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

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NEW DELHI, Oct 9 (Reuters) - Reliance Industries and its partners may have to shut under-performing gas fields in 2015/16 that used to be India's second-biggest producer, Oil Secretary G. C. Chaturvedi said on Tuesday.

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

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

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

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

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

The Reliance-led consortium has said the problems are related to geological complexities, Oil Minister S. Jaipal Reddy said on Tuesday. But the oil ministry has asked arbitrators to look at the matter.

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

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

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

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

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

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

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

(Reporting by Nidhi Verma; Editing by Jo Winterbottom and Robin Pomeroy)

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