Finally, the Mukesh Ambani-controlled Reliance Industries has begun gas production from Dhirubhai 1 and 3 discoveries in the KG-D6 block, amidst reports that the company may spend an additional $5.9 billion on developing fields in the Krishna-Godavari basin.

At peak production of oil & gas, the KG-D6 facility would produce over 550,000 barrels of oil equivalent per day. The company had planned to start gas production from September last year and later at the beginning of this year.

As reported by FE on March 2, the company aims at gas production of 80 million standard cubic meters a day (mmscmd) by December-end instead of an original target of 2011.

An RIL release said the initial production of gas from the Dhirubhai 1 and 3 will be sold to existing fertiliser and power companies, which will substantially cut the government?s subsidy burden. RIL had signed gas sale and purchase agreement with 12 fertiliser units last week for supplying 15 mmscmd natural gas. The company will sign similar agreements with power companies for supplying 18 mmscmd gas.

Mukesh Ambani, RIL?s chairman & managing director, termed the start of gas production as ?a momentous occasion for India.? Production by RIL could increase India?s oil & gas output by 44%.

RIL plans to develop nine more discoveries in the basin, VK Sibal, director general of hydrocarbons, said on Thursday. The investment, which is in addition to $4.7 billion spent so far in the Krishna-Godavari area, hasn?t been approved as yet, he said.

RIL gained 5.1% to Rs 1,661.35, the highest level since Oct. 7, at the close on the Bombay Stock Exchange compared with a 4.5% increase in the benchmark Sensex.

Production started at 2.5 million cubic meters a day of gas, which may double tomorrow, oil secretary RS Pandey said in New Delhi on Thursday. Output may climb to 80 million cubic metres a day in a year, he said.

The K-G basin may hold as much as 9.2 trillion cubic feet of gas, according to Niko Resources Ltd, RIL?s Calgary, Canada-based partner.

?This is big gas,? Sibal said. Reliance may produce an additional 2.2 trillion cubic feet of gas by 2013, he said.

At peak production rate, the gas will help save 10% of India?s oil import bill, or about $9 billion a year, Pandey said. India?s oil import bill, including fuels, may reach $90 billion in the year ended March 31, he said.

?This will help accelerate India?s industrial growth,? Pandey told reporters. ?This is the nation?s biggest find in 30 years and we expect it to provide a big fillip to further investments to India?s exploration plans.?

Gas from the Reliance field will reach its first fertiliser customer by pipeline in three days, Pandey said. The most distant fertiliser plant on the west coast will get supplies in 15 days, he said.

The government set the price of gas at $4.2 per million British thermal units, excluding transportation costs and taxes, based on crude oil equal to at least $60 a barrel, the oil ministry had said in December. Total revenue from the Reliance field is expected at $42 billion over its expected 11-year lifespan, the secretary said. The government expects to earn $14 billion over the period, based on current gas pricing and production estimates, Pandey said.

Reliance?s gas production may help attract investments in oil & gas exploration, Pandey said. The country plans to offer 70 areas for exploration in the eighth round of auctions starting April 9.