The Hindu Business Line : No respite from crude price rise: ONGC chief

THE ONGC Chairman, Mr Subir Raha, has said that crude prices are unlikely to soften for the rest of the fiscal. While the `fear factor' is contributing to its continuing firmness, the forthcoming winter and the resulting demand may make price sentiments stronger.

Speaking to newspersons, Mr Raha said: "I personally believe that crude prices will remain firm primarily due to serious uncertainties in West Asia and its resulting effect. This uncertainty has led to a `fear premium' now, estimated to be almost one-third of the crude prices."

Describing the current crude price as more of a `trading price' where "those involved in trading" are charging high fear premiums, Mr Raha said, "At this point of time I do not think that there is anything in sight to bring the fear premium down."

Moreover, the coming winter may make the oil prices stronger. "Demand for heating oil was exceptionally high during the last two seasons owing to acute winter conditions."

While refusing to comment on the domestic pricing issues, which are decided by the Government, Mr Raha said that the company had to share Rs 1,900 crore of `under-recovery' during the first half of the current fiscal. Maintaining that domestic prices were a `political issue' and beyond the ambit of the company, he said that prolonged sharing of such under-recoveries may weaken the ONGC balance sheet.

"No balance sheet is open-ended. We take risks for our focus on exploration. If the balance sheet is weakened, exploration will suffer."

UCG production

Mr Raha said that ONGC was hoping to start commercial production of underground coal gassification (UCG) in 2007-08. The company is close to signing of an agreement with Coal India Ltd for the UCG project taken up in technical collaboration with the Stochimsky Institute of Russia.

Hinting that the project will be taken up as a joint venture with Coal India, he said that the pilot project was expected to commence in West Bengal during the current fiscal.

Against the total natural gas production of 100 million cubic metres per day, UCG has the potential to produce 200 million cubic metres per day.