Reliance Industries & ONGC to auction natural gas at different rates

Reliance Industries and ONGC plan to separately auction small quantities of natural gas with sharply different floor rates. RIL’s floor price is linked to crude oil and at the current rate of crude, would amount to $14 per mmBtu, while ONGC’s domestic gas price-linked floor is set at $4.5.

Reliance has sought bidders for 0.65 million metric standard cubic meters per day (MMSCMD) of natural gas from its coal bed methane field in Madhya Pradesh, while ONGC is auctioning 0.15 MMSCMD from a small field in Rajasthan. RIL’s auction is planned for March 1 and that of ONGC is slated for March 7.

A global gas crunch has pushed up LNG prices to record levels in the past few months, drying up spot cargoes at India’s gas import terminals and boosting domestic producers’ confidence that they can charge high prices for their produce.

Reliance expects the bidders to quote a minimum premium of $1 per mmBtu over the base of 14% of the Dated Brent oil. The Dated Brent is calculated as the three-month average prices preceding the month in which supply is made. At the current Brent price of $93 per barrel, the floor would come to $14 per mmBtu.

For the ONGC gas, the bidders will have to quote a premium above the reserve price subject to a floor price. The floor price is $4.5 per mmBtu. The reserve price is the sum of domestic gas price and a mark-up of $0.50 per mmBtu. Domestic gas price is linked to international rates and is revised every six months. Currently at $2.9 per mmBtu, the domestic gas price is expected to sharply rise in the next revision in April.

Gas prices in Europe have risen four-fold, precipitating an energy crisis there. Prices in the US and other markets have also sharply risen. Expanding domestic supplies has to some extent shielded Indian consumers from pricey imports.

Source: Economic Times