With the Oil Ministry indicating that a new gas price may be delayed by a quarter, Reliance Industries has said the postponement may stall USD 4 billion of investment in KG-D6 block’s second-biggest gas field.
RIL and partner BP plc of UK had completed front-end engineering design (FEED) for development of D-34 or R-Series gas field in the Krishna Godavari basin KG-D6 block in the Bay of Bengal.
They had floated tenders for sourcing equipment and were on the verge of awarding contracts for long-lead items so as to begin work in the five-month weather window that will become available from November and deliver gas in 2017.
“There is no clarity on what the gas price would be in the future, failing which all our current and future investment plans are in jeopardy,” the companies said.
In notes accompanying a press statement they issued announcing the slapping of an arbitration notice on the government for implementation of the gas-price increase, RIL-BP said they were getting ready for first major investment that would have brought new gas in 2017.
“The contractor group which was getting ready to sanction the first major project with an investment of USD 4 billion in June/July 2014 is now forced to halt activities,” they said.
Sources close to the consortium said the project being referred to was the R-series field, which holds 2.2 trillion cubic feet of in-place gas reserves. Of these, 1.191 tcf are recoverable with a peak output of 12.9 million standard cubic meters per day.
Delaying the investment decision may result in missing this year’s weather window and pushing back gas production by one year.
“One quarter’s delay this year will delay this project by one year due to the construction weather window in the Bay of Bengal being lost,” RIL-BP said.
The Cabinet had in December approved a new formula to calculate gas prices starting April 1, 2014, almost doubling the rate from the current USD 4.2 per million British thermal units. The new price could not be announced because the Election Commission asked the government to wait till the completion of the Lok Sabha polls.
RIL-BP served the arbitration notice challenging the denial of new rates from April 1 upon expiry of the five-year term of the old price.
Stating that it was being forced to sell gas at old rates in “contravention” of the signed contract, they said the Oil Ministry has indicated that “gas prices would only be announced for the second quarter 2014, completely ignoring the Cabinet decision to change prices from April 1, 2014.”
“This contradictory move has resulted in a loss to the contractor group and the government of Rs 300 crore per month,” they said.
