Govt sticks to Rangarajan formula on CBM price

Written by Siddhartha P Saikia | New Delhi | Updated: Apr 25 2014, 13:58pm hrs
C RangarajanGEECL, the first company in India to commercially produce CBM, sells around 0.30-0.35 mmscmd in West Bengal.
In a dampener for coal-bed methane (CBM) explorers GEECL, Essar Oil and ONGC, the petroleum ministry has decided to price CBM as per the Rangarajan formula notified under the pricing guidelines, 2014.

Under the formula devised by Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan, CBM will be priced similar to natural gas, which, according to current rates of benchmark prices, would be around $8/mmBtu. CBM producers sell at prices not less than $10/mmBtu even though the minimum selling price stipulated by the government is between $6.2-6.7/mmBtu for methane across fields.

The cost of CBM and shale gas should be a single one for domestic gas, as notified under the pricing guidelines 2014 and contractors cannot charge a higher price than this, said a senior petroleum ministry official.

Currently, these players sell gas at an approved minimum selling price. For example, GEECL which operates the Raniganj (South) block has an approved price of $6.79/mmBtu while Raniganj (East) held by Essar Oil has an approved price for the incidental gas of $6.25/mmBtu. It is $5.1/mmBtu for the Jharia block of ONGC. These companies sell gas at more than $10/mmBtu.

Earlier, the companies believed that according to the production-sharing contract (PSC), the new Rangarajan formula-based prices would not be implemented for CBM operations, as it already has a pre-approved price.

The Cabinet-approved gas pricing regime has been put in abeyance due to an Election Commission order and, recently, even the Supreme Court had asked the government to explain why it needed to use the complex Rangarajan formula when it could have adopted simpler alternative methods like cost-plus pricing.

GEECL, the first company in India to commercially produce CBM, sells around 0.30-0.35 mmscmd in West Bengal. The block has 2.44 tcf of estimated gas in place. GEECL has another CBM block in Mannargudi in Tamil Nadu with 0.98 tcf of reserves and also holds stake in the Raniganj (North) block in a operatorship with ONGC.

Essar Oil is producing over 1,20,000 scmd and plans to reach plateau production of 3 million scmd next year from its West Bengal block.