Cairn India’s pipeline spend not ‘cost-recoverable’: DGH

Cairn India’s pipeline spend not ‘cost-recoverable’: DGH

In a setback to Cairn India, the Directorate General of Hydrocarbons (DGH) has said that the expenditure on the explorer’s planned 200-km pipeline from its Raageshwari gas processing terminal in Rajasthan to Gujarat State Petronet’s terminal at Palanpur to evacuate natural gas will not be considered “cost-recoverable” under the field development plan (FDP).

This means, Cairn India and its PSU partner ONGC, would have to look for alternatives to recover the capital expenditure (capex) to be incurred for laying the pipeline, which could cost roughly R1,000 crore.

“The DGH has put its foot down saying that the pipeline cannot be made part of the FDP and, hence, would not be come under cost-recovery,” an official privy to the development told FE.

The Raageshwari Deep Gas (RDG) is estimated to hold about 1-3 trillion cubic feet (tcf) of gas in-place. Of this, the estimated recovery factor is of 50%.

Vedanta Group company Cairn India, which holds 70% stake in the Barmer block, and its PSU joint venture partner ONGC, which holds a 30% stake, has put forward a $694-million plan to develop gas reserves at the Raageshwari fields.

“It is understood that the Rajasthan JV have other commercial options to building this pipeline available and they might be reviewing them. One option could be through with Petroleum and Natural Gas Regulatory Board (PNGRB) for an authorisation to lay the gas pipeline,” said another industry official.

Downstream regulator PNGRB has recently announced a provision for laying a tie-in connectivity from a gas source to an existing gas grid that is less than 200 km. “Management Committee (MC) is of the view that the gas pipeline should not be laid under the provisions of the production sharing contract (PSC), hence, the said pipeline will not be cost-recoverable. However, formal MC communication is awaited,” the second official said.

Cairn India did not respond to FE query on the issue.

The Vedanta Group company plans to produce ‘substantial’ natural gas in the next three years from the Barmer block, which is currently the biggest onshore crude oil producing asset. It has found a prolific gas field — Raageshwari — in the south of the Barmer block. Gas from the field is currently processed at Raageshwari gas terminal (RGT), which is situated at about 80 km from crude oil processing terminal known as Mangala processing terminal.

Cairn India and its partner ONGC called for Expression of Interest (EoI) for upgrading RGT and lay the pipeline from domestic and international companies. The scope of work involves detailed design, engineering, procurement, fabrication, complete installation and commissioning on an EPC basis.

Companies such as Essar Projects, Corrtech Energy, Punj Lloyd, JSIW Infrastructure, Jaihind Projects and KazStroyService among others are learnt to have shown interest to lay the 200-km pipeline.

Looking for alternatives:

* Cairn India & ONGC taking up $694-million plan to develop gas reserves Barmer block

* Raageshwari Deep Gas reserve pegged to hold 1-3 tcf of gas in-place and the estimated recovery factor is of 50%

* DGH says pipeline cannot be made part of field development plan and is not cost-recoverable

Share Button