Natural gas production no longer profitable business: ONGC

Natural gas production no longer profitable business: ONGC

The state-owned oil and gas company (ONGC) said that natural gas production is no longer a profitable business for the company, as government-mandated gas prices are well below the cost of production.

In October 2014, the BJP-led government has developed a new type of use of the pricing formula that prevails in countries with gas surpluses such as the United States, Canada and Russia to determine rates on a net importer . Prices fell by half to $ 2.48 per million British thermal units since the formula was established.

ONGC President and CEO Dinesh K Sarraf has announced that the company had lost $ 5 billion in revenues in the natural gas sector and around Rs 3000 CRS in the quarter result due to discounts in the Gas prices.
“Natural gas is no longer a profitable business because the cost of production is very high compared to current gasoline prices,” he told reporters.

For any company, it has no economic or commercial interest in investing in new areas or to increase production of existing ones with new investments if the price obtained is less than the cost of production.

Sarraf said the price paid to domestic producers is less than half the rate on imported gas (LNG).

India currently imports half of its natural gas needs and Prime Minister Narendra Modi wants to reduce the cost of imports by increasing domestic production and “Doing in India.”

ONGC, he said, tried to examine the pricing formula for natural gas.

“We have no reason not to believe that gas prices will not increase,” he said.

The largest producer of natural gas in India requires a floor or minimum price of natural gas is set at $ 4.2 millimeters so that the company has an economic sense.

“Taking into account the cost of gas production, the cost of alternative fuels and other market dynamics, the Ministry of Oil and Natural Gas is requested to review the existing domestic gas price formula and to offer a plant price at least In the previous NPA (Regulated) ($ 4.20 per mMBtu) / non APM price ($ 4.20 to $ 5.25 millimeters) established in June 2010, “said in an ONGC recent press release.

The new formula provides for the revision of tariffs every six months – April 1 and October 1 based on the average price of one year of gas in the countries with surplus, with a lag of one quarter.

When the formula was implemented, the rate increased from 4.2 to 5.05 MMBtu, but decreased to $ 4.66 per milligram in April 2015 and $ 3.82 in October of the year.

It also fell to $ 3.06 per MMBtu in April 2016 and to $ 2.50 per millimeter in October 2016. In April of this year, it also fell to $ 2.48 per MMBtu.

Oil Minister Dharmendra Pradhan, in a written response to a question in the lower house on March 20, said that the cost of producing natural gas in the prolific Krishna-Godavari basin stood at $ 4.99 per MMBtu and $ 7.30 By MMBtu.

The same for the other basins is in the range of $ 3.80 to $ 6.59 per MMBtu millimeters per minute, he said, adding that the cost of production of companies vary from one field to another by another depending on the size of the Tank, location, logistics and the availability of surface facilities.

ONGC is the largest gas producer in the country, representing about 80% of current production of 70 million cubic meters per day.

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