The consortium of Reliance Industries and BP is auctioning natural gas from its KG fields at a crude-linked floor price, which at current rate, exceeds the government-set ceiling. This would ensure that winners in the auction pay the ceiling price for gas.
The consortium has offered to sell 4 million metric standard cubic meters a day (mmscmd) of natural gas in an e-auction slated for November 21, according to the bidding document. The supplies would start from December 1.
The gas price in the auction will be determined by a formula comprising a premium over 12.67% of the Dated Brent. Bidders are required to quote the premium, which must vary between USD 1.08 and USD 4.5 per mmbtu. At the current crude price of USD 90 per barrel, the floor and ceiling prices in the auction would be USD 12.4 and USD 15.9 per mmbtu, respectively.
The floor price of USD 12.4 per mmbtu exceeds the government-set ceiling price of USD 9.96, which is applicable to all natural gas produced from deep sea fields like the RIL-BP’s KG block. The government revises the ceiling price for deep sea gas every six months and the current price is valid until March 2024. If crude rate falls in future, the prices gas buyer pay for RIL-BP gas may go below the government-set ceiling. A decline in price ceiling in future revisions would also cut buyers’ costs.
Natural gas prices have been very high in the global markets in the past two years, pushing up realisation for domestic producers like Reliance, BP and ONGC. For a year, domestic deep-sea gas have often sold at the government-set ceiling since the imported gas are far more expensive. Japan Korea Marker, the North Asian benchmark for spot liquefied natural gas, is currently around USD 18 per mmbtu.
In the RIL-BP auction, a bidder will have to quote the price, volume and tenure. The minimum volume a participant can bid for is 10,000 standard cubic meters a day. The tenure of purchase could be 3, 4 or 5 years.
