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CBM IN INDIA

Methane was once regarded by miners as a hazard rather than a resource and many miners died in methane explosions before the introduction of high-capacity ventilation to dilute gasses. However, if methane is not recaptured it is not only lost as a resource but contributes to global warming. Even though the volume of methane contributing to greenhouse gasses is three times smaller than carbon dioxide, its greenhouse potential is 21 times higher. Coal mining is estimated to cause about 9 per cent of global methane emissions. Methane captured during coal mining could be

significant, ecologically friendly source of energy, producing no particulates and only about half the CO2 associated with coal combustion. Depending on quality methane from mines could be sold to gas companies, used to generate electricity, used to run vehicles, used as feedstock for fertilizer or methanol production, used in blast furnace operators at steelworks; sold to other industrial, domestic or commercial enterprises; or used on-site to dry coal. In the USA today coal bed methane (CBM) represents between two and three per cent of all gas production.

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COALBED METHANE EXPLORATION IN INDIA

Coalbed Methane (CBM), an unconventional source of natural gas is now considered as an alternative source for augmenting the country’s energy resources. The environmental, technical and economic advantage of CBM has made it a global fuel of choice. Having the 4th largest proven coal reserves and being the third largest coal producer in the world, India holds significant prospects for commercial recovery of CBM. Prior to 1997, due to absence of proper administrative, fiscal and legal regime, CBM E&P activities were limited to R&D only. It was only after the formulation of the policy for

exploration and production of CBM by the Government in July 1997, CBM exploration activity commenced in the country. Ministry of Petroleum & Natural Gas (MOP&NG) became the administrative Ministry and Directorate General of Hydrocarbons (DGH) became the implementing agency for CBM policy. DGH functioning under the aegis of MOP&NG plays a pivotal role in development of CBM resources in India.

Contractual & Fiscal Terms

Some of the attractive terms offered by the Government are:

• No participating interest of the Government. • No upfront payment. • No signature bonus. • Exemption from payment of customs duty on imports required for CBM operation. • Walkout option at the end of Phase-I & II. • Freedom to sell gas in the domestic market. • Provision of fiscal stability. • Seven years tax holiday.

CBM-I:

DGH in close interaction with Ministry of

Coal(MOC), carved out several prospective

CBM blocks in different coalfields of the

country, generated CBM related data and

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prepared the Information Dockets & Data Packages. In May 2001, for the first time in the country, Government offered 7 blocks under 1st round of CBM bidding, out of which 5 blocks were awarded and contracts signed. Contracts for another 3 blocks awarded on nomination basis were also executed.

CBM-II:

Under 2nd round of CBM bidding 9 blocks were offered through international competitive bidding in May 2003 with bid closing date of 15th October 2003. A total of 14 bids were received for 8 out of 9 blocks offered. Contracts for these 8 awarded blocks were signed in June 2004.

CBM-III:

International competitive bids have been invited by Government of India for 10 CBM blocks under 3rd round of CBM bidding with bid closing date of 30th June 2006. There was an overwhelming response to the CBM-III round of bidding. For the first time major foreign E&P companies participated in the CBM-III bidding round. 70 nos. of data packages valued Rs. 10 crores (approx.) were sold and a total of 54 bids were received for all the 10 blocks, from 26 companies including 8 foreign and 18 Indian companies. All the 10 blocks received multiple bids.

Current CBM E&P Activities CBM gas production is envisaged 3.78 BCM

CBM Resources in Awarded Blocks 1374 BCM

The total investment committed in blocks Rs6.75 billion

As of April 1, 2006 the investment in CBM Rs1.7 billion

Area for CBM Exploration is 13600 SqKm

Blocks awarded 26 No.

Core holes committed 121

Core holes achieved 70

Test/Pilot wells committed 211

Test/Pilot wells achieved 40

• Phase-I exploration activities in 5 blocks have been completed and Market Survey & Pilot Assessment Phase (Phase-II) is in progress. In the remaining 11 blocks, Phase-I exploration activities are in progress.

