OREANDA-NEWS. April 12, 2011. The government has fixed USD 5.25 per million British thermal unit (mBtu) as the price for the coal-bed methane produced by Essar Oil from its field at Raniganj in Bengal. The price is 22 per cent less than what Great Eastern Energy Corporation Ltd (GEECL) charges for the same product.

The London Stock Exchange-listed GEECL, promoted by Yogendra K. Modi and his son Prashant Modi, sells methane from its Raniganj block for USD 6.79 per mBtu to industrial customers in the Asansol-Durgapur region.

Both the prices, approved by the government, are for the gas at the well-head and do not take into account the cost of compression and transportation, which producers will charge from the consumer.

The well-head price is the base rate — neither Essar or GEECL can sell below the stipulated price — on which the government collects royalty, which is around 15 per cent of the price.

The Essar price has now put GEECL in a spot of bother since the latter cannot reduce its rate to compete with the new entrant. The final price that Essar will get is USD 6.25 per mBtu, because the government has allowed USD 1 per mBtu for transportation.

The lower price from Essar could be a bonanza for consumers. However, Essar is not compelled to sell at a lower rate than GEECL because it can charge any amount above the well-head price fixed by the Centre. At present, Essar Oil’s 33 wells are producing about 35,000 standard cubic metres per day (scmd) of gas. The company will drill 500 wells to help the output reach 3.5 million scmd within three years.

GEECL now produces 160,000scmd per day. It plans to go up to 400,000scmd by the end of March 2012 when 100 wells will be dug up. Essar Oil will sell most of its output to a fertiliser plant being set up by Matix Fertiliser and Chemicals at Panagarh.

Matix is promoted by Nishant Kanodia, son-in-law of Ravi Ruia, the promoter of Essar Group along with his elder brother Sashi.  Consequently, the low price of Essar’s gas is likely to benefit Matix the most if the Ruia-owned firm decides to sell at the stipulated price. However, this will also mean less royalty for the Centre.

With the rise in crude rates, natural gas prices in the world are on the boil. LNG prices have also shot up with quake-hit Japan switching over to liquefied natural gas from atomic energy. Indian customers will now be paying around USD 15 per mBtu for imported LNG under new contracts.