ONGC, Reliance Industries may get higher price for CBM

PSU explorer ONGC and private firm Reliance Industries (RIL), which are expected to commence production from coal bed methane (CBM) blocks this fiscal, may get a ‘better price’ than the prevailing domestic gas price. The price of natural gas, based on a formula approved by the Modi government last October, would further reduce to $4.15-$4.20/mBtu from October 1 against $5.18/mBtu now, given the movements in benchmark prices in the relevant period. At this price, commencing CBM production from a new block seems economically unviable, forcing the petroleum ministry to look for better options for monetisation of CBM resources.

The petroleum ministry, sources said, has called all CBM operators for a review on September 16 and pricing of gas from these coalbed blocks would be one of the crucial issues. The current CBM output in the country is dismal, at just 1 million metric standard cubic metres per day from the fields of Essar Oil and Great Eastern Energy Corporation (GEECL).

“CBM output is likely to go up to 6 mmscmd in the next two years, which is a substantial volume. But, pricing may be an issue,” a senior government official told FE. However, the road block for revising the price may be that the most-touted gas pricing formula announced by the NDA government after tweaking the Rangarajan formula is applicable for all types of natural gas. “The petroleum ministry is yet to make an official note of the pricing issues,” said the official, adding, “It has to be seen if the CCEA’s nod would be required to bring in changes. There are some contracts where pricing is different from the one derived from the formula.”

The petroleum ministry has received inputs from the industry about non-viability of CBM operations at lower gas price. In contrast, Essar Oil and GEECL sell gas from the CBM block at $10-11/mBtu. This is because government has approved a minimum floor price for these fields.

GEECL, that operates the Raniganj (South) block, has approved the price of $6.79/mmBtu, while Raniganj (East) held by Essar Oil has approved price for incidental gas of $6.25/mmBtu. The official said it would not be fair when one operator sells gas at $10-11/mBtu and another at $4/mBtu. “All are CBM blocks under similar conditions and therefore the disparity needs to be changed,” the official added.

RIL would start output from Sohagpur (West) in MP in 2015-16. It has another block in the vicinity — Sohagpur (East). The gross in-place CBM potentials of RIL’s Eastern block is 1.69 trillion cubic feet (47.7 billion cubic metres), while it is 1.96 trillion cubic feet (55.5 billion cubic metres) for the western acreage.