OREANDA-NEWS. May 17, 2011. Mukesh Ambani’s Reliance Industries Ltd is working on a pricing formula for coal bed methane from three blocks in Sohagpur (east and west) and Sonhat in Madhya Pradesh, prior to asking government approval.

The government is now insisting on its power to set the price for any gas produced by private companies. A person familiar with the development, who said the RIL decision could set a benchmark for CBM gas pricing, said: “RIL is discussing the issue with some power and fertiliser companies. After they arrive on a price, they will take it to the government.” An RIL spokesperson would not comment on the matter.

The YK Modi-promoted GEECL, the first company to produce CBM, is already selling gas (it didn’t, at the time, have to take government approval) from its Raniganj block at USD 7 a British thermal unit.

RIL had, after discovering gas in its flagship Krishna-Godavari (KG) basin find on the east coast, invited bids from power and fertiliser companies to determine a market benchmark. KG-D6 gas is sold at USD 4.2 per unit.

According to the government’s Directorate General of Hydrocarbons (DGH), Reliance holds a total of 3.6 trillion cubic feet of gas in its CBM blocks. A DGH official said RIL is still to work out the details of how it plans to evacuate the gas. The company plans to begin production by the end of this year.

RIL has also received the city gas distribution and CNG retail rights for Shahdol city in Madhya Pradesh. CBM gas is similar to natural gas, containing 90-95 per cent methane. The cost of CBM-CNG is 50-60 per cent lower as compared to diesel for unit power.

GEECL is currently producing 0.16 million standard cubic metres per day (mscmd) of gas from the Raniganj block. It will be raised up to three million mscmd over the next seven years.

Essar Oil is also expected to start CBM production.

In its April results, the company said its Raniganj CBM gas field is closer to commercialisation. The government has approved a provisional gas price of USD 6.75 per million Btu (including USD 1/mBtu transportation cost). Courtesy : BS