New Delhi, March 22: State-owned Oil and Natural Gas Corporation (ONGC) has sought a review of the natural gas pricing formula as rates have dropped below cost.

India's largest natural gas producer demanded a floor or minimum price of natural gas be fixed at $4.2 per million British thermal unit (mBtu) for the business to make economic sense.

The BJP-led government in October 2014 had evolved a new pricing formula using rates prevalent in gas surplus nations such as the US, Canada and Russia to determine the rates for the country.

Prices have halved to $2.5 per mBtu since the formula was implemented.

"Keeping in view of cost of production of gas, cost of alternate fuels and other market dynamics, the ministry of petroleum and natural gas is requested to review the existing domestic gas price formula and provide a floor price at least to the level of earlier APM (regulated) price ($4.20 per mBtu)/non-APM price ($4.20 to $5.25 per mbtu) fixed in June 2010," ONGC said in a letter to the oil ministry.

The public sector upstream oil behemoth also pitched for the deregulation of prices so that they are determined by market forces. ONGC said several gas discoveries which were unviable at current prices would become viable if prices are increased.

Natural gas price in the country is likely to be hiked 8 per cent to $2.7 per mBtu from April 1 following a spike in prices in the global gas hubs. This would be the first increase in price since the hub-based formula was approved in 2014.

Sources said the price of natural gas, used for generating power and making fertiliser and petrochemicals as well as CNG (compressed natural gas) for automobiles, is likely to rise to $2.7 per mBtu for the period from April 1, 2017 to September 30, 2017 from the current $2.5 per mBtu.

Licence extension

The cabinet today approved a policy to grant extension to licences of oil and gas fields like that of Cairn India on the payment of an additional 10 per cent profit share.

The policy covers blocks such as the Rajasthan oilfields of Cairn India, which were awarded prior to advent of New Exploration Licensing Policy (NELP) in 1999.

Cairn's exploration license expires in 2019 and the company had been seeking a 10-year extension. That extension will now come following the cabinet approving the policy but the company will have to pay an additional 10 per cent profit petroleum during the extended life of the contract.