Prashant Modi explains GEECL’s plans for expansion

Prashant Modi - ExpansionCompany expansion
by Prashant Modi

GEECL (Great Eastern Energy Corporation) has announced its new plans to invest Rs 3000 Crore in the exploration and distribution of CBM in 2013.  Prashant Modi, who serves as GEECL’s chief executive, has said that they would be drilling another 80 wells on the block in Asansol, where they currently operate 23 wells. Situated approximately 200km from Kolkata, the Asansol block has more than 2 trillion cubic feet of methane gas, making it commercial viable for at least another two decades.

Prashant Modi also stated that the demand within the local industrial area is high enough to warrant the extra wells, with factories, power plants and steel plants already using GEECL’s CBM to run their operations. CBM, Modi says, will eventually replace other conventional sources of fuel such as coal and oil. The company intends to set up stations for the compressed natural gas it has extracted from the coal seams, so that vehicles around Durgapur, Barakar and Asansol can be fuelled by gas developed by GEECL. Eventually, Prashant Modi explains, they will extend these stations to Kolkata as well.

GEECL has been listed on the Alternative Investment Market, a section of the London Stock Exchange for many years now, and to fund the setting up of these stations, will be taking out a loan of Rs 350 Crore from the bank and using Rs 200 Crore of its equity. The remaining money required, Prashant Modi says, will be coming from sales.

GEECL first began to consider the idea of coal bed methane exploration in 1992, when it realised that it could capitalise on the enormous coal reserves around India and simultaneously reduce the amount of methane emissions into the atmosphere. CBM exploration and production had proven to be hugely popular in the US and Australia at the time, and GEECL made the decision to use the same technology these countries had in a bid to begin CBM production in India.  According to Prashant Modi, today GEECL is the only Indian company to have successfully produced CBM on a large scale.

Prashant Modi – The complexities of CBM pricing

Prashant Modi - pricing puzzle pieceGas pricing by Prashant Modi

According to Prashant Modi, all CBM producing companies, including his own, GEECL, are facing with the complex issue of gas pricing. Whilst the model contract for the coal bed methane blocks provides GEECL with the freedom to market the gas produced at prices they essentially set themselves, the Indian government has asked all CBM producers to sell the gas first to the customers in priority sectors, which, Prashant Modi says, effectively controls pricing through the limitation of the consumer pool.

Reliance Industries requested that the government permit the price of CBM gas to be indexed to LNG prices, asking for approximately $12 for every million metric thermal unit. Prashant Modi says that it has now received several bids at this price; however Modi makes the point that unlike natural gas and oil, wherein the operator can recover their costs first, and then pay royalty on its profits to the Indian government, producers of CBM are expected to pay royalties from the very first day of production.

According to Prashant Modi, if GEECL and other CBM producers were permitted to recover their costs first, they too would be able to sell at a lower rate, but for now this is not the case. Currently, Modi’s company sells its gas at the government approved and market discovered price of $7.80 per million metric thermal unit. However, the delivery costs will vary from one CBM customer to the next, depending on charges relating to transportation. Meanwhile, Essar Oil, and its fields in the eastern Raniganj block have gotten a base price of $5.20 per mmbtu approved. As things stand, Prashant Modi says, the pricing policies for CBM need quite a bit of fine tuning, so as to ensure a price fixing mechanism which is more transparent.

The right to determine the pricing of gas that is produced from Indian CBM blocks lies with the Petroleum Ministry, but Prashant Modi says that the Ministry has chosen to refer this decision to the EGM (Empowered Group of Ministers). The EGM currently calculates prices for CBM produced from blocks that have been auctioned under NELP (New Exploration and Licensing Programme).