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 Presentation Overview II
I. Indian Gas Market
II. Natural Gas pricing
• Background
• CCEA decision
• Tariff Commission

III. Gas Price comparisons

IV. ONGC'sGas Business- losing preposition
V. ONGCGas supply profile
VI. Submissions

• •
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I. Indian Gas Market

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•

Indian Gas Market II

Mid 1970s to Jan'87

• Gas a surplus commodity

• Gas supply mostly associated gas

• No marketing initiatives by gas producers

• Surplus gas flared by producers (as high as 45%)

• Negotiated gas price on case to case basis

Indian Gas Market

Jan 1987 to Sep 1997

• ONGC's giant 'Bassein' field put on production

• Gas price administered by Govt. on cost-plus basis
• Gas flaring reduced - producers' marketing
initiatives
• Significant demand growth

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 Indian Gas Market II
Oct 1997 to date

• Demand outstripped supply

• Gas flaring reduced to 5-6%

- limited to technical flaring

• Gas pricing continues administered by GOI

• Quantum jump in field development & production costs

• Marginal fields being brought to production

Indian Gas Market: Energy Basket II

~WorlciJ [India·]
Hydel Hydel
6% 3%

Oil
36% Oil
36%

Coal
28%
Coal
51%

9%
24%

Source: BP Statistical Review 2007 8

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Indian Gas Market II
Outlook

• Gas the favoured fuel for 21st century

• Demand for Natural gas to rise significantly,

replacing liquid fuels

Indian Gas Market II

Outlook

• Structured initiatives by GO! to increase gas availability

- Import of RLNG

- New Discoveries in NELP blocks

- Development of Deepwater/ Ultra-deepwater fields

- Cross-country gas pipelines

- Development of New Energy sources- CBM, UCG etc.

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II. Natural Gas Pricing

Natural Gas pricing II

Up to Jan'8?
• Alternate fuel parity prices
- Coal parity: from Rs.322/MCM to Rs.741/MCM (Till Ma,.,82)
- Naphtha/ Furnace oil: Rs.2160/MCM (Apr'82 to Jan'8?)

Jan'8? to Dec'91
• Cost-plus basis

Jan'92 to Sep'9?
• Kelkttr Committee (May 1990)
• Cost-plus basis

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Natural Gas pricing II
Oct 1997 to June 2005
• T.L.Sankar Committee constituted in Jan 1995 to evolve
principles for gas pricing.

• Report submitted in Dec' 1996

• Recommended changes in natural gas pricing based on
following principles:
- Facilitate shift in pricing mechanism from "cost plus mechanism"
to "market determined pricing"

- Phased build up of the consumer prices based on linking to fuel

oil parity system

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Natural Gas pricing II

Based on T.L.Sankar Committee recommendations
Consumer price linked to International FO prices (wef Oct'97)

Year General price NE price*

1997-98 55% 30%

1998-99 65% 40%

1999-D0 75% 45%

,nnf'\ n,
100% parity to be achieved

Floor price Rs. 2,150jMCM Rs. 1,200jMCM

----

Ceiling price Rs. 2,850jMCM Rs. 1,700jMCM

(*) Discount of Rs. 300/MCM allowed to NEconsumers till Mar'03
From Consumer price, Rs.250 (rare towards
Gas Pool and JV differential deducted to arrive at Producer price. 14

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 CCEA decision: Gas pricing
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II
Effective 01 July 2005

• Identification of APM & Non-APM gas

• APM Gas price marginally increased to Rs. 3,200jMCM on
Adhoc basis
- NE price: to be 60% of Adhoc price i.e., Rs. 1920/MCM
- OIL producer price in NE: Rs. 3,200/MCM
- ONGC to compensate OIL during FY'06 (Rs. 150 Crore) for
concessional price in NE
- Full Adhoc price to ONGC from Apr'O?

------ --- - -- --- ---- -- -- - -

1 APM:Gas from nominated bloc:ks (pre-NELf') a.s.pe.'J-TGP-2t<.
I N~n-~PM=Ne",,& incre~;ntal-gas-

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CCEA decision: Gas pricing II

• ONGC not to subsidize JV gas

• Final Producer price for APM gas to be determined based on

the recommendations of the Tariff Commission (TC)

• Non-APM Gas
- ONGC/OIL to get market price
- subject to determination of producer price by Tariff Commission.

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Tariff Commission
on Gas Pricing

Tariff Commission on Gas pricing II

Terms of Reference to TC (MOP&NG Aug'OS)

• To examine producer price of ONGCjOIL gas from existing

nomination blocks taking into account the investments made
- For development of infrastructure for production of gas; and
- Cost incurred on exploration

• To take into account market conditions including

- Pricesof alternate fuels
- Pricesof natural gas from alternate sourcessuch as JV gas, LNGetc.

