Reliance Gas
This DRAFT was inadvertently published at moneycontrol.com and thus the author decided to use the notes..This blog primarily just dumps research in process for retail, lifestyle and infrastructure projectsParadigm shift in energy prices; base prices for oil to remain above the USD 50/bbl
Future energy sources from frontier areas:-
Deep/Ultra waters
Sub-basalt mesozoic
High pressure/High temperature zones
Transition zones
Gas hydrates, tight gas & thin gas zones
Increased E&P activity leading to supply chain cost escalation
The Cost Pinch
Cost of supply chain have increased over last 5 years : Average Finding & Development Cost up by 100% in last 5 yrs
For Seismic Study Cost up by over 200%
Drilling & services up by 100-200%; 41% of the oil & gas discoveries in deep water blocks
Rig cost which stood at USD 100-115,000/ day rose to USD 550,000/ day in 2007-08; With east coast drilling season limited to 4-5 months in a year, rigs prices are shooting up due to increased E&P activity in the region during this period.
New rigs delivery period increased to 3 yrs
Field Development equipment & services cost up by 100-1200%
Technical manpower shortages
Vendor shops with large back-logs - rig building lead time up to 3 yrs
Oil Cost Outlook
Oil Expected to hover around USD 63/bbl; Breakeven cost for new oil has risen to USD 45-50/bbl
Average F&D cost for oil has risen from USD 8 to USD 14/bbl in the last 5 yrs
Coal prices hovering USD 68/bbl; Gas hovering around USD 7.88/mmbtu
India expected to continue as deficit gas market; Current supplies of 85 mmscmd against demand of 175 mmscmd
Future gas supplies expected to come from
Transnational pipelines supplies
Myanmar - India : Not happening as this now is going to China; even though OVL has a stake in this project
Iran-Pakistan-India
Turmenistan-Afganistan-Pakistan
Coal Gasification
Potential of Coal Bed Methane
Gas discoveries coming onstream
LNG expected replace fuel oil & Naphtha
LNG prices expected rise further post 2009
Total share of India's deregulated gas would be around 70% from current 27% now
Well head cost expected between USD 4-5/mmbtu; excl taxes and over head expenses which could account for USD 1-2/mmbtu
Reliance E&P Reliance expected to become fully integrated E&P player by 2011-12
To focus on finding and monetising fields rather than buying discovered fields
KG-D6 gas to be used to cater to the Indian deficit market
Target 40 mmscmd in year 1 - 2008, expected to reach peak of 80 mmscmd in 2009
KG D6 Gas Properties - It primarily mean gas that i.e. - Methan primarily, can be used primarily for production of Methane (CH4), Ammonia & Methanol). This gas cannot be used for production of petchem as it does not have c2,c3 & c4. Their-by its btu is lower than normal NG which has higher BTU.
India's Gas deficit market - AP, Maharashtra, Gujarat (States along the HVJ) - demand from these states to account for 140-150 mmscmd
As per the initial talks with the government, KG D6 gas will be used for existing facilities that are currently facing gas deficit - primarily the fertiliser industry, some power companies and heavy industries in these areas besides captive demand from RIL
RIL to transport gas via the East-West Gas Pipeline to be constructed by Reliance at a cost of USD 3.2 bn; The project is funded via 70% debt and 30% equity. Debt for the pipeline is already tied in.
Reliance Gas Pipeline Grid
Plans to build 10,000 km in next 5-7 years; Reliance along Gail will build the two gas quadrilaterals - Northern & Southern
Gail recently announced Rs 12,500 cr pipeline capex for over 5000 km of pipeline
RGTIL (Reliance Gas Transportation Infrastructure Limited) plans to build two gas grids -
East West Gas pipeline - Kakinada - Hazira - Jamnagar
Southern grid - Kakinada - Chennai - Tuticorin & Chennai- Bangalore - Mangalore
Reliance plans to spend Rs 25-30,000 cr on gas grid over the next 4-5 years
Reliance to keep equity component low as the returns in the transportation business limited to 12% currently
Gas prices to be de-regulated for the core sectors- Power, Fertiliser. Fertiliser sector to be a major beneficiary from KG D6 gas, many of the fertilizer companies that have closed down due to higher naphtha prices will be converted into gas based plants, as this would mean reducing the subsidy burden. Existing power plants to be converted into gas based plants, but the new policy of government does not favour gas based power plants. Govt want all new power plants to be coal based and coal resources are abundant for over 200 years - hence all UMPP are based on captive or imported coal supplies. Fertiliser Likely to see high conversion of liquid fuel i.e. Naphtha/Fuel Oil based fertiliser units to LNG based plants as it reduces the feedstock cost by 50%; currently Naphtha prices over $14.8/mmbtu as compared to LNG prices which are at USD 7.4/mmbtu. Govt expects gas demand by the fertiliser companies increase by 70% by 2012. Power
Existing power based plants running on low PLF due to shortage of natural gas
Gas to be priced to existing power units at around USD 5/mmbtu
Gas Market
With nearly 70% of the gas market to come under de-regulated market, Well head gas prices are headed to USD 10/mmbtu by 2009
APM: USD 2
Petronet LNG pre 2009: USD 3.8
Pvt Sector JV gas low: USD 4.1
Petronet LNG post 2009: USD 5.8
Iran Gas: USD 6
Spot Gas: USD 10
Reliance will also look at developing City gas distribution projects; It will look at setting up LNG terminal in West coast to augment gas supply and enter the city gas market if required. Capex
Reliance hiked production targets to 80 mmscmd from 40 mmscmd and hiked capex to USD 5.2 bn despite nearly 200% in increase in F&D cost. Gas pipeline to be ready by March 2008.
