In the first major private investment in the last few years, Reliance Industries and its partner, BP plc of UK, today announced a Rs 40,000 crore investment to restart gas field development work in their flagging KG-D6 block after a hiatus of eight years.
The two firms also announced a strategic cooperation to explore possibility of setting up co-branded petrol pumps as also jointly marketing aviation turbine fuel (ATF) among opportunities for conventional and unconventional fuels.
RIL Chairman and India's richest man, Mukesh Ambani, and BP CEO Bob Dudley announced plans to develop about 3 trillion cubic feet of resources to produce an additional 30-35 million cubic meters a day of gas from the KG-D6 block in the Krishna Godavari basin between 2020 and 2022.
Dudley said BP, which spent USD 7.2 billion in 2011 to buy 30 per cent stake in KG-D6 and 20 other blocks of RIL, is encouraged by several government reforms, including gas pricing.
The USD 6 billion, or Rs 40,000 crore, will be invested in the R-Series, Satellites and D-55 discoveries to augment production from D1/D3 and MA fields, which were put on production in 2009.
This is the first major investment announcement by a private company in recent years.
BP, however, wanted India to move towards free market pricing to further inspire confidence.
"I think overall, as the world continues to focus on climate change, overtime government policies should support clean natural gas. So, policies that support free market pricing for natural gas (should be promulgated)," Dudley said.
India, which relies on imports to meet its 50 per cent of needs, should use its own molecules of gas rather than spend foreign exchange.
Also, policies should combine renewable energies like solar and wind with natural gas, which can be used as a peaking fuel when the sun isn't shining and the wind isn't blowing, he said.
Asked about four arbitrations that RIL and BP have initiated against the government including one to get higher gas price, Ambani said the partners were "pretty sure" that they will get "a fair outcome."
"We don't think that this will come in the way of our future investments," he said.
The government has made withdrawal of such legal proceedings for any company to get benefit of higher gas prices.
"Not just here, but there are lots of cases around the world. It is very complex... And like Mukesh, I have a strong feeling there will be a fair resolution on this," Dudley said.
Ambani said the two companies have worked within the existing framework of government policies.
"We still have some pending arbitration and we will follow the path of following the legal process and we hope that we will bring those arbitrations to an end as per the normal course of law," he said.
The investments, he said, were a result of the new policies. "It is high time that we produce our own gas and don't import when we have it."
Dudley, whose last visit in January 2015 led to India revisiting the natural gas pricing formula and a higher rate for gas produced from deep-sea and difficult areas, met Prime Minister Narendra Modi and Oil Minister Dharmendra Pradhan.
While the price for natural gas RIL-BP produce from the existing flagging fields in the KG-D6 block is capped at USD 2.48 per million British thermal unit, the rate gas from newer fields in the deep-sea block would fetch USD 5.56 per mmBtu - a price considered attractive enough for reviving the investment cycle.
RIL-BP currently produce gas from Dhirubhai-1 and 3 fields and oil and gas from MA field, three of the over one- and-half dozen discoveries made in KG-D6 block.
The fields, which began gas production in April 2009, hit a peak output of 69.43 million standard cubic meters per day in March 2010 before water and sand ingress shut down well after well. The block currently produces around 7.4 mmscmd.
Work for developing R-Series and satellite discoveries has begun and a fresh investment plan would be formulated by the end of the year for development of R-Cluster and Satellite fields in KG-D6 block.
A field development plan (FDP), approved in August 2013, envisaged USD 3.18 billion investment in R-Series or D-34 gas field to produce 13-15 mmscmd of gas for 13 years.
RIL-BP recently submitted FDP for two other discoveries -- D-29 and 30 -- which formed part of R-Cluster.
Besides, another FDP of USD 1.529 billion for four satellite gas discoveries - D-2, 6, 19 and 22, was approved in 2012. The four fields can produce 10.36 mmscmd.
Both of these productions were to originally start by 2017 but unfavourable business environment and low gas prices led to the two partners pushing back the investments.
A new FDP would be presented to the regulator, DGH, for the fields.
"We have seen over the last few years, a change in policies and support has given us the confidence to make this very significant investment," Dudley said.
"We have a deep commitment to India. We see the potential of India. We see the leadrship and the confidence in leadership of the country, and the energy policies and of course, having good strong partners."
The partners will award contracts for work on the R- series fields in the KG-D6 block, lying 70 km offshore. Plans for development of the satellite and D-55 fields in the block will be submitted to the government before the end of 2017, he said.
"Together with Reliance, I want to reinforce our commitment to working with the government to support the prime minister's call of import substitution and the development of the gas-based economy," Dudley said.
The project will contribute about 10 per cent of the country's projected gas demand by 2022 and can replace liquefied natural gas imports worth USD 20 billion.
"BP and Reliance are committed to being one of India's preferred energy partners now and in the future," Ambani said.
Also, they have over half a dozen discoveries in block NEC-25, off the Odisha coast. D32 discovery in the block was recently declared commercial.
However, development of the gas fields would be contigent on resolution of arbitration cases.
RIL is locked in four arbitration cases with the government. It is in arbitration against the government disallowing recovery of certain KG-D6 gas field costs as a punishment for gas output lagging targets.
Another arbitration is over deferring of a natural gas price hike due to the company from April 1, 2014. The latest arbitration is against government demanding USD 1.55 billion compensation from RIL and its partners for "unfairly" producing ONGC's gas.