Mukesh Ambani’s Reliance Industries Limited (RIL) has been continuously investing in India’s energy sector. The latest is that the industry giant plans to pump natural gas from coal seams, also known as coal bed methane or CBM. If this goes as per plan, RIL stands to make $400 million or Rs. 2,500 crore by 2015-16.
According to sources close to the company, the two blocks in Sohagpur, Madhya Pradesh could produce 3.5 million metric standard cubic metres per day (mmscmd) of gas. The company also has a block at Sonhat in Chhattisgarh. The latter mentioned block is operation and RIL as an entity ended fiscal 2012/13 with revenues of Rs 371,120 crore.
The blocks at Sohagpur and Sonhar were ready for production, but were stalled due to the company’s dispute with the oil ministry on gas pricing. RIL was pushing for gas price linked to the price of imported gas: $12 to $12.5 per mmbtu, short for million British Thermal Units, a measure of energy. One mmscmd is equal to 35,700 mmbtu. The oil ministry, headed by VeerappaMoily wanted RIL to follow its earlier formula set for gas from its Krishna Godavari basin D6 gas field, which set gas price at $4.2 per mmbtu.
This problematic situated was resolved after certain recommendations were made by a committee chaired by C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council. According to the proposal made in the committee’s report, domestic gas prices were linked to a basket of four international benchmarks. The new formula would be applicable for April 2014 for all the gases produced irrespective of their sources. Global brokerage Nomura has predicted the gas price at $8.7 per mmbtu based on this formula and current prices at these indices.
An expert in the field of Oil & Gas said that RIL could expect revenues of $400 million from CBM. GirishShirodkar, Managing Partner of Strategic Decisions Group’s India Operations was quoted as saying, “It is a midway for both government and RIL’s demand for gas prices. We hope the country’s domestic gas production would now see an upside and CBM could be turned into a success story.”
Meanwhile, industry sources say, RIL is waiting for government orders on pricing and selection criteria for the consumers. They add that the company is still pushing for gas prices based on parity with the imported liquefied natural gas. RIL has also started the process of acquiring more land for well sites. In addition, market assessment and infrastructure for evacuation and transportation of gas has commenced.