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Wednesday, April 28, 2010

Govt plans to hike ONGC gas price to USD 4.20/mmBtu

The government plans to more than double the price of natural gas produced by Oil and Natural Gas Corp (ONGC) to USD 4.20 per mmBtu, in a move that will help the state-run firm break even in gas business.

The oil ministry is likely to move a Cabinet note next month for raising price of the gas, produced by ONGC and Oil India Ltd from fields given to them on nomination basis (called APM gas), to rates equivalent to that produced from Reliance Industries' KG-D6 fields, official sources said.

This follows, the finance ministry's insistence that any hike in APM gas price should be in one stage and not in phases as was previously proposed by the oil ministry.

The oil ministry had earlier proposed raising APM gas price from USD 1.79 per million British thermal unit to USD 4.20 per mmBtu in phases over the next three years.

ONGC, in 2008-09, lost Rs 4,745 crore in revenues on selling 17.71 billion cubic meters of gas at the government fixed rate and the move to jack up prices to USD 4.20 per mmBtu would help the firm break-even, sources said.

The oil ministry had previously proposed an immediate 30 per cent hike in the price of gas produced by ONGC and OIL to USD 2.3 per mmBtu and in three more stages to USD 4.2 per mmBtu.

Price of gas produced by ONGC and OIL from fields given to them on nomination basis were last revised in 2005. Current rates of Rs 3,200 per thousand cubic meters (USD 1.79 per million British thermal unit) are less than half of USD 4.2 per mmBtu price of gas from KG-D6 field of RIL.

Oil Ministry had, a while ago, circulated a Cabinet note for hiking the price of gas under administered pricing mechanism (APM) to Rs 4,142 per thousand cubic meters (USD 2.32 per mmBtu).

However, on the insistence of the finance ministry, it has withdrawn the Cabinet note and is likely to move a fresh one seeking to raise the price of the gas under APM to Rs 7,500 per thousand cubic meters or USD 4.2 per mmBtu, sources said.

The increase in rates would be in one stage, they said. About 39 per cent of the nation's 140 million standard cubic meters a day of gas output is sold at administered rate. A hike in rates of these is an attempt to reduce distortions in a market with more than a dozen prices.

The government has set USD 4.2 per mmBtu as the sale price of gas from Reliance Industries' eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at USD 5.73 per mmBtu.

Sources said 54.32 mmscmd gas produced by ONGC and OIL is sold at APM rates of USD 1.79 per mmBtu. RIL produces about 64 mmscmd of

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