Reliance suspends gas auction after change in marketing rules

New Delhi: Reliance Industries Ltd and its partner bp plc on Monday suspended a planned auction for the sale of natural gas from their eastern offshore KG-D6 block after the government altered marketing rules to cap margins.

In a notice, Reliance and its partner BP Exploration (Alpha) Ltd (BPEAL) said the auction has been suspended indefinitely.

E-bidding for the sale of 6 million standard cubic meters per day of gas was originally planned for January 18 but was later pushed back first to January 19 and then to January 24.

On January 13, the Ministry of Petroleum and Natural Gas published new rules for the sale and resale of gas produced from discoveries in deep sea, ultra-deep water and high pressure-high temperature areas with marketing and pricing freedom.

It required bidders to state upfront if they were purchasing the gas through the auction for ‘own use as end consumers (including for use of their group entities) or as a trader.”

While end consumers were allowed to resale any unconsumed gas, traders participating in the auction were allowed to resell subject to a maximum trading margin of Rs 200 per thousand cubic meters.

“In any situation, which may require proportionate distribution of the gas offered under the bidding process, the contractor (company selling the gas) shall offer gas to bidders belonging to CNG (transport)/PNG(domestic) sector, fertilizer, LPG and power sector in that order,” the ministry said, adding any leftover gas shall be offered to other bidders.

In the auction that Reliance-bp launched on December 29, 2022, the gas was intended for sale to end consumers who were not permitted to resale any unconsumed gas.

Also, there was no clarity on the participation of traders.

“It is hereby notified that the current bidding process is suspended till further notice,” the two firms said in a notice on Monday.

It did not give the reason for the suspension but industry sources said the suspension was linked to the new rules brought by the government.

The two partners invited bids for the sale of 6 mmscmd, or a third of the volumes being produced at KG-D6, starting February 2023, according to the tender document.

Users such as city gas operators that convert gas into CNG for sale to automobiles and pipe it to household kitchens for cooking purposes, or power plants that use it to generate electricity, or fertilizer units that use it to make urea, were asked to quote a premium they are willing to pay over the JKM price.

JKM is the Northeast Asian spot price index for LNG delivered ex-ship to Japan and Korea. JKM price for March is around $21 per million British thermal unit.

Bidders were asked to quote variable ‘V’ in the gas price formula ‘JKM + V’.

The starting bid for ‘V’ was initially set at $(minus) 0.30 per mmBtu but later changed to $(minus) 0.42.

Each bidder was required to enter bids that were higher than or equal to the starting bid quote, the tender document said.

The maximum valid bid for ‘V’ was initially put at $5.01 per mmBtu but later changed to $2.01, beyond which the bid shall not be accepted by the e-bidding portal.

The gas price was supposed to be higher of the government-set ceiling price for gas produced from deep sea fields or the price arrived at the

bidding.