Indian Oil Corporation corners more than a third of D6 gas in latest Reliance auction

Gujarat Gas won the tender to buy 0.5 mmscmd, Torrent Gas 0.45 mmscmd, Adani Total Gas Ltd 0.29 mmscmd, IndianOil-Adani Gas Pvt Ltd 0.17 mmscmd and Indraprastha Gas Ltd and Mahanagar Gas Ltd 0.30 mmscmd each, they said.

The auction saw participation from across the gas-consuming sectors - fertilizer, city gas distribution, refineries, and aggregators. A total of 38 successful bidders secured gas through the auction process, which concluded on November 24, they added. Reliance and BP last week auctioned 4 mmscmd of gas from the Krishna Godavari basin block starting December 1, 2023.

They asked users to quote a price indexed to Brent crude oil price, according to the tender document. This was a departure from the previous two previous auctions, the last being in May this year, where gas was sold indexed to the international gas benchmark, JKM.

In the latest auction, Reliance-BP asked bidders to quote a premium 'v' they are willing to pay over and above 12.67% of the dated Brent crude oil price. The starting bid price for 'v' has been kept at $1.08 per million British thermal units.

Sources said the value of 'v' in the auction came to $1.98 per mmBtu. At the current Brent crude oil price of $80 per barrel, the gas price comes to $12.11 per mmBtu ($10.136 per mmBtu plus 'v' of $1.98).

However the bidders will have to pay a lesser price as according to the tender document the sale price would be the lower of the government-dictated maximum rate payable for gas from difficult fields like deepsea, and the price arrived through the bidding process.

The ceiling price payable for gas from difficult fields for a six-month period starting October 1 is $9.96 per mmBtu. This means that even if Reliance-BP finds buyers for 4 mmscmd of gas are willing to pay $12.11 per mmBtu, the users will have to pay only $9.96 till March 31, 2024.

The government bi-annually fixed ceiling price for gas produced from difficult fields such as deepsea and high-pressure, high-temperature (HPHT) fields, effective from April 1 and October 1. Natural gas, a cleaner-burning, efficient fuel, is being seen as a transition fuel for nations to move from polluting hydrocarbons to zero-emission fuels.

In the last auction in May, IOC, the nation's largest oil firm, had walked away with half of the 5 mmscmd of gas Reliance-BP had offered. In that auction, Reliance-BP had asked users to quote a variable 'v' over and above the JKM price, the spot market benchmark for liquefied natural gas (LNG) delivered to Japan and South Korea.

At the end of that e-auction, gas was sold to 16 buyers at a price of JKM + (plus) $0.75 per mmBtu for 3 years. At the prevailing JKM price of $9.2 per mmBtu, the price for KG-D6 gas came to around $10. Reliance-BP had in April 2023 sold 6 mmscmd of gas. In that auction too, the final bid price came at $0.75 per mmBtu premium over the JKM price (JKM + $0.75 per mmBtu).

The duo had a couple of years back used Dated Brent as the benchmark to sell KG-D6 gas before switching to JKM when international gas prices soared starting in 2021.

Gas produced from wells drilled below the seabed is used to produce electricity, make fertiliser, or turned into CNG for powering automobiles or piped to household kitchens for cooking as well as in industries. Reliance-bp produces about 29-30 mmscmd of gas from three sets of gas fields in the KG-D6 block.