GAIL sidelined as ONGC markets CBM alone

Vol 13, PW 16 (28 Jan 10) Midstream & Downstream

GAIL is facing a similar threat elsewhere, this time in Jharkand, where ONGC is planning direct CBM sales to industrial customers from its 85-sq km Jharia field.

PETROWATCH learns that by the middle of next month, at the latest, ONGC will begin selling small quantities of pilot or â€کtest’ CBM to factories in and around Jharia at $5.1/mmbtu, through wholesaler Calcutta Compressions & Liquefaction Engineering - now owned by Mumbai-based cylinder manufacturer Everest Kanto. This will be followed by large quantities of Jharia CBM direct to consumers when full-scale production begins.

ONGC is unwilling to disclose details but one thing is clear: GAIL won’t be in the picture at all! Some years ago GAIL carried out a market survey to gauge potential prices and discovered that large industrial customers are unwilling to pay more than $3/mmbtu for Jharia CBM. ONGC dismisses GAIL’s findings, saying GAIL has not been aggressive enough securing a good price.

“GAIL is only interested in spreading its marketing centres and piling up customers,â€‌ says an ONGC source. “Its survey is meaningless! Our own survey shows us we can get a much better price.

When Essar and Great Eastern are talking about $5/mmbtu, why does GAIL say Jharia CBM will sell at $3/mmbtu onlyâ€‌ Disillusioned with GAIL, ONGC indicates it will do all direct marketing itself. GAIL is informally aware of this and ONGC’s only concern is that it doesn’t call on the oil ministry to intervene, as it usually does.

Defensive GAIL meanwhile sticks to its position, saying that only the state-owned Steel Authority of India (SAIL) factory located 200-km away is ready to pay $3.2/mmbtu. “Jharia is in the middle of nowhere,â€‌ adds GAIL.

“Expensive pipelines need to be laid to transport gas to customers.â€‌ He adds that Jharia is a coal-rich area and that it will be extremely difficult to convince customers to use CBM when the equivalent price of coal is just $1/mmbtu.