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INDIA
ENERGY BOOK
2012
WORLD ENERGY COUNCILCONSEIL MONDIAL DE LNERGIE
INDIAN MEMBER COMMITTEE
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INDIAN COAL SECTOR
R.K. Sachdev
Former Advisor (Coal) to Government of India
President, Coal Preparation Society of India
A well-acclaimed Coal & Energy Expert, Mr. R K Sachdev is a qualified Mining Engineer from the
prestigious Indian School of Mines and a Chartered Engineer. He is credited with vast experience in
coal, mining, energy, environment and policy related fields and many senior positions in the Indian
coal industry and with Government of India. He also served the US Department of Energy-USAID,
India, the World Bank and also the Expenditure Reforms Commission constituted by the
Government of India.
He is the Founder President of Coal Preparation Society of India and a Member of the IOC of the
International Coal Preparation Congress. He is a Fellow of Institution of Engineers (India), Member,
Mining, Geological & Metallurgical Institute, India and Member, Polish Mineral Engineering Society.
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Coal Production, Demand and Supply:India's coal dependence is borne from the fact that 54 % of the total installed electricity generation
th
capacity is coal based and 67% of the capacity planned to be added during the 11 Five year Plan period(2007-12), is coal based. Furthermore, over 70 % of the electricity generated is from coal based power
plants.
In order to achieve economic growth of 8-9% in terms of GDP, country's total coal demand, even after
allowing for the slippages that have occurred in the current plan period, has been projected to increase
from the present ~ 730 million tons in 2010-11 to ~ 2,000 million tons in 2031-32. Of this, about 75 % of
coal would go to power plants. Given the projected increase in coal requirement, the domestic coal
industry alone can not fully meet the demand. Present demandsupply gap is around 85 million tons and
it is expected to increase gradually to nearly 140 million tons by 2017.
Min istry of Coa l has the overa l l
responsibility of determining polices and
strategies in respect of exploration and
development of coal and lignite reserves,
sanctioning of important projects of high
value and for deciding all related issues.
These key functions are exercised through
its Central govt. public sector undertakings,
viz. Coal India limited(CIL), Nevyeli Lignite
Corporation(NLC) limited and Singareni
Collieries Company limited(SCCL), a joint
sector undertaking of Government of
Andhra Pradesh and Government of India
with equity capital in the ratio of 51:49
respectively.
Figure 1 : Coal Demand and Supply
2500
2000
1500
1000
500
0
2006-07 2011-12 2016-17 2021-22 2026-27 2031-32
Demand Supply
Milliontons
Table-1 : Projected Coal Demand (Million Tons)
Sector 2005-06 2006-07 2011-12 2016-17 2021-22 2026-27 2031-32
Electricity (A) 310 341 539 836 1,040 1,340 1,659
Iron & Steel 43 43 69 104 112 120 150
Cement 20 25 32 50 95 125 140
Others 53 51 91 135 143 158 272
Non-elect. (B) 116 119 192 289 350 403 562
Total (A) + (B) 426 460 731 1,125 1,390 1,743 2,221
th Figures for 2011-12 and 2016-17 are of the Working Group for 11 Five Year Plan's estimate and for
2031-32 are of the Integrated Energy Policy Report.
Figures for intervening years have been extrapolated.
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On the domestic production front, Coal India Ltd is the largest contributor accounting for 81 % of
country's coal production. Of the balance, 9.5 % comes from the Singareni Collieries Company Ltd(jointly owned by the central government and the state government of Andhra Pradesh) and the
remaining comes from privately operated collieries and the captive coal mines. Small mines in the
northeastern state of Meghalaya also add about 6 million tons to the total production. (Table 2)
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Presently the country imports about 85 million tons of coal. Out of this, about 25 million tons is
metallurgical coking coal for the iron & steel industry. The balance is thermal coal used by power plants
(50%), cement industry (17%) and other industries (33%). Presently, main sources of thermal coal
imports are Indonesia, Australia, New Zealand and South Africa. Canada, Mozambique and the USA are
amongst the emerging supply sources. Present coal handling capacity at the ports is around 85-90
million tons per annum. This has to be augmented to at least 120 million tons per annum in next twoth
years. Further it has to be doubled the present capacity by the end of the 12 Five Year Plan period.
Coal Resources:As on April 2011, India's inventory of coal resource was 284 Billion Tons (BT) comprising of: Proven 113
BT; Indicated 137 BT and Inferred 34 BT. n recent past there has been a slant criticism of the reliability
of India's coal resource base. Geological Survey of India (a 160 years old institution) gives the estimate
based on data captured by them plus inputs obtained from various public and private agencies involved
in carrying out coal exploration. It is being claimed that if India's coal resources are re-estimated on
UNFC methodology these would be much lower than the official stated figure. This is a wrong and non-
tenable statement. A mere change in methodology of estimation will not materially change the total
numbers.
I
SCCL 37.71 40.64 44.54 50.00 51.33 51.00 45Captive 19.29 26.00 30.03 38.00 36.30 43.00 304 (?)
Tata Steel 7.04 7.21 8.95 7.20 7.02 7.00 7Meghalaya 5.79 5.60 5.96 5.70 6.09 6.00 6
Total 430.85 456.40 493.21 531.90 532.06 554.00 1,026 (?)*Demand **450.00 **502.00 553 .00 604 .00 630.00 670 (?) 1,125 (?)
Gap 19.15 45.6 59.79 72.10 97.94 116 99 (?)*Demand given in the table is as originally projected for 11th Plan period.
** Assessed demand including imported coal.# Coal India has lowered their production target for FY 2011-12.
Table - 2: Domestic Coal Production Plan: (million tons)
Entity
X Plan 11th Five Year Plan 12th Plan
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2016-17Actual Projected#
CIL 361.02 379.49 403.73 431.00 431.32 447.00 664
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Only error margin in the present system of estimation
(ISP System) is to the extent that it does not account forthe coal reserves that have been extracted so far. Even
today if the total coal produced in the country in last 110
years is deducted from the total resource it will not
make any material change in the total figure.
(Table3a & 3b)
Table - 3a : Indias Coal inventory of Gondwana coal (as on 1.4.2011)
State Million tonsProved Indicated Inferred Total
Andhra Pradesh 9296.85 9728.37 3029.36 22054.58
Assam 0 2.79 0 2.79
Bihar 0 0 160 160
Chhattisgarh 12878.99 32390.38 4010.88 49280.25Jharkhand 39760.73 32591.56 6583.69 78935.98
Madhya Pradesh 8871.31 12191.72 2062.70 23125.73Maharashtra 5489.61 3094.29 1949.51 10533.41
Orissa 24491.71 33986.96 10680.21 69158.88
Sikkim 0 58.25 42.98 101.23
Uttar Pradesh 866.05 195.75 0 1061.80
West Bengal 11752.54 13131.69 5070.69 29954.92
Total 113407.79 137371.76 33590.02 284369.57Source: Ministry of coal
Table - 3b : Indias coal inventory of tertiary coal (as on 1.4.2011)
State
Million tons
Proved
Indicated
Inferred
(Exploration)Inferred
(Mapping)
Total
Arunachal Pradesh
31.23 40.11 12.89 6.00
90.23
Assam 464.78
42.72 0.50 2.52
510.52
Meghalaya 89.04 16.51 27.58 443.35 576.48
Nagaland
8.76 0
8.60
298.05 315.41
Total 593.81 99.34 49.57 749.92 1492.64
Coal reserves in India
(as on 01.04.2011)
Indicated
137 BT
48%
Proven
113 BT
40%
Inferred
34 BT
12%
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Captive Mining Policy:
With over 90 % of domestic coal production coming from government controlled mines, the presentinstitutional structure is a near monopoly. Although the government has allocated over 200 coal blocks
for development by private / public entities out side the government owned coal companies but
progress has not been promising. In order to bring about competition and transparency the
government is working hard in getting an effective regulatory framework in place.
