Oil India mulls diversification into city gas distribution business

State-run Navaratna oil explorer Oil India is chalking out an expansion and diversification strategy that could also include an entry into the city gas distribution space.
"We plan to pursue a cautious strategy for our exploration initiative. We are looking for sure-bets, because exploration is a risky activity. Even when it comes to domestic exploration, we intend to bid for the next Nelp auctions very selectively," Oil India Director for Exploration & Development Baikunta Nath Talukdar said here.
The company is considering entering the gas transportation market, since it already has expertise in laying pipelines and transporting gas through pipelines. "We would like to market our gas directly to consumers. We may tie-up with a gas marketing company for this," Talukdar said.
"City gas distribution and piped gas distribution are potential areas which we have been identified for diversification. That apart, we also intend to tap shale gas, since the price of natural gas is rising," Talukdar said.
With respect to overseas exploration ventures, the company plans to focus its efforts on fields that have already been discovered. Earlier, the company had set aside 40 per cent of its surplus funds for exploration initiatives. Now, that figure has risen to 52 per cent.
Oil India also intends to improve recovery from existing oilfields. It is already engaged in increasing the productivity of mature oilfields by inducting new technologies and company has begun horizontal drilling in some fields to enhance recovery.
Nevertheless, the diversification strategy will be conservative, with OIL sticking to areas in which it has some expertise, Talukdar said.

Markets continue in the green...

Energy stocks are trading in the green led by Reliance Industries Ltd and Essar Oil. As per a leading financial daily, state run energy firms - IOC (Indian Oil Corp), GAIL (Gas Authority of India Ltd) and Indraprastha Gas Ltd. have alleged that private companies in city gas distribution (CGD) space have suppressed input costs and have bid aggressively to get licences to supply natural gas. These licenses would allow the private companies to distribute gas to households and automobiles. The regulatory board wants to expand natural gas usage to 300 cities, out of which GAIL wants to set up networks in 200 cities. The above mentioned state run firms have enjoyed a monopolistic position in the CGD space till now. They are now facing tough competition from the domestic and foreign firms such as BG group and the Adani group. In order to stall the private companies' plans to enter CGD, the state run firms have approached the Petroleum and Natural Gas Regulatory Board (PNGRB) regarding the unfair bidding.

Reliance Gas' KG-D6 block output dips below 45 mmscmd/day

Natural gas production from Reliance Industries' eastern offshore KG-D6 block has dipped below 45 million standard cubic metres per day this month.

Reliance produced about 44.8 mmscmd of natural gas during the week ending August 14, according to the status report filed by the company with the oil ministry here.

The output comprised 37.7 mmscmd from Dhirubhai-1 and 3 gas fields and 7.1 mmscmd from MA oil field in the KG-DWN-98/3 or KG-D6 block.

As per the status report, out of the 22 wells to be drilled in the Phase-I of Dhirubhai-1 and 3 field development plan, 18 wells have been drilled and completed so far.

During August 8 to 14, 16 wells were put on production as two wells (B2 and B13) were kept closed due to high water cut.

MA oilfield produced an average of 13,688 barrels of crude oil per day besides the 7.1 mmscmd of associated gas.

Of the total 44.8 mmscmd, about 14.6 mmscmd of gas was sold to fertiliser plants and another 26.2 mmscmd to power plants. The remaining 4 mmscmd was consumed by other sectors like sponge iron plants, LPG, city gas distribution networks and petrochemical/refineries.

Minister of State for Petroleum and Natural Gas R P N Singh had earlier this month informed Parliament that output from KG-D6 was short of 70.39 mmscmd envisaged by now as per the field development plan approved in 2006.

"The contractor (Reliance) was advised by (oil regulator) DGH to expeditiously drill more development wells in D1 and D3 field as per FDP in order to enhance gas production in KG-DWN-98/3 block," he had stated.

Reliance has so far drilled only 20 out of the committed 22 wells on D1 and D3 as reservoir has not performed on expected lines.

Of the 20 wells drilled, only 18 wells are under production. Further in the FDP approved in 2006, Reliance had committed to drill 31 wells by end of current fiscal.

Reliance currently holds 90 per cent interest in KG-D6, while the rest is with Niko Resources of Canada. It is selling 30 per cent in the block and 22 others to UK's BP Plc for USD 7.2 billion.

Reliance started natural gas production from KG-D6 fields from April 1, 2009.

Its partner Niko had earlier this month stated that "declines (in production) are expected to continue until work-overs are completed and/or additional wells are tied-in".

The present output is less than about 60 mmscmd production in the same period a year-ago.