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 Tariff Commission on Gas pricing II
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Terms of Reference to TC (MOP&NG Aug'05)

• To consider that producer price to be sufficiently remunerative to

provide Incentive
- to producer to make investments in exploration and production
activities

• To recommend producer price for additional gas from existing fields

or new fields in context of NELP provisions

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Tariff Commission on Gas pricing II

.----

Recommendations Producer price

• Gas price based on normative cost of
production & return basis.

• Producer Price (Basic; excluding all levies for a

Calorific value of 10000 k.cal/m3)
- OIL: Rs. 4,040jMSCM
- ONGC: Rs.3,600jMSCM
- Escalation based on WPI

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f---- ---
Tariff Commission on Gas pricing
--
II
Recommendations Consumer Price
• TC recognized - the value of gas is more than
recommended price.

• Consumer price can be fixed higher than

recommended Producer price.

• Differential money (Consumer price minus

producer price) can be passed on to producers.

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Tariff Commission on Gas pricing II

• TC not considered other alternatives as per
terms of reference
- alternate sources/ alternate use of gas
- gas pricing for additional gas from existing fields &
new gas fields to be developed by ONGC/OIL.

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III. Gas price comparisons

Gas price comparisons II

APM Gas price
Gas Price
($fmmbtu) (Rsfmmbtu)
Producer price
General 1.97 3,200
North East 1.18 1,920
Consumer price (Power & Fertilizer)
. -
General 1.97 -::t "Jnn

North East
~-~~-,
1.18 1,920
Consumer price (Small Consumersf PNGf CNG)
General 2.36 3,840
North East 1.42 2,304

* Basic price exclusive of Royalty for C\/ of 10000 k.calfM3

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 Gas price comparisons II
Asian LNG prices (Delivered) - Asia-Pacific
-----------~ ------------ --
Buyer Seller PrIces in $/MMBtu
--~- -~
Jan:07 Dec.'06 Jan'06

Japan Abu Dhabi 7.21 7.16 $6.40

Alaska 6.09 6.39 6.64
Australia 6.60 7.00 6.19
Brunei 5.98 5.96 5.66
Indonesia 7.66 7.29 7.34
Millaysia 6.61 6.84 6.32
Oman 8.62 10.12 9.46
Qatar 7.62 7.67 7.67
Algeria B.67 8.67
Trinidad 9.67 9.67

Egypt 11.52 10.67 10.67

Nigeria 11.67 11.67
Total $7.11 $7.35 $6.53
S. Korea Various $8.58 $9.01 $7.74
--
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Gas price comparisons

II
European Pipeline Border Gas price
Importer Source May06 May07
UK 12.69 7.34

Germany Norway 7.13 7.06

Russia 7.08 7.02
NLS 7.17 7.10
France NLS 7.02 6.95
Russia 6.75 6.68
Norway 6.70 6.64
Algeria 6.81 7.03
Hungary Germany 7.02 6.95
-- ---
Russia 7.13 7.06
Italv NLS 7.32 7.25
Algeria 7.08 7.02
Russia 7.32 7.25
Source: Argus Media Ltd. 30

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- ..--
ONGC's Gas Business
-
II
Cost Audit Report (2005-06)
(Rs/MSCM)

Sales Cost of Margin

Realization Production

Onshore 2,954 3,089 (-) 135

Offshore 2,975 3,347 (-) 372

Weighted Average 2,970 3,272 (-) 302

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•
V. ONGC: Gas supply profile

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Submission-2 II
XI Plan outlay: Rs. 75, 984 Crare compared ta Rs.
48,322 Crare during X Plan
Projects,
31668,41%

Dev. Drilling,
15784,21% --

PSCNs,
4778, 6%

\ Integration,
4189,6%
Expl. Drilling, Seismic,
11984,16% 7581,10%

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Submission-3 II
• Existing Gas price in India, significantly
lower than international prices

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Submission-4 II
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• Gas price rationalization' must to attract

investment in development of gas fields and
infrastructu re

• Cost-plus mechanism deters investment &

competitiveness

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Submission-5 II
• APM Gas price
- Remunerative price factoring increased field
maintenance cost
- Reasonable return (12-15%)

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 ,

Submission-6 II
• Non-APM gas price to be Market related
- Deepwater/ East Coast Gas to be priced differently
• Advanced technology

• High development cost

• Higher delivery cost

- Different Pricing mechanism for non-conventional sources -

C8M, UCG, SCG etc.
• Technology
• High development cost

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Thank you
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