Natural gas production; ONGC, Oil India profits dip after government cuts rate

State-owned ONGC and Oil India are making losses on natural gas production after government cut rates for the fourth consecutive time to bring down selling price to below the cost of production.

Price of natural gas produced by Oil and Natural Gas Corp (ONGC), OIL and Reliance Industries locally was cut by 18 per cent to USD 2.5 per million British thermal unit (mmBtu) based on its gross heat value for six month period beginning October 1.

“Our average cost of production is about USD 5.14 per mmBtu. It comes to about USD 3.59 per mmBtu without taking into account return on capital,” said a senior ONGC official.

For Oil India Ltd, the cost of production, without taking into account the return on capital, comes to about USD 3.06. “Gas production is now a loss making business as irrespective of cost of production we have to continue paying royalty and other taxes,” the official said. 

As per a new mechanism approved by the government in October 2014, the price of domestically produced natural gas is to be revised every six months  April 1 and October 1 using weighted average or rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia.

For October 1, 2016 to March 31, 2017, the rate was on Friday announced to be USD 2.5 per mmBtu.