Reliance Industries has outbid rivals, including state-owned GAIL India, to buy the entire volume of natural gas from its own coal seam blocks until March 2021.
In May, RIL had become the first buyer of gas it produced from its own coal bed methane (CBM) block in Madhya Pradesh after agreeing to pay the highest price of $4.23 per million British thermal unit (mmBtu) for May-June.
In the following quarter, it paid an additional 6 per cent at $4.50 per mmBtu to take all of the CBM gas from Sohagpur East and Sohagpur West blocks.
In the latest bidding for up to 3 million standard cubic metres per day (mmscmd) of gas to be produced during October 2017 and March 2021, RIL quoted $6.26 per mmBtu at the current oil price, according to bid documents.
GAIL bid for 1.5 mmscmd of gas at a price of $4.63 per mmBtu while its subsidiary GAIL Gas sought an equivalent quantity at $USD 4.11 per mmBtu price, the bid document showed.
Its petrochemical plants at Patalganga and Nagothane in Maharashtra and Vadodara and Jamnagar in Gujarat consumed an average of 4 mmscmd of gas during the last three months.
RIL started commercial gas production from the CBM blocks in March and the planned output in October is 0.8 mmscmd, according to the bid document.
Output would be ramped up to 2 mmscmd by March 2018 while the peak production of 3 mmscmd would touch in the third quarter of 2018.
The rate of CBM gas is 150 per cent more than the government mandated $2.48 per mmBtu price of the conventional natural gas produced by firms such as ONGC and RIL from the eastern offshore KG-D6 block.
This formula is almost similar to the one RIL had run in 2012 to discover a price for CBM gas. Back in 2012, it had sought bids for 3.5 mmscmd of coal gas at the benchmarked rate of 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu.
At $100 per barrel oil price prevalent that year, CBM from RIL's Madhya Pradesh block was to cost $12.93 per mmBtu. At $58 a barrel rate currently, it would have cost $7.3. That formula was, however, rejected by the ministry even though 59 valid bids seeking about 70 mmscmd of gas were received in the open tender.
In the current price discovery, RIL sought bids in the form of a deductible from 12.67 per cent of prevailing Brent crude oil price plus $0.52 per mmBtu plus $0.26 per mmBtu, according to the bid document.
RIL bid deducting $1.836 per mmBtu and Piramal Glass $3.156. GAIL quoted a deduction of $3.495.
RIL has invested about $500 million in CBM and laying a 300-km pipeline from Sohagpur to Phulpur in Uttar Pradesh to connect to the national gas grid.
Through an April 13 notification, the oil ministry had stated that a CBM producer had to call for open bids for sale of coal gas and seek quotes to discover the market price.