Essar Energy to start CBM production by year-end

The Ruias-promoted Essar Energy will begin production of coal-bed methane (CBM) from Raniganj block in West Bengal from December 2009. It would be producing the gas — which is found in coal seams — from 15 wells in the first phase.

The company said it would write to the Directorate General of Hydrocarbons (DGH) next week, seeking the regulatory authority’s permission to produce gas by the year-end. DGH has certified reserves of 2.2 trillion cubic feet in the block.

“The first phase is complete and we would begin production in December,” an official from Essar Energy said.

He, however, did not divulge the price at which the company would be selling gas to its customers. The company has already identified the markets and the buyers for the CBM gas.

“We will sell the gas to nearby industrial houses in West Bengal, which would use it as a substitute for furnace oil,” the official said. The company is in the process of signing the gas offtake agreements.

Essar, which holds 100 per cent rights to the block, will become the second company after YK Modi-promoted Great Eastern Energy Corporation to produce CBM in the country. “Initially, the block is expected to produce 100,000 standard cubic metres of gas (scmd) a day, which would be scaled up in the second phase,” Shishir Agarwal, CEO of Essar Exploration and Production India, had said during the company’s analyst meet in May 2009.

The company has engaged Netherlands, Sewell and Associates, a Texas-based oil and gas consulting firm, to assist it raise a debt of Rs 400 crore to fund its project to produce gas. The company has already invested around Rs 100 crore in the project.

“We need external funding to the tune of Rs 400 crore and are in talks with banks for the same. We will raise a line of credit and spend it over three years,” the official added.

Essar would begin physical work on the ground for the second phase this November. In a presentation in May 2009, the company said that estimated CBM production per well in the region is more than 5,000 scmd.

The company said it is also planning to bid for the CBM IV auction that the government launched on August 8 as part of the eight round of the National Exploration and Licensing Policy (Nelp VIII).