Controversies have surrounded KG D6 gas, but RIL downplayed all

Reliance Industries operated KG-DWN-98/3 gas field, also known as KG D6 has run into controversies immediately after the major gas find in 2002. Whether it is the quantum of the discovery, capital expenditure for the development, legal tussle with NTPC over the contractual obligation or the Memorandum of Understanding (MOU) signed with Reliance Natural Resources (RNRL) for supplying 28 mmscmd gas, Reliance has witnessed numerous allegations.

Reliance Group, however, has proven these accusations erroneous time and again. RIL had estimated the reserves of KG D6 block to the tune of 14 trillion cubic feet (tcf), which was downplayed by many to the maximum of 5-6 tcf. Today, with limited number of wells drilled, the commercially recoverable reserves are approved at 11.3 tcf by the Government. The in-place reserves are estimated to the extent of 40 tcf by various analysts. Similarly, the capital expenditure of $8.8 billion was said to be escalated. The Government, however, itself came forward in defense of the accusation arguing that the reserve estimates along with peak production level has doubled since the initial development plan resulting in increased capital cost due to three-fold rise in commodity prices, equipment prices, rig charges and engineering cost.

As far as NTPC issue is concern, RIL has made it clear that disagreement with NTPC is not on the price of $2.34 per mmbtu but on unlimited liability clause which coerces the RIL to pay for entire cost of substitute fuel in case of gas supply failure even in case of force-majeure by the company. RIL only wants the penalty charges to be capped that too as low as half of what is applicable for NTPC in case of its inability to off-take the gas, which may force the RIL to flare a sizable amount of precious gas.

Even in case of RNRL, Reliance agrees to supply the said quantity of gas at agreed price provided the Government consents on price and marketing freedom. In fact, RIL tried to get the Government certification for price of gas to be supplied to RNRL, however, the latter rejected the same, stating that the price did not match the arms-length criteria of pricing as per the Production Sharing Contract (PSC).

Source:http://oilandgasindia.blogspot.com/2009/12/where-does-gas-price-of-42-per-mmbtu.html