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India targets LNG to bridge domestic production decline

09 May 2012 11:06:01 | lmd

India will have to turn to LNG imports in the short and medium term to bridge a fall in domestic production due to declining output from the Reliance Industries-operated KG D6 block, the country's oil and natural gas minister, Sudini Jaipal Reddy, said on Tuesday.

The block, which lies off India's east coast, hit a production peak of 61.5 million cubic metres (Mm³)/day in March 2010, but has since fallen to its current 34Mm³/day rate, significantly short of the 80Mm³/day target for the financial year 2012/13.

The KG D6 output will average 28Mm³/day in the year ending March 2013 and 20Mm³/day between April 2013 and March 2014, Reddy said in a written reply to a question in India's upper parliament chamber.

Reddy's statement coincided with Reliance Industries' release of its 2011-2012 annual report, in which the Mumbai-based company cut its proven reserves estimate by 7% to 3.67 trillion cubic feet. Reliance said volumes linked to existing wells are lower than envisaged and gas outside the main channel is in small economic volumes.

Tensions between Reliance and the government about KG-D6 escalated last week when the oil and natural gas ministry issued the company with a notice refusing to sanction the reimbursement of $1 billion from its field development costs and citing its failure to hit production targets.

Reliance initiated arbitration against the ministry last November, anticipating the move to prevent its cost recovery plan claiming that it is violating the KG-D6 production sharing contract. The government has yet to appoint an arbitrator and Reliance said on Tuesday it has filed a petition with India's supreme court to force the appointment of one.

India estimates that overall domestic gas production for the current financial year will reach 104Mm³/day, compared with 120Mm³/day achieved in June 2011.

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