With a Bid of USD 11 per Million BTU, GAIL and IGL Walk Away from Reliance Gas

The majority of the coal seam gas that Reliance Industries Ltd auctioned off has been taken by state-owned gas utility GAIL (India) Ltd and the country’s biggest city gas operator, Indraprastha Gas Ltd, according to sources. Earlier this month, Reliance held an online auction to sell the 0.90 million standard cubic metres of gas per day that it will produce from Madhya Pradesh’s coal-bed methane (CBM) block SP (West)-CBM-2001/1.

According to a tender that the corporation floated, users have been requested to quote a premium that they are willing to pay over and above 12.67 percent of the dated Brent crude oil price.

GAIL and IGL won the majority of the gas during the auction, bidding as much as USD 11 per million British thermal units, according to two people with firsthand knowledge of the situation.

According to them, GAIL took home 0.63 mmscmd of gas from the sale, while IGL took home 0.14 mmscmd.

The gas price at auction was determined by taking the higher of the monthly government-declared price for conventional gas, or 12.67 percent of dated Brent + premium ‘V’. For January, the price set by the government is USD 7.85 per mmBtu.

Although Reliance had set the initial bid price for ‘V’ at USD 0.50 per mmBtu, they reported that bidders offered USD 0.78 to take possession of the coal bed methane.

Gas costs USD 11 per mmBtu at the current price of USD 80 per barrel for Brent crude oil (12.67 percent of USD 80 or USD 10.1 per mmBtu). In addition, the bid value of ‘V’ is USD 0.78, bringing the price of gas to USD 10.9 per mmBtu.

The date of the e-auction was February 2.

The contract for gas supply starts on April 1 and lasts for one to two years.

Reliance is requesting a different price than what was offered in the March 2022 auction. It had sought bids at a premium over the base of 13.2% of the price of Brent crude oil in that auction.

Reliance sold 0.65 mmscmd of CBM in March 2022 for USD 8.28 per mmBtu, more than the going rate for Brent crude oil. At the time, Brent oil was trading for more than USD 115 a barrel. It is currently down to USD 78 per barrel.

For the gas it intends to generate from a CBM block in Jharkhand, the state-owned Oil and Natural Gas Corporation (ONGC) requested a premium last month over the government-mandated gas price of USD 7.82 per mmBtu.

For a three-year period, ONGC invited bids from users to sell 0.05 mmscmd of gas from the North Karanpura coal-bed methane (CBM) block in Jharkhand. According to the tender document, users were requested to provide a premium that they are willing to pay over and beyond the monthly domestic natural gas price that is announced by the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry.

For the majority of natural gas generated in the country, PPAC releases a price each month. Ten percent of India’s monthly average of the basket of crude oil imports is represented by this price. This price is USD 7.85 per million British thermal units for the month of February.

This price was designated as a reserve gas price in the ONGc procurement.

For two thirds of the gas produced in the nation, the government sets prices; however, CBM gas has pricing flexibility, allowing sellers to determine the market rate.

Underground gas is harvested and utilised to generate electricity, fertiliser, or to create compressed natural gas (CNG), which is sold to automakers and piped into homes for cooking.