna Godavari basin, Gulf of Kutch and Mumbai offshore can give about 10 mmscmd of gas and an equivalent amount can be produced from its onshore discoveries in blocks like Bantumili, Mandapeta and Bhuvanagiri, they said.

About 5 mmscmd of production can be added by making some investment in existing fields like Mumbai High South, Neelam and B-127 Cluster in the Arabian Sea. Oil India Ltd (OIL) has an online discovery in the Krishna Godavari basin in Andhra Pradesh with over 3 billion cubic meters of recoverable reserves but requires a higher price to bring it to production. Sources said, all these fields can be expeditiously developed and monetized in case pricing and marketing freedom is given by the government.

ONGC and OIL want a price of over USD 6 per MMBtu to assist them to produce the gas without suffering any losses. In the absence of a viable gas price, they will have to mothball USD 3 billion projects, they commented. The BJP-led government had in October 2014, evolved a new pricing formula utilizing rates prevalent in gas surplus nations like US, Canada, and Russia to determine price in a net importing country. Prices utilizing this formula are calculated semi-annually.

While the government has permitted a higher rate of USD 7.67 per mmBtu for gas fields in difficult areas like the deep sea, ONGC’s Krishna Godavari basin block KG-OSN-2004/1, which has about 15 bcm of recoverable reserves, is in shallow waters and does not qualify as a ‘difficult field’. Same as the fate of Mumbai basin block MB-OSN-2005/1 on the western side. The block GK-28/42 in Gulf of Kutch is a nomination block which does not qualify for increased rates, they said. The onland discoveries of ONGC and OIL to do not qualify for the higher rates.

While ONGC’s KG block can give a peak output of 5 mmscmd, the same from GK-28/42 is expected to be around 2.5 mmscmd. Peak results from MB-OSN-2005/1 are expected to a little less than 3 mmscmd. Oil Minister Dharmendra Pradhan, in a written reply to a question in Lok Sabha on March 20, 2017, had confirmed that the cost of production of natural gas in the prolific Krishna Godavari basin is between USD 4.99 to USD 7.30 per mmBtu.

The same for other basins is in the range of USD 3.80 to USD 6.59 per mmBtu, he had said accumulating the production cost of companies vary from field to field depending upon the size of the reservoir, location, logistics and availability of surface facilities.

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