“There is an urgent need to revisit the gas price formula and the price ceiling for gas from difficult fields. If we want to really raise domestic production and move towards a gas-based economy, we must permit a free market and do away with the gas price formula,” Shanker told ET.
ONGC, which produces about three-fourths of the domestic gas, loses money on producing gas every time local formula price drops below $3.75 per mmBtu. At the current formula price of $2.39 per mmBtu, applicable for April-September period, ONGC would lose on average $1.36 per unit of gas produced. With oil prices dropping to $23 per barrel, ONGC doesn’t quite have the stomach to absorb such losses from its gas business, Shanker said.
“Low prices make unviable many of ONGC’s planned projects, which would break even between $5 and $9 per mmBtu of gas price, and it would be hard for the board to green signal such projects,” Shanker said. The formula provides for an arbitrary deduction of half a dollar from the average of international rates, which again is illogical, he said.
