ONGC pushes back KG gas production target date to end 2019; oil delayed by a yr

When ONGC Board had on March 28, 2016, approved investing USD 5.07 billion in bringing to production a cluster of discoveries in Bay of Bengal block KG-DWN-98/2 or KG-D5, the first gas was targeted for June 2019 and first oil was to flow by March 2020.

The revised dates were set when ONGC spudded the first of the 34 wells under the project on April 8 this year. Image source : Reuters

State-owned Oil and Natural Gas Corp has pushed back the start of natural gas production from its biggest project in KG basin to December 2019 as it reworked the USD 5.07 billion development to accommodate new policies like GST and local purchase preference rules.

When ONGC Board had on March 28, 2016, approved investing USD 5.07 billion in bringing to production a cluster of discoveries in Bay of Bengal block KG-DWN-98/2 or KG-D5, the first gas was targeted for June 2019 and first oil was to flow by March 2020.

But now, first gas is expected by December 2019 and oil by March 2021, according to the revised dates presented to the company's board late last month.

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"These are not new dates. They were out a couple of months back and we gave an update of the project to the board at its meeting on June 29," ONGC Director (Offshore) Rajesh Kakkar said.

The revised dates were set when ONGC spudded the first of the 34 wells under the project on April 8 this year.

While the ONGC Board had in March 2016 approved a field development plan for Cluster-II discoveries in the block that sits next to Reliance Industries' flagging KG-D6 block in Krishna Godavari basin, new policies like local purchase preference rules, including the one that mandates PSUs to source domestic iron and steel for infrastructure projects were formulated last year.

The Goods and Services Tax (GST), which made sweeping changes in indirect taxation regime, was rolled out in July 2017.

Also, a policy has been formulated to give public enterprises purchase preference if their bid is within 10 per cent of the lowest price, officials said.

ONGC is targeting a peak oil output of 77,305 barrels per day within two years of the start of production. Gas output is slated to peak to 16.56 million standard cubic metres per day by 2022.

This the second time that target deadlines for KG-D5 production have been pushed back. ONGC had in 2014 announced plans to start gas production from 2018 and oil by 2019 but a final investment decision was made contingent upon government approving a remunerative price for the deep-sea block as the prevalent rates were uneconomical.

But, it was not before March 2016 that the government announced a new pricing formula for difficult areas, giving developers of deepsea fields like KG-D5 more than double the domestic rate.

Immediately after that ONGC Board approved the investment plan for Cluster-II group of discoveries in KG-D5.

The 7,294.6 sq km deepsea KG-D5 block has been broadly categorised into Northern Discovery Area (NDA - 3,800.6 sq km) and Southern Discovery Area (SDA - 3,494 sq km).

The NDA has 11 oil and gas discoveries, while SDA has the nation's only ultra-deepsea gas find of UD-1. These finds have been clubbed in three groups - Cluster-1, Cluster-II and Cluster-III.

Gas discovery in Cluster-I is to be tied up with finds in neighbouring G-4 block for production but this is not being taken up because of a dispute with RIL over the migration of gas from ONGC blocks.

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For now, Cluster-II is being developed at a cost of USD 5.07 billion, officials said, adding that completion of the entire development plans is expected by August 2021.

Cluster-2A mainly comprises oil finds of A2, P1, M3, M1 and G-2-2 in NDA which can produce 77,305 bpd (3.86 million tonnes per annum) and 3.81 mmscmd of gas. Cluster 2B, which is made up of four gas finds - R1, U3, U1, and A1 in NDA - envisages a peak output of 12.75 mmscmd of gas. Peak output is likely to last 7 years.

Cluster-3 is the UD-1 gas discovery in SDA. UD-1 lies in the water depth of 2,400-3,200 metres and its development would be taken up after an appropriate technology is found.

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