ONGC scraps margin but refuses to lower minimum rate for gas

ONGC has agreed to do away with charging users a marketing margin on the gas it plans to produce from its KG basin field but refused to lower the minimum rate, according to tender documents.

ONGC had last month sought bids for sale of initial 2 million standard cubic meters per day of gas from its KG-DWN-98/2 block (KG-D5).

The firm asked bidders to quote a rate linked to prevailing Brent crude oil prices. It fixed the floor or minimum rate at 10.5 per cent of the three-month average Brent crude oil price. On top of it, the firm sought $0.20 per million British thermal unit.

Potential bidders however opposed the levy of the marketing margin as well as the “high” floor price.

Responding to queries raised by bidders, ONGC said the floor price cannot be changed but marketing margin is being dropped.

“Change in Reserve Gas Price (floor rate) is not agreed. However, considering requests from various bidders, the levy of marketing margin of USD 0.20 per mmbtu over and above contract price is removed,” it said.

At the current Brent crude oil price of close to $70, the minimum price comes to $7.3 per million British thermal unit. This price, however, will be subject to the ceiling or cap fixed by the government for deepsea fields every six months. The cap for six months beginning April 1 is $3.62 per mmbtu.

This means bidders may corner gas by offering to pay $7, but the buyers will have to pay no more than the ceiling price of $3.62.

ONGC in the tender offered to sell 2 mmscmd of gas for a duration of 3 to 5 years at Odalarevu in East Godavari district, which is connected to state gas utility GAIL’S KG basin pipeline network, and PIL'S East West Pipeline which is connected to KG basin network and further to Gujarat gas grid.