Essar Expresses Worries About CBM Pricing

Coal bed methane is turning out to be the next flashpoint between the government and private sector energy companies as Essar Oil plans to seek flexibility in pricing.

This follows Reliance Industries' move to oppose the oil ministry's intervention in CBM sales. 

Top executives of Essar Oil, which owns the largest CBM acreage in the country, told the Economic Times that the company plans to initiate a dialogue with the government on the matter.

Reliance Industries has conveyed to the government that price regulation would impinge on the commercial viability of its CBM projects.

"Pricing flexibility is a must to develop CBM acreages, especially, when we were allowed to fix prices and choose our customer base independently but now with the government moving to regulate the sector we will be initiating a dialogue with the oil ministry on this issue soon," Suresh Jain, Chief Financial Officer, Essar Oil told the paper. 

The paper said that Essar Oil was very bullish on the CBM sector and is planning to invest about over $500 million in the sector over the next 5 years.

The point of worry for CBM producers is oil ministry’s insistence that operators invite price-bids only from identified customers in priority sectors rather that going for independent price discovery.

The government has prepared a priority list and companies had to follow a pecking order reminiscent of the gas utilisation policy of 2007 and only supply gas to the fertilizer sector, bottling plants of liquefied petroleum gas and power companies. 

"There is uncertainty prevailing in the sector regarding pricing, earlier the sector was totally deregulated and now there is a change in policy so we will bring it to the government's notice when we meet next, as price flexibility is a must," added Jain.