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Drilling costs driving gas prices up, says Reliance

Reliance Petroleum is planning an investment of $2.5 billion dollars in the Krishna Godavari basin, reports Suprotip Ghosh .

india Updated: Apr 09, 2007 01:26 IST

Rising costs have driven Reliance Industries plans for gas pricing crazy over the last few years, forcing the company to redraw plans. The company’s president and chief executive officer for Petroleum, PMS Prasad said on Saturday that the company is hoping to finish the price discovery process for its KG basin gas in July 2007.

Prasad said that the fees payable for the drilling rigs has gone up to $5,50,000 a day from $1,10,000 a day from 2001. The fees payable for the services of an engineer has moved up from $1,000 a day to $2,500 a day.

“In fact, 95 per cent of our expenses are towards fees and outsourced services,” Prasad said. While the rig hiring costs have gone up 300 per cent the other costs have gone up by almost 500 per cent, he added.

Sources indicated that Reliance might even consider building its own rigs.

The company had entered into an agreement with NTPC earlier for gas supply, which the company is looking at altering and the matter is also in the courts over delay in supply. Reliance Industries has also promised to supply gas to Anil Ambani’s Reliance Energy at the same price as it supplies to NTPC.

“We are in the price discovery process right now. We are talking to various consumers and we believe this process would be complete in the next two to three months,” Prasad, told reporters on Saturday. Prasad also pointed out that the rise in prices for gas exploration and production is pressing hard on the modalities of pricing gas. Reliance is in the final phases of setting up production from the Krishna Godavari basin.

“In 2003 October we did a cost estimate. Since then, the world has changed. Our production profile has increased. By October 2006, we put in a new production plan with cost increases and production increases,” said Prasad, about the freezing of costs of gas.

Discussions are going on now with consumers including the power sector, the fertilizer sector and city gas distributors, after which, the producers would send the price recommendations to the government. There would be a further round of discussions, after which the prices would be fixed, Prasad said further.

The Centre has acknowledged shortages in the energy sector and announced plans for a sharp rise in prices for fuels including petrol, diesel and Liquefied Petroleum Gas (LPG).

Reliance Petroleum is planning an investment of $2.5 billion dollars in the Krishna Godavari basin to create permanent undersea infrastructure to tap natural gas, primarily methane for domestic use.

The gas, to be supplied to Indian consumers through pipelines would initially be treated at the company’s refineries. The company though, is investing heavily in building pipelines to transport the gas. According to Prasad, Reliance Petro is investing close to Rs 25,000 crore in the pipeline. This pipeline would be part of the national gas grid, to be developed jointly by GAIL and Reliance Petroleum.

According to the Profit Sharing Contract (PSC) with the government of India, ten per cent of the revenues go back to profit sharing. In four to five years it would go to 25 per cent, Prasad said. "The higher the cost, the higher you recover and higher the profit for the government," he added.

First Published: Apr 09, 2007 01:24 IST