The coal bed methane (CBM) industry is poised for significant growth supported by strong policy support and pricing freedom. The cabinet recently issued a notification which allowed Coal India Limited (CIL) and its subsidiaries to explore and exploit CBM under their current coal mining leases. As per the notification, CIL and its subsidiaries will not have to apply for the grant of a licence/ lease, under the Petroleum and Natural Gas Rules, 1959, for the extraction of CBM from their coal bearing areas. This will enable them to freely explore CBM opportunities in areas for which they already hold a mining lease.
Prior to this, the government also provided support to the CBM industry through policy initiatives such as pricing freedom and other supportive regulation to expedite growth. The government is now opening up the CBM industry and allowing India’s largest mining firm to explore opportunities for CBM. With the fifth largest reserves of coal in the world, India has significant CBM potential. Tapping this will generate increased revenue for the government while promoting CBM as an alternative to natural gas. This is in line with the government’s push towards an increasingly gas-based economy. It will also reduce the demand-supply gap in natural gas and the country’s dependence on imported liquefied natural gas.
CBM resources in India
The majority of India’s coal reserves and all the current CBM producing blocks are located in the Gondwana region of eastern India. The Damodar Koel valley and Son valley have the best prospective areas for CBM development in the region.
The current CBM projects are located largely in the Raniganj South, Raniganj East and Raniganj North areas of the Raniganj coalfields, the Parbatpur block in the Jharia coalfield, and the East and West Bokaro coalfields. Projects in the Son valley include Sonhat North, and the Sohagpur East and West blocks. The total prognosticated CBM reserves in the country are about 91.8 trillion cubic feet (tcf) spread across 12 states.
Bidding rounds for CBM
According to the Directorate General of Hydrocarbons (DGH), 33 CBM blocks (including 2 blocks on nomination and 1 block through the Foreign Investment Promotion Board route) covering a total area of 16,613 square km have been awarded under the four CBM bidding rounds held to date. The total prognosticated CBM resources for the awarded blocks are estimated at about 62.4 tcf, of which 9.9 tcf has been established as “gas in place” so far. The total available coal bearing areas for CBM exploration in the country have been estimated at about 26,000 square km.
The production of CBM increased from 107 million metric standard cubic metres (mmscm) in 2012-13 to about 735 mmscm in 2017-18, growing at a compound annual growth rate of over 47 per cent during the period. The largest player in the industry is Great Eastern Energy Corporation Limited (GEECL), which has over 100 producing wells, located in the Raniganj South area of West Bengal. Other major producers are the Oil and Natural Gas Corporation (ONGC), Essar Oil and Gas (now called Nayara Energy) and Reliance Industries Limited (RIL).
CBM as a gaseous hydrocarbon is covered under the provisions of the Oil Fields Regulation and Development Act, 1948, and the P&NG Rules, 1959, under the Ministry of Petroleum and Natural Gas (MoPNG). The CBM Policy, 1997, defines a fiscal regime and broader contract terms for CBM players in the country. The policy also provides a framework for offering CBM blocks for exploration and exploitation through an open competitive bidding system.
The recently introduced Hydrocarbon Exploration and Licensing Policy (HELP) and the Open Acreage Licensing Policy have also given an impetus to the development of natural gas in the country. Under HELP, the government has made vital changes to the previous New Exploration Licensing Policy (NELP). These include a uniform licence for the exploration and production of all forms of hydrocarbons from a single acreage. Further, the production sharing and cost recovery model of the NELP has been replaced by the revenue sharing model of HELP. The government has also allowed marketing and pricing freedom for the CBM gas extracted from the existing blocks. This ensures that CBM producers have the freedom to sell their produce at market-driven prices in the domestic market, independent of the marketing and pricing policy of other domestic gas.
This supportive policy environment along with the freedom given to producers to define their own selling prices has attracted investments into the CBM industry. Nayara Energy plans to invest Rs 9 billion in drilling another 150 wells in its Raniganj CBM block in West Bengal. Other players have announced plans for ramping up production at their existing wells. For instance, RIL and GEECL plan to undertake significant production ramp-up at their existing CBM blocks.
Policy impetus for CIL and its subsidiaries
With the current directive to allow CIL and its subsidiaries to undertake CBM exploration in their leased areas, the government has opened up the CBM industry to both public and private players. This could act as a game changer for the Indian gas industry. CIL along with its seven subsidiaries is the largest coal mining company in the country, operating 82 mining areas across the country.
The recent initiative will open up multiple opportunities for private CBM players as well, as CIL and its subsidiaries are likely to float global tenders and appoint service providers to help them exploit these CBM resources. CIL is planning to invest Rs 30 billion for this purpose. The first project is likely to be undertaken by CIL’s subsidiary, Bharat Coking Coal Limited, at its Jharia coalfields in Jharkhand. The Jharia CBM block is expected to hold reserves of 25 billion cubic metres (bcm). Production from the block is expected to start two years after project initiation. The second project is likely to be undertaken at the Raniganj block in West Bengal by Eastern Coalfields Limited. This block holds around 3 bcm of CBM that can be viably extracted.
India is progressively transitioning towards a gas-based economy with major upstream players such as ONGC, BP Plc and Cairn India planning massive investments for enhancing output from their fields. Under this scenario, CBM is expected to supplement the country’s gas production as it is a viable alternative to natural gas. Now, with CIL and its subsidiaries being allowed to explore CBM resources in their leased areas, CBM production is expected to show strong growth in the future.
Going forward, CBM production is expected to increase to over 2,700 mmscm by 2025. This is expected to be a result of the start of commercial production at new blocks such as ONGC’s Bokaro block in Jharkhand and increased production from existing blocks such as the Raniganj East, and Sohagpur East and West blocks which are targeting doubling their production. However, this growth could be impeded by a number of technical challenges such as increasing geological complexities of new blocks and a shortage of equipment to undertake CBM extraction. Other challenges such as difficulties in exploration in politically sensitive and Naxalite areas, and delays in getting environmental clearances could also hamper project development. Thus, while CBM production is expected to grow, this growth has to be supported by a progressive policy environment and continued pricing freedom for CBM producers, to attract investments in the segment.