Reliance Outbids Rivals to Buy Own Coal-Bed Gas Until 2021

Updated on
  • Co. to buy as much as 3m cubic meters a day from its blocks
  • Gas to be used in petrochemicals plants in western India

A worker carries a basket of coal on his head at a coal wholesale market in Mumbai, India.

Photographer: Dhiraj Singh/Bloomberg

Reliance Industries Ltd. outbid rivals to buy the entire volume of coal-bed methane produced from its own blocks in central India until at least March 2021, a move that may help it boost margins and replace more expensive imported fuel at its petrochemicals plants.

The billionaire Mukesh Ambani-owned company will buy as much as 3 million cubic meters a day of gas produced from coal seams at the Sohagpur East and Sohagpur West blocks in Madhya Pradesh state, according to documents on its website. Reliance, which plans to use the gas at its petrochemical plants in Gujarat and Maharashtra, outbid India’s largest gas pipeline operator GAIL India Ltd., as well as Piramal Glass Ltd. and Gujarat State Petroleum Corp.

Reliance will pay roughly $6.30 per million British thermal units based on a Brent price of about $58.30 a barrel, according to the pricing formula in the document and calculations by Bloomberg. That’s more than double the government-set price for gas from conventional fields and may help boost the company’s upstream margins. The fuel will also partially offset the costlier liquefied natural gas used by its downstream businesses.

Reliance spokesman Tushar Pania declined to comment.

Reliance shares fell 1 percent to 790.90 rupees at 1:26 p.m. in Mumbai, while the benchmark S&P BSE Sensex was little changed.

The Mumbai-based company won two previous tenders in May and July to buy the gas for shorter periods. The bidding process was carried out by Crisil Risk and Infrastructure Solutions Ltd., a unit of Crisil Ltd.

Supplies from the central India blocks will meet more than three-fourth of the 4 million cubic meters gas Reliance consumes at its petrochemicals plants every day. Reliance, which started commercial production from the blocks in March, plans to increase output to 2.5 million cubic meters a day by March 2018.

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