Reliance Industries Ltd has sold natural gas produced from a coalfield in Madhya Pradesh for over $23 to firms, including GAIL, GSPC and Shell, but its price discovery was beaten by smaller explorer HOEC, which sold half of its sales volume for over $25.
Reliance sold 0.65 million standard cubic metres per day (mmscmd) of gas from its coal-bed methane (CBM) block SP-(West)-CBM-2001/1 at a $8.28 per million British thermal unit premium over prevailing Brent crude oil prices, two sources with direct knowledge of the matter said.
The firm had sought bids at a premium over the base of 13.2 per cent of Brent crude oil prices.
At the current Brent crude oil price of $115 per barrel, the base comes to $15.18 per mmBtu and adding $8.28 premium bid by state-owned gas utility GAIL and other firms, the final price comes to $23.46 per mmBtu.
This rate compares to $2.9 that state-owned producer ONGC and Oil India Ltd get gas from fields given to them on a nomination basis. A higher capped rate of $6.13 is available for discoveries made in difficult areas, such as the deep sea.
However, no cap is imposed on gas from CBM blocks or areas like B-80 in Mumbai Offshore that was bid out under-discovered field round.
Reliance gets $6.13 for gas from its KG basin fields.
Hindustan Oil Exploration Company (HOEC) sold 0.3 mmscmd of gas to Gujarat State Petroleum Corp (GSPC) at a price of around 22 per cent of Brent, the sources said.
At the current Brent price, this translates into a price of $25.3.
As per the government mandate, gas producers are obligated to tender the available quantities, seeking bids from users on a formula.
The sources said e-auctions of both Reliance and HOEC intense competition with participation from multiple companies, including GAIL, GSPC, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), Shell, and Adani-Total Gas Ltd.
In the Reliance tender, GAIL and GSPC picked up 0.28 mmscmd each while Shell took 0.04 mmscmd. City gas distributor Think Gas took 0.02 mmscmd and an affiliate of Reliance bought a similar volume.
The sources said GSPC bought the entire 0.3 mmscmd of the gas bid out by HOEC.
The prices Reliance and HOEC received reflect the buoyancy in international energy markets while geopolitical crisis and spurt in energy demand have sent both oil and gas prices to a multi-year high.
For users, buying gas from a domestic source is cheaper when compared to the alternative to import. Price agency S&P Global Commodity Insights' Japan-Korea-Marker (JKM), which is widely used as a benchmark for liquefied natural gas (LNG) in spot or current market in the region, climbed to $59.672 per mmBtu last week.
The rate Reliance got is higher than the price at which the company had sold the same gas last year.
Last year, Reliance had sold three-fourths of the gas from the same CBM block to an affiliate of the company. India Gas Solutions Private Limited, a 50: 50 joint venture of Reliance and UK's bp, bought 0.62 mmscmd out of 0.82 mmscmd gas bid out in that auction.
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 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 $10.58 per mmBtu at current oil prices.
Reliance started commercial gas production from the CBM blocks in March 2017 and reached a peak of 1.10 mmscmd in 2018. CBM is natural gas stored or absorbed in coal seams and contains 90-95 per cent methane.