On Monday, State-owned Oil and Natural Gas Corporation (ONGC) called bids for the sale of initial 2 million standard cubic meters per day of gas from its KG basin fields at a minimum price of $6.6 per mmBtu.
As per the tender document, ONGC intends to start natural gas sale from its KG-DWN-98/2 block, which sits next to Reliance Industries Ltd (RIL)-BP Plc operated KG-D6 fields, from June-end.
In the beginning, 2 million standard cubic metres per day of gas has been offered for sale through an e-auction.
ONGC has sought offers indexed to Brent crude oil. Bids have been sought at a minimum of 10.5 per cent of the three-month average Brent crude oil price.
Currently, Brent crude oil price of USD 63, the minimum price comes to $ 6.6 per million British thermal unit.
This price, however, will be subject to the ceiling or cap fixed by the government for deepsea fields every six months. The cap for six months beginning April 1 is $3.62 per mmBtu.
This basically means that bidders may corner gas
by offering to pay USD 7, but the buyers will have to pay no more than the ceiling price of USD 3.62.
A senior ONGC official stated the ceiling price is expected to rise to $5.5-5.6 at the next revision due on October 1.
"The current ceiling price is one-third less than the bare minimum cost of production from a deepsea field. After including the cost of money as well as margin, gas price should be $6 and not $3.62," he said.
Earlier this month, Reliance Industries Ltd and its associate BP Plc of UK sought bids for the sale of 5.5 mmscmd of additional natural gas that will be available for sale from their eastern offshore KG-D6 block.
As per the tender document, the e-auction is slated for April 23 and the gas supply will start from late April or early May.
Bidders will have to quote a price linked to Platts JKM (Japan Korea marker) - the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes.
The least possible bid that can be placed is JKM minus $0.3 per million British thermal unit. The highest acceptable bid would be JKM plus $2.01 per mmBtu.
This is the same benchmark RIL-BP had used in February to sell out 7.5 mmscmd of gas from the block.
At the existing price, the lowest price for the 5.5 mmscmd of gas that RIL-BP are auctioning comes to near $6.5 per mmBtu.
But just like ONGC, RIL-BP too is entitled to a maximum of $3.62 per mmBtu ceiling fixed by the government for a six-month period to September 30.
ONGC's KG-DWN-98/2 or KG-D5 block is likely to have a peak production rate of 15.25 mmscmd of natural gas and 80,000 barrels per day of oil.
The firm is expected to come out with another tender later this year for the sale of 5 mmscmd of gas from subsequently year.