ONGC pegs gas under-recovery at Rs 7,000 crore in FY21

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October 10, 2020 12:30 AM

The average gas output cost of ONGC, which produces about 80% of the domestic natural gas, is $3.7/mmBtu, implying that there is an under-recovery of $2/mmBtu on gas production, Subhash Kumar ONGC’s director, finance, said.

More than 95% of the gas currently produced by ONGC is sold at government determined rates.More than 95% of the gas currently produced by ONGC is sold at government determined rates.

With the government reducing the price of domestic natural gas to $1.79 per million British thermal units (mmBtu), state-run gas producer ONGC expects to face a loss of around Rs 7,000 crore in FY21 from its gas businesses, senior company officials said on Friday.

The average gas output cost of ONGC, which produces about 80% of the domestic natural gas, is $3.7/mmBtu, implying that there is an under-recovery of $2/mmBtu on gas production, Subhash Kumar ONGC’s director, finance, said.

More than 95% of the gas currently produced by ONGC is sold at government determined rates.

In an online interaction with the media after ONGC’s 27th annual general meeting, chairman and managing director (CMD) Shashi Shanker said the company has made numerous representations to the government about the stress faced due to low gas prices. Shanker said the Union petroleum and natural gas ministry has formed a committee to modify the formula to determine gas prices, and a floor price might also be fixed. “There is a possibility of linking tariffs with the Japan Korea marker (JKM),” Shanker said.

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. With oil and gas production becoming increasingly unviable for energy companies, domestic natural gas output fell 2.8% year-on-year (y-o-y) to 31,168.4 million metric standard cubic metre (MMSCM) in FY20, reversing the growth trend recorded since FY18. Indigenous natural gas production caters to about 50% of the country’s requirements.

Commenting on the Cabinet’s recent approval of the standard bidding norms for the discovery of gas prices from new and upcoming fields, the ONGC CMD said the move will lead to a “quantum jump in gas production,” especially from the company’s blocks in the KG Basin, which will contribute an additional 5,475 MMSCM of natural gas production. The cost of natural gas production in the KG basin varies from $4 to $8 per mmBtu, while the selling price of gas currently varies from $2.7 to $7.7 per mmBtu in FY18, depending upon the kind of production blocks.

In the light of the Cabinet decision, which also allows affiliate firms of producers to buy natural gas extracted by them, ONGC plans to re-examine the field development plans of other older blocks, as production from these points was not feasible under the previous marketing regime.

Analysts at Care Ratings had earlier noted that 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 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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