As many as 14 users across sectors slugged it on a third party electronic platform for seven-and-half hours to secure natural gas supplies from the eastern offshore KG-D6 block before the oil-to-chemical (O2C) unit of Reliance Industries Ltd bagged most of the supplies, sources said. Reliance Industries Ltd and its partner BP Plc of the UK, who are bringing a second set of gas discoveries in their Bay of Bengal KG-D6 block, had offered 5.5 million standard cubic meters per day of additional gas in the auction for a flexible tenure of between 3 to 5 years.
Gas user’s companies like Indian Oil Corporation (IOC), Reliance O2C, GAIL Gas, Adani Total Gas Ltd, Torrent Gas, Torrent Power and gas trading companies like GAIL, Shell and IGS were locked in the intense bidding war on the e-auction that happened on May 5, sources in the Reliance-BP consortium said.
At the end of the intense bidding war, Reliance O2C walked away with 3 mmscmd of supplies, offering better prices than competitors, they said.
India Gas Solutions (IGS) a gas sourcing and marketing joint venture of Reliance and BP bagged another 1 mmscmd, while IOC got a similar volume. The remaining volume was picked by Adani Gas (0.15 mmscmd), IRM Energy (0.10 mmscmd), GAIL (30,000 cubic meters per day) and Torrent Gas (20,000 cubic meters per day).
This is the third auction that Reliance-BP conducted on a third party independent platform approved by the Directorate General of Hydrocarbons (DGH). The online web-based electronic bidding platform of CRISIL Risk and Infrastructure Solutions Ltd (CRIS) was also used for e-auction in February this year as well as in 2019.
In the three auctions, Reliance-BP has sold around 18 mmscmd of domestic gas from new fields in the KG-D6 block, which would help substantially reduce reliance on imported LNG, the sources said.
In the May 5 auction, Reliance-BP had asked bidders to quote a price linked to Platts JKM (Japan Korea marker), the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes. The lowest bid that could be placed was JKM minus USD 0.3 per million British thermal unit. The highest acceptable bid would be JKM plus USD 2.01 per mmBtu.
The bidding, they said, started with a USD 0.45 discount to JKM price and intense competition led to the discovery of a price of JKM minus USD 0.6 per mmBtu (discount of USD 0.6 to ruling JKM price).
The intense competition indicates a preference for domestic gas vis a vis LNG for Indian consumers. At current prices, the discovered price translates into a price of about USD 9 per mmBtu, but the buyers will be required to pay only the cap or ceiling price that the government has set for such fields.
The government sets a cap or ceiling rate at which natural gas from difficult fields like deepsea can be sold. This cap for the period April 1, 2021, to September 30 2021 is USD 3.62 per mmBtu. Even though the gas prices for April-September 2021 are capped by the government notified ceiling price of USD 3.62 per mmBtu, the discovered formula would result in a price of more than USD 6 per mmBtu in the second half of the fiscal and more than USD 7.5 thereafter as the ceiling price will go up in lag with international prices, they said.
Ceiling prices are set by the government based on international prices prevailing in the last 12 months with a three months lag. With the return of demand, international rates have rebounded, which will reflect in the prices in the second revision due on October 1.
In February this year, Reliance-BP sold 7.5 mmscmd of natural gas at a price of JKM minus USD 0.18 and in November 2019, they sold 5 mmscmd of gas at a price in a range of 8.5 to 8.6% of Brent crude oil. Reliance-BP has been developing three sets of deepsea fields in the KG-D6 block R-Custer, Satellite Cluster and MJ which together are expected to produce around 30 mmscmd of gas by 2023, meeting up to 15% of India’s gas demand.
R-Cluster, which started producing in December last year, will have a peak output of 12.9 mmscmd, while satellites, which started producing a couple of weeks back, would produce a maximum of 7 mmscmd. MJ field will start production in the third quarter of 2022 and will have a peak output of 12 mmscmd.
Reliance has so far made 19 gas discoveries in the KG-D6 block. Of these, D-1 and D-3, the largest among the lot were brought into production from April 2009 and MA, the only oilfield in the block was put to production in September 2008. While the MA field stopped producing last year, output from D-1 and D-3 ceased in February.
Other discoveries have either been surrendered or taken away by the government for not meeting timelines for beginning production. Reliance is the operator of the block with 66.6% interest, while BP holds the remaining stake.
