Simultaneous exploration of coal & CBM may be allowed - Talks on between Petroleum and Coal ministries to draw a road map

The government will soon evolve a new system for offering hydrocarbon blocks to companies for simultaneous exploration of both coal and coal bed methane (a form of natural gas) which now fall under different ministries and regulatory regimes. This will be a new addition in the current government procedures under which coal blocks are offered for captive mining, liquefaction and gasification projects.

Coal mining is a nationalised sector and mining is allowed only for captive use in sectors like power, cement and steel, while CBM, found between layers of coal, is commercially sold to user industries by the producer. The government has noticed that there are several pockets of coal mines, where CBM is trapped but cannot be extracted because the mining lease issued by the coal ministry does not permit it. So long as the block remains with the entity that has the mining lease, the government cannot offer the same or overlapping regions for CBM exploration under the petroleum ministry’s production sharing contract regime.

“We have begun consultations with the coal ministry on the future road map for simultaneous exploration of both coal and CBM. The new regulatory regime would be identified early next year,” an oil ministry official told FE. The move comes at a time when sources of energy are becoming costlier and more scarce. The high crude oil price and the country’s declining natural gas output are threatening to slow down manufacturing growth, which grew at a disappointing 3.5% in February, compared to the sector’s spectacular 16.1% expansion the same month a year ago.

Experts said CBM is extracted before coal mining is undertaken for safety reasons. Under the proposed regime, there could be joint oversight of the blocks by representatives from the coal ministry and the petroleum ministry under a management committee, the same way such committees are set up to take major decisions with respect to oil and gas blocks under a production sharing contract.

So far, the coal ministry has offered 208 blocks for captive mining and has given two other blocks for coal liquefaction and plans to offer few others for gasification projects. The petroleum ministry, has in the mean time, held four rounds of competitive bidding to award CBM blocks.

Most probably, the exploration license for both coal and CBM would be given to the same bidder to avoid disputes on contractual obligations with respect to safety and environment. The government will also have to decide on how it should extract its share of revenue from these dual exploration blocks—either by sharing profits in a certain ratio discovered through competitive bidding or through a fixed royalty. Now, oil and gas exploration involves elements of both with the principal benefit to the central government coming from its share of revenue called profit petroleum. State governments get royalty from mining firms.