Mrunal Economic Survey Ch11_ Coal Mining, Rangarajan Formula for Gas Pricing

8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricinghttp://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 1/9 [Economic Survey] Ch11: Coal Gasification, Syngas, CBM, hydraulic fracturing, Rangarajan Formula, NELP-X 1. Prologue 2. [Act 1] Coal mining 1. C1: Coal 2. C2: Coal sector: Reforms already taken 3. C3: What is Fuel supply agreement? 4. C4: Survey: coal sector Future reforms 5. C5: What is Coal Mining nationalization Bill? 6. C6: Budget 2014: coal announcements 7. C7: Budget 2014: mineral sector reforms 3. [Act 2] Energy: unconventional gases 1. G1: Basin centered gas 2. G2: Hydraulic fracturing technique? 3. G3: Shale gas & challenges in its extraction? 4. G4: Syngas & Underground coal gasification 5. G5: Coal bed methane (CBM) 4. [Act 3] Natural Gas 1. N1: C.Ranagarajan pricing formula 2. N2: Reliance pricing problem 3. N3: Connection between Natural gas vs fertilizers? 4. N4: NELP Auction 5. N5: NELP-X (Tenth Round) 6. N6: Survey reforms: Natural resource pricing 7. N7: Budget 2014: Natural gas related Prologue Economic Survey Ch11. Energy, Infrastructure and Communications. Total five subparts 1. Energy: Coal, Shale Gas, CBM, Natural gas 2. Petrol, Diesel, Clean Energy & Tele-Communication 3. Roads, Industrial corridors, PPP, Infrastructure problems & reforms 4. Shipping, aviation 5. Railways infrastructure [Act 1] Coal mining C1: Coal 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 2/9 Coal Types: In increasing order of their quality and price Type Note Carbon % Peat Highest moisture content = smoke. Most inferior. 40 LigniteBrown coal Important states: TN (Neyveli), Gujarat, Rajasthan 40-60 BituminousBlack-Coal Upon heating, it releases a liquid called Bitumin. Used to make coking coal, gas coal, steam coal Chhattisgarh, Jharkhand, WB, MP, Odisha 60-80 AnthraciteHard coal Short blue flame Lowest moisture content. 80-90 Coal Mining: Types Open pit underground majority of Indian mines majority of Chinese mines from open ground / aka Strip mining via tunnel cheaper cost expensive because needs Ventilation, safety measures more environment damage less Ranking: top users of coal 1. Thermal Power plants 2. Iron-Steel 3. Cement 4. Brick-Ceramic, unorganized small scale Survey points: Why coal shortage in India? 1. Environment Clearance 2. Cyclone Phailin 1. declined coal supply from Talcher, Odisha 2. Rourkela (SAIL); Angul (Jindal) = Steel production affected. 3. Labour strike in Odisha C2: Coal sector: Reforms already taken 1. NTPC allotted new blocks Coal blocks State Banai Chhattisgarh Bhalumuda Chhattisgarh Chandrabila Odisha Kudanali-Laburi Odisha 2. FDI norms relaxed 100% in power generation, transmission, distribution, trading 49% in power exchanges 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 3/9 3. CIL signed ~160 fuel supply agreements (FSA). C3: What is Fuel supply agreement? 1. Signed between coal India (CIL) and power plants 2. Guarantees 20 years coal supply to the powerplant. 3. If coal India fails to supply minimum 80%, then penalty. 4. Coal India will have to Import if it faces domestic coal shortage. (no penalty, if customer rejects imported coal) 5. 160 agreements signed. Target: ~78,000 MW worth coal supply C4: Survey: coal sector Future reforms 1. Improve 3 critical railway lines- Jharkhand, Odisha, Chhattisgarh 2. Make clearcut guidelines on Environment clearances + rehabilitation 3. Revamp coal-mining policy: 4. Revamp Coal India ltd. and its 8 subsidiaries as per TL Shankar Committee’s recommendations. 5. Only allow large companies to enter Coal Mining business. Because they have deep pockets to comply with Environment protection requirements. Smaller companies try to cut corners or evade taxes. 6. Remove administered pricing for coal. 7. Pass Coal Regulatory Authority Bill, 2013. (but lapsed) 8. Pass Coal mines nationalization bill. (pend. in RS since 2000) C5: What is Coal Mining nationalization Bill? 1. Original act in 1973- It prohibits private companies from mining and selling coal. 2. Exemption given to captive mining i.e. thermal powerplant, steel companies themselves mining coal for as “raw material”. 3. Result? Coal mining sector doesn’t attract foreign investment. 4. 