Gas price for ONGC to go up marginally
ONGC is likely to inch up marginally to $1.82 next week while the same for difficult fields like one operated by Reliance-BP may fall below $4, sources said.
New Delhi: Government-dictated price for natural gas produced by companies such as ONGC is likely to inch up marginally to $1.82 next week while the same for difficult fields like one operated by Reliance-BP may fall below $4, sources said. The price of gas, which is used to generate electricity, make fertiliser and convert into CNG for automobiles and cooking gas for households, is due to bi-annual revision next week.
The rates paid for gas produced from fields given to Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) are most likely to go up to $1.82 per million British thermal unit for six month period beginning April 1 from a decade low of $1.79 currently, two people aware of the matter said.
Simultaneously, the price for gas produced from difficult fields such as deepsea, which is based on a different formula, is likely to fall below $4 per mmBtu from the current price of $4.06. This is the maximum price that Reliance Industries Ltd and its partner BP plc are entitled to for gas they produced from deepsea blocks they won under New Exploration Licensing Policy (NELP).
While the government sets the price of gas produced by ONGC from fields given to it on a nomination basis, it bi-annually announces a cap or maximum price that operators who won exploration acreage under NELP can get. The operators are supposed to do a market price discovery by seeking bids from users but that rate is subject to the price ceiling announced by the government, they said.
Reliance-BP had in recent price discovery for new gas from their Krishna Godavari basin block, got rates of over $6 per mmBtu but they would get less than $4 as per the pricing formula. Natural gas price is set every six months — on April 1 and October 1 — each year based on rates prevalent in surplus nations such as the US, Canada and Russia.
At the last revision, the price was cut by 25 per cent to $1.79 per mmBtu for six months beginning October 1 from $2.39. This is the third straight reduction in rate in one year. The price was cut by a steep 26 per cent to $2.39 in April last year. The rate paid to producers of new gas from difficult fields such as deepsea was cut to $4.06 per mmBtu from $5.61.
The rate from October 1 is equivalent to the price paid to ONGC and Oil India Ltd (OIL) prior to May 2020 when formula-based pricing was first introduced. ONGC, sources said, had posted Rs 4,272 crore loss on gas business in 2017-18, which is likely to widen to over Rs 6,000 crore in the current fiscal (April 2020 to March 2021), they said.
ONGC has seen incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had “inherent limitations” as it was based on pricing hubs of gas surplus countries such as the US, Canada, and Russia. Sources said ONGC in a recent communique to the government has stated that the break-even price to produce gas from new discoveries was in the range of $5-9 per mmBtu.
In May 2010, the government had raised the rate of gas sold to power and fertiliser firms from $1.79 per mmBtu to $4.20. ONGC and OIL got $3.818 per mmBtu price for the gas they produced from fields given to them on a nomination basis and after adding a 10 per cent royalty, the fuel cost $4.20 per mmBtu for consumers.
The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula. The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (the UK), Alberta (Canada), and Russia with a lag of one-quarter. Prices are set every six months — on April 1 and October 1 each year.
The rate at the first revision, using the new formula, came to $5.05 but in the subsequent six-monthly reviews kept falling till it touched $2.48 for April 2017 to September 2017 period. Subsequently, it rose to $3.69 in April 2019-September 2019 before being cut by 12.5 per cent in October 2019 to $3.23.
Oil sector PSUs to set up InvITs for asset monetisation
After power, the country’s oil sector PSUs would now float an infrastructure investment trust (InvIT) as part of the asset monetisation exercise announced by the government and mobilise resources for fresh capital investment. As part of the exercise, gas transportation utility Gail India is expected to set up the gust InvIT in the oil sector in the next financial year.
The proposed InvIT will house some of the gas pipeline infrastructure created by the company.
Oil Ministry officials said that this will help Gail to mobilise over Rs 20,000 crore through this route that could be helpful in developing new pipeline infrastructure that would help the country in developing a gas based economy. Two other oil public sector undertakings (PSUs), HPCL and IndianOil, may also set up InvIT at a later stage. While Gail and HPCL will focus on monetising their pipeline infrastructure through the investment trusts, IndianOil proposes to do so in the case of its hydrogen producing units as well as product pipelines that would be hived off into an InvIT.
An InvIT is an investment vehicle created to hold income-generating and operational infrastructure assets such as roads, power transmission lines and gas pipelines. These are like mutual funds and instead of financial securities InvITs holds bankable assets having long-term contracts with strong counterparties that provide a steady cash flow over the long term.
The investment trust route may be new for the oil sector but power sector transmission utility Power Grid has already put some of its assets for monetisation under the InvIT set up by it earlier. Other large PSUs will also be encouraged to take this route. Asset monetisation is an important aspect of the disinvestment exercise for FY22. Though this normally does not provide the Centre with large gains on PSU assets, it helps the entries to start a fresh capex cycle based on fund mobilisation through the route.
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