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Monday, October 26, 2009

Allocate to check KG-basin reservoir damage: RIL to govt

Reliance Industries has warned of irreversible damage to the Krishna Godavari basin reservoir saying the failure of the government to name additional customers has led to natural gas flow from KG-D6 fields being artificially restricted.

RIL said production capacity from KG-D6 has far exceeded the 40 million standard cubic meters per day (mmscmd), for which buyers have been tied-up, and has asked the government to immediately name customers for an additional 25 mmscmd so as to avoid irreversible damage to the field reservoirs.

"We would like to bring to your kind notice that due to the delay in additional allocation of KG-D6 gas to various customers awaiting allocation, the KG-D6 reservoir is being exposed to frequent increases and decreases in production levels," RIL Executive Director P M S Prasad wrote to Oil Secretary R S Pandey last week.

He asked the government to name customers for 25 mmscmd on a firm basis and users for another 20 mmscmd on a temporary or fall-back basis till the time RIL can on a sustained basis produce over 80 mmscmd of peak output.

RIL has drilled and completed wells in the KG-DWN-98/3 or KG-D6 block that can produce 65 mmscmd but is forced to restrict the flow to around 40 mmscmd. The company had crossed the ability to produce 40 mmscmd in August and has since then been waiting for the government to name customers beyond the initial

Even the volumes allocated to fertiliser, power and steel sectors are subject to wide fluctuations as plants reduce or increase offtake on a near daily basis.

An Empowered Group of Ministers (EGOM) headed by Finance Minister Pranab Mukherjee is scheduled to meet tomorrow to consider additional allocation of KG-D6 gas.

Since production started in April, in about 70 days the production from KG-D6 reservoir had to be reduced due to a sudden change in demand from customers, Prasad wrote on October 19. "None of the incidents of reduction were caused due to production issues, but were solely due to variation in demand from the customers due to various operational reasons at the customer end."

"You would appreciate that the optimal extraction of gas reserve is possible only through a smooth draining of the reservoir. Frequent changes in gas production levels result in repeated adjustment in production profile of the wells, which may cause irreversible damage to the reservoir itself," he wrote.

"These frequent changes in production levels can be very well avoided by increasing the customer base for supply of KG-D6 gas, for which we made several requests to the government over the last few months."

Prasad said India is currently importing around 5-6 cargoes of liquefied natural gas (LNG) from the spot market per month to meet gas requirements of various customers. This translates into daily consumption of about 18 mmscmd of spot LNG.

"The price of spot LNG is significantly higher than that of KG-D6 gas and the differential is expected to increase further. This is resulting in the out go of Rs 25 crore per day in terms of foreign exchange," he wrote.

"Lack of additional allocation is resulting in a double whammy for the country - on one side KG-D6 reservoir is being exposed to frequent variations of demand causing irreversible damage and on the other hand we continue to import spot LNG resulting in avoidable increase in costs to customers and transfer of wealth outside the country," he added.

"To prevent irreversible damage to the reservoir due to frequent reduction in production, it is requested for an immediate allocation of KG-D6 gas to additional customers," he said.

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