Reliance Industries Ltd (RIL) has started commercial production of CBM from its Sohagpur East and West blocks in India’s Madhya Pradesh State. Though RIL initially began test production in April 2016, the company was forced to shut the wells owing to the lack of official clarity over CBM pricing. On March 15, 2017 New Delhi finally approved pricing and marketing freedom for CBM producers. RIL has appointed agency CRISIL to help establish the price for its output.
A RIL spokesperson said commercial production had begun on March 24 and the company was anticipating sales to third-party customers from May. RIL is now ramping up operations and expects output to reach around 400,000 cubic metres per day by June. “The ramp-up phase will continue further for 15-18 months till we reach plateau production in CBM,” the spokesperson added. Quoting sources familiar with recent developments, financial daily Mint reported that RIL might take 2-3 years to reach its planned peak production of 2.5-3.0mcm per day at Sohagpur. “This is because, in CBM production, many small wells need to be de-watered. And the de-watering sometimes takes nearly three years,” one of the sources said.
The cost of production for RIL’s CBM is estimated at around US$3 per million British thermal units (US$82.98 per 1,000 cubic metres). Given the new pricing flexibility RIL could find customers in the industrial belts of Madhya Pradesh willing to buy the gas at up to US$7-8 per mmBtu (US$193.62-221.28 per 1,000 cubic metres). Reliance Gas Pipeline Ltd (RGPL), a RIL subsidiary, has built a 312-km pipeline to transport the CBM to Uttar Pradesh. RIL is the third company in India to produce CBM in India, joining Great Eastern Energy Corporation Ltd (GEECL) and Essar Oil.
RIL holds another CBM block in Sonhat, Chhattisgarh. Two state-owned companies, monopoly miner Coal India Ltd (CIL) and Oil and Natural Gas Corp. (ONGC), are also seeking to produce CBM in India. Last week, New Delhi issued the detailed notification about the pricing and marketing freedom granted to CBM producers, which will be required to call for open bids for the sale of gas and to seek price quotes to establish the market price. “The producer will have to issue advertisement in national dailies and run a competitive bidding to arrive at the arm’s-length sale price,” the CBM policy document said. New Delhi is hoping the move will help raise CBM output to over 5.5 mcm per day within a year. India is estimated to hold around 92 tcf (2.6 tcm) of CBM resources.