Bonanza for Reliance, ONGC: Gas price more than doubled this week


This is the second rate hike since April 2019 and comes against the backdrop of firming international benchmark prices

This is the second rate hike since April 2019 and comes against the backdrop of firming international benchmark prices

In a bonanza for gas producers, Reliance Industries is expected to fetch a record price of about $10 per MMBtu for the KG gas, while state-owned ONGC is likely to fetch more than double the rate for its Mumbai High and other fields, sources said.

The government-dictated price for natural gas produced in the country is due to be revised on April 1, and taking into account the surge in energy prices over the last year, the rate will be paid for gas from fields supplied to the state-owned Oil and Natural Gas Corporation (ONGC ) on a nomination basis is expected to rise to $5.93 per million UK thermal units from the current $2.9.

At the same time, difficult fields like those of Reliance and its partner BP Plc’s D6 block in the KG Basin are likely to price $9.9 to $10.1 compared to the current price of $6.13, two said Sources aware of the matter.

These are the highest rates for managed/regulated fields (like ONGC’s Bassein field off the coast of Mumbai) and open market areas (like the KG basin).

Also, this will be the second hike in interest rates since April 2019 and comes amid firming international benchmark prices.

The government fixes the gas price every six months – on April 1st and October 1st – each year based on the prices prevailing in gas-surplus countries like the US, Canada and Russia in a year with a one-quarter lag.

So the price for April 1st to September 30th is based on the average price from January 2021 to December 2021. This is the period when global prices have skyrocketed.

The volume-weighted average of the prevailing 12-month period price in US-based Henry Hub, Canada-based Alberta Gas, UK-based NBP and Russia-based Gas is used to calculate the price for ONGC’s managed fields and Oil India Ltd.

For difficult fields, such as deep-sea, ultra-deepwater, and high-pressure-high-temperature discoveries, a slightly modified formula is used by including the price of LNG, which also skyrocketed in 2021.

KG fields operated by Reliance bp are classified as difficult fields.

The sources said the gas price hike is likely to lead to a rise in CNG and pipeline cooking gas prices in cities like Delhi and Mumbai.

It will also lead to an increase in electricity generation costs, but consumers may not feel much of a loss because the proportion of electricity generated from gas is very small.

Similarly, the cost of producing fertilizer will also increase, but with the government subsidizing the plant nutrient, rates are unlikely to increase.

For producers, this is the first time in six years that they have received a lucrative award.

ONGC had suffered losses in the 65 million standard cubic meters per day of gas it produced from domestic fields shortly after the government introduced a new gas pricing formula in November 2014 that had “inherent limitations” as it was based on pricing surplus gas in countries such as the USA, Canada and Russia.

The sources said ONGC has indicated in several government notices that the break-even price for producing gas from new discoveries is in the range of $5-9 per MMBtu and that for legacy fields such as Mumbai High and Bassein is around 3.6-$3.7.

The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have increased rates, but the BJP-led government scrapped it and introduced a new formula.

The new formula takes into account the volume-weighted annual average of prices in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia with a quarter lag.

The price at the first revision using the new formula was $5.05 but continued to fall in subsequent semi-annual reviews until it reached $2.48 for the April 2017-September 2017 period.

It then surged to $3.69 from April 2019 to September 2019 before dropping to $1.79 in subsequent rounds.

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