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Indian CBM producers will have to lower prices

World Coal,

Currently, coalbed methane (CBM) gas has been sold at rates triple to the current price rate of US$ 4.2/million Btu. However, the government of India has ruled that gas extracted from coal seams will be priced in line with conventional gas prices.

As of now, contractors pay the production-linked payment/royalty on the actual prices that they realise from consumers. However, if the contractors are required to sell at a uniform pricing, it will hit royalty payments to the government too.

The move is a blow for CBM players who hoped to continue with a higher gas prices. The ministry of petroleum and natural gas’s (MOPNG) decision to introduce a uniform gas price for all gas producers in India will come into effect following the Indian general election.

The pricing will be based under the Rangarajan formulae. The formula was devised by the Prime Minister’s Economic Advisory Council chairman, C Rangarajan. The formula is based on the average of two prices – the price at producing destinations and the volume-weighted price of the US’s Henry Hub, the UK’s NBP, and the Japan Custom Cleared (on a net-back basis, since it is an importer).

Companies including Great Eastern Energy Corp. Ltd (GEECL), EssarOil and ONGC currently collect a rate of between US$ 5.1 – US$ 22.8/unit from CBM fields.

GEECL, the first company in India to commercially produce CBM, has been able to charger higher prices as the five-year validity of a previously issued rate of US$ 6.79/million Btu had expired. The company is currently producing just short of 15 million ft3/day of CBM and plans to increase production to 100 million ft3/day in four to five years time. The company has a CBM block in West Bengal with an estimated 2.44 trillion ft3 of reserves, and a further CBM block in Mannargudi in Tamil Nadu with 1 trillion ft3 of reserves.

The MOPNG has clarified, "There is no conflict of interest between the domestic natural gas pricing guidelines issued on 10 January, 2014 and the CBM contract and the pricing approvals issued.”

"The Government has full rights to fix the domestic gas price and in all fairness it should be irrespective of its source, whether conventional, shale or CBM. Hence, the price of CBM and shale gas should also be a single price for domestic gas as notified under the pricing guidelines 2014, and contractors cannot charge a higher price than this from their customers," a note from the ministry said.

While the CBM contract provides for market pricing of the gas, prior government approval will be needed for execution of actual sales. The MOPNG is also of the view that any other pricing regime other than Natural Gas Pricing Guidelines, 2014, needs separate approval from the Cabinet Committee of Economic Affairs.

Edited from various sources by Sam Dodson

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