Government Doubles Natural Gas Price for Power and Fertiliser Firms

Strategic Insights -

The Indian government has more than doubled the price of natural gas produced by Oil and Natural Gas Corp and Oil India Ltd to $4.2 per unit (Rs 189 per unit), effective immediately. This decision affects the rates at which power and fertiliser firms purchase gas from the state-owned companies. The move aims to help Oil and Natural Gas Corp and Oil India Ltd break even on their gas sales business losses and generate additional revenue.

Key Takeaways:

  • The government has set the new price of natural gas at $4.2 per unit (Rs 189 per unit) for power and fertiliser firms, doubling the previous rate of $1.8 per unit (Rs 81 per unit).
  • This new rate is equivalent to the price at which Mukesh Ambani's Reliance Industries Ltd sells gas from the Krishna-Godavari block.
  • ONGC and OIL will receive $3.818 per unit for the gas they produce from nomination fields, with a 10% royalty adding to the consumer price of $4.2 per unit.
  • The decision is expected to help ONGC and OIL reduce losses and generate around Rs 5,000 crore more revenue every year.
  • R.S. Sharma, Chairman and Managing Director of ONGC, stated that the decision will help wipe out the company's losses in gas business.
  • The move may affect power generation tariffs and fertiliser production costs, but companies that buy gas from ONGC will not be impacted due to the pass-through fuel cost.

Statistics:

  • New natural gas price: $4.2 per unit (Rs 189 per unit)
  • Previous natural gas price: $1.8 per unit (Rs 81 per unit)
  • Revenue gain for ONGC per year: around Rs 5,000 crore
  • Gas sold by ONGC in fiscal year 2008-09: 17.7 billion cubic meters
  • Loss incurred by ONGC in fiscal year 2008-09: Rs 4,745 crore

Sources:

  • Syndigate.info an Albawaba.com company
  • Oil and Natural Gas Corp and Oil India Ltd press statements