Reliance to establish CBM price benchmark

Vol 14, PW 19 (24 Mar 11) People & Policy

Reliance is planning a ‘price discovery’ exercise for commercial CBM produced from its Sohagpur East and Sohagpur West blocks in the Shahdol district of Madhya Pradesh, a move which could set a benchmark for CBM gas pricing in India.

“I can’t tell you exactly when Reliance will carry out this price discovery,” a well-placed source tells PETROWATCH. “But it will be carried out in a few months on the principle of ‘arms-length’ distance (independently and impartially).

” Mukesh Ambani-controlled Reliance carried out a similar price discovery exercise in May 2007 for D6 gas, circulating its pricing formula to five fertiliser companies and five power generation companies. These companies were asked to indicate their own demand for D6 gas and quote the price they would pay.

Considered too high, the government eventually settled on a price of $4.20/mmbtu, which eventually became the government’s benchmark in its gas utilisation policy. Reliance is expected to carry out a similar price discovery exercise for Sohagpur CBM with a similar mix of fertiliser and power sector companies.

“Unlike gas produced from NELP blocks there is no clear price discovery policy for CBM gas in India,” adds our company source. “After we determine the price, we will seek the government’s approval.

It may then decide the ‘priority customers’ for (CBM) gas allocation.” Reliance estimates that its Sohagpur blocks together hold an impressive 3.65-tcf, a figure endorsed by the DGH.

But it is worried about monetising this gas, as Sohagpur is located in an underdeveloped area of Madhya Pradesh, populated mainly by small tribes, with no potential CBM customers nearby. Reliance is in “preliminary talks” with the owner of a factory located 350-km from Sohagpur, but the name of this potential customer and the quantity of gas to be sold could not be known at the time of going to press.