Under fire for its falling production, state-owned ONGC is looking at higher gas prices which will make its businesses economically viable. On the one hand, the country’s largest natural gas producer has sought a minimum price of
$4.2 per mmBtu, and on the other it is expecting at least $7 per mmBtu from its three coal-bed methane (CBM) fields.
The government had in October 2014 evolved a pricing mechanism which takes into consideration market rates in gas-surplus countries, including the US, Russia and Canada. The formula is revised once in six months — April 1 and October 1 — taking into consideration one-year average, albeit with a lag of one month.
However, after initial growth, prices have been falling ever since going down from $4.2 per mmBtu to as low as $2.5 in October, making business difficult for the explorer.
“Keeping in view cost of production of gas, cost of alternate fuels and other market dynamics, the ministry of petroleum and natural gas is requested to review the existing domestic gas price formula and provide a floor price at least to the level of earlier APM
(regulated) price ($4.20 per mmBtu)/non-APM price ($4.20 to $5.25 per mmBtu) fixed in June 2010,” ONGC said in a communique, as per PTI.
The government last week, however, approved marketing and pricing freedom to CBM contractors to sell CBM in the domestic market. CBM is a form of natural gas extracted from coal beds. In case no buyer is identified, contractors can sell the CBM to its affiliate. Royalty and other dues to the government, however, shall be payable on the basis of Petroleum Planning and Analysis Cell notified prices or selling prices — whichever is higher.
“It (selling CBM) is now economically viable for us. Earlier, it (Bokaro field) was not even giving break-even and we were at a threshold and the capital requirement was rising as well and may go up to R800 crore from R600 crore,” said an ONGC executive requesting anonymity.
ONGC has CBM fields in Bokaro, Raniganj and Jharia with total reserve of 10 BCM. According to the executive, there is demand in these areas from the ancillary industries and there are some players who are selling at $7-plus. “We will now be aggressive to sell CBM gas,” the executive added.
Though the Bokaro field development plan is under execution, the Raniganj area had issue of overlapping since the right for coal is with Coal India and the right for gas is with ONGC. “There was no clear demarcation but the issue is almost resolved. The development plan for Jharia will also come very soon,” the executive said.
At the time of gas price revision next month, the rates are expected to go up for natural gas and price for undeveloped difficult fields would also go up from the current rate of $5.3 per mmBtu.
ONGC, which accounts for 60% of the 90 million standard cubic metre per day current output, registered 1,773.12 mmscm of provisional gas production for February, as per data released by the petroleum ministry on Wednesday. Though it missed the target of 1,883.14 mmscm for the month, the figure is still higher than 1,730.87 mmscm achieved in February 2016.