Oil India mulls diversification, city gas distribution

The state-run Navaratna oil explorer Oil India is chalking out an expansion and diversification strategy, and considering entering the city gas distribution space. "We plan to pursue a cautious strategy for our exploration initiative. We are looking for sure-bets, because exploration is a risky activity. Even when it comes to domestic exploration we intend to bid for the next Nelp auctions very selectively," Oil India Director for Exploration & Development Baikunta Nath Talukdar said here. The company is considering entering the gas transportation market, since it already has expertise in laying pipelines and transporting gas through pipelines. "We would like to market our gas directly to consumers. We may tie-up with a gas marketing company for this," Talukdar said. "City gas distribution and piped gas distribution are potential areas which we have identified for diversification.That apart, we also intend to tap shale gas, since natural gas price is rising," Talukdar said. Even in its overseas exploration ventures, the company plants to stick to fields that have already been discovered.Earlier, the company set aside 40 percent of surplus funds for exploration, now that figure has risen to 52 percent. Oil India also intends to improve recoveries from the existing oilfields. It is already engaged in increasing productivity of its mature oilfields by inducting new technologies. The company has begun horizontal drilling at its oilfields to enhance recoveries. The diversification will also follow a conservative strategy of sticking to those areas in which it has some expertise, Talukdar said. 

Petroleum and Natural Gas Regulatory Board seeks single window clearance for city gas distribution

AHMEDABAD: The Petroleum and Natural Gas Regulatory Board (PNGRB) has written the chief secretaries to smoothen the process for the city gas distribution (CGD) companies.

It wants the state machineries to give necessary clearances and the faciliatate implementation to ensure that CGD network operationalise within timeframe. It is also seeking single window mechanism by appointing a nodal officer at the state and district level.

The letter comes as the CGD companies represented to the board on challenges in implementing their projects, which is escalating their costs. Problems of CGD companies include higher right of use charges, pipeline laying not allowed during monsoon, non-availability of land for setting up CNG stations and lack of single window clearances.

"In some states, the ROU charges account for 30% of the total steel pipeline laying costs and as high as 70% of MDPE pipeline laying cost. In many states, this is much higher. There can be no argument that the civic authorities cannot be faulted for expecting the timely restoration of roads as per their specifications. However, this should not be seen as a means of revenue generation," read letter by PNGRB chairman L Mansingh.

PNGRB also urged for the cheif secretaries to to give top most priority for facilitating the setting up of CNG stations, which requires land. It argued that excessive spend on expanding CGD networks will burden the end user.

Gujarat Gas may find it tough to maintain its high margins

The June '11 quarter results of Gujarat Gas were surprisingly strong, as the company undertook price hikes in anticipation of an increase in LNG costs that didn't happen. Still the company is facing challenges on volume growth and is unlikely to sustain current high margins going ahead. However, the scrip doesn't appear to face any correction risks.
For a city gas distribution company, the 67% profit growth reported by Gujarat Gas for the June quarter exceeded expectations. The company posted a strong 41% revenue growth to Rs 576.6 crore and improved operating profit margin by 180 basis points to 23.9%. Most of the company's revenue growth came from higher prices. It implemented an across-the-board price hike in April '11, which took the average sales realisation 35.6% higher y-o-y to Rs 19.1 per standard cubic meter (scm). In comparison, the volume growth was a paltry 1.8% to 302 million cubic meters.

Adani to pick up 20% in Green Gas

Gujarat-based Adani Gas, an arm of Adani Enterprise, will pick up 20 per cent equity in Green Gas Limited, a joint venture between Gail and the Indian Oil Corporation (IOC).
Green Gas supplies city gas and compressed natural gas in Agra and Lucknow in Uttar Pradesh. Gailand IOC hold 22.5 per cent each in the company, while Uttar Pradesh State Industrial Development Corporation holds five per cent. Aditya Vikram Birla Group and financial institutions IDFC and UTI together hold 50 per cent stake in Green Gas.
“We have signed a memorandum of understanding with Green Gas to pick up 20 per cent equity in the company. We will merge our assets with Green Gas. Since both of us were in the same city, we decided to work together so that there is no hassle. Also, now, wherever we go we will go together,” said Rajeev Sharma, chief executive officer, Adani Gas.
SBI Capital Markets has been given the mandate to evaluate assets of Green Gas and Adani Gas. The company has begun work on drawing a financial model and a business plan for Green Gas. The board has also asked it to try and arrange private equity infusion upto a specified limit.
IOC and Gail decided that Adani Gas may be inducted as a strategic partner in Green Gas on account of their gas pipeline infrastructure in Lucknow. The combined infrastructure of both companies is expected to provide ready infrastructure to service most parts of the city.
“Adani Gas has infrastructure in Lucknow so we decided to utilise their network. If the business case of Adani Gas is found beneficial to the interest of Green Gas and its shareholders, Adani Gas could be offered up to 20 per cent equity in Green Gas,” said a Green Gas executive.
Adani had spent around Rs 65 crore to lay steel and plastic pipelines for around 60 kilometre in Lucknow. The company, however, had to suspend work midway as it failed to source gas and was subsequently forced to stop work after an intervention by the Petroleum and Natural Gas Regulatory Board in 2009.
Green Gas has syndicated a term loan of Rs 153.6 crore to finance the ongoing city gas distribution expansions and capital expenditures.