Captive mining policy was introduced in 1993 as an interregnum to full and unrestricted opening of coal
sector to private investment. For various reasons, out of over 200 coal blocks containing coal reserve of
over 50 billion tons and with an aggregate ultimate annual production capacity of ~ 550 million tons,
have not yielded promised coal production. Only some 30 odd mines have commenced production that
contributed merely 36.30 million tons in FY 2010-11 against a target of 104 million tons. This shortfallhas also led to shortfall in the availability of coal in the country. (Table 4)
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Issues pertaining to captive mining that require immediate resolution and attention of the government
and other stakeholders inter - alia include:
a. Contentious issues to be resolved
b. Facilitating availability of geological data
c. Augmentation of exploration efforts
d. Expediting land acquisition and resolution of R & R issues
e. Forestry, environment and related clearances
f. Getting mining leases etc
Table - 4 : Overall allocation captive Blocks (As on February 2011)
Sector / End use Number of Blocksallocated
Geological ReserveIn Billion Tons
I. Power 53 18.92
Power - UMMPP 12 4.85II. Commercial mining 39 7.31
III. Iron & Steel 4 1.71
Sub Total I + II + III (A) 108 32.79
Power 28 5.01Iron & Steel 61 8.60Cement 6 0.63Coal - to - Liquid 2 3.00Others 2 0.39Sub Total (B) 100 17.63
Grand Total (A + B) 208 50.42
Public sector companies
Private companies
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Institutional setup and Coal Sector Reforms:As a part of further reforming the coal sector, government has since decided to allocate any further coal
blocks through a transparent open bidding system. Presently, government is engaged in consulting allthe stakeholders for framing the rules for introduction of auction based allocation of coal blocks. Issues
pertaining to captive mining that require immediate resolution and attention of the government and
other stakeholders are also being addressed at highest level.
Notwithstanding any of these reasons, if a country's coal demand has to be met, there is no option but to
expedite the development of these blocks which were allotted hoping that the private developers would
be in a better position to deal with various issues and bottlenecks and getting faster output of coal. The
government is reported to be working towards opening up of the coal sector without any restriction on
the marketing of coal. This, however, would happen only after legislative approval, which is likely to take
some more time.
In addition to the captive developers, the public sector coal companies that are contributing > 90 % of
total production also need immediate support in taking measures for increasing coal production from
existing and new mines. The institutional set up and management of the Indian coal industry has been a
subject of debate every now and then. In recent past, the government had set up a committee to study
the coal industry's problems and come out with recommendations with a view to making the coal sector
more self reliant in terms of technical management capability so as to function in a competitive
environment.
This committee has identified the following areas that need to be addressed:
Speeding up exploration by opening it to private sector
Productivity Improvement & Increasing share of UG Mines
Institutional Capability
Coal Washing & Transportation
Environmental Approval Issues
Climate Change Issues
Governance and Regulation
R&D in Coal Technologies and New Resources
Coal Quality Management:Indian coals by their very nature are high in ash content but low in sulphur content. Power plants
complain of high ash content, inconsistent quality and size. Main reason of this is that over 87% of coal is
produced from mechanized open pit mines where there is a pronounced degree of out of seam dilution.
After a long and protracted debate that lasted for over 30 years 'whether to wash' or 'not to wash
thermal coal for power plants, the government has decided that all coal supplied to power plants (except
for pit-head stations) should be washed at the mine mouth. Accordingly, Coal India Ltd. has initiated a
mega plan ofsetting up of some 20 odd coal washeries of an aggregate throughput capacity of over 110
million tons per year on.
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These washeries would be set up on 'Build, Operate and Maintain' (B O M) basis and is estimated to cost
CIL~ Rs. 4500 crore or USD 1.0 billion. As a precursor to the recent IPO that helped Coal India to garner
over Rs 15200 crore from its maiden public issue, the company having realized the commercial
importance of 'coal quality' had in its pre-IPO road-shows declared that it would set up adequate
washing facilities to ensure the quality of coal supplies to all consumers. Some end users like power
utilities, iron & steel makers, cement producers are also setting up their captive washing plants to
improve the quality of coal. Going by the foregoing developments one can hope that the contentious
issue of coal quality will be a thing of past in coming 5 to 7 years.
Coal Transport Infrastructure:Hitherto, the development of new coal mines was taking place wherever transport infrastructure for
evacuation of coal and its further transportation to various designated destinations could be managed
without much of a problem. With the increased demand, more and more new and far-flung coalfieldsare being taken up for development to meet the increasing demand of coal in the country. Initially such
developments can go along with road transport. But road haulage is not easy due to lack of road
infrastructure of adequate strength. This highlights the need for development of railway facilities for all
such locations. Similarly, for handling and transportation of increasing volumes of imported coal,
integrated port and railway infrastructure has to be established.
Coal and Climate Change:The adverse impact of increased CO emissions from increasing use of coal in thermal power stations2
and other industries is well known. Climate change issues are being debated globally particularly in the
context of increasing growth rate in countries like India and China where energy supply is heavily coal-
dependent. In this backdrop, adoption of Super Critical steam parameters in Ultra Mega Power Plants
and other plants is definitely a step forward. It is time for the government not to allow any new coal
based power plant with sub critical steam parameters.
Summing Up:To sum up, in a heavily coal dependent economy like India continuously widening demand - supply gap
of coal is a matter of serious concern and steps should be taken for increasing domestic coal production
for long term energy security. Solution inter alia lies in accelerated development of captive coal block
and for this, outstanding issues must be resolved early. A strong domestic coal production and deliverysystem would be imperative if the country has to achieve the goal of energy self-sufficiency and long-
term energy security. An independent coal regulator is required to create confidence in the mind of
private investors and to provide them a level playing field. Coal imports are set to increase. This calls for
securing coal prospects abroad and development of port capacity with matching inland transport
infrastructure. To contain carbon emissions, the coal-energy chain has to be clean and environmentally
acceptable. For this, the impact of the increased use of fossil energy sources has to be enjoined in the
policy framework so as to guard against any negative environmental trade-off in future particularly in
the context of global climate change concerns.
*****
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Ministry of coal has issued a strategic plan in February 2011 which seeks to enable the Coal Sector inthe sustainable, efficient and economical exploitation of its coal resources. The strategic plan has
discussed the issues and actions at length. The report has a detailed SWOT analysis; and discussion on
interdepartmental and cross-sectional issues, which gives a very good insight into dynamics of the coal
sector in India. A snapshot of the report is presented here.
STRATEGIC PLAN - MINISTRY OF COAL (Issued : 10th February, 2011)
SWOTAnalysis :
(i) Adequate reserves
(ii) Huge workforce comprising of expert and highly
skilled man power is available with the coal
companies
(iii) Adequate and rising domestic demand for coal.
(iv) Coal reserves are available at relatively shallow
depth which can be easily extracted by cost
effective open cast mining methods.
(i) Poor quality of thermal coal available in India -
mostly E and F grade coal.
(ii) Inadequate extractable reserves of coking coal.
(iii) Low productivity in coal mines operated by CIL.(iv) Coal sector not truly opened up for commercial mining.
(v) Lack of adequate infrastructure for speedy
evacuation of coal produced.
(vi) Coal reserves are available mostly in the eastern
part of India whereas the demand of coal is
through-out India. This leads to high transportation
cost of coal or higher transmission losses of power
generated at pit-head power plants.
(vii) Long time taken in getting the environment and
forest clearance for new coal projects.
(viii) Problems in land acquisition and rehabilitation &
re-settlement.
(ix) Law and order problem in Eastern coal producing
states.
(x) Constraints in exploration of coal - Out of 277 billion
tonnes geological reserves, only 110 billion tonnes
reserves are in proved category.
(xi) Problems and constraints in under ground mining
use of old technology labour intensive processes for
mining and safety issues.
(i) A fast growing economy offers a huge domestic
market (with relatively inelastic demand) for
coal.
(ii) Bulk of power generation is coal based and likely
to remain so in the foreseeable future.
(iii) As other energy sectors viz. oil and gas, power
etc. have been opened up, opening up of coal
sector for private investment will give a big boost
to the sector.
(iv) Wide gap between the price of domestic coal
and that in the international market should give
comfort to domestic industry and encourage
higher investment in the sector.
(i) De lays in ob t a in in g st at u tory c le aran ce s
(environment and forest) and land acquisition cause
delays in the commissioning of new coal project.
(ii) Law and order problem in some of the Eastern States
can adversely impact coal production and movement.
(iii) Delay in the development of coal blocks allotted to
new players (both public and private sector) would
place intense pressure on public sector companies.
(iv) Opposition from various quarters to the opening up of
coal sector to private sector investment for
commercial mining will impede speedier growth of
the sector.
Strengths Weaknesses
Opportunities Threats
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Inter-Departmental and Cross-functional Issues
1. Ministry of Environment and Forests(I) Increase in the number of exploratory boreholes in forest land to undertake proper resource
assessment for preparation of feasibility reports.
(ii) Expediting Forestry and Environmental clearances for coal projects.
(iii) Drawing up of standard Terms of Reference (ToR) for opencast and underground mines to
reduce time for Environment Management Plan (EMP) preparation.
