India’s ONGC plans to form new subsidiary to buy own gas

India’s state-owned ONGC’s board has approved the creation of a wholly owned subsidiary for a gas business that could bid and purchase gas from its own fields.

The board has granted the approval for it at its meeting on 13 February.

The formation of the new business is subject to necessary approvals, the company noted in its Q3 earnings announcement.

ONGC said: “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 / biomethane / other biofuels business.”

PTI reported that the new subsidiary will be used to buy gas produced from fields such as KG-D5 in the Krishna Godavari basin of southern India.

In October last year, the Indian Government allowed affiliates of gas-producing companies to purchase gas in an open auction.

Due to the policy, Reliance’s affiliate, along with its UK-based partner bp, can buy two-thirds out of the additional 7.5 million cubic metres per day of gas produced from fields in KG-D6 block.

Mirroring Reliance’s strategy, ONGC is also considering this option.

The new ONGC subsidiary will be able to sell gas bought from the fields to companies such as Mangalore Refinery and Petrochemicals at a higher margin.

The plan will enable the loss-making ONGC to earn better margins. Currently, the gas price is less than the production cost and is controlled by the Government of India.

ONGC is developing a host of discoveries in the KG-D5 block, which is located adjacent to Reliance’s D6 area.