Indian companies to invest $2 bn in domestic CBM exploration
Public Sector Undertaking, explorer ONGC as well as private firms Reliance Industries (RIL), Essar Oil and Great Eastern Energy Corporation Ltd (GEECL) on Wednesday apprised the petroleum ministry of their plans to invest a combined $2 billion in the next three to five years in coal bed methane (CBM) projects.
However, these investments, that may lead to increase in output to about 6 million metric standard cubic meter per day (mmscmd) from 1.1 mmscmd now, would require a remunerative pricing regime in addition to timely regulatory approvals including land acquisition, forest and environment clearances, the companies said.
On Wednesday, the petroleum ministry held a review of CBM production in the country. The meeting was chaired by Kapil Dev Tripathi, secretary and U P Singh, additional secretary (exploration) at the petroleum ministry. The four explorers – ONGC, Essar Oil, RIL and GEECL – were represented by top executives of the firms. Till now, nearly $1.18 billion investments have been made to CBM projects in India.
“The discussion is constructive where the explorers put forward their plans. Most of the issues flagged by them are common to all,” a government official privy to the discussions told FE.
Currently, GEECL’s Raniganj (South), while Raniganj (East) held by Essar Oil are the only two blocks under production. ONGC’s Jharia block started test production but is yet to achieve commercial stage.
The pricing of the gas is one of the crucial issues faced by the explorers. The price of natural gas, based on a formula approved by Modi-government in October last year, would further reduce to $4.15-$4.20/mBtu from October 1 against $5.18/mBtu now. At this price, commencing CBM production from a new block seems economically unviable.
According to industry watchers, a price of $8-8.5/mBtu is viable at the current scenario. The industry wants a ‘fair and equitable index,’ for pricing of the gas, which could be linked to alternate fuels also. The CBM projects are capital intensive, and different from conventional ones where a large numbers of wells are required to be drilled at a faster pace. The explorers have brought to limelight that without a ‘economically-viable’ pricing for CBM, the investments may not see light of the day. For example, in China CBM players claim a premium of $2/mBtu, in addition to prevalent gas price of $11.9/mBtu.
India offered 33 CBM blocks. However, 17 of them, or 50% of the blocks, have been relinquished. RIL targets to commence production from Sohagpur (West) in Madhya Pradesh, while ONGC from its Bokaro block in 2015-16.
The petroleum ministry has already received inputs from the industry about non-viability of CBM operations at lower gas price. In contrast, GEECL sells gas from its 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 a approved price of $6.79/mmBtu, while Raniganj (East) held by Essar Oil has a approved price for the incidental gas of $6.25/mmBtu. Essar Oil, however, has opted the pricing regime approved last year for its CBM gas.
CBM Prospects:
* ONGC, RIL, Essar Oil & GEECL have plans to invest $2 billion
* If these investments are made, output can increase to 6 mmscmd
* Current output at dismal 1.1 mmscmd from Essar Oil and GEECL blocks
* Remunerative pricing crucial for investments to see light of day
* Industry watchers feel $8-$8.5/mBtu viable for CBM operations
* Till now, nearly $1.18 billion investments have been made to CBM projects in India
* Land acquisition, regulatory clearances add up to roadblocks