Reliance begins signing â€کTerm Sheets' for D-6 gas

Vol 11, PW 3 (14 Jun 07) Midstream & Downstream

Reliance has begun signing Term Sheets with power and fertiliser companies for up to 35m cm/d gas production from D-6.

Signing a Term Sheet is an important first step before a Gas Sales and Purchase Agreement. PETROWATCH learns Reliance signed its first Term Sheet with Gujarat-based Torrent Power at a ceremony at the Taj Mansingh hotel in Delhi on (Thursday) 7th June.

On the following day (Friday) 8th June, also at the Taj Mansingh, Reliance signed Term Sheets with Konaseema Power, Nagarjuna Fertilisers and Tata Power. Fertiliser producers IFFCO, Chambal Fertilisers and power company GVK signed Term Sheets on (Saturday) 9th June.

KRIBHCO signed its Term Sheet with Reliance on (Monday) 11th June. Rashtriya Chemicals and Fertilisers were expected to sign their Term Sheet with Reliance on (Thursday) 14th June, but discussions are still continuing.

Interestingly, Maharashtra State Power Generation Company (MAHAGENCO, part of MSEB) is yet to sign. “We have received the Term Sheet and are studying it,â€‌ the company tells us.

“We want to know if there will be any difference between the Term Sheet and the actual agreement.â€‌ MAHAGENCO expects to sign in another two weeks.

“All details regarding the quantity of gas and price have been included in the Term Sheet,â€‌ says a source. “It is a very detailed and legally binding document." When we asked a potential customer if it could trust a Term Sheet from Reliance, given its problems with NTPC, he said: "We have no choice; we need gas." Reliance’s decision to begin signing Term Sheets follows a â€کprice discovery’ exercise carried out with all the power and fertiliser companies mentioned above.

This â€کexercise’ resulted in a wellhead price at the Gadimoga landfall point of $4.71 per mmbtu benchmarked against Brent at $65 per barrel and a low of $2.97 at $25. At $50 Brent, the price is $4.59.

Reliance’s Term Sheet is believed to be for only three to four years. Why “Reliance wants to watch and wait to see how the market grows in these three to four years,â€‌ we hear.