State-owned Oil and Natural Gas Corp (ONGC ) will lose about Rs 4,000 crore in revenue and start making cash losses after the government slashed the natural gas prices by a steep 26 per cent by benchmarking it against rates prevalent in gas-surplus nations.
Prices of natural gas, which is used to produce fertilizer, generate electricity and gets converted into CNG for use in automobiles and piped natural gas for household cooking, was from April 1 cut to USD 2.39 per million British thermal unit – a rate about 37 per cent lower than the cost of production.
“These rates are unsustainable for us. We have already told the government that the gas pricing should be freed. There should be complete pricing and marketing freedom,” ONGC Chairman and Managing Director Shashi Shanker told PTI here.
The BJP-led government had in October 2014 evolved a new pricing formula using rates prevalent in gas surplus nations like the US, Canada, and Russia to determine the price in a net importing country. Prices using this formula are calculated semi-annually.
Oil Minister Dharmendra Pradhan, in a written reply to a question in the Lok Sabha on March 20, 2017, had stated that the cost of production of natural gas in the prolific Krishna Godavari basin is between USD 4.99 -7.30 per mmBtu. The same for other basins is in the range of USD 3.80 -6.59 per mmBtu, he had said.
For ONGC, which produces most of its 64 million standard cubic meters per day of gas from western offshore, the breakeven is around USD 3.8.