Introduction

Coalbed methane (“CBM”) is an unconventional source of natural gas, consisting mainly of methane trapped within coal seams. Unlike conventional natural gas, which is generally found in the pore spaces of rocks, CBM is adsorbed onto the surface of the coal. The gas is released when the pressure within the coal seam is reduced, allowing it to be extracted for use.

India has the world’s fifth-largest proven coal reserves and has considerable potential for the exploration and production of CBM. The country’s estimated CBM resources are approximately 2,600 billion cubic meters, spread across 12 States. In order to harness CBM’s potential in the country, the Government of India introduced the CBM Policy in July 1997 (“CBM Policy”). The Government of India has launched various initiatives for augmenting the production of CBM such as (i) policy framework for exploration and exploitation of CBM from areas under coal mining leases allotted to Coal India Limited (“CIL”); (ii) marketing and pricing freedom for CBM produced from northeast areas; and (iii) policy framework for exploration & exploitation of unconventional hydrocarbons.

Yet, three decades later after implementation of the CBM Policy the annual production of CBM in India remains at only 0.002%. The gap between resource potential and actual production remains as wide as ever. Numerous approvals, prolonged clearance delays, overlapping jurisdictions between CBM acreage and CIL’s mining leases, and administered pricing has undermined project economics and created structural gridlock. Key regulatory pushes are required in the CBM sector to ensure that India’s ambition of a gas-based economy is met.

Regulatory Framework Around CBM

India’s regulatory framework for CBM consists of a combination of constitutional provisions, legislations, rules and government policies. At the constitutional level, Entry 53 of List I of the Seventh Schedule to the Constitution of India, makes the regulation and development of oilfields and mineral oil resources a Union subject, while the States retain influence through land, water and the collection of royalty.

The primary legislation governing upstream hydrocarbon activities is the Oilfields (Regulation and Development) Act, 1948 (“OFRD Act, 1948”), and the licensing and royalty machinery in relation to CBM is governed by the Petroleum and Natural Gas Rules, 1959. It is pertinent to note that the OFRD Act, 1948 defined “mineral oils” only by reference to petroleum and natural gas and never expressly mentioned CBM. This silence left a gas trapped in coal seams open to rival claims from the coal regime, governed by the Mines and Minerals (Development and Regulation) Act, 1957 (“Mining Act”) (as amended from time to time), and coal block allocation under the Coal Mines (Special Provisions) Act, 2015.

The Oilfields (Regulation and Development) Amendment Act, 2025 (“OFRDA Act, 2025”) addresses the gaps at the statutory level. It widens “mineral oils” to cover naturally occurring hydrocarbons, expressly including CBM and other unconventional resources, while excluding coal itself. It further replaces the mining lease with a dedicated petroleum lease. The sector was also liberalized by the Hydrocarbon Exploration and Licensing Policy, 2016 (“HELP”) which established a uniform licensing system and a revenue-sharing model.

Alongside this sector-specific regime, CBM projects remain subject to the general environmental framework that applies to all projects, prior environmental clearance under the Environment Impact Assessment Notification, 2006, consent to establish and operate under the Water (Prevention and Control of Pollution) Act, 1974 and the Air (Prevention and Control of Pollution) Act, 1981, and forest clearance where forest land is involved. CBM regulation in India has evolved from a policy-based system to one with explicit statutory recognition.

Augmenting CBM Production

The central regulatory problem in India’s CBM regime was the overlap between coal and CBM rights. As the Mining Act excluded mineral oils and the OFRD Act, 1948 never formally recognized CBM, a CBM contractor and a coal lessee could hold valid titles over the same surface area with no rule on priority, sequencing or compensation. To address this situation the Government of India issued an inter-ministerial memorandum of understanding in 1997 to ensure co-existence of the two conflicting rights on the same surface area. However, for private entities, overlaps are still managed administratively, by requiring Ministry of Coal’s approval before allotment of CBM rights. CBM blocks are offered, by excluding coal mines that overlap active CBM blocks from auctions, and by a draft model co-development agreement that reserves CBM rights to the CBM leaseholder. As new CBM blocks and coal mining areas continue to be allocated, clear legal provisions should be introduced to determine the priority of rights, the order of extraction and the payment of compensation.

On the environmental side, although the existing environmental framework applies to these activities, the absence of CBM specific discharge standards and the need for multiple approvals from Central and State authorities can delay projects.

Beyond these issues there are few further shortcomings which require attention. Blocks awarded under the CBM Policy, the later bidding rounds, and HELP, carry different fiscal, marketing and relinquishment terms, and successive policy changes have repeatedly raised disputes over whether the new benefits extend to the existing contracts.

India’s coal-bearing basins lie largely in tribal and forest areas of States such as Jharkhand, Chhattisgarh and Odisha, where the local and forest laws require community consultation and the settlement of forest rights, yet the CBM framework offers no specific mechanism for Gram Sabha engagement or benefit-sharing, which leaves projects exposed to local resistance and litigation.

India also lacks a front ended viability gap funding scheme for CBM. A lesson could be learnt from China where state capital was committed to CBM infrastructure before commercial viability was established, absorbing early geological and financial risk that private investors would not take. Since 100% foreign direct investment is permitted in CBM, a financial incentive which can support the early dewatering phase associated with CBM activities would propel the vast potential of CBM into production.

The multi-year approval maze of mining leases, environmental clearances, water management permits, land access should be replaced with a single-window process with deemed approvals should the approvals not come within a specified timeline. Six-to-seven-year approval cycles must be structurally reformed.

Conclusion

India’s CBM regulatory framework has evolved from a policy-based system with gaps in statutory recognition to a clearer legal framework under the OFRDA Act, 2025. The policy pushes in relation to CIL, pricing freedom and coal lessee enablers are in the right direction. The fiscal incentives and approval expedition will be essential for CBM to contribute to India’s dream of raising the share of natural gas in its energy mix from 6% to 15%.