The State Oil and Gas Corporation (ONGC) is seeking a minimum price of $ 17 for gas it plans to produce from coal seams at its Bokaro CBM unit in Jharkhand.
ONGC has invited bids for the sale of 0.20 million standard cubic meters of gas per day, which it plans to produce from the Bokaro CBM unit by the end of the year, according to tender documents.
He asked for offers according to a formula indexed to the prevailing price of Brent crude oil.
The reserve or minimum price of gas will be 14 percent of the price of Brent crude oil plus $ 1 per million British thermal units, said ONGC in the auction.
Bidders will have to quote a premium they are willing to offer above this reserve price.
The minimum price will be the government-set price for domestic natural gas plus a surcharge of $ 1 per mmBtu.
The contract gas price must be the highest of 14 per cent of the Brent price with a date plus USD 1 per mmBtu plus a ‘P’ (the bid parameter); or the minimum price, “it said.
At the current price of Brent crude oil of 115 USD per barrel, the price of reserve gas is 17 USD per mmBtu.
The government-set domestic gas price is currently $ 6.1 per mmBtu.
The price demanded by ONGC is in line with the latest trends in the industry.
In March, Reliance Industries Ltd sold coal bed methane (CBM) from a block in Madhya Pradesh for more than $ 23 per mmBtu to companies including GAIL, GSPC and Shell.
Reliance sold 0.65 mmscmd of gas from its Coal-fired Methane Unit (CBM) SP- (West) -CBM-2001/1 at a margin of $ 8.28 compared to the prevailing Brent crude oil prices. The company was looking for offers with a premium above the base of 13.2% of Brent crude oil prices.
At the current price of Brent crude oil of USD 115 per barrel, the base amounts to USD 15.18 per mmBtu and with the addition of USD 8.28 premium from the state gas company GAIL and other companies, the final price reaches USD 23.46 per mmBtu.
While the government fixes the price of natural gas produced from conventional fields every six months, the pricing of coal gas, called CBM, is free or determined by the market.
ONGC said the gas would be available for sale from December 15th. “The gas will be available for a fixed period of 1 year.” ONGC owns an 80% stake in Bokaro Coal Methane (CBM), while the other 20% is owned by Indian Oil Corporation (IOC).
The state gas company GAIL (India) Ltd will provide pipeline connectivity for the gas to be transported to consumers.
The electronic auction will take place on July 20.