INSUBCONTINENT EXCLUSIVE:
State-owned Oil and Natural Gas Corp (ONGC) logged a Rs 4,000 crore loss on natural gas output in the fiscal year ended March 31, 2018 as
the government mandated price for the fuel was less than the cost of production.
"We need at least USD 4 per million British thermal unit to
break-even as compared to current gas price of USD 3.06 per mmBtu," a senior company official said.
As per a new mechanism approved by the
government in October 2014, the price of domestically produced natural gas is to be revised every six months -- April 1 and October 1 --
using weighted average of rates prevalent in gas surplus markets like Henry Hub (US), National Balancing Point (UK excluding Russia),
Alberta (Canada) and Russia.
Using this formula, the price for April to September came to USD 3.06 per mmBtu as compared to USD 2.89 in
previous six months.
"Our average cost of production is about USD 5.14 per mmBtu
It comes to about USD 3.59 per mmBtu without taking into account return on capital," the official said
"Gas production is now a loss-making business as irrespective of cost of production we have to continue paying royalty and other
taxes."
Prices have been less than USD 4 since October 2015
"Natural gas is no more a profitable business because cost of production is very significantly higher than current gas prices," the official
ONGC, he said, has sought a review of the natural gas pricing formula.
India's largest natural gas producer is demanding a floor or
minimum price of natural gas be fixed at USD 4.2 per mmBtu for the business to make economic sense.
The official said ONGC's significant
discoveries in KG basin and Gulf of Kutch would need higher price to bring them to production.
Gas discoveries in the shallow sea off Andhra
Pradesh on the east, and off Gujarat on the west are economically unviable to produce at the current government-mandated price of USD 3.06,
he said, adding that in the absence of a viable gas price, it will have to mothball the USD 1.5-billion projects.
The official said the
Krishna Godavari basin block KG- OWN-2004/1 is in shallow water and does not qualify as a 'difficult field', which get higher gas price of
On the western side, the block GK-28 in Gulf of Kutch is a nomination block which does not qualify for higher rates, he said.
While the KG
block will produce a peak output of 5.35 million standard cubic metres per day, the same from Gulf of Kutch block will be around 3 mmscmd
It would take a minimum three years to bring the gas finds to production.
The combined output is about 14 per cent of the ONGC's current
He said the KG block discoveries are in water depth of just about 8-metres, developing which is costly since ultra- shallow rigs are scarce
and therefore expensive.
ONGC also has a couple of smaller fields with a total expected peak production of 1.1 mmscmd, which cannot viably
produce at the current domestic gas prices.
Natural gas constitutes around 45 per cent of ONCG's total crude oil and natural gas
It produces around 75 per cent of the country's natural gas output.
