RELIANCE TIES NATURAL GAS PRICING TO THE BRENT CRUDE OIL BENCHMARK

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Reliance Industries Ltd and its partner BP from the UK have decided to base the pricing of the natural gas they produce from India’s largest privately operated field in the KG basin on the Brent crude oil index. They aim to leverage the positive trend in the oil market.

In a recent tender, Reliance and BP have invited bids from potential buyers for 4 million standard cubic meters per day of gas from the KG-D6 block in the Bay of Bengal, starting on December 1, 2023. They are requesting prospective users to propose a price that correlates with the Brent crude oil price, as stated in the tender document. In prior auctions, including the most recent one in May this year, the gas had been sold with pricing tied to the international gas benchmark, JKM.

The consortium issued an offer notice on October 27, 2023, inviting interested companies to express their intent to purchase gas from the gas fields. The pricing basis for the Request for Proposal (RFP) commencing from December 1, 2023, is located in Gadimoga, Andhra Pradesh, according to the tender document.

Bidders have been asked to provide a premium (‘v’) that they are willing to pay in addition to 12.67% of the dated Brent crude price. The initial bid price for ‘y’ has been set at $1.08 per million British thermal units. Based on the current Brent crude oil price, the initial price translates to a gas price of $11.8 per mmBtu (12.67% of $85 plus $1.08). The tender specifies a maximum bid value against ‘v’ at $4.5 per mmBtu.

However, the final sale price will be determined as the lower of the government-mandated maximum rate payable for gas from challenging fields, such as deep-sea, and the price established through the bidding process. The government’s bi-annual ceiling price for gas produced from such fields is in effect from April 1 and October 1. As of October 1, the maximum rate payable for gas from challenging fields is $9.96 per mmBtu. This means that even if Reliance-BP secures buyers at $11.8 per mmBtu for 4 mmscmd of gas, users will only have to pay $9.96 until March 31.

The e-auction for 4 mmscmd of KG-D6 gas is scheduled for November 21, according to the tender document. In the previous auction in May, the Indian Oil Corporation (IOC) acquired half of the 5 mmscmd of gas offered by Reliance-BP. In that auction, users were asked to propose a variable ‘v’ in addition to the JKM price, the spot market benchmark for LNG deliveries to Japan and South Korea. Gas was sold to 16 buyers at a price of JKM plus $0.75 per mmBtu for a duration of 3 years.

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