ONGC, GAIL eye 12.5% stake in Chinese gas pipeline

Written by Agencies | New Delhi | Updated: Dec 30 2009, 07:54am hrs
State-run Oil and Natural Gas Corporation (ONGC) and GAIL India plan to take 12.5% stake in the $2.01 billion (around Rs 9,300 crore) gas pipeline that China is building in Myanmar to transport natural gas found in the Bay of Bengal.

Sources said the Cabinet Committee on Economic Affairs is likely to soon consider a proposal allowing ONGC Videsh, the overseas arm of the state explorer, and GAIL to invest $251.2 million (around Rs 1,170 crore) in the 870-km pipeline China National Petroleum Corp (CNPC) is laying in Myanmar to supply gas found in offshore blocks A-1 and A-3 to mainland China. ONGC has agreed to lend about Rs 4,000 crore to OVL to fund its share of cost of developing the gas fields in A-1 and A-3 blocks and the pipeline to China.

For us it makes more sense to invest in assets through ONGC Videsh Ltd. than put the money in banks, ONGC chairman and managing director RS Sharma said in a telephone interview on Tuesday. The interest-free loan has no maturity date, Sharma said.

ONGC, the New Delhi-based producer of almost 25% of the crude oil used by Asia's third-largest energy-consuming nation, is seeking to diversify its supplies and keep pace with India's growing fuel needs. The company plans to get the equivalent of 60 million metric tonne of oil, or more than double its output in India, from overseas fields by 2025. "There are limited number of opportunities at home," said Apurva Shah, head of research at Prabhudas Lilladher Pvt in Mumbai. "Given that there is going to be some serious growth in domestic demand in the years to come, ONGC needs to get its hands on whatever assets it can get."

India is competing with China for energy assets worldwide as output from domestic fields declines. ONGC bought Imperial Energy Plc for 1.4 billion ($2.2 billion) this year to gain access to oilfields in Russia. Chinese companies have announced plans to spend at least $16 billion on oil and gas fields in Africa.

ONGC declined 1.3% to close at Rs 1,181.55 in Mumbai trading, compared with a 0.2% gain in the benchmark Sensitive Index of the Bombay Stock Exchange (BSE). The stock has climbed 77% this year.

Sources said CNPC has offered 49.9% stake to the consortium developing gas fields in blocks A-1 and A-3.

South Koreas Daewoo Corp holds 51% stake each in Block A-1 and A-3 while OVL has 17% stake. GAIL and Korea Gas Corp have 8.5% each while the remaining 15% is with Myanmars Myanma Oil and Gas Enterprise (MOGE).

The consortium is investing $3.61 billion in bringing to production gas fields in the two blocks. Sources said Daewoo too was inclined to participate in the 40-inch pipeline and final shareholding in the pipeline project would be CNPC (50.9%), MOGE (7.37%), Daewoo (25.04%), OVL (8.35%), GAIL and KOGAS (4.17% each). Gas from A-1 and A-3 would be sold to China for $7.72 per million British thermal unit at the landfall point in Myanmar. Daewoo, OVL, GAIL and KOGAS would invest $2.79 billion in three gas fields in block A-1 and A-3 off the Myanmar coast and another $936.26 million in laying an under-sea pipeline to take the gas to the shore, sources said.

Sources said Shwe and Shwe Phyu gas fields in Block A-1 and Mya discovery in Block A-3 would be tied together to produce a plateau of 500 million standard cubic feet per day of gas for 19 years. The field life is envisaged for 28 years.

First gas is anticipated in the first quarter of 2013, they said. Myanmar has decided that the gas from A-1 and A-3 would go to China. CNPC will pay $6.71 per mmBtu for the gas plus an offshore pipeline tariff of $1.02 per mmBtu. The 30 year sale contract is indexed to US inflation, sources said. Sources said the gas in A-1 and A-3 is lean (99% methane) with less impurities. Gas reserves of 4.532 trillion cubic feet (Tcf) in Blocks A-1 and A-3 have been certified.