India coal-bed methane projects floundering

By: |
New Delhi | August 17, 2016 6:23 AM

Over a decade after India began allocating coal-bed methane (CBM) blocks to investors, the country is nowhere near what the US, Canada and Australia have achieved in developing this energy resource...

Analysts cite several reasons for the under-performance, including overlapping of coal and CBM rights held by firms and lack of infrastructure to evacuate the gas and transport it to the consumer locations. (Source: Reuters)

Over a decade after India began allocating coal-bed methane (CBM) blocks to investors, the country is nowhere near what the US, Canada and Australia have achieved in developing this energy resource — while 17 of the 33 CBM blocks allocated since 2001 have already been relinquished by the firms concerned, the total gas production from the remaining blocks is languishing at an abysmal 1.38 million metric standard cubic metre per day (mmscmd).

Analysts cite several reasons for the under-performance, including overlapping of coal and CBM rights held by firms and lack of infrastructure to evacuate the gas and transport it to the consumer locations. To top it all, the extension of the new natural gas pricing policy to the CBM sector (under which CBM cannot be sold above $3.06/mBtu by producers without pre-approved price) has made the business unviable for the likes of ONGC and Reliance Industries.

The pricing policy has also created a divide in the industry with two firms producing CBM — Essar Oil and GEECL — being able to sell CBM gas at pre-approved (high) prices of $6 and $15/mBtu respectively, while RIL and ONGC, which are only gearing up to start production, would have to follow the natural gas pricing formula.
The last round of CBM bidding took place in 2008.

The standing committee on petroleum and natural gas, in a report table in Parliament on August 11, said many CBM blocks could not be brought under production either due to poor prospectivity or because of issue of overlapping of rights. “In view of the newer techniques of assessment and exploration, drilling of CBM has significantly improved… the committee, therefore, feels that there is need to formulate a new comprehensive CBM policy consistent with development in regulatory regimes and also taking into account the performance of existing policy,” it said.

Taking note of the anomaly in pricing of gas produced from CBM blocks, it recommended that the petroleum ministry formulate a separate pricing and marketing mechanism which also considers availability of small gas volumes, requirement for higher drilling and remote locations, among others.

Gr4

In the existing regime of award of CBM blocks, companies with rights over coal areas find their rights usurped by those with rights over CBM and vice-versa. This situation has given rise to delays in production and is unsustainable… For instance, ONGC was given blocks in Jharia and Raniganj on nomination basis in 1997, but it could not start production due to overlap issues with ECL, a private coal operator in that area. After the cancellation of the coal block by the Supreme Court, the area has now been given to SAIL and ONGC.

The two ministries concerned — coal and petroleum & natural gas — could not take any steps to sort out overlapping issues in the past two decades.

Evacuation of natural gas and lack of infrastructure is another hindrance while exploiting CBM.

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