Gujarat state-owned firm wants LNG price for KG gas

In 37 companies put in 53 bids for about 75 million standard cubic meters of gas per day

After Reliance Industries Ltd, GSPC, the firm floated by Narendra Modi government, plans to sell natural gas from its KG basin fields at imported LNG rate of $ 14.2 per mmBtu.

In a nearly month-long, elaborate market price discovery exercise, Gujarat State Petroleum Corp (GSPC) found hoards of buyers willing to pay a rate equivalent to what India pays to Qatar for importing gas in its liquid form (LNG).

In all 37 companies put in as many as 53 bids for about 75 million standard cubic meters of gas per day, more than 14 times the peak output of 5.24 mmscmd GSPC's Deen Dayal West (DDW) gas field in block KG-OSN-2001/3, industry sources said.

The company had on February 25 asked bidders to quote a positive or a negative number to be added to India's liquefied natural gas (LNG) import formula of 12.67% of Brent crude oil plus $ 0.26 per million British thermal unit.

GSPC prescribed a minimum sale price of $ 8.50 per mmBtu, at floor rate of $ 65 per barrel of oil.

Sources said demand far exceeding the supply was generated when the biddable variable was kept at zero. At cap oil price of $ 110 per barrel, the gas price translates into $ 14.2 per mmBtu.

The formula is the same on which RIL a year back sought price bids for sale of gas it will produce from its Sohagpur coal-bed methane (CBM) block in Madhya Pradesh.

While the Oil Ministry, under the then Oil Minister S Jaipal Reddy, held back the approval for RIL's CBM gas price discovery by putting repeat queries, it remains to be seen how GSPC's proposal will be treated by the Ministry under M Veerappa Moily.

Contractually, the government has to decide on the price discovered within 60 days. GSPC, which had also appointed an independent third party auditor to ensure that the price discovery is carried out in an open, transparent and arms length way, got bids on March 22 and is likely to submit a proposal to the ministry in next couple of days.

Phone calls made to GSPC Managing Director Tapan Ray for comments, went unanswered.

RIL too had got overwhelming response when over 70 bids totalling a demand of more than 90 mmscmd, several times more than the peak CBM output of 3.5 mmscmd, were received. Its proposal has however been languishing in the ministry for 13 months now.

Petronet LNG Ltd, of which Oil Secretary is the Chairman, pays RasGas of Qatar a price of 12.67% of the average price of crude oil imported into Japan (called Japan Crude Cocktail, or JCC). Besides it incurs a $ 0.26 per mmBtu cost on transporting the gas in ships from the Gulf nation.

Both RIL and GSPC felt this is an arms-length pricing formula and called for bids from consumers on the same.