In a strategic move, Vedanta Ltd, led by billionaire industrialist Anil Agarwal, has announced its intention to secure a minimum price of $9.5 for the natural gas produced from its Rajasthan block. The firm recently released a tender inviting bids from potential users for 0.6 million standard cubic meters per day of gas, with production set to commence on October 1 and last for a period of three months.
The gas is anticipated to be extracted from the RJ-ON-90/1 block located in the prolific Barmer basin of Rajasthan. This resource-rich region has long been a focal point for India’s energy industry, contributing significantly to electricity generation, fertilizer production, vehicular fuel, and household cooking gas.
Vedanta’s unique tender mechanism requires potential buyers to quote a variable ‘P,’ representing an additional sum they are willing to pay over and above 14.5% of the Brent crude oil price. Currently, with Brent crude oil priced at $84 per barrel, the base price stands at $12.18 (14.5% of $84). Buyers must then specify a value for ‘P’ to determine the ultimate gas price.
Under the pricing structure laid out by Vedanta, the gas price will be calculated based on the lower of Platts LNG WIM (the price of liquefied natural gas delivered on India’s west coast) and 14.50% of the Brent Price plus ‘P.’ However, the tender stipulates that the gas price for any given month should not dip below $9.5 per million British thermal units (mmBtu).
This ambitious pricing strategy set by Vedanta represents a significant premium compared to the existing ceiling price of $6.5 per mmBtu, which state-owned producers such as ONGC receive for gas output from legacy or old fields. This move is expected to reflect Vedanta’s confidence in the demand and market dynamics surrounding natural gas.
The upcoming e-bidding event scheduled for September 8 is poised to bring forth a new era of competition and innovation in the energy sector. Vedanta’s subsidiary, which holds a 70% stake in the RJ-ON-90/1 block, has worked to develop the Raageshwari gas terminal to facilitate the processing and delivery of natural gas produced from the block. This terminal is interconnected via the Barmer-Pali pipeline operated by GSPL India Gasnet Limited.
Vedanta’s strategic decision to seek competitive bids from interested parties aligns with the ‘Natural Gas Marketing Reforms’ notification released by the Ministry of Petroleum and Natural Gas in October 2020. The subsequent detailed guidelines issued in December of the same year paved the way for the “Discovery of Market Price for Domestically Produced Natural Gas through e-Bidding.” The transparent process introduced by Vedanta’s tender seeks to optimize value extraction from the gas field while catering to the evolving demands of the energy market.