Reliance shuts oil production facilities in KG-D6

Reliance Industries (RIL) has
shutdown production facilities at an oil field in its
showpiece KG-D6 block off the Andhra coast for maintenance
without any impact on production till now.
RIL on July 31 took a shutdown to do maintenance work at
a compressor on the Floating Production Storage and Offloading
(FPSO) unit operating in the MA oilfield, sources said.
MA oilfield produces a little less than 15,000 barrels
per day of oil and about 7.6 million standard cubic meters per
day of natural gas from the five wells.
The wells have not been shutdown and they continue to
produce at almost normal rate, sources said.
KG-D6 block, which besides MA oilfield also includes the
gigantic Dhirubhai-1 and 3 (D1 and D3) gas fields, is
producing about 45.4 mmscmd of gas today as compared to over
46 mmscmd last week.
Sources said the maintenance work will last 12-14 days
and
gas production from MA field will be shut for only 36-48 hours
around this weekend.
Sources said wells in the MA field have not been shutdown
during the maintenance of FPSO which pumps out oil from the
field. The wells continue to produce oil and gas.
While gas production from MA oilfield has come down by
0.2-0.3 mmscmd, one out of the 16 production wells in the D1
and D3 has also been shutdown for maintenances, reducing
output by 0.4-0.5 mmscmd.
The Krishna Godavari basin Block KG-DWN-98/3 (D6) has 19
oil and gas finds. Of these, the largest, Dhirubhai-1 and 3
finds and an oil field, MA, have been put into production.
RIL plans to upgrade a gas compressor during the
shutdown. For two days, all gas will have to be flared and
there will be none available for sale, sources said.
The present output is just enough to meet the contracted
demand of core sectors -- 15.35 mmscmd of fertiliser units, 29
mmscmd of power plants, 0.65 mmscmd of city gas distribution
firms and 2.59 mmscmd to LPG plants.
Sources said in May, the oil ministry had directed that
production from KG-D6 will first go to meet the contracted
demand of core users. If any gas is left after that, it can go
to non-core sectors like petrochemicals, refineries and steel.
In event of output falling below what has been allocated
to core users, fuel will first be supplied to fertiliser
plants to their full requirement, then to LPG plants, power
and lastly to city gas users.
If this priority remains, then city gas companies like
Indraprastha Gas Ltd, which sell CNG to automobiles and piped
cooking gas to households in Delhi, will run dry for about two
weeks. Supplies to LPG plants of GAIL would also be impacted
unless the oil ministry says the cut in supplies would be
pro-rata.

IGL may extend supply to 500,000 users in five years

Indraprastha Gas Limited (IGL) has decided to meet additional natural gas demand from imported liquefied natural gas (LNG) because it does not expect any new allocation of domestic gas for the next three years. Rajesh Vedvyas, MD of IGL, talks about company's growth plans in an interview with Siddhartha P Saikia Excerpts:

Is your business affected by dip in the domestic gas output?

No, for our requirement of additional gas to meet incremental demand, we are dependent on LNG. Less supply from domestic field doesn't impact our business. We are not going to get any deemed domestic gas in next three years and, accordingly, planned our operations.

How much is your current demand and where are you sourcing it from?

Currently, our demand is 3.3 mmscmd. Out of this, 2.2 mmscmd is gas from administered price mechanism (APM); 0.15 mmscmd is from KG basin and rest is LNG.

How much do you see your demand growing in next three years? How big is your present customer base?

We see our gas demand going upto 4.5 mmsmcd in next three years. Out of this, 2.2 mmscmd would be APM gas, while rest would be LNG. For piped cooking gas, there are nearly 2,000,000 potential customers in Delhi. In the next five years, we could cover a total of 500,000 new customers. The CNG users are growing at the rate of 14-15 per cent year-on-year. Currently, we supply piped cooking gas to nearly 260,000 customers in Delhi, Noida, Greater Noida and Ghaziabad.

Which are the new cities where you have bid for third round of piped natural gas distribution? How much investment would it require?

We have submitted bids for Jalandhar and Ludhiana. The investment in Jalandhar would be nearly Rs 500 800 crore, while it would be close to Rs 1,000 crore for Ludhiana. We are of the view that cities that have more than 80 per cent of customers make good business sense.

Do you think bidding is the right way to expand city-gas distribution network?

The first round by PNGRB was successful. The Supreme Court quashed the second round. And we don't know when the results for the third round would be declared. We have apprised PNGRB that the bidding process has loopholes, which they must plug. Bidding is not the right way to go for expansion of city-gas distribution network. Rather, there should be few empanelled companies whom the regulator (PNGRB) should allow to lay pipelines through a selection process.

