Indian Oil wins Reliance's KG gas auction for the second time in a straight

Indian Oil Corporation (IOC), has walked away with half of the natural gas that Reliance Industries Ltd. and its partner, bp of the UK, offered in the most recent auction of the fuel needed to create CNG, generate electricity, and fertiliser. From the 5 mmscmd of gas that was auctioned off last month, IOC received 2.5 million standard cubic metres per day. The volume bids were made on behalf of seven fertiliser factories by the oil refining and marketing company, which had previously won the highest bid in the auction for gas from Reliance-bp's KG-D6 offshore block in the east.

A total of 0.5 mmscmd of city gas, secured by firms like GAIL Gas Ltd, Mahanagar Gas Ltd, Torrent Gas, Indian Oil Adani Gas Ltd and Haryana City Gas, will be converted into CNG for sale to automobiles and piped into homes' kitchens for cooking. Gujarat State Petroleum Corp (GSPC) and refiner Hindustan Petroleum Corporation Ltd (HPCL) each received 0.6 mmscmd, while Shell received an additional 0.2 mmscmd. Reliance-BP is now ramping up supply after two years ago reversing the downward trend in domestic gas output by bringing to production their second wave of discoveries in the KG-D6 block located in the deep waters of the Bay of Bengal. Natural gas is viewed as a transition fuel for countries moving from polluting hydrocarbons to zero-emission fuels since it burns cleanly and efficiently.

In the most recent tender, Reliance-BP provided 5 mmscmd of gas for a three-year term beginning on June 1. The JKM price, the spot market benchmark for liquefied natural gas (LNG) transported to Japan and South Korea, was the only price that was required of bidders. The e-auction, according to sources, began on May 19 and finished on May 23. This was its longest duration since operators were permitted to sell petroleum through open tender.

They added that petrol was sold to 16 bidders at the conclusion of the e-auction for a price of JKM + (plus) USD 0.75 per mmBtu for three years, adding that at the current JKM price of USD 9.2 per mmBtu, the cost of KG-D6 petrol is close to USD 10. This price is compared to the capped price of USD 6.5 per mmBtu set by the state-owned giant Oil and Natural Gas Corporation (ONGC) for gas used to create fuel from legacy or ancient fields. Petrol sold by Reliance-BP in April totaled 6 mmscmd. IOC left with nearly half of the 6 mmscmd of gas that was sold in an online auction on April 12; GAIL purchased 0.7 mmscmd, Adani-Total Gas Ltd. purchased 0.4 mmscmd, Shell purchased 0.5 mmscmd, GSPC purchased 0.25 mmscmd and IGS purchased an additional 0.5 mmscmd.

The final bid price in that auction was also USD 0.75 per mmBtu more than the JKM price (JKM + USD 0.75 per mmBtu). However, the bidders will only be required to pay the cap price, which the government sets every two years, for gas produced in challenging environments, such as deepwater and high-temperature, high-pressure (HTHP) environments. The maximum price per mmBtu from April to September is USD 12.12. Gas extracted from wells dug below the seabed is used in industries, to power vehicles, to make fertiliser, to power homes' kitchens, to make CNG and to generate energy. Reliance-BP had auctioned 5.5 mmscmd of additional gas from the more recent finds in the KG-D6 block in May of last year, benchmarking it to  the same JKM gas marker.

The price found in that electronic auction was USD 0.06 less expensive than the JKM (Japan-Korea Marker) LNG price. Prior to that, the team had offered JKM a discount of $0.18 per mmBtu on 7.5 mmscmd of petrol. 19 gas discoveries have been made by Reliance so far in the KG-D6 block. The two largest of these, D-1 and D-3, were placed into production in April 2009, and MA, the block's sole oilfield, was put into production in September 2008. While production from the MA field terminated in September 2018, it did so for D-1 and D-3 in February 2020. While production from the MA field terminated in September 2018, it did so for D-1 and D-3 in February 2020. Since then, Reliance-BP has committed USD 5 billion to developing the R-Cluster, Satellites Cluster, and MJ deepwater gas projects in block KG-D6, which when combined are anticipated to supply 15% of India's gas needs by 2023.