RIL outbids GSPC, others to buy all its own CBM gas
Reliance Industries has outbid all its rivals, including stateowned GAIL India, to buy the entire volume of natural gas from its own coal seam blocks until March 2021. In May RIL had become the first buyer of gas it produced from its own coal bed methane (CBM) block in Madhya Pradesh after agreeing to pay the highest price of $ 4.23 per million British thermal unit (mmbtu) for May-june. In the following quarter, it paid an additional 6 per cent at $4.50 per mmbtu to take all of the CBM gas from the Sohagpur East and Sohagpur West blocks. In the latest bidding for up to 3 million standard cubic metres per day (mmscmd) of gas to be produced between October 2017 and March 2021, RIL quoted $6.26 per mmbtu at the current oil price, according to bid documents.
Piramal Glass was the second-highest bidder quoting $4.97 per mmbtu, followed by Gujarat State Petroleum Corporation (GPSC) putting in a bid of $4.9. GAIL bid for 1.5 mmscmd of gas at a price of $4.63 per mmbtu while its subsidiary GAIL Gas sought an equivalent quantity at $4.11 per mmbtu price, the bid document showed. RIL plans to use the gas at its petrochemical plants in Gujarat and Maharashtra, which run mostly on expensive imported fuel.
Output would be ramped up to 2 mmscmd by March 2018 while the peak production of 3 mmscmd would be touched in the third quarter of 2018. The rate of CBM gas is 150 per cent more than the government mandated $2.48 per mmbtu price of the conventional natural gas produced by firms such as ONGC and RIL from the eastern offshore KG-D6 block.
The bidding formula in all the three bid rounds for CBM gas this year has been the same and the process has been conducted by Crisil Risk and Infrastructure Solutions, a unit of Crisil. This formula is almost similar to the one RIL had run in 2012 to discover a price for CBM gas. Back in 2012, it had sought bids for 3.5 mmscmd of coal gas at the benchmarked rate of 12.67 per cent of JCC, or Japan Customs-cleared Crude, plus $0.26 per mmbtu.
The formula was the same at which Petronet LNG, a joint venture of public oil companies, whose chairman is the oil secretary, used to buy long-term liquefied natural gas (LNG) from Qatar. At $100 per barrel oil price prevalent that year, CBM from RIL'S Madhya Pradesh block was to cost $12.93 per mmbtu. At $58 a barrel rate currently, it would have cost $7.3.
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. In the current price discovery, RIL 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, according to the bid document.
RIL’S bid deducted $1.836 per mmbtu and Piramal Glass $3.156. GAIL quoted a deduction of $3.495. RIL has invested about $ 500 million in CBM and in laying a 300-km pipeline from Sohagpur to Phulpur in Uttar Pradesh to connect it to the national gas grid.