State-owned Oil and Natural Gas Corporation (ONGC) has cancelled the bids received for its Daman upside gas development project off the western coast due to high price quotes, sources said.

The project is crucial to ONGC's strategy of ramping up gas production from its shallow-water fields off India's west coast. Once completed, the project would lead to nearly doubling of current gas production of 4-5 million standard cubic metres per day.

Sources aware of the matter said the bids ONGC received for the project were way higher than the company's internal estimates and so the tender has been cancelled. The tender would now be divided into separate packages and rebid.

Engineering and fabrication contractor Larsen & Toubro (L&T) emerged as the lowest bidder when the bids were opened in December last year. It quoted a cost of USD 663.77 million to build the infrastructure needed to ramp up production from the field that lies about 60 kilometers off the west coast.

A consortium of Afcons and Indonesia's Gunanusa Utama Fabricators emerged a distant second in the bidding, quoting close to USD 801.90 million. Vietnam's PTSC and Abu Dhabi's National Petroleum Construction Company (NPCC) were also among those initially chasing the contract, but did not participate in the bid process.

Sources said L&T's quote of USD 663.37 million was 36.77 per cent higher than ONGC's revised internal estimate of USD 485.03 million.

L&T offered a USD 1 million discount but this was not acceptable to ONGC, they said, adding that ONGC could have tolerated a maximum variation of 20 per cent over the internal price estimate.

Daman upside gas development project envisaged building four new wellhead platforms, seven infield pipelines, a new process gas compressor module and the addition of low-pressure compression at the existing process platform. It also includes topsides modifications at existing wellhead platforms.

The project has been in the works for years but has been delayed on several occasions due to unfavourable gas pricing. But a rise in domestic gas prices turned around the project's commercial viability.

ONGC has been producing natural gas from Daman since 2016 and has spent an estimated USD 1 billion on offshore infrastructure at the field over the past five to six years.

The project to raise production involved building infrastructure that could also handle gas from neighbouring B-12 and C-24 marginal fields.

India's domestic crude oil and natural gas production has been dwindling in recent years and ONGC is under increasing pressure from the government to boost its output and reverse the declining trend.

Projects like Daman are crucial for meeting those objectives but the scrapping of the tender would add to the delay in boosting output.

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