CBM producers will have to adhere to govt norms

Reliance Industries, Essar Energy and Great Eastern Energy Corporation (GEECL), involved in coal bed methane (CBM) exploration and production, would now have to adhere to government guidelines on selling the gas.

Besides, the companies would have to stick to a supplier list from the ministries of petroleum and natural gas, power, and chemicals and fertilizer. The petroleum ministry has circulated a note on this to the companies.

By the ministries’ priority list, these companies will supply gas to the fertiliser sector, bottling plants of liquefied petroleum gas and power companies, in that order. “The CBM policy is similar to the government’s gas utilisation policy of 2007, wherein the power regarding allocation and pricing rests with the government,” said a senior executive from one of the CBM producing companies.

Only CBM operators producing less than 500,000 cubic metres of gas from their blocks would be allowed to ignore the priority list.

CBM gas is similar to natural gas, containing 90-95 per cent methane. The cost of CBM-CNG is 50-60 per cent lower as compared to diesel for unit power.

According to the government directive, to fix a price, CBM operators would need to carry out an open price discovery exercise and invite bids from priority sector customers.

“The CBM pricing has to be approved at arms-length basis after determining from all sectors. This price will be sent to government for approval,” said Y K Modi, promoter of GEECL.

GEECL was the first company to produce CBM and is selling gas from its Raniganj block at $7 per British thermal unit.

It is currently producing 160,000 standard cubic metres per day (mscmd) of gas from the Raniganj block. It will be raised up to three million mscmd over the next seven years.

While Essar Oil is expected to start CBM production shortly, Mukesh Ambani’s Reliance Industries is already said to be working on a pricing formula for CBM from three blocks in Sohagpur (east and west) and Sonhat in Madhya Pradesh, prior to asking government approval.

RIL had, after discovering gas in its flagship Krishna-Godavari (KG) basin find on the east coast, invited bids from power and fertiliser companies to determine a market benchmark. KG-D6 gas is sold at $4.2 per unit. According to the government’s directorate general of hydrocarbons, Reliance holds a total of 3.6 trillion cubic feet of gas in its CBM blocks.