IOC corners more than a third of D6 gas in latest Reliance auction

New Delhi: State-owned Indian Oil Corporation (IOC) has cornered more than a third of natural gas that Reliance Industries Ltd and its partner bp of the UK offered in the latest auction of the KG-D6 gas, sources said.

IOC got 1.45 million standard cubic meters per day out of the 4 mmscmd of gas auctioned last week. The oil refining and marketing company, which was the top bidder even in the previous two auctions of gas from the eastern offshore KG-D6 block of Reliance-bp, bid the volumes as an aggregator on behalf of fertilizer plants.

City gas companies including Torrent Gas and Gujarat Gas secured a total of 2.21 mmscmd of gas for turning into CNG for sale to automobiles and piped to household kitchens for cooking purposes, two sources with direct knowledge of the matter said.

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 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 per cent of dated Brent crude oil price. The starting bid price for 'v' has been kept at USD 1.08 per million British thermal unit.

Sources said the value of 'v' in the auction came to USD 1.98 per mmBtu.

At the current Brent crude oil price of USD 80 per barrel, the gas price comes to USD 12.11 per mmBtu (USD 10.136 per mmBtu plus 'v' of USD 1.98).

But 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 USD 9.96 per mmBtu. This means that even if Reliance-bp finds buyers for 4 mmscmd of gas are willing to pay USD 12.11 per mmBtu, the users will have to pay only USD 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) USD 0.75 per mmBtu for 3 years. At the prevailing JKM price of USD 9.2 per mmBtu, the price for KG-D6 gas came to around USD 10.

Reliance-bp had in April 2023 sold 6 mmscmd of gas. In that auction too, the final bid price came at USD 0.75 per mmBtu premium over the JKM price (JKM + USD 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 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.