ONGC Calls For Revision Of Gas Pricing Formula
ONGC’s revenue will be hit by the scheduled gas price revision in October, the CMD said.
India’s largest oil and gas explorer, Oil and Natural Gas Corporation Ltd. (ONGC) is gearing up to deal with yet another hit on revenue with the scheduled gas price revision in October 2016.
The company has written to the government to revise the domestic gas pricing formula, ONGC Chairman DK Sarraf told BloombergQuint in an interview after the company’s shareholder meeting. “We expect the gas price to go down further by 20 percent from $3.06/mmbtu to $2.5/mmbtu or somewhat lower than that after the gas price revision of October 1, 2016. We have asked the government to relook into the gas price formula as this does not leave us any money to carry out more projects,” he added.
ONGC’s revenue will be stressed on account of the gas price revision October this year. India’s domestic gas price is a volume-linked weighted average of gas prices prevailing in multiple global markets. The volume-linked weightage for a certain price is based on the market’s familiarity to India’s import assisted natural gas economy. Essentially, the government tries to balance the price of natural gas in India to reflect a favourable price for a market that has substantial production as well as import dependence.
“The price of domestically produced gas was $5.02/mmbtu, it came down to $4.66/mmbtu, $3.82/mmbtu and then to $3.06/mmbtu in subsequent revisions. Every dollar decrease in gas price affects ONGC’s revenue by Rs 4,200 crore,” Sarraf noted.
Rebutting Allegations In AP Shah Report
Sarraf maintained that ONGC was unaware of any gas migration to Reliance Industries’ fields as noted in (Retired) Justice AP Shah’s report. “ONGC had no prior knowledge of the gas migration before 2013, when we first took up the matter with the relevant authorities,” he said.
On the allegation that ONGC did not initiate timely action on the KG DWN 98/2 gas reserve, Sarraf said, “There has not been any delay on the part of ONGC.”
The AP Shah panel report noted that ONGC had prior knowledge about possible contiguity, but did not act promptly or with due diligence, and took up the matter only six years after it first obtained relevant information. ONGC had alleged that over 11 tcf of natural gas has been unlawfully harnessed from their reserve by RIL due to the contiguous nature of reserves. ONGC’s claim was validated by the panel report.
Justice AP Shah also noted in his report that the Government of India and not ONGC has the right to claim restitution from RIL. “It is difficult to say whether ONGC will get any compensation or not right now,” Sarfaf told BloombergQuint after the shareholders’ meet.