Gas Price For ONGC Remains At Decade Low, Falls 11% For Reliance-BP

The government on Wednesday left the price of natural gas produced by companies such as Oil & Natural Gas Corp. unchanged at a decade-low rate of $1.79 while the same for difficult fields like the one operated by Reliance Industries Ltd.-BP was cut by 11%.

The Oil Ministry's Petroleum Planning and Analysis Cell announced the bi-annual revision in the price of gas, which is used to generate electricity, make fertiliser and convert into CNG for automobiles and cooking gas for households.

The rates paid for gas produced from fields given to ONGC and Oil India Ltd. were left unchanged at $1.79 per million British thermal unit for the six-month period beginning April 1, PPAC said in a notification.

Simultaneously, the price for gas produced from difficult fields such as deepsea, which is based on a different formula, was cut to $3.62 per mmBtu from the current price of $4.06.

This is the maximum price that Reliance Industries and its partner BP plc are entitled to for gas they produce from deepsea blocks they won under New Exploration Licensing Policy.

While the government sets the price of gas produced by ONGC from fields given to it on a nomination basis, it bi-annually announces a cap or maximum price that operators who won exploration acreage under NELP can get.

The operators are supposed to do a market price discovery by seeking bids from users but that rate is subject to the price ceiling announced by the government, sources said.

Reliance-BP had in recent price discovery for new gas from their Krishna Godavari basin block, got rates of over $6 per mmBtu but they would get $3.62 as per the pricing formula.

"The price of domestic natural gas for the period April 1, 2021, to September 30, 2021, is $1.79 per mmBtu on Gross Calorific Value basis," PPAC said.

Similarly, "the price ceiling" for gas produced from "discoveries in deepwater, ultra-deepwater and high pressure-high temperature areas" is $3.62 per mmBtu, it said.

Natural gas price is set every six months -- on April 1 and Oct. 1 -- each year based on rates prevalent in surplus nations such as the US, Canada and Russia in one year with a lag of one quarter.

So the price for April 1 to Sept. 30 is based on the average price from January 2020 to December 2020.

The sources said gas prices had fallen when the pandemic broke out but recovered later and so the price for ONGC remains unchanged.

At the last revision, the price was cut by 25% to $1.79 per mmBtu for six months beginning Oct. 1 from $2.39. This was the third straight reduction in rate in one year. The price was cut by a steep 26% to $2.39 in April last year.

The $1.79 rate is equivalent to the price paid to ONGC and Oil India Ltd. prior to May 2020 when formula-based pricing was first introduced.

ONGC, the sources said, had posted Rs 4,272 crore loss on gas business in 2017-18, which is likely to widen to over Rs 6,000 crore in the current fiscal (April 2020 to March 2021).

ONGC has been incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had "inherent limitations" as it was based on pricing hubs of gas surplus countries such as the US, Canada, and Russia.

The sources said ONGC in a recent communique to the government has stated that the break-even price to produce gas from new discoveries was in the range of $5-9 per mmBtu.

In May 2010, the government had raised the rate of gas sold to power and fertiliser firms from $1.79 per mmBtu to $4.20. ONGC and OIL got USD 3.818 per mmBtu price for the gas they produced from fields given to them on a nomination basis and after adding a 10% royalty, the fuel cost $4.20 per mmBtu for consumers.

The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula.

The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (U.S.), National Balancing Point (the U.K.), Alberta (Canada), and Russia with a lag of one-quarter. Prices are set every six months on April 1 and Oct. 1 each year.

The rate at the first revision, using the new formula, came to $5.05 but in the subsequent six-monthly reviews kept falling till it touched $2.48 for April 2017 to September 2017 period.

Subsequently, it rose to $3.69 in April 2019-September 2019 before being cut by 12.5% in October 2019 to $3.23.