10 things you should know about the Reliance KG-D6 gas deal

Business Standard tried its best to educate readers on this issue. Excerpts:

• The brothers while splitting their father’s empire split the gas reserves too.None of the ministries involved in the process, including the oil ministry which Moily now represents, raised the point that the gas reserves belonged to the country and was not a property of the Ambani family. Even the Prime Minister, ManMohan Singh meekly requested the brothers to settle their differences in the interests of the country.
•  The Supreme Court finally settled the matter by saying that ‘the government owns the gas till it reaches its ultimate consumer and parties must restrict their negotiation within the conditions of the government policy’.
• Former RBI governor C Rangarajan came out with a formula which has been followed nowhere in the world, which has resulted in Reliance (and other players too) getting a price on import parity basis. Surya Sethi, former Principal Adviser, Power and Energy, Government of India does not mince words when he asks the Prime Minister in an open letter  not to burden the nation with Rangarajan Committee’s madness that only benefit a select few. 

Best Available and Safest Technologies for Offshore Oil and Gas Operations: Options for Implementation

Offshore drilling/ exploration technology is a black-box for policy makers in India. Not so in USA. This report gives an overview prepared for US policy makers. The Outer Continental Shelf Lands Act (OCSLA), of US  mandates that the Secretary:
shall require, on all new drilling and production operations and, wherever practicable, on existing operations, the use of the best available and safest technologies which the Secretary determines to be economically feasible, wherever failure of equipment would have a significant effect on safety, health, or the environment, except where the Secretary determines that the incremental benefits are clearly insufficient to justify the incremental costs of utilizing such technologies.

This PDF is available from The National Academies Press at http://www.nap.edu/catalog.php?record_id=18545

The long shadow of Enron on powerless Andhra Pradesh

Rebecca Mark, once one of the most powerful business person in USA probably never visited Andhra Pradesh. She had cast a magic spell on greedy politicians, bureaucrats  and Financial institutes in India and also in many other countries. In the highly inflated Enron plant cost estimates, she made liberal provision to educate Indian people. But we never tried to learn.
Enron exposed in USA went bankrupt in 2001but plant at Ratnagiri was salvaged with public money in India.NTPC and GAIl were made to pump money and everyone knows that plant will never break even even after writing off all bank loans by buying the feed LNG from market. Writing off investment would invite caustic comments by CAG and the only alternative left to the promoter GAIL is to keep the sick plant on notionally alive category is to pump low cost gas from KG fields whether A.P likes it or not. 
All the suppliers to Enron made money by supplying plant and parts that could not be used, Indian FIs wrote off investment, NTPC & GAIL the public sector undertakings had been made to pump public money to keep the lid on. And who would  have imagined dining and wining of sexy Rebecca by Indian politicians would switch off power to million homes in distant place called Andha Pradesh. 

Vermont Will Be First U.S. State to Ban Fracking

"We don't want to be shooting chemicals into our groundwater in pursuit of gas that does not exist," Governor Shumlin said Friday after the House vote.
Read more 

Berlin is opposed to plans to use the controversial fracking process to extract natural gas in Germany

Germany has put the brakes on plans to use hydraulic fracturing, commonly known as fracking, to extract natural gas in places where it is difficult to access, such as shale or coal beds. Environment Minister Norbert Röttgen and Economy Minister Philipp Rösler have agreed to oppose the controversial process for the time being, SPIEGEL has learned.

Sources in the German government said that the ministers were "very skeptical" about fracking, which injects chemicals as well as sand and water into the ground to release natural gas. "There are many open questions which we will first have to carefully examine," Rösler told close associates.

With their stance, the two ministers are opposing plans by energy companies to use the fracking process to tap into deposits of natural gas in shale, especially in northern and eastern Germany. In order to access the gas, the shale needs to be fractured using a mixture of hot water, sand and chemical additives, some of which are poisonous. Environmental groups reject the use of the technology, saying that the chemicals used can contaminate drinking water.

