KOLKATA (miningweekly.com) – The Indian government’s slashing of natural gas prices and the absence of a pricing regime for coal-bed methane (CBM) has cast a cloud over existing production and future investments in the coal gas sector.

At a recent meeting between CBM exploration and production (E&P) majors and representatives from the Petroleum and Natural Gas Ministry, the former sought a minimum CBM price of $8 per metric British thermal unit (mBtu), stating that any price below this would make current CBM production unviable.

However, the government turned down the E&P majors' plea on the grounds that current landed price of imported liquefied natural gas (LNG) averaged $6/mBtu and a price differential between imported LNG and domestic CBM would negatively impact the economics of user industries and the pricing of production, an official from the Petroleum and Natural Gas Ministry said.

Further jeopardising the economics of CBM production, the Indian government cut the administered pricing for all natural gas to $4.20/mBtu from October 1, down from $5.18/mBtu earlier.

The E&P majors have conveyed to the government that an estimated $2-billion greenfield investments in CBM blocks across the country would become financially unviable at the current gas prices determined by government.

The officials said the government, worried that more CBM blocks might be relinquished by investors, has committed to convening another meeting within the next month to explore a pricing regime for CBM.

Among the options under consideration by government was a dramatic freeing of the gas-pricing regime and putting in force a market determined pricing system. However, officials conceded that this could prove to be a protracted process facing strong opposition from several sectors like power generation and fertiliser wherein the end product of these industries were regulated.

Also in case of fertiliser, the end product was subsidised by the government and any increase in costs of feedstock would entail higher outflow on account of subsidies payable to fertiliser producers.

A second option under consideration was to index the price of natural gas to other alternative fuel factoring in the demand and production pattern of each of the fuels.

The government’s concern over the impact of pricing on future CBM development was against the background that, of the 33 blocks awarded to E&P companies, 17 have been relinquished for various reasons including financial unviability.