Reliance Industries seeks pricing, marketing freedom for CBM output

Private explorer Reliance Industries (RIL), which is targeting to start production of coal bed methane (CBM) from its Sohagpur (West) block in Madhya Pradesh in FY17, has sought marketing and pricing freedom for the commodity.

On May 17, petroleum minister Dharmendra Pradhan reviewed the CBM output in the country that is still lagging way behind targets with the output being a meagre one million standard cubic metres per day (mmscmd).

The Mukesh Ambani-promoted firm wants the government to roll out the marginal fields policy, which was put in place by the Narendra Modi government last year, for the CBM blocks.

“The CBM exploration is tricky and much more difficult than the marginal fields. The explorers are of the view that the absence of gas infrastructure and gas markets make the CBM projects more challenging. The blocks are situated in West Bengal, Jharkhand and Madhya Pradesh,” said an official, who took part in the minister’s review meeting. Other than RIL, the companies taking part in the meeting include Essar Oil, ONGC and GEECL, among others.

In September last year, the Modi government introduced the revenue-sharing and uniform licensing models for 69 marginal fields. Of these, 67 fields would be put under the hammer on May 25. The developers of these fields will benefit from ‘market-determined prices’ sans any government interference. Moreover, the bidders for marginal fields are given the right to sell gas to customers of their choice, unencumbered by the government’s allocation policy.

Currently, GEECL’s Raniganj (South) and Raniganj (East) held by Essar Oil are the only two blocks under production.

The firms have informed Pradhan that CBM blocks are planning to spend nearly `9,000 crore in FY17 and FY18. This would help to ramp up the output to about 2.4-2.6 mmscmd from 1 mmscmd now. Of this, RIL has given projections to invest to the tune of `3,000 crore in Madhya Pradesh.

Public sector explorer ONGC proposes to invest about `1,600 crore towards drilling CBM from Bokaro and North Karanpura blocks. The field development plan (FDP) for Bokaro has been approved by ONGC Board, said another government official.

The PSU plans to spend `867 crore in the Bokaro block and the peak output is expected at 0.7 mmscmd. The block is envisaged to commence production from FY18. The FDP for North Karanpura block is still in works, where ONGC plans to invest `600-700 crore and achieve a peak output of 0.36 mmscmd.

Ruias-owned Essar Oil has committed to spend nearly `2,600 crore to pump out more gas from its CBM blocks in West Bengal.

Pradhan said about `10,000 crore have been invested in CBM in India. “By 2017, it is likely to contribute 5% of national gas production,” the minister said after the meeting.

India offered 33 CBM blocks. However, 17 of them, or 50% of the blocks, have been relinquished. Though two other firms producing CBM — Essar Oil and GEECL — have a pre-approved price for their gas, RIL and ONGC would have to follow the natural gas pricing formula put in place by the government in October 2014. This means RIL and ONGC would have to sell CBM at $3.06/mBtu, compared with more than $5-6/mBtu enjoyed by Essar Oil and GEECL.