Reliance seeks $13/MMBtu price for CBM gas

Reliance Industries has sought government nod for selling gas, that it will produce from coal seams in Madhya Pradesh, at a price close to $13 per mmBtu.

RIL two weeks back wrote to the Ministry of Petroleum and Natural Gas saying its pricing formula of 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26 per million British thermal unit had generated a demand six times the gas it plans to produce from Sohagpur coal-bed methane block by end-2014, official sources said.

At $100 per barrel oil price, 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 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.

Sources said RIL told the ministry that it got 59 valid bids seeking about 70 mmscmd of gas in open bids that were invited as per the provisions of the Production Sharing Contract (PSC) to discovery market price of CBM.

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 in the letter to MoPNG stated that it 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 CBM price, it said, represented a "true arms length market price that meets all the requirements of price discovery and brings maximum benefits" to the government.

Sources said RIL warned against non-acceptance or modification of the proposed formula saying government's share of profit from the CBM production, royalty and taxes would be impacted by any such move.

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.