Local Protests

Last week, the energy giant ExxonMobil presented a study by the Helmholtz Center for Environmental Research, in which researchers expressed their support for test drilling in the states of Lower Saxony and North Rhine-Westphalia.

Local environmental groups in the affected regions have already got into gear, setting up citizens' initiatives to collect signatures for petitions and organize protests in a bid to block the fracking plans. Activists fear that the chemicals could pollute the local groundwater.

Fracking has been widely used in the US, where production of natural gas has sharply increased in recent years as the use of hydraulic fracturing becomes more widespread. Earlier this month, President Barack Obama's administration unveiled new regulations to improve transparency on the chemicals used during fracking on public land.

Source: speigel

Gujarat State Petroleum Corporation (GSPC) may witness a “marginal” increase in its KG offshore development cost

Gujarat State Petroleum Corporation (GSPC) may witness a “marginal” increase in its KG offshore development cost from the initially estimated $1.7 billion (approximately Rs 8,800 crore at the current exchange value) due to recent amendments in drilling technology to manage the high pressure and temperature of the reservoir.

First gas from KG-OSN-2001/3, the field has been rechristened as “Deen-Dayal,” is expected in 2013. Peak output from the find is estimated to reach 5.7-8.6 million metric standard cubic metre a day (mmscmd).

Though located in shallow water, development of the gas find is considered “challenging” due to twin hurdles of temperature and pressure. The field development plan (FDP) was approved by the Directorate General of Hydrocarbons in November 2009.

According to sources, GSPC has already drilled the “top-hole” section of the four production wells, out of the proposed 15, by using a jack-up rig Deep Sea Driller – I, costing $ 100,000 a day. To drill the final section of the reservoir wall by using a cheaper ($62,000 a day) platform-rig, GSPC has roped in Blade Energy to adopt managed pressure drilling (MPD) technology, which was not part of the original FDP.

Source: Business Line

KG D6 on Wiki

Read http://en.wikipedia.org/wiki/KG-D6_Gas_Scam

Chawla committe finds fault with Production Sharing Contract (PSC)

Chawla committee notes the fault line is the PSC between operator RIL and Government.The relationship between the pre-tax investment multiple (PTIM) and the share of contractor profit petroleum changes dramatically once the PTIM crosses 2.5, with the government's share increasing from 28 per cent to 85 per cent. There is thus an incentive for bidder higher PTIM in the bid but work towards lower in actual.
Source: Economic Times

CAG questions enhanced capital expenditure of RIL

What is this controversy about?


Government is the owner and RIL is the contractor of KG gas.Government gets its share of revenue after deduction expenditure of the operator, the higher the expenses lower will be plus to share. RIL claimed increase in capital expenditure from $2.4 billio to $8.8 billion DG Hydrocarbons and Minsitry approved the same between September and December 2006. Analysts were puzzled with this claim as there was no corresponding increase in out put, which plateaued (for D6 block) at 55mmscmd as against production target of 80mmscmd.   

The draft CAG report makes three significant charges:

• First, that the Government gave RIL and Cairn unjustified deadline extensions for the completion of exploration, ranging from three months to 12 months at a time.
• Second, the Government allowed RIL and Cairn to retain unexplored contract areas which ought to have been returned to the Government, and re-auctioned, after a given (in the contract) point in time.
• Third, RIL inflated its capital expenditure requirements by 117 per cent between 2004 and 2006, which cost the Government revenue.

Source: India Today

Power cuts in AP and KG gas availability

AP is reeling under power cuts. Where is the problem?
As per reports, Andhra Pradesh has gas-based power generation capacity of 2,700 MW but due to inadequate pipeline infrastructure produces only about 1900 MW. At the same time there is news on Reliance and GAIL swapping deal valid May 31-  Reliance will supply nearly 2.6 million cubic metres a day (mmscmd) of gas, currently used by customers in Gujarat, to power producers in Andhra Pradesh. This will result in generation of 600MW of power.

