ONGC wants higher gas price to produce KG, Kutch discoveries

Gas discoveries in shallow sea off Andhra Pradesh on the east, and off Gujarat on the west are economically unviable to produce at the current government-mandated price of $2.89 per million British thermal unit, a senior company official said.

The company wants a price of over $6 per mmBtu to help it produce the gas without suffering any losses. In the absence of a viable gas price, it will have to mothball the $1.5-billion projects, he added.

"We have made representation to the government that the current price is not enough to make the discoveries viable. We have sought special pricing dispensation," he said.

The BJP-led government in October 2014 had evolved a new pricing formula using rates prevalent in gas surplus nations like the US, Canada and Russia to determine rates in a net importing country.

While prices have halved to $2.89 since the formula was implemented, the government has allowed a higher rate of $ 6.3 per mmBtu for gas fields in difficult areas like deepsea.

The official said the Krishna Godavari basin block KG- OWN-2004/1 is in shallow water and does not qualify as a 'difficult field'. On the western side, the block GK-28 in Gulf of Kutch is a nomination block which does not qualify for higher rates, he said.

While the KG block will produce a peak output of 5.35 million standard cubic meters per day, the same from Gulf of Kutch block will be around 3 mmscmd. It would take a minimum three years to bring the gas finds to production.

The combined output is about 14 per cent of the ONGC's current output of 60 mmscmd.

"If we don't get the right price, it will not be possible for us to develop the two projects. If we are forced to do so, it would be like putting in huge amount of money without expecting the same to return," the official said.

He said the KG block discoveries are in water depth of just about 8-meters, developing which is costly since ultra- shallow rigs are scarce and therefore expensive.

ONGC also has a couple of smaller fields with a total expected peak production of 1.1 mmscmd, which cannot viably produce at the current domestic gas prices.

The official said the company was in the process of preparing field development plans for all these fields but will go slow if the prices are not viable.

For more than a year now, ONGC has been petitioning the Oil Ministry for setting a floor price of at least $4.2 per mmBtu for domestically produced natural gas.