Calendar An icon of a desk calendar. Cancel An icon of a circle with a diagonal line across. Caret An icon of a block arrow pointing to the right. Email An icon of a paper envelope. Facebook An icon of the Facebook "f" mark. Google An icon of the Google "G" mark. Linked In An icon of the Linked In "in" mark. Logout An icon representing logout. Profile An icon that resembles human head and shoulders. Telephone An icon of a traditional telephone receiver. Tick An icon of a tick mark. Is Public An icon of a human eye and eyelashes. Is Not Public An icon of a human eye and eyelashes with a diagonal line through it. Pause Icon A two-lined pause icon for stopping interactions. Quote Mark A opening quote mark. Quote Mark A closing quote mark. Arrow An icon of an arrow. Folder An icon of a paper folder. Breaking An icon of an exclamation mark on a circular background. Camera An icon of a digital camera. Caret An icon of a caret arrow. Clock An icon of a clock face. Close An icon of the an X shape. Close Icon An icon used to represent where to interact to collapse or dismiss a component Comment An icon of a speech bubble. Comments An icon of a speech bubble, denoting user comments. Ellipsis An icon of 3 horizontal dots. Envelope An icon of a paper envelope. Facebook An icon of a facebook f logo. Camera An icon of a digital camera. Home An icon of a house. Instagram An icon of the Instagram logo. LinkedIn An icon of the LinkedIn logo. Magnifying Glass An icon of a magnifying glass. Search Icon A magnifying glass icon that is used to represent the function of searching. Menu An icon of 3 horizontal lines. Hamburger Menu Icon An icon used to represent a collapsed menu. Next An icon of an arrow pointing to the right. Notice An explanation mark centred inside a circle. Previous An icon of an arrow pointing to the left. Rating An icon of a star. Tag An icon of a tag. Twitter An icon of the Twitter logo. Video Camera An icon of a video camera shape. Speech Bubble Icon A icon displaying a speech bubble WhatsApp An icon of the WhatsApp logo. Information An icon of an information logo. Plus A mathematical 'plus' symbol. Duration An icon indicating Time. Success Tick An icon of a green tick. Success Tick Timeout An icon of a greyed out success tick. Loading Spinner An icon of a loading spinner.

BP’s $6bn deep-water project faces sales price risk in India

BP news
BP news

Imported LNG looks more price competitive compared to India’s new deep-water gas production over the next two to three years

India’s new deep-water gas supply, including future production from BP and Reliance Industries’ KG-D6 Block, is expected to face increasing pressure from low LNG spot prices.

Deep-water developments are projected to drive the expansion of India’s gas production by adding over 1 billion cubic feet per day of new supply by 2023. However, only 15% – or 200 million cubic feet per day – of this supply has been contracted to date, reported Wood Mackenzie.

Significantly, with market demand hit by the Covid-19 pandemic, and low spot LNG prices expected to persist at least until 2022, the full commercialisation of these deep-water volumes is at risk, warned the energy research company.

Aside from projects in the BP-Reliance KG-D6 Block, future production at Oil & Natural Gas Corporation’s (ONGC’s) $5 billion KG-DWN-98/2 deep-water development is also at risk.

“Gas from the deep-water fields will be sold in Andhra Pradesh and the much larger Gujarat/Maharashtra where it will compete against spot LNG directly. The critical period for producers will be the 2020/2021 period when spot prices are set to remain low,” said Alay Patel, an Indian upstream specialist at Woodmac.

“We estimate that around 35% of uncontracted volumes in 2022 are at a higher risk of being replaced by spot LNG,” added Patel.

“Upstream companies might have to face difficult decisions when they auction their volumes through to 2022. Either accept lower prices and consequently low return or delay sales until the prices are more attractive,” said Patel.

The deep-water projects are also facing delays after the Covid-19 lockdown placed unprecedented constraints on the execution schedules.

BP and Reliance, which are aiming to commericalise around 3 trillion cubic feet of equivalent discovered resources in the KG-D6 deep-water Block, have pushed back the expected start-up of production from the second wave of discoveries to October 2020. The pair was initially targeting start-up from the R-Series field in the Krishna Godavari basin in May.

BP and Reliance are developing three deep/ultra-deep-water projects in parallel at the KG-D6 Block. The R-Series will come online first, followed by the Satellite Cluster and MJ fields at a later date. Total planned investment is estimated to exceed $6 billion.

Combined output from the three projects is forecast to be 30 million cubic metres per day by 2024 – equal to one-third of India’s current gas production.

The R-Cluster will have a peak output of 12.9 million cm/d while the Satellites, which are due to start producing from mid-2021, would pump 7 million cm/d. The MJ field is planned to start producing in the second half of 2022 with peak output of 12 million cm/d. However, these start dates could slip due to the delays caused by the Covid-19 pandemic.

Underscoring the technical difficulties facing development of Reliance-BP’s KG-D6 Block, the joint venture’s D1 and D3 fields stopped producing in February this year after coming online just over a decade ago. The D1-D3 field was the country’s first ever deep-water gas field, when it started production in April 2009.

The gas fields saw a sharp fall in output from their peak of 60 million cm/d in 2010 as a result of unexpected technical difficulties with the reservoir.

Given the history of the block, there is room for scepticism about expected production rates for the new developments. But analysts believe Reliance and BP should hit their new production targets as they have carried out ample studies.

Reliance operates the KG-D6 Block with a 66.67% interest, while BP holds a 33.33% share.

BP struck a $7.2 billion deal in 2011 that saw the supermajor take 30% stakes in 23 vast – but complicated – blocks off India operated by Reliance, including KG-D6.

The deal was a bet on some of India’s most prospective deep-water acreage areas and gave BP a vital position in one of the world’s fastest-expanding energy markets.

Meanwhile, in early July 2020, BP paid Reliance $1 billion to set up a joint network of thousands of petrol stations across India to tap the country’s rapidly expanding energy demand. BP will hold 49% and Reliance the remaining 51% in the new company called Jio-bp, which will expand Reliance’s current 1,400 retail sites up to 5,500 over the next five years, the pair said in a statement after announcing the venture in August 2019.

BP also announced on 8 July that it will invest $70 million in the UK-India Green Growth Equity Fund (GGEF) this year. The cash will support India’s renewables sector as the fund is focused on growth in low-carbon energy solutions.


Recommended for you

More from Energy Voice

Latest Posts