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Reliance, BP to auction Indian domestic natural gas on Dated-Brent basis
BP and Reliance have launched an auction process to sell 5 mmscm/d of domestic natural gas in India from their deep-sea project in the country’s KG D6 basin, which is expected to start production from the second quarter of 2020. The bids for the auction are due October 10, with Dated Brent slope as the pricing basis. The minimum reserve price is set at 9% of the Dated Brent price.
The price will be based on a lagged “3-0-1” pricing formula, with an average Dated Brent price of three months prior to the month of delivery. The reserve price with a 9% slope for September would be at $5.61/MMbtu, S&P Global Platts data showed. Natural gas produced from discoveries in Deepwater, Ultra-Deepwater and High Pressure-High Temperature areas, can be priced independently but has a price ceiling of $9.32/MMbtu from April 1, 2019, to September 30, 2019. India’s Petroleum Planning and Analysis Cell set the price ceiling bi-annually.
The ceiling price would be the lowest of imported prices of LNG, fuel oil or a weighted average price of coal, fuel oil and naphtha. Whereas, the price of domestic natural gas from April 1, 2019, to September 30, 2019, from regular basins was set at $3.69/MMbtu, according to PPAC.
If Brent prices remain at similar levels, the new supply from KG D6 basin may not be competitive to spot LNG prices, with LNG prices under pressure this year amid higher production from the US and Australia, along with lackluster demand from North Asian end-users. The Platts DES West India spot LNG prices have averaged $5.18/MMbtu until end-August this year, Platts data showed.
However, gas from the KG D6 basin should be more competitive to term LNG contracts, with the Brent-linked long-term contracts averaging $8.84/MMbtu, with an estimated 13.5% Brent slope, based on Platts’ estimates.“Even with an estimated 42% of LNG imports procured on a spot term basis till July 2019 and the remaining at oil-linked contracts, the average price of LNG imports into India this year till date is around $8.50/MMbtu making the reserve price competitive compared to LNG import prices as of today,” said Chinmayee Atre, LNG analyst at S&P Global Platts Analytics.
Reliance and BP have been jointly developing three gas fields in the KG D6 basin, in the east coast of India, namely R-Cluster, Satellites, and MJ. The three fields are expected to produce 1 bcf/day at full capacity by 2022, according to local media reports.
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