Low new gas price will hit E&P and NELP-X

Vol 19, PW 1 (10 Sep 15) Midstream & Downstream

Oil ministry plans to drastically slash domestic gas prices by around 20% to below $4.20/mmbtu for six months from October 1 could cast a shadow over the much-delayed NELP-X exploration licensing round.

“Who is interested in bidding if (gas sale) prices are not attractive?” wonders a source. He adds that a cut in the gas price by just $1 will force ONGC for example to take a Rs2500cr ($377m) hit in annual profits.

Under the new gas pricing regime which kicked in on November 1, 2014, the domestic gas price was fixed at $5.17/mmbtu on a net calorific value (NCV) basis for six months from April 1, 2015. “But according to the ministry’s latest calculations the new gas price should be below $4.20/mmbtu,” says a senior Gandhinagar source.

“All the global gas benchmarks – US, Mexico, Canada, the EU and Russia – are dropping. The price should be $4.15-4.19/mmbtu.

” Similarly on a gross calorific value (GCV) basis the price is expected to slide by 18.45% to $3.79-3.84/mmbtu against the present $4.66. An ONGC source says this is bad news for explorers given the high costs of exploratory campaigns and field development.

“A cut in gas prices means less profit for gas producers,” he adds. Especially worried will be GSPC which has sunk more than $2.5bn at its Deen Dayal West gasfield hoping for a gas price of $8.50/mmbtu.