CBM extraction by Coal India opens possibilities for private sector

Opportunities are poised to open for private oil and gas producers in coal-bed methane (CBM) extraction. Coal India Ltd (CIL) is likely to float global tenders to appoint service providers on this project.

Sources in CIL suggested as the Centre had cleared the grey area which previously stalled CBM extraction by the coal behemoth, it will be on the lookout for service providers which can extract the gas from its mines for commercial sale. However, the tender for this selection will depend on the Centre’s policy decision.

“As of now, we have planned to go ahead with a single block in the Jharia coalfields (Jharkhand), where an estimated Rs 30-billion investment will be required. After that, we might simultaneously opt for a second block in Jharia and to develop blocks in Raniganj (Bengal),” said a company official at the Central Mine Planning and Design Institute (CMPDI). The latter is a CIL subsidiary, with planning and technical advisory roles. It is in charge of development of the CBM blocks.

Asked about the nature of the said tender, a CIL official said several global companies had expertise in this field. Hence, the tender's scope would not be limited to Indian companies.

An official at Essar Oil and Gas Exploration said this opened much potential for the private sector and his company would be interested.

The Jharia block belongs to Bharat Coking Coal (BCCL), a CIL subsidiary. The Raniganj block is owned by Eastern Coalfields (ECCL), another subsidiary. It is estimated the entire block at Jharia might have CBM resources of 68.2 cubic metres for commercial mining, while the North and East Raniganj blocks might have 81.6 cubic metres.

Although officials couldn’t estimate the extent of financial gain as a result of this project, the internal rate of return on CBM is projected to be extremely high. Which would boost the finances of both these subsidiaries. In 2017-18, BCCL and ECL failed in their production and sales targets, resulting in the financial position coming under stress.

The CBM thus extracted will be used in two ways. First, it will feed CIL’s own upcoming gas-based fertiliser units, which it is reviving along with other public sector enterprises. The rest of the gas might be routed to contribute to the 2,540 km Urja Ganga gas pipeline project. 

The 900 tonne per day Sindri ammonia fertiliser plant in Uttar Pradesh is likely to be the biggest beneficiary of this project.

“CBM can also be sold to steel plants; steel producers will need some tweaking in their production process. To a large extent, commercial sale of CBM will reduce dependency of the steel producers on coking coal,” the CMPDI official said.

Vilas Tawde, chief executive officer of Essar Oil and Gas Exploration, said there was a ready market for six million standard cubic metres a day of CBM.

Methane is associated with coal as a by-product of the coal formation process. It is trapped in coal beds and released during and after mining. At times, methane causes disasters in underground coal mines and could lead to death. So, its prior extraction should make mining safer.

In 2015, the Centre had approved Coal India exploring and exploiting CBM but required it to apply to the petroleum and natural gas ministry. However, on Wednesday, the government amended the rule, permitting Coal India to explore and harvest CBM without a licence or grant from the petroleum and natural gas ministry.