ONGC marginal field gas for AP ceramics producer

Vol 14, PW 21 (21 Apr 11) Midstream & Downstream

UAE-based RAK Ceramics is gearing up to receive gas at its ceramics factory in Andhra Pradesh from three ONGC marginal fields nearby.

PETROWATCH learns ONGC should soon approve a complicated but innovative arrangement between RAK and KEI-RSOS Petroleum & Energy, ONGC’s service contractor for the Mulikipalli, Sirikattapalli and Magatapalli marginal fields from where RAK will draw supplies. Under present rules governing production from ONGC marginal fields, KEI-RSOS can use the gas to generate electricity or it can sell it as CNG to vehicles or as piped gas to an ‘affiliate company.

’ KEI-RSOS cannot legally sell ONGC gas to an unrelated customer like RAK. But the KEI-RSOS group, better known for running a hotel at Rajahmundry in Andhra Pradesh, has neatly solved the problem by selling a 26% stake in its oil and gas subsidiary to the Indian arm of RAK.

This, we learn, legally makes RAK an affiliate of KEI-RSOS and ONGC isn’t complaining. Its Rajahmundry asset has approved the arrangement and has forwarded the file to the company’s legal department in Delhi.

Approval, we hear, is merely a formality. Approval from ONGC’s Executive Purchase Committee is also expected shortly.

KEI-RSOS plans to use GAIL’s ‘trunk’ gas pipeline network to supply gas to the RAK factory at Ida Peddapuram in Andhra Pradesh, located about 50-km from ONGC’s Mulikipalli marginal field. KEI-RSOS will initially supply RAK Ceramics with 50,000 cm/d of gas, ramping this up to 100,000 cm/d within six months.

RAK will buy this gas at $4.75/mmbtu at Ida Peddapuram “including royalty, cess and other taxes” in line with the government’s gas pricing policy. KEI-RSOS was awarded service contracts for ONGC marginal fields Mulikipalli, Sirikattapalli, Magatapalli, Medapadu and Chintanapalli in 2007.