NEW DELHI: Reliance Industries and its partner BP will receive only USD 4.06 per unit for the new gas they have just started to extract from the east coast KG-D6 range despite finding a higher auction open market, sources said.
Reliance-BP in November 2019 sold original gas from the R-Series range at a tender percentage of Brent crude oil price.
If Brent crude oil remained in the current range of USD 50 to 51 barrels, the price would reach USD 4.2 to 4.4 per million British thermal units, two sources at R-Series gas buyers said.
Even though operators have price freedom, they cannot sell gas at a rate higher than the cap the government imposes every six months.
The cap for six months to March 31, 2021, is USD 4.06 per mmBtu so Reliance-BP would only receive that amount for the remainder of the normal crown, they said.
State-owned Essar Steel, Adani Group and GAIL bought in November 2019 most of the average 5 million cubic meters per day of gas expected to be extracted from R-Series in the KG- block D6 by claiming between 8.5 and 8.6 percent. of Brent date price.
No emails were sent to Reliance and BP for feedback.
The rate found in the November 2019 auction at the lower end of the Brent price band is the same as the one received by Reliance in the first five years of production from the Dhirubhai-1 and 3 fields and MA in the KG-block D6.
These fields stopped being produced a few months ago.
Reliance received USD 4.205 per mmBtu for gas from the D1 and D3 and MA ranges in April 2019 and March 2014.
A new formula proposed by the Rangarajan committee would have achieved twice that level but the new BJP government abolished it and introduced a new formula for crushing gas at common levels. the remaining exporting countries such as the USA and Russia.
Rates reached USD 5.05 in 2014 and are currently at USD 1.79 per mmBtu.
Sources said that in 2016 the government approved a higher price for extracting any new gas from a difficult project such as the deep sea area.
The R-Cluster field fell within that definition and gas from it was cheap to sell but subject to the price cap.
The price cap for October 2020 to March 2021 is USD 4.06 per mmBtu, down from USD 5.61 in the previous six months.
Trust and BP on November 18 said they are starting natural gas production from Asia’s deepest gas project, R-Cluster or R-Series.
The two companies are investing 5 billion USD in the completion of three deep water gas projects in the KG D6 block ‘R-Cluster, Satellites Cluster, and MJ’ which are expected to meet about 15 percent of India’s gas demand by 2023.
R-Cluster will have a maximum output of 12.9 mmscmd while satellites, which are expected to start production from the third quarter of 2021 calendar year, would yield a maximum of 7 mmscmd.
The MJ range will start producing in the third quarter of 2022 and will have a peak output of 12 mmscmd.
Sources reported that in November 2019 Reliance auctioned off the first 5 mmscmd of gas from the latest discoveries in the KG-D6 block by asking bidders to provide a price (expressed as a percentage of Brent crude oil with date), supply time and required gas volume.
A minimum floor or quota of 8.4 percent of the Brent deadline price was set, which meant that applicants had to give up 8.4 percent or a higher percentage to get a gas supply.
Dated Brent means Brent’s published price averages for three calendar months immediately preceding the relevant contract month in which the gas supply will be made.
Essar Steel raised 2.25 mmscmd in the country’s first visible and dynamic forward auction that lasted around five and a half hours on November 15, 2019, sources said.
Gujarat State Petroleum Corp. (GSPC) bought 1.2 mmscmd while Adani Group and Mahanagar Gas Ltd bought 0.3 mmscmd, sources said, adding GAIL, working on behalf of fertilizer companies, bought 0.3 mmscmd of gas.
Hindustan Petroleum Corp. Ltd (HPCL) had purchased 0.35 mmscmd and 0.10 mmscmd went to Gujarat State Fertilizers & Chemicals Ltd (GSFC) / Gujarat Narmada Valley Fertilizers & Chemicals Ltd (GNFC), sources said.
In total, 15 customers across sectors such as steel, petrochemicals, municipal gas, glass and ceramic gas received in the offer, they said.
Reliance has so far detected 19 gas detections in the KG-D6 block.
Of these, D-1 and D-3 – the largest in the lottery – were introduced since April 2009 and MA, the only oil field in the block, was put into production in September 2008.
Although the MA range ceased to last year, production from D-1 and D-3 ceased in February.
Other results were provided or removed by the government for not meeting timelines for starting production.
The block operator’s trust is with 66.6 percent interest while BP holds what’s left.