Mumbai: Reliance Industries Ltd (RIL) has begun commercial production of coal bed methane (CBM) gas from two blocks in Madhya Pradesh, two people familiar with the development said.
RIL’s move comes after the government approved pricing and marketing freedom for producers of natural gas from CBM on 15 March. The company has deferred production for a while due to lack of clarity over pricing CBM gas. The two blocks are located in Sohagpur East and West.
“RIL has commenced commercial production from 24 March 2017 and expects sales to third party customers from May. RIL has appointed Crisil to help in price discovery process based on CCEA (cabinet committee on economic affairs) approval dated 15 March 2017. We are currently in ramp-up phase and expect to reach around 0.4 mmscmd of production by June 2017. The ramp-up phase will continue further for 15-18 months till we reach plateau production in CBM," a RIL spokesperson said in response to a Mint query.
RIL had begun test production from the block last April. “But wells had been shut as RIL wanted clarity on gas pricing. In CBM production, you need to de-water many small wells. And the de-watering sometimes takes nearly three years. Thus, RIL may take two-three years to reach peak production," said the second of the two people mentioned above. RIL was awarded the CBM blocks in 2001, in the first round of CBM auctions.
With this, RIL has become the third company in India to begin CBM gas production. 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.
CBM is natural gas stored or absorbed in coal seams. India, with the world’s fourth largest proven coal reserves, holds significant potential for CBM exploration and production. CBM gas is similar to natural gas, containing 90-95% methane.
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.
An RIL executive, one of the two mentioned earlier, added that initial gas output from RIL block could be around 0.4 million metric standard cubic metres per day(mmscmd). Peak output, however, is envisaged at 2.5-3 mmscmd.
“RIL is best placed to sell its CBM gas as its blocks are centrally located and there will be good demand by industries nearby. Also, the cost of production for RIL may be around $3 per million British thermal unit (mBtu) and even if RIL sells the gas at around $7-8 per mBtu, it would be in a good spot," said an oil and gas analyst with a domestic broking firm, asking not to be identified.