State-owned behemoth Oil and Natural Gas Corporation (ONGC) has opposed market-driven prices for natural gas although Reliance Industries wants $4.3 per million British thermal unit (MBTU) at the well-head for its gas from the Krishna Godavari basin, ONGC, too, has found gas in the area.
Reliance Industries contends that government revenue at this price will more than compensate for the rise in fertiliser subsidy if gas at this price is used in the expansion of such units. The fertiliser and power industries — the major users of natural gas — are opposed to market rates.
“Market-driven prices are difficult in a country where demand outstrips supply. The price of gas should be set in a manner that the producer should have enough incentive to produce and invest in future projects,” a senior ONGC executive stated.
ONGC made a submission on Tuesday to the committee of secretaries set up to decide the issue of pricing of gas from exploration blocks auctioned by the government.
Sources pointed out that at the present administered price of Rs 3,200 per thousand cubic metres--$1.95 per MBTU--ONGC suffers a loss.
ONGC’s losses from the gas business in 2005-06 are estimated at about Rs 700 crore. “We may break even at Rs 3,600 per thousand cubic metres, the price suggested by the Tariff Commission ($2.10 MBTU) for gas from shallow waters. The price of deepwater gas has to be higher,” the sources stated.
ONGC executives contend that although it may sound logical for a gas producer to demand the maximum price, there are several considerations to oppose such a move. “The market for gas is not developed like the crude oil market with defined parameters and benchmarks. In such a scenario, it is not feasible to have a market-determined price for gas,” they pointed out.
The committee of secretaries, comprising those from the petroleum, power, fertiliser, finance and law ministries, had earlier heard consumers' views on natural gas pricing.
The fertiliser ministry made a presentation outlining the need to determine prices keeping in view the affordability of new investments in the sector. The power ministry had on July 6 sought at affordable prices for power plants. The ministry said the current administered price of Rs 3,200 per thousand cubic meters for ONGC gas was the ideal price for power generation.