2000: New bill wants to permit all private companies from mining coal. Pending in Rajya Sabha C6: Budget 2014: coal announcements Simplified the custom duty on coal imports before after Each variety had different tax rates (anthracite, bitumen, coking, etc) Result? litigation between companies and tax authorities- about quality and payment uniform tax on all varieties Custom duty: 2.5% counter veiling duty: 2% Clean Energy cess Levied on coal, peat and lignite to finance clean energy projects and research Budget 2014 Increased this cess before after Rs.50/tonne Rs.100 / tonne Additional points: promised full coal for all power plants setup by 2015 Rail road connectivity between coal mines and power plants 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 4/9 Will invest in “Ultra- Modern Super Critical Coal Power Technology”- to coal consumption and CO 2 emission related topic: UMPP UMPP= coal-based supercritical Ultra Mega Power Projects (UMPP) Who? Ministry of Power 4000MW capacity each. Sasan Madhya Pradesh Mundra Gujarat. Fully working Krishnapatnam Andhra Pradesh Tilaiya Jharkhand will finish in 13th FYP Coal washeries Budget 2014 promised to Setup more coal washeries. Coal from mines- contains dirt + incombustible material This increases weight, transport cost. More smoke & pollution when burned. Coal washing removes these impurities and useless material. Hence it is one type of “Clean coal technology. C7: Budget 2014: mineral sector reforms 1. We’ll amend the Mines and Mineral Development act 1957. To sort out the problem areas in Environment clearance, land acquisition and royalties/ profit sharing 2. Royalty revision is done every three years. Last time in 2009. 3. 2014: we’ll revise it again, will give more royalties to states. [Act 2] Energy: unconventional gases 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 5/9 numbers not import but ranking is G1: Basin centered gas Conventional gas Unconventional gas Ex. Natural gas Ex. Tight sands gas, coal bed methane, shale gas medium to high permeability reservoirs Reservoirs are impermeable The reservoirs have natural fractures don’t have Small in volume but easy to drill High volume but difficult to drill Basin centered gas (Survey) one type of unconventional gas also called “tight gas sands” In the deeper parts of sedimentary basin. Their Reservoir has no Nature fractures, have to use hydraulic fracturing technique to extract gas. G2: Hydraulic fracturing technique? 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 6/9 Why extracting shalegas, basin centred gas etc. =expensive? technique employed to extract gas from reservoirs without natural fractures drilling=> special fluid pumped fluid contains water + sand + chemicals This pumping creates fractures in the basin. Gas migrates into the well. 15% of US Gas production via Hydraulic fracturing technique India doing trials since 2010 G3: Shale gas & challenges in its extraction? Colourless, odourless, lighter than air. just like Coalbed methane locked in coal seams, … , Shale gas is a Natural gas trapped within shale rock formations in sedimentary basins. India locations: Cambay, Gondwana, Krishna-Godawari onland, and Cauvery. ONGC, OIL, GAIL exploring these sites. Subject falls under Director General of Hydrocarbans (DGH) MoU between USA, and India for technical knowledge sharing Why shale gas not a priority in India? Difficult to store and transport Shale gas too requires hydraulic fracking method for extraction. Therefore creates following problems Hydraulic Fracking Needs India’s problem Large Area land acquisition environment clearance Large Water Supply shortage Guar Gum (Fluid Viscosity Agent) Shortage. imported guar gum too costly G4: Syngas & Underground coal gasification 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 7/9 Coal gasification to extract Syngas What is underground coal gasification method? Underground coal gasification is a method to extract gas from deep, unrecoverable coal reserves, where manual (labour) mining is impossible or costly. They dig two wells injection well: water+oxygen+gasification agent pumped from here production well: synthetic gas (syngas) comes out from here What’re the Benefits of underground coal gasification? 1. Syngas can be used in manufacturing hydrogen & fertilizers. 2. Sulphur, mercury, arsenic, tar, ash etc. byproducts remain underground = less pollution. 