ONGC to take Rs 7,000 cr hit over gas price; govt may alter pricing formula

Prices touched historic low of $1.79 per mmBtu for October-period of current financial year, down 25% from $2.39 per mmBtu during April-September period

State-run Oil and Natural Gas Corporation (ONGC) on Friday said its revenue would be hit by around Rs 7,000 crore because of low gas price of $1.79 per million metric British thermal unit (mmBtu).  

To tide over this crisis, the government is mulling options to revise the pricing formula and a committee is looking into it, ONGC Chairman and Managing Director Shashi Shankar said on Friday.

“Our average cost of production comes to $3.6-3.7 mmBtu. At current price, we are losing $2 per mmBtu, which will lead to an annual loss of around Rs 7,000 crore,” said Subhash Kumar, director finance of ONGC. 

This comes after the prices touched a historic low of $1.79 per mmBtu for the October to March period of the current financial year, down 25 per cent from $2.39 per mmBtu during the April-September period. 

The government has also reduced the ceiling price for gas produced from deepwater, ultra-deepwater, high pressure, and high-temperature areas by 28 per cent to $4.06 per mmBtu for the period under review, as compared to $5.61 per mmBtu during the April-September period of 2020. “We have raised our concerns before the authorities. There is likely to be a revision in pricing formula, which may be linked to something like Japan Korea Marker,” Shankar said. 

Earlier this week, the government had allowed marketing and pricing freedom for natural gas producers in India, with the Union Cabinet clearing a standardised e-bidding process for price discovery from new production areas and high-pressure and high-temperature areas. “New gases, which were not commercially viable, will now be up for production and be re-examined. Moreover, immediately from KG DWN 98/2, we expect an additional production of 15 million metric standard cubic metre per day of gas,” Shankar said. ONGC expects to come up with a production of 38,000 barrels of oil and 6 MMSCMD of gas from this new area by 2023. 

The company indicated that on capital expenditure front, too, it is likely to go for a cut in its plans of investing Rs 32,500 crore for the current financial year because of the pandemic. One major reason is because of the adverse impact on supply chain of KG DWN 98/2, which was expected to be on track by now. 

Addressing the shareholders, the chairman said it had set a target for 2040, thereby group’s oil and gas production to 110 million metric tonne of oil equivalent (MMTOE) by 2040. 

“We aim to triple our refining capacity from 35 million metric tonne per annum (MMTPA) to 100 MMTPA as well as grow our petchem to 9.5 MT from current 3.8 MT. We are targeting to scale up our Renewables capacity to 10 GW,” he said. 

Shankar said the plan to merge Hindustan Petroleum Corp and Mangalore Refinery and Petrochemicals (MRPL) was on track. The first step would be to merge MRPL and ONGC Mangalore Petrochemicals which would be completed by June 2021.