Govt's gas pricing formula not viable to develop KG basin: ONGC

The govt had in 2014 approved a new pricing formula based on average rate prevailing in gas surplus countries

State-owned Oil and Natural Gas Corp (ONGC) has sent an urgent message to Petroleum Ministry, saying the natural gas prices according to a formula approved by the BJP-led government was not viable to develop its KG basin discoveries.

ONGC plans to invest multi-billion dollars in bringing to production its Krishna Godavari (KG)-basin oil and gas discoveries by 2018-19.

"We have requested the government for review of gas prices because at these prices the gas development is not viable," ONGC Chairman and Managing Director Dinesh K Sarraf told reporters here.

The BJP-led government had in October 2014 approved a new pricing formula based on average rate prevailing in gas surplus countries like the US, Russia and Canada for domestically produced natural gas.

The rate, according to this formula, comes to $4.24 per million British thermal unit currently.

This price, Sarraf said, is not enough to support multi-billion dollar investment for developing the gas finds, most of which are in deepsea and difficult areas.

"$4.24 is definitely not viable," he said.

ONGC has submitted to oil regulator DGH a field development plan (FDP) for beginning oil and gas production from its KG-D5 block by 2018-19 but the plan does not include any investment number, he added.

"We are yet to freeze that number," he said.

The FDP is for one set of oil and gas discoveries made in the eastern offshore Block KG-DWN-98/2 or KG-D5, which sits next to Reliance Industries' flagging KG-D6 area.

"We are looking at producing 77,000 barrels per day of oil and 14 million standard cubic meters per day of gas from the first set of discoveries by 2018-19," he said.

The 7,294.6 sq km deepsea KG-D5 block has been broadly categorised into Northern Discovery Area (NDA - 3,800.6 sq km) and Southern Discovery Area (SDA - 3,494 sq km).

ONGC has divided 12 oil and gas discoveries in KG-D5 and gas discovery in an adjacent G-4 block in the Bay of Bengal into three clusters to quickly bring them to production.

Cluster-1 comprises D&E discoveries as also G-4 find in the neighbouring area which ONGC estimates can produce 14.5 million standard cubic metres per day of gas for 15 years.

Cluster-2A mainly comprises oil finds of A2, P1, M3, M1 and G-2-2 in NDA which can produce 77,000 barrels per day (3.75 million tonnes per annum).

Cluster-2B, which is made up of four gas finds -- R1, U3, U1, and A1 in NDA, envisages a peak output of 14 million standard cubic meters of gas with cumulative production of 32.5 billion cubic metres of gas in 14 years.

He said said ONGC is presently focused on developing Cluster-2A and 2B.

Cluster-3 is the UD-1 gas discovery in SDA. UD-1 lies in water depth of 2,400-3,200 meters and there is no technology to produce from such depths.