Where is the growth for IGL if you do not get the opportunity to lay network in new cities?

We have our hands full for next five years in the cities where we have our network. Even if no new cities were allotted, it would not impact our growth.

How do you plan to raise funds?

Last year, we raised Rs 350 crore with Axis Bank as the lead arranger of the loan. In the current financial year, we will raise around Rs 300 crore, where HDFC Bank is the lead arranger.

Do you plan to set up a LNG terminal?

IGL is fortunate in having strong promoters in Gail and BPCL and is quite comfortable about LNG sourcing. However, we do not rule out any direct term contracts with the shippers in future.

150 RTC CNG buses gather dust

HYDERABAD: While APSRTC continues to dream about procuring new fleet to net additional revenue, the 150 brand new buses which they have procured about four months ago are gathering dust at Musheerabad bus depot due to lack of CNG supply.
In February 2011, the state government has directed the APSRTC management to ensure that at least one-third of the 6,000 buses which the corporation intends to purchase in the next couple of years should run on CNG (compressed natural gas). According to sources, the corporation and the state government thought at that time that it would be an easy task as 230 CNG buses are already in operation in Vijayawada and a CNG mother station works at brisk pace in Shamirpet.
As per the plan, in the first phase, RTC quickly procured 40 CNG buses hoping that from March 15, Bhagyanagar Gas Limited (BGL), the nodal agency to supply natural gas to Hyderabad's city gas distribution project, will start providing CNG as it was agreed upon. However, things ran into a roadblock as the Reliance Gas Transportation Infrastructure Ltd (RGTIL) could not supply the fuel to BGL.

LNG firms may do well on high prices

The world finally seems to be entering the high LNG price regime as Japan is guzzling more gas to meet its power demand to offset the fall of output from its nuclear power plants damaged by a deadly earthquake in March.
While this is good news for LNG producers across the world, India is caught at the wrong time as a falling output from KG-D6 field is forcing the country to import more LNG at high spot prices.
LNG, or liquefied natural gas, is increasingly being used as a cheaper replacement of crude and other forms of energy such as coal.
“Japan’s nuclear power generating capacity has come down by 30% and due to the recent damages to nuclear plants, the Japanese are toying with the option of going for more LNG and coal-based power plants,” said Vandana Hari, Asia editorial director, Platts, a Singapore-based global information provider on energy and metals.
According to Platts Spot JKM Index, the Japanese LNG import price has risen by 55% since the March 11 earthquake.
Between March 2011 and July 2011, the price of spot LNG has risen from $9.5 per mmBtu to $15.8 per mmBtu, a rise of 66.32%, according to Platts data.
According to another data, the movement of shipment of all crude and LNG cargoes are concentrated towards the Southeast Asian economies.
The current ceiling price in India for domestic gas from the Panna-Mukta field is $5.73 per mmBtu, $5.57 per mmBtu for Tapti field and $4.2 per mmBtu for KG D6 as against the current international spot price of $16 per mmBtu, a difference of 180%.
Hari said the surging LNG prices are sure to impact India as while the gas demand has increased sharply, its domestic supply has not risen in tandem.
While high prices will hurt domestic power and fertiliser players, the biggest consumers of gas, the LNG firms such as Petronet LNG and Shell are set to benefit.
Also, city-gas distribution companies such as Gujarat Gas, Indraprastha Gas, the city-gas arm of Adani are likely to have a dream run in the next few years.
Companies such as Gujarat Gas, which sourced some of its requirement of natural gas from the Panna, Mukta and Tapti fields, had said in April it will be difficult to continue to sell cheaper gas as output is falling and the only option is imported LNG.
“India currently imports close to a million metric tonne of LNG every month and this is expected to go up as the outlook from KG D6 is not impressive,” Hari said.
Satish Mishra, a fertiliser and gas analyst from brokerage Pinc Research, said, “India’s current gas demand consumption stands at 170 million metric standard cubic metres per day (mmscmd) out of which Reliance is supplying close to 48 mmscmd, as against the projected 50-55 mmscmd earlier.’’
He said while Shell is still supplying 1.2-1.3 million tonne per annum (mtpa) of imported LNG to Indian customers, Petronet LNG, India’s biggest LNG player, is operating at full capacity of 10 mtpa, against an fiscal 2011 figure of 8 mtpa.
“Most of the companies had set up capacities expecting gas from Reliance, but with Reliance’s production falling they have to either shut operations or switch to spot LNG,” Mishra said,adding that the price of spot LNG is expected to hover at $12-$14 per mmBtu.
However, Hari from Platts said rise in shale gas exports from the US can ease the situation.
“But it would take time. For now, LNG is a seller’s market,” she said.