Monday, January 5

Oil and Gas - RIL and Cairn India

Oil & Gas
All’s well for India’s oil and gas future
They are roughly 2,000 km apart and yet the pace of activity or the excitement in the air is unmistakably alike. While one set of them is busy scathing the rocks facing challenges in the desert region of Barmer, Rajasthan, the other is battling violent cyclone storms in water depths of 2,700 metres, off Kakinada, east coast of the Indian peninsula.

These men are set to script the most exciting story in India's energy history in recent times, and are easily set to be billed as the top newsmakers of 2009.
The two discoveries , RIL's offshore gas project and Cairn's onland oil discovery, are set to begin contributing to India's energy kitty in 2009-10, at a time when the country's trade deficit threatens to cause some serious concerns.
India's exports have been dipping over the last few months and the slowdown in the global economy is only expected to further add to its woes. Add to it India's gargantuan oil import bill, thanks to huge and growing domestic demand and sky-high crude prices that have softened of late.
The two new oil and gas projects that will start producing in year 2009-10 will help meet crucial energy requirements of the country, substituting imports and thereby leading to forex savings.
The story of the two major energy projects - Reliance Industries' Krishna Godavari gas project and Cairn India's Barmer oil project - which is set to change the energy landscape of the country began almost a decade ago. While RIL's discovery marked the first private sector foray and strike in India's oil and gas basins, Cairn's find was even more fascinating as the London Stock Exchange listed parent company Cairn Plc took up explorations in an abandoned field.

Royal Dutch Shell which had been awarded the field on a nomination basis decided to walk out after the initial discovery that showed prospects of just 100 barrels. The story goes that Mike Watts, the exploration director of Cairn Energy who has earned the nickname 'sniffer' for his ability to find black gold, went to make the largest onland oil discovery for Cairn in Barmer in early 2004.
Reliance, which made the world's largest gas discovery in 2002 at the KG basin is estimated to have the capacity to produce 550,000 barrels of oil equivalent per day. And this could be just the preamble to India's natural gas finds.
Says V K Sibal, India's director general of hydrocarbons, the nodal government agency that tracks exploration and production activities in India's sedimentary basins: "This gas find is just the tip of the iceberg. We are largely underexplored, having drilled only 0.15 wells per 1000 square kilometre. The Gulf of Mexico, for instance has 50,000 drilled wells."
RIL has already begun oil production from the KG basin, and is in the final leg of gas production and gas from the offshore field. It is expected to reach energy-starved consumers before mid 2009. As much as 18% of the total installed gas-based power capacity in the country of 14,000 mw, today remains idle for want of gas. The same holds true for fertiliser plants as well. The commissioning of the KG gas project is expected to help meet the energy needs and reduce the government's subsidy bill. At least ten fertiliser and power plants are expected to fuel their projects with RIL's first tranche of gas from this field.
Says R V Shahi, former power secretary to the government of India: "This could be a light at the end of the tunnel for India's energy consumers who import more than 70% of their requirement. The gas availability will help the government in its fiscal management as the import substitution will help save foreign exchange." Early estimates have it that RIL's production from these fields would account for 40% of India's current output.
The Cairn story is as fascinating as oil from the onland fields is expected to be supplied to some major refineries in the country that fuel our economy. India currently processes 3.0 million barrels per day (mmbpd) of crude oil. Of this, domestic production is 0.8mm bpd while 2.2mm bpd (75%) is imported.

At plateau, (beyond which production from a field starts declining) Cairn India's Rajasthan fields would contribute 20% to the present domestic crude oil production and improve the trade balance by reducing crude oil imports by 8% i.e. by US$3.5bn annually @$50/bbl or US$5.2bn @$75/bbl (0.5% of India's GDP). On an average, India will save valuable foreign exchange of the order of US$1.5bn annually over the next 10 years following commencement of production from Cairn India's RJ discovery.

Although the timing of the new energy streams is almost providential given the turbulent economic times, India has a long way to go as far as energy security is concerned. Says R K Pachauri, director The Energy and Resources Institute and chairman of the Inter-governmental panel on climate change (IGPCC): "We cannot afford to be complacent. Given the rate of economic growth and the unmet demand in the country, this output will only be a small drop. Efforts have to be made to develop alternative sources of energy which remain largely unexplored." India's energy demands are growing at a robust rate of close to 8 to 10%. Only realistic pricing of energy will bring the demand growth for energy below the rate of growth of GDP.

Source: The Economic Times; 5 January 2009

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