India’s gas output will rise 25% this year to 95-100 million metric standard cubic metres a day (mmscmd), led by production from fields jointly owned by Reliance Industries (RIL) and BP plc, and from that of state-run Oil and Natural Gas Corporation Ltd (ONGC).
The RIL-BP joint venture started production from the new R cluster in the Krishna-Godavari basin fields in December, which will be ramped up this year.The R Cluster is expected to reach peak production of 13 million metric standard cubic metres (mmscmd) a day in 2021 and plateau thereafter. Two other fields, Satellite Cluster and MJ Field, are expected to begin producing in 2021-22. RIL and partner BP plc have together invested $6 billion in the project.
“RIL’s announced start of gas production will support 48% rise in domestic gas supplies after years of flattish output. The new production should contribute ~3% of earnings and cash flows by 2023,” said Morgan Stanley in a note to clients last month.
ONGC, on the other hand, started test production of 2,40,000 cubic meter per day in February from the KG basin. It plans to drill more wells and start commercial production this year.
The domestic energy major is spending more than $5 billion to produce as much as 35 billion cubic meters of gas by 2023-24 from new KG deep-water projects. The pandemic-induced lockdown had delayed the explorer’s plans to ramp up production from the field.
“Despite the delay, ONGC is expected to grow its gas production in FY22, with efforts to arrest the decline in oil production from age-old fields (accounting for 60–70% of total oil production),” said Motilal Oswal Financial Services Ltd in a 7 January report.
In FY20, ONGC made a total of 12 discoveries (seven onshore, five offshore), seven of which are prospects (three onshore, four offshore) and five are pools (four onshore, one offshore). The company has notified seven new discoveries (four pools and three prospects) in FY21 so far.
“We model in flattish oil production for the next two years, while we build a 14% gas production CAGR to 26.8 bcm/30.8bcm for FY22/FY23,” added Motilal Oswal.India’s domestic demand for natural gas is expected to grow 10% year-on-year in FY22, according to Icra Ltd.
Consumption will rise as more and more city gas distribution areas come up, initial infrastructure building phase near completion, new fertiliser plants are commissioned, and new customers are connected to the gas grid due to expansion in the pipeline network.
Domestic gas prices, as governed by the modified Rangarajan formula, are currently at $1.79 per mmbtu (million metric British thermal unit), and have remained below the cost of production for many years now.
“At such low prices, gas production remains a loss-making proposition for even benign geologies. Accordingly, a fervent demand of the upstream industry is the provision of a floor for the gas prices,” said Icra.
However, the rating agency expects average crude oil realisations for upstream producers to be significantly higher than FY21, due to higher demand and active management of supplies and production by OPEC+.
India may however, need to import more crude oil this year as production of crude oil is expected to remain stagnant or decline marginally in FY2022 owing to decline in oil production from ageing fields.