State-run Oil and Natural Gas Corporation (ONGC) has approached the government for relief from a subsidy burden amounting to R4,000 crore in 2012-13, owing to the inclusion of gas condensates for determining its oil subsidy burden.
ONGC argues that gas condensates, which are formed as a result of the cooling of higher hydrocarbons when natural gas is transported through pipelines, are not sold as crude oil by the company.
In recent years, the relative burden on ONGC and other upstream hydrocarbon companies on the subsidy front has increased and, in 2012-13, their share of the burden stood at around 40%. ONGC had to shell out close to R50,000 crore towards compensating downstream oil marketing companies for selling petroleum products below cost and it reckons that a waiver of the subsidy in terms of gas condensates would be of some relief and make more funds available for its capital investments.
As condensates are used by ONGC in the production of value-added products such as naptha and LPG, they should not be considered in the calculation of subsidies, ONGC officials say.
Around 2 million metric tonne (mmt), or about 15 million barrels of condensates, produced by the oil company in 2012-13 have been considered as crude oil while determining the amount of subsidies due. In 2012-13, ONGC produced 26.1 mmt (including 2mmt of gas condensate) of crude oil from its reserves.
At present, the company is bearing subsidy of $62-63/barrel. Its net realisation stands at $46-47/barrel. Of course, this amount varies depending on the fluctuation in global crude prices, the official said. If the condensates are not included, the realisations would rise to $53-54/barrel. A senior ONGC official said that the R4,000-crore hit on its bottom line takes away resources that could potentially be ploughed back into the company for investments.
A Citibank report, however, notes that ONGC has leverage to almost all potential positives in the Indian oil and gas sector. It is favourably positioned if the administered price mechanism (APM) gas price is hiked and also if diesel is deregulated, the report states. (A process to deregulate retail diesel though monthly hikes in the price of the fuel is under way, while bulk diesel, which accounts for a fifth of the total diesel consumption, is already deregulated).
Finance minister P Chidambaram recently said that India is considering freeing prices of locally produced oil and natural gas from state controls.
State-run upstream companies, such as ONGC, Oil India and GAIL (India), which sell crude oil and associated products at a discount to help fuel retailers cover losses of revenue, are also potential beneficiaries from the fall in crude prices.
The official said that ONGC’s 2012-13 oil production of 26.1 mmt was below expectations, owing to some ageing fields and deferment in the commissioning of production from marginal fields.
However, the company expects to raise oil production to 28.6 million tonne in the current financial year. The rise will be on account of production from marginal fields materialising and the discovery of more reserves in the D1 block in the Mumbai offshore. ONGC would also gain from a reserve rise in the RJ-ON-90/1 block in Rajasthan, in which it has a 30% stake. ONGC posted net profit of R5,563 crore for its the quarter-ended December 2012. The net profit was down 17% over the same quarter in the previous year when earnings were helped by a one-time gain of R3,140 crore in the form of past royalty dues from joint venture partner Cairn India. The revenues of the company in the quarter rose 16% to R20,987 crore.