ONGC for new gas price formula, base cap of $4.2

New Delhi: State-owned Oil and Natural Gas Corp (ONGC) has sought a review of the natural gas pricing formula as rates have dropped below cost. India’s largest natural gas producer demanded a floor or minimum price of natural gas be fixed at $4.2 per million British thermal unit for the business to make economic sense.

The BJP-led government in October 2014 had evolved a new pricing formula using rates prevalent in gas surplus nations like the US, Canada and Russia to determine rates in a net importing country. The natural gas prices have halved to $2.5 per mmBtu since the formula was implemented.

“Keeping in view of cost of production of gas, 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 at least to the level of earlier APM (regulated) price ($4.20 per mmBtu)/ non-APM price ($4.20 to $5.25 per mmbtu) fixed in June 2010,” ONGC said in a communique.

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.

When the formula was implemented, rates went up from $4.2 to $5.05 per mmBtu but fell to $4.66 per mmBtu in April 2015 and to $3.82 in October that year. This fiscal, prices further dipped to $3.06 per mmBtu in April and to $2.50 per mmBtu in October.

Oil minister Dharmendra Pradhan in a written reply to a question in Lok Sabha on March 20 had stated that the cost of production of natural gas in the prolific KG basin is between $4.99 per mmBtu and $7.30 per mmBtu.

The same for other basins is in the range of $3.80 per mmBtu to $6.59 per mmBtu, he had said adding the production costs of companies vary from field to field depending upon size of the reservoir, location, logistcs and availability of surface facilities.