Natural gas production to rise by a third if output locked in ONGC, OIL fields opens up

India’s natural gas production will rise by a third provided the output locked in a dozen fields of state-owned ONGC and OIL is opened up by giving remunerative market prices, people with knowledge of the matter said. India currently produces about 90 million standard cubic meters per day (mmscmd) of natural gas and has ambitious plans to double output by 2022 to reduce its reliance on imports and replace some of the polluting liquid fuels to cut emissions.

Sources said, while the doubling of output would need huge capital expenditure of close to USD 10 billion in bringing to production discoveries in deep sea and frontier areas, discoveries already made by ONGC and OIL provide a low hanging fruit. State-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) haven’t been able to develop the discoveries or bring them to production as the current gas price of USD 3.36 per million British thermal unit (MMBtu) is way lower than the cost of production. Sources said, ONGC has about 35 billion cubic meters of recoverable reserves in discoveries in the shallow sea off Andhra Pradesh on the east and off Gujarat and Mumbai on the west coast blocks.

The three blocks in Krishna Godavari basin, Gulf of Kutch and Mumbai offshore can produce about 10 mmscmd of gas and an equivalent amount can be produced from its onshore discoveries in blocks like Bantumili, Mandapeta and Bhuvanagiri, they said. About 5 mmscmd of production can be added by making some investment in existing fields like Mumbai High South, Neelam and B-127 Cluster in the Arabian Sea. Oil India Ltd (OIL) has an onland discovery in the Krishna Godavari basin in Andhra Pradesh with over 3 billion cubic meters of recoverable reserves but needs a higher price to bring it to production. Sources said, all these fields can be expeditiously developed and monetised in case pricing and marketing freedom is granted by the government.

ONGC and OIL want a price of over USD 6 per MMBtu to help them produce the gas without suffering any losses. In the absence of a viable gas price, they will have to mothball USD 3 billion projects, they said. The BJP-led government had in October 2014, evolved a new pricing formula using rates prevalent in gas surplus nations like US, Canada and Russia to determine price in a net importing country. Prices using this formula are calculated semi-annually. While the government has allowed a higher rate of USD 7.67 per mmBtu for gas fields in difficult areas like the deep sea, ONGC’s Krishna Godavari basin block KG-OSN-2004/1, which has about 15 bcm of recoverable reserves, is in shallow waters and does not qualify as a ‘difficult field’.

Similar is the fate of Mumbai basin block MB-OSN-2005/1 on the western side. The block GK-28/42 in Gulf of Kutch is a nomination block which does not qualify for higher rates, they said. The onland discoveries of ONGC and OIL too do not qualify for the higher rates. While ONGC’s KG block can produce a peak output of 5 mmscmd, the same from GK-28/42 is expected to be around 2.5 mmscmd. Peak output from MB-OSN-2005/1 is expected to a little less than 3 mmscmd.

Oil Minister Dharmendra Pradhan, in a written reply to a question in Lok Sabha on March 20, 2017, had stated that the cost of production of natural gas in the prolific Krishna Godavari basin is between USD 4.99 to USD 7.30 per mmBtu. The same for other basins is in the range of USD 3.80 to USD 6.59 per mmBtu, he had said adding the production cost of companies vary from field to field depending upon the size of the reservoir, location, logistics and availability of surface facilities.