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Even as the gas price hike announced by the UPA government a few days before the poll bugle was blown hasn’t materialised and is caught in an imbroglio, Reliance Industries and its partners have cut their projection for KG-D6 gas output for FY15 to a new low. The companies are learnt to have informed the petroleum ministry that the average output from the block for 2014-15 would be 12.31 million metric standard cubic metres per day (mmscmd), down 6.53 Percent from the 13.17 mmscmd achieved in FY14. The production from the once-prolific field that commenced in April 2009 had peaked at 69.43 mmscmd in March 2010 but has since fallen precipitously.

In what gave further credence to their claim that geological complexities had come in the way of increasing output, RIL and partners BP and Niko Resources have also lowered the capital expenditure estimate to $403.23 million for FY15, 57 Percent less than the expenditure incurred in the block in FY14.

RIL’s new estimate casts doubts on the feasibility of the government’s latest road map for increasing India’s gas production. Unveiling a plan in July 2013, petroleum minister Veerappa Moily said the country’s overall gas production from various sources would increase 66 Percent (from 105 mmscmd in FY14) to 175 mmscmd in 2016-17.

Reduced gas output spells bad news for consuming industries like power, fertiliser and city gas distribution, which are already vying for a larger share in the pool available. Under the gas allocation policy, fertiliser gets top priority, followed by city gas and power. Gas-based power capacities of 18,000 MW are stranded due to lack of adequate domestic fuel supplies.

RIL and government are engaged in arbitration over the former’s alleged suppression of gas and jacking up of capital expenditure (the government had slapped a $1.8-billion penalty on RIL).

The petroleum ministry and the upstream regulator, Directorate General of Hydrocarbons (DGH), have put the blame on the explorers for “major delay in development work” in KG-D6. “There is a major delay in development activities because the explorers are awaiting clarity on gas price,” a senior petroleum ministry official. This week, the Election Commission stood firm on its stance and said no to the ministry’s plea for a review of its decision to defer the implementation of new gas pricing regime based on the Rangarajan formula. The new gas price (which would have been nearly double the current price of $4.2 per million metric British thermal units had the formula been applied), was to take effect from April 1, but for the EC diktat.

The exploration firms, RIL and its foreign partners BP and Niko Resources, had spent 23 Percent less in the block when compared to the budgeted expenditure in FY14. The expenses incurred in the block came down to $940.48 million in the revised estimate against the budgeted estimate of $1.22 billion.

RIL and BP, its partner in KG-D6, seeking their views. It is learnt that the explorers have spent particularly lower (than budgeted) amounts in the development of the D1 and D3 fields, which are the mainstay fields of the KG-D6 block. In FY14, $87.57 million was the budget estimate for these fields, while they spent only $41.271 million. Also, the cost of development of four satellite fields (D2, 6, 19 and 22) have come down drastically to $15.583 million in the revised estimate from $202.9 million in the budget estimate, sources say.

Source-On Request