2. Ministry of Power
(i) The imports by power sector consumers to be as planned in terms of quantity and schedule fixed
by Central Electricity Authority.
(ii) Unloading constraints at thermal power stations end to be removed.
3. Ministry of Railways(i) To expedite the construction of new railway tracks in the coalfields.
(ii) To ensure availability of the requisite number and type of wagons for dispatch of coal to various
consumers.
4. State Governments
(i) Land acquisition is one of the major problems for expansion of the coal projects or starting of new
coal projects and development of coal blocks. State Governments should play more active role in
this regard.
(ii) Law and order situation in many States specially Jharkhand, Chhattisgarh, Orissa and West Bengal
have adversely affected coal mining operations and also increase in illegal mining operations and
have stopped creation of much needed infrastructural facilities like roads, railways, etc. in areas likeKaranpura Coalfields. More active involvement of State Government authorities can only prevent
and eradicate these problems to facilitate continuance of mining operations smoothly.
(iii) Considerable delay is taking place to accord approval for prospecting lease, mining lease, land
acquisition, etc. These procedures are under the control of the States. Greater awareness and
appreciation from the State Government machineries are required for hastening the approval
processes for development of new mines and expansion of the existing mines.
5. Ministry of Labour
Issues related to Mine safety and contract labour.
6. Ministry of Steel
Ministry of Steel has requested to give more stress on exploitation of coking coal reserves, so thatthe import of coking coal is reduced. More facilities for washing of coking coal may be set up, so t h at
the lower grade coking coal extracted from the bottom seams can be used by the steel plants.
7. Ministry of Shipping
(I) To reduce the detention of railway wagons inside the port.
(ii) Exchange yards between ports and railways to be dispensed with.
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Consumption of Raw Coal by Different Industries(Million Metric Tonnes)
* Includes jute, bricks, coal for soft coke, colliery, fertilisers & other industries consumption. @From 1996-97 and onwards Cotton includes 'Rayon'also
0.00
100.00
200.00
300.00
400.00
500.00
600.00
1970-71
1972-73
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
MillionTons
Electricity Steel & Washery Cement Others * Paper
Year ElectricitySteel &
Washery Cement Railways PaperCotton
@ Others * Total 1970-71 13.21 13.53 3.52 15.58 0.27 1.45 23.67 71.23
1973-74 16.64 13.78 3.65 13.92 1 1.78 26.89 77.66
1978-79 24.8 20.26 4.88 12.13 1.72 2.34 34.02 100.15
1979-80 30.03 19.85 3.87 11.36 1.54 1.99 36.89 105.53
1984-85 57.66 25 7.29 9.46 2.83 2.57 36.64 141.45
1989-90 108.32 30.61 9.53 5.8 2.9 2.7 43.564 203.424
1990-91 113.71 30.91 10.43 5.24 2.81 2.58 47.68 213.36
1991-92 126.84 34.03 10.8 5.06 2.67 1.96 50.97 232.33
1996-97 199.62 39.76 10.08 0.14 3.51 1.311 44.199 298.62
2001-02 265.191
30.036
14.847 - 2.775 0.936 35.955 349.74
2002-03 267.9 30.603 16.359 - 2.788 0.721 43.374 361.745
2003-04 279.956 29.671 16.634 - 2.513 0.522 50.109 379.405
2004-05 305.348 34.43 18.097 - 2.612 0.464 46.457 407.408
2005-06 316.486 32.416 18.08 - 2.773 0.288 63.214 433.257
2006-07
331.58
34.9
19.67
-
2.62
0.303
73.251
462.324
2007-08 360.735 39.017 21.351 - 2.642 0.366 78.549 502.66
2008-09 407.49 40.986 21.787 - 2.947 0 64.58 537.79
2009-10 411.06 41.11 21.34 - 3.5 0.270 110.200 587.48
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Foreign Trade in Coal
0
10
20
30
40
50
60
70
80
1970-71
1973-74
1976-77
1979-80
1982-83
1985-86
1988-89
1991-92
1994-95
1997-98
2000-01
2003-04
2006-07
2009-10
MillionTons
Imports Exports
Million Metric Tons
Year Imports Exports Net Imports
(Import - Export)
1970-71 - 0.470 - 0.470
1973-74 - 0.620 - 0.620
1978-79 0.220 0.270 - 0.050
1979-80 0.940 0.090 0.850
1984-85 0.580 0.130 0.450
1989-90 4.410 0.160 4.250
1990-91 4.900 0.100 4.800
1991-92 5.920 0.110 5.810
1996-97 13.177 0.480 12.697
2001-02 20.548 1.903 18.645
2002-03 23.260 1.517 21.743
2003-04 21.683
1.627
20.056
2004-05 26.128 1.374 24.754
2005-06 36.869
1.329
35.540
2006-07 43.080
1.550
41.530
2007-08 49.794 1.627 48.167
2008-09 59.000
1.410
57.590
2009-10 67.744 2.171 65.573
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Wholesale Price Indices of Coal, Coke & Lignite in India
0
50
100
150
200
250
Coal Lignite Coking Coal Non Coking Coal Coke
Index
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Year
Wholesale price index (2004-05=100)
Coal Coking Coal Non Coking Coal Coke Lignite
2005-06 117.6 106.7 102.58 152.7 85.7
2006-07 117.71 106.7 102.52 152.7 88.47
2007-08 121.69 111.37 106.53 155.43 99.13
2008-09 151.26 119 112.7 234.4 140.04
2009-10 156.45 126.8 121.16 234.4 134.85
2010-11 184.6 178.7 166.5 219.3 168.9
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NATURAL GAS SECTORINDIAN
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Ranjan GhoshFormer Executive DirectorGAIL India Limited
Mr. Ranjan Ghosh, Former Executive Director (GAIL Ltd.), with a masters degree in Engineering, has
over 36 years experience in Oil and Gas sector. He was with GAIL Limited for 27 years and successfully
led many of GAIL's prestigious projects across various functions including planning, project
execution and marketing. Major projects included Gas pipeline control, metering and automation
projects, including SCADA and application programs, commissioned gas processing plants & large
number of gas terminals.
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Overview of Indian Gas SectorIn last decade, Indian economy has shown
incredible growth. Steadily and slowly, India is
gaining strategic importance globally owing to the
impressive economic growth pattern and market
attractiveness. After coming out successfully from
the financial crisis, Indian economy is set to
demonstrate robust growth again with the GDP
growth rate of around 8.6 percent for 2010-11.
Estimated GDP growth rate for 2011-12 is expected
to be over 9%. Even as developed economies
grapple with slow economic growth and risingsovereign risk currently, emerging economies such as China and India are witnessing robust economi
growth and strong demand for clean and economical energy. In the long run, powerful trends continue
to shape the modern energy economy- industrialization, urbanization and motorization.
With growing economy, there will be more energy consumption in the country which will result in
increased share of natural gas in India's energy basket. With a targeted GDP growth rate of over 9 %
India's energy demand is expected to grow at 5.2 per cent. Currently, India is the world's 5th larges
energy consumer accounting for about 4.1% of the world's total annual energy consumption and movin
fast enough to become the third largest consumer by
2025 after US and China. The current per capita
energy consumption of India is 0.5 toe as compared
to the world average of 1.9 toe, and this indicates a
high potential for energy consumption. Per capita
consumption of India is expected to reach 1.22 toe
by 2030. China and India are two Asian nations which
are expected to show highest energy consumption
growth rate in coming years, owing to rapid
urbanization and consequent high demand.
With the massive rate of urbanization, the demand for energy has grown manifold in the past few year
and will continue to grow in future. Last decade also showed tremendous growth in Indian gas sector and
gas has slowly emerged as a primary source of energy for India along with coal and oil. The demand o
natural gas has sharply increased in the last two decades. In India natural gas was first discovered of
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India GDP Growth Rates
12.010.0
8.06.04.02.00.0
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
9.5 9.7 9.0
6.7 7.48.6
PRIMARY ENERGY PER CAPITA(kg oil equivalent, 2008; source: BP 2010 and World Bank 2010)
12000
10000
8000
6000
4000
2000
0World
avereage
Norway US Russia New
Zealand
Japan Germany China India
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the west coast in 1970s, and today, it constitutes 10% of India's total energy consumption. As per BP
statistical review 2010, the share of natural gas is expected to reach 20% by 2025 from current 10%. As
per the global consulting firm McKinsey, by 2015 Indian gas market is likely to be as large as Japan
which is currently the largest consumer of LNG in Asia region. In its Reference Scenario, the IEA
expects Indian gas demand to increase to 94 billion cubic meters by 2020 and to 132 billion cubic
meters by 2030, driven by the industrial and power generation sectors. This means an annual increase
of 5.4% one of the highest in the world.
