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Rising domestic gas supply from KG Basin to benefit gas utilities

Our Bureau Hyderabad | Updated on April 22, 2021

This increasing gas supply from domestic sources should drive earnings growth and valuations for the Indian gas utilities

Availability of additional gas for sale at the delivery point at Gadimoga near Kakinada from the Krishna Godavari Basin in Andhra Pradesh, tentatively from the last week of April or early May 2021, augurs well for the gas utilities starved of supplies.

The KGD6 consortium has sought bids from customers as it intends to sell additional 5.5 mmscmd of gas from the KGD6 block in the Krishna Godavari Basin, according to a sectoral report on Indian gas sector by HDFC Securities.

Oil and Natural Gas Corporation (ONGC) has also floated the tender for prospective buyers to bid for gas supplies from its KG-DWN-98/2 field in the KG Basin offshore. The company will supply 2 mmscmd of gas from the field to the Odalarevu onshore terminal in Andhra Pradesh, which should commence from June 2021.

This increasing gas supply from domestic sources should drive earnings growth and valuations for the Indian gas utilities, especially the gas transmission companies.

Tenders to sell gas from the KG Basin indicate that ramp-up in domestic gas production is faster than investor expectation. The tenders from the KGD6 consortium and ONGC to sell gas from KG Basin aligns with its report on rising domestic gas production, “Indian Gas Sector – Looking Beyond the Pandemic” of August 2020.

These and earlier tenders indicate a total increase of about 20 mmscmd (23 per cent of FY20 domestic supply) in supply of gas from domestic sources over December 2020 to July 2021.

The KGD6 consortium has already signed the Gas Sales and Purchase Agreement (GSPA) with buyers to sell 4.8 mmscmd and 7.5 mmscmd of gas from KGD6 Basin in November-19 and February-21 respectively. The consortium has commenced gas production from R-cluster, an ultra-deep water gas field, in December-20. R-cluster is the first of the three projects to come on stream.

The production from Satellites Cluster and MJ field is expected to start by mid-CY21 and CY22 respectively. Peak gas production from the three fields is expected to be 30 mmscmd by CY23.

ONGC has commenced gas production from KG-DWN-98/2 in March-20. It is expected to reach 3mmscmd in FY22 and further ramp up to 15 mmscmd by FY24.

Bidders for the gas from R-Cluster have to quote a price linked to Platts JKM (Japan Korea Marker), the LNG benchmark price assessment for spot physical cargoes. The lowest bid that can be placed is JKM minus $ 0.3/mmbtu.

ONGC will sell gas at the government-determined ceiling price, which is $3.62/mmbtu for the six-month period from April-September 2021, according to the report.

Published on April 22, 2021

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