Intense bidding for KG-D6 gas in e-auction on DGH-approved platform

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Reliance Industries Ltd and its partner BP Plc of the UK, had offered 5.5 million standard cubic meters per day of additional gas in the auction.

Many as 14 users across sectors slugged it on a third-party electronic platform for seven-and-half hours to secure natural gas supplies from the eastern offshore KG-D6 block before the oil-to-chemical (O2C) unit of Reliance Industries Ltd bagged most of the collections, sources said.

Reliance Industries Ltd and its partner BP Plc of the UK, who are bringing a second set of gas discoveries in their Bay of Bengal KG-D6 block, had offered 5.5 million standard cubic meters per day of additional gas in the auction for a flexible tenure of between 3 to 5 years.

Gas users companies like Indian Oil Corporation (IOC), Reliance O2C, GAIL Gas, Adani Total Gas Ltd, Torrent Gas, Torrent Power, and gas trading companies like GAIL, Shell, and IGS were locked in the intense bidding war on the e-auction that happened on May 5, sources in the Reliance-BP consortium said.

At the end of the intense bidding war, Reliance O2C walked away with three mmscmd of supplies, offering better prices than competitors, they said.

India Gas Solutions (IGS) – a gas sourcing and marketing joint venture of Reliance and BP – bagged another one mmscmd, while IOC got a similar volume.

Adani Gas picked the remaining volume by (0.15 mmscmd). IRM Energy (0.10 mmscmd). GAIL (30,000 cubic meters per day) and Torrent Gas (20,000 cubic meters per day).

This is the third auction that Reliance-BP conducted on an independent third-party platform approved by the Directorate General of Hydrocarbons (DGH). The auction also used the online web-based electronic bidding platform of CRISIL Risk and Infrastructure Solutions Ltd (CRIS) for e-auction in February this year and in 2019.

In the three auctions, Reliance-BP has sold around 18 mmscmd of domestic gas from new fields in the KG-D6 block, which would help substantially reduce reliance on imported LNG, the sources said.

In the May 5 auction, Reliance-BP had asked bidders to quote a price linked to Platts JKM (Japan Korea marker), the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes.

JKM minus placed the lowest bid of USD 0.3 per million British thermal units.

The highest acceptable bid would be JKM plus USD 2.01 per mmBtu.

The bidding, they said, started with a USD 0.45 discount to the JKM price. Intense competition led to the discovery of a price of JKM minus USD 0.6 per mmBtu (discount of USD 0.6 to ruling JKM price).

The intense competition indicates a preference for domestic gas vis a vis LNG for Indian consumers.

At current prices, the discovered price translates into a price of about USD 9 per mmBtu. But the buyers will be required to pay only the cap or ceiling price that the government has set for such fields.

The government can sell natural gas from challenging fields like deepsea at a cap or ceiling rate. This cap for April 1, 2021, to September 30, 2021, is USD 3.62 per mmBtu.

Even though the government caps the gas prices for April-September 2021 notified a ceiling price of USD 3.62 per mmBtu.

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