Mumbai: Reliance Industries Ltd (RIL), which began commercial production of coal bed methane (CBM) gas from two blocks in Madhya Pradesh this March, is buying the gas for its own use at around $7.8 per million British thermal unit (mBtu), two people familiar with the development said. 

 "The production currently is still very small and in the absence of a third party user, RIL is buying the CBM gas for its own use at $7.8 per mBtu," said a senior official from a private oil company aware of the development. 

The two blocks are located in Sohagpur East and West. RIL was awarded these blocks in 2001, in the first round of CBM  auctions. 

 RIL did not respond to an email sent on 7 July. 

The government had on 15 March approved pricing and marketing freedom for producers of natural gas from CBM. Following this, RIL hired Crisil in April to help in the price discovery process based on a CCEA (cabinet committee on economic affairs) approval dated 15 March. The company had been deferring CBM gas production due to lack of clarity over pricing. 

CBM is a natural gas stored or absorbed in coal seams and contains 90-95% methane. 

 "The reform measure allows CBM producers to sell the CBM at arm's length price in the domestic market through a fully transparent and competitive bidding process with the objective of obtaining best possible prices. The New Domestic Gas Pricing Guidelines, 2014 and the Gas Utilisation Policy shall not be applicable to CBM and it also permits producers to sell gas to any affiliate, in the event a contractor cannot identify any buyer," RIL said in its 2016-17 annual report. 

 Other than RIL, Great Eastern Energy Corp. Ltd (GEECL) and Essar Oil Ltd are the two existing players selling CBM gas in the market. RIL holds another CBM block in Sonhat, Chhattisgarh. 

 "Essar Oil and GEECL sell CBM at a pre-approved price of $6 per mBtu and $10.07 per mBtu, respectively. Cost of production for RIL may be around $3 per mBtu and at $7-8 per mBtu, it augurs well for the company," said the second official mentioned above. 

RIL's annual report added that it started commercial production from its CBM block SP (West)– CBM–2001/1 in March 2017 and is currently supplying CBM for commissioning the Shahdol Phulpur Pipeline. The production from RIL’s Sohagpur CBM fields will gradually ramp-up in next 15-18 months making RIL as one of the largest unconventional natural gas producer in India. 

The report said RIL has published a notice inviting offers in leading national dailies and on its website, calling for the bids from the prospective customers to off-take CBM produced. 

 Reliance Gas Pipeline Ltd (RGPL), an RIL subsidiary, has laid around 312km of pipeline to carry natural gas from Shahdol in Madhya Pradesh close to its CBM blocks to Phulpur in Uttar Pradesh.

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