Reliance seeks $12.75 for CBM gas, ONGC wants $9.35

Reliance Gas is mining coal bed methane (CBM) from a block in Shahdol district of Madhya Pradesh, while ONGC is mining from North Karanpura in Jharkhand

Billionaire Mukesh Ambani's Reliance Industries Ltd and state-owned Oil and Natural Gas Corporation (ONGC) are separately auctioning natural gas extracted from coal seams at prices linked to the Brent crude oil price.

Reliance is seeking a minimum $12.75 per million British thermal unit for coal bed methane (CBM) from a block in Shahdol district of Madhya Pradesh, while ONGC wants $9.35 for the same kind of fuel from North Karanpura in Jharkhand, according to tender documents.

Reliance has sought bids for the sale of 0.65 million standard cubic meters per day from CBM block SP(West)-CBM-2001/1 for one year beginning April 1, 2023, the company's tender document showed.

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It asked bidders to quote a variable 'v' as a percentage of dated Brent crude oil price.

Starting bid price has been kept at 15 per cent of Brent ('v' = 15 per cent). At the current Brent price of $85 per barrel, this translates into a price of $12.75 per mmBtu. E-bidding will happen on February 24.

ONGC has offered 0.015 mmscmd of gas from North Karanpura (NK) block in Jharkhand for 3 years. It asked bidders to quote a premium 'p' as a percentage of the Brent price.

The reserve or bid start price has been kept at 11 per cent of Dated Brent price ($9.35 per mmBtu at Brent oil price of $85 per barrel).

The price of gas "shall be higher of the reserve gas price plus a quoted premium (p) or floor price plus a quoted premium (p)," ONGC said.

The floor price will be $1 per mmBtu higher than the domestic gas price (which currently is $8.57 per mmBtu).

The e-auction of ONGC gas will take place on March 2, it said.

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CBM is an unconventional form of natural gas found in coal deposits or coal seams. Just like natural gas, it can be used to produce electricity and as feedstock for fertilizers, and industrial uses such as in cement production, rolling mills, steel plants, and methanol production. It can also be compressed into CNG for use as fuel in automobiles or piped to household kitchens for cooking.

While the government every six months fixes the price of natural gas produced from conventional fields, the pricing of gas from coal seams, called CBM, is free or market-determined.

The minimum price ONGC is seeking in the latest tender is less than what it had sought for CBM from a Bokaro block in Jharkhand last year. In June 2022, ONGC invited bids for the sale of 0.20 mmscmd at a reserve or floor price of 14 per cent of the Dated Brent crude oil price plus $1 per million British thermal unit, the sale tender had shown.

Bidders will have to quote a premium they are willing to offer over that reserve price.

The floor price was the government-mandated price for domestic natural gas plus a $1 per mmBtu mark-up.

The "Contract Gas price shall be the higher of the 14 per cent of Dated Brent Price plus $1 per mmBtu plus 'P' (the biddable parameter); or the floor price," it had said.

At the current Brent crude oil price of $ 85 per barrel, the reserve gas price came to $ 12.9 per mmBtu in that tender.

In March last year, Reliance sold CBM gas from the Madhya Pradesh block at a big premium to firms, including GAIL, GSPC and Shell.

Reliance had sold 0.65 mmscmd of gas from block SP-(West)-CBM-2001/1 at a $8.28 premium over prevailing Brent crude oil prices. The firm had sought bids at a premium over the base of 13.2 per cent of Brent crude oil prices.

At the then Brent crude oil price of $115 per barrel, the base came to $15.18 per mmBtu and adding $8.28 premium bid by state-owned gas utility GAIL and other firms, the final price was $23.46 per mmBtu.