Essar to Sell CBM to Gail
India’s biggest gas marketing and transportation company Gail has won a 15-year deal to buy coalbed methane produced from Essar Oil’s Raniganj East block in the eastern Indian state of West Bengal.
Gail will buy up to 2.3mn m3/d (0.84bn m3/yr, or 81mn ft3/d) of CBM from Essar Oil at a Brent crude oil-linked price equating to about $6.492/mn Btu, according to auction details on Essar’s website. It said that the price will keep changing every month based on the average of the preceding three month average Brent price.
Gail outbid three other firms, Matrix Fertilizers, Graphite India and Positron Energy, to win the auction. The bids were opened on December 2 2017 and closed February 7 2018. The bids were opened February 8 and evaluated February 9. Although Graphite bid the highest price of $8.582/mn Btu, it was prepared to buy only a tiny volume, and so Essar declared Gail’s the winning bid, resulting in a revenue for Essar of up to $192.59mn at the bid price of $6.492/mn Btu.
As of today, there are three CBM producers in India: GEECL, Essar, and Reliance.
Essar owns a portfolio of CBM blocks with about 1.7bn barrels of oil equivalent in reserves and resources. Essar is looking to increase Raniganj block’s output from 1 mn m3/d to 2.3mn m3/d soon. In addition it owns four other CBM blocks.
India's CBM output has been minuscule despite its large reserves. India’s cabinet committee on economic affairs, chaired by Prime Minister Narendra Modi, in March 2017 allowed CBM producers to market and price the gas freely in the domestic market in the hope of reviving the stagnant sector.