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RIL oil flows, import cut forecast

In a landmark development, Reliance Industries Ltd (RIL), has started pumping oil and gas from its Krishna Godavari basin oil field off the Andhra Pradesh coast. HT Correspondent reports.

business Updated: Sep 22, 2008 00:07 IST

In a landmark development, Reliance Industries Ltd (RIL), India’s largest private sector company by turnover, has started pumping oil and gas from its Krishna Godavari basin oil field off the Andhra Pradesh coast.

RIL will start selling natural gas from the field in January 2009, bolstering India’s energy security in a major way.

From an initial flow of 5,000 barrels a day, the total oil and gas output from the field would rise to 550,000 barrels a day in 18 to 24 months.

This is about 40 per cent of the current indigenous production in India (currently at 1.3 million barrels a day), which imports 70 per cent of the oil it consumes. At that time, oil and gas from the KG basin could mean savings of up to Rs 86,000 crore in oil bills for the country.

“Reliance began oil production from its predominantly gas-rich D6 block on September 17 with initial oil flowing at the rate of 5,500 barrels per day,” Mukesh Ambani, chairman, RIL announced on Sunday. “This is a finite resource and should last for 10-12 years.” The first batch of oil is currently being sold to Hindustan Petroleum.

The sale of gas though, which accounts for as much as 85 per cent of the well's output, hinges on a Mumbai court verdict on a dispute between the two Ambani brothers.

The dispute is about an agreement of supply and pricing of natural gas between RIL and Anil Ambani's Reliance Natural Resources Ltd (RNRL). Presently, the government has fixed the price of gas from RIL at $4.23 per energy unit.

RNRL will require 40 volume units of gas, which RIL would have to supply at a cost of $2.34 energy unit for a period of 17 years for all its power generation needs according to the agreement.

RIL has objected to the terms and conditions (which include price, duration and quantity) of this gas sales agreement. ADAG has gone to court seeking directions to force RIL into complying with its portion of the agreement. The next hearing at the Bombay High Court is on September 30.

“Gas can’t be stored. So, I don't see how anyone can use natural gas without having a power plant in place,” Mukesh added.

“Hydrocarbon resources extremely valuable, and these should be utilised for the benefits to larger sections of our people,” said Mukesh. This implies that gas from KG reserves could be used to power cars and two-wheelers and supply cooking gas to millions of homes in cities and villages.

According to him, 550,000 barrels per day of hydrocarbons can feed cooking gas to 100-120 million households and it is possible to provide natural gas to over 50 million two-wheelers, 5 million cars and 10 million trucks. This will not only benefit the consumer immensely, but at the same time, it will reduce burden of petroleum subsidies on the government, which currently stand at $18 billion.