NEW DELHI / KOCHI: The Oil and Natural Gas Corporation (ONGC) has demanded a minimum price of $4.2 per million British thermal unit (mBtu) for natural gas as rates have dropped below production cost. The next natural gas price revision is due on April 1 and it is widely expected that the rates may go up by up to 8 per cent to $2.7 per mBtu. But, it’s still way short of the cost, says ONGC.
Recently, Oil Minister Dharmendra Pradhan had stated in the Lok Sabha that the cost of production of natural gas in the Krishna Godavari basin was between $4.99 per mBtu and $7.30 per mBtu.
The same for other basins is in the range of $3.8 per mBtu to $6.59 per mBtu.
“Keeping in view of cost of production of gas, the cost of alternate fuels and other market dynamics, the Ministry of Petroleum and Natural Gas is requested to review the existing domestic gas price formula and provide a floor price of at least price $4.20 per mBtu (regulated) and $4.20 to $5.25 per mmbtu (non-regulated),” ONGC said in a statement.
The government had in October 2014 evolved a new pricing formula using rates prevelant in gas surplus nations like the US, Canada and Russia to determine rates in a net importing country. Prices have halved to $2.5 per mBtu since the formula was implemented. The new formula provides for revising rates every six months – on April 1 and October 1, based on one-year average gas price in the surplus nations with a lag of one quarter. ONGC is the country’s biggest gas producer, accounting for 60 per cent of the 90 million standard cubic metres per day current output.
Prices further dipped to $3.06 per mBtu in April 2016 and to $2.50 per mBtu in October. “The ONGC demand has logic but the government also has limitations in increasing the price beyond a certain range. The pricing dynamics should provide a win-win situation for the producers as well as consumers,” said V K Vijayakumar, investment strategist, Geojit BNP Paribas.
According to an official of Fertilisers and Chemicals Travancore, a consumer of natural gas, there is imbalance between gas prices available in the northern and southern parts of the country.