Reliance has an F&D cost of USD 2.8/boe nearly half of as compared to similar global gas reserve belt.
Gas Pricing Reliance is in advanced negotiation with all the prospective consumers for gas pricing for its KG D6 basin. The pricing is expected to be finalised by Jun-July this year, post which it will seek govt nod for the pricing. Given the current trends the gas is expected to be priced between USD 7-8/mmbtu considering the well head cost and including various taxes the cost would be USD 6-6.5/mmbtu. Reliance likely to get a marketing margin not exceeding 12%. Gas pricing agreements to be signed in the next 2-3 months with the all the customers. Pricing to be based on ramp-ups, to focus on matching production ramp-ups with delivery. Gas Demand
Total Demand: 175 mmscmd
Deficit expected: 90mmscmd
RIL KG D6 gas; 80 mmscmd at peak
Deficit persist: 10 mmscmd to be met via imported LNG, transnational pipeline
RIL to supply 40-50 mmscmd in Year 1 - 2008-09; depending upon whether spur head pipelines are in place for the companies. It expected to raise this to 80 mmscmd by 2009-10. Jamnagar to be supplied 10-15 mmscmd initially, other consumers include Fertiliser units and power units of NTPC which is expected to get a supply of 6 mmscmd initially. NEC 25 block
Has reserves of 2.6 tcf
Development of commercialization of NEC-25 has been slowed down pending the clarity on marketing of gas to eastern coast.
NEC 25 gas would be marketed to the east coast India - Bengal/Orissa. This would require setting up of pipeline from Kakinada to Kolkata. Currently under talks with Gail on who will construct the pipeline in this sector. Once that comes up it will be looking at ramping up the production from this block.
Future energy sources from frontier areas:-
Deep/Ultra waters
Sub-basalt mesozoic
High pressure/High temperature zones
Transition zones
Gas hydrates, tight gas & thin gas zones
Increased E&P activity leading to supply chain cost escalation
The Cost Pinch
Cost of supply chain have increased over last 5 years : Average Finding & Development Cost up by 100% in last 5 yrs
For Seismic Study Cost up by over 200%
Drilling & services up by 100-200%; 41% of the oil & gas discoveries in deep water blocks
Rig cost which stood at USD 100-115,000/ day rose to USD 550,000/ day in 2007-08; With east coast drilling season limited to 4-5 months in a year, rigs prices are shooting up due to increased E&P activity in the region during this period.
New rigs delivery period increased to 3 yrs
Field Development equipment & services cost up by 100-1200%
Technical manpower shortages
Vendor shops with large back-logs - rig building lead time up to 3 yrs
Oil Cost Outlook
Oil Expected to hover around USD 63/bbl; Breakeven cost for new oil has risen to USD 45-50/bbl
Average F&D cost for oil has risen from USD 8 to USD 14/bbl in the last 5 yrs
Coal prices hovering USD 68/bbl; Gas hovering around USD 7.88/mmbtu
India expected to continue as deficit gas market; Current supplies of 85 mmscmd against demand of 175 mmscmd
Future gas supplies expected to come from
Transnational pipelines supplies
Myanmar - India : Not happening as this now is going to China; even though OVL has a stake in this project
Iran-Pakistan-India
Turmenistan-Afganistan-Pakistan
Coal Gasification
Potential of Coal Bed Methane
Gas discoveries coming onstream
LNG expected replace fuel oil & Naphtha
LNG prices expected rise further post 2009
Total share of India's deregulated gas would be around 70% from current 27% now
Well head cost expected between USD 4-5/mmbtu; excl taxes and over head expenses which could account for USD 1-2/mmbtu
Reliance E&P Reliance expected to become fully integrated E&P player by 2011-12
To focus on finding and monetising fields rather than buying discovered fields
KG-D6 gas to be used to cater to the Indian deficit market
Target 40 mmscmd in year 1 - 2008, expected to reach peak of 80 mmscmd in 2009
KG D6 Gas Properties - It primarily mean gas that i.e. - Methan primarily, can be used primarily for production of Methane (CH4), Ammonia & Methanol). This gas cannot be used for production of petchem as it does not have c2,c3 & c4. Their-by its btu is lower than normal NG which has higher BTU.
