GAIL will buy 2.3 million standard cubic metres per day of coal-bed methane (CBM) that Essar Oil and Gas Exploration and Production (EOGEPL) will produce from its Raniganj block in West Bengal for USD 7.1 per million British thermal unit.
The price is more than double of the USD 2.89 per mmBtu price set by the government for most of the domestically produced conventional natural gas.
Essar used the same formula which Reliance Industries had first used in 2012 to seek bids for its CBM gas from its Sohgpur block in Madhya Pradesh, and then again last year for selling the CBM. In the first instance, the oil ministry had not approved the price.
Like RIL, Essar had sought bids for potential users in the form of a deductible from 12.67 per cent of Brent crude oil price plus USD 0.52 per mmBtu plus USD 0.26 per mmBtu, according to the bid document.
GAIL bid a deductible of 1.89, which translated into a gas price of USD 7.12 per mmBtu (on gross calorific value) at today's Brent oil price of USD 64.80. At three-month Brent crude average of USD 65.8, the gas price comes to USD 7.23 on gross calorific value (GCV) basis.
Interestingly, GAIL had in the similar bid process run by RIL last year for 3 million standard cubic metres per day of Sohagpur CBM gas quoted a deductible of 3.495. RIL had bid a deductible of 1.836 to win all the supplies.
RIL's Sohagpur gas at today's oil price comes to USD 7.15 per mmBtu on GCV basis.
The formula used by RIL and Essar is the same at which Petronet LNG, a joint venture of public oil companies, whose chairman is the oil secretary, used to import long-term liquefied natural gas (LNG) from Qatar.
EOGEPL had invited bids from prospective buyers of gas based on a government notification dated April 11, 2017, which lays out a policy framework for the early monetisation of CBM gas.
The policy provided marketing and pricing freedom at arm's length price in the domestic market to contractors of CBM blocks.
EOGEPL has invested about Rs 4,000 crore in the Raniganj East CBM block in drilling wells, setting up supply infrastructure, and laying customer pipelines to Durgapur and nearby industrial areas, according to the company.
The block has 348 completed CBM wells, alongside robust gas and water handling capacity.
The Raniganj East block is India's most prolific CBM block, which has achieved gas production of more than 1 mmscmd (million standard cubic metres per day), which will be gradually scaled up a saleable volume to 2.3 mmscmd.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)