The Telegraph
Monday , February 17 , 2014
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Methane price clarity call

New Delhi, Feb. 16: The producers of coal-bed methane (CBM) have sought clarity on the price of gas from April. The revised rates could be around $8.2-8.4 per million British thermal unit (mBtu) based on the Rangarajan formula.

A shift to the new regime can lead to a lowering of prices for CBM producers, who have sought clarity from the oil ministry on the rate applicable to them.

“The new price would be applicable to all natural gas produced in the country whether it is conventional, CBM or shale gas,” a senior oil ministry official said.

The official said the concerns of CBM producers would be addressed before the new price came into effect.

Methane prices are set on the basis of the contracts between producers and buyers. Three of the producers — Great Eastern Energy Corporation Ltd, Essar Oil and ONGC — charge different rates.

Great Eastern Energy sold 75.51 million cubic metres (mcm) of coal gas from its Raniganj south CBM block in Bengal at $8.46-$22.01 per mBtu (million British thermal units) in 2012-13. Essar Oil got $9.16-$11.63 per mBtu for 8.07mcm from its Raniganj east block, while ONGC sold 2.95mcm from its Jharia block at $5.71 per mBtu in 2012-13.

Royalty on the gas is based on wellhead price set by the government, which is lower.

The oil ministry had fixed wellhead price for methane at $5.25 per mBtu for Essar Oil and $6.79 per mBtu for Great Eastern Energy. It has also approved an additional $1 per mBtu as transportation cost for both the companies.

The royalty is around 15 per cent of the wellhead price, and Essar and Great Eastern Energy cannot sell below this price.

The guidelines notifying the gas price issued last month said the formula “shall not be applicable where prices have been fixed contractually for a certain period of time, till the end of such period. These guidelines shall also not be applicable where the production-sharing contract provides a specific formula for natural gas price indexation or fixation”.

Based on the guidelines, CBM players have asked the oil ministry to clearly state whether they would have to reduce the price or continue with the existing rate.

They have also said the Rangarajan formula has only suggested the minimum price for gas and does not bar the operator to sell at a higher price if consumers are willing to pay.

CBM is natural gas trapped in coal seams and found in and around mines. It is extracted by drilling holes into the seams.