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As a result of the size and growth of the economy, India is expected to play a key role in global energy
markets including natural gas markets. In fact, gas suppliers now will look to India and China to provide
growth instead of other developed markets like USA or Europe. As a result of growth in demand and
supply, Indian gas sector offers large value creation potential across upstream, midstream and
downstream of gas value chain. In the next five years alone, for instance, these opportunities will grow
to a revenue potential of USD 50 billion from USD 25 billion today, with a corresponding growth in
EBIDTA to USD 30 billion from USD 15 billion today.
Current consumption of gas in India is around 166 MMSCMD. Power sector is the anchor customer for
gas sector which consumes almost 37 % of the total supply where as fertilizer sector consumes around
23%. Sector wise consumption of gas in India is given in the table.
Estimated Indian Energy basket - 2025Indian Energy basket - 2009
Oil32%
Coal
52%
Gas
10%
Hydro
5% Nuclear
1%
Oil25%
Gas
20%
Hydro
2%Nuclear
2%
Coal
51%
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Sourcing of gas was primarily
dependent on domestic
sources till date. But due tothe limited supply, customers
are slowly moving towards
importing LNG. Sourcing
scenario of India is as given in
table.
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Both the demand and supply for LNG have grown at a healthy rate over the past decade. The recent
development of shale gas reserves in North America has increased the supply of LNG to the global
market but LNG demand is expected to grow substantially over the next decade driven in particular by
India, China and other emerging markets (Argentina, Brazil, Bangladesh etc.).
Demand for natural gas in India is expected to grow at a very rapid pace. As per the estimate releasedth th
by Ministry of Petroleum and Natural Gas recently for 12 and 13 five year plan, the demand for gas is
expected to increase by a CAGR of 14% during 2011-12, to 2016-17, from 194 MMSCMD to 373
MMSCMD. In 2020, this demand could reach to over 500 MMSCMD.
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As the Indian economy accelerates and moves towards a cleaner energy mix, a number of attractive
growth opportunities are emerging in and around the gas value chain. A few opportunities are city gas
distribution, construction of new LNG regasification terminals, gas based peaking power generation,
completion of national gas grid, development of unconventional gas sources etc. These opportunities
are detailed out in the next chapters.
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Development of National Gas Grid (NGG)
NGG is an ambitious blueprint conceived by GoI, aiming to develop a nationwide network of naturalgas to connect the consumers with sources. The government is also planning to boost use of clean fuel
by reaching out to unserviced areas through a national gas highway.
India currently has around 12,000 km of natural gas pipeline. State-owned gas transportation major
GAIL (India) Ltd operates around 8,000 km pipelines and is planning to add another 6,000- 8,000 km in
next few years. Most gas pipelines are currently in the northern and western region, and there is need
to develop networks in southern, eastern and central regions. when compared with some of the more
developed natural gas markets in the world, the network density is still quite low pipeline length to
country area ratio of 0.003 km/square km as compared to 0.06 for USA, 1.17 for UK, 1.24 for Germany
and 0.02 for Bangladesh. So India has huge opportunities in transmission and developing natural gas
grid.
PETROLEUM AND NATURAL GAS REGULATORY BOARD1ST FLOOR, WORLD TRADE CENTRE, BABAR ROAD, NEW DELHI-110001 FAX No: 23709151
Ph. No: 011-23457700, 011-23457744, 011-23457751www.pngrb.gov.in
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REGULATORYBOARDLIMITED
GAS PIPELINES IN INDIA
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Development of LNG market
In the last 20 years, growth of the Indian gas market was steady and with improved infrastructure and
domestic discoveries, price levels have begun to rise gradually. Currently, India has a substantial
demand for gas, estimated to be 350 MMSCMD in 2015 and 480 MMSCMD in 2020. As domestic gas
discoveries are expected to be limited, the demandsupply gap is expected to continue due to non-
availability of cheap gas. Although gas price has changed in the last two decades and is slowly moving
towards market driven price, Indian gas market is still sensitive to price. Though there are some
consumers segments which can afford high priced LNG which include existing fertilizer plants
(naphtha and fuel oil-based), refining (naphtha conversion), power (naphtha switching), CGD and
industrials (fuel oil-based and captive power), future gas demand is likely to be low as new markets
can't be unlocked at current high LNG price. LNG is available both under long term contracts and inspot market. While the price of LNG imported under term contracts is governed by the SPA (Special
Purchase Agreement) between the LNG seller and the buyer, the spot cargoes are purchased on
mutually agreeable commercial terms. It is important to develop new LNG markets through seeding
with low priced LNG/ domestic gas, develop infrastructure, create demand and make them ready for
absorbing high priced LNG.
Currently, several options are being explored including gas price pooling and gas allocation policy for
power sector which is the biggest consumer of natural gas. The objective of all these initiatives is to
promote the use of LNG in India and make LNG more affordable for new sets of consumers. Gas price
pooling can bring down the effective cost of using LNG for new customers and will help to expand thenatural gas market through bringing new opportunities and new set of players in downstream market.
As per the new allocation guidelines, no power plant will be assured gas for its entire capacity.
Domestic linkage will be provided for 60% of the power plant capacity and there will be no distinction
between private and public companies. It was also decided that initial allocation would be done on an
in-principle basis, though the actual drawl of gas would happen only after the developer ties up at
least 85% of the capacity, corresponding to 60% of domestic gas allocated. CEA has been asked to
prepare a list of power plants expected to come during 2012-17 period for the same. So the power
plants which are allocated domestic gas in 2012-17 will have to source 40% of its total requirement in
form of LNG. It may reform the LNG market in India if the reform in power tariff happens. As power
sector is the largest consumer of gas, there will be opportunities to participate in value chain and
supply LNG to the power plants.
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LNG regasification terminals
India is pushing hard to increase its domestic gas production to cater its enormous demand. Since thecreation of NELP, eight rounds of bidding have taken place and more than 200 E&P blocks are offered.
NELP - IX bidding is currently in progress. There is consensus that a large portion of the possible
onshore sedimentary basin has been explored. Currently, there is prevailing uncertainty over potential
from the new NELP and CBM blocks. In addition, the government is expected to bring out the New
Open Acreage Licensing policy towards the end of 2011 which could prove to be a discontinuity against
the earlier regime. As the demand is far exceeding supply in India and there are very few new domestic
sources available, in future, additional demand will be catered through LNG (unless any large domestic
discovery will be made) or through transnational pipelines if and when they get constructed. China
and India are likely to account for 74% of LNG import requirement in the non-OECD Asia.
As on date, LNG re-gasification capacity in the country is 12.5 mtpa (10 mtpa at PLL's terminal at Dahej
and 2.5 mtpa at Shell's terminal at Hazira). Capacity of Dahej is expected to reach 13.6 mtpa by 2013-
14 after expansion. The capacity of HLPL Hazira is also likely to be expanded to 5 mtpa in next 3-4 years.
While current capacity at the Dahej
terminal is deployed for importing LNG
from Qatar and short term supplies
from other sources, the Hazira
terminal sources spot cargoes. Beyond
this, PLL is adding another 5 mtpaterminal at Kochi and RGPPL adding a 5
mtpa terminal at Dabhol. The initial
capacity of Dhabol terminal will be 1.2
mtpa after commissioning without
breakwater facilities. After completion
of breakwater facilities by 2013-14, the
terminal will be in a position to handle
5 mtpa. Kochi terminal is expected to
be in place by 2012 with an initial capacity of 2.5 mtpa which will subsequently increase to 5 mtpa.
In view of huge demand supply of natural gas, there is a substantial potential to import LNG into the
country. For handling LNG volumes, there is an attractive opportunity to set up LNG reagasification
terminals. GSPC-Adani plans to add a 5 mtpa terminal at Mundra, and IOCL plans to add a 5 mtpa
terminal at Ennore in next 4-5 years. PLL is planning to set up another terminal on east coast while as
GAIL is exploring the potential to set up an onshore terminal or FSRU on East Coast.
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City Gas Distribution
Vehicular segment:
City Gas Distribution has not properly evolved in India, barring a few cities like Delhi and Mumbai.
Most of the current demand is driven by mandated segments and discretionary demand has been low
But CGD is slowly evolving and rapid growth is expected in coming years with more than 250 cities
likely to be targeted. Demand of city gas can be further categorized into the following four segments.
