After CBM deal with GAIL, Essar Oil & Gas eyes shale extraction

Essar Oil & Gas Exploration and Production (EOGEP) is readying a proposal for extraction of shale gas from the Raniganj coalfields.

It will place this before a steering committee for consideration this month. Currently, it extracts only coal bed methane (CBM) from this block.

"This committee comprises representatives from the ministry, the office of the Directorate General of Hydrocarbons and the operator," said Vilas Tawde, chief executive officer at EOGEP.

In March 2016, the central government approved a Hydrocarbon Exploration and Licensing Policy (HELP). The aim was to enable a uniform licence for exploration and production of all forms of hydrocarbons for an operator. It was thought that this would enable the contractor or licence holder to explore conventional as well as unconventional oil and gas resources -- including CBM, shale gas, tight gas and gas hydrates -- under a single licence.

HELP also proposed to do away with the conventional cost recovery and production-linked payment model. Replacing it with a revenue sharing programme, one easier to monitor.

EOGEP already holds a CBM extraction licence in Ranjiganj, West Bengal. And, has been granted CBM exploration licences for blocks in Madhya Pradesh and Odisha. At Raniganj, it has only begun operating the unit. Tawde said the block had shale gas reserve of 7.7 trillion cubic ft (tcf), of which 1.5 tcf could be extracted immediately.

He said CBM and shale gas are complementary in nature. "You require huge water for fracking - we are already producing 10,000 cubic metres of water and nothing more will be taken from the Damodar river. All the top infrastructure can be used by both CBM and shale gas. Third, shale gas' 80 per cent production comes in the first two years; for CBM, it is the opposite - only five to 10 per cent comes out in the first two years. Then, it slowly comes out," he explained.

EOGEP has already invested around Rs 40 billion across 350 extraction wells to set up the CBM infrastructure in this block. And, plans another Rs 9 bn of capital expenditure in the next two to three years on this. It currently produces one million standard cubic metres a day (mscmd) of CBM; it plans to raise this to around 2.3 mscmd in two to three years. During 2018-19, the company hopes for around Rs 6 bn in earnings from CBM sales, doubling to Rs 12 bn in the said period.

By mid-March, it will be formally signing an agreement for 15 years with government-owned GAIL for selling CBM to the latter at $8.08 per million British thermal units. GAIL can use EOGEP's delivery infrastructure to transport gas to buyers.

"Henceforth, we will be selling our entire produce to GAIL and they can then take a call on whom to supply. The finer print with GAIL is being worked out," Tawde added.

He claimed the central government was considering a policy where a uniform rate of $1 would be charged for transportation of one unit of gas, irrespective of distance.

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