Like soap opera weekly by R. Sasankan
The Reliance Industries-operated KG-D6 Block is back in the news.
RIL and its partners, BP and Niko, appear to be ready to fall in line with the government’s directive to withdraw pricing-related arbitration notices that the consortium had served on the authorities back in May 2014. There is a quid pro quo here: when it withdraws the notices, the consortium will become entitled to charge the highly attractive price that has been set for gas to be produced from deep water, high pressure, high temperature fields. The already producing fields such as DI, D3 and MA field of KG D6 will not be eligible for the new price.
RIL was initially reluctant to back down. But BP’s chief executive Bob Dudley, who has reportedly played a crucial role in influencing the government’s thinking on the new gas formula, prevailed on RIL and their tiny partner, Niko, to see the prospect of gold at the end of the rainbow. Mukesh Ambani needed some prodding because he seems to have lost interest in the gas business. He has every reason to feel disgusted with the way his gas business has turned out. Like the mythical Sisyphus, he has suffered the pain of having to deal with a rock that rolled down every time he had pushed it to the top of the hill.
The RIL-led consortium is currently producing less than 8 mmscmd of gas from the D1, D3 fields of KG-D6 block which were originally expected to achieve a peak production of 80 mmscmd. But after touching 60 mmscmd, gas production crashed to a low of 12 mmscmd. The consortium had earlier claimed that production would stabilise around 20mmscmd. But the gas output has continued to plummet. Of the 8 mmscmd produced these days, almost 3-4 mmscmd is contributed by the MA oil field in KG D6. Output from the D1, D3 fields now stand slightly above 4 mmscmd. The depressing scenario has practically driven Mukesh Ambani away from the gas business.
The consortium is now preparing to develop the R-cluster fields and MJ discoveries in KG-D6. There will be no clarity on the extent of the gas reserves in these fields until the field development plans are approved. Any claim regarding reserves will have to be taken with a pinch of salt. But the hope is that this time round, it won’t be so wide of the mark because of BP’s presence.
Meanwhile, RIL’s E&P team stands depleted. PMS Prasad, who created the KG-D6 infrastructure in time, is now busy with the group’s telecom venture; geologist Rabi Bastia, the discoverer of KG-D6, quit a long time ago. And the E&P boss Budhiraja left the company and is back in Delhi. Obviously, BP will have to play a crucial role in developing these discoveries. The question is: will BP become the operator for these discoveries? BP does not seem to have made such a demand. Even if it were made, RIL is unlikely to concede because operatorship is the essence of E&P operations. What happens if BP offers to raise its stake? Such a possibility seems dim as the total reserves in these fields will not be large enough to entice BP. However, BP will have to assist the field development and production by deploying its experts. It is, therefore, destined to play a greater role in development and production in these fields.
RIL had practically no role in influencing the new gas pricing formula for deep water, high pressure, high temperature fields. But it is learnt that the government extensively consulted with BP. As a goodwill gesture, Bob Dudley informally advised the government on ways to bail out GSPC’s KG block, which is neck deep in trouble. He must have convinced the government that unless it offered an attractive price for gas, it would be extremely difficult to find a buyer for GSPC’s stake in the field. The gas produced from GSPC’s Deen Dayal asset could turn out to be the costliest in India and almost on par with some of the costliest fields in the world. The RIL consortium and ONGC will also benefit from the gas price as they too have blocks in the KG waters. RIL’s KG-D6 is adjacent to ONGC’s block while GSPC’s is farther away, making it economically difficult to benefit from any common infrastructure.
Fate has a strange way of intervening in India’s gas-related matters, changing the destinies and fortunes of its players. The Rangarajan gas pricing formula was scuttled at the eleventh hour, which was probably one of the most frustrating lows that Mukesh Ambani ever had to suffer in his business life. Equally frustrating was the revised pricing formula announced by the Modi government.
True, the new gas pricing formula is attractive. But the question that arises is this: can the customer be forced to pay a higher price for gas when the international price for LNG is lower? That is a lurking danger and this is where we see Fate intervening again. The LNG market is facing the prospect of a glut. In the next few years, myriad sources will emerge for LNG. If the crude price remains below $ 60 a barrel, as is being predicted by oil pundits, the gas price will not rise in the immediate future. The government may then be forced to pool prices of cheap imported gas with costly domestically-produced gas as is being done in the case of the fertilizer and power sectors. This formula will then have to be extended across the industry.
True, the crude price need not remain below $ 60 per barrel for long. As in the past, it can surge above $ 100 a barrel. But let us also not forget the fact the oil and gas industry the world over is exercised over the prospect of electric cars becoming a tearaway commercial success in the not-too-distant a future. Electric cars are already on the roads but the technology needs to be perfected to make it a commercial success, which may happen over time. Its impact may take time to reach a vast country like India. But the very news about a breakthrough can have serious consequences from which the oil and gas industry may not recover. By that time, the RIL consortium would probably have sucked out the entire gas reserves that its existing and new fields hold.