ONGC takes leaf out of Reliance’s e book, floats subsidiary to purchase personal fuel

Image Source : PTI ONGC takes leaf out of Reliance’s e book, floats subsidiary to purchase personal fuel
Taking a leaf out of Reliance Industries Ltd’s playbook, state-owned Oil and Natural Gas Corporation (ONGC) is forming a brand new subsidiary for fuel enterprise that might be used to bid and purchase fuel from the agency’s personal fields.

The board of ONGC at its assembly on February 13 accepted creation of a brand new wholly-owned subsidiary firm for fuel and liquefied pure fuel (LNG) enterprise worth chain topic to mandatory approvals, based on the agency’s third quarter earnings announcement.

“The company is being formed with the objective of sourcing, marketing and trading of natural gas, LNG business, Hydrogen enriched CNG (HCNG), gas to power business, bio-energy/ bio-gas/ bio methane/ other biofuels business, etc,” it mentioned.

ONGC might use the brand new subsidiary to purchase any new fuel that the agency produces from fields reminiscent of KG-D5 within the Krishna Godavari basin, folks with direct data of the matter mentioned.

The authorities had in October 2020 allowed associates of fuel producers to purchase the gasoline in open public sale.

This coverage change allowed Reliance to purchase two-thirds out of the extra 7.5 million customary cubic metres per day of fuel it together with companion BP plc of UK plans to provide this yr from the brand new fields in KG-D6 block.

“ONGC too can look at this option now. The new subsidiary can participate in any auction that ONGC will do for incremental gas from KG-D5 block,” a supply mentioned.

Besides guaranteeing competitors and truthful worth discovery, the ONGC subsidiary can then promote the fuel so sourced to corporations reminiscent of Mangalore Refinery and Petrochemicals Ltd (MRPL) at a margin. This would assist ONGC earn higher margins on the fuel produced.

“Right now gas is a loss-making business for ONGC. The government controls gas price which is less than cost of production,” the supply mentioned.

The authorities has fastened a worth of USD 1.79 per million British thermal unit for ONGC’s fields. This is half of the price of manufacturing.

It permits the next price of USD 4.06 per mmBtu for troublesome fields reminiscent of deepsea fields (KG-D6 and KG-D6) however even that’s lower than the price of manufacturing from extremely capital intensive tasks.

The present regulation means even when Reliance found a worth equal of USD 6-7 per mmBtu for the 7.5 mmscmd of latest fuel from KG-D6, it will get solely USD 4.06 until March 31.

The similar would apply for ONGC. It may uncover a price greater for the 15 mmscmd incremental fuel deliberate from KG-D5 block however it could possibly get solely USD 4.06 as per present worth.

“So, essentially the ONGC’s gas subsidiary can bid and buy KG-D5 gas. It will pay ONGC USD 4.06 per mmBtu but can sell to MRPL or any other customer at a price higher than that, ensuring that the gas business becomes a viable proposition,” the supply mentioned.

The authorities has given operators the liberty to find market costs however this price is topic to a pricing ceiling or cap that the federal government notifies each six months. The cap for six months to March 31, 2021 is USD 4.06 per mmBtu.

In the February 5 public sale, Reliance O2C Limited, an affiliate of Reliance Industries Ltd, picked up 4.8 mmscmd out of the 7.5 mmscmd fuel auctioned.

State fuel utility GAIL (India) Ltd gained 0.85 mmscmd of provides whereas Shell picked up 0.7 mmscmd.

Adani Total Gas Ltd received 0.1 mmscmd, Hindustan Petroleum Corporation Ltd (HPCL) 0.2 mmscmd and Torrest Gas 0.02 mmscmd. Other consumers included IRM Energy (0.1 mmscmd), PIL (0.35 mmscmd) and IGS (0.35 mmscmd), they mentioned.

Sources mentioned the fuel was purchased at a worth of USD 0.18 per million British thermal unit low cost to JKM (Japan/Korea liquefied pure fuel import worth), that’s worth of JKM (minus) USD 0.18 with tenures starting from 3 to five years. Reliance O2C is the brand new unit that holds the agency’s refinery and petrochemical belongings.

Earlier in November 2019, 5 mmscmd of pure fuel was offered at a worth within the vary of round 8.6 per cent of Brent crude oil for tenure starting from 2 to six years. That fuel went to consumers like Essar Steel, Adani Group and state-owned GAIL.

Reliance-BP began manufacturing of fuel on December 18 final yr from the R Cluster ultra-deep-water fuel subject in block KG-D6 off the east coast of India.

The duo are growing three deep-water fuel tasks in block KG-D6 — R Cluster, Satellites Cluster and MJ — which collectively are anticipated to fulfill round 15 per cent of India’s fuel demand by 2023. ONGC is growing a set of discoveries within the KG-D5 block which sits subsequent to Reliance’s D6 space.

ONGC’s fields, which started manufacturing final yr at a restricted price of 1 mmscmd, are estimated to have peak manufacturing charges of 16 mmsmd of pure fuel and 80,000 barrels per day of oil.
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