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• The exploration activities have established encouraging CBM resources in some of the awarded blocks. There has been significant findings in the eastern and central part of India. CBM gas being flared in the test wells bare ample testimony of the story of success.

Commercial assessment is completed in 4 blocks. The total established reserves in these blocks is 6.24 TCF. Commercial production of CBM in India is now a reality and is expected to commence from 2007.

Fig: COAL MATURITY

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CBM BLOCKS AWARDED SO FAR

Ref. No on the Map

Block Name State Area (Sq.km.)

Awardee

I. CBM-I 1 RG(E)-CBM-2001/I West Bengal 500 EOL 2 BK-CBM-2001/I Jharkhand 95 ONGC-IOC 3 NK-CBM-2001/I Jharkhand 340 ONGC-IOC 4 SP(E)-CBM-2001/I Madhya Pradesh 495 RIL 5 SP(W)-CBM-2001/I Madhya Pradesh 500 RIL TOTAL (A) 1930 II. Nomination Basis 6 RANIGANJ (NORTH) West Bengal 350 ONGC-CIL 7 JHARIA Jharkhand 85 ONGC-CIL 8 RANIGANJ (SOUTH) West Bengal 210 GEECL TOTAL (B) 645 III. CBM-II 9 SK-CBM-2003/II Jharkhand 70 ONGC 10 NK(W)-CBM-2003/II Jharkhand 267 ONGC 11 SH(N)-CBM-2003/II Chattisgarh 825 RIL 12 ST-CBM-2003/II Madhya Pradesh 714 ONGC 13 WD-CBM-2003/II Maharashtra 503 ONGC 14 BS(3)-CBM-2003/II Gujarat 790 ONGC-GSPCL 15 BS(1)-CBM-2003/II Rajasthan 1045 RIL 16 BS(2)-CBM-2003/II Rajasthan 1020 RIL TOTAL (C) 5234 IV. CBM-III 17 RM-CBM-2005/III Jharkhand 469 ARROW-GAIL-EIG-TATA 18 BB-CBM-2005/III West Bengal 248 BPE 19 TR-CBM-2005/III Chattisgarh 458 ARROW-GAIL-EIG-TATA 20 MR-CBM-2005/III Chattisgarh 634 ARROW-GAIL-EIG 21 SP(N)-CBM-2005/III Madhya Pradesh 609 REL-RNRL-GEO 22 SR-CBM-2005/III Madhya Pradesh 330 COALGAS-DIL 23 KG(E)-CBM-2005/III Andhra Pradesh 750 REL-RNRL-GEO 24 BS(4)-CBM-2005/III Rajasthan 1168 REL-RNRL-GEO 25 BS(5)-CBM-2005/III Rajasthan 739 REL-RNRL-GEO 26 GV(N)-CBM-2005/III Andhra Pradesh 386 COALGAS-DIL-ADINATH TOTAL (D) 5791 GRAND TOTAL (A + B + C + D) 13600

ONGC Oil & Natural Gas Corporation Ltd ARROW Arrow Energy India Pvt. Ltd.

IOC Indian Oil Corporation Ltd RNRL Reliance Natural Resources Ltd.

GSPCL Gujarat State Petroleum Corporation Ltd. GEO Geopetrol International Inc.

RIL Reliance Industries Ltd. REL Reliance Energy Ltd.

EOL Essar Oil Ltd. TATA Tata Power Company Ltd.

CIL Cola India Ltd. EIG EIG Energy Infrastructure Group AB

GEECL Great Eastern Energy Corporation Ltd. DIL Deep Industries Ltd.

GAIL GAIL (India) Ltd. COALGAS Coalgas Mart LLC.

BPE BP Exploration Alpha Ltd. ADINATH Adinath Exim Resources Ltd.

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GHG emission reduction estimate due to project operations

• Assuming that the gas recovery systems at Sudamdih and Moonidih (7 vertical wells, 1 gob well and 3 underground systems), produce 32,000 m3 of gas per day.

