Growth through Energy
Security for India
India imports about two-thirds
of its crude oil requirement. Exploration and
production of oil and gas is critical for India's
energy security and economic growth. Reliance's
oil and gas exploration and production business
is therefore inexorably linked with the national
imperative. Exploration and production, the initial
link in the energy and materials value chain,
remains a major growth area and Reliance envisions
evolving as a global energy major.
Over the years the E&P industry
has registered significant growth, primarily due
to spiraling crude oil and gas prices. With growing
competition and ever growing demand for energy,
especially from developing countries, the focus
is on energy security.
RIL began gas production within
six and a half years of gas discovery, in comparison
to the world average of 9-10 years for similar
deepwater production facilities. Continuous gas
production for about a year, with 100% uptime,
once again demonstrates the Company’s flawless
commissioning and execution capabilities.
Key highlights of the KG-D6 project
were as follows:
- World’s largest gas discovery in 2002
- Among the world’s largest and most
complex deepwater gas production facility in
the world
- Tie Back of 60 kms
- Transforming India’s energy landscape
- Capacity of 550,000 Barrels of Oil Equivalent
Per Day (BOEPD)
- Equivalent of 40% of India’s current
oil and gas production and has the potential
to more than double India’s gas production
- Among the fastest deepwater field development
projects
- Among the lowest Finding & Development
(F&D) cost per BOE for similar deepwater
projects
- Global-scale project management; simultaneous
execution in 20 locations
- Among the largest marine construction spread
- Equipment weighing 125,000 Metric Tonnes
(MT) installed offshore
- 500 line kms of pipelines and umbilicals
installed
Presently, RIL is producing approximately 60
Million Metric Standard Cubic Meters Per Day (MMSCMD)
of gas which is being supplied to several priority
sectors identified by the Government of India
under its gas utilisation policy.
Since production commenced in
April 2009, the field has produced over 14.5 billion
cubic metres of gas, contributing significantly
to the country’s critical industrial sectors.
RIL is enhancing India’s
energy landscape. Production from the Dhirubhai
1 and 3 discoveries of the KG-D6 block is likely
to result in a quantum leap towards achieving
India’s energy security as it has the potential
to account for 40% of the country’s current
hydrocarbon production. The gas supply from the
KG-D6 facility has already impacted various aspects
of the country’s economy including:
- The Index of Industrial Production (IIP) has
acknowledged the significant contribution of
production from KG-D6 in the double digit growth
registered by the mining sector.
- With increased availability of gas, production
of indigenous fertilisers has increased and
the cost of production reduced, thereby resulting
in savings of about Rs. 4,000 crore p.a. in
Government subsidies.
- There has been a significant improvement
of 30% in gas-based power generation in the
country during
the year.
- Production of natural gas from KG-D6 has
also reduced the dependence on more expensive
liquid fuels that were being used in the steel,
refining and petrochemicals sectors.
Within a month of emerging as
the largest producer of natural gas in the country,
RIL announced a successful assessment of the design
capacity of the KG-D6 deepwater gas production
facilities in December 2009. A flow rate of 80
MMSCM was achieved through the KG-D6 facilities
and delivered to the East-West pipeline.
The economic crisis left an impact
on the oil and gas industry globally. The economic
downturn that followed resulted in unprecedented
demand destruction. The industry is on a path
of recovery due to fiscal measures announced by
various governments. The major deepwater basins
of the world namely the East coast of India, Gulf
of Mexico, Africa and Brazil continue to witness
huge levels of activity and investment.
The structural theme for investment
in the sector remains valid. The world’s
insatiable need for reliable and affordable energy
continues to grow unabated. This calls for substantial
investments, access to resources and newer technologies
to unlock resources from challenging locations.
The International Energy Agency (IEA), in its
World Energy Outlook 2009, estimates that by the
year 2030, global energy demand is expected to
increase by 49% from its current level. Oil and
natural gas are expected to remain primary energy
sources and are expected to meet 51% of the global
demand. Natural gas, a low-carbon, lowpolluting
green fuel-that flows from RIL’s blocks,
is creating unprecedented value for the Company’s
shareholders and benefiting India. Increasing
concern for climate change augurs well for natural
gas as it is an environmentally benign fuel with
carbon emissions far
lower than other fossil fuels.
