ONGC seeks gas price review

New Delhi, Sept. 28: Oil and Natural Gas Corporation (ONGC) has sought a review of the natural gas pricing formula as the prices are likely to go down to about $2.5 per million British thermal unit (mBtu) from October, hitting the revenues of the state-run explorer.

According to oil ministry estimates, prices can drop to $2.25-$2.50 per mBtu from $3.06 on gross calorific value (GCV) basis because of a slump in global prices.

The revised price will be announced by the government on October 1 and it will remain effective for six months.

This will be the fourth reduction in prices in the last 18 months.

Prices were last cut on April 1 to $3.06 per mBtu from $3.82 per mBtu. On a net-calorific value (NCV) basis, the price was slashed to $3.4 per mBtu from $4.24 per mBtu. The new price is likely to be $2.5-$2.7 per mBtu on NCV basis.

In a letter to the oil ministry, ONGC said, "We expect the gas price to go down further by 20 per cent from $3.06/mBtu to $2.5/mBtu or somewhat lower than that after the revision of October 1. The government needs to take a relook at the gas price formula as this does not leave us any money to carry out more projects."

The PSU said any further reduction in prices would make exploration unviable.

The letter pointed out that a decline of every dollar in prices affected ONGC's revenues by Rs 4,200 crore.

According to the formula approved in October 2014, prices will be calculated as an average of rates at Henry Hub in the US, National Balancing Point (NBP) in the UK, Alberta Hub of Canada and Russian gas prices.

While Henry Hub has a weight of 38.1 per cent in the pricing formula, NBP accounts for 42.9 per cent, Alberta Hub 4.9 per cent and Russian gas 14.1 per cent.

Europe and Russia jointly account for 57 per cent of the weight and a steep decline in prices in these two regions will influence domestic rates substantially.

Analysts fear that the declining trend will continue to put pressure on the margins of exploration and production companies.

According to oil ministry data, gas output fell 5.72 per cent in August to 2.674 billion cubic metres from 2.836 billion cubic metres a year ago.

Oil and Natural Gas Corporation Limited (ONGC)