Deep-sea dive: On Reliance-BP plan for the KG-D6 block

Deep-sea dive: On Reliance-BP plan for the KG-D6 block


Reliance Industries’ and BP’s joint investment of ₹40,000 crore in the KG-D6 gas block has important implications for the oil, gas and renewable energy sectors in terms of technological development, supply line infrastructure and pricing policy.

The investment assumes a projected gas yield of 30 to 35 million cubic metres a day from the fields, and accompanies an overall partnership between the two companies in low-carbon and renewable energy, as well as in fuel retailing.

With the last big investment in the sector being BP’s purchase of a 30% stake in some of RIL’s oil and gas production-sharing contracts in 2011, this pact signals a growing comfort with and acceptance of the Centre’s new gas pricing policy, which includes a mechanism for higher rates for gas from deep and ultra-deep wells.

The proposed investment also brings into sharp focus the 2014 arbitration case the companies had filed against the government regarding gas pricing. Given the Centre’s current stance, the partners will not be able to derive benefit from the new gas pricing formula till the legal spat is resolved.

The RIL-BP partnership also seeks to build capabilities across the entire oil and gas value chain. Thursday’s announcement that the two partners would explore opportunities in fuel retailing too was significant, coming as it did a day before the country moved to a dynamic pricing policy involving daily price revisions.

Petroleum and Natural Gas Minister Dharmendra Pradhan had invited the two companies to invest in fuel retailing, and their agreement suggests optimism over the outlook for the pricing regime.

Conventional energy companies worldwide are realising that traditional markets are diminishing, and sources of conventional energy such as coal mines and gas fields becoming more expensive to operate.

The RIL-BP plans to explore opportunities in renewable energy should be viewed against that backdrop. The two companies, in their search for new sources of conventional energy, have developed expertise that could be applied in the renewable energy space.

BP has been operating deep and ultra-deep wells for years and has the infrastructure and technology to operate in high-risk, difficult locations. One possible opportunity for the companies is to exploit this know-how and develop offshore wind installations across the KG-D6 block.

A company used to drilling at ultra-deep locations should not find it difficult to set up the foundations for offshore windmills at these sites. And it is not that big a jump to get electricity supply lines running alongside pre-existing oil and gas pipelines. With offshore wind installations virtually non-existent in India, the area offers an untapped market that the government would be keen to see exploited. While details of the investment plan have not been presented, the scale of the funds involved, coupled with attractive pricing and FDI policies, may well help draw more global oil and gas majors to the Indian market, upstream and downstream.

Source: The Hindu – Editorials

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