IEA estimates that the world
requires investments to the tune of $ 11 trillion
in the oil and gas sector over the next 20 years
implying an annual investment of over $ 500 billion.
FY 2009-10 was a year of steady
growth. Oil prices rose from an average of $ 46/barrel
(bbl) in January 2009 to touch $ 75/bbl in December
2009. Average WTI prices remained at $ 70/bbl
vis-à-vis $86/bbl for the previous year.
Henry Hub natural gas price averaged at $ 4/Million
Metric British Thermal Unit (MMBTU) for FY 2009-10
as against an average of $ 7.87/MMBTU in FY 2008-09.
The year 2009 also saw the global
oil demand slip to 84.93 MBPD, a decrease of 1.5%
over 2008. IEA forecasts that the global oil demand
is set to increase by 1.67 MBPD or 2.0% to 86.60
MBPD in 2010.
Global Natural Gas Market
Growing
Globally, natural gas constitutes
24% of the energy basket while in India it accounts
for a mere 9%. The low share of gas in India’s
energy consumption is attributed to limited availability
and nascent infrastructure. Gas accounts for 35%
of the energy mix in the former Soviet Union and
Europe, 26% in USA, 17% in Japan and 15% in Korea.
The share of gas in the energy
mix is expected to increase to nearly 23% in 2031-32
mainly due to the increasing demand from the industrial
sector, power sector, gas distribution in cities
and opportunities in the gas-to-liquids business.
Sizeable investments globally
over the last few years in developing the natural
gas business and related logistical capabilities
have resulted in increased availability of gas
in key markets. As in the case of crude oil, the
natural gas industry is beginning to see the advent
of short term, medium term and long term contracts
reflecting increased ransportation capabilities
and price fungibility. Regional variations in
prices are driven primarily out of differentiated
transportation costs.
Energy Landscape in
India Set for Change
The Indian economy has been
growing steadily in the range of 8-9% in the recent
past (6.7% in FY 2008-09) and is expected to maintain
its status as one of the fastest growing economies
in the world with long term GDP growth estimated
to be around 9%. Driven by strong economic growth,
energy consumption in India has been growing at
a CAGR of around 5.3% over the last two decades.
India’s per capita energy
consumption is 383 Kg of Oil Equivalent (KGOE)
as against the world average of 1,737 KGOE, which
indicates a significant potential for growth in
the demand for energy. As per the Integrated Energy
Policy of the Planning Commission, Government
of India, India’s energy need is expected
to grow four-fold from 433 Million Tonnes of Oil
Equivalent (MTOE) to around 1,856 MTOE by 2032.
However, India depends largely on imports with
over 75% of oil and 16% of gas consumption being
imported.
The East coast of India covers
a vast stretch of sedimentary area of about 2
million sq. kms. The coast has been divided into
three major geological provinces viz. the Mahanadi
basin, the Krishna-Godavari basin and the Cauvery-Palar
basin.
RIL has more than 25 blocks
in the East coast of India with exploration at
different stages of maturity. Several discoveries
have taken place in all the three basins and a
large number of prospects have been identified
for drilling. With drilling success ratio of 54%,
RIL’s drilling campaign is to target these
basins.
Gas production from KG-D6 was
started in a record time of six and a half years.
The production from this block is expected to
provide a quantum leap in energy security to the
country. The Krishna-Godavari basin find has been
one of the most important development catalyst
to various sectors like power, fertilisers, petrochemicals,
refineries, gas distribution in cities, etc thereby
ensuring energy and food security for the country.
The natural gas sector in the
country is evolving and becoming competitive due
to the Government’s proactive regulatory
approach with respect to policies in upstream,
midstream and downstream. This has led to enhanced
investments by various players and the emergence
of competitive markets.
RIL’s E&P Business
: KG-D6
KG-D6 completed 365 days of
100% uptime and zeroincident production. Gas production
from KG-D6 has ramped up to 60 MMSCMD in a short
span of 9 months from commencement. Current production
of about 60 MMSCMD is from 16 wells. The design
capacity of the KG-D6 deepwater gas production
facilities were assessed and achieved a flow rate
of 80 MMSCM. During FY 2009-10, total gas production
was 14,397 MMSCM.
