Tuesday, October 4, 2022

Moody’s says ONGC cannot lean on natural gas for profitability

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New Delhi: Weeks after data sourced from the Petroleum Ministry showed natural gas output to be the only silver lining in an otherwise bleak report on state-run Oil and Natural Gas Corporation’s (ONGC) total output, Moody’s Investors Service said that it does not see natural gas contributing heavily to the PSU’s profitability in the near term. This is despite the fact that ONGC is planning to raise the output over the next few years. The news comes as the state-run oil explorer has been recording a steady decline in crude oil output and is investing on scaling up its natural gas output as it readies itself to pivot more and more towards green energy.

National oil companies (NOCs) worldwide are currently retailoring their business strategies in response to climate-change imperatives and developing energy transition changes, Moody’s said in a report that studies how state-sponsored oil companies are preparing against energy transition risk.

Fossil fuels will continue to fuel India’s energy needs

The report said that India’s energy strategy aims to reduce its hydrocarbon imports by 10 percent by 2020 through several measures — increasing domestic production, adopting biofuels and renewables, improving energy efficiency norms, improving refinery processes and prompting crude demand substitution. India is aiming to have 175 GW of renewable energy capacity by 2022, reduce its energy-emissions intensity by 33-35 percent by 2030, and raise the share of non-fossil fuels in its electricity mix to more than 40 percent by 2030. “Despite such efforts, fossil fuels will continue to occupy a significant share of India’s energy demand for the foreseeable future,” Moody’s said.

‘Natural gas accounted for 17% of total sales revenue’

Moody’s said that in FY2018-19, even though natural gas made up 44 percent of ONGC’s sales, it only accounted for about 17 percent of total sales revenue. “ONGC aims to increase natural gas production over the next few years as it develops its new discovery on the eastern coast of India. However, natural gas will not contribute heavily to ONGC’s profitability for the near term,” it said. This could be because the government fixes rates of natural gas it produces. The government has fixed a maximum price of $3.69 per million British thermal unit for most of the gas that ONGC produces during April to September 2019 period. For most fields, this rate is below the cost of production.

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