Reliance Industries Ltd and its partner bp plc have halted their planned auction for the sale of natural gas from their eastern offshore KG-D6 block, following new government rules that cap margins.
The auction is suspended indefinitely, according to a notice from Reliance and BP Exploration (Alpha) Ltd (BPEAL). The e-bidding for the sale of 6 million standard cubic meters per day of gas was initially scheduled for January 18, but was later delayed to January 19 and then to January 24.
On January 13, the Ministry of Petroleum and Natural Gas introduced new rules for the sale and resale of gas produced from deep sea, ultra-deep water, and high pressure-high temperature areas, with more flexibility in marketing and pricing.
These rules require bidders to state upfront whether they are purchasing the gas for their own use as end consumers, or as traders. End consumers are permitted to resell any unconsumed gas, while traders can only resell subject to a maximum trading margin of Rs 200 per thousand cubic meters.
The ministry also stated that in the event of a situation that requires a proportionate distribution of gas offered under the bidding process, the contractor (company selling the gas) will offer gas to bidders in the order of CNG (transport)/PNG (domestic) sector, fertilizer, LPG and power sector.
Any remaining gas will then be offered to other bidders. The auction launched by Reliance-bp on December 29, 2022 was intended for sale to end consumers who were not permitted to resell any unconsumed gas, and there was no clarity on the participation of traders.
The two firms have not given a reason for the suspension, but industry sources suggest it is linked to the new government rules.
The two partners invited bids for the sale of 6 mmscmd, or a third of the volumes being produced at KG-D6, starting February 2023, according to the tender document.
Users such as city gas operators, power plants, and fertilizer units were asked to quote a premium over the JKM price, which is the Northeast Asian spot price index for LNG delivered ex-ship to Japan and Korea.
The JKM price for March is around USD 21 per million British thermal unit.
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