Six wells from the D26 oil field
in the block are under production. Gas produced
from the D26 field was exported to the Onshore
Terminal (OT) in the months of November 2009,
December 2009 and February 2010.
Oil production from the D26
field now exceeds 35,000 barrels per day. During
the FY 2009-10, total oil production from this
field was 4.04 million barrels.
The facility has undergone extensive
quality assurance and quality control audits with
the support of international experts like Det
Norske Veritas (DNV), Ward Associates and Shell
Global Solutions. The pipeline network was put
through nitrogen helium tests for leak tests and
pressure points. More than 1,000 punch points
were addressed within six months, eliminating
risk factors. Fatigue tests were also carried
out on installed infrastructure to ensure their
ability to support the planned 25-year lifespan
of the field. The entire development was put through
stringent quality checks in compliance with the
applicable standards, and organisational and project
policies. DNV has carried out certification and
verification of all works. DNV reviewed and verified
engineering, fabrication and installation of all
offshore facilities. DNV also carried out the
Hazard Identification and Hazard and Operational
Study through the different stages of the project.
Other independent surveyors have included Lloyd’s
Register and Moody’s International. Extensive
and intensive checks were done on all equipment,
which included Factory Acceptance Test, Extended
Factory Acceptance Test, Systems Integrity Test
and Site Acceptance Test prior to installation.
Multiple levels of inspection were undertaken
by manufacturer’s Quality Control (QC) team,
RIL’s QC team and third party QC teams to
ensure nothing was left to chance.
For the purpose of gas marketing,
GSPAs have been executed with more than 50 customers
in the fertiliser, power, city gas distribution,
steel, LPG, refinery and petrochemical sectors.
As part of appraisal activities
of 4 discoveries in the southern part of the KG-D6
block, RIL successfully drilled 4 appraisal wells
in FY 2009-10. The commerciality of these discoveries
has been submitted.
In the KG-D6 block, further
to the submission of the development plan in 2008
for the 9 satellite gas discoveries, an optimised
development plan for prioritising 4 satellite
gas discoveries was submitted to the Directorate
General
of Hydrocarbons (DGH) in December 2009.
An integrated development plan
for all gas discoveries in the block KG-D6 is
being conceptualised to maximise
capital efficiency and accelerate monetisation.
Other Domestic Blocks
The Company made four discoveries
during the year which are as follows:
- Well R1 in the KG-V-D3 block
- Well AA1, BF1 and AH1 in on-land CB-10 block
The Company has also submitted a proposal for
commerciality for the following:
- Discoveries D28, D37 and D38 in KG-III-5 block
- Discovery D35 in CY-D5 block
- Discoveries D32 and D40 in NEC-25 block
- For discoveries D20, D30, D31, D34 in KG-D6
block
RIL has successfully drilled 4 appraisal wells
in the southern and deeper parts of the NEC-25
block. Results of these are being incorporated
to generate an integrated development plan for
all discoveries to maximise capital efficiency.
Appraisal activities are currently underway in
KG-D4, CY-D5, KG-III-5, KG-III-6, KG-V-D3 and
GS-01 blocks.
During the FY 2009-10, two deepwater blocks
of NELP-V round namely KK-V-D1 and KK-V-D2 were
relinquished due to their poor prospectivity.
Currently, RIL’s portfolio consists of 29
exploration blocks. Also, RIL holds 30% interest
in PMT fields. Total domestic oil and gas exploration
and production acreage amounts to 290,633 sq.
kms.
Panna-Mukta and Tapti Fields
The development of the Panna-K (PK) area has
been completed. Current production from PK wells
is around 5,000 Barrels of Oil Per Day (BOPD)
and around 10 Million Metric Standard Cubic Feet
Per Day (MMSCFD) gas.
The South West Panna (SWP) development project
was approved in February 2008 with projected 2P
reserves of around 4.7 Million Barrels of Oil
(MMBO) from about 42 MMBO in-place reserve. New
3D survey indicated a significant reduction in
2P reserves at 1.76 MMBO from about 11 MMBO in-place.
The Government has approved abandoning the project.
Separately, it has approved installing the SWP
jacket and deck with minor modifications at Panna
L (PL) to advance production by around 12 months
and improve the final hydrocarbon recovery from
PL.
