Gas production to remain a loss-making proposition for upstream producers: ICRA

Domestic gas production is expected to remain a loss-making proposition for most Indian upstream producers in financial year 2020-2021 as prices are expected to remain subdued, rating and research firm ICRA said today.

“Gas prices at various international gas hubs have declined, which would lead to lower domestic gas prices in FY2021. Accordingly, the domestic gas production will remain a loss-making proposition for most fields for the upstream producers, notwithstanding some decline in oilfield services/equipment cost,” K Ravichandran, senior vice-president at ICRA said.

Ravichandran said the recent sharp drop in crude oil prices is a credit negative for the upstream sector as their realisations and cash accruals will decline.

According to ICRA, the credit metrics of Indian upstream players will further weaken materially in the near-term unless the government provides some relief on fiscal levies like royalty, cess and profit petroleum, along with changes in domestic gas pricing formula.

India sets the price of domestically produced natural gas based on a formula that is revised bi-annually. As per the formula, the price is the weighted average of four global benchmarks — Henry Hub, Alberta gas, NBP and Russian gas.

Price of domestically produced natural gas fell 26 percent to $2.39 per million british thermal units (mmbtu) for the period between 1 April 2020 to 30 September 2020, the lowest recorded price of domestically produced natural gas under the Administered Price Mechanism (APM).

The country’s largest oil and gas producer Oil and Natural Gas Corporation (ONGC) is expected to face a loss of Rs 6,000 crore in financial year 2020-2021 on the back of subdued domestic natural gas prices.

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