With GAIL locked in as CBM buyer, Essar Oil now eyes shale gas

Essar Oil and Gas Exploration and Production (EOGEP), which has so far been finding it difficult to get customers for its coal-bed methane (CBM) gas, has found a buyer in state-owned GAIL.

The Ruias-promoted Essar Oil is set to sign a pact with the public sector firm on 15 March for selling its CBM at a locked-in price, with assured offtake for 15 years. This would help Essar in recovering the Rs4,000 crore it had invested in developing its block at Raniganj.

Meanwhile, EOGEP is readying a proposal for extraction of shale gas from the Raniganj coalfields. It will place this before a steering committee for consideration this month. Currently, it extracts only CBM from this block.

"This committee comprises representatives from the ministry, the office of the Directorate General of Hydrocarbons and the operator," said Vilas Tawde, chief executive officer of EOGEP.

Essar's anchor customer for CBM, Matix Fertilizer, is yet to stabilise production. And the absence of enough retail customers in the industrial belt of Durgapur close to Ranigunj is forcing Essar to burn out one-fourth of production; so far gas worth Rs400 crore has been wasted.

"The successful price discovery process is going to benefit us significantly. In February, we completed a price discovery process as part of the monetisation policy for CBM operators. According to it, the current price, linked to Brent crude, is $8.08 per mmbBtu (million British thermal units). This is much higher than the government APM (administered pricing mechanism) price of $3.21. Once we are connected to the grid, anybody can buy it from GAIL," said Tawde.

Selling CBM, found in layers of coal beneath the surface, has remained challenging as it is a relatively new form of energy. Essar Oil and Gas is one among three producers in the country; others are Great Eastern Energy owned by the Y K Modi Group having its block nearby and Reliance Industries, which has producing blocks in Madhya Pradesh.

Oil and Natural Gas Corp is currently in the process of developing four blocks in the Raniganj belt.

"While the price discovery has happened for our Raniganj block only, it will also benefit other CBM developers in nearby blocks as this will set a benchmark," Tawde said.

Getting remunerative price and assured offtake is crucial as Essar has already invested Rs4,000 crore in its Raniganj project in drilling 350 wells and related infrastructure including creating a pipeline that carries the gas to the consumers of Asansol-Durgapur region.

The company is currently producing about one million cubic metres of gas per day and would now dig another 150 wells at a cost of Rs900 crore to double production.

"We are expecting to touch revenue of Rs600 crore in 2018-19 and expect to double it in the next two-three years,'' Tawde said.

Another boost for the project would be the proposed extension of Pradhan Mantri Urja Ganga Pipeline Project to Haldia in West Bengal, he said.

GAIL has just commenced construction work for the 555-km West Bengal stretch of the gas pipeline the Pradhan Mantri Urja Ganga Pipeline Project.

The second phase of the Urja Ganga project connecting Gaya to Bokaro, Ranchi, Haldia and Dhamra and is scheduled for completion by end of 2020.