The development plan of the PL area has been
approved by the DGH in June 2009 for completion
in 2011.However, with the Government approving
the installation of SWP facilities at PL, the
project is now expected to be completed in 2010.
Initial anticipated total production from PL is
approximately 4,000 BOPD from 6 wells.
To arrest the declining gas production in Tapti,
3 infill wells (2 in South Tapti and 1 in Mid
Tapti) have been approved for drilling in Q3/Q4
FY 2009-10 by the Management Committee. MTA-6
well has been already drilled and is currently
producing around 35-40 MMSCFD gas. STA-7 well
has also been drilled and is currently producing
35 MMSCFD of gas. The STC well is currently being
drilled and post the drilling of this well, gas
production from Tapti is expected to be ramped
up from the current level of around 315 MMSCFD
to around 330 MMSCFD. A development plan for Mukta
(MB area) is being planned to be submitted to
the Government of India for approval after the
results of a pre-drilled well to be drilled in
2010-11 are reviewed.
Panna-Mukta fields produced 1.8 million tonnes
of crude oil and 1,965 MMSCM of natural gas in
FY 2009-10, registering a growth of 9% and 18%
respectively over the previous year. Higher volumes
in the first half are due to full production as
compared to lower production registered in the
same period last year on account of downtime due
to repairs (PPA Hot Oil Heater).
Tapti fields produced 187,000 tonnes of condensate
and 3,102 MMSCM of natural gas for FY 2009-10,
a decrease of 31% and 26% respectively as compared
to the previous year. The decrease in production
was due to a natural decline in the reserves.
CBM Blocks
The development plan for Sohagpur CBM blocks
has been approved by the Government and development
activities have been planned to commence in FY
2010-11 by drilling and completion of additional
wells. Prolonged production testing was undertaken
in the wells drilled in Sohagpur CBM blocks with
favourable results. The plan for 2010– 11
is to monetise the production capability from
the present as well as the proposed wells.
During the year, two CBM blocks BS-1 and BS-2
were relinquished. With this, RIL currently holds
a total of 3 CBM blocks.
International Business
In April 2010, RIL entered into a joint venture
with the USA based Atlas Energy, Inc. (Atlas)
under which RIL acquired 40% interest in Atlas’
core Marcellus Shale acreage position. RIL has
become a partner in approximately 300,000 net
acres of undeveloped leasehold in the core area
of the Marcellus Shale region in southwestern
Pennsylvania for an acquisition cost of $ 339
million and an additional $ 1.36 billion capital
costs under a carry arrangement for 75% of Atlas’s
capital costs over an anticipated seven and a
half year development
programme.
Low operating costs and proximity to USA northeast
gas markets combine to make the Marcellus Shale
region one of the most economically attractive,
unconventional natural gas resources play in North
America. The acreage will support the drilling
of over 3,000 wells with a resource potential
of approximately 13.3 Trillion Cubic Feet equivalent
(TCFe). While Atlas will serve as the development
operator for the joint venture, RIL is expected
to become a development operator in certain regions
in the coming years in the JV.
Atlas will continue acquiring leasehold in the
Marcellus Shale region and RIL will have the option
to acquire 40% share in all new acreages. RIL
also obtained the right of first offer with respect
to potential future sales by Atlas of around 280,000
additional Appalachian acres currently controlled
by Atlas (not included in the present joint venture).
The RIL-Atlas joint venture has the potential
to become one of the largest prime acreage holders
in the Marcellus Shale region.
This joint venture will materially increase
RIL’s resource base and provide an entirely
new platform from which to grow its exploration
and production business while simultaneously enhancing
its ability to operate unconventional projects
in the future.
Additionally, RIL has farmed out 20% PI in the
blocks Borojo North and Borojo South in Colombia;
and 30% PI in block 18 and 25% PI in block 41
in Oman. The Regional Government of Kurdistan
has assigned third party participating interest
of 20% each in blocks Rovi and Sarta to M/s OVM;
the assigned agreement is yet to be signed by
RIL. RIL now has 13 blocks in its international
E&P portfolio including 2 in Peru, 3 in Yemen
(1 producing and 2 exploratory), 2 each in Oman,
Kurdistan and Colombia, 1 each in East Timor and
Australia; amounting to a total acreage of over
93,500 sq. kms.
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