Domestic natural gas output falls 13% in April-September

By: |
October 13, 2020 3:55 AM

As noted earlier by Care Ratings, the gross production of domestic natural gas will fall by 10.6% during FY21 as “no company would aggressively want to increase production or get into high-risk projects with such a low gas price”.

Indigenous natural gas production caters to about 51% of the country’s requirements, while around 85% of the country’s crude oil is imported.Indigenous natural gas production caters to about 51% of the country’s requirements, while around 85% of the country’s crude oil is imported.

Domestic natural gas production fell 12.9% year-on-year (y-o-y) to 13,939 million metric standard cubic metre (mmscm) in the first half of the fiscal, as operations become increasingly unviable for energy production companies with government lowering selling prices. Gas output in September was down 11.2% y-o-y to 2,279 mmscm. Indigenous natural gas production caters to about 51% of the country’s requirements, while around 85% of the country’s crude oil is imported.

As noted earlier by Care Ratings, the gross production of domestic natural gas will fall by 10.6% during FY21 as “no company would aggressively want to increase production or get into high-risk projects with such a low gas price”. The current price for gas produced from local fields has been revised to an all-time low of $1.79/mmBtu by the government, which is much below the breakeven point for most fields, the agency noted.

Domestic natural gas output fell 2.8% y-o-y to 31,168.4 mmscm in FY20, reversing the growth trend recorded since FY18. With more than 95% of its gas currently being sold at low government determined rates, state-run oil and gas producer ONGC expects to face a loss of around `7,000 crore in FY21 from its gas businesses.

The average gas output cost of ONGC — which produces about 80% of the domestic natural gas — is $3.7/mmBtu.

After several requests from ONGC, the government has formed a committee to modify the formula for determination of gas prices. Domestic tariffs might be linked with the Japan Korea Marker (JKM) benchmark, and a floor price can also be fixed to not let rates fall below a certain threshold. Currently, domestic gas price is linked to the weighted average price of four global benchmarks (US, UK, Canada and Russia), where rates are lower than JKM prices.

Demand for the natural gas in the domestic market is largely dependent on the fertiliser (28%), power (23%), city gas distribution entities (16%), refineries (12%) and petrochemicals (8%) industries. The country aims to increase the share of natural gas in its energy mix to 15% by 2030 from the current level of about 6%.

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