If pipe line capacity is a constraint, how  is this additional quantity distributed. If this additional quantity is coming thru existing pipeline, why make this a temporary arrangement? 

Reliance gets $7.2 billion mostly for KG gas.What did Andhra get?

BP said on Monday it will pay Reliance Industries $7.2 billion and performance payments of up to $1.8 billion if the tie-up leads to the development of commercial discoveries. 

The company's key production asset is its KG D6 block in the Krishna-Godavari basin off India's east coast. Its output is around 52-53 million cubic metres of gas a day and it could reach peak capacity of 80 million cubic metres in 2013. 

Read more: BP and Reliance in $7.2bn oil and gas alliance - The Times of India http://timesofindia.indiatimes.com/business/india-business/BP-and-Reliance-in-72bn-oil-and-gas-alliance/articleshow/7540225.cms#ixzz1Ey6SlRqM


Discovery of gas transformed economies of several nations - what did Andhra get? 

Did A.P miss an opportunity to build wealth and enterprise with KG gas?

Oil and Natural gas discoveries are the real game changers- they dramatically transformed economies of several countries. Few examples:
The discovery of large quantities of oil and gas in the North Sea has been one of the most dramatic events in the post-war history of the UK. The direct and indirect effects have permeated the whole country. The balance of payments and the public finances have benefited greatly since the 1970s. Locally the economy of the whole of the North-East of Scotland has been transformed as a result of the coming of oil. For many years prior to its discovery the regional population had been falling from 468,000 in 1951 to 455,000 in 1961, 450,000 in 1966, and 436,000 in 1971. Total employment also fell through the 1950s and 1960s.

The first commercial oil field dates to 1969 when what is now the Arbroath field was discovered. It was the discovery of the giant Forties field the following year that confirmed the exploration potential of the waters off Scotland and led to a rapid succession of further substantial discoveries in the first half of the 1970s.

The North-East economy shared in this boom. The population trend was dramatically reversed, with Grampian region exhibiting a growth from 436,000 in 1971 to 480,000 in 1981, and 533,000 in 1995. Unemployment rates became extremely low and average male earnings rose from 85% of the UK national in 1972 to well over 100% by 1978. 

Many of the traditional industries were not inherently very profitable and their ability to withstand increased costs was very limited. The textiles, papermaking, traditional engineering, fishing and fish processing industries all experienced declines in the period since the 1970s. The continued growth of the oil-related sector countered the loss of employment elsewhere. 

Israel us the last to discover vast reservoirs of gas and what is it planning to do? They decided to set up gas wealth fund , invest it wisely globally and use the returns to support education and defense.

Andhra Pradesh seems to have showed little imagination is utilising Krishna Godavari gas for economic development of Andhra. Radia tapes show that Rajeskar Reddy tried invain. Is all lost on economic gains to the region from discovery of KG gas? 

RIL makes 4 new gas discoveries at KG D6

Reliance Industries has made four new gas discoveries at Krishna-Godavari D6 block, sources told CNBC-TV18's Nayantara Rai. The company has requested the Directorate General of Hydrocarbons (DGH) for commercial approval.
It has made four discoveries for around two trillion cubic feet (TCF), sources said. The four discoveries are spread over 5,000 sq km. The KG D6 block has reserves of 10.03 TCF.

Statoil and Petrobras quit ONGC KG basin gas exploration pact

Statiol of Norway and Petrobras og Brazil quit ONGC KG basin gas exploration pact- read at Business Standard

Benefit to A.P from KG basin gas: Rs 300 per house

Ajay Modi, Business Standard, analysed impact of KG basin gas for the last one. Very informative and needs all appreciation. Some facts reported:

• gas production surpassed oil for the first time.
• savings to power sector Rs 3,000 crores and to Fertliser industry Rs 6,000 crores.
  
• average saving per household in A.P is Rs 300 per month.

The last one, of benefit to Andhra needs discussion. Is this benefit of Rs 3,600 per household a fact or fiction.
Read article: Business standard