US Shale to Become Profit Engine For RIL

The investment of Reliance Industries Limited (RIL) in US Shale oil and gas are bearing healthy returns. RIL, owned by Mukesh Ambani, has spent last three years wagering $5.7 billion on North American shale oil and gas. For the first time, those earnings from US output eclipses with those in India. RIL holds the world’s largest oil refinery at Jamnagar, in the western part of India. Since 2010, the production of natural gas and liquids had doubled.According to Mumbai-based Executive Director P.M.S Prasad said the company bought the US Shale assets in 2010. “Earnings from oil and gas sales in the U.S will be sustained. In the next two years, we may not be able to raise gas production in India, while in the U.S output will continue to gain.” Prasad said in an interview.

“US Shale will become a significant contributor to Reliance’s profit in the next five years because higher prices there will lead to higher output,” said Neelabh Sharma, a Mumbai based analyst at BOB Capital Markets Ltd.   On this Prasad said.” Gas prices in the US are sustainable at $5.5 to $6 per unit, and at these prices, drilling and production of gas will start buzzing.” If the prices rise to these levels in future, RIL will acquire more assets, drill more and increase the production, Prasad added.

Currently, RIL sells gas from its biggest field in India at a government-mandated price of $4.2 per million British thermal units, a tariff that comes up for renewal in April. In US, the production costs are low as compared to that in India, as the oil-fields in India are in sea bed while in US, the fields are on the land. Also, the drilling in India has to be mile deep while in US the gas is closer to the surface.

Apart from this, RIL is set to invest a part of $30 billion over three years on exploration to expand its shale business.  It has also acquired permission for further expansion of the natural gas and oil fields located in KG-D6 fields in eastern coast of India.  It will deepen the present oil fields and discover more fields located in the area. According to a study, by 2020, RIL will be contributing almost half to the country’s energy demands. Mukesh Ambani , world’s richest energy tycoon , wants to decrease the dependency of India on energy imports.