Dimethyl ether market to be impelled by GAIL’s CBM buyout from Essar

GAIL, the state-run Indian corporation, has apparently outbid contenders like Graphite India, Positron Energy and Matrix Fertilizers to win the contract for buying the Raniganj block coal-bed methane gas from Essar Oil. This move by GAIL will positively influence the growth of dimethyl ether industry, claim experts, given that methane is rather crucial for the production of DME.

Reports state that the price rate for the extracted gas has been set at USD 8 per million British thermal unit, which will be the 3-month daily average of Brent crude oil. In this regard, if present crude oil prices are maintained, then the 15-year contract will garner around INR 7 billion per annum, apparently. It has also been reported that in March 2017, the government allowed CBM producers the marketing and pricing freedom which has enabled this price quoting – lower than the imported LNG price of USD 11.5 per mBtu. This lowering of prices is also predicted to favorably impact dimethyl ether market, claim analysts.

For the record, till date, Essar has invested INR 40 billion in drilling 348 wells and setting up supply infrastructure and laying pipelines to nearby industrial areas. GAIL reportedly plans to drill more than 500 wells to develop the block further. At present, the production of the block is 1 million standard cubic meters per day (mscmd), which GAIL is determined to maximize to 2.3 mscmd.

The Indian CBM production has been on a robust rise in the last few years, as per reliable records, which has indeed propelled the regional dimethyl ether market. In the financial year 2016, India had produced 392.9 mscm of CBM which rose 43% in the financial year of 2017 and reached 564.6 mscm. According to the Directorate General of Hydrocarbons, India has the world’s fifth largest coal reserves, that will aid in achieving greater potential production of CBM in the future.

For the record, the Economic Times recently announced that GAIL has also launched a tender to buy two LNG cargoes for delivery in March.