Cairn Oil & Gas seeks bids for sale of natural gas from Rajasthan block

Mining magnate Anil Agarwal's Vedanta Ltd on Monday invited bids for the sale of natural gas from its prolific Rajasthan block at rates equivalent to the price of imported LNG from the spot market or Brent oil price.

Cairn Oil & Gas, Vedanta's oil and gas arm, produces about 3.5 million standard cubic meters per day of gas from its largely oil-bearing block in Rajasthan, the firm said in a notice.

The output is being ramped-up to more than 5 mmscmd.

"The company invites Expression of Interest (EoI) from interested parties with proven capabilities and demonstrated presence in the natural gas business to participate in the national competitive e-auction process for the purchase of natural gas produced from our flagship block in Barmer, Rajasthan," it said.

It invited bids for 4.5 mmscmd of gas for two years from the RJ-ON-90/1 block.

The price of gas will be lower of the previous month's average of DES West India spot liquefied natural gas (LNG) prices or 14 per cent of the average Brent crude oil price.

Platts West India Marker (WIM) is the LNG price assessment for spot physical cargoes of delivered ex-ship (DES) into ports in India and the Middle East region. The rate currently is USD 6.2 per million British thermal unit.

Brent crude oil price is over USD 63 and at the current rate, the gas price would come to USD 8.8 per mmBtu.

"The sales gas price for any month shall not be lower than the government of India declared gas price," the notice said.

The government every six months announces a price for the gas produced by state-owned gas produces ONGC and Oil India Ltd. That rate currently is USD 1.79 per mmBtu for the period up to March 31, 2021.

The gas sales price of Platts LNG WIM for any month or average Brent price will be exclusive of all applicable taxes, duties, transportation tariffs and marketing margin which may be payable by the buyer, the company said.

This is the first time a producer is seeking bids linked to the imported price of LNG from the spot or current market. All previous price discoveries for gas produced within the country have either been linked to crude oil or to a gas marker.

Reliance Industries and its partner BP Plc of UK earlier this month sold 7.5 mmscmd of gas from their KG-D6 block off the east coast, at a price linked to JKM or Japan/Korea LNG import price. The price bid came to JKM minus 0.18.

They had sold the first 5 mmscmd of gas from the new discoveries in the block in November 0219 at the price linked to Brent price.

Essar Steel, Adani Group and state-owned GAIL had bought the majority of the initial 5 mmscmd of gas planned to be produced from R-Series in the KG-D6 block by bidding between 8.5 and 8.6 per cent of dated Brent price.

Reliance had in 2017 sold coal gas from its Sohagpur CBM block in Madhya Pradesh at a benchmarked rate at 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus a fixed component.

Cairn Oil & Gas produced 132,174 barrels of oil and oil equivalent gas from the Rajasthan block in the October-December quarter, the company had said last month. This was 9 per cent lower than the output in the previous year.

Raageshwari - the gas field in the Barmer block - averaged 130.0 million standard cubic feet per day (mmscfd) in Q3 FY21, with gas sales post captive consumption at 105.0 mmscfd, it had said.