India proposes pricing freedom for coal-bed methane investors

KOLKATA (miningweekly.com) – The Indian government has proposed relaxing the price regime applicable for natural gas from coalbed methane (CBM) in a bid to ensure a level playing field and to stem the trend of investors relinquishing blocks.

A document prepared by the Petroleum and Natural Gas Ministry, which will soon go before the Union Cabinet for approval, proposes granting pricing freedom for natural gas produced from CBM blocks.

The Ministry also plans to frame a separate pricing and marketing regime that will factor in the availability of natural gas in small volumes from comparatively smaller CBM blocks and the higher costs of drilling in remote locations.

In effect, the new CBM policy will be in line with the newly unveiled regime governing small and marginal oil and natural gas blocks. In the case of the latter, currently up for auction, investors have complete pricing, marketing and production freedom under a revenue sharing contract agreement with the government.

The pricing freedom for CBM will come as a big boon for companies including Reliance Industries and ONGC, which are scheduled to start production this financial year from the Sohagpur block, in Madhya Pradesh, and the Bokaro block in Jharkhand, respectively.

The liberalised pricing is also expected to end the often anomalous situation stemming from the current system where CBM gas is sold at a government pre-approved price.

For example, while existing producers like Essar Oil and Great Eastern Energy Company are permitted to sell at price ranging from $6 to $15.50 per million British thermal units (mBtu), new producers like Reliance and ONGC’s gas pricing will be governed by the government natural gas policy 2014, under which the pricing will be about $3/mBtu.

India has allocated 33 blocks for CBM production, but companies have relinquished as many as 17 blocks, owing to economic viability and a restrictive policy regime.

India’s CBM gas production by the end of current financial year has been forecast at 1.073-million metric standard cubic metres a day. The Ministry has set ambitious target of ramping this up to about 5.77-million metric standard cubic metres a day by the end of 2017/18.