New gas price barely suffices for K-G output: ONGC

The state explorer's new chairman, D K Sarraf, says some gas might not be viable at even $8 an mBtu

The government is under attack for allowing an increase in domestic gas prices from April 1 but state-run Oil and Natural Gas Corporation said on Tuesday production from its Krishna-Godavari (K-G) basin block would be barely viable at the old one.

The company’s deepwater KG-DWN-98/2 block, next to Reliance Industries’ KG-D6 block, is to start production by 2017.

Domestic natural gas prices are to almost double from $4.2 a million British thermal units (mBtu) to $8 an mBtu from next month. After the price rise, the company would be able to get 15-20 per cent margin on its K-G output but its new chairman,

D K Sarraf, said some gas might not be viable at even $8, though the average cost of output for ONGC is $3-4.

The government and Mukesh Ambani’s-led Reliance Industries are facing heat from the Aam Aadmi Party over the higher gas price from KG-D6. For ONGC, the price increase would add Rs 16,000 crore to revenue and its profit would increase by Rs 9,000 crore.

“Of the increase in revenue, a third would go back to the government  as dividend and profit petroleum,” Sarraf said, adding the company would be left with only Rs 5,200 crore.

ONGC said the northern part of its K-G basin block had reserves of around two trillion cubic feet of natural gas and 117 million tonnes of oil reserves.

“We expect a peak gas output of 25-30 million standard cubic metres a day (mscmd). Oil production from the region would be more than 70,000 barrels a day,” said N K Verma, director (exploration). In the eastern basin block, the company would invest $4-5 billion (Rs 25,000-31,000 crore).

The company claimed for its two Mahanadi basin discoveries, for which it had sent a declaration for commerciality recently, even a price of $11 an mBtu would not be viable.

The company is also in discussion with Reliance, the government and the directorate general of hydrocarbons (DGH) for appointment of a third party to prepare a gas balancing agreement for addressing the issue of drawing of gas by RIL in the adjacent block. "We had this fear that two (of our) blocks were overlapping with RIL blocks. We are working in this regard with DGH and RIL and have shared some data among each other. The ministry wants us to sort out the matter among each other, as per international practices," said Verma.