3. needs less water than conventional mining and hydraulic fracking G5: Coal bed methane (CBM) CBM = Methane found in coal seams results from two sources (1) organic / microbial action (2) geothermal heating of coal India has 4 th largest reserve of CBM in the world. at present hardly 10% of the reserves are exploited. 1997: Government announced CBM policy. awarded 33 blocks so far. This policy doesn’t allow simultaneous exploration of coal and CBM. Reason? CBM highly explosive. Requires additional safety measures. Therefore, CBM has to be extracted first, and once well is exhausted, then coal mining can begin. C.Ranagarajan’s gas pricing formula applies to Coal bed methane as well. Notable CBM sites in India Dhanbad 1 st ever commercial extraction of CBM in India Sohagpur, Madhya Pradesh Reliance Raniganj Essar 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 8/9 [Act 3] Natural Gas Assertion In 12th FYP, India’s dependence on coal has increased higher than expected. reason There has been a sharp deceleration in the production of natural gas correct answer Both correct, R explains A, because Economic survey says so. N1: C.Ranagarajan pricing formula Imported Gas Domestic Gas Based on market prices of supply and demand 1/3 rd of India’s gas demand met through imports. based on Rangarajan formula 1. Let A = average in US, UK, Japan. 2. Let B = Import Price 3. Ranga = AVG (A,B) N2: Reliance pricing problem Reliance KG-D6 BASIN (Mukesh Ambani) Mill. Metric British thermal unit (MMBTU) Ranga doubled Mukesh’s gas price existing price Rangarajan price $4.2/mmbtu $8.4/mmbtu This Rangarajan formula based price was to be effective from June 2014. But Government had to postpone it for another three months, because of following Criticism 1. RIL wantonly reduced production to blackmail Government into raising the gas prices 2. Fertilizer industry’s input cost will increase => Government’s fertilizer subsidy bill will also increase. N3: Connection between Natural gas vs fertilizers? Natural gas contains methane Methane + Oxygen+Nitrogen+Catalyst=> Ammonia (using Hyber Process) This Ammonia is used in production of Urea, Nitro-fertilizers. Therefore, shortage of natural gas affects fertilizer industries as well. N4: NELP Auction As per the Constitution – Union government owns all the hydrocarbon resources of India Therefore, only union can ‘auction’ the exploration rights of hydrocarbons. 1997: Government designed New Exploration Licensing Policy (NELP). 1999: auctions started under NELP policy. So far 9 rounds done. ~150 blocks in operation, per day ~7000 barrels of oil + ~14 million m 3 gas produced. Who gets gas from NELP blocks? Government has arranged this priority order: 1. Fertilizer plants 2. LPG plants 3. Power plants 4. City Gas Distribution (CGD) 5. Earlier 80% of their requirement fulfill by NELP gas. Remaining 20% they had to import. 6. Feb 2014: 100% demanded fulfilled by NELP gas. (After Kejriwal case in SC) 7. Steel, petrochemicals, refinery etc. 8/12/2014 Mrunal Economic survey Ch11: Coal mining, Rangarajan formula for gas pricing http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic-fracturing-rangarajan-formula-gas-pricing.html/print/ 9/9 N5: NELP-X (Tenth Round) 2014: 10 th Round- but delayed due to two reasons General elections- model code of conduct Difference of opinion about pricing mechanism. It’ll provide “Uniform Licensing Policy regime” i.e. company can explore Oil, gas, coal-bed methane, shale gas- all of them within the given area. No need obtain separate license for each hydrocarbon product. NELP-X auction pricing opinion Vijay Kelkar C.Rangarajan profit sharing production linked first contractor recovers investment, then begins paying the Government Contract must begin paying Government as soon as production starts. NELP-X likely to be under this mechanism NELP-X survey blocks to be auctioned Land 33 Deep Water 30 Shallow Water 30 Total 86 N6: Survey reforms: Natural resource pricing Private players should be allowed to sell energy / mineral resources at world price parity. Otherwise, this sector will not receive the necessary investment. Under NELP blocks, Private Player faces two risks (1) what if nothing is found (2) fluctuation in world prices of energy resources. Therefore, Survey