CBM producers can't charge more than natural gas: Oil Min

Rangarajan formula of pricing domestically produced natural gas at an average of international hub rates and cost of importing gas into India, will also apply to coal-bed methane

With CBM gas being sold at rates triple the current gas price of $4.2, the government has ruled that gas extracted from coal seams will be priced at equivalent to conventional gas.

The Rangarajan formula of pricing domestically produced natural gas at average of international hub rates and cost of importing gas into India, will also apply to coal-bed methane (CBM), an Oil Ministry file note on the issue said.

The government had approved a price of $6.79 for CBM gas produced by Great Eastern Energy Corp Ltd (GEECL) from its Raniganj-South block in West Bengal while a rate of $6.25 was fixed for incidental gas sales from Essar Oil's (EOL) Raniganj-East block. A rate of $5.1 per mmBtu was fixed for CBM from ONGC's Jharia block.

However, "the actual CBM gas price that is being realised by GEECL and EOL is higher than the approved price ... It varies from $8.5 to 22.8 per mmBtu for Raniganj (South) Block and $11.19 to 12.59 per mmBtu for Raniganj (East) block (as per figures provided by DGH)," the note said.

GEECL was able to charge higher price as the five year validity of the $6.79 per mmBtu rate approved in 2008, had expired.

The note said while the CBM contract provides for market pricing of the gas, prior government approval is needed for execution of actual sales. The government has powers and authority to notify a price and the new pricing guidelines based on the Rangarajan formula that has been approved by the Cabinet, will be guiding principle for CBM sales.

Gas pricing in current quarter as per the Rangarajan formula, whose implementation has been deferred till completion of general elections, comes to about $8.3 per million British thermal unit.

The note said it would be inappropriate to treat the gas price notified through the new pricing guidelines as a floor price in case of CBM contracts. "Government has full powers to fix the domestic gas price and in all fairness it should be, irrespective of its source - whether conventional, shale or CBM."

"Hence, the price of CBM and Shale Gas should also be a single price for domestic gas as notified under the Pricing Guidelines, 2014 and contractors cannot charge a higher price than this from their customers," it added.

According to the ministry, in case the contractors like GEECL and EOL are required to sell CBM gas at a uniform rate of $8.3 per mmBtu, as derived from the new Pricing Guidelines of 2014, the government take through production linked payments/royalty will substantially reduce from the current levels.

But nevertheless, all domestic gas should be priced at a uniform rate.