InvestorQ : Why is ONGC planning to sell gas to its own subsidiary?
Niti Shenoi made post

Why is ONGC planning to sell gas to its own subsidiary?

ishika Banerjee answered.
2 years ago

In a way, it looks like ONGC is following on the footsteps of Reliance Industries and planning to use a specially created subsidiary to purchase gas from ONGC that is generated from the Krishna Godavari Basin. Earlier, it may be remembered that in a similar model, Reliance had also set up a subsidiary to buy its own gas produced in the KG-D5 basin of Krishna Godavari.

This decision to set up a subsidiary to sell gas to, was disclosed by ONGC while announcing Dec-20 quarter results on Friday, the 12 February. The subsidiary company will be the nodal point to source, market and trade in natural gas, LNG, HCNG and bio-fuels. In short, the gas sales will now be routed by ONGC through this subsidiary.

Back in October 2020, the government of India had permitted associate companies of the gas producer to buy the fuel directly in the open auctions. This is expected to ensure better price discovery for gas and in the process help ONGC earn better margins on gas produced. The current gas price fixed by government at $1.79 is nearly half the cost of production.