Gas price: ONGC to profit by over Rs.4000 crore, says chairman

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SME Times News Bureau | 20 Oct, 2014
In a first reaction from the exploration industry to the new natural gas price announced Saturday, state-run oil and Natural Gas Corp (ONGC) said the company stood to increase its profits annually by Rs.2,000 crore.

"Every USD 1 rise in gas price increases our revenues by Rs.4,000 crore and net profit by Rs.2,350 crore," ONGC chairman D.K. Sarraf told reporters here.

For the five months of current fiscal, ONGC stands to benefit about Rs.1,950 crore, while a USD 2 increase in gas price will result in the company's net profits going up by about Rs.4,700 crore, Sarraf added.

The government Saturday announced that the price from Nov 1 will be calculated on the heat value gas will generate on gross calorific value (GCV) basis.

As per the GCV methodology, the current USD 4.2 per unit, which is on net calorific value (NCV) basis, will rise to USD 6.1.

Sarraf is also hopeful of further hikes to gas rates that will be revised every six months, with the next revision being on April 1.

In its presentation to the Committee of Secretaries tasked to revise the gas price, ONGC had said it needs USD 6-7.15 per unit to break even on gas it plans to produce from its KG basin blockand a price of between USD 5.25-17.80 per unit to break even on production planned from seven small fields in the western offshore.

"As per the formulation approved by the CCEA, upward revision in gas prices will be approximately 75 percent less as compared to the price arrived at using Rangarajan formula," said a Cabinet Committee on Economic Affairs release announcing the revised formula.

Industry, which was quick to welcome diesel deregulation as a highly progressive move, has generally not reacted to the new gas price, because it has been asking for at least its doubling to a little over USD 8 per unit.

"The price of fuel products such as diesel should reflect the true market value and this would also encourage all users to economise on their diesel consumption and hence align with the objective of promoting environmentally sustainable growth," Sidharth Birla, president of industry chamber FICCI, said in a statement.

Regarding the new price applying to gas from the Reliance Industries' (RIL) KG basin fields in the eastern offshore, the cabinet decided that as the matter was under arbitration, RIL would be paid the earlier price of USD 4.2 per unit till the shortfall quantity of gas is made good.

The arbitration concerns the penalty imposed by the oil ministry on the company for failing to meet output targets from the RIL-led consortium's D-1 and D-3 fields in the KG-D6 eastern offshore block to the extent of 1.9 trillion cubic feet of gas.