Domestic gas price review call
A review of the gas price formula is necessary as at the current prices it will be very difficult to get investment in production, industry has said.
The prices were slashed last week by 25 per cent to $1.79 per million British thermal unit (mBtu), prompting an outry. Price of gas from difficult fields such as in deep-sea was reduced to $5.61 per mBtu from $4.06 per mBtu.
Gas producers have written to the oil ministry offering various suggestions, including the review of the formula that puts domestic producers at a disadvantage over imported LNG.
They 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 mBtu.
P. Elango, managing director of Hindustan Oil Exploration Company (HOEC), told The Telegraph that the new price was “extremely unviable” for producers.
“There is a need to review the gas pricing formula so that it is fair to both producers and consumers. It should be transparent and predictable. The current formula is based on the gas surplus market and is not applicable to India.”
He said the prices should be linked to a percentage of the crude price index such as Brent which is globally understood and offer predictability to investors.
The policy of offering price and marketing freedom to discoveries made from April 2019 should be extended to all fields.
“The gross production of domestic natural gas is to fall by 10.6 per cent during 2020-21. E&P prospects in the fiscal do not look promising as no company would aggressively want to increase production or get into high risk projects with such a low gas price,” Care Rating said in a research note.
The BJP-led government had in October 2014 adopted a formula that takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia with a lag of one-quarter. Prices are set every six months — on April 1 and October 1 each year.
A fall in $1 in price reduces ONGC’s revenues by around Rs 4,500 crore, according to estimates. ONGC accounts for 75 per cent of crude oil and natural gas production by volume, and 17 per cent of domestic refining capacity.