Natural Gas Asia: Great Eastern Energy and CBM in India

With the fourth largest proven coal reserves in the world, India holds considerable prospects for exploration and exploitation of coal bed methane (CBM).

Recognising this potential, Great Eastern Energy Corporation Limited (GEECL) entered this sector in 2007 and was the first company to bring technology for exploration and development of CBM to India.

However, the London Stock Exchange company feels that the sector also poses some major challenges.

Challenges and Potential

Profitability and risk management along with pipeline infrastructure are some of the major challenged facing the sector.

“Profitability and risk assessment associated in the initial stages with its production is a topic of constant debate. Also, Pipeline infrastructure and market access is not available in India as is in the US,” Prashant Modi, president and chief operating officer, GEECL told Natural Gas Asia in an interview.

GEECL has tried to tackle the infrastructure issue by moving towards full integration.

“In our case, we have made our own dedicated pipeline network to supply to our customers and also own our own drilling and work over rigs.  We are a fully integrated CBM company,” Modi said.

Asked about the demand potential for CBM in India, Modi said that there was reluctance in the early stages as the customers had little knowledge about this energy source.

“There was reluctance in the beginning and we had to show how it would work. Industry was used to keeping stocks of liquid fuel, etc. There will be demand if there is availability.   More than 75% of India’s energy needs are imported so there will be a huge demand for domestic gas,” Modi said. 

Now the company has customers across various industries.

Output

On the issue of slow rate of output growth of CBM in India, Modi said that no one can predict in the beginning what the production profile will be like as there was no production history in India and comparisons has to be drawn with production profiles from other countries like the US and Australia.

However, he said that GEECL has been keeping pace with its target.

“CBM is on a royalty contract and not on cost recovery, so it is in our interest to produce and sell more gas. We are not behind our production targets. Currently, we have drilled 96 wells and plan to drill around a total of 300 wells in next six years,” he said.

As on September, 2011 the company’s production stood at 8.36 mmscfd.

Talking about the Mannargudi block, which was allotted to the company early last year, Modi said that GEECL was awaiting the environment clearances and thereafter the development process is expected to commence.

Pricing Issues

The sector has witnessed some issues regarding the pricing of gas.

Other players like Reliance raising some concerns about the new guidelines issued by the ministry's regulatory arm for explorers, Directorate General of Hydrocarbons.

The norms restrict competition for discovering the fuel's market price to a limited number of coal bed gas users.

On this issue Modi said, ‘’ The contract is clear wherein it provides for “marketing freedom” to the producer.  LNG is being imported and sold at over $15 / mmbtu in India. Pricing is between the buyer and seller and the Government gets a royalty on the sales.”

Environment Issues

Responding to the issue of environmental impact over CBM and shale gas production, Modi said there are no major reasons for concern.

“In fact CBM production makes coal mining easier and safer as we help to extract the methane gas trapped in the coal mines. Moreover CBM is a “green fuel” which is environment friendly in comparison to other fuels,” he said.

 It will result in the demethanation of coal-beds and avoidance of methane emissions into the atmosphere in future when coal mining takes place making coal mining safer, he added.

Modi has a similar view about shale.

“One has to look at the entire cycle to see any environmental issues.  “From drilling to consumption of gas” will be far more environment friendly than using any other polluting fuels like coal, furnace oil, etc,” Modi said.

More on Great Eastern Energy Corporation Limited HERE

Natural Gas for Asia is focused on providing updated news and resources on the development, expanding production, trade and utilization of conventional and inconventional sources of natural gas in the Asia Pacific region.  Receive the free Natural Gas Asia newsletter HERE