Govt allows ONGC, GAIL to pick stake in China gas pipeline

The government on Thursday permitted Oil and Natural Gas Corporation and GAIL to pick 12.5 per cent stake in a pipeline that China is building in Myanmar, and allowed them to invest $1 billion more in fields that will provide gas to be shipped to China through the pipeline.

The Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh allowed ONGC Videsh Ltd, the overseas investment arm of Oil and Natural Gas Corporation, to invest $167.84 million in taking 8.35 per cent stake in the pipeline.

GAIL will invest $83.88 million for taking 4.17 per cent stake in the pipeline being constructed by China National Petroleum Corporation to transport gas found in block A-1 and A-3 off the Myanmar coast, an official spokesperson said.

CNPC is building the USD 2.01-billion pipeline to ship gas from blocks A-1 and A-3, where OVL and GAIL India hold 17 per cent and 8.5 per cent stakes respectively, to China.

Gas from the blocks would be sold to China for $7.72 per million British thermal unit at the landfall point in Myanmar.

The block is operated by South Korea's Daewoo which holds 51 per cent. Daewoo, OVL, GAIL and Korea Gas, which has the 8.5 per cent, are investing $2.79 billion in three gas fields in Block A-1 and A-3 off the Myanmar coast and another $936.26 million in laying a separate under-sea pipeline to take the gas to the shore.

An official said CNPC had offered 49.9 per cent stake to the consortium developing gas fields in blocks A-1 and A-3. South Korea's Daewoo Corporation holds 51 per cent stake each in Block A-1 and A-3, while OVL has 17 per cent stake.

GAIL and Korea Gas Corporation have 8.5 per cent each while the remaining 15 per cent is with Myanmar's Myanma Oil and Gas Enterprise.

The consortium is investing $3.61 billion in bringing to production gas fields in the two blocks.

"The 49 per cent stake is being apportioned in the same ratio as individual stakes in Block A-1 and A-3," he said. Daewoo too was inclined to participate in the 40-inch, 870-km pipeline and final shareholding in the pipeline project would be CNPC -- 50.9 per cent, MOGE- 7.37 per cent, Daewoo- 25.04 per cent, OVL - 8.35 per cent, GAIL and KOGAS-4.17 per cent each.

He said Shwe and Shwe Phyu gas fields in Block A-1 and Mya discovery in Block A-3 would be tied together to produce a plateau of 500 million standard cubic feet per day of gas for 19 years.

The field life is envisaged for 28 years. First gas is anticipated in the first quarter of 2013.

Myanmar has decided that the gas from A-1 and A-3 would go to China. CNPC will pay $6.71 per mmBtu for the gas plus an offshore pipeline tariff of $1.02 per mmBtu.

The 30-year sale contract is indexed to US inflation, sources said. Sources said the gas in A-1 and A-3 is lean (99 per cent methane) with less impurities.

Gas reserves of 4.532 Trillion cubic feet (Tcf) in Blocks A-1 and A-3 have been certified. A statement issued after the CCEA said the investment in the gas fields would give OVL and GAIL a minimum 12.53 per cent return on capital while that on the pipeline to China would fetch an additional 15.5 per cent return.

Of the OVL's total investment of $1.006 billion, $115.77 million is for exploration in the two blocks, $564.06 million towards development of the gas fields, $158.72 million in the offshore pipeline and $167.84 million in the pipeline to China.

The CCEA authorised ONGC to provide financing/guarantee support for additional investments by OVL in the project to the extent of $832.54 million ($664.7 million plus $167.84 million).

It made a one-time exception for GAIL which in normal course would have to go through Public Investment Board to make these investments.

GAIL's total investment of $502.06 million comprised of gas field development cost of $361.39 million, exploration expense of $56.79 million and $83.88 million for pipeline.