DGH approves $12/mmbtu for ONGC discoveries

Vol 17, PW 26 (14 Aug 14) Exploration & Production

This month (August) the DGH set a hugely significant precedent by approving a landfall price of $12/mmbtu for future gas production from two ONGC discoveries in the Mahanadi basin on India’s east coast.

On August 5 the DGH wrote to the oil ministry approving the Declaration of Commerciality (DoC) for the MDW-2A/MDW-2B and MDW-6 gas discoveries at NELP-II deepwater block MN-OSN-2000/2, submitted by ONGC in November 2013. "We carried out thorough techno-commercial analysis," reports an ONGC source, “and concluded block development is viable only if we get $12/mmbtu.

" ONGC calculated a 14% Internal Rate of Return (IRR) on the estimated $4bn cost of developing MN-OSN-2000/2 where it has established a ‘resource’ base of 14bn cubic metres. "Analysis was done assuming $5/mmbtu, then $7/mmbtu and then $10/mmbtu," he adds.

"Ultimately we concluded only $12/mmbtu is viable." ONGC (40%) and partners Oil India (20%), GAIL (20%) and IOC (20%) now await a ministry response to the DGH, and the date of a MC meeting to formally approve the DoC.

After this the consortium will be required to submit a Field Development Plan within one year. ONGC believes development could take up to four years.

"If consumers can pay $18/mmbtu for R-LNG," adds ONGC, "why can't they pay $12/mmbtu for domestic gas?”