The Telegraph
Monday , March 10 , 2014
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Confusion over price of methane

New Delhi, March 9: The pricing of natural gas is becoming complicated with the oil ministry stating that the producers of coal bed methane (CBM) will not be automatically eligible for the new rate effective from April.

The oil ministry is expected to come out with the new gas price this week based on the Rangarajan Committee formula. However, there is little clarity on the companies that will benefit from the new price, which is likely to be around $8 per million British thermal unit (mBtu), as the ministry is treading cautiously with the issue getting politicised and the Opposition making it a major electoral plank.

“There will not be an automatic increase in the price of CBM gas after the new gas pricing notification comes into effect from April 1. The government’s permission will be required before the price is allowed to be raised,” a senior oil ministry official said.

The ministry clarified the government’s stand when Essar Energy, the producer of methane from Raniganj (East) block, sought its opinion on implementing the new pricing regime from the next fiscal.

CBM is a natural gas trapped within coal formations that are unviable for mining. It is extracted by drilling holes into the seams.

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. There is lack of clarity on what will happen if the CBM producers do not approach the oil ministry for price revisions.

The oil ministry had fixed a 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 government collects a royalty of around 15 per cent of the wellhead price, and Essar and Great Eastern Energy cannot sell below this price.

However, 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 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, according to oil ministry data.