Shale blocks should be near pipeline: Prashant Modi

Last Updated: Sun, Feb 03, 2013 02:50 hrs

Even as India awaits the bidding of shale gas blocks, Prashant Modi, president and chief operating officer of Great Eastern Energy Corporation Ltd (GEECL), is bullish about the future of the hydrocarbon industry in India. In an interview with Shine Jacob, Modi shares his views on the sector. Edited excerpts:

You are the first commercial producer of coal bed methane (CBM) in India. What is the status of your blocks at Raniganj in West Bengal and Mannargudi in Tamil Nadu?

At Raniganj, we have already drilled 130 wells, out of the total 300. The block has already seen an investment of more than Rs 1,000 crore till now. Our production is currently 14.73 million standard cubic feet per day (mmscfd), which we would like to increase to 100 mmscfd in the next four to five years with an additional investment of Rs 1,500 crore. We are going to raise it through debt and equity. The capital structure is yet to be decided. Our customers here include steel and steel-related industries and other small manufacturers in the Asansol-Durgapur belt.

Raniganj has estimated reserves of 2.35 trillion cubic feet (tcf), while at Mannargudi, according to the Directorate General of Hydrocarbons (DGH), the expected volume is 0.98 tcf. We will be spending about Rs 100 crore there for exploration activities, and the rest of the investments will depend on the results of those studies.

What is your take on the Rangarajan committee report?
The pricing regime suggested in the Rangarajan panel report introduces an elaborate system of price control. Acceptance of such pricing framework will drive away fresh investment in future. Free pricing means market forces will decide the pricing and not any formula or government intervention.

Do you think there should be more clarity on the pricing of CBM, as the price varies from company to company and some charging higher than the minimum price?
People often compare our prices with that of the US. They don’t see why it is low. It came down because the government encouraged E&P (exploration and production) activities. The government did not intervene in price control.

People were allowed to drill shale; when supply increased, prices fell.

In CBM and shale, the royalty contract model is being followed. There is no cost recovery, the risk is entirely ours. If I put in the money and there is no gas, it is the end of the story. My view is clear: There should be a free-market, arms length pricing, as per the contract. Government has set a minimum price to ensure royalty, so that you don’t sell at a lower price to any sister concern. If we are selling higher than the approved price, we will pay royalty on the higher price. If a customer pays higher price viable to him, we are also gaining from it, and government also gets additional the royalty and taxes. Hence, to encourage industry, you need to follow this.

With the shale gas auctions lined up, will you be keen on the sector? Will you look into conventional sources at some time?
Our interest will depend on the viability of the blocks and policy that the government comes out with. The draft policy that the government has come out with is royalty-based, which is encouraging. A shale block has to be near a pipeline. It is unconventional, but produces in a conventional manner. Production is higher in the beginning and then drops. CBM is low in the beginning and then rises slowly.

In the US, pipelines were already in place. If you have to make a pipeline of 100 km in advance, nobody will take that risk. If policy and blocks are right, if they are economically viable, I will surely be keen on this. As far as conventional space is concerned, GEECL has no plans to foray into it.

There were issues related to your product pipeline with the Petroleum and Natural Gas Regulatory Board (PNGRB). Has it affected your operations?
Ours is a 77-km long pipeline and we have invested Rs 100 crore on this to supply product to our customers in the industrial belt. The issue with PNGRB is sub-judice. But the act of PNGRB is applied to common or contract carriers. Our dedicated pipeline is not covered under it. Hopefully, the issue will be settled soon.

Do you have any plans to hit the capital markets in India?
We are already listed on the main board of the London Stock Exchange. Three-four years ago, we were thinking about getting listed here. At some point, we will have to do it, but no timeline is fixed.

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