Higher gas prices helpful for ONGC, but cheaper crude is a bigger worry
A recent Bloomberg report said India is considering a floor price for natural gas produced from local fields. The proposal being considered by the oil ministry pegs gas price to benchmark Japan-Korea LNG prices with a discount. This could improve realizations of state-run oil and gas producer Oil and Natural Gas Corp. Ltd (ONGC).
Nitin Tiwari, analyst at Antique Stock Broking Ltd, said, “The move could help the company break-even on its gas production. ONGC’s average cost of gas production currently is around $3.5 per mmBtu (million British thermal units). Given the current LNG prices, the implied price realization works out to $3-3.5 per mmBtu, which would be similar to what ONGC saw in FY20.”
Note that domestic gas prices were set at $2.4 per mmBtu for April-September. They have now been lowered to $1.79 per mmBtu for the October to March period.
