State-owned Oil and Natural Gas Corp (ONGC) today said it will not be economically viable to produce gas from its Krishna-Godavari basin block at current sale price of $4.20 per mmBtu.
ONGC, which has made 10 gas finds in a block that sits next to Reliance Industries' prolofic KG-D6 block off the Andhra coast, wants over $7 per million British thermal unit as gas price.
"I am categorically stating that current price levels are not viable to make investments," ONGC Chairman and Managing Director R S Sharma told reporters here.
The government has fixed $4.20 per mmBtu as the sale price of gas from RIL's KG-DWN-98/3 or KG-D/ block for five years. These rates, which are now being considered as a benchmark, are lower than $5.7 per mmBtu that gas from BG-led Panna/Mukta and Tapti fields command.
"This ( $4.2 per mmBtu) is not a viable price for making future investments. Nobody in the world makes investments at these price levels," he said.
ONGC plans to begin gas production from KG-DWN-98/2 block in 2015-16, later than previously anticipated 2013.
Before ONGC, Gujarat State Petroleum Corp (GSPC)-- a Gujarat government firm-- will begin gas production from its KG basin block. It remains to be seen if the government will approve a higher price for GSPC gas. Also if the opponents to $4.2 per mmBtu rate for RIL would seek to push for lower price for Gujarat Chief Minister Narendra Modi's showcase firm that will begin gas production in 2011.
Sharma said 20-25 million standard cubic meters per day of peak output is envisaged from ONGC's KG block.
When asked what price level would ONGC be comfortable with, he said, "certainly higher than current rates ($4.2) but lower than LNG import price (over $9 per mmBtu).
When asked if USD 6-7 per mmBtu was an acceptable price, he said, "it could be even higher than that."
ONGC is planning to invest a minimum of $5.3 billion in developing gas finds in two of its eastern offshore Krishna Godavari basin blocks to produce 25 million standard cubic meters per day of gas.
"The Directorate General of Hydrocarbons has approved our appraisal plan for the gas discoveries in deep-sea block KG-DWN-98/2. We plan to drill six appraisal wells to assess the potential and delineate the discoveries," a company official said.
ONGC plans to tie up 10 discoveries in KG-DWN-98/2 with the G-29, GS-4 and Vashistha gas finds in a shallow water block KG-OS-DW4 in the same basin.
