RIL invites price bids for CBM gas

With the government reluctant to approve its pricing formula for gas produced from coal seams (CBM), Reliance Industries today invited bids from potential consumers, asking them to quote a rate indexed to the price of imported LNG.

RIL, in an advertisement issued in national and regional dailies, asked consumers to quote a figure in US dollars per million British thermal units that can be added to the price at which Petronet LNG ships gas in its liquid state (liquefied natural gas or LNG) from Qatar under a long-term contract.

While its eastern offshore KG-D6 gas price is fixed at $4.205 per mmBtu for the five years ending March 31, 2014, RIL had on September 16 demanded that coal bed methane (CBM) it plans to produce from its Sohagpur block in Madhya Pradesh should be priced by the same formula as Petronet's Qatar LNG deal.

It had sought 12.67% of the average price of crude oil imported into Japan (called Japan Crude Cocktail, or JCC) plus USD 0.26 per mmBtu. Petronet pays RasGas of Qatar a price of 12.67% of JCC, besides incurring a $0.26 per mmBtu cost on transporting the gas in ships.

At a USD 100 per barrel JCC average, CBM — according to RIL's September formula — would cost $12.67 per mmBtu plus USD 0.26 per mmBtu, totalling USD 12.93 per mmBtu.

Great Eastern Energy Corp (GEECL) is selling CBM produced from its Raniganj block in West Bengal at $6.79 per mmBtu, while domestically produced natural gas is priced at $4.2 to $5.73 per mmBtu. Essar Oil has proposed a price of $4.20 per mmBtu for its CBM.

RIL, in today's advertisement, has retained the pricing formula and asked users to quote a positive or negative number that can be added to this pricing formula.

The company is also demanding a marketing margin of $0.15 per mmBtu from CBM users, even though its USD 0.135 per mmBtu marketing margin charged on KG-D6 gas has been sent to oil regulator PNGRB for review.

Sources said the Oil Ministry was reluctant to approve the price sought by RIL in September last year as nowhere in the world is domestic gas priced at LNG rates.

Moreover, LNG costs more than domestic gas because of the huge investment that goes into putting up a liquefaction plant that turns natural gas into a liquid state by cooling it at sub-zero temperatures so that it can be shipped.

The ministry scoffed at the price sought by RIL as RasGas supplies gas rich in ethane (C2) and propane (C3), which are useful in the manufacture of LPG and petrochemicals. On the other hand, CBM is just methane (C1) with no properties to make LPG/chemicals.

RIL, in today's advertisement, said it will produce a peak output of 3.5 million standard cubic metres per day of gas from the Sohagpur blocks by the second half of 2014.

Sources said RIL had in its September 16 price approval letter stated that the formula it is suggesting is arrived at on an arms length basis.

RasGas prices the 7.5 million tonnes a year (about 30 mmscmd) of gas it sells to Petronet LNG Ltd at 12.67% of JCC. Another USD 0.26 per mmBtu is the cost it takes for shipping the gas cooled to turn it into liquid (called LNG) in cryogenic ships.

RIL adopted this formula and has sought pricing of its CBM in line with it.

Great Eastern Energy Corp Ltd (GEECL) is selling CBM it produces from its Raniganj block in West Bengal at $6.79 per mmBtu, while domestically produced natural gas is priced at $4.2 to $5.73 per mmBtu.

The natural gas Reliance produces from its eastern offshore KG-D6 fields is priced at $4.205 per mmBtu for the five years ending March 31, 2014.

Sources said Reliance has sought expeditious approval of the CBM price so that it can sign gas sales and purchase agreements (GSPAs). The company plans to feed Sohagpur gas to state-owned GAIL's HVJ trunk pipeline for supply to customers.