Mumbai: Power producer and oil refiner Essar Energy Plc has sought government approval to price the gas coming out of its Raniganj coal bed methane (CBM) block in West Bengal at $4.2 per million British thermal unit (mmBtu), which would make it the cheapest gas to be extracted from India’s coal beds.
The company used the price discovery mechanism to arrive at this figure on a long-term basis. “We requested for government approval, and it is under consideration,” Naresh Nayyar, Essar Energy’s chief executive officer, told reporters over a conference call on Monday, after the announcement of the company’s January-December 2011 results.
This was “a viable price” on which a transportation cost will be levied, Nayyar added, without giving more details.
The price, which matches the government-mandated price for Reliance Industries Ltd’s (RIL) KG-D6 gas, is a significant discount to what other CBM gas producers, including the Mukesh Ambani-controlled RIL, are reportedly seeking.
RIL, an oil-to-yarn and retail conglomerate, has received more than 70 bids for gas from its Sohagpur block in Madhya Pradesh, which will produce 3.5 million standard cubic metres of gas a day (mscmd) by end-2014, PTI said in a 19 February report.
Based on these bids, RIL could sell its entire output from the block at $13.03 per mmBtu if it receives the government’s nod on the pricing, the report added.
An email sent to RIL on Monday did not get any response.
Since the government has not announced its decision in either case, it is unclear if it will allow differential pricing or align the prices for different CBM blocks.
A Mumbai-based sector analyst with a foreign brokerage who did not want to be named said that prices discovered by the two companies can depend on what buyers are willing to pay in that particular region and the pipeline infrastructure that would transport the gas.
An RIL official, speaking on condition of anonymity, said the price proposed for CBM gas was based on the price the company discovered in the region, where it can sell the gas through a pipeline network—along the Hazira-Vijaipur-Jagdishpur pipeline.
A number of power, fertilizer and manufacturing units along the pipeline use RIL’s D6 gas.
RIL, India’s most valuable company, and the oil ministry have had a standoff over the pricing and allocation of CBM gas to a select list of priority sector buyers since July last year, when the Directorate General of Hydrocarbons (DGH) issued guidelines that the company said “adversely impacted” its contractual rights to freely market the gas.
Essar has not raised such objections with the government.
Essar Energy, which has the largest CBM acreage in the country with about 10 trillion cu. ft of gas resources across its five blocks, produces 22,000 standard cubic metres a day (scmd) from its block—controlled production “reduced to minimize flaring”, according to Essar’s statement.
Its peak production is estimated to be 3.5 mscmd by 2014-15.
The company expects $50-60 million to be added to its profits every year once the ramp-up is complete and has lined up $500 million in investments for all its blocks over the next five years.