 "Why RIL is betting big on US shale gas")
Reliance gets market determined prices for its shale gas it produces in the US which is roughly around $4.09 per mmBtu. In India, the company gets $4.2 per mmBtu for its natural gas produced at the KG-D6 basin. Now shale gas is nothing but natural gas that is trapped within shale formation.So basically,both are the same and would naturally be enjoy similar pricing.They do so in the US.
Gas prices in the US have fluctuated between $4.4 per mmBtu to a low of $2 per mmBtu, yet exploration activity in the US in search of shale gas based on new technology has seen a sharp rise. As a result,contribution of shale gas to total gas production in the US has increased from 1% in 2000 to 20% in 2010.
Indian companies too have reached US to get their share of the pie. Among the major Indian players in the US is Reliance Industries. The company saw its shale gas contribution jump by 84% to $214.5 million (roughly Rs 1,250 crore). These numbers are nearly 15% lower than its contribution from natural gas in India which stood at Rs 1,454 crore.
While the company’s share from shale gas has been on the rise, it has fallen down sharply in India. The company currently produces only 15 mmscmd of gas against a peak of 60 mmscmd and expectation of over 80 mmscmd. As a result of the fall in production, its profitability has fallen sharply in India.
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While the company’s share from shale gas has been on the rise, it has fallen down sharply in India. The company currently produces only 15 mmscmd of gas against a peak of 60 mmscmd and expectation of over 80 mmscmd. As a result of the fall in production, its profitability has fallen sharply in India.
While operating profit (EBIDTA) from shale gas was reported at $165.1 million (around Rs 980 crore), those reported by its Indian unit was only Rs 352 crore at the EBIT level.
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Little wonder then that Reliance has decided to pump in $5.1 billion (over Rs 30,000 crore) over the next three years. Even after the government acceded to the demand of producers and nearly doubled natural gas prices, Reliance has decided to cut back its investment plan in India.
Even after the natural gas prices are say doubled in India, Reliance would still make more money from its US operations assuming the Indian operations continues to produce at the same level. Unless Reliance’s production increases considerably in India which would bring down its operating cost and thus increase its profitability, the US operations will be more profitable.