K-G gas not viable at current rates, says ONGC

Oil and Natural Gas Corporation (ONGC) aims to produce 20-25 million cubic metres of gas a day from its deepwater block in the Krishna-Godavari Basin, and seeks a price in excess of $7 per million British thermal unit (mBtu) to make development viable, according to company Chairman and Managing Director, RS Sharma.

“Pricing is a major issue. The current price level (4.20/mBtu) is not viable. No one in the world is making future investment at these (price) levels,” Sharma said on the sidelines of an energy conference.

The state-run explorer is the operator of the KG-DWN-98/2 and holds 65 per cent interest. It has so far made 10 gas discoveries in the block, adjacent to Reliance Industries’ prolific D6 Block that started producing gas in April 2009.

The government approved a price of $4.20 for D6 gas. Sharma said, “The $4.20 per mBtu price is surely not a viable price for developing KG-DWN-98/2.”

ONGC expects to start gas production from the deepwater block in 2015-16. Adjacent to D6, Gujarat State Petroleum Corporation has a gas block, expected to go on stream in 2012.

Sharma said ONGC was undertaking appraisal of K-G Basin discoveries, following which it would work on the development plan. The project cost is estimated at around $5 billion.

ONGC, he said, was in talks with international exploration and production (E&P) majors, including American giant Exxon Mobil, after some of the existing partners expressed a desire to quit the project.

“We are talking to a number of global E&P majors. Development of the block requires a lot of technical expertise,” Sharma said, but did not name any of the prospective new partners. Two existing partners — Petrobras of Brazil and Statoil of Norway — intend to leave the block and are awaiting final government approval. Petrobras holds 15 per cent stake in KG-DWN-98/2, while Statoil and Cairn Energy own 10 per cent each.