NEW DELHI: Reliance Industries will be able to raise gas production from the D6 block with the help of additional drilling and appropriate technology but current gas prices are too low to justify more investment, a report from Bernstein Research said.
“We expect gas prices to double over the next three years, but the exact timing remains uncertain. To move forward with re-development of KG-D6 will take additional capital and will need a higher gas price. Current gas prices of $4.20 are not sufficient to warrant additional investment,” it said.
Output at the D6 block has dropped sharply, creating a severe shortage of natural gas.
Reliance Industries attributes the decline to geological complexities, while the Directorate General of Hydrocarbons (DGH) has accused the company of not drilling the required number of wells to produce more gas.
Bernstein Research agrees with Reliance’s diagnosis. “One of the problems that Reliance has encountered in development of KG-D6 is that the field is much more complicated than they had envisioned,” it said.
Output from the field is also expected to decline further, it said. “With no intervention plan and only 12 wells flowing gas in KG-D6, near term production decline remains inevitable,” the report said.
The geological complexity includes presence of sandy formations that obstruct the flow of gas within the reservoir and ingress of water and sand into the wells. “On many reservoirs it is good operating practice to fit a ‘screen’ which effectively allows the gas molecules to pass but prevents sand particles from coming into the well. Once sand has entered the well it can cause a host of production-related problems, which appears to be happening here given that ‘sand screens’ were not installed, according to our understanding.”
This problem can be resolved, if more money is spent, it said. “With new wells screens can be deployed. By drilling horizontal wells (above the gas water contact) and other completion/production technology it is possible to improve performance (although at more cost). With BP in the partnership, we believe that best industry practice will now be applied to solve some of these issues, although clearly this means additional costs.”
It said pricing reforms by the government would trigger a new wave of exploration and development in offshore regions of India, which remain vastly under-explored. Reliance itself has been able to develop only three of its offshore discoveries.