Reliance Industries will sell the natural gas it produces from coal seams in Madhya Pradesh to its own units in Gujarat and Maharashtra at USD 4.23 per million British thermal units. After last month’s government decision to give coal bed methane (CBM) producers freedom to discover market price, RIL invited bids from users of gas. Five companies including RIL participated in the bidding process, according to the bid evaluation report the company posted on its website. The bidders besides RIL were Deepak Fertilizer & Petrochemicals Corp Ltd, state-owned gas utility GAIL India Ltd and GMR’s Rajahmundry and Vemagiri power plants.
While RIL bid USD 4.23 per mmBtu price for using the gas at its petrochemical plants at Patalganga and Nagothane in Maharashtra and Jamnagar in Gujarat, Deepak Fertilizer was a close second bidding USD 4.159. GAIL put in a bid of USD 4.009 while GMR quoted USD 2.48 per mmBtu for both the plants.
The price discovered is almost the same as USD 4.205 per mmBtu price fixed for RIL’s eastern offshore KG-D6 gas field for first five years of production beginning April 2009. A sixth bid from Asahi India Glass Ltd was rejected as it quoted for 0.51 million standard cubic meters per day (mmscmd) which “exceeds the available CBM gas volume for sale of 0.40 mmscd,” the evaluation report of its CBM gas bids said.
The bid document stipulates that “the volume quoted by the bidder shall not be lesser than 0.05 mmscmd or shall not exceed 0.40 mmscmd (approximate volume expected to be available for sale),” the report said, adding that in view of this the bid by Asahi was not considered. The six bids put in a total requirement of 2.16 mmscmd as against the available volume of 0.40 mmscmd. Through the April 13 notification, the oil ministry had stated that a CBM producer has to call for open bids for sale of coal gas and seek price quotes to discover the market price.
The process prescribed was the same as the one RIL had run in 2012 to discover a price for CBM gas it is to produce in Madhya Pradesh. Back in 2012, it had sought bids for 3.5 mmscmd (as against 0.40 mmscmd put on offer this time) of coal gas from its Sohagpur CBM block in Madhya Pradesh at a benchmarked rate at 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus USD 0.26 per million British thermal unit.
The formula was the same at which Petronet LNG, a joint venture of public sector oil companies, whose chairman is the oil secretary, used to buy long-term liquefied natural gas (LNG) from Qatar. At USD 100 per barrel oil price prevalent that year, CBM from RIL’s Madhya Pradesh block was to cost USD 12.93 per mmBtu. At USD 55 a barrel rate currently, it would cost USD 7.2.
That formula was, however, rejected by the ministry even though 59 valid bids seeking about 70 mmscmd of gas were received in the open tender.
This time, RIL sought bids in form of a deductible from Platts DES West India price of USD 7.659 per MMBtu. RIL bid deducting 3.429 per MMBtu while Deepak put in (-) 3.5 bid. GAIL quoted a deduction of 3.65 and GMR 5.179.
“In the event of market-discovered price being less than the price notified by the Petroleum Planning Analysis Cell (PPAC) under the New Domestic Natural Gas Pricing Guidelines, 2014, the royalty and production level payment (PLP) shall be paid on the basis of the latter,” the CBM pricing policy notified last month said.
The PPAC notified price of gas for April 1 to September 30 at USD 2.48 per mmBtu and the same for difficult areas is USD 5.56 per mmBtu, lower than the rate in RIL formula. “Sale of CBM to any affiliate of the contractor is permitted, in the event the contractor cannot identify any buyer following the procedure (of open bidding),” the policy said, adding that the reasons for sale to affiliates will have to be notified to the Directorate General of Hydrocarbons (DGH).