State-run ONGC has decided to hire an integrated service provider to produce coal-bed methane (CBM) from its Raniganj block as the explorer is finding it difficult to cut production cost which in turn means the break-even cost of gas from the block will be $8.77 per mmBtu, far more than the same for the company’s other three CBM blocks in Jharkhand.
The break-even CBM gas prices of ONGC from its Bokaro block is $5.56 per mmBtu, $5.68 per mmBtu for Jharia block and $6.24 per mmBtu for North Karanpura block.
According to sources, the estimated cost of developing the Raniganj CBM block is Rs 2,213 crore and the company expects the integrated service provider to bring down the cost to around `1,400 crore, making the project commercially viable.
Usually, explorers hire separate third-parties for services such as sub-surface (enhanced oil recovery/improved oil recovery techniques), development plan, construction of wells, reservoir management, surface facilities development and production optimisation techniques. However, an integrated developer provides all these services under one tender by optimising cost.
While the government has allowed marketing freedom for gas produced from CBM blocks unlike regulated price offered for gas produced from conventional fields, a cost of $8.77 per mmBtu is way more compared with prices that other CBM blocks have fetched. While it is reported that ONGC has struck deals to sell gas from its other three blocks at $5.56-6.17 per mmBtu, Reliance Industires’ Sohagpur CBM block in Madhya Pradesh sells gas for more than $7.15 per mmBtu, the highest till date.
Nevertheless, these rates are much more than $3.06 per mmBtu price set by the government for majority of the domestically produced conventional natural gas. ONGC has already invited expression of interest for the integrated development of the Raniganj block from interested parties.
ONGC’s integrated development plan follows Vedanta’s similar tender for its Mangala, Bhagyam and Aishwariya fields in the prolific Barmer fields which has reportedly brought down the cost to around 70%. The source added that ONGC also wants one operator to execute the field development plan.
The high cost from the Raniganj block is because of the production prospects. For instance, while the Raniganj block has reserve 7 billion cubic metre (BCM) requiring Rs 2,123 crore for development, the Bokaro block has 30 BCM of gas and will require `2,783 crore for development.
CBM is a generic term used for gas that is found in adsorbed state in coal. The CBM policy was first formulated in 1997, and later amended in 2013. The coal ministry, along with the ministry of petroleum and natural gas, had identified 26,000 square kilometre of coal basinal areas for CBM exploration having reserves of around 2,600 BCM, out of which 33 CBM blocks having an area of 16,000 square kilometre have already been awarded.
However, only 2,575 square kilometre till date have been put to production having 280 BCM of reserves.