Reliance Industries Ltd (RIL) has told the government that it will not sign contracts to supply gas from its KG-D6 fields beyond 60 million units a day, as it may not be able to sustain higher production.
The government has so far allocated about 64 million standard cubic metres per day (mscmd) of output from the eastern offshore fields to consumers in the power, fertilisers, steel and refineries sectors.
Of this, RIL had so far signed or committed to sign agreements for supply of 57.8 mscmd of gas and told the oil ministry at a review meeting last month that it can only sign contracts on a firm basis for another 2.2 mscmd, an official said.
“RIL does not want to sign and then fail to deliver,” he said. “The company has told the government to choose users for another 2.2 mscmd from the likes of Essar Oil’s Vadinar refinery, who were allocated KG-D6 gas.”
Essar Oil was allocated 0.6 mscmd of gas on a firm basis, but the company has not yet signed a Gas Sales and Purchase Agreement (GSPA) with RIL, as its Vadinar refinery in Gujarat was not ready to receive gas from the field till recently.
The official said RIL has told the oil ministry that it can presently sustain output of only 53-54 mscmd from the Dhirubhai-1 and 3 fields in the KG-D6 block and 7-8 mscmd from the MA field in the same area.
The company had in December last year tested facilities at KG-D6 for a peak production rate of 80 mscmd, but it estimates this level of production can only be achieved by the end of this year or early next year.
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The oil and gas regulator Directorate General of Hydrocarbons (DGH), has endorsed RIL’s view on limitation of production, saying the output was in line with the approved Field Development Plan.
According to the FDP, peak output of 80 mscmd was envisaged in 2011 and is to last till 2016.
The official said customers with pending allocations are those who have not been in a position to take gas for a considerable period of time.
It has been suggested that since there can be no reservation of gas, as stipulated by the Empowered Group of Ministers which framed the Gas Utilisation Policy, such allocations should automatically be deemed to have lapsed after a reasonable period. The oil ministry has so far not taken any view on this, he said.
Of the current production, about 14 mscmd is sold to fertiliser plants, 28 mscmd to power plants and 10 mscmd to petrochemical plants and refineries. The remaining seven mscmd of gas was consumed by other sectors such as sponge iron plants, LPG, city gas distribution and the East-West pipeline.
The official said RIL stated that sustained production at the current level of 60 mscmd is required for a longer period to gather more data and estimate the true production potential of the field.
Its assessment has been validated by a technical team from DGH, which in late May assessed the performance of the fields and the ultimate potential for a possible increase in production.
The DGH team observed that several reservoir complexities existed — such as the large numbers of sands, connectivity, interference, cross flow and permeability variations — making the interpretation of acquired data difficult, he said.
RIL has also prepared a new geological model based on the data collected so far. This is being studied to assess the performance of the field so far.
The company has so far drilled 18 production wells in the D-1 and D-3 fields, of which 17 are in production. The remaining well will be put on production after a work-over job.
Most recently, RIL signed GSPAs for supply of 0.86 mscmd to the Koyali refinery of Indian Oil Corp (IOC) and 0.2 mscmd to the Mumbai unit of Hindustan Petroleum Corp Ltd (HPCL).
RIL is in the process of signing GSPAs with IOC for supply of 0.74 mscmd to the Mathura refinery and with NTPC for 1.51 mscmd.
In addition, one mscmd gas is required for operation of the East-West pipeline, which transports KG-D6 gas from Kakinada in Andhra Pradesh to Baruch in Gujarat.
“The total number of firm GSPAs for KG-D6 gas, as well as gas required for pipeline operations, already adds up to a quantity of 57.8 mscmd of gas,” the official said. “Based on the production of KG-D6, RIL can commit only 60 mscmd for sale on a firm basis. Thus, of the pending allocations, additional GSPAs for only another 2.2 mscmd can be signed now.”