Stock Review: ONGC

Shale gas, an unconventional source of fuel, has attracted a lot of interest in recent times from oil and gas players globally. Within India, ONGC has become the first player to explore for this resource. While the allocation of `128 crore may not be much for the exploration major, ONGC's pilot programme may bring it access to a new source of natural gas over the long term.

Shale gas, which is drilled from sedimentary rocks, accounts for 15-20 per cent of natural gas requirements in the US. This is expected to rise to 50 per cent by 2020. With rising fuel prices, shale gas has emerged as an attractive alternate source and exploration activities have gone up globally. BPCL has invested `65 crore in Australian shale gas assets, while Reliance Industries has acquired stakes worth `16,000 crore in US shale gas assets.

ONGC has also announced two new gas discoveries in the KG basin and the Cambay basin. This news helped ONGC surge 1.6 per cent on Thursday, even as broader indices declined.

ONGC plans to bring seven discoveries to production this year. Its petrochemical complexes in Gujarat and Karnataka will be commissioned by 2013. Along with capacity expansion, there have been other triggers for the stock as well. Crude oil prices have remained range-bound over the last one year, but may see some upside as energy requirements in the northern hemisphere go up in winter. A five-per cent divestment, diesel deregulation, the re-working of the subsidy-sharing mechanism and the long-term model of reducing subsidy burden on public sector players are all on the cards. All these will benefit upstream companies like ONGC the most. Hence, the company may see renewed interest on bourses.

The shale gas exploration programme may give the company access to a new source of natural gas