Modi effect: Rivals RIL, ONGC team up to share infrastructure

Richa Mishra New Delhi | Updated on January 08, 2018

Atanu Chakraborty, Director-General, DGH

Reliance to move gas from new fields in K-G Basin using pipeline passing through ONGC’s block

After six months of tough negotiations, the Directorate-General of Hydrocarbons (DGH) has successfully brokered a ‘marriage of convenience’ between two arch rivals of India’s oil and gas exploration business — public sector ONGC and Mukesh Ambani-led Reliance Industries Ltd (RIL).

With this agreement, RIL and its partner BP Plc, will be able to transport gas from their newer fields in Krishna Godavari Basin (KG-D6) block using a sub-sea pipeline passing through edges of ONGC’s block in the neighbourhood. The DGH recently gave its nod to the contractors for the right of use.

Atanu Chakraborty, Director-General, DGH, told BusinessLine, “The need for having such a mechanism was felt more when we went for Discovered Small Fields auction round. Joint use of infrastructure — whether the player is from public sector or private sector — is beneficial for all.”

Interestingly, this is not the first time that the two rivals have attempted something like this. A few years ago, the two had entered into a memorandum of understanding (MoU) to explore the possibility of sharing infrastructure on the East Coast of the country.

The MoU was aimed at working out the modalities for sharing infrastructure, identifying additional requirements as well as firming up commercial terms. At that time ONGC had said that the MoU would not only minimise its initial capital expenditure but also expedite its field development.

But soon after, the two oil majors were at war with ONGC accusing RIL of lifting its gas. Now, with the past behind and Prime Minister Narendra Modi setting a target for the Ministry for Petroleum & Natural Gas as well as players in the business to reduce import dependence by 10 per cent by 2022, a renewed effort was made by the DGH.

The urge to bring the two rivals on board was more because from these fields RIL and its partner expect to start production by 2020-21 with peak output expected to be about 15-20 million standard cubic metres a day. For the Ministry any indigenous source will bring it closer to the target set by Modi.

The concept of infrastructure-sharing is very common among international players in oil and gas exploration and production business, as it brings down cost. In India, it has been arbitrary, a senior official in the DGH said, adding that it also leads to duplication of facilities as each would like to create their own infrastructure.

But, everything comes at a cost. And, here too the user will have to pay. An official involved with the development said in case of Discovered Marginal fields, “it was decided it will be based on incremental cost plus a small overhead cost. The expenses will be included in the capital expenditure of the project and only if there are chances of it inflating the capex, which is unlikely. The same may be followed in future.”

Published on October 22, 2017

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