Milestone - ONGC may sell gas from Mumbai offshore.

ONGC's revenues will see a boost as it might soon be allowed to sell gas from its marginal C-series field in Mumbai offshore at $5.25/mBtu as against $5.5/mBtu.

This is lower than what ONGC wanted ($5.5/mBtu) but is higher than the Reliance Industries Ltd (RIL) operated D6 block price of $4.2/mBtu.

Last month, the Government had taken a decision on raising the natural gas price, sold under the administered regime (APM) from $1.79/mBtu to $3.82/mBtu plus 10 per cent royalty. It had also decided to give ONGC and Oil India Ltd (both the public sector exploration companies) the freedom to sell gas from the new fields of the blocks given on a nomination basis at approved, non-APM prices or market price.

Price structure

Industry sources told Business Line that the price of $5.25/mBtu has been derived after a committee, set up by the Petroleum Ministry, examined the issue. This is excluding the marketing margins and transmission charges to be levied by GAIL (India) Ltd.

According to industry sources, this decision is also in line with the Government's move towards a more structured gas pricing mechanism. A market determined price depends on demand and currently it is in the $4.2-7/mBtu range, excluding transmission charges, taxes, marketing margins and charges for services.

ONGC gets the market price for gas from Ravva Satellite ($4.3/mBtu, which is being reviewed) and from Panna-Mukta-Tapti ($5.65/mBtu and $5.73/mBtu) joint venture fields.

The exploration major has been maintaining that the C-series field in Mumbai offshore is viable only at a market-related price. Though the field was given to ONGC on a nomination basis prior to the NELP (New Exploration Licensing Policy) regime, it did not fall into the APM regime, the company has been arguing.

Purchase agreements

Once this price is approved, GAIL, which has to lift this gas from the field located 60 km west of Daman in the Tapti-Daman block of Mumbai Offshore, will need to sign fresh gas supply and purchase agreements (GSPA) with the consumers.

GAIL and ONGC have already got an agreement, and they would only need to tinker with the pricing part.

This change in pricing in the agreement can be done through a side letter, a source said.

According to the agreement, GAIL will receive one mscmd (million standard cubic metres a day) of gas initially, which would be subsequently increased to 2.8-3 mscmd.