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ONGC's KG Oil, Gas Project Postponed; Nation Bleeds Precious Forex

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At a time when crude oil and natural gas prices are sky-high, public sector behemoth ONGC's haphazard planning and mismanagement in developing showpiece deep-sea KG-D5 block is costing the nation over Rs 18,000 crores due to the delayed output of oil and gas, government officials said.

 

ONGC was originally to start gas production from the Cluster-II fields in block KG-DWN-98/2 (KG-D5) in June 2019 and the first oil was to flow in March 2020.

ONGC's KG Oil, Gas Project Postponed; Nation Bleeds Precious Forex

But these targets were quietly shifted to end-2021 because of deferments in awarding the fragmented work packages of the project, two officials with direct knowledge of the matter said on condition of anonymity.

The project now is further pushed back because of differences in interface issues -- simply put compatibility --between major work packages related to pipelines, process platforms and storage and offloading vessels.

Crude oil is now expected to reach Indian shores in the third quarter of 2022 -- against the revised target of November 2021 - and natural gas in May 2023 -- against the revised target of May 2021, they said. With oil flow from Cluster II alone estimated at 47,000 barrels per day or 2 million tonnes per annum and gas at 6 million cubic meters per day or 2.2 billion cubic meters per annum, the output delay would collectively cost the nation Rs 18,000 crore in foreign exchange.

 

"This is a conservative figure considering crude price remains at USD 82 a barrel, gas at USD 6.13 per million British thermal units and the US dollar at Rs 75," an official said. While ONGC did not offer any immediate comments on the story, ONGC Chairman and Managing Director Subhash Kumar at an earnings call with investors on Saturday said the project continues to be impacted by "disruption in supply chains".

Stating that he can't give a timeline for the start of the production, he said pandemic-related restrictions continue in Malaysia and Singapore, impacting the supply of equipment needed for the project. On November 11, Petroleum Secretary Tarun Kapoor had stated that the government wants ONGC to involve private sector firms and domain knowledge experts wherever possible to help raise oil and gas production and help cut import bills.

Before that, the second-highest-ranked official in the petroleum ministry on October 28 wrote formally to Oil and Natural Gas Corporation (ONGC), asking it to give away a 60 per cent stake plus operating control in some of the firm's prime fields to foreign companies. Officials said the KG-D5 project has faced problems in execution right from the beginning.

"We have been seeking reports and reviewing the project with ONGC, and it is clear that the execution could have been better," an official said, adding the two consultants hired by the company haven't worked in sync.

Project management consultant Nauvata Engineering and its partner Consub Ltd, which looked after detailed engineering, design and project management, is not taking ownership of the conceptual design by first consultant Intecsea, which did the pre-FEED, bid packages preparation and award of work.

Besides divergence between the first and the second consultant, the latter has refused to take any responsibility for work done in the earlier phases of the project by the first consultant. Cost overruns are also being reported.

For example, USD 100 million is estimated in cost overrun in connectivity issues between subsea umbilical, risers and flowline (SURF) -- subsea production system (SPS); central process platform (CPP) - living quarter and utility platform (LQUP) and floating production, storage and offloading vessel (FPSO). "Despite the huge financial strain on the nation, ONGC is in no hurry to resolve the issues as it couches the delays on COVID pandemic instead of accepting that the delay was on account of mismatches arising because of hiring two separate consultants for different works and fragmenting the project into multiple packages in awarding contracts," the official said.

The two inherent faults continue to riddle the project, he added. To develop complex deepwater fields, inputs from one sub-project are crucial for the implementation of subsequent work packages. Awarding Cluster II as separate packages resulted in non-synchronisation of their inter-dependency in terms of inputs on technical specifications as well as work schedules.

Since it was broken into multiple packages and the awards of work to multiple vendors were delayed, the Cluster II development project is battling with numerous interface issues. Sources said that there have been delays in deploying the drilling rig resource for oil well completion due to a mismatch in the supplies of Xmas trees by SURF-SPS contractor and mobilization of rigs by ONGC.

They said that as against the revised plan of deploying the third rig by June 2021 for oil processing completion, the rig is now being mobilised from January 2022, a delay of six months. That could mean an additional Rs 5,500 crore payout by the nation. "Much damage has been done by hiring separate consultants that bicker among themselves over technical aspects and by awarding the project in bits and pieces to different contractors who are working at their own pace without any accountability on the overall progress or compatibility," the official said.

Amar Nath, Additional Secretary (Exploration) in the Petroleum Ministry, wrote to ONGC chairman Subhash Kumar last month that "ONGC's contribution in crude oil consumption of India has declined drastically to a paltry 9 per cent in 2020-21" and should consider divesting majority share in its prolific producing assets Mumbai High and Bassein in the Western Offshore.

PTI

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Story first published: Sunday, November 14, 2021, 17:51 [IST]
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