• At an annual basis this is about 11.52 million m3 or 7,626 tonnes of gas per year. Because methane (CH4) is a more potent gas (21 times more than CO2), this is equivalent to 160,151 tonnes of CO2. Thus, just burning off the captured methane (flaring) would reduce annual GHG emissions with 150,525 tCO2-eq, assuming that otherwise all this methane would have escaped to the atmosphere, due to the mining operations (A)

• If the recovered gas would be used as fuel this gives a greenhouse gas reduction in terms of fossil fuel use avoided. For example:

─1 MW diesel generator sets, using 9,000 m3 of gas daily, replacing 8,750 liters of diesel and thus avoiding 8,585 tCO2 annually (B, C)

─15 compressed-gas fuelled trucks, using 4,500 m3 of gas daily, replacing 4,380 liters of diesel and thus avoiding 4,292 tCO2 annually (C)

Thus, annual CO2 reduction can be roughly estimated at about 180,000 tonnes of CO2. At this stage of the project, its economics of the project is difficult to estimate. In a commercial project, the costs would be comprised of:

• Initial project cost (costs of drilling the first wells and gas recovery, including investment cost in drilling equipment, piping and collection station) and cost of drilling additional wells over the project’s lifetime

• Initial cost of gas utilization (gas compression and refueling station, truck conversion kits, power generator and interconnection cost )

• Standard operating costs of gas recovery and utilization (labor, insurance, maintenance, spare parts)

The project yields benefits in terms of the purchases of diesel and electricity avoided from the energy companies. In addition, if CBM projects could be developed under Clean Development Mechanisms of the Kyoto Protocol, this could give additional benefits in the order of at least USD 5-6 per tCO2 reduced, depending on how the CO2 price will settle, once the Protocol enters into force.

(A) Please note that, methane recovery in areas that will not be mined does not contribute to greenhouse gas reduction)

(B) Assuming 1 litre of diesel is equivalent to 1 m3 of methane in terms of heating value; 350 days of operation in a year and a CO2 factor of 0.0028 tones per liter of diesel.

(C) Under these estimates more gas will be recovered than will be utilized, implying that the rest needs to be flared to avoid bits release into the atmosphere

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CDM Benefit’s

CBM Resources in Awarded Blocks in India is estimated to be around 1374 BCM or 1374 x 109 M3. Now 1 M3 of methane is equivalent to 0.72 kg.

So our total reserves is 989.28 x 109 Tones of methane because methane (CH4) is a more potent gas (21 times more than CO2), this is equivalent to 20774.88 x 109 tones of CO2.

So we can generate 20774.88 x 109 of CERs from CBM projects in India alone which will give benefit of 103874.4 x 109 USD (assuming price of 1 CER equals to 5 USD).

Existing Policies Affecting CBM Development A New Petroleum Tax Code is pending approval. It offers CBM projects infrastructure status, which allow a 5-year tax holiday from the date production commences, and a 30% concession on income tax payable in the following 5 years. The government is considering whether to extend this period for an additional 2 years. This concession reduces the 48% tax rate on foreign operating companies to 33.6% during that period. No customs duties would apply. The companies will be subject to a base rate 10% ad valorem royalty, payable to the respective state government. An additional production-linked payment would be payable to the central government on a sliding scale based on the production level. This payment schedule has been kept as a biddable item. A nominal commercial bonus of $300,000 would be paid on declaration of commercial assessment. 1997 Guidelines for the Semi-privatization of State-Run Coal Mines. This overhaul of the country’s ailing coal mining industry offers mines to state-owned and private firms for captive consumption only. Overseeing or Permitting Government Agencies • Coal India Limited • Ministry of Petroleum and Natural Gas-governmental authority for the exploitation of

CBM • Directorate General of Hydrocarbons - regulatory body responsible for preparing terms and

conditions of contracts for CBM exploration and production and licensing, developing the block data packages, and maintaining oversight during the exploration and development cycle.

CBM Development However, guidelines for foreign investment (January 1997) for local consumption of power allow more investment by private and foreign companies in coal mining. • India’s Oil and Natural Gas Commission has conventional oil and gas operations

throughout the region, complicating ownership issues.

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• Institutional problems regarding resource ownership and modalities of payment to the nationalized companies.

