RIL wants $13 per mmBtu for CBM gas

Reliance Industries (RIL) has sought approval to sell gas it plans to produce from below coal seams (coal-bed methane) at about $13 per million British thermal unit (mmBtu), more than double the rate at which domestically produced gas is sold at present.

RIL on September 16 submitted to the Oil Ministry a formula for pricing of 3 million standard cubic metres per day of CBM it plans to produce from Sohagpur block in Madhya Pradesh, sources privy to the development said.

The formula is the same as the one at which RasGas of Qatar sells liquefied natural gas (LNG) on a long-term contract to India.

According to the formula, RIL wants 12.67% of the prevailing Japanese Crude Coctail (JCC) plus 0.26 per mmBtu, they said.

JCC is now ruling around $100 per barrel and CBM price according to this formula comes to $12.67 per mmBtu plus $0.26 per mmBtu, totaling $12.93 per mmBtu.

But industry observes scoffed at the price sought saying RasGas supplies gas rich in compounds like ethane (C2) and propane (C3) which are useful in manufacture of LPG and petrochemicals. Whereas, CBM is just methane (C1) and should therefore be priced at least 15-20% discount to the price of rich or C2/C3 compound-rich gas.

Also, LNG pricing cannot be applied for domestic gas as huge investment goes into putting a liquefication plant that turns natural gas into its liquid state by cooling it at sub-zero temperature.

Sources said Reliance in the price approval letter states that the formula it is suggesting is arrived at on an arms-length basis.

RasGas prices the 7.5 million tonne a year (about 30 mmscmd) gas it sells to Petronet LNG at 12.67% of JCC. Another $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 has lifted this formula and has sought pricing of its CBM in line with that.

Great Eastern Energy Corp (GEECL) is selling CBM is produces from its Raniganj block in West Bengalat $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 five years ending March 31, 2014.

Sources said RIL 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.