Gas pricing decision for RIL, Essar Oil by Apr-end

The government will decide on the price of gas that Reliance Industries (RIL) and Essar Oil plan to produce from coal seams by April-end, an Oil Ministry official said today.

"We don't have to go to the Empowered Group of Ministers (EGoM) on coal bed methane (CBM) pricing as the Production Sharing Contract (PSC) for these are different from the ones for conventional oil and gas fields (like RIL's KG-D6 fields)," the official said.

Unlike KG-D6 fields, there is no issue of cost recovery involved in CBM blocks as the government gets a fixed royalty which the operators bid at the time of allotment of the blocks. In conventional fields, all cost incurred is first recovered by the operator and revenues are then shared with the government in a fixed proportion.

The official said the government revenues in a CBM block depend on price of gas, higher the price, the larger the take and vice-versa.

"We should be able to decide on the price of CBM in a month's time, certainly by April-end," he said.

While Essar Oil has proposed to sell gas from its Raniganj block in West Bengal at $4.20 per million British thermal unit, RIL has sought government nod for selling CBM from its Sohagpur block at a price close to $13 per mmBtu.

RIL has priced CBM at 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu from end-2014.

At $100 per barrel of oil, CBM from RIL's Sohagpur coal-bed methane (CBM) blocks in Madhya Pradesh, will cost $12.93 per mmBtu.

The pricing formula RIL has proposed for CBM is different from the one at which natural gas from the company's eastern offshore KG-D6 block is priced at.

KG-D6 gas at cap crude oil price of $60 per barrel, translates into a sale price of $4.205 per mmBtu. Sohagpur CBM at $60 per barrel oil price would be $7.862 per mmBtu.

The company on February 3 put out an advertisement proposing to price CBM from SP(West)-CBM-2001/1 and SP(East)-CBM-2001/1 blocks at 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26, plus 'V', where 'V' was the biddable number that users were asked to quote. 'V' could have been either positive or negative.

Sources said RIL got a demand of 20.63 mmscmd (about six times the gas offered for sale under the process of price discovery) if the biddable parameter 'v' is kept at zero.

RIL will charge $0.15 per mmBtu as marketing margin over and above the CBM price and the customers would also have to pay for taxes/duties and transportation tariff.

The formula proposed by RIL is the same at which Petronet LNG Ltd, the nation's largest liquefied natural gas importer, buys 7.5 million tonne per annum of LNG from RasGas of Qatar.

RasGas charges 12.67% of JCC and Petronet pays a further $0.26 per mmBtu for shipping the gas in its liquid form (LNG) from Qatar.