India’s Reliance Industries Limited (RIL) has put the development of its D-35 discovery in the deepwater Cauvery Basin block CY-DWN-2001/2 on hold, claiming the government’s gas price means it is not a viable project.

The field, with estimated gas reserves of 622.3 Bcf, is not viable while the government’s pricing for gas at US$4.2 per MMbtu remains, says RIL. The operator informed the federal petroleum and natural gas ministry that a techno-economic evaluation on the field showed a negative net present value (NPV) of $61m at the current gas price.

It added that a gas price of at least $6 per MMbtu was required to provide a positive return on its investment.

RIL has also received support from India’s upstream regulator, the Directorate General of Hydrocarbons (DGH), which endorsed its’ view, commenting that the $4.2 per MMbtu price tag does not appear to provide a positive return on the investments made by RIL in the development of the deepwater discovery.

DGH maintained that at the present gas price the development would lead to a negative NPV of as much as $328m. Even if the exploration cost of $267m is excluded, the techno-economic evaluation is still negative at $61m.

The DGH has approved the commerciality of the D-35 gas discovery in the Bay of Bengal. It vetted gas initially in-place (GIIP) in D-35 at 622.31 Bcf.

RIL, however, says it is willing to take up the commercial development of the D-35 discovery if the gas price is increased to $6 per MMbtu. It has also prepared a development plan with a Capex of $1.45 Bn, in which about $267m is earmarked for exploration activities.

The operator drilled seven wells in the CY-DWN-2001/2 block in Phase I, of which two were additional wells and two were appraisal wells. Two of those hit the reservoir while five were dry holes.

The discovery well CY III-D5-A1 and the appraisal well CY III-D5-A2 encountered a two-layer reservoir. CY III-D5- A1 has a GIIP of 316.39 Bcf in the bottom zone and 42.62 Bcf in the upper zone, whereas CY III-D5-A2 has 66.58 Bcf in the upper and 174.71 Bcf in the lower zone. The recovery factor in the upper layer is put at 62.5% and in the lower layer at 56.5%.

DGH estimated that the total GIIP stands at 622.31 Bcf while RIL claims the GIIP should be pegged at a higher level of 719 Bcf.

The operator has also prepared a production profile involving the drilling of five production wells to supply gas for an estimated 10 years. The average gas output is forecast at 4 MMcm/d for the first seven years, falling to 3 MMcm/d, 2 MMcm/d and 1 MMcm/d respectively in the next three years.

The federal petroleum and natural gas ministry, however, is not averse to an increase in price for gas produced from the domestic fields. A senior official told DI it is meaningless to keep the gas price at $4.2 per MMbtu at a time when several consumers are paying $12-14 per MMbtu for imported LNG.

The ministry is preparing a proposal for a hike in the gas price, based on recommendations made by an expert group to the Cabinet for approval. The Ranagarajan Committee early this month recommended a pricing policy for gas aligned to global prices. It recommended a price for gas based on the average of the US Henry Hub, the UK’s NBP and Japan Custom Cleared prices in the past 12 months. – (written by Ravi Prasad)

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