Essar, Adani, GAIL buy majority of Reliance gas

New Delhi: Essar Steel, Adani Group and state-owned GAIL have bought majority of natural gas from Reliance Industries' newer fields in the KG-D6 block at $5.1-5.16 per unit but fertiliser companies skipped the auction that could have helped save at least Rs 800 crore subsidy annually.

Essar Steel picked up 2.25 million standard cubic metres per day or about half of the available volumes in the country's first transparent and dynamic forward auction that lasted for about five-and-half-hours on November 15, industry sources said.

Gujarat State Petroleum Corp (GSPC) picked up 1.2 mmscmd while Adani Group and Mahanagar Gas Ltd bought 0.3 mmscmd, sources said, adding GAIL, acting on behalf of fertiliser companies, bought 0.3 mmscmd of gas.

Fertiliser companies directly did not participate in the auction that could have helped them replace expensive imported liquefied natural gas (LNG).

These companies buy some 3 mmscmd of gas on short-term LNG import contract at a price of over $9 per million British thermal unit and another 23 mmscmd on long-term contracts at delivered price of $11.5 per mmBtu.

Reliance's gas that they will get through GAIL will come for a delivered price of between $6.5 and $7 per mmBtu, they said, adding had they bid directly and bought more volumes they could have replaced expensive LNG, helping save at least Rs 800 crore in fertiliser subsidy annually.

Hindustan Petroleum Corp Ltd (HPCL) bought 0.35 mmscmd and 0.10 mmscmd went to Gujarat State Fertilizers & Chemicals Ltd (GSFC)/Gujarat Narmada Valley Fertilizers & Chemicals Ltd (GNFC), sources said.

In all, 15 customers across sectors such as steel, petrochemicals, city gas, glass and ceramic got gas in the tender, they added. Reliance and its partner BP Plc of the UK had sought bids from potential users for the 5 mmsmcd of natural gas they plan to produce from the R-Cluster Field in KG-D6 block from mid-2020.

Bidders were 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 had set a floor or minimum quote of 8.4 per cent of dated Brent price -- which meant that bidders had to quote 8.4 per cent or a higher percentage for seeking gas supplies.

In the November 15 auction, bidders quoted between 8.5 and 8.6 per cent slope to corner all of the 5 mmscmd supplies available.

This translates into a price of between $5.1 per mmBtu and $5.16 per mmBtu rate at Brent oil price of $60 per barrel.

Sources said while bankruptcy-hit Essar bought gas to feed its steel plants, other buyers including Adani Group picked up the volumes for their city gas operations of retailing CNG to automobiles and piped cooking gas to households.

The volumes are mostly planned for usage in western India, particularly Gujarat where the gas can be delivered through a single pipeline -- East-West pipeline. The delivered price in Gujarat is likely to be around $6.50 per mmBtu, they said.

Sources said GAIL bid at 8.5 per cent slope -- the maximum fertiliser firms had mandated it to do. Initially, Reliance had set a floor of 9 per cent of dated Brent price, which translated into a gas price of $5.4 per mmBtu at $60 oil price.