Oil and Natural Gas Corp (ONGC) has said that producing natural gas is no longer a profitable business for the company as the government-mandated gas price is significantly below the cost of production. The oil major has sought a review of pricing formula from the government. “Natural gas is no more profitable business because the cost of production is very significantly higher than current gas prices,” Dinesh K Sarraf CMD of ONGC, told reporters here on Saturday, adding that “We have no reason to disbelieve that gas prices will not be raised.”
“Keeping in view the 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 million British thermal units or mBtu)/ non-APM (administrative price mechanism) price ($4.20 to $5.25 per mBtu) fixed in June 2010,” ONGC recently said.
ONGC wants a floor or minimum price of natural gas be fixed at $4.2 per mBtu for the business to be viable. He stressed that, with the current price, it does not make economic or commercial sense for any company to invest in new fields or in augmenting production from existing ones. Sarraf is against any fresh investment if the price remains below the cost of production. In October 2014, the government had adopted a new pricing formula using rates prevalent in gas surplus nations like the US and Canada to determine rates in a net importing country. Prices have halved to $2.48 per million British thermal units since the formula was implemented.
India imports half its natural gas needs and the government is keen to cut import bill by raising indigenous production and ‘Make in India’. Sarraf said that the price paid to domestic producers is less than half of the rate paid for import of gas (LNG). ONGC produces 80 per cent of the 70 million standard cubic meters per day which makes it the biggest gas producer in India. He said using this formula the company lost Rs. 50.10 billion in revenue on natural gas business, and about Rs. 30.00 billion in profit in just last one year.