Oil and Natural Gas Corp is seeking buyers for the first gas from its KG basin fields, which would begin production next month after years of delay. ONGC is auctioning 0.75 million metric standard cubic meters a day (MMSCDM) of gas for three years from its KG-DWN-98/2 fields, bids for which are to be submitted by November 19. ONGC is spending more than $5 billion to bring these fields to production.
It has set a reserve price of $5.61 per million metric British thermal unit (mmBtu) and the minimum bid quantity at 0.05 MMSCMD. Bidders will have to quote the number of days they would need to offtake gas after being awarded—with preference for the bidder with fewer days in case of a price tie. Bidders will make a single bid electronically.
Other bidders will be asked to match the highest quoted price. Reliance Industries and partner BP too are set to e-auction 5 MMSCMD of gas from its KG basin fields on November 15. They plan to supply gas from April. These new domestic gas supplies will likely replace some of the liquefied natural gas (LNG) imports that have expanded 7.9% in the first half of 2019-20 and make up half of country’s gas consumption.
But a recent collapse in the global LNG market has made it tougher for ONGC and RIL-BP to extract high prices. RIL-BP’s reserve price for KG gas is linked to three months dated Brent with a slope of 8.4%. At the current crude oil rate of $62 a barrel, it comes to $5.21 per mmBtu. ONGC’s reserve price is linked to the average three months rate of LNG delivered to west India plus a constant of $1and a marketing margin of $0.20 per mmBtu, which comes to $5.61for October.
The global LNG market is in a slump due to a combination of excessive supply, slowing major economies, and warmer-than-usual winter in key importers like Japan and China. Spot LNG rates are currently at their lowest for this time of the year in a decade. The glut is expected to keep prices low next summer. Bidders for ONGC gas will have to quote for all three years while RIL gas buyers have the option to seek volumes for two to six years. ONGC and RIL have freedom to sell their gas at market rates, which must not breach the government-set ceiling, currently at $8.43 per mmBtu.
Source: Economic Times