IndianOil top bidder for Reliance’s KG gas for 2nd auction in a row

Indian Petroleum Corporation (IOC), the largest oil company in the country, has taken half of the natural gas that Reliance Industries Ltd. and its partner bp from the United Kingdom offered in the last auction the fuel used to generate energy, produce fertilizers, converted into CNG and used for cooking. IOC obtained 2.5 million standard cubic meters per day of the 5 mmscmd of gas auctioned last month, sources with knowledge of the matter said.

The oil refining and marketing company, which was the top bidder including in Reliance-bp's earlier auction for gas from Reliance-bp's eastern offshore block KG-D6, offered the volumes on behalf of seven fertilizer plants.

City gas companies, including GAIL gas ltd, Mahanagar Gas Ltd.Torrent Gas, Indian Oil Adani Gas Ltd.and Haryana City Gas secured a total of 0.5 mmscmd of gas to be converted into CNG to be sold to cars and channeled to household kitchens for cooking.

GAIL state gas company and refinery Hindustan Petroleum Corporation Ltd. (HPLC) got 0.6 mmscmd each, while Gujarat State Petroleum Corp (GSPC) walked away with 0.5 mmscmd and Shell another 0.2 mmscmd, they said.

Reliance-bp, which reversed a downward trend in domestic gas production two years ago by bringing its second wave of discoveries into the deepwater Bay of Bengal block KG-D6, is now ramping up the supplies.

A cleaner-burning and efficient fuel, natural gas is seen as a transition fuel for nations to move from polluting hydrocarbons to zero-emission fuels. Reliance-bp in the last tender offered 5 mmscmd of gas for a period of 3 years from June 1. Bidders were asked to quote a 'v' variable above the JKM price, spot market reference point for liquefied natural gas (LNG) delivered to Japan and South Korea. The sources said the electronic auction began on May 19 and ended on May 23, the longest duration of an auction since operators were allowed to sell fuel through open bidding.

At the end of the electronic auction, the gas was sold to 16 buyers at a price of JKM + (plus) USD 0.75 per mmBtu for 3 years, they added to the current JKM price of USD 9.2 per mmBtu, the price for KG -D6 gasoline is around USD 10.

This rate is compared to the cap price of USD 6.5 per mmBtu that Oil and Natural Gas Corporation (ONGC), the state giant, fuel gas produced from legacy or former fields.

Reliance-bp had sold 6 mmscmd of gas in April. IOC had taken almost half of the 6 mmscmd of gas sold in an electronic auction on April 12, while GAIL bought 0.7 mmscmd, Adani-Total Gas Ltd 0.4 mmscmd, Shell 0.5 mmscmd, GSPC 0 .25 mmscmd and IGS another 0.5 mmscmd.

In that auction as well, the final bid price was a $0.75 per mmBtu premium over JKM's price (JKM + $0.75 per mmBtu), the sources said.

But bidders will only have to pay the ceiling or the maximum price that the government sets every two years for gas produced in difficult areas, such as deep water and high temperature and high pressure (HTHP).

The ceiling price from April to September is USD 12.12 per mmBtu.

The gas produced from wells drilled under the seabed is used to produce electricity, make fertilizer or is converted into CNG to power cars or piped into domestic kitchens for cooking, as well as in industries.

In May last year, Reliance-bp had auctioned 5.5 mmscmd of incremental gas from new discoveries in the KG-D6 block, comparing it to the same JKM gas marker.

The discovered price in that electronic auction was discounted by USD 0.06 from the JKM (Japan-Korean marker) LNG price.

Prior to that, the duo had sold 7.5 mmscmd of gas at a discount of $0.18 per mmBtu to JKM.

Dependence has so far made 19 gas discoveries in block KG-D6. Of these, D-1 and D-3, the largest of the batch, were put into production in April 2009, and MA, the only oil field in the block, was put into production in September 2008.

While the MA field ceased production in September 2018, the production of D-1 and D-3 ceased in February 2020.

Since then, Reliance-bp is investing USD 5 billion to put three deepwater gas projects in block KG-D6 (R-Cluster, Satellites Cluster and MJ) into production, which together are expected to meet around 15 percent of India's gas. demand by 2023.

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