Rely on BP to get a maximum price of $ 4.06 from the government for new gas from KG-D6

Reliance Industries and its partner BP are only getting $ 4.06 per unit for the new gas they started producing from the eastern offshore KG-D6 field, despite seeing a higher rate at an open market auction .

Reliance-BP auctioned the first R-Series gas in November 2019 at an offerable percentage of the Brent crude oil price.

If Brent crude stays in the current $ 50 to $ 51 a barrel range, the price will be around $ 4.2 to $ 4.4 per million British thermal unit, two sources said among R-series gas buyers.

Although operators are free to price, they cannot sell gas at a price higher than the limit announced by the government every six months. The cap for six months ending March 31, 2021 is USD 4.06 per mmBtu, so Reliance-BP would only receive this amount for the remainder of the current fiscal year.

Essar Steel, the Adani Group and the state-owned GAIL bought most of the original 5 million standard cubic meters of gas per day to be produced from the R series in the KG-D6 block in November 2019, with an offer between 8.5 and 8.6 percent of the dated Brent price.

Emails to Reliance and BP for comments went unanswered.

The rate found at the November 2019 auction at the lower end of the Brent price range is the same as that received by Reliance in the first five years of production from Dhirubhai-1 and 3 and MA fields in the KG-D6 block Has. These fields stopped producing a few months ago.

Reliance received USD 4.205 per mmBtu for gas from fields D1 and D3 and MA in April 2019 and March 2014. It would have got double that rate if a new formula proposed by the Rangarajan Committee had been approved, but the new BJP administration would have scrapped it and brought a new formula for pricing gas at prices that are in countries with export surpluses like the US and Russia prevail.

The exchange rate in 2014 was USD 5.05 and is currently USD 1.79 per mmBtu.

According to sources, in 2016 the government allowed a higher price for the production of new gas from a difficult project like the deep-sea field. The R-cluster field fell within this definition and the gas obtained from it could be freely sold but was subject to the price cap.

The upper price limit for the period October 2020 to March 2021 is USD 4.06 per mmBtu, after USD 5.61 in the previous half-year.

Reliance and BP announced on November 18 that they would begin producing natural gas from Asia’s deepest gas project, the R-Cluster or R-Series.

The two companies are investing $ 5 billion in the production of three deepwater gas projects in Block KG D6 R-Cluster, Satellite Cluster and MJ, which together are expected to meet around 15 percent of India’s gas needs by 2023.

R-Cluster will have a peak power of 12.9 mmscmd, while satellites, whose production is scheduled to start in the third quarter of the calendar year 2021, would produce a maximum of 7 mmscmd. MJ field will start production in the third quarter of 2022 and have a peak output of 12 mmscmd.

According to sources, Reliance had auctioned the first 5 mmscmd of gas from the more recent discoveries in the KG-D6 block in November 2019 by asking bidders to provide a price (expressed as a percentage of the dated Brent crude price), delivery period and volume of Gas required.

A minimum or minimum quota of 8.4 percent of the dated Brent price was set, which meant that bidders had to quote 8.4 percent or a higher percentage for securing gas supplies.

Dated with Brent denotes the average of the published Brent prices for three calendar months immediately prior to the respective contract month in which the gas deliveries are made.

Essar Steel won 2.25 mmscmd in the country’s first transparent and dynamic forward auction, which lasted about five and a half hours on November 15, 2019.

Gujarat State Petroleum Corp (GSPC) bought 1.2 mmscmd while Adani Group and Mahanagar Gas Ltd bought 0.3 mmscmd. GAIL bought 0.3mmscmd gas on behalf of fertilizer companies.

Hindustan Petroleum Corp Ltd (HPCL) bought 0.35mm² and 0.10mm² went to Gujarat State Fertilizers & Chemicals Ltd. (GSFC) / Gujarat Narmada Valley Fertilizers & Chemicals Ltd. (GNFC).

A total of 15 customers from various industries such as steel, petrochemicals, town gas, glass and ceramics have included gas in the tender.

Reliance has made 19 gas discoveries in the KG-D6 block to date. Of these, D-1 and D-3 – the largest of the lots – went into production in April 2009, and MA, the only oil field in the block, went into production in September 2008.

While the MA field stopped production last year, production of the D-1 and D-3 was stopped in February.

Other discoveries were either abandoned or taken away by the government for failing to meet production start deadlines. Reliance is the operator of the block with a 66.6 percent stake, while BP holds the remaining stake.