Global Insight Perspective | |
Significance | The targeted output level of 25 mmcm/d suggests that the area is due to become an important producing region for ONGC, although ten discoveries at KG-DWN-98/2 are currently only estimated to hold 6.37 tcf of gas. The recent strike at Block IG, which early indications suggest could support an output rate of 150,000 b/d by 2016-17 when tied to proximate discoveries, suggests the basin may also have good oil production potential. |
Implications | ONGC is keen to fast track development of discoveries in the basin, given the forecast rise in India's unmet gas demand and as a way of deflecting domestic criticism of ONGC for its sluggish output growth over the past few years. |
Outlook | While the approval of ONGC's development plan by the DGH and the decision to bring in foreign partners with technical expertise and experience will help speed up appraisal and development, delays in receiving approval or interference from the ten government entities which influence ONGC could once again push back production start-up from2013. |
KG-Basin Bonanza?
Oil & Natural Gas Corp. (ONGC) has announced that it will invest US$5.3 billion in developing gas finds in two of its blocks in the Krishna Godavari Basin, namely the KG-DWN-98/2 block and the KG-OS-DW4 block. ONGC plans to pump 25 mmcm/d of gas from the blocks as well as 8,000 b/d of oil by 2013. It will do this, initially, through tying up 10 discoveries in KG-DWN-98/2 with the G-29, GS-4, and Vashistha gas finds in the shallow water block KG-OS-DW4. ONGC also plans to drill six appraisal wells on deepwater block KG-DWN-98/2 and three on block KG-OS-DW4 to assess and delineate the discoveries. Following completion of the drilling it will draw up a detailed development plan. ONGC estimates that it will need to drill 58 wells at the blocks in order to support its targeted output rate by 2013.
So far ONGC's ten discoveries at KG-DWN-98/2 and three in nearby blocks are estimated to hold 6.37 tcf of gas while a further discovery known as UD-1 is certified by the Directorate General of Hydrocarbons (DGH) to hold 2 tcf. Indeed, given the location of the KG-DWN-98/2 block, which sits adjacent to Reliance Industries KG-DWN-98/3 block (due to commence gas production in March and to eventually support gas output of 80 mmcm/d) the prospects for gas production in Block KG-DWN-98/2 could be promising. However, ONGC's existing discoveries are scattered across the basin in both deep-water and shallow-water areas and to date, gas discoveries have been smaller than those made by Reliance Industries (see India: 23 September 2008: Reliance Industries Commence Oil Production from India's Krishna Godavari Basin). ONGC is attempting to develop its findings by clustering proximate deepwater discoveries (such as Block IG and the G-2, GS-29, Padmawati, and Kanakadurga finds) in other areas of the basin in order to swiftly boost output through use of a floating storage production and offloading (FSPO) unit. ONGC expects crude output from these blocks to begin at 20,000 b/d in 2012 peaking to a respectable 150,000 b/d in 2016/2017.
ONGC is keen to fast track development of gas discoveries in the KG basin given that India's unmet gas demand is expected to increase from 113 mmcm/d in FY2007/2008 to 396 mmcm/d by 2022. With regard to its oil operations, ONGC has also come under some domestic criticism for not doing enough to alleviate India's 70% dependence on imported oil, particularly given the sluggish growth in the company's overall output over the past five years. ONGC is now moving to bring in foreign expertise to develop its KG basin finds in order to speed up development. In December 2008, ONGC divested part of its stake in block KG-DWN-98/2 to a unit of Brazil's Petrobras and Norway's Norsk Hydro Oil and Energy, given the expertise of these companies in deepwater drilling. Bringing in equity partners could also have allowed ONGC to pass on some of the high capital costs of exploration and development in the deepwater block, thereby reducing pressure on its own finances which over summer had come under strain, mainly from subsidising India's Oil Marketing Companies (OMC’s) (see India: 11 December 2008: ONGC Divests Stakes in India's Krishna-Godavari Basin).
Outlook and Implications
The KG-basin is likely to become an important area for gas production for ONGC in the next five years. Indeed, the targeted production rate of 25 mmcm/d compares favourably to gas production from the western offshore fields, which is currently around 12.8 mmcm/d. For oil too, the basin appears promising albeit less significant than ONGC's western offshore fields. Indeed, ONGC's 150,000-b/d target production level from Block I-G and proximate discoveries is still significantly below the 340,000 b/d average daily production rate from the western offshore. However, there are some concerns over whether ONGC can complete development of discoveries in the basin in its targeted timeframe. In September 2008 ONGC announced that it was experiencing problems in renting a rig to carry out exploration and development activities in the KG-Basin, reportedly due to the Central Vigilance Committee (CVC) procedures and guidelines. The easing of rig shortages as a result of the global economic slowdown and the approval of ONGC's appraisal plan for deepwater discoveries at the KG basin from the DGH will help remove potential obstacles to achieving production on schedule. However, ONGC's announcement highlights the bureaucratic obstacles facing the company which undermines its competitiveness and its ability to boost output. Indeed, previously ONGC had been targeting production from its KG basin interests to kick off in 2011, but this was delayed for two years, reportedly due to the host of procedures and guidelines the company has to adhere to. Indeed, no less than 10 government entities assert some influence over ONGC while the company tends to struggle to attract talented engineers due to the higher wages offered in the private sector. Further delays to the start of output are therefore a continuing possibility.