You are here: Home » Companies » News
Business Standard

ONGC clocks Rs 40-bn loss on gas output in FY18 due to fuel price capping

'Natural gas is no more a profitable business because cost of production is very significantly higher than current gas prices,' say ONGC official

Press Trust of India  |  New Delhi 


State-owned Oil and Corp (ONGC) logged a Rs 40 billion (Rs 4,000 crore) loss on output in the financial year ended March 31, 2018, as the government mandated price for the fuel was less than the cost of production.

"We need at least $4 per million British thermal unit to break-even as compared to current of $3.06 per mmBtu," a senior company official said.

As per a new mechanism approved by the government in October 2014, the price of domestically produced is to be revised every six months -- April 1 and October 1 -- using weighted average of rates prevalent in gas surplus markets like Henry Hub (US), National Balancing Point (UK excluding Russia), Alberta (Canada) and

Using this formula, the price for April to September came to $3.06 per mmBtu as compared to $2.89 in previous six months.

"Our average cost of production is about $5.14 per mmBtu. It comes to about $3.59 per mmBtu without taking into account return on capital, the official said. "Gas production is now a loss-making business as irrespective of cost of production we have to continue paying royalty and other taxes."

Prices have been less than $4 since October 2015. "Natural gas is no more a profitable business because cost of production is very significantly higher than current gas prices," the official said. ONGC, he said, has sought a review of the natural gas pricing formula.

India's largest natural gas producer is demanding a floor or minimum price of natural gas be fixed at $4.2 per mmBtu for the business to make economic sense.

The official said ONGC's significant discoveries in KG basin and Gulf of Kutch would need higher price to bring them to production.

Gas discoveries in the shallow sea off on the east, and off on the west are economically unviable to produce at the current government-mandated price of $3.06, he said, adding that in the absence of a viable gas price, it will have to mothball the $1.5-billion projects.

The official said the Krishna Godavari basin block KG- OWN-2004/1 is in shallow water and does not qualify as a 'difficult field', which get higher of $6.78 per mmBtu. On the western side, the block GK-28 in Gulf of Kutch is a nomination block which does not qualify for higher rates, he said.

While the KG block will produce a peak output of 5.35 million standard cubic metres per day, the same from Gulf of Kutch block will be around 3 mmscmd. It would take a minimum three years to bring the gas finds to production.

The combined output is about 14 per cent of the ONGC's current output of 60 mmscmd. He said the KG block discoveries are in water depth of just about 8-metres, developing which is costly since ultra- shallow rigs are scarce and therefore expensive.

also has a couple of smaller fields with a total expected peak production of 1.1 mmscmd, which cannot viably produce at the current domestic

Natural gas constitutes around 45 per cent of ONCG's total and natural gas production volume. It produces around 75 per cent of the country's natural gas output.

First Published: Sun, June 03 2018. 15:13 IST