A safety supervisor monitors activities at Iran South Pars Gas Complex Company in 2005, in Assaluyeh, Iran. (Photographer: Ramin Talaie/Bloomberg News)

Change In Pricing Mechanism Can Aid Gas Business, ONGC Says

Oil and Natural Gas Corporation Ltd. today said a change in the pricing mechanism to a market-determined model would go a long way in making the company’s gas business profitable.

“Our average cost of gas production currently is in excess of $3.5 per million British thermal unit and we have not been able to recover that,” Shashi Shanker, chairman and managing director of the country’s largest gas producer, told BloombergQuint in an interview.

Market-determined prices through the trading hub should be good enough to monetise our discoveries.
Shashi Shanker, chairman and managing director, ONGC

Domestic gas prices have been on a downward spiral since the first half of 2015 when it stood at $5.05 per mmbtu. Currently, gas prices are fixed by the government and prices for the first half of the current financial year have been fixed at $3.06 per mmbtu. Gas contributes close to 14-18 percent of the company’s revenues and earnings before interest tax depreciation and amortisation.

Every $1 per mmbtu rise in gas price is likely to lift ONGC's earnings per share by 10-14 percent, according to broking firm Jefferies.

Fuel Subsidy

The government may ask state-owned ONGC to bear fuel subsidy to help cut petrol and diesel prices, a PTI report said quoting sources.

Shanker said he didn’t have any confirmation on this but had heard in the media that a subsidy sharing mechanism may be worked out if crude oil hits $70 per barrel levels.

Watch the full conversation here:

Also read: Q4 Results: ONGC Profit Misses Estimates In March Quarter