Reliance cuts base price for new gas from KG-D6 after customer protest

Reliance Industries has cut by about 7 per cent the minimum price it is seeking for the natural gas it plans to produce from newer fields in the Bay of Bengal KG-D6 block after key customers such as fertiliser plants protested over the high base price, sources said.

Reliance and its partner BP Plc of the UK is in the market seeking bids from potential users for the 5 million standard cubic metres per day of natural gas they plan to produce from the R-Cluster Field in KG-D6 block from mid-2020. Bidders have been asked to quote a price (expressed as a percentage of the dated Brent crude oil rate), supply period and the volume of gas required. Dated Brent means the average of published Brent prices for three calendar months immediately preceding the relevant contract month in which gas supplies are made.

Sources said Reliance initially set a floor or minimum quote of 9 per cent of dated Brent price -- which meant that bidders had to quote 9 or a higher percentage for seeking gas supplies. At USD 60 per barrel price, the gas price came to USD 5.4 per million British thermal unit (mmBtu).

But consumers saw this as a very high price considering that imported LNG in the spot market is available at around USD 4 per mmBtu rate currently. To pacify the consumers, Reliance has now lowered the floor/minimum quote to 8.4 per cent of dated Brent price, they said adding the company had lowered the floor after a pre-bid meeting with potential consumers in September.

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At USD 60 per barrel price, the gas rate would come to USD 5.04 per mmBtu. The company did not immediately respond to an email sent for comments. Reliance has already put off bidding for the gas twice in a month. Originally, e-bidding was to happen on October 11 but it was first put off to November 6 and then to November 15.

According to the bid document, the gas price will be subject to the ceiling price mandated by the government. The ceiling price for gas from difficult fields such as those in deep-sea currently is USD 8.43 per mmBtu. The government-mandated rate for other fields currently is USD 3.23 per mmBtu. Reliance and BP are developing three sets of discoveries in KG-D6 block R-Cluster, Satellites, and MJ by 2022.

R-Cluster will have a peak output of 12 mmscmd while Satellites, which are supposed to begin output from mid-2021, would produce a maximum of 7 mmscmd. MJ field will start production in the second half of 2022 and will have a peak output of 12 mmscmd. Reliance has so far made 19 gas discoveries in the KG-D6 block. Of these, D-1 and D-3 -- the largest among the lot -- were brought into production from April 2009 and MA, the only oilfield in the block was put to production in September 2008.

While the MA field stopped producing last year, the output from D-1 and D-3 has fallen sharply from 54 million standard cubic meters per day (mmscmd) in March 2010 to 1.68 mmscmd in the July-September. Other discoveries have either been surrendered or taken away by the government for not meeting timelines for beginning production. Reliance is the operator of the block with 66.6 per cent interest while BP holds the remaining stake in the block.

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