KG Basin gas to lift Reliance profit

Reliance Industries will start pumping natural gas from its deep-sea block early next year, putting India's most valuable firm on track to earn a quarter of its profit from oil and gas production, Chairman Mukesh Ambani said.

The field is located in the Krishna-Godavari Basin, where the firm started pumping crude oil last week, and total hydrocarbon output from the block would rise to 550,000 barrels of oil equivalent per day (boed) in six to eight quarters

Ambani said this would amount to about 40 percent of the current indigenous production in the energy-starved country, which imports 70 percent of the oil it consumes.

"Its impact on the fortunes of India and Reliance will be enormous, contributing to foreign exchange and import bill saving of $20 billion," Ambani said.

He said the company would start pumping natural gas from the KG Basin in the January-March quarter, which is within the broad target of the company but later than the government's forecast that production would begin by November.

The company is expected to initially pump 15 million metric standard cubic metres a day (mmscmd) of gas and ramp it up to 40 mmscmd in a few months and double that output in the next phase of the field's development.

The supply of Reliance's gas is expected to encourage power plants, factories and motorists to abandon liquid fuels, and hit the growth in domestic oil sales, which grew about 7 percent in 2007/08.

Ambani said Reliance's gas supplies would be enough to power 5 million cars, 10 million trucks and over 50 million scooters and motorcycles.

It would also boost power generation by thousands of megawatts in a few months, providing enough electricity to light up 80 million homes, 

Reliance owns 90 percent of the D-6 block, while Canada's Niko Resources has the rest but Reliance would consider bringing another partner on board if it helps the firm.

"It is purely driven by value proposition. If somebody gives us share in an equally prolific field in other parts of the world where we want to be ... it can't be ruled out," the firm's head of petroleum business, P.M.S. Prasad told a news conference.

But the firm had no immediate plan to sign up a foreign partner, he said.

Prasad said the company's oilfield had started pumping 5,000 barrels per day of crude oil, for which two state-run Indian refiners -- Hindustan Petroleum Corp and Chennai Petroleum Corp -- were potential customers.

The firm would begin selling crude oil with spot sales, while term contracts would be signed later, he said.

"When we bring 40,000 bpd, and the quality stabilises, that is the time we starts thinking about term contracts," he said.

Ambani said crude oil production was only the beginning of the firm's oil and gas output.

"It marks the first production from just one field that is part of a larger discovery domain. We can now confidently look forward to production from a series of other fields," he said.

Reliance is also expected within weeks to begin pumping crude through the new refinery, which together with its existing 660,000 bpd plant on India's west coast, built less than a decade ago, will be world's biggest refining complex.