The oil ministry has proposed to the Cabinet that coal-bed methane (CBM) gas producers be given pricing freedom and allowed to price the fuel at market rates. This will help operators quickly put in production the CBM blocks they hold and reverse the trend of investors relinquishing coal-seam blocks due to viability issues of current pricing. If approved, the move will benefit Reliance Industries, which has two blocks in Madhya Pradesh that are in the process of starting production. Besides, ONGC and Essar Oil will benefit as it will help them put their acreage into production quickly.
Interestingly, of the 33 CBM bearing blocks awarded so far in four auction rounds and on a nomination basis, gas is being produced from only four.
“It is too early to comment on this development. We came to know about this through media reports and await details. The government has to take a final decision on this. Unless we get anything in black and white, we could not comment on how it will affect the industry and the company in particular,” said a Reliance spokesperson.
The proposal put to the Cabinet is for allowing CBM operators to sell the gas at market rate determined through an arms-length process and operators are also proposed to be allowed marketing freedom.
The four CBM blocks have a combined output of 1.17 million standard cubic metres a day. As many as 18 blocks have either been relinquished or are in the process as operators found that it did not make economic sense to produce gas at the prevailing rates.
“India depends heavily on expensive gas imports to meet its requirements. A better pricing mechanism would encourage companies to tap natural gas in an aggressive manner. But, the government has to consider needs of the people while fixing the price,” said M P Sukumaran Nair, director, Centre for Green Technology & Management.