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New Gas Pricing Formulae Might Dampen Investment in CBM & Shell Gas Exploration

News

The Mukesh Ambani-led Reliance Industries (RIL) has received a setback with the government clarifying that the prevailing natural gas prices will apply to coal bed methane(CBM) producers as well. This means RIL will have to settle for one third of the $12 per mmBtu (million British thermal unit) it had sought for gas set to be generated from next month at its Madhya Pradesh CBM blocks.  .

Source:  ET

SNP Insights

Drop in international gas index prices & change in Indian pricing formula to weighted average of Brent, Russia & Alberta index will reduce natural gas pricing  by 25% from $5.1 to $3.8. Govt. decision to link the derived products like CBM, with natural gas price will be major dampening factor for private players, as due to undeveloped market, cost of exploration for CBM & Shell Gas is still expensive in India. It might discourage investment in to the niche segment. Hence in order to promote exploration of these reserves, Govt. should prepare a separate pricing formulae for these derived products.

Source: SNP Infra Research