New Delhi: State-owned Oil and Natural Gas Corporation (ONGC) on Monday invited 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.
According to 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. Initially, 2 million standard cubic metres per day of gas has been offered for sale through an e-auction. ONGC has sought bids 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.
At the current Brent crude oil price of $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 essentially means that bidders may corner gas by offering to pay $7, but the buyers will have to pay no more than the ceiling price of $3.62.
A senior ONGC official said 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 partner 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.
The e-auction is slated for April 23 and the gas supply will start from late April or early May, according to the tender document. 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.