Petroleum ministry may terminate Reliance's KG basin gas contract

The Union Ministry of Petroleum and Natural Gas might terminate the contract granted to Mukesh Ambani-owned Reliance Industries Limited (RIL) for drilling natural gas from Krishna-Godavari basin in Bay of Bengal, according to the statement issued by the ministry. Earlier, on Tuesday, a parliamentary standing committee's report on pricing of petroleum and natural gas indicated that RIL had defaulted on gas production from the region.

Natural gas is a relatively cleaner fuel when compared to coal used in power generation or diesel used in vehicles. Reliance has a monopoly over the country's gas fields.   

Reacting to the contents of the report, oil and petroleum minister Veerappa Moily said on Wednesday that default is only punishable by termination of the contract. In its report, which had the expert view of director-general of hydrocarbons (DGH), the parliamentary committee stated: “The committee is of the opinion that non-adherence by the contractor to approved field development plan should be construed as 'default' and not just failure and remedial action by the ministry must be premised on 'default' by the contractor and not on 'failure'.”

Hoarding gas?

According to the office of DGH, which tabled a report earlier this year, RIL had shut down 10 drilling wells till November 2013. While RIL attributed the shortfall in production to sand and salt water ingress, which led to low pressure during production, the ministry has said RIL has not been producing and, thereby, hoarding gas. DGH's report shows that output from D1 and D3 gas fields in the block fell sharply after achieving about 62 million metric standard cubic metre (MMSCM) per day about three years ago. The fields are currently producing only around 10 MMSCM per day of gas, which is far below the peak output of 80 MMSCM per day. This is of significance and has to be seen in the context of roughly 20,000 MW of power generation capacity lying idle in the country for want of gas.

The gas field matter is under arbitration since May 2012, when the ministry sent a notice to RIL, stopping any further expenditure till it increases the production from the gas block.