State-owned Oil and Natural Gas Corporation (ONGC) is seeking a minimum USD 17 price for the gas it plans to produce from coal seams in its Bokaro CBM block in Jharkhand.
ONGC invited bids for the sale of 0.20 million standard cubic metres per day of gas it plans to produce from the Bokaro CBM block by the year-end, according to a tender document.
It sought bids on a formula indexed to the prevailing Brent crude oil price.
The reserve or floor price of gas will be 14 per cent of the Dated Brent crude oil Price plus USD 1 per million British thermal unit, ONGC said in the tender.
Bidders will have to quote a premium they are willing to offer over this reserve price.
The floor price will be the government-mandated price for domestic natural gas plus a USD 1 per mmBtu mark-up.
The "Contract Gas price shall be the higher of the 14 per cent of Dated Brent Price plus USD 1 per mmBtu plus 'P' (the biddable parameter); or the floor price," it said.
At the current Brent crude oil price of USD 115 per barrel, the reserve gas price comes to USD 17 per mmBtu.
The government-mandated price of domestic gas is currently USD 6.1 per mmBtu.
The price sought by ONGC is in line with recent industry trends.
In March, Reliance Industries Ltd sold coal-bed methane (CBM) gas from a Madhya Pradesh block for over USD 23 per mmBtu to firms, including GAIL, GSPC and Shell.
Reliance sold 0.65 mmscmd of gas from its coal-bed methane (CBM) block SP-(West)-CBM-2001/1 at a USD 8.28 premium over prevailing Brent crude oil prices. The firm had sought bids at a premium over the base of 13.2 per cent of Brent crude oil prices.
At the current Brent crude oil price of USD 115 per barrel, the base comes to USD 15.18 per mmBtu and adding USD 8.28 premium bid by state-owned gas utility GAIL and other firms, the final price comes to USD 23.46 per mmBtu.
While the government every six months fixes the price of natural gas produced from conventional fields, the pricing of gas from coal seams, called CBM, is free or market-determined.
ONGC said the gas will be available for sale from December 15. "The gas will be offered for a fixed term of 1 year." ONGC holds an 80 per cent stake in the Bokaro coal-bed methane (CBM) block while the remaining 20 per cent is with Indian Oil Corporation (IOC).
State gas utility GAIL (India) Ltd will provide pipeline connectivity for the gas to be transported to users.
E-auction will be held on July 20.