For the vehicular segment, the alternate fuel is diesel and this segment
can afford up to USD 17/ mmbtu of natural gas based on price of diesel, mileage of car and
cost of CNG conversion kit. At CNG cost of INR
35/kg or USD 13.5/mmbtu, this results in
savings of around 20 per cent over the dieselprice. This segment is expected to be 2025
per cent of total CGD volumes.
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NATURALGASSECTOR
We can expect that, if all
terminals are commissionedon time, LNG regasification
capacity will reach around 40
45 mtpa (around 145 160
M M S C M D ) b y 2 0 1 6 - 1 7 .
Beyond 2017, terminals are
being planned at port locations
like Dighi Port, Mumbai,
Paradeep, Vizag, Mangalore,
Cuddalore Port etc. If at least
50% (3 out of 6) of these
terminals materialize, the total
regasification capacity will
reach 60-65 mtpa by 2021-22.
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C o m m e r c i a l :
T h e
alternate cost of fuel f o rcommercial segment is very
high owing to the removal of
subsidy. The alternate fuel is
LPG and this segment can
afford up to USD 18/mmbtu.
At CNG cost of INR 35/kg or
USD 13.5/mmbtu, this
results in savings of around
4050 per cent over the LNG
prices. This segment is
expected to be 1520 per
cent of total CGD volumes.
Industrial sector is the most
a t t r a c t i v e c o n s u m e r
segment to tap into given
the large anchor load
comprising of 50 per cent of
demand. It can afford up toUSD 16/mmbtu of natural
gas.
The domestic consumer segment can only afford up to USD 12/mmbtu of delivered gas price,
and will have limited potential other than high-density urban consumers, given government
subsidies on LPG, high servicing costs and the corresponding low volume off take.
Demand for CGD is expected to reach around 45-46 MMSCMD by 2016-17 due to addition of new
cities, price advantage of CNG and increased use of PNG in domestic, industrial and commercialth
sectors. As per the estimates released by Planning Commission for 12 five year plan, the growth in gasdemand in the City Gas Distribution (CGD) sector between 2012 and 2017 is projected to be the
highest among all sectors, at a CAGR of 28.8%, from 13 MMSCMD to 46 MMSCMD. Hence, there are
multiple opportunities for the companies to bid and construct CGD networks across India. Though
CGD is capital intensive and needs a longer gestation period, it is lucrative for many gas utility
companies due to high affordability of consumers. As per an independent study done by McKinsey inINDIAENERG
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2010, CGD in India has capacity to absorb gas prices ranging from USD 12 to USD 16/mmbtu at crude
prices of USD 90/bbl considering soaring alternative liquid fuel prices. Supply of natural gas makes
economic sense vis--vis competing fuels for most of the segments, viz. domestic, industrials,
commercial and vehicular. Industrial and commercial segments are the most attractive consumer
segments given large anchor load and high affordability and comprising 60-70 percent of total CGD
volumes. Vehicular segment is expected to consume 2025 per cent of total CGD volumes while as
domestic consumer segment will have limited potential other than high-density urban consumers,
given government subsidies on LPG, high servicing costs and the corresponding low volume off take.
There are three key challenges faced by the CGD sector in India - inadequate network infrastructure
available to facilitate proliferation of CGD, inadequate availability of gas for CGD particularly for non-
mandated segments and regulatory uncertainty. But this is changing rapidly with new planned
pipelines coming up to connect new geographical areas, new sources of gas including CBM getting
available and changes in regulations to lay out a growth roadmap for CGD segment. With these
developments, the CGD segment is expected to grow rapidly over the next few years with entry of new
players and expansion of CGD network to new geographical territories.
Power sector is the largest consumer of natural gas in India and has huge potential due to significant
deficit. But gas based power generation is constrained by the ability to pay for a higher fuel expense.
India has the fourth largest coal reserves in the world and has significant hydro potential. Cost ofpower generated using coal as fuel is significantly lower compared to other thermal power generation
means. For example, a base-load open cycle gas turbine (OCGT) can compete with coal only if it can get
gas at $5- $6 per mmbtu whereas combine cycle gas turbine (CCGT) can compete at a gas price of $8-
$10 per mmbtu. Peaking power plants can afford higher price of gas on account of higher power tariff.
Similarly, combined cooling, heating and power (CCHP) plants can also afford a slightly higher price for
gas due to increased efficiency. So opportunity lies primarily in decentralized gas based power
generation & peaking power.
Currently India's power demand is around 150 GW. India's peaking power shortfalls are set to intensify
over the next 10 years and are expected to reach more than 70 GW by 2020 from the current peaking
deficit of around 30 GW. A bulk of the peak power deficit can be attributed to five key power deficit
states Maharashtra, Madhya Pradesh, Uttar Pradesh, Punjab and Haryana. Seasonal peaking deficits
will exist in northern states, whereas demand for daily peaking power would continue to increase
especially in the southern states and major urban centers. Base load power demand will primarily be
met through the thermal coal-based plants, whereas gas and hydro plants are best placed to meet the
peaking power demand. Gas is the energy source to bridge the peaking power gap other than solar
and hydro power given scalability, availability and time to construct. So far, gas-based peaking power
capacity addition has been constrained by domestic gas shortage and absence of peaking power tariff
regulations.
Decentralized gas based power generation & peaking power
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Significant market failures at the state
distribution company level haveprevented significant peaking capacity
from coming up so far. The present tariff
structure does not fully address the
critical dimensions like (a) differentiation
of tariff based on 'value' of the electricity
during a particular time of day, that is,
peak and off-peak periods (b) separate
tariff structure for peaking plants, that is,
separate tariffs for the plants that need
to operate only during peak periods to
meet the peak demand. However, key
foundational regulations have started coming in place. The Rakesh Nath committee report lays the
framework for peaking PPAs to be contracted with the SEBs. The report emphasizes the need for a
differential power tariff based on the availability of plant and value of power during peak period. The
report also advocates tying in time of day tariff at the distribution end with corresponding
differentiation of supply side tariff. In addition to the recommendations by the Rakesh Nath
committee, certain basic frameworks are being set in place Multi Year Time of Day tariffs (MYToD),
Time of Day (TOD) metering; 23 states have announced MYToD tariffs (15 have notified and 9 have
issued orders).
Increasing demand and lagging supply leads to high prices for both oil and gas, making exploitation
of unconventional gas far more lucrative for producers. Globally, unconventional gas reservoirs are
present in significant number of geological basins. Typical unconventional gas resources are Shale
Gas, Tight Gas, Coal Bed Methane and Gas Hydrates. It is estimated that globally 16,000 trillion
cubic feet of gas is present in shales.
Among various unconventional gas resources; the CBM, tight gas and shale gas are being commercially
exploited in US and Canada, Australia, China etc. in different proportions. India too is making efforts to
keep pace with the CBM industry but the tight gas and shale gas are yet to find a place in the country's
energy basket.
Coal Bed Methane (CBM) offers tremendous potential due to high coal reserves. However, CBM
production has been slow to pick up globally with current production of about 15 MMSCMD coming
primarily from the US. Global production is expected to grow to around 65 MMSCMD by 2015 with
technical challenges being gradually resolved. India has the sixth largest coal reserves in the world
Alternative sources of gas
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with projected CBM reserves of about 92 TCF. The government has developed a policy to encourage
CBM production and 33 blocks have already been offered in four bidding rounds. Five of these haveestablished reserves of about 8.9 TCF. However, after several years of existence and big promise, CBM
production in India is still 0.1 MMSCMD from 1 block. DGH expects production to grow up to 7.4
MMSCMD by 2015 (RIL: 5.0 MMSCMD, GEECL: 1.5 MMSCMD, ONGC/ Essar: 0.9 MMSCMD). Several
challenges still exist in meeting CBM production targets and increasing production beyond 2015 which
includes technical challenges related to assessment of potential, utilization of produced methane,
inferior grade of coal in India and low production from wells on account of low porosity and
permeability, regulatory challenges related to use delineation of blocks for mining and CBM
exploitation, environmental challenges on account of higher requirement of land and disposal of
water, logistical challenges on account of requirement to drill large number of wells at low cost, big
requirement of fracking and especially off take of gas and political challenges as most prospective coal
mines lie in insurgency affected areas and pose a threat to safe operations.
