The consortium of Mukesh Ambani’s Reliance Industries and BP is auctioning natural gas from its KG Basin. This auction will be held at crude-linked floor price. This price is more than the limit set by the government at the current rate. That means the player who wins the auction will have to pay more. Mukesh Ambani and his consortium have made a complete plan to earn a lot from this auction.
ET quoted the bid documents as saying that the consortium has kept the e-auction day as November 21. On this day the consortium has offered to sell 4 million metric standard cubic meters per day (MMSCMD) of natural gas. Supply will start from December 1st.
How will the price of gas be decided in the auction?
The price of gas in the auction will be decided on a formula with a premium of 12.67 percent over the Brent price of that day. Bidders will also have to quote a premium, which must be between $1.08 and $4.5 per MMBTU. At the current price of crude oil at $90 per barrel, the minimum and maximum price in the auction will be $12.4 and $15.9 per MMBTU respectively.
Government decides the price in 6 months
The minimum price of $12.4 per MMBtu is higher than the maximum price of $9.96 set by the government. This price is applicable to all natural gas produced from deep sea fields like RIL-BP’s KG block. The government changes the maximum price of deep sea gas every six months. The current price is valid till March 2024. If crude oil rates fall in future, the price paid by gas buyers for RIL-BP gas may go below the limit set by the government. In future changes, the reduction in price cap will also reduce the cost of buyers.
Earned big money in last two years
For the last two years, natural gas prices have been very high in the global market, due to which the income of domestic producers like Reliance, BP and ONGC has increased. Over the past year, domestic deep sea gas has often been sold at government-set limits because imported gas is far more expensive. The Japan Korea marker, the North Asian benchmark for spot liquefied natural gas, is currently around $18 per mmBtu. In the RIL-BP auction, the bidder will have to quote the price, volume and tenure. A participant can bid for a minimum volume of 10,000 standard cubic meters per day. The purchase period can be 3, 4 or 5 years.
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