Bid & Tender
ONGC to Get Rs 800 Crore Boost from Gas Price Hike; OIL to Gain Rs 100 Cr

Date : Apr 05, 2018

The latest 6 per cent hike in natural gas prices announced by the government would lead to a Rs 800 crore bonanza for state-run petroleum explorer Oil and Natural Gas Corporation (ONGC) and Rs 100 crore for Oil India Ltd (OIL) annually by way of higher revenue.


“The price increase to $3.06 per MMBtu from $2.89 per MMBtu is estimated to give ONGC extra revenue of approximately Rs 800 crore annualised. OIL’s revenue is estimated to increase by over Rs 100 crore annualised,” said K Ravichandran, Senior Vice-President at research and ratings agency ICRA.


ONGC’s natural gas production increased 6.46 per cent to 21,416 Million Standard Cubic Meter (MMSCM) in April-February 2017-2018 from 20,116 MMSCM in the corresponding period previous fiscal. The company had targeted gas production of 24,208 MMSCM for the full financial year 2017-2018, according to data sourced from the oil ministry.


OIL India’s natural gas production decreased 2 per cent to 2,645 MMSCM in April-February 2017-2018. The company had targeted a cumulative gas production of 3,000 MMSCM for the full financial year 2017-2018.


The oil ministry had on Wednesday increased the domestic natural gas price for six months starting April 2018 to $3.06 per million British thermal units (MMBTU) on Gross Calorific Value (GCV) basis based on the New Domestic Natural Gas Pricing Guidelines, 2014. This was the highest price in two years and a 6 per cent increase over the price of $2.89 per MMBTU for the period October- March 2017. The oil ministry had also raised the gas price ceiling for output from deepwater, Ultra-deepwater and High Pressure-High Temperature areas by 7.6 per cent to $6.78 per MMBTU.


While the hike in price will provide some relief to government-owned oil and gas producing companies, analysts believe the increase is still not enough for upstream firms to take up natural gas development activities or achieve break-even in many projects.


“The gas price for H1 FY2019, though higher than H2 FY2018, continues to remain low at an absolute level. Accordingly, gas production remains either a break even or a loss-making proposition for most fields for the upstream producers notwithstanding some decline in oil field services or equipment cost. Additionally, the appreciation of Indian Rupee against the Dollar in FY2018 also dampens the realisations of the gas producers,” Ravichandran added.


ONGC’s former Chairman and Managing Director D K Sarraf had in May last year said producing natural gas was no longer a profitable business for the company as the government-mandated gas price was significantly lower than the cost of production. He had added that the company had lost Rs 5,010 crore in revenue on natural gas business and about Rs 3,000 crore in profit in the last one year because of cut in gas prices. The company had demanded a floor or minimum price of natural gas to be fixed at $4.2 Million British thermal units (MMBtu) for the business to make economic sense.


A senior analyst from an accounting and accounting and consultancy firm said the increase in natural gas prices may give ONGC extra revenue to the tune of approximately Rs 900 crore, and Rs 130 crore to Oil India.