It has been estimated that
India possesses shale deposits
across the Gangetic plain,
Assam, Gujarat, Rajasthan,
and a few other areas. The
shales in Gondwana & Cambayb a s i n h a v e b e e n f i e l d
experimented for evaluating
the shale gas potential. Initial
results are found encouraging
and at par with US producing
shales. Hence it has opened
v a s t g e o g r a p h i c a l a n d
stratigraphic frontiers for shale gas exploration.
In India, although the potential of shale oil and gas has been recognized to some extent, not much has
been done. No credible estimates of the actual reserves are available. In this context, Government is
planning to come up with a policy dealing with the exploration and development of shale gas and oil.
On the lines of NELP, interested operators could bid for acreages, promising a work program that
covers both seismic surveys to understand the potential and actual drilling.
Shale Gas
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With the growing demand for natural gas in India and the
fact that existing gas fields are in decline, shale gas couldfill the gap between demand and supply. The recent
Reliance-BP deal shows how Indian firms can partner with
global majors and benefit the Indian energy market. While
the deal was in the exploration and production area at the
outset, BP stated that Indian market has huge potential
and they will look forward to extend their partnership to
gas transmission and marketing as well in future.
Open acreage licensing policy (OALP)
After NELP IX, there are wide speculations that the
government may stop inviting bids for rights to explore oil and gas under New Exploration Licensing
Policy (NELP) terms and replace it with a new exploration policy model called open acreage licensing
policy (OALP). The open acreage model allows domestic and global oil majors to bid for exploration
rights through the year unlike NELP which is an annual event. Also, companies can identify and bid any
offshore or onshore block in the country.
Though OALP is being considered as next stage in India's exploration scenario, there are a few
roadblocks ahead. From past successful OALP examples, it is observed that for being successful, OALPrequires availability of large number of blocks for exploration and production, besides a stable fiscal
regime and, above all, availability of geological data in public domain and prospective details of the
area if not individual blocks. In India, not much data is available for its sedimentary basins. As for
geological data availability, nearly 50% of the total area is poorly explored and India has very little data
of value. India's upstream regulator Directorate General of Hydrocarbon is in the process of setting up
an NDR to collect and preserve valuable data related to the Indian sedimentary basins which will be
used by energy exploration firms in discovering hydrocarbon assets. But these efforts will take
substantial time to materialize.
In recent NELP-IX round, a total of 74 bids were received for 33 blocks out of the 34 blocks on offer. Ofthe 15 offshore blocks and 19 onshore blocks, single bids were placed for 10 offshore and 4 onshore
blocks respectively. Despite serious efforts, there are tepid responses from most of the global oil and
gas majors and ONGC emerged as the highest winner winning 10 of these 33 blocks. Even in past NELP
VIII, most global energy majors stayed away from the bidding process and none of the top five global
majors, namely Exxon, Shell, Chevron, Statoil and Conoco Philips, participated with bids. Many
experts believe that in this stage implementing OALP may unduly help the entrenched PSUs or
promote crony capitalism. So it is likely that the NELP & OALP may co-exist for some time before OALP
is implemented finally.
Regulatory Dimensions
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PNGRB tariff and pipeline bidding
Historically, gas transportation sector was dominated by single PSU with transportation tariffdetermined by the central government. From 1987 to 2005,
transportation tariff was fixed by the Empowered Group of Ministers
(EoGM). Govt. of India decided to develop a policy concerning the
approval of pipeline construction that would be consistent, market-
friendly, and would help avoid duplication of gas transport routes. To
address all the above issues, a board called The Petroleum and Natural
Gas Regulatory Board (PNGRB) was formed under Petroleum and
Natural Gas Regulatory Board Act 2006. The board also has to ensure
adequate and secure supply of the petroleum products throughout
the country at the competitive and regulated prices and act as an
enabler in developing gas infrastructure by providing regulatory
support for the development of the pipeline network. The board
formally came into existence on June 25, 2007 with the objective to
regulate the refining, processing, storage, transportation, distribution, marketing and sale of
petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as
to protect the interest of consumers and entities engaged in specified activities and to ensure
uninterrupted & adequate supply and to promote competitive markets.
Currently all the entities have to take prior authorization to lay, build, operate or expand any pipelineas a common carrier or contract carrier by the board. The regulator PNGRB also set up the Access Code
requiring third-party access for one third of the capacity and setting the tariffs of transportation for
third parties. PNGRB has therefore to determine tariffs for existing pipelines as well as for pipelines
authorized by the government (before PNGRB was created). PNGRB has proposed amendments to the
(Determination of Natural Gas Pipeline Tariff) Regulations, 2008, and has invited comments from
stakeholders and experts. These will allow gas transporters like GAIL and Reliance Gas Transportation
Infrastructure to charge a lower rate than that determined by PNGRB or those approved earlier on a
cost-plus basis. The Petroleum & Natural Gas Regulatory Board (PNGRB) also issues regulations for
authorizing entities for developing City or Local Natural Gas Distribution (CGD) Networks; exclusively
for CGD Networks and determination of network tariff of such networks.
Emerging of PNGRB brought reforms and transparency to the natural gas sector. PNGRB always
encourages competition and wants to increase the number of players which is an encouraging trend
for players who want to invest in India.
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Gas Allocation Policy/ Gas Utilization Policy
Rakesh Nath Committee report
Demand for gas in India is higher than the supply. In 2008, GoI came up with a gas allocation policy toprioritize gas supply to various industries. These guidelines are applicable for five years and shall be
reviewed afterwards. India primarily utilizes natural gas in power generation, fertilizer, city gas,
petrochemicals/ refineries & steel/sponge iron industries. Presently, the allocation of domestic gas is
based on sectoral priorities, gas availability and potential gas markets in particular regions and done
by EGoM. Existing users have priority over Greenfield users. Fertilizer sector has been given highest
priority of gas allocation in India followed by LPG and Petrochemical plants and power. CGD and
refineries are given least priority due to their high price affordability. Priority to power generators and
fertilizer producers make them the major customers of natural gas supplied at the lowest rate
(Administered Pricing Mechanism prices decided by the government) by the state-owned oil and gas
companies.
There are a few drawbacks in allocation policy. Power and fertilizer sector are put on the priority list
whereas other sectors are considered less important by the authorities. But these sectors are often
willing to pay a higher price of domestic gas than power and fertilizer companies, but they are unable
to buy gas because demand exceeds supply. In such scenario, domestically produced gas will not be
able to discover its true market price and also reduce competition. The NELP producers have liberty to
market their own gas but they have to abide by gas allocation policy which reduces their choice of
marketing their gas. In simple words, gas allocation policy effectively took away gas producers' rights
to sell the gas they discovered in the open market.
The recent ruling of the Supreme Court in May 2010 regarding the dispute between RIL (Reliance
Industries Ltd.) and RNRL (Reliance Natural Resources Ltd.), reaffirms the role of the government in
the allocation and pricing of gas.
India is currently facing huge power deficit in peak hours. India's peaking power shortage is estimated
at 18,000 -20,000 MW, or 10-12% of the total installed capacity. As per an independent analysis done
by consultancy firm McKinsey, this gap could widen to 25% by 2017.
A one member taskforce was formed by Central Electricity Regulatory Commission (CERC) in 2009
under Shri Rakesh Nath, former Chairperson, Central Electricity Authority (CEA) and ex-officio
Member, CERC for examining the issues related to tariff structure for generating stations set up for
meeting the peak demand and to suggest measures that could suitably incentivize as also mitigate the
risks to the investors who want to set up power stations for meeting peaking power requirements.
Task Force was also to examine the desirability of permitting differential peak and off-peak tariffs even
for base load power plants to make the sale of costlier peaking power from peaking stations easier.
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Committee made certain recommendation to reduce the peak hour deficit. As per the task force
recommendation, differential tariff for peak hours (6 hours 2 hours in the morning and 4 hours in theevening) and off-peak hours for the generating station can be introduced for incentivizing the peaking
power generation. As per the task force, differential tariff may be worked out in such a way that the
value of power generated during peak hours becomes 25% more than the value of power generated
during off-peak hours. The task force strongly supported gas based power plants for peaking power
generation and suggested that for a gas based (existing and new combined cycle) generating station,
recovery of the fixed cost should be linked to achievement of Normative Plant Availability Factor
(NPAF) 90% for peak hours and 63% for off-peak hours respectively and incentive may be linked to
achievement of NPAF beyond 85%. For open cycle GTs/gas reciprocating engines, task force suggested
that they should meet the peaking demand to be located near the metro cities in the vicinity of the
existing or proposed national gas grid. For new open cycle gas based peaking generating station, the
incentive/disincentive for over-achievement/under-achievement by each percentage vis-a-vis NPAF
during peak hours has been suggested as 10% of the peak capacity charge rate. Task force also
suggested higher O&M margins for cyclic power generating stations catering peaking power demand
by provide them additional margin in heat rate norms as well as additional O&M charges to allow for
additional starts and stops.
