New Delhi: State-run Oil and Natural Gas Corp.has sought a 12.5% hike in the price of natural gas produced from fields given to it on nomination basis, claiming it is incurring losses at the present price of Rs3.2 per cubic meter ($1.97 per million British thermal units).
ONGC chairman and managing director R S Sharma has stated that the company’s realisation was only Rs2.97 per cubic meter after paying for royalties and taxes. Against this, the cost of production was Rs3.272 per cubic meter.
“As per the cost accounting records for the year 2005-06 duly audited by cost auditors, ONGC had negative margin of Re0.302 per cubic meter on gas business,” he wrote to Petroleum Secretary M S Srinivasan on 30 July.
ONGC is to produce 38.77 million standard cubic meters per day of gas and priced by government orders (called APM gas) in 2007-08. It would produce another 8.38 mmscmd from fields operated outside the APM regime.
Sharma said the APM gas price should be raised to Rs3.6 per cubic meter as recommended by the Tariff Commission and it year a 20% hike should be effected so that the prices are gradually aligned to market standards.
For non-APM gas, he sought a minimum price of $4.75 per mBtu, the price of gas sold from Panna/Mukta and Tapti fields off Mumbai.
ONGC’s demand comes at a time when Prime Minister Manmohan Singh has referred the issue of gas pricing to a group of ministers after the power and fertiliser sectors in general, and Anil Ambani Group in particular wanted the government to renege on its promise of giving market price to companies investing in gas exploration.
Sharma reminded the government of its own commitments wherein APM gas price should have moved to 100 per cent fuel oil parity by 2001-02 (present price is only 26 per cent of the fuel oil price).
For non-APM gas, the Cabinet had approved market determined prices, he stated.
“All investment decision for new and additional gas (beyond APM) during last three years (after the Cabinet decision) have been taken at market determined prices. Such fields, to name a few, are B-series, C-series in western offshore and G-1/GS-15 in KG offshore.
“Economic evaluation for development of marginal fields has been done at $4.75 per mBtu to justify new investments,” Sharma wrote.
Sharma stated that the price has to be remunerative to take care of increased cost of oil services and to take exploration risk. “This is more relevant in respect of gas produced from deep water/east coast in view of the advanced technology, high development cost and delivery cost,” he wrote.
“It may be appreciated that there is a clear logic that ONGC should get market determined price for additional/new gas immediately. It is also submitted that the price of APM gas should be brought to market level over a period of time.”