Government Allows Pricing, Marketing Freedom To CBM Gas Companies
The move will help RIL, ONGC to quickly put in to production the CBM blocks.
The Cabinet on Wednesday approved pricing and marketing freedom to producers of natural gas from coal seams (CBM) and also allowed them to sell the fuel to affiliates. The move will help operators like Reliance Industries and Oil and Natural Gas Corp Ltd.(ONGC) to quickly put in to production the coal-bed methane (CBM) blocks they hold and reverse the trend of investors relinquishing coal-seam blocks due to viability issues of current pricing.
"The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, today gave its approval for marketing and pricing freedom to the CBM contractors to sell the CBM at arm's length price in the domestic market," an official statement said.
To discover the arms length sales, a contractor like Reliance Industries Ltd. (RIL) or ONGC has to ensure a fully transparent and competitive bidding process from amongst users of the CBM gas "with the objective that the best possible price is realised for the gas without any restrictive commercial practices," it said. Also, the companies have been permitted to sell the CBM gas to any of their affiliates in the event they cannot identify any buyer.
"Royalty and other dues to the government, however, shall be payable on the basis of Petroleum Planning and Analysis Cell (PPAC) notified prices or selling prices, whichever is higher," the statement said.
The policy is expected to incentivise the CBM operation in the country to boost gas production. It "will generate economic activities which in turn will be beneficial for creating more employment opportunities in CBM operations and related activities," it added.
Of the 33 CBM bearing blocks awarded so far in four auction rounds and on a nomination basis, gas is being produced from only four. The move will benefit Reliance which has two blocks in Madhya Pradesh that are in the process of starting production.
ONGC and Essar Oil too will benefit from the new policy as it will help them put their acreage into production quickly.
The four CBM blocks in production have a combined output of 1.17 million standard cubic metres per day. As many as 18 blocks have either been relinquished or are in the process as operators found that it did not make economic sense to produce gas at the prevailing rates.
Most of the natural gas produced in the country is priced at average of rates prevailing in gas surplus nations like the U.S., Russia and Canada. The current price comes to $2.5 per million British thermal unit, a rate considered unviable by many operators.
According to the Directorate General of Hydrocarbons (DGH), India has the 5th largest proven coal reserves in the world and holds significant prospects for exploration and exploitation of CBM. The estimated CBM resources in the country are about 92 trillion cubic feet. The 33 CBM blocks awarded so far hold a total of 62.4 Tcf of the estimated CBM resource, of which, so far, 9.9 Tcf has been established as Gas in Place (GIP).
The sources said the CBM gas pricing policy proposed to the Cabinet is in line with the recently unveiled regime governing small and marginal oil and natural gas blocks.
The government had recently auctioned small and marginal discovered oil and gas fields by promising investors complete pricing, marketing and production freedom under a revenue sharing contract agreement.
Pricing freedom would help quickly ramp up CBM gas production to targeted 5.77 mmscmd within a year, they said.