Reliance Industries Ltd and its partner BP plc of the UK have reverted to oil indexation for pricing the gas they produce from India’s largest private-sector
operated field in the KG basin as they look to tap into the upside from the buoyant oil market.
Reliance and BP in a tender have sought bids from buyers for 4 million standard cubic meters per day of gas from the KG-D6 block in the Bay of Bengal starting December 1, 2023.
They want users to quote a price indexed to Brent crude oil price, according to the tender document. The firm had in recent previous auctions, the last being in May this year, sold gas indexed to the international gas benchmark, JKM.
“The consortium issued a notice inviting offer dated October 27, 2023, and invited offers from interested companies to offtake gas from the gas fields on the price basis specified in Request for Proposal (RFP), commencing from December 1, 2023, at the delivery point located in Gadimoga, Andhra Pradesh,” the tender document said.
It asked bidders to quote a premium ‘v’ they are willing to pay over and above 12.67 per cent of the dated Brent crude oil price. The starting bid price for ‘v’ has been kept at $1.08 per million British thermal units.
At the current Brent crude oil price, the starting price translates into a gas price of $11.8 per mmBtu (12.67 per cent of $85 plus $1.08). The maximum bid value against ‘v’ shall be $4.5 per mmBtu, the tender said.
The sale price however shall 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 six months starting October 1 is $9.96 per mmBtu. This means that even if Reliance-BP finds buyers for 4 mmscmd of gas at $11.8 per mmBtu, the users will have to pay only $9.96 till March 31.
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. The e-auction for 4 mmscmd of KG-D6 gas is planned for November 21, the tender document said.
In the last auction in May, Indian Oil Corporation (IOC), the nation’s largest oil firm, had walked away with half of the 5 mmscmd of gas Reliance-BP had offered.
Reliance-BP in that auction had asked users to quote a variable ‘v’ over and above the JKM price, the spot market benchmark for LNG delivered to Japan and South Korea.
Gas was sold to 16 buyers at a price of JKM + (plus) $0.75 per mmBtu for 3 years.