Natural gas price hiked, but Reliance Industries still raises doubts

Written by Promit Mukherjee | New Delhi | Updated: Jan 14 2014, 18:42pm hrs
Reliance industriesReliance Industries feels it will have to see whether the increased price of natural gas will make these investments viable or not. (Reuters)
Reliance Industries (RIL) is still doubtful whether the planned hike in natural gas price from April as per the Rangarajan formula will make its upcoming investments in the R-series (also called R cluster or D34 field) viable.

The R-series, or a cluster of smaller wells, are the prospective hydrocarbon reserves in the prolific Krishna-Godavari (KG) basin of Reliance Industriess D6 block from where the next batch of gas production is expected to come.

RIL expects to produce up to 12 million metric standard cubic metres per day (mmscmd) of natural gas from the R-series cluster at its peak production and has planned an investment of $3.18 billion to bring it into production. The investment was approved by the government in August 2013.

RIL, however, feels now that it will have to see whether the increased price of natural gas from April will make these investments viable or not.

At a price of $7-8 per mmBtu may be some marginal fields will be viable. But it has to be seen whether R-series will be viable at this price or not, said P MS Prasad, executive director, RIL.

Prasad was one of the panelists at the oil and gas expo Petrotech. Prasad said while the output from D1 and D3 the two producing fields in the KG D6 has fallen in the last few years, the company will try to work on the existing wells instead of drilling more so that the production from D1 and D3 could be brought back to 14-16 mmscmd (million metric standard cubic metres per day) including its third producing field MA.

He said the company will try to keep D1 and D3 alive till the time R-series does not start producing. RIL and its partners British Petroleum and Niko are investing up to $ 3.18 billion in the R-series field which are expected to start production from 2017-18 and reach a peak of 12 mmscmd in 5-6 years.

While the government notified the hike in gas price as per the Rangarajan Committee formula from April 2014 which is expected to increase the price of gas from $4.2 per mmBtu to $8.4 per mmBtu, RIL feels this price is not the right way to reach a market determined price.

While RIL had always maintained it will not invest in upstream sector unless it gets a higher price, it 60% partner has already committed $5-10 bn in the Indias upstream sector and is firm to go ahead with it.

However, government feels that all hurdles for RIL have been removed regarding the issues of KG basin. We have resolved all issues and since RIL has also agreed to give the bank guarantee, I think everything is sorted, said Vivek Rae, petroleum secretary, Ministry of Petroleum and Natural Gas.