Economy

Current gas price unviable, says Hindustan Oil

M Ramesh Chennai | Updated on April 08, 2020

Effective April 1, the government revised the price of natural gas down to $2.39 a MMBTU, from the earlier $3.23 a MMBTU — a price which natural gas producer and seller, Hindustan Oil Exploration Company (HOEC), finds “extremely unviable”.

A week before the government reset the gas price, HOEC wrote to the Ministry of Petroleum and Natural Gas, requesting that the price be left undisturbed because “any further reduction in gas prices to a level below $3 a MMBTU would render even operating the current gas field extremely unviable for both public and private sector companies.”

Regardless, the Petroleum Planning and Analysis Cell (PPAC) went ahead and slashed the price at which natural gas would be sold between April 1 and September 30. Prices, however, are fixed transparently, based on a formula, details of which are public.

HOEC’s main producing asset is the Dirok field in Assam, which gives a million cubic meters of gas; it sells the gas to Oil India Ltd.

In the letter, seen by BusinessLine, HOEC’s Managing Director P Elango requests the government to leave the gas price untouched for six months — PPAC resets gas prices every six months. The “interim measure”, he says, “is justified by the extraordinary volatility global oil and gas market prices.”

Global-domestic disconnect

Speaking to BusinessLine, Elango said that PPAC fixes domestic gas prices (which varies for different fields) with reference to the ruling global prices, but the global prices happen to be those of gas-surplus markets. India’s conditions are unique.

The government could review the current gas pricing formula and take an appropriate decision which is fair to both producers and consumers, he said.

Revising the prices of domestic gas downward would also widen the gap between the prices of domestic gas and imported LNG, Elango said in his letter.

India pays between $8.5-9 per MMBTU of imported LNG, which mainly comes from Qatar. Imports have been growing steadily this decade.

Year

Imports of LNG (MMSCM)

2012-13

17,614

2013-14

17,801

2014-15

18,607

2015-16

21,388

2016-17

24,849

2017-18

27,439

2018-19

28,740

2019-20 (Till Feb)

30,812

An implicit point in HOEC’s plea is that while the country is paying so much for imported LNG, could the domestic producers not be paid a fair price?

Published on April 08, 2020

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