ONGC announces a launch date for KG gas and sets a $12 price

The KG Basin Gas Field's long-awaited start of production has finally been scheduled, according to India's largest oil and gas company ONGC, which has sought a USD 12 price for the fuel it intends to deliver starting on June 15. The company floated, seeking bids for gas sales, Oil and Natural Gas Corporation (ONGC) will start producing 0.4 million standard cubic metres per day on 15 June and will ramp it up to 1.4 mmscmd by February 5, 2024. This is a small portion of the planned output from the block that is adjacent to Reliance Industries' lucrative KG-D6 area in the Bay of Bengal.

Pankaj Kumar, the director of production at ONGC, the company plans to begin oil production from the KG-DWN-98/2 or KG-D5 block in the Krishna Godavari basin by May or June of this year. Along with the oil that is released from the reservoir located several hundred metres beneath the seabed, a tiny amount of gas will also flow. For the gas that will start flowing on 15 June, the corporation is now accepting bids from consumers including city gas operators who sell CNG to cars and piped cooking gas to homes, businesses that use gas to manufacture fertiliser or electricity and LPG producers and merchants.

ONGC requested quotes from businesses for a premium, or "P," above the rate determined by adding USD 1 per million BTUs to the current Brent oil price multiplied by a rate of 14%. The basic price is USD 11.8 per mmBtu at the current price of Brent crude oil, which is over USD 77 per barrel. (USD 10.78 per mmBtu at 14 per cent of Brent oil price plus a markup of USD 1).

The price that is determined using this formula or the rate that the oil ministry's subsidiary PPAC announces twice a year for deep-ocean fields will be the floor price, whichever is lower. For the six-month period beginning on April 1st, the maximum price for challenging-to-produce sectors like deep-sea is set at USD 12.12. The first oil was supposed to flow in March 2020, and gas production from Cluster-II fields in the KG-D5 was supposed to begin in June 2019.

The commencement of oil production was initially delayed to November 2021, then to the third quarter of 2022, and is now delayed to June 2023 due to contracting and supply chain challenges brought on by the pandemic, according to the business. In order for non-associated gas to begin flowing, the gas output start objective was initially amended to May 2021, then to May 2023, and now to May 2024. A floating production unit known as FPSO that would be used to generate oil is already in Indian seas, according to Kumar. He had previously stated that "we will start with 10,000 to 12,000 barrels per day and reach the peak of 45,000 bpd in 2-3 months," adding that some gas will flow alongside oil but that the actual gas output would begin in May 2024.

The production estimates are, however, much lower than what was originally projected. At the time of its launch in April 2018, ONGC had said the estimated capital expenditure would be USD 5.07 billion, and operational expenditure would be USD 5.12 billion over a field life of 16 years. The block has several discoveries that have been clubbed into three clusters Cluster-1, 2 and 3. Cluster 2 is being put into production first.

Cluster 2 field is divided into two blocks namely -- 2A and 2B, which as per the original investment decision, were expected to produce 23.52 million metric tonnes of oil and 50.70 billion cubic metres (bcm) of gas over the life of the field. Cluster 2A was estimated to contain reserves of 94.26 million tonnes of crude oil and 21.75 bcm of associated gas, while Cluster 2B is estimated to host 51.98 bcm of gas reserves.

Cluster 2A was anticipated to produce 77,305 barrels of oil per day (bopd) and associated gas at a rate of 3.81 million metric standard cubic metres per day (mmscmd) over 15 years. Cluster 2B is expected to produce free gas of 12.75 mmscmd from eight wells and has a 16-year life. But now, the output estimate is lower - 45,000 bpd of oil and up to 2.5 mmscmd from Cluster 2A and around 9 mmscmd from Cluster 2B.