Coal bed methane producers will have to bring down price

As of now, contractors pay production linked payment/royalty on actual prices that they realize from consumers

Dashing the hopes of coal bed methane players (CBM) for continuing with a higher gas price the ministry of petroleum and natural gas has decided to go for a uniform gas price for all the gas producers in India once the new pricing under Rangarajan formulae comes into effect post elections.

Methane producers like Great Eastern Energy Corporation Ltd, EssarOil and ONGC are drawing a higher price of $5.1-$22.8 per unit from its fields now. The domestic gas pricing is currently at $4.2 per million metric British thermal unit. Even after the new pricing based on formulae suggested by a committee headed by the Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan, the pricing of natural gas is expected to be in the range of $8 per unit.

The MoPNG has clarified, "There is no conflict of interest between the domestic natural gas pricing guidelines issued on 10th January, 2014 and the CBM contract and the pricing approvals issued." This came after the CBM players had raised objections since they were drawing a higher gas price than the expected notified price of $8 under the Rangarajan formula. Though the new pricing was supposed be applicable from April 1 onwards, it got derailed due to the Election Commission intervention.

"The Government has fill rights 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." The ministry is further of the view that any other pricing regime other than Natural Gas Pricing Guidelines, 2014, needs separate approval from the Cabinet Committee of Economic Affairs.

According to the ministry the notified pricing for GEECL's Raniganj (South) block is $6.79, Raniganj (East) by Essar is $6.25 and Jharia by ONGC at $5.1 per unit. "The actual CBM price that is being realized by GEECL and EOL are higher than thwe approved prices. It varies from $8.5-22.8 per unit for GEECL, $11.19-12.59 per mBtu for Essar and $5.1 per unit by ONGC," the ministry note added according to sources. GEECL did not respond to a query by the Business Standard in this regard.

As of now, contractors pay the production linked payment/royalty on the actual prices that they realize from consumers. However, if the contractors are required to sell at a uniform pricing, it will hit royalty payments to the government too.

Currently, GEECL is producing 14.73 million standard cubic feet a day (mscfd) and plans to increase production to 100 mscfd in four-five years, with an additional investment of Rs 1,500 crore. Raniganj, in which Essar Oil holds 100% interest, is a 500-sq km block with total proven and probable reserves of 113 billion cubic feet.