In a boost to hydrocarbon exploration firms Reliance Industries (RIL) and ONGC, the petroleum ministry has proposed to offer market price for natural gas produced from the coal bed methane (CBM) blocks. RIL is targeting to start production of CBM from its Sohagpur (West) block in Madhya Pradesh in FY17, while state-run ONGC is developing the Bokaro block in Jharkhand.
The petroleum ministry has proposed a revised policy for CBM blocks which is in similar lines to the policy rolled out for the ongoing auction of 67 discovered small and medium oil and gas fields. “The Cabinet note has been moved for inter-ministerial consultation last week,” a source told FE.
The Narendra Modi government has unveiled a policy for the small fields that provide an investment opportunity in already discovered fields with no signature bonus, no requirement of prior technical experience and no mandatory work programme. The new policy is based on revenue sharing contract model with the aim of simplifying the operating regime and making it more transparent. In addition, the explorers would get market price for the hydrocarbon produced.
The standing committee on petroleum and natural gas under the 16th Lok Sabha found anomaly in pricing of gas produced from CBM blocks currently. Two firms producing CBM — Essar Oil and GEECL — have a pre-approved price for their gas. RIL and ONGC, which are gearing up for production, would have to follow the natural gas pricing formula put in place by the government in October 2014. This means RIL and ONGC would have to sell CBM at $3.06/mBtu, compared with more than $6-15.5/mBtu enjoyed by Essar Oil and GEECL.
“I would not say that pricing challenge is not there. However, the investment to be made by ONGC for CBM is less than R1,000 crore and therefore we are going ahead with it,” D K Sarraf, chairman and managing director of ONGC, told FE, hinting that the government is expected to roll out a new policy that would make CBM business economically viable. ONGC is investing R659 crore to develop the Bokaro block with reserves of 4.098 bcm.
India offered 33 CBM blocks. However, 17 of them, or 50% of the blocks, have been relinquished. The natural gas output from CBM blocks was reported at 1.0734 mmscmd in FY16 and it is currently hovering 1.3757 mmscmd. Petroleum ministry has set a target of 5.77 mmscmd in FY18.
The standing committee has recommended that the petroleum ministry should formulate a separate pricing and marketing mechanism which also considers availability of small gas volumes, requirement for higher drilling and remote locations, among others.