Andhra’s GAIL pipeline fire resulted in ONGC losing 5% gas production in FY15

Andhra’s GAIL pipeline fire resulted in ONGC losing 5% gas production in FY15

The fire at GAIL (India) pipeline last year in the East Godavari district of Andhra Pradesh, which led to shutting down of the east coast gas fields for more than four months, has resulted in ONGC gas output dropping by 5.41% in FY15 compared with the previous year. This is even as many of the country’s power and fertiliser units are stranded for want of domestic gas.

“ONGC drilled 22.02 billion cubic metres of gas in 2014-15 against 23.38 bcm in FY14. The drop in gas output is primarily due to shut-down of the explorer’s gas fields in the east coast, which led to production loss of 0.568 bcm,” a source familiar with the developments told FE.

Without the disruption in its east coast fields, ONGC was confident to drill as much gas it had in the previous fiscal.

In June 2014, 22 people lost their lives after a GAIL pipeline explosion, followed by a major fire occurred at Nagaram in Andhra Pradesh due to leakage of condensate and gas. Following the accident, GAIL employed Engineers India (EIL) to check the health of its 870-km pipeline network in the state. As a precautionary measure, the pipeline network was shut down.

Absence of the pipeline network for evacuation of gas forced ONGC to shut down gas production at its Rajahmundry (RJY) asset. “This is why the output from RJY dropped drastically and is yet to be revived completely,” said the official.

In FY14, the Rajahmundry asset produced 1.171 bcm of natural gas. However, in FY15, it drastically fell by 54% to just 0.54 bcm. ONGC shut down 98 wells after the GAIL accident. Nearly 40 wells were resumed in November and another 13 wells were reopened in December 2014. Still 38 wells are closed. The drop in gas output from the Rajahmundry asset would also dent ONGC’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) by about R500 crore.

“It becomes very tough to revive output at earlier levels if the gas wells are shut down for many weeks,” said the official.

ONGC is targeting to hike its natural gas output by 81% to 116 million metric standard cubic metres per day by 2019-20. Currently, ONGC produces roughly four-fifth of domestic gas.

“ONGC is now closer to augmenting its production and should now be able to increase both its oil and gas output after years of stagnation, albeit gradually and in small quantities. We believe the steep fall in oil prices coupled with ongoing fuel subsidy reforms should lead to a rise in sale price realisation for ONGC’s oil,” Kumar Manish and Alok Deshpande, analysts at HSBC and Capital Markets, said in a report.

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