energy scenario of india

7/30/2019 Energy Scenario of India

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WORLD ENERGY COUNCILCONSEIL MONDIAL DE LNERGIE

INDIAN MEMBER COMMITTEE


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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

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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

PETROLEUM ANDNATURAL GAS

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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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.

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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

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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

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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

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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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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

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-1000

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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

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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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energy scenario of india

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