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Essar, GSPC bag most of RIL-auctioned natural gas

Essar Steel and Gujarat State Petroleum Corporation have won two-thirds of the natural gas Reliance Industries offered in an auction. Essar Steel, which has been in news lately for its bankruptcy, is learnt to have won 2.25 mmscmd, while GSPC got...

, ET Bureau|
Nov 18, 2019, 06.49 AM IST
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New Delhi: Essar Steel and Gujarat State Petroleum Corporation (GSPC) won two-thirds of the natural gas Reliance Industries offered in an auction, where winning bids were $5.3-5.4 a unit, people familiar with the matter said.

Reliance-BP offered 5 million metric standard cubic metres a day (mmscmd) it plans to produce from April next year at its R-cluster field in KG-D6 block. About half a dozen companies participated in the e-auction on Friday. Reliance did not respond to ET’s emailed query.

Essar Steel is learnt to have won 2.25 mmscmd, while GSPC got 1.2 mmscmd. State-run Hindustan Petroleum is believed to have won 0.35 mmscmd, while Adani, Mahanagar Gas and GAIL won 0.3 mmscmd each, according to the people. Gujarat State Fertilizer Corp is also said to have won 0.10 mmscmd.

Essar Steel, which has been in news lately for its bankruptcy, will likely use the gas in its plant, while Adani and Mahanagar may feed it into their city gas network.

RIL-BP sold all the gas offered. The duration of supply could not be ascertained. Buyers had the option to bid for a supply period of two to six years.

Bidders were expected to quote a price as a percentage of dated Brent crude. The minimum they could quote was 8.4%. Bidders ended up quoting between 8.4% and 8.6%, the people said.

This translates into a price range of $5.29 to $5.41 per million metric British thermal unit (mmBtu) at the current rate of $63 per barrel for dated Brent. Prices will vary during the period of supply as the dated Brent is defined as the average of published Brent prices for three calendar months immediately preceding the relevant contract months in which the gas supply is made.

After including the pipeline tariff, the delivered cost of gas would be about $6.5 for buyers, most of which are in Gujarat. Reliance-BP have the marketing and pricing freedom for all the gas they produce from the Rcluster field. The prices, however, cannot exceed the government-set ceiling for the gas from difficult fields, which is currently $8.43 per unit.

Prices during the RIL-BP’s gas auction were influenced by a collapse in the global liquefied natural gas (LNG) market and an expected rise in supply from domestic sources over the next few years.

This meant the auction ended up with rates that were close to the floor price set by the producer. ONGC is also auctioning 0.75 mmscmd on November 19.
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