InvestorQ : How much is ONGC losing on a regular basis on its natural gas business?
Dhwani Mehta made post

How much is ONGC losing on a regular basis on its natural gas business?

Dilmini Mercia answered.
8 months ago

ONGC affirmed that it would be approximately losing Rs.6000-7000 crore on its natural gas business after government-mandated rates for the fuel dropped to a 10-year low. The current rates approved by the government are lower than the cost of production of $3.5-3.7 per mmBtu.

On an average, every dollar reduction in gas prices leads to a revenue loss of about Rs.5200 crore and profit reduction of Rs.3500 crore. Assuming the current prices fixed by the government, ONGC is expecting a loss of up to Rs.7000 crore in the natural gas business.

ONGC produces approximately 65 million standard cubic meters per day of gas from domestic fields. ONGC has also stated that the pricing formula was wrong as it is based on the formula of gas surplus countries like the US, Russia and Canada, while India is a gas-deficit country. In the latest round it was cut to $1.79 per mmBtu.

ONGC has already made representations to the Ministry of Petroleum and Natural Gas for suitable amendments to the formula as the current price fixed does not cover the cost of production and may not incentivize ONGC to produce gas in the long run.

Currently, the applicable rates are revised every 6 months. The latest gas price of $1.79 per mmBtu is the lowest that ONGC got since 2010 when the government first moved towards deregulating gas pricing and fixed it on market basis.