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Forget double pricing ONCG wants triple++

[Enigma3]

NEW DELHI: State-run Oil and Natural GasCorp (ONGC) has told the government that gas production from some of its deep-sea fields would be viable only at prices of up to nearly $13 per unit, far more than the controversial price of about $8.4 thatReliance IndustriesBSE -0.99 % would have charged from April 1 if poll authorities had not vetoed it.

It has asked for prices of $10.72 to $12.63 for two blocks in the Mahanadi basin, close to RIL's KG-D6 block, where gas has been sold at $4.2 since 2009. The government had approved a new formula in June 2013 that would have nearly doubled the rates but it could not implement it because the election code of conduct was enforced before the oil ministry could collected the necessary data to calculate the new price. The new price also faced strong opposition from the Aam Aadmi Party, which has made it an election issue.

"The company may have to put its plan to develop these discoveries on hold till gas prices are raised between $11 and $13 per unit," an ONGCBSE -1.82 % executive said, requesting anonymity.

Officials in the Directorate General of Hydrocarbons (DGH) confirmed that ONGC had sought higher prices for gas coming out of the two blocks. "ONGC has sought the help of the government because the project can give an IRR (internal rate of return) of 14% only if gas is priced at $10.72-12.63 per unit," said a DGH official who did not wish to be named.

ONGC and oil ministry did not respond to email queries from ET. According to government officials and company executives, ONGC's Mahanadi project would not be viable even at the $8.40 per unit rate. "But, the new pricing formula is dynamic and changes every quarter. Sooner rather than later these discoveries would be commercially viable. Until then we have to wait," the executive said.

After the Cabinet approved the new gas pricing formula last year, the oil ministry had said in a statement that the price of $4.2 per unit was "not found to be viable for sustenance of the domestic production of gas" and all operators were "demanding increase in price".

"The Gujarat State Petrochem Corporation ( GSPC) owned by government of Gujarat has been demanding a price of $13-14 (per unit) for their blocks in KGD6 basin. Similarly, Reliance Industries has also been asking a price in the same range. Even the public sector undertakings such as ONGC and Oil IndiaBSE -2.24 % Limited have been repeatedly representing for increase in gas price as the production will not be viable at any price less than $7," according to the statement issued by the ministry on July 5.

ONGC was awarded MNOSN-2000/2 in the second round of the new exploration licensing policy. It holds a 40% stake in the block while Gail IndiaBSE -2.51 %, Indian OilBSE -1.43 % Corp and Oil India hold 20% interest each. ONGC holds 100% stake in MN-DWN-98/3, which was awarded to the company in Nelp-I bidding round.

ONGC has formally proposed that the four discoveries, two each in the adjacent blocks, can only be developed in an integrated manner. MN-OSN-2000/2 was initially a shallow water block but later it was converted into a deepwater block. The other block, MN-DWN-98/3, is a deepwater block awarded to the company in the first auction round.