Setback to ONGC, Oil India Reliance Industries, others as natural gas price reduced 18.3%

October 1, 2016 3oliver

Commenting on ONGC’s demand, petroleum minister Dharmendra Pradhan said, “I have read Mr Sarraf'’s statement. As an E&P company he’s right. But when the government decided the formula, all these were taken into account. Definitely, it (price) will be according to the formula.” (Reuters) — Commenting on ONGC’s demand, petroleum minister Dharmendra Pradhan said, “I have read Mr Sarraf’’s statement. As an E&P company he’s right. But when the government decided the formula, all these were taken into account. Definitely, it (price) will be according to the formula.” (Reuters)

In a setback to natural gas producers such as ONGC, Oil India, Reliance Industries, Cairn India and GSPC, the price for the commodity has been reduced 18.3% to $2.5 per million British thermal unit (mBtu) on gross calorific value basis for the period from October 1, 2016 to March 31, 2017. The new price is against $3.06/mBtu that has prevailed during the preceding six months.

The ceiling for gas from difficult fields too has come down by 19.82% to $5.30/mBtu for the next six months, compared with the upper limit of $6.61/mBtu that prevailed till September 30.

With domestic natural gas prices being reduced from October 1, the country’s largest oil and gas producer ONGC has knocked on the government’s doors asking for remunerative price. “We have requested the government to fix a floor price,” D K Sarraf, chairman and managing director of ONGC, had told FE on Wednesday.

Commenting on ONGC’s demand, petroleum minister Dharmendra Pradhan said, “I have read Mr Sarraf’’s statement. As an E&P company he’s right. But when the government decided the formula, all these were taken into account. Definitely, it (price) will be according to the formula.”

For ONGC, each dollar decrease in gas prices curtails annual revenue by R4,200 crore and profit by R2,400 crore. The price was $3.82/mBtu during October 2015-March 2016, which is derived based on a formula approved by the Modi government in October 2014 that is linked to US, Canadian, UK and Russian rates.

ONGC faces a drop in gas prices at a time when new projects such as Daman and Vasai East, and other redevelopment projects like Mumbai High, will augment gas production from Q3 and Q4 of the current financial year. Edelweiss Securities estimates one bcm of natural gas from these projects each in FY17 and FY18.

In the first quarter of FY17, ONGC’s gas production clocked 5.17bcm, showing a 6% drop year-on-year but rose 5% quarter-on-quarter. It also exceeded analysts’ estimate of a 5-bcm output in the quarter.

ONGC has started selling natural gas from the first development well at the S1-Vashishta gas fields located in the Krishna-Godavari (KG) offshore basin at a ‘premium’. This is a deepwater field and current production is hovering 0.6 mmscmd.

Not incentivising domestic gas producers could hamper petroleum minister Dharmendra Pradhan’s strategy to increase the proportion of natural gas in India’s energy mix from the existing 6.5% to 15%. The world average of gas proportion in the energy mix is 23.5%.

Commenting on ONGC’s demand, petroleum minister Dharmendra Pradhan said, “I have read Mr Sarraf’’s statement. As an E&P company he’s right. But when the government decided the formula, all these were taken into account. Definitely, it (price) will be according to the formula.” (Reuters)