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UPDATE 1-Reliance may shut Indian KG D6 gas fields by '16 -govt

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NEW DELHI, Oct 9 (Reuters) - Reliance Industriesand its partners may have to shut under-performing gas fields in2015/16 that used to be India's second-biggest producer, OilSecretary G. C. Chaturvedi said on Tuesday.

Declining output might mean the D6 fields in the KrishnaGodavari (KG) basin off India's east coast have to close,Chaturvedi said, something that would make India more reliant oncostly liquefied natural gas imports.

In response to a question on whether the consortium mighthave to shut the fields in 2015/16, Chaturvedi told a newsconference: "That is a fear. If it (output) keeps coming downfor a longer period, it will come to an (end)... naturally."

"Having the capacity to handle 120 mmscmd (million metricstandard cubic metres per day) and running it at 10 (is) almostdeclaring it shut. It will not be commercially viable," he said.

Analysts Morgan Stanley said on Monday the fields could beexhausted in five years.

Output at the D1 and D3 fields in the KG D6 block hasdropped to 26 mmscmd from 60 mmscmd in 2010 and is now projectedto fall to 20 mmscmd in 2014/15, never having reached theforecast peak flow of 80 mmscmd.

The Reliance-led consortium has said the problems arerelated to geological complexities, Oil Minister S. Jaipal Reddysaid on Tuesday. But the oil ministry has asked arbitrators tolook at the matter.

"We are not convinced (it is geological complexity). Thedirector general of hydrocarbons is not convinced. Therefore thematter has been referred to arbitrators," Reddy said.

India's total gas output is now expected to decline 9percent in the current fiscal year to 43 billion cubic metresfrom a year earlier, largely due to the D6 declines.

Output at D6 could rise, however, once satellite fields inthe block start production, Chaturvedi said.

The four satellite fields will begin gas production frommid-2016 and their peak output would touch 10.36 mmscmd, JuniorOil Minister R.P.N. Singh told lawmakers in March.

Chaturvedi said BP , which has a 30 percent share inthe block, has suggested that there is a possibility of more gasreserves if they were allowed to drill to deeper depths.

But the approval for this is yet to be given by thegovernment.

Canadian company Niko Resources which has a 10percent stake in the D6 block, estimates that total proved plusprobable reserves at the block had decreased to 1.93 trillioncubic feet as of March 31.

(Reporting by Nidhi Verma; Editing by Jo Winterbottom and RobinPomeroy)

((ratnajyoti.dutta@thomsonreuters.com)(+91 11 41781013)(Reuters Messaging:ratnajyoti.dutta.thomsonreuters.com@reuters.net))

Keywords: INDIA/RELIANCE