If these recommendations come into effect, differential tariff for peak and off-peak period will
encourage the State Commissions to go for time of day tariff for end consumers. Time of day tariff at
the distribution end does not make complete sense without the corresponding differentiation ofsupply side tariff. All this will also induce demand side management at the consumer end and help the
distribution companies to manage their load better. In future, BAT (Basic Availability Tariff) and BIC
(Basic Incentive Credit) can be modified on a seasonal, time-of-day, or week-end/weekday basis. This
will provide a means to send accurate signals to the generators that reflect the differing needs of the
system. Tariff could also be linked to achievement of Normative Plant Availability Factor (NPAF) for
peak and off-peak periods respectively
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Conclusion
Indian natural gas sector offers a range of opportunities for both domestic and global players. ButIndia needs a clear policy and regulatory framework in order to attract investments required in energy
sector, not only to sustain a high economic growth, but also to deal with poverty which leaves millions
of people without access to energy. The role and powers of the regulators have to be clearly defined.
India has opened up to private and foreign companies and these need regulatory stability with
minimum intervention from the state. There have been some positive developments in the upstream
sector resulting in participation of JV and private companies and leading to some attractive
discoveries including that in KG Basin but there are still some policy and pricing issues in NELP which is
discouraging wide participation and investment by private companies.
Pricing will determine the balancing point between supply and demand. India remains largely under-explored and major efforts have to be made in this respect to develop additional domestic supplies.
Although India is geographically located close to gas rich countries like Iran, Turkmenistan, etc., import
of gas from these countries to India through pipelines is yet to become a reality. India has been
increasingly importing LNG and is building new regasification terminals to handle additional imports
in future.
It is expected that the future gas supplies in the coming five years will be based on two sources:
domestic production and LNG supplies.
INDIAN
NATURAL
GASSECTOR
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Dr. D.M.Kale, Director General ONGC Energy Centre, holds a Doctorate Degree in Astrophysics from
prestigious Tata Institute of Fundamental Research. He has more than 30 years of experience inReservoir Management of Oil & Gas fields. He began his career in ONGC in developing Numerical
Reservoir Simulators. As a talented Scientist he has conceptualized several schemes for enhanced oil
recovery besides carrying out responsibilities such as heading Exploration Business Group of Eastern
Region and Mumbai Region of ONGC. As Head of COIN, Dr. Kale coordinated all the R&D works in
Institutes of ONGC.He has taken initiative in setting up ONGC Energy Centre for Research,
Development & Demonstration of all Alternate forms of energy. He is recipient of the medal of Peter
the Great by Russian Academy of Natural Sciences.
DR. D.M. KALE
Director General
ONGC Energy Centre
INDIAN
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SECTOR
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Introduction
Production of Crude Oil and petroleum products :
The Ministry of Petroleum & Natural Gas is the nodal ministry responsible for activities relating toexploration and production of oil and natural gas (including import of Liquefied Natural Gas), refining,
distribution & marketing, import, export and conservation of petroleum products. Following Public
Sector Undertakings and other organizations are under the administrative control of the Ministry of
Petroleum & Natural Gas :
Public Sector organisations Other Organisations
Oil & Natural Gas Corporation Limited Oil Industry Development Board
Indian Oil Corporation Limited Petroleum Safety Directorate
Hindustan Petroleum Corporation Limited Oil Industry Safety Directorate
Bharat Petroleum Corporation Limited Centre for High TechnologyEngineer India Limited Directorate General of Hydrocarbons
Biecco Lawrie & Co. limited Balmer Lawrie Investments Limited
Crude Oil production has been at the level of 33 Million Metric Tonnes (MMT) for some years now.
During the year 2010-11 production of petroleum products from crude oil is 196 MMT. This is an
increase of 5.3% compared to the year 2009-10. During the year 2010-11 consumption of petroleum
products (in terms of domestic sale) was 142 MMT. This shows increase of 2.9% compared to last year.
Petroleum Products
250
200
150
100
50
0
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
Crude Oil Production (MMT) Natural Gas Production(BCM)
Petroleum Products Production (MMT) Crude Import (MMT)
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Refining Capacity
Overseas Oil and Gas Operations
During the year 2010-11, domestic refinery production was 196 MMT. Availability of petroleumproducts during 2010-11 from domestic refineries and non-refineries was more than the domestic
demand on overall basis demand except for Liquefied Petroleum Gas (LPG). In fact, the country is net
exporter of petroleum products (42 Million Tonnes) and products like Naphtha, Petrol, Diesel and
Aviation Turbine Fuel (ATF) etc.
During the financial year 2010-11, import of crude oil has been 163 MMT valued at Rs. 4559 billion,
against that during 2009-10 at 159 MMT valued at Rs. 3754 billion. This marked an increase of 2.8%
during 2010-11 in quantity terms but increased by 21.45% in value terms. In US$ terms imports have
increased from US$ 79.5 billion to US$ 100 billion from 2009-10 to 2010-11, marking an increase of
25.7%.
New Exploration Licensing Policy (NELP)
New Exploration Licensing Policy (NELP) provides an international class fiscal and contract framework
for Exploration and Production of Hydrocarbons. In the first eight rounds of NELP spanning 2000-
2010, Production Sharing Contracts (PSCs) for 235 exploration blocks have been signed. Under NELP,
90 oil and gas discoveries have been made by private/joint venture (JV) companies in 26 blocks. As
exploration activities are progressing, new oil and gas discoveries are likely to come in future.
The largest natural gas discovery in the country has been made in KG deepwater, from where
production has commenced in April, 2009 with initial production of 5 million metric standard cubic
meterper day (MMSCMD). The current natural gas production is in the range of 52-55 MMSCMD.
Investment commitment under NELP is about US$ 11 billion on exploration, against which actual
expenditure so far under NELP is about US$ 8.27 billion. In addition, US$ 7.37 billion investment has
been made on development of discoveries. Thus actual investment made by E&P companies under
NELP is of the order of US$ 15.64 billion.
With a view to accelerate further the pace of exploration, in the Ninth round of NELP (NELP-IX), 34
exploration blocks are on offer.
In order to enhance hydrocarbon securities for the country, the Government has been encouraging
National Oil Companies (NOCs) to aggressively pursue equity oil and gas opportunities overseas.
ONGC Videsh Limited (OVL) is expected to have produced about 8.7 Million Metric Tonnes(MMT) of oil
and equivalent gas during the year 2010-11 from its assets abroad in Sudan, Vietnam, Russia, Syria,
Colombia and Venezuela.
Imports and Exports of Crude Oil & Petroleum Products
Enhancing Hydrocarbon Resource Base
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Conservation of Petroleum Products
Use of alternate fuels
In association with major national industrial associations, Petroleum Conservation ResearchAssociation (PCRA) has initiated steps to approach the Small and Medium Industrial clusters where
energy consumption is substantial and a large scope for its optimization exists. Through interaction,
the areas where Research & Development interventions are sought by the Industrial clusters are
finalized and then necessary action initiated for required R &D and its implementation.
Petroleum Conservation Research Association (PCRA) has been active in undertaking energy
conservation awareness campaigns through the Print, Electronic and Outdoor Media. These
awareness campaigns are coupled with the direct services leading to improvement in efficient energy
utilization across all major sectors of the economy viz. transport, industry, agriculture, domestic and
commercial. For enhancing the effectiveness and reach of PCRA's efforts, linkages have been
developed with the Bureau of Energy Efficiency (BEE) and Confederation of Indian Industry (CII)
where several joint programmes are planned and implementation.
The Ministry of Petroleum & Natural Gas has set up a Hydrogen Corpus Fund with a corpus of Rs.1
billion with contribution from five major oil companies and Oil Industry Development Board (OIDB)
for supporting Research and Development in various aspects of hydrogen, which could substitute part
of natural gas as transport fuel in future.
IOC (R&D) has set up a Hydrogen-CNG mixture dispensing station at IOC's Company Owned and
Company Operated (COCO) retail outlet at Dwarka, New Delhi in collaboration with MNRE (Ministry of
New & Renewable Energy). A fleet of 3 wheelers operating on 18% HCNG are being fueled from this
station and have completed more than 18,000 Km mileage.
The implementation of H2 blended CNG fuel will depend on the success of demonstration projects
which are likely to be completed in next 2-3 years. The cost of Hydrogen CNG would depend upon the
cost of hydrogen production, cost of CNG and the ratio in which they are blended.
