Reliance Industries Ltd’s oil and gas business unit is awaiting the final communication from the Government on gas price before approaching its Board for further investments in the KG-D6 block.
The Mukesh Ambani-led company’s exploration business has attracted investors’ ire because of the uncertainty on returns from investment.
“We are yet to hear from the Government on the revised gas price effective April 2014. The devil lies in detail. We would like to see how the shortfall in gas supplies has been calculated to decide on the bank guarantee,” a senior company official told
“Once the communication is received, we will revisit the entire investment plan and approach the company’s executive committee. The committee, if convinced, will go to the RIL Board for approvals, if required,” the official added.
The Government on December 19 had allowed RIL to benefit from the higher gas price, but with riders. RIL has to submit a bank guarantee for the supply shortfall from the D-1 and D-3 gas fields in the KG-D6 block, to avail itself of the revised gas price.
“We will have to see what will be the implications the bank guarantee will have on the ongoing arbitration,” he said. According to the Petroleum and Natural Gas Ministry, the bank guarantee will depend on the quantum of shortfall and the new gas price. Currently, D6 gas is sold at $4.2 a unit at the landfall point.
Local levies, marketing margin, and transmission tariff will be added to this price.
It is estimated that the shortfall in supplies was about one trillion cubic feet. According to the initial estimates, KG-D6 output was to reach 80 mmscmd in 9-12 months of the start of production. Production from the D-1 and D-3 fields in the block started in April 2009. After hitting a peak of 60-61 mmscmd in early 2010, the output started to drop.
Today, the output from the D-1 and D-3 fields stands at 9.5 mmscmd. Total output from the D6 block that includes MA fields is at around 12 mmscmd.