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Imagine piped gas firing up a small turbine to provide captive power to a typical home in Mumbai, the Indian city that suffers from hours of power cuts in the peak of summer; or farmers in rural India with easy access to gas, enabling them to run generators to power their farm equipment and produce their own fertilizer. What seemed fiction once could well become reality, said Reliance’s chairman, Mukesh Ambani, whose company has commenced production of crude oil from the KG-D6 block of the Krishna-Godavari basin awarded to them six years ago.
Reliance announced last Sunday that the field is initially producing about 5,000 barrels of crude per day but is expected to reach its peak hydrocarbon production of 550,000 bpd over the next six to eight quarters.
Describing natural gas as "the 21st century fuel," Ambani said that Reliance would also start pumping natural gas from the deep-sea block of this field early next year. Indeed, the commencement of pumping crude oil and gas right away has given India an opportunity to transform itself to a gas-based economy.
"The benefits of the hydrocarbon oil and gas production should reach millions of Indians," Ambani said. According to him, Reliance will not only produce gas but also import technologies that could not only enable power plants, factories and motorists to abandon liquid fuels, but also meet the power requirements of 80 million households and many more farmers.
Ambani said that at 550,000 bpd of production and gas supplies, Reliance could power 5 million cars, 10 million trucks and over 50 million scooters and motorcycles. "And all this can be achieved at costs which are easily comparable to grid costs," he said. "More importantly, it can be completed in a matter of a few months."
According to Ambani, because the energy-starved country has to import over 70 percent of its energy requirements, the quality of life of the Indian people is critically dependent on per capita energy consumption. Against the world average of 13 barrels of oil equivalent, India's per capita energy consumption is only 2.6 barrels. As a consequence, the benefits of energy do not reach a large section of Indians.
The first of its kind to produce hydrocarbons from any deep-water field in the country, Reliance’s KG-D6 will account for 40 percent of India’s current indigenous hydrocarbon production. Estimates suggest that the production from KG-D6 will save India an annual foreign exchange outflow of US$20 billion.
India spends about US$70 billion a year on energy imports. Therefore, this field will not only benefit the consumer immensely, but at the same time, will reduce the burden of subsidies on the government, Ambani said. "It will thus release huge government resources for financing development activities, especially in education, health and for employment generation."
"What is good for India is good for Reliance," Ambani believes. However, in a strange way, at least in this find, what is good for Reliance could also be good for India. A lot of India's energy hopes are pinned on the Krishna Godavari Basin, dubbed the North Sea of India due to its huge gas prospects. "With RIL's commencement of production, a new frontier area in the deep waters of India's East Coast has opened up," said Ambani. "We can now confidently look forward to production from a series of other fields."
It is estimated that this basin, which has gas reserves of at least 4 trillion cubic feet, is likely to produce 120 million cubic meters per day of gas, when Reliance and two state-owned oil companies, Oil and Natural Gas Corporation and Gujarat State Petroleum Corporation – each of whom is investing US$30 billion – start production. Reports suggest that at 120 mcmd, this basin could account for four times the gas India would have received from Iran through the Iran-Pakistan-India pipeline, and at 30 percent lower costs.
According to the Ministry of Petroleum and Natural Gas the current production of natural gas, which was almost negligible 60 years ago, is around 87 mcmd. Of this, after internal consumption, extraction of liquid petroleum gas and unavoidable flaring, around 74 mcmd remains available for consumers. However, since natural gas has emerged as the most preferred fuel due to its inherent environmentally benign nature, greater efficiency and cost effectiveness, India has stressed natural gas as a valuable energy source imperative for economic growth.
Nevertheless, even if Ambani says, "This is a major milestone in India's energy security," the feat also has a significant impact on the fortunes of Reliance and for millions of local and foreign investors that have invested in the company’s shares.
Besides elevating Reliance to a global energy major, production from KG-D6 would enable India's most valuable firm to earn a quarter of its profit from oil and gas production by 2009-10, says Ambani. Currently, oil and gas constitute around 5 percent of the company’s profits.
Not just that, according to P.M.S. Prasad, president and CEO of Reliance’s petroleum division, the KG-D6 field could also be a money-spinner in terms of a stake sale at a later date. The company owns 90 percent participating interest in the block, while Niko Resources Ltd., the Canadian oil major, holds the balance.