To encourage production of bio-diesel in the country, the Ministry of Petroleum and Natural Gas has
announced a Bio-diesel Purchase Policy, in October, 2005, which became effective from 1.1.2006.
Under this scheme Oil Marketing Companies will purchase bio-diesel for blending with High Speed
Diesel (HSD) to the extent of 5% at identified purchase centres across the country. The bio-diesel
industry is still at nascent stage of growth and blending has not been set in motion so far.
IOC and its JV companies have taken up Jatropha plantation in MP and Chhattisgarh. Another Limited
Liability Partnership (LLP) Agreement has been signed with a company for Jatropha plantation in UP.
Hydrogen as Auto Fuel
Bio-diesel Purchase Policy
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Ethanol-Blended Petrol (EBP) Programme
The Oil Marketing Companies (OMCs) have been mandated to sell 5% Ethanol Blended Petrol (EBP).Low availability of Ethanol has made the progress difficult.
In order to ensure the energy security of the country, Government has given in-principle approval for
constructing a Strategic Storage of crude oil of 15 MMT capacity, of which the first phase of 5 Million
Metric Tonne (MMT) has been taken up at three locations, viz. Visakhapatnam (Vizag) (1.33 MMT),
Mangalore(1.5 MMT) and Padur (2.5MMT).
This strategic storage would, in addition to the existing storages of crude oil and petroleum products
with the oil companies, provide an emergency response mechanism in case of short term supplydisruptions. The construction of the proposed strategic facilities is being managed by Indian Strategic
Petroleum Reserves Limited (ISPRL), a special purpose vehicle of the Oil Industry Development Board
(OIDB). The proposed Strategic Crude Oil Storage would be in the underground rock caverns/concrete
structure.
As the crude oil requirement is increasing, a pre-feasibility study of certain locations having potential
of setting up of crude storage has been taken up.
For the current stage of development, the unhindered, affordable supply of oil and gas is a necessary
condition for the economic growth in
India. Western European countries
and Japan immediately after Second
World War had cheap oil available in
plenty for the development and
industrialization. The world was
ignorant about the GHG emissions
and sustainability issues. The broad
contours of finite Earth and thereforefinite fossil fuel resources were
unheard of. Same was the case with
South Korea and Asian tigers
subsequently. The oil consumption of
China also has doubled to 9 million
BOPD in the last decade. The recent
incremental GDP growth rate is highly
sensit ive to oi l consumption
as depicted in the figure 1.
Strategic Storage
Analysis and Conclusion
12
10
8
6
4
2
0
-2
2003
2004
2005
2006
2007
2008
2009
% change
India oil
consump.
% GDP - realgrowth rate
INDIA Sensitivity : Change in Oil Consumption & GDP (YOY)
Energy is not a segment of the economy,
it is the economy! Figure 1
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OILSECTOR
India has to heavily depend on the import of oil and also LNG. Therefore, this sector is affected by the
global development in the industry. The oil supply, which has been historically growing with about 3%,has stagnated since 2005. The oil price shock of $147 per barrel and the economic down turn are
consequence of the immediate limiting oil supply. The oil under ground is far from over. The recent
resource to reserves document of IEA talks about 9 trillion barrels of resources known yet to be
exploited in comparison with just little more than 1 trillion barrels cumulatively produced so far
globally. At the same time the fact remains that the easy to produce and refine cheap oil is over. The
world will have to pay high price for the oil. The more difficult oil will be expensive in terms of required
energy inputs as well. For example at the beginning of the last century, for every barrel invested in oil
exploration and production resulted in hundred barrels. In the MENA region even today the ratio is
very high. But globally, for the additional barrel from deep water or heavy oil or oil from oil sand it is
anywhere from 20 to 4. It is very doubtful whether the world oil production will increase beyond
current level. The production decline rates from the giant, old fields on average are 5% or more. It is
the giant fields which contribute substantial oil production. There are not many giants discovered, not
many virgin fields waiting to be developed are connected. From 1982 in every year, the oil produced
has exceeded oil discovered and lately with huge margin. It is the reduction in the oil consumption of
OECD countries that has enabled growth in consumption in China, India and Middle East as brought
out in figure 2.
Shrinking oil supply - contracting economies?
2000
1500
1000
500
0
-500
-1000
-1500
-2000
-2500
Thousandbarrels/Day
OECD
Rest of the
World
Middle East
India
China
200920082007
Year On Year Consumption
Figure 2INDIAENERG
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The recent global events point in the same direction. The major three global events since last April
have sharply brought into focus the limits of oil supply in the years ahead.
The deep water blowout at Macando, in the Gulf of Mexico has demonstrated the risks in the deep
water exploration and the heavy collateral damage to the environment. The Herculean control
operation spanning several months and area of hundreds of square kilometers required huge energy
inputs for planes, helicopters, vessels, boats, oil based chemicals and so on. The additional safety
requirements are definitely going to add the energy cost of the deep water oil in the future.
The second event was political turmoil in the MENA Countries. The event has wiped out 1.5 million
BOPD from the Libya. The revolution in Egypt was consequence of falling oil production in Egypt after
peaking in 1996 and increasing local consumption. The exportable surplus vanished in 2010. Thegovernment had no source to give subsidy on fuel and food. The result was social unrest and
revolution. Depletion of existing fields and increasing oil consumption is happening in all OPEC
countries. The other countries are also susceptible to similar turmoil. As per one projection oil
consumption in Saudi Arabia will increase to 5.5 million BOPD in 2030. Currently it is growing at 5.9%.
The exports have already dipped to 7.5 million BOPD and are expected to plunge to 6.3 million BOPD
by 2015. If the income from exports is to remain same, the oil price demanded by the kingdom in 2030
will be $320 per barrel. To keep the restless populace quite, the only way is subsidies with additional
income from oil. Irrespective of lifting cost the oil prices will continue to rise while exportable surplus
shrinks.
Egypt : Population21% growth since 200080
60
40
20
0
Year 1950 1960 1970 1980 1990 2000 2010
Data : US Census Bureau IDB Graphic : mazamasclence.com
YoY Change
+6%
+2%
-2%
Population(millons)
78.9
million
Egypt :A Case of Double Exponential Trap?
Egypt : Oil2009 exports decreased by 26%
Consumption
Production
net Exports
net Imports
millionbarrelsperday
Year 1960 1970 1980 1990 2000 2010-1.0
-0.5
0.0
0.5
1.0
Data : BP statistical Review 2010 Graphic : mazamasclence.com
Figure 3
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The third event was the major earthquake accompanied by unprecedented Tsunami in Japan. This led
to huge loss of property and life. Recovery operations will require huge energy. Further, there was thebiggest nuclear accident at Fukushima where a cluster six nuclear reactors produced 4.7 Giga watts of
electricity. Prime Minister of Japan wants to shut all the 54 plants by next April. If that happens there is
permanent hole of about 50 Giga watts power generation same as to be immediately made up mainly3
by oil and gas. This will require 1 million BOPD or 300 million M /day of gas. The additional imports of
LNG by Japan have already kicked up the LNG prices by 30% to $15 per MBTU.
In the days when cheap oil was available, similar events namely Valdez oil spill, several regime changes
in the Middle East, and earthquake of Kobe and subsequent reconstruction did not leave any mark on
the energy markets.
The quick development of indigenous resources for India becomes all the more important in the light
of peak oil and the expected decline in the availability of oil in the market even at high costs. However,
more important question is the demand side management. Should Indian economy develop crippling
dependence on the imported commodity like oil whose supply is going to dry up in coming decades?
The events in the new millennium on various fronts are taking place at such rapidity, that the previous
forecasts and plans soon become obsolete and unrealistic. It was envisaged that by 2030 India will
consume around 10MBOPD and close to 95% of it will be imported. There is no chance that such
profuse quantities of oil will be available for importing then. Year after year the forecast of oil
production by IEA is moving southwards. In the latest forecast the oil production in 2030 will not
exceed 96 million BOPD and of that substantial production is from fields yet to be developed, which is
a way of saying there will be shortfall. Further, most of this oil production will be energy-wise
expensive. Therefore, may be 5 to 10 % of it will be required as an input to produce the oil and really
not available on the market.
100
80
60
40
20
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Unconventional oil
Natural gas liquids
Crude oil fields yetto be found
Crude oil fields yetto be developed
Crude oil currentlyproducing fields
World oil production by type in the New Policies Scenario
Figure 4
MB/D
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