SAIL likely to buy methane from ONGC

Steel Authority of India (SAIL) may buy coal-bed methane (CBM) from Oil and Natural Gas Corporation (ONGC) for use a substitute of expensive coking coal.

The move would cut SAIL's coking coal requirement by one million tonne and will save Rs 619 crore.

The steel major needs 13.2 million tonne coking coal annually. The proposal is to partially replace coking coal at Bokaro and Durgapur steel plants.

ONGC has nine CBM blocks in five states and expects to begin commercial production by 2006-07.

According to sources, SAIL, in its talks with ONGC, has said that its daily requirement of CBM would be 3.5 million cubic metre. The yearly requirement would go up to 1.28 billion cubic metre (BCM).

"This will help reduce coking coal requirement of SAIL by one million tonne. The company's annual consumption of over 13.2 million tonne coking coal is expected to surge to about 20 million tonne by 2011," said the sources.

Coking coal price at present hovers around Rs 6,100 per tonne and the shortage is increasing daily. Pricing process of CBM is being worked out, the sources said.

SAIL imports around 45 per cent of its coal requirement and the balance (around 7.2 million tonne) is purchased from the domestic market. "The problem with coking coal is its inadequate supply, which makes it expensive. Though CBM can not be a complete substitute to coking coal, it is cost-effective and saves money," said the sources.

Bokaro and Durgapur steel plants are strategically close to CBM reserves in Jharia, Bokaro and Karanpura. SAIL is exploring possibilities of equity participation in one or more of ONGC's CBM fields.

The company had indicated that it is ready to consume the entire projected production of CBM in the next three years. Apart from SAIL, a number of public and private sector players are also looking at CBM supplies.