India's natural gas production is expected to double from the current 95 million cubic metres a day (MCMD) to over 190 MCMD by March 2009, Oil Minister Murli Deora told to the Parliamentary Consultative Committee. Coal Bed Methane (CBM) production in the country is expected to begin in 2007-08 and production is envisaged at 3.78 billion cubic metres, or about 10 MCMD, making India one of the few countries commercially producing CBM. India has so far awarded 26 CBM blocks covering an area of 13,600 square kilometres. The total investment committed in these blocks is around Rs6.75 billion and as of April 1, 2006 the companies operating the CBM blocks had invested Rs1.7 billion.

Donors/ Companies/ Investors Active in CBM Essar Oil Co., U.S. Agency for International Development Program for Acceleration of Commercial Energy Research, ARCO, Phillips Petroleum Co. Texaco Inc., Reliance Gas Pricate Ltd., India’s Oil and Natural Gas Commission, Gas Authority of India Ltd., Advanced Resources Inc, Great Eastern Energy Co., Amoco India Petroleum Co., Enron Exploration Co., Global Environment Facility XIth Five Year Program (2007-2012)

1. In India preliminary activities related to exploitation of Coal Bed Methane (CBM) began in the early 1990s and till 1997 the Ministry of Coal (MoC) had allotted some coal bearing areas for CBM exploration and exploitation. In July 1997 a CBM policy was framed and the Ministry of Petroleum and Natural Gas (MoP&NG) was made the administrative ministry. As per guidelines of the approved CBM policy prospective blocks are to be delineated by deliberation between MoC and MoP&NG and are to be allotted by the latter through global bidding for exploitation in line with the practice followed for oil and natural gas resources. Till 2006 a total of 26 CBM blocks have been delineated and corresponding data packages have been prepared, mainly by the Central Mine Planning and Design Institute (CMPDI). These blocks have been offered for development through three rounds of global bidding by MoP&NG. The blocks covering a total area of 13591 sq km hold prognosticated CBM resources of 1449 BCM.

2. In the course of carrying-out delineation of blocks and assessment of resources it was felt that

there was a need to undertake R&D work in this emerging field of resource utilization along with the need for dedicated coalfield-wise data generation. Two R&D projects were thus taken up and are currently underway, details of which are summarized ahead:

• Coal bed methane recovery and commercial utilization: The project, jointly funded by S&T grant

of MoC, UNDP and Global Environment Facility (GEF), is being executed by CMPDI and Bharat Coking Coal Limited (BCCL). With a total outlay of Rs 94.427 crore the project is intended to establish and demonstrate CBM recovery techniques and commercial utilization of methane recovered from an active mining area. The project is expected to be completed by the end of 2007.

• CBM exploration through slim-hole drilling: With the help of R&D funding of Coal India Limited (CIL) CMPDI is carrying-out parametric data generation and assessment of inplace CBM resources through slim-hole drilling in two CBM blocks in Jharia and Ranigunj coal fields, which have been allotted to a consortium of CIL and ONGC. The objectives of the project are as follows: • Establishment of optimum pattern for exploration of CBM under Indian conditions.

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• Exploring the possibility of data generation on in-situ reservoir characteristics from NQ size slim-hole, which is hitherto not practiced. • Testing the efficacy of various available CBM simulator models used for production forecasting under Indian conditions, and, if needed, recalibration to suit local condition. • Acquisition of technical know-how by CIL personnel in the field of large diameter CBM well drilling, completion and production testing.

3. Fund allocated for R&D under this project is Rs. 19.92 crore and the project is expected to be completed by 2011.

4. Other than continuation of the second project for most of the XI Plan period R&D work can be

taken-up in the following fields: • Utilization potential of ventilation air methane (VAM) from working mines. • Application of enhanced CBM recovery techniques in Indian conditions. • Standardization of indirect method of gas yield prediction from coal exploration

programme.

5. R&D projects to cover the above fields may be undertaken by CMPDI in association with other organizations/institutes. The total fund requirement is broadly estimated at Rs. 35.00 crores and may be met jointly by the Ministry of Coal and Ministry of Petroleum and Natural Gas.

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