Oil ministry to decide on Reliance's CBM gas price formula

Stating that rules provide for the government to approve gas sale price formula within 60 days, the Oil Ministry today said it will decide on Reliance Industries' February 21 proposal for pricing of CBM gas "in line with the provisions".

The Ministry informed Parliament that the contract that the government has signed with companies like RIL and Essar Oil, for producing coal bed methane (CBM) or gas from coal seams, provides for approval of the sale price formula within 60 days "from the date of receipt of proposal or from the date of receipt of clarifications/additional information".

Minister of State for Petroleum and Natural Gas R P N Singh in a written reply to a question in the Rajya Sabha said RIL had on February 21 submitted a proposal to the ministry the results of an "open bidding process" it undertook to discover the price of gas it plans to produce from its Madhya Pradesh CBM blocks.

RIL has proposed to price CBM at 12.67 per cent of price of JCC, or Japan Customs-Cleared Crude, plus $0.26 per million British thermal unit (mmBtu) from end-2014. At $100 per barrel oil price, CBM will cost $12.93 per mmBtu.

It had proposed a formula of 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus $0.26, plus 'V', where 'V' was the biddable number that users were asked to quote.

'V' could have been either positive or negative. RIL got a demand of 20.63 million cubic meters a day (about six times the gas available for sale) if the biddable parameter 'V' was kept at zero.

Singh said Essar Oil Ltd (EOL) had separately on September 19, 2011, submitted a proposal seeking approval of selling price of CBM from its Raniganj block in West Bengal.

"Clarification/ additional information was sought from EOL. EOL has furnished clarifications on January 10, 2012 and March 5, 2012. "The proposals of RIL and EOL for approving the formula for pricing of commercial production of CBM will be approved in line with provisions under CBM contract and Ministry of Petroleum and Natural Gas' guidelines," he added.

Though Singh did not indicate the price of CBM, sources said EOL has proposed to price Raniganj CBM at $4.20 per mmBtu.

"As per Article 18.6 of CBM Contract, the formula or the basis on which the CBM prices shall be determined, shall be approved by the government prior to the sale of CBM to consumers/buyers within 60 Business Days from the receipt of proposal or from the date of receipt of clarification/ additional information, where asked for by the government," Singh said.

RIL's pricing basis is a straight lift from the formula on which RasGas of Qatar sells 7.5 million tonnes (about 30 mmcmd) of gas to India on a long-term contract.

Singh said the government had received two proposals -- one from RIL and other from EOL-- for pricing of Coal Bed Methane (CBM) gas. "A proposal dated September 16, 2011, for approving the formula for pricing of commercial production of CBM gas from two blocks SP(West)-CBM-2001/1 and SP(East)-CBM-2001/1 was received from RIL," he said.

RIL in the proposal asked for a price equivalent to the rate at which RasGas sells gas in its liquid form (liquefied natural gas) to India. Directorate General of Hydrocarbons (DGH) on November 15, 2011, a day before the 60-day deadline was to expire, sought clarifications from RIL, which provided the information.

"While the proposal of RIL was under examination, RIL submitted a proposal to the Ministry of Petroleum and Natural Gas (MoPNG) vide letter dated February 21, 2012, that they have undertaken a parallel open bidding process and requested for approval of the basis for pricing of CBM gas to be produced from SP(West)-CBM-2001/1 and SP(East)-CBM-2001/1 blocks, in line with the provisions of the CBM contract and MoPNG guidelines," Singh said.