GAIL, IGL walk away with Reliance gas; bid at USD 11 per million BTU

New Delhi: State-owned gas utility GAIL (India) Ltd and the nation's largest city gas operator Indraprastha Gas Ltd have walked away with most of the coal seam gas that Reliance Industries Ltd auctioned, sources said.

Reliance earlier this month conducted an e-auction for sale of 0.90 million standard cubic metres per day of gas it will produce from coal-bed methane (CBM) block SP (West)-CBM-2001/1 in Madhya Pradesh.

Users have been asked to quote a premium they are willing to pay over and above 12.67 per cent of the dated Brent crude oil price, according to a tender floated by the company.

The auction saw GAIL and IGL walk away with most of the gas, offering as much as USD 11 per million British thermal unit price, two sources with direct knowledge of the matter said.

GAIL won 0.63 mmscmd of gas in the auction while IGL picked up 0.14 mmscmd, they said.

In the auction, the gas price was set as higher of 12.67 per cent of dated Brent plus premium 'V'; or the government-declared monthly price for conventional gas. The government-mandated price for January is USD 7.85 per mmBtu.

While Reliance had set the starting bid price of 'V' at USD 0.50 per mmBtu, bidders quoted USD 0.78 to walk away with the coal bed gas, they said.

At the current Brent crude oil price of USD 80 per barrel, the gas price comes to USD 11 per mmBtu (12.67 per cent of USD 80 is USD 10.1 per mmBtu. Added to this is the bid value of 'V' of USD 0.78, which takes the gas price to USD 10.9 per mmBtu).

The e-auction happened on February 2.

The gas supply in the contract is for 1 to 2 years beginning April 1.

The pricing Reliance is seeking is modified from the March 2022 auction. In that auction, it had sought bids at a premium over the base of 13.2 per cent of Brent crude oil price.

In March 2022, Reliance sold 0.65 mmscmd of CBM at a USD 8.28 per mmBtu premium over the prevailing Brent crude oil price. Brent oil was trading above USD 115 per barrel at that time. It has now slipped to USD 78 a barrel.

Last month, state-owned Oil and Natural Gas Corporation (ONGC) sought a premium over the government-dictated gas price of USD 7.82 per mmBtu for the gas it plans to produce from a CBM block in Jharkhand.

ONGC sought bids from users for the sale of 0.05 mmscmd of gas from the North Karanpura coal-bed methane (CBM) block in Jharkhand for three years. Users were asked to quote a premium they are willing to pay over and above the monthly domestic natural gas price that the oil ministry's Petroleum Planning and Analysis Cell (PPAC) notifies, the tender document showed.

PPAC every month declares a price for the majority of domestically produced natural gas. This price is 10 per cent of the monthly average of the basket of crude oil that India imports. For the month of February, this price comes to USD 7.85 per million British thermal units.

This price in the ONGC tender was marked as a reserve gas price.

While the government sets prices for two-thirds of the gas produced in the country, CBM gas enjoys pricing freedom where sellers are allowed to discover the market rate.

Gas extracted from below ground is used to produce electricity, make fertilisers or turned into CNG for sale to automobiles and piped to household kitchens for cooking purposes.