Billionaire Mukesh Ambani's Reliance Industries Ltd and state-owned Oil and Natural Gas Corporation (ONGC) are individually auctioning natural gas extracted from coal seams at prices linked to Brent crude oil price. Reliance is seeking a minimum USD 12.75 per million British thermal unit for coal bed methane (CBM) from a block in Shahdol district of Madhya Pradesh, while ONGC wants USD 9.35 for the same kind of fuel from North Karanpura in Jharkhand, as per tender documents.
Reliance has sought bids for sale of 0.65 million standard cubic meters per day from CBM block SP(West)-CBM-2001/1 for one year beginning April 1, 2023, the firm's tender document showed.
It asked bidders to quote a variable 'v' as a percentage of dated Brent crude oil price.
Starting bid price has been kept as 15 per cent of Brent ('v' = 15 per cent). At the current Brent price of USD 85 per barrel, this translates into a price of USD 12.75 per mmBtu. e-bidding will be happening on February 24.
ONGC has provided 0.015 mmscmd of gas from North Karanpura (NK) block in Jharkhand for 3 years. It asked bidders to quote a premium 'p' as a percentage of Brent price.
The reserve or bid start price has been kept at 11 per cent of Dated Brent price (USD 9.35 per mmBtu at Brent oil price of USD 85 per barrel).
Price of gas "shall be higher of the reserve gas price plus quoted premium (p) or floor price plus quoted premium (p)," ONGC stated.
The floor price will be USD 1 per mmBtu higher than the domestic gas price (which currently is USD 8.57 per mmBtu).
The e-auction of ONGC gas will take place on March 2, it said.
CBM is an unconventional form of natural gas found in coal deposits or coal seams. Similar to natural gas, it can be used to produce electricity and as feedstock for fertilisers, industrial uses such as in cement production, rolling mills, steel plants, and for methanol production. It can also be compressed into CNG for use as fuel in automobiles or piped to household kitchens for cooking.
While the government every six months fixes the price of natural gas produced from conventional fields, the pricing of gas from coal seams, called CBM, is free or market-determined.
The minimum price ONGC is aiming in the latest tender is less than what it had sought for CBM from a Bokaro block in Jharkhand last year. In June 2022, ONGC invited bids for the sale of 0.20 mmscmd at a reserve or floor price of 14 per cent of the Dated Brent crude oil price plus USD 1 per million British thermal unit, the sale tender had shown.
Bidders will have to quote a premium they are willing to offer over that reserve price.
The floor price was the government-mandated price for domestic natural gas plus a USD 1 per mmBtu mark-up.
The "Contract Gas price shall be the higher of the 14 per cent of Dated Brent Price plus USD 1 per mmBtu plus 'P' (the biddable parameter); or the floor price," it had said.
At the present Brent crude oil price of USD 85 per barrel, the reserve gas price came to USD 12.9 per mmBtu in that tender.
In March last year, Reliance sold CBM gas from the Madhya Pradesh block at a big premium to firms, including GAIL, GSPC and Shell.
Reliance had sold 0.65 mmscmd of gas from block SP-(West)-CBM-2001/1 at a USD 8.28 premium over prevailing Brent crude oil prices. The company had sought bids at a premium over the base of 13.2 per cent of Brent crude oil prices.
At the then Brent crude oil price of USD 115 per barrel, the base came to USD 15.18 per mmBtu and adding USD 8.28 premium bid by state-owned gas utility GAIL and other companies, the final price was USD 23.46 per mmBtu.
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