RIL gas can help India save $8.3 bn a year!

Reliance Industries' eastern offshore KG-D6 gas fields at peak production will help the nation save $8.3 billion annually or 0.7 per cent of the GDP, investment banker Morgan Stanley said on Friday.

"Assuming 80 million cubic meters per day of gas supplies for a year as a whole, India could save $8.3 billion annually," Moran Stanley said in a research note on RIL for its clients.

RIL, which is currently producing 31-32 mmcmd, is likely to touch 80 mmcmd in next six months. This peak output could replace close to 26 million tons of crude oil, which is as much as ONGC produces domestically, or about 17 per cent of current demand in India, the report said.

"We estimate 20 mmcmd of gas would go to the fertilizer industry and most of the rest to the power industry. This implies that as much as 13 million tons or 50 per cent of the country's fertilizer production, and about 12,500 MW of power, or 8-9 per cent of overall power produced in the country, can run on RIL's gas."

RIL started gas production from KG-D6 fields on April 2 and has signed contracts with 15 fertiliser plants to sell close to 15 mmcmd gas. Additionally, it has contracted over 25 mmcmd to 19 power plants and 3.3 mmcmd to steel plants.

The report stated that 5 mmcmd more gas could go to fertilizer plants and identified power plants that can take more of KG-D6 gas.

Morgan Stanley prescribed that gas allocation to power plants be made at 90 per cent Plant Load Factor (PLF) or capacity, rather than current scheme of allocation to the 19 power plants at 70 per cent PLF.

State-run NTPC's power plants at Faridabad, Anta, Dadri, Kawas and Gandhar were among the plants which have a fuel deficit that KG-D6 can bridge. Besides, state power plants and private generation units that either buy expensive liquid fuel or imported LNG can also switch to cheaper KG-D6 gas that is priced at USD 4.20 per million British thermal unit.

Morgan Stanley said there was a lot of uncertainty around the litigation between RIL and Anil Ambani Group firm RNRL which is claiming 35 per cent of the peak output at $2.34 per mmBtu price. NTPC is also seeking 12 mmcmd at the same price which is 44 per cent lower than government set rates.

The report highlighted four different possible scenarios. "Our base case is based on $4.2 per mmBtu price for all the D6 gas to customers other than NTPC and RNRL, who would get the gas at a lower price when their power plants are ready to consume the gas. We believe the green field ventures of both RNRL and NTPC are at least three years away, and until then RIL should be able to earn $4.2 per mmBtu on its entire gas production."

If all of the gas is sold at $4.2 per mmBtu, the net asset value (NAV) for D6 would be $19.98 billion, but if RNRL and NTPC get gas at cheaper rates, the NAV would be $17.09 billion, Morgan Stanley said.

 In case the gas price is $2.34 per mmBtu for a second 40 mmcmd but RIL pays statutory levies to the government at $4.2, the NAV would be $12.19 billion.