Petroleum ministry calls explorers’ meeting to discuss CBM pricing
The petroleum ministry has called a meeting of explorers including ONGC, Reliance Industries (RIL), Essar Oil and Great Eastern Energy Corporation…
The petroleum ministry has called a meeting of explorers including ONGC, Reliance Industries (RIL), Essar Oil and Great Eastern Energy Corporation (GEECL) on November 1 to discuss pricing issues related to coal bed methane (CBM) exploration.
This is in the wake of industry apprising the government, at a review meeting with the petroleum ministry on September 15, that getting new CBM blocks into production is not economically viable at prevailing domestic prices.
These firms also informed the ministry of their plans to invest $2 billion in CBM projects in the next three to five years, subject to remunerative pricing and overcoming of regulatory hurdles such as land acquisition and green clearances.
“The government wants to discuss different options with the industry. Already, a review was held on September 15, where some issues were raised by the explorers,” a senior official privy to the development told FE.
In the last meeting, one of the private players said that commencing CBM output is viable only at a gas price of around $8/mBtu. This, however, may not be granted, as imported spot LNG is now available at around $6/mBtu.
According to industry watchers, one of the options for CBM players is to sell gas at market-determined prices.
Recently, the government had put in place a similar policy for auctioning 69 small oil and gas fields. If the buyer is willing to pay a higher price, it should not be a problem for government, said a senior executive of an exploration firm that has CBM blocks.
If the $2-billion investments are made, it could lead to an increase in CBM output to about 6 million metric standard cubic meter per day (mmscmd) from 1.1 mmscmd now. Till now, nearly $1.18 billion investments have been made to CBM projects in India.
Currently, GEECL’s Raniganj (South), and 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 the Narendra Modi government in October last year, would further reduce to $4.15-$4.20/mBtu from October 1 against $5.18/mBtu now.
The industry is batting for a ‘fair and equitable index’, for pricing of the gas, which could be linked to alternate fuels also if not completely market determined. 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.
Last time, the explorers brought to the limelight that without ‘economically-viable’ pricing for CBM, the investments may not see the light of day. For example, in China, CBM players claim a premium of $2/mBtu, in addition to the 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 start production from Sohagpur (West) in Madhya Pradesh, while ONGC from its Bokaro block in 2015-16.