ONGC to offer Tatas natural gas at $3.5 to $3.75

Vol 7, PW 15 (08 Oct 03) Midstream & Downstream

ONGC will most likely offer natural gas to Mumbai-based Tata Power Company from its C22, C24 and C39 marginal fields offshore Mumbai at a price of between $3.5 and $3.75 per mmbtu at the Burner Tip.

But Tata Power wants to buy ONGCs natural gas at $3 to $3.2 per mmbtu. At this price, we wont even able to transport gas to our Uran landfall, let alone to their power project in Trombay!! an ONGC source tells PETROWATCH.

Tata Power wants to sign a 15-year agreement with ONGC to fire its 1,350-MW power station at Trombay in Maharashtra with natural gas from C22, C24 and C39. Later this month, the two sides will meet to continue negotiations on a sales agreement.

ONGC insists that its price is competitive. Our price is much cheaper than the LNG offered by Petronet-LNG, he adds.

Its also inclusive of taxes. ONGC is keen to reach agreement fast so that it can begin the costly process of beginning the development programme for the three fields.

We warned Tata Power in the very beginning that the cost of production from these three fields would be expensive. Tata Power wants to buy 4m cm/d of gas for its Trombay plant.

Yet ONGCs production profile for C22, C24 and C39 envisages a much lower supply of just 2.5m cm/d over ten years. Indexation of the gas price will also be a point of dispute when the two sides meet.

We learn the Tatas want the gas price to be indexed to coal but ONGC wants it linked to the Japanese Crude Cocktail, which it considers to be the most suitable index. There has to be a win-win situation for both parties, adds a source.

Without this price negotiations are futile. Tata Power warns that further delay in negotiating the price may force them to switch back to coal for Trombay.

Coal has always been an option for us, adds a company source. If we cant agree with ONGC, we might shift back to imported coal permanently.

Its the cleanest fuel with least ash content. Why then did Tata Power insist on buying natural gas from ONGCs marginal fields in the first place Or why did the companys managing director write a letter this last March to oil minister Ram Naik in March complaining of unfair gas supplies by ONGC We hoped the supply position would improve, adds Tata Power.

But if it strains ONGC to develop these fields at our price, we might let it go. GAIL has cut Tata Powers gas supply to 800,000cm/d from the actual allocation of 1.5m cm/d.