Reliance Industries Limited (RIL) will invest $2 billion in its 3 shale assets in the United States of America. This decision is taken due to the business potential inthe extraction of natural gas and oil from sedimentary rock formations.
RIL, India’s biggest private sector company,has already invested $7.3 billion over the last 4 years towards the development of the oil-and-gassector in the booming American market. It now plans on making new investments in 3 existing joint ventures with companies in the US.
RIL versus the Government of India
RIL’s move to invest in shalegas comes around the same time when the company is in a row with the Government of India on the issue of increasing the price of natural gas. The natural gasis produced at RIL’s D6 block in the Krishna-Godavari basin. The recently elected National Democratic Alliance (NDA) government postponed its pricing-related decision to September 30, 2014. The deferred decision involves a proposed price hike pending modification on the basis of a formula suggested by the C. Rangarajan committee. This modification has the potential to nearly double the price of gas in India.
What This Means for RIL
On June 30, Canadian company, Niko Resources Limited, a 10% partner in the D6 block, announced that their investment plans for the Krishna-Godavari basin will be deferred if the gas pricing issue is not resolved. This has proven to be a challenge for RIL to pursue domestic investments in exploration and production.However, its investmentin the US-based shale oil and gas ventures is one of the many steps taken to steadily increase its interests in the international marketplace.
Shale gas operations have known to become a significant revenue generator for the company within a span of 3 years. The company’s June quarter results announced a 26% increase in revenue and 22% increase in operating profit fromthis sector. Furthermore, RIL’s share of production from this business stood at 15 million metric standard cubic meters per day of gas;a little short of twice its production from the D1 and D3 fields in Block 6 of the Krishna-Godavari Basin.
RIL’s Plans for its Overseas ShaleGas Business
Sources suggest that $2 billion worth of additional capital expenditure that is planned for this business will be primarily invested in the Marcellus region located in the eastern part of the United States. For this, RIL has agreements with Chevron as well as Carrizo Oil and Gas Inc. Both companies have significant presence in this region. A spokesperson said that the investment will most likely flow into the Chevron shale acreage.
Furthermore, RIL enjoyed a head start by entering into the business through joint-venture agreements as early as 2010. In the then-nascent sector, the company invested a total of $2.046 billion in companies with presence in the Marcellus and Texas regions of the US. Gaining access to 12 trillion cubic feet of reserves, these agreements have already turned extremely profitable for RIL.