ONGC chief also bats for hike in gas price

Siddhartha P Saikia New Delhi | Updated on March 04, 2014

ONGC Chairman and Managing Director Dinesh K Sarraf

Expects to produce gas from KG basin by 2017

The proposed hike in the price of natural gas from $4.2 to $8 a unit appears significant but is not so in reality, said DK Sarraf, who took charge recently as Chairman and Managing Director of state-owned explorer ONGC.

Though the move will double the gas price, it may not be enough to make all finds commercially viable, said Sarraf in his first media interaction after taking charge. The new price for domestically produced gas is to come into effect from April 1.

ONGC’s two discoveries in the Mahanadi basin are viable at $11/a unit (gas is measured in million British thermal units), to give a 10 per cent return, said NK Verma, Director (Exploration) ONGC. “We will not able to monetise them till we get a higher price,” he added.

A similar view is being expressed by private sector explorers, such as Reliance Industries, which has been seeking a market-linked price.

Every dollar added to the gas price will boost ONGC’s revenue by ₹4,000 crore annually. If the new price is $8/unit, the increase in revenue would be around ₹16,000 crore, while the increase in the bottomline would be around ₹9,600 crore. The net impact on the cash balance would be ₹5,200 crore, Sarraf said.

Cost of production

Asked if it was possible to produce gas at $1 a unit, Sarraf said: “The cost of production is difficult to directly say (as it varies from field to field, depending on components such as the size of the field, whether it is deepwater or onshore, etc). Also for a producing field it would be very less.” There is no fixed cost of production he said, adding that the average for a gas field is $3-4 a unit.

Dispute with RIL

On the ongoing issue with RIL about reservoir ‘connectivity’ of their adjacent blocks in the East Coast, Verma said: “We have shared data, which is an international practice. It is apparent that a shift has happened, but it needs to be assessed.”

ONGC wants a third-party expert to handle the assessment.

Sarraf also countered allegations that ONGC was not doing enough to increase production and said it has been increasing at around 8 per cent.

ONGC expects a peak gas output of 25-30 million standard cubic metres per day (mscmd) from its block off the East Coast. Gas production from the deepwater block in the Krishna-Godavari basin will begin in 2017.

The northern part of the block is estimated to hold over 2 trillion cubic feet of gas and 117 million tonnes of oil.

This could lead to production of about 70,000 barrels of oil and 25-30 mscmd of gas.

Published on March 04, 2014

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