Small fields in KG-D6 block unviable at $4.20 per mmBtu: RIL

The company has made 18 gas finds in the eastern offshore KG-D6 block, of which Dhirubhai-1 and 3 were put into production last April, at a cost of $8.836 billion

Reliance Industries (RIL) has said that developing smaller gas fields in the KG-D6 block is economically unviable at the current price of $4.20 per (million metric British thermal unit (mmBtu) and it may seek a rate of at least $6 per mmBtu in 2014, when the fields are put into production, reports PTI.

RIL has made 18 gas finds in the eastern offshore KG-D6 block, of which two–Dhirubhai-1 and 3–were put into production from April, 2009, at a cost of $8.836 billion.

The private sector explorer is working on an integrated development plan for the rest, but wants a price higher than the $4.2 per million metric British thermal unit rate paid for gas from Dhirubhai-1 and 3.

"It is absolutely not viable (to develop smaller fields adjoining Dhirubhai-1 and 3 fields in KG-D6 block) at current prices," RIL executive director P M S Prasad told PTI.

The smaller fields are proposed to be developed as a common pool, using existing facilities of the Dhirubhai-1 and 3 fields and RIL was in the process of preparing a multi-billion dollar integrated development plan, he said.

RIL had in 2008 submitted plans to the government to invest $5.91 billion to develop nine satellite fields, but last year pruned the list to just four, as the current gas price of $4.2 per mmBtu did not justify such a huge investment.

The amended $1.5 billion development plan for the four fields is being withdrawn and a new integrated plan will be submitted, he added.

The fields would start producing in 2014, the same year when the existing price of $4.20 per mmBtu expires. The government had in September, 2007, approved $4.205 per mmBtu as the price of gas from Dhirubhai-1 and 3 for five years, which was to be reviewed at the end of this period.

Though Prasad refused to speculate on what price RIL would seek for the marginal fields and the revised rates for fields currently under production, sources in the know said that $6-7 per mmBtu is the rate RIL may be looking at.

In all likelihood, the company may go in for a common rate for both sets of fields (current as well as small ones).

"I cannot say what will be the price discovery then (2014), but our economics tell us that they (smaller fields) are not viable at current prices," Prasad said.

Under the Production Sharing Contract (PSC), RIL has to discover the price the market is willing to pay and submit it to the government for approval. The government may approve it as it is, or do it with minor changes, or even reject it.

It will take four to five years to bring these fields into production and may help RIL extend the 80 million cubic metres per day peak output envisaged from KG-D6. Peak output from the Dhirubhai-1 and 3 fields is envisaged for five years.



BDI, Indian shipping stocks out of sync with each other

The Baltic Dry Index has been on the upside over the past few days on the increase in demand for Capesize vessels. On the other hand, Indian shipping stocks have not been in tune with the Index

The Baltic Dry Index (BDI) has been on an upward trend over the past two months. The Index moved up by 11% over the past two months. However, Indian shipping stocks have not been on a similar upward trend.

The BDI has moved from 3,242 points on 5 March 2010 to 3,608 points on 7 May 2010, a positive change of 11%. However, Indian shipping stocks are not in tune with the shipping index movement. The Moneylife shipping index witnessed a change of -1% for the period of 8th March-7th May. 

Stock prices of shipping companies (for 30th March-7th May) have moved in the following fashion: Great Eastern Shipping Co Ltd (-1%), Mercator Lines (-15%), Shipping Corporation of India (7%), Shreyas Shipping (7%) and Varun Shipping

Analysts say that the main reason for this anomaly between the Indian shipping industry’s stock prices and the BDI is the concentration of the Index on Capesize vessels. “The BDI is basically dominated by the Capesize index, with the Supramax, Panamax and Handymax indices playing a comparatively small role.

The Capesize index is moving upwards—the Panamax, Supramax and Handymax indices are currently soft. If you look at the asset modelling of shipping companies in India, we do not have major Capesize capacity; we have major concentration on Handymax & Panamax, and some amount on Supramax. That is one of the reasons why Indian shipping company stocks are not moving in line with the BDI,” explained Kunal Lakhan, research analyst, KR Choksey.

The analyst pointed out that the increase in Indian iron-ore export duty by 5% has led to a shift of Chinese iron-ore purchases from other countries, specifically Australia and Brazil. This is turn had a positive effect on the BDI, as iron-ore exports from Australia and Brazil are generally through Capesize vessels.

Going forward, the BDI is likely to show a positive change with growing demand for iron ore. Further, China’s coal demand is also expected to increase, thus adding to more robust growth in global shipping traffic.

What do all these changes hold for India? A positive growth for Indian companies seems to be unlikely, at least on the bulk side. “Shipping traffic has shifted from India (iron ore) to countries like Australia and Brazil. In addition, with the onset of the monsoon, shipping of coal and iron ore will take a hit,” added the analyst.



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