India's Gas deficit market - AP, Maharashtra, Gujarat (States along the HVJ) - demand from these states to account for 140-150 mmscmd
As per the initial talks with the government, KG D6 gas will be used for existing facilities that are currently facing gas deficit - primarily the fertiliser industry, some power companies and heavy industries in these areas besides captive demand from RIL
RIL to transport gas via the East-West Gas Pipeline to be constructed by Reliance at a cost of USD 3.2 bn; The project is funded via 70% debt and 30% equity. Debt for the pipeline is already tied in.
Reliance Gas Pipeline Grid
Plans to build 10,000 km in next 5-7 years; Reliance along Gail will build the two gas quadrilaterals - Northern & Southern
Gail recently announced Rs 12,500 cr pipeline capex for over 5000 km of pipeline
RGTIL (Reliance Gas Transportation Infrastructure Limited) plans to build two gas grids -
East West Gas pipeline - Kakinada - Hazira - Jamnagar
Southern grid - Kakinada - Chennai - Tuticorin & Chennai- Bangalore - Mangalore
Reliance plans to spend Rs 25-30,000 cr on gas grid over the next 4-5 years
Reliance to keep equity component low as the returns in the transportation business limited to 12% currently
Gas prices to be de-regulated for the core sectors- Power, Fertiliser. Fertiliser sector to be a major beneficiary from KG D6 gas, many of the fertilizer companies that have closed down due to higher naphtha prices will be converted into gas based plants, as this would mean reducing the subsidy burden. Existing power plants to be converted into gas based plants, but the new policy of government does not favour gas based power plants. Govt want all new power plants to be coal based and coal resources are abundant for over 200 years - hence all UMPP are based on captive or imported coal supplies. Fertiliser Likely to see high conversion of liquid fuel i.e. Naphtha/Fuel Oil based fertiliser units to LNG based plants as it reduces the feedstock cost by 50%; currently Naphtha prices over $14.8/mmbtu as compared to LNG prices which are at USD 7.4/mmbtu. Govt expects gas demand by the fertiliser companies increase by 70% by 2012. Power
Existing power based plants running on low PLF due to shortage of natural gas
Gas to be priced to existing power units at around USD 5/mmbtu
Gas Market
With nearly 70% of the gas market to come under de-regulated market, Well head gas prices are headed to USD 10/mmbtu by 2009
APM: USD 2
Petronet LNG pre 2009: USD 3.8
Pvt Sector JV gas low: USD 4.1
Petronet LNG post 2009: USD 5.8
Iran Gas: USD 6
Spot Gas: USD 10
Reliance will also look at developing City gas distribution projects; It will look at setting up LNG terminal in West coast to augment gas supply and enter the city gas market if required. Capex
Reliance hiked production targets to 80 mmscmd from 40 mmscmd and hiked capex to USD 5.2 bn despite nearly 200% in increase in F&D cost. Gas pipeline to be ready by March 2008.
Reliance has an F&D cost of USD 2.8/boe nearly half of as compared to similar global gas reserve belt.
Gas Pricing Reliance is in advanced negotiation with all the prospective consumers for gas pricing for its KG D6 basin. The pricing is expected to be finalised by Jun-July this year, post which it will seek govt nod for the pricing. Given the current trends the gas is expected to be priced between USD 7-8/mmbtu considering the well head cost and including various taxes the cost would be USD 6-6.5/mmbtu. Reliance likely to get a marketing margin not exceeding 12%. Gas pricing agreements to be signed in the next 2-3 months with the all the customers. Pricing to be based on ramp-ups, to focus on matching production ramp-ups with delivery. Gas Demand
Total Demand: 175 mmscmd
Deficit expected: 90mmscmd
RIL KG D6 gas; 80 mmscmd at peak
Deficit persist: 10 mmscmd to be met via imported LNG, transnational pipeline
RIL to supply 40-50 mmscmd in Year 1 - 2008-09; depending upon whether spur head pipelines are in place for the companies. It expected to raise this to 80 mmscmd by 2009-10. Jamnagar to be supplied 10-15 mmscmd initially, other consumers include Fertiliser units and power units of NTPC which is expected to get a supply of 6 mmscmd initially. NEC 25 block
Has reserves of 2.6 tcf
Development of commercialization of NEC-25 has been slowed down pending the clarity on marketing of gas to eastern coast.
NEC 25 gas would be marketed to the east coast India - Bengal/Orissa. This would require setting up of pipeline from Kakinada to Kolkata. Currently under talks with Gail on who will construct the pipeline in this sector. Once that comes up it will be looking at ramping up the production from this block.
