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Gas price hike: ONGC will gain 1,950 cr more this year
State-owned Oil and Natural Gas Corporation (ONGC) will rake in about Rs 1,950 crore in additional profit this fiscal from the 46 per cent rise in natural gas prices announced by the government.
Every $1 rise in gas price increases our revenues by `4,000 crore and net profit by `2,350 crore – Dinesh K Sarraf
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New Delhi: State-owned Oil and Natural Gas Corporation (ONGC) will rake in about Rs 1,950 crore in additional profit this fiscal from the 46 per cent rise in natural gas prices announced by the government.
After postponing three times, the government has finally approved a revised formula of pricing almost all domestically produced natural gas from November 1. The current price of $4.2 per million British thermal unit will rise to $6.17 per mmBtu on a like-to-like basis.
Finance Minister Arun Jaitley announced that the price from November 1 will be $5.61 per mmBtu on heat value the fuel will generate on gross calorific value (GCV) basis.
But the current $4.2 per mmBtu rate is on net calorific value (NCV) basis, which roughly 10 per more than heat value on GCV basis. In GCV terms, the current price comes to $3.8 per mmBtu. Using GCV methodology as approved by the government, the price has gone up from $3.8 to $5.61 per mmBtu, over 46 per cent rise. If compared on NCV terms, the price will rise from $4.2 to $6.17 per mmBtu, a 46 per rise.
ONGC Chairman and Managing Director Dinesh K Sarraf said the decision is a positive for the company as it will help monetise some of its small and marginal gas discoveries.
"Every $1 rise in gas price increases our revenues by Rs 4,000 crore and net profit by Rs 2,350 crore," he said. An almost $2 increase in gas price will result in ONGC net profit going up by about Rs 4,700 crore on an annualised basis.
For the five months of current fiscal, ONGC will stand to benefit about Rs 1,950 crore, he said.
The first price would be determined on the basis of global prices prevailing between July 2013 and June 30, 2014. This would come into effect from November 2014, and would be valid till March 2015. The price would then be revised for the next six months ending September 2015 on the basis of prices prevalent between January 2014 and December, 2014. The prices would be announced 15 days in advance of the half year.
Sarraf said the decision of the Cabinet will incentivise more exploration and production. The clause that a premium will be paid for gas discoveries henceforth made in deepwater and ultra-deep sea as well as high temperature, high pressure finds, will attract investments, he said.
The revised gas price would be applicable to all gas produced from nomination fields given to ONGC and OIL India, New Exploration and Licensing Policy (NELP) blocks, some pre-NELP blocks and coal-bed methane blocks.
The new prices would not apply to small and isolated fields in nomination blocks and those pre-NELP blocks where government approval has not been provided under the production sharing contract.
