KG-D6: Reliance returns to oil indexation for KG gas, seeks buyers for 4 million standard cubic meters per day

NEW DELHI: Reliance Industries Ltd and its partner bp plc of UK have reverted to oil indexation for pricing the gas they produce from India’s largest private-sector operated field in 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 KG-D6 block in 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 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 dated Brent crude oil price. The starting bid price for ‘v’ has been kept at USD 1.08 per million British thermal unit.
At current Brent crude oil price, the starting price translates into a gas price of USD 11.8 per mmBtu (12.67 per cent of USD 85 plus USD 1.08). The maximum bid value against ‘v’ shall be USD 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 a six month period starting October 1 is USD 9.96 per mmBtu. This means that even if Reliance-bp finds buyers for 4 mmscmd of gas at USD 11.8 per mmBtu, the users will have to pay only USD 9.96 till March 31, 2024.
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 on November 21, the tender document said.
Natural gas, a cleaner-burning, efficient fuel, is being seen as a transition fuel for nations to move from polluting hydrocarbons to zero-emission fuels. 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 liquefied natural gas (LNG) delivered to Japan and South Korea.
At the end of the e-auction, gas was sold to 16 buyers at a price of JKM + (plus) USD 0.75 per mmBtu for 3 years. At the prevailing JKM price of USD 9.2 per mmBtu, the price for KG-D6 gas came to around USD 10.
Reliance-bp had in April 2023 sold 6 mmscmd of gas. In that auction too, the final bid price came at USD 0.75 per mmBtu premium over the JKM price (JKM + USD 0.75 per mmBtu).
The duo had a couple of years back used Dated Brent as the benchmark to sell KG-D6 gas before switching to JKM when international gas prices soared starting 2021.
Gas produced from wells drilled below the seabed is used to produce electricity, make fertiliser, or turned into CNG for powering automobiles or piped to household kitchens for cooking as well as in industries. Reliance-bp produces about 29-30 mmscmd of gas from three sets of gas fields in the KG-D6 block.