Energy minister Franklin Khan revealed that there was a dramatic drop in the profit margins at the State-owned National Gas Company.
Questioned during the oral question segment in Senate yesterday by Opposition Senator Wade Mark about the NGC’s profitability, Khan confirmed that NGC’s margins dipped from 22 per cent in 2018 to a mere 7 per cent in 2019.
“National Gas Company financial performance for its financial year 2019 was adversely impacted by falling prices for petrochemicals and natural gas. These commodities account for almost 75 per cent of NGC’s revenue,” Khan said.
Khan said that the combination of lower market prices and increased cost resulted in the “compression of gross margins from 22 per cent in 2018 to 7 per cent in 2019 and thus the lower profitability”.
He said that the company was also affected by the global contraction triggered by the COVID-19 pandemic.
“The financial performance of the company is further impacted by COVID-19, as prices of commodities in particular methanol, ammonia, LNG and crude oil impacted on profitability and liquidity in the company remained depressed throughout 2020.
NGC strategy towards improving profitability involves value creation and optimisation within its operation,” he said.
Khan said that the company ensure the reduction in project overruns to reduce losses
“The company is also enhancing the value of its operation across the entire value chain and within NGC to drive synergies and optimisation,” he said.
When pressed further by Mark, Khan accused the Opposition of “missing the point”.
“We have commodities that we sell. Oil, gas, petrochemicals in particular, methanol and ammonia. Once the markets for these commodities remain depressed, there will be a challenge,” he said.
“We are price takers, we do not set the price,” Khan thundered.
He said that even though NGC was getting involved in the gas value chain, it was still at the mercy of the market.
“All we have to hope that as a nation, the global economy starts to rebound and it starts to rebound as soon as possible,” he said.
Khan said that was why the COVID-19 vaccine was so important.
“We have to get market for our products and market that offer attractive prices and attractive prices are based on supply and demand. It has nothing to do with what we are doing here,” Khan said.
Opposition senator Anil Roberts also asked about the upstream market deals that were hashed out by the Government in Houston last year with EOG Resources.
“NGC is an aggregator and prices are based on what we call a ‘price curve’. There is a base price and you get a higher price based on commodity pricing. It is not based on upstream,” he said.
Khan said that when prices for methanol and ammonia are high, “everybody is laughing towards the bank”.
“We are in a depressed market and we just have to hope that the global economy picks back up, “ he said.