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kg-d6 presentation1

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    GODAVARI KRISHNA BASINBLOCK D-6 DISPUTE

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    LOCATION

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    In 2002, Reliance found natural gas in the KrishnaGodavari basin off the coast ofAndhra Pradesh nearVishakapatnam.

    It was the largest discovery of natural gas in world infinancial year 2002-2003.

    The KG-D6 Block is located in the Bay of Bengal at awater depth of 8000 ft. and 50 kms from the nearestcoast of Kakinada

    On 01 April 2009, Reliance Industries (RIL)

    commenced natural gas production from its D-6 block

    The gas reserve is 7 trillion cubic feet in size.Equivalent to 1.2 billion barrels (165 million tonnes) of

    crude oil, but only 5 trillion cubic feet are extractable.

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    A 12,000 tonne control riser platform Dhirubhai-1 (FPSO)is stationed at oil production site and is capable ofprocessing 60,000 barrels of oil per day and 15 millioncubic feet per day gas and storing up to 1.3 million barrelsof oil.

    The vessel is also equipped with a disconnect able turretmooring system, insulated manifold and short flexible flowlines, features that can ensure crude oil production evenamid tough weather

    conditions.

    Over 2000 people were deployed in the exploration

    90 marine vessels were used to extract oil from waters

    as deep as 8000 ft.

    RELIANCE EQUIPMENTS

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    INDIAN PRESPECTIVE on KG-D6

    Foreign exchange and import bill savings of $20 billion.

    Reliance KG-D6 will account for 40 per cent of countryscurrent indigenous hydrocarbon production

    East Coast of India is set to emerge as a world classhydrocarbon hub.

    Will enable Indias farmers to access energy and

    drastically reduce pollution in cities and towns. It will alsoprovide distributed power to urban and rural areas

    Reliances targeted production of 5,50,000 barrels per dayof hydrocarbons can feed cooking gas to 100 million to 120million households

    over 50 million two-wheelers, five million cars and 10million trucks can be powered.

    Distributed power generation for thousands of megawattsof power which can meet the requirement of lighting for

    over 80 million households

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    Around 7 trillion cubic feet of natural gas was discovered byReliance in the Krishna Godavari basin in October 2002.

    In 2005, the Reliance Group was split betweenAnil Ambani andMukesh Ambani with RIL going to Mukesh Ambani and RNRLto Anil Ambani .

    A family pact was made in 2005 in which RIL was to supply 28million cubic meters of gas a day at $2.34 per million units toRNRL for 17 years.

    In September 2007, the Indian Government fixed a price of $

    4.2/mBtu.

    This decision was later reversed by the Bombay High Court,which ordered RIL to supply the gas as per the originalagreement.

    HISTORY OF CONFLICT

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    Mukesh Ambani has appealed against thejudgement in the Supreme Court - the court ishearing.

    India's oil ministry is also embroiled in thecontroversy - federal oil minister Murli Deorahas been criticized by Anil Ambani for allegedly

    siding with his elder brother.

    Mr. Deora has said gas is a national property

    and belongs to the people of India.

    HISTORY OF CONFLICT

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    If the lower price prevails RIL stands to lose over $14 billion inrevenue (over a 15 year period) and the government valuabletaxation revenue.

    If the lower gas price of $2.34 per mmbtu is approved andapplied to all gas produced from Dhirubhai, the report estimatesthe full cycle IRR would be less than 3.3% which is below thecost of capital.

    ONGC provides gas for a price of $2 per mmbtu under the

    adjusted pricing mechanism (APM) which is hardly an incentiveto go exploring for gas The only regions with lower gas prices than India are Russia

    and the Middle East where domestic gas prices are between$1-$2 per mmbtu as these countries have abundant gasreserves

    If the lower price prevails RIL stands to loseover $14 billion in revenue (over a 15 yearperiod) and the government valuable taxationrevenue.

    If the lower gas price of $2.34 per mmbtu isapproved the report estimates the full cycle IRRwould be less than 3.3% which is below thecost of capital.

    ONGC provides gas for a price of $2 per mmbtuunder the adjusted pricing mechanism (APM)

    which is hardly an incentive to go exploring foras

    RILs VIEW

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    RIL said the advertisement campaign was an attemptto destroy value created in the project and "maliciouslyharm the country's reputation as an investmentdestination" and delay and disturb the systematicdevelopment of the field.

    Russia and the Middle East have domestic gas pricesbetween $1-$2 per mmbtu as these countries haveabundant gas reserves

    capital expenditure for developing Dhirubhai- 1& 3fields in KG-D6 block had gone up from USD 2.47billion in 2003 to USD 8.83 billion because of increase

    in reserves by over 2.5 times

    RILs VIEW

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    R-INFRAs VIEW

    Reliance Infrastructure, wants to enforce a 2005agreement requiring Reliance Industries to supplynatural gas from the KG-D6 field to a plant in UttarPradesh at 44 percent cheaper than a government-approved price.

    RIL had initially proposed USD 0.12 per mmBtu asmargin to cover for marketing risk but when customerssought multiple changes in the gas sale contract thatincreased its risks and liabilities, the levy was raised to

    USD 0.15 per mmBtuCompany has asked the oil ministry to stop RIL from

    charging marketing margin on gas, alleging that thefirm was not sharing the revenue and diverting

    crores of rupees of the governments share.

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    R-INFRAs VIEW

    The firm wants ministry to expeditespecial CAG audit of the contract for thefield on how RIL says that capitalexpenditure on KG-D6 gas field has goneup from Rs 12,000 crore to Rs 45,000crore, when the production only doubled

    from 40 mmscmd to 80 mmscmd

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    NTPCs ARGUEMENTS

    NTPC does not want to take RIL gas for Kawasand Gandhar plants because of the pendinglegal dispute over supply of gas at USD 2.34per mmBtu price quoted by RIL in a 2004tender.

    NTPC is opposing selling of fuel to its joint

    venture Dabhol power plant.

    It also opposses sale of KG-D6 gas toRatnagiri Gas and Power Pvt Ltd (RGPPL).

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    PROPOSED SOLUTIONS

    Reliance Industries pricing formula has beenapproved with minor modifications. The newprice is just 13 cents lower than the proposedprice at 4.20 per MMBTU.

    EGoM will not call for rebids. This because, thePetroleum Ministry informed the EGoM that

    getting RIl to call for rebids from all gasconsumers could drive the price of gas to up to10 dollars. This would make gas completely

    unaffordable for the power and fertilizer sectors.

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    The approved price formula would be effective for thepresent term of gas supply (five years) and would berevised at the end of this period with government

    approval for the purpose of valuation. The governmentwould value all the gas sold as per the presentformula, for the purpose of government's share,barring those sales which take place at prices higher

    than those derived by the approved formula.

    The EGoM will relook the NTPC-RIL case if the court

    verdict goes in NTPC's favour.

    The EGoM did not take up the other controversial gasbattle between the two Ambani brothers at all.


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