Reliance Industries and partner BP sought bids for sale of KG-D6 gas at rates linked to JKM

Industry Outlook Team | Saturday, 31 December 2022

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Reliance Industries and partner BP have sought bids for 6 million metric standard cubic meters a day of natural gas produced from their KG D6 field off the eastern coast for the next five years.

The auction is planned and supplies will start from February, according to the tender document.

Vedanta has also slated an auction on January 18 to sell 3 mmscmd of gas from its Rajasthan field and will start supplying from April. These auctions will enhance the supply of domestic gas, which have been traditionally cheaper than imports.

The consortium of Reliance and BP has linked price bids to JKM, the spot market benchmark for

LNG delivered to Japan and South Korea. Bidders are required to quote a number on top of JKM price, which can vary between negative $0.30 per mmBtu and $5.01 per mmBtu. So at the current average JKM rate of $28 per mmBtu, the minimum and maximum price bids would be $27.70 and $33.01 per mmBtu, respectively.

The actual realisation for the consortium of Reliance and BP may be much lower as the price for KG D6 gas is subject to a ceiling, which is currently at $12.46 per mmBtu and has been much lower in the past. Realisation, however, can rise if the ceiling rises or is abandoned in future.

Each bidder must be engaged in the business that involves either the consumption or the sale and purchase of natural gas, according to the RIL-BP tender document. Each volume bid will be for five years.

The volume one is eligible to bid for will depend on the bidder’s net worth as well as the amount of gas it procured in 2021-22. For a bidder to bid 3 mmscmd gas, it should have a minimum net worth of Rs 3,500 crore and minimum gas procurement of 320 mmscm in 2021-22. For 0.1 mmscmd, the net worth should be Rs 100 crore and the minimum volume procured in 2021-22 should be 9 mmscm.

The global gas market has been experiencing unprecedented turmoil for more than a year, keeping prices elevated and extremely volatile. This has cut India’s import and consumption of gas.