Reliance affiliate picks 3/4th of gas from own CBM block at $6 price

Reliance Industries Ltd has sold three-fourth of the gas from coal seams in Madhya Pradesh to an affiliate of the company at a price of just over $6 at current oil prices.

India Gas Solutions Private Limited, a 50: 50 joint venture of RIL and UK's bp, bought 0.62 million standard cubic meters per day out of 0.82 mmscmd gas bid out in an auction last week, three people with knowledge of the matter said.

State-owned gas utility GAIL India Ltd cornered 0.17 mmscmd while 0.03 mmscmd was picked by Reliance Gas Pipeline - the entity that transports gas from the coal-bed methane (CBM) blocks in Madhya Pradesh to consumers.

The price bid was 9.2 per cent of the prevailing rate of Brent crude oil price, which translated into a rate of over $6 per million British thermal units at current oil prices, they said.

An email sent to Reliance for comments remained unanswered.

Reliance had last month bids for 0.82 mmscmd of coal gas from the Sohagpur coal-bed methane (CBM) block for one year beginning April 1, 2021, according to a notice inviting offer (NIO).

Users were asked to quote a percentage of Brent crude oil price they will be willing to pay for the gas. Reliance initially set 9.5 per cent of Brent rate as the base or minimum price and asked bidders to "enter bids that are higher than or equal to it." It later lowered the base price to 8.7 per cent of Brent.

At the current $67 per barrel Brent crude oil price, the price of gas produced from coal seams, called CBM, comes to $6.1 per million British thermal unit (mmBtu).

"A bidder shall be required to quote the variable denoted as 'V' in percentage terms as a positive number" of the Dated Brent price, the notice said.

Gas price will be "higher of (V per cent) x Dated Brent; or PPAC Price," it said.

PPAC price refers to the rate the government fixes every six months for gas produced mostly by state-owned firms such as ONGC. That price for the six months ending March 31, 2021 is $1.79 per mmBtu.

Reliance started commercial gas production from the CBM blocks in March 2017 and reached the peak of 3 mmscmd before the end of 2018.

CBM is natural gas stored or absorbed in coal seams and contains 90-95 per cent methane.

The pricing formula notified on Wednesday is a variation over the 2017 formula when Reliance had sought bids in the form of a deductible from 12.67 per cent of prevailing Brent crude oil price plus $0.52 per mmBtu plus $0.26 per mmBtu.

In that bidding for up to 3 mmscmd of gas, Reliance had outbid rivals including state-owned GAIL (India) Ltd to buy the entire volume.

Last month, Reliance and its partner BP plc of UK bid out 7.5 mmscmd of gas from its eastern offshore KG-D6 block by pricing the fuel at JKM (Japan Korea Marker).

The JKM represents the price for spot LNG delivered in the Asian market and is now being widely used in the LNG industry as a marker for medium/ long term LNG contracts instead of traditional linkage to oil.

In that auction, bidders were asked to "quote the variable denoted as 'V' in $per million British thermal unit (mmBtu) terms".

"The gas price (in USD/mmBtu (GCV)) shall be = JKM V," the bidding notice had said adding the 'V' could not be less than $(-)0.30/mmBtu.

Reliance bought two-thirds of the volume in that auction.