Hydrocarbon policy requires private Indian CBM firms to apply for new licences

KOLKATA (miningweekly.com) – In a blow to existing private companies operating coal blocks exclusively for coalbed methane (CBM), they would have to seek fresh licences from the Indian government under the newly unveiled Hydrocarbon Exploration and Licensing Policy (Help).

In a clarification to a Parliamentary committee, the Petroleum and Natural Gas Ministry said that only Coal India Limited (CIL) was permitted to produce CBM from existing coal blocks and existing private operators would have to seek fresh licences under Help.

The Ministry's statement comes in the wake of a search for clarity by existing operators already undertaking CBM exploration and production projects at coal blocks allocated to them by the government.

The high points of the new Help were, among others, a composite uniform licence for exploration for and production of all forms of hydrocarbons from a single asset block, open acreage, revenue sharing contracts, and freedom of pricing and marketing of oil and/or gas produced from the block.

The government clarification is necessary as existing CBM operators are exclusively producing CBM and generally do not undertake coal production under their respective contracts with government even though Help envisages a uniform licensing agreement for production of all hydrocarbons from a single block.

The integrated Help covering all hydrocarbon exploration and production also puts pricing aspects of various hydrocarbon products in the grey zone.

Demanding a comprehensive, separate policy covering CBM, the Parliamentary committee pointed out that though Help accorded pricing and marketing freedom to a licensee irrespective of the company being private or government owned, in the case of companies involved in CBM projects, pricing approvals from the government for this production had to be sought.

In fact, CBM sales prices vary from company to company and at times differ based on coal block geological parameters too. The committee pointed out that the pricing of CBM produced by existing companies ranged between $10.45 per million metric British thermal unit (mmBtu) and $3/mmBtu.

The CBM specific policy is also necessary to enable allocation of coal blocks solely for extraction of CBM along with offering the choice of simultaneous extraction of coal and leaving the final decision to investors based on their viability assessments. This will also eliminate the roadblock currently faced by existing CBM operators of having to seek fresh licences under Help.

India’s Petroleum and Natural Gas Ministry had in May 2016 set a target of CBM contributing a minimum of 5% to total domestic natural gas production in the country. However, the progress on CBM projects over the years has lagged.

India's CBM resource is estimated at 63-trillion cubic feet of which only 10-trillion cubic feet has been established. However, since 1997 when CBM extraction guidelines were first framed, CBM production has touched only one-million standard cubic metres a day, or 1% of the total domestic natural gas production, according to government data.

Major CBM operators include Great Eastern Energy Company of the Essar Group, Reliance Industries and Hindalco Industries among private companies and ONGC, the government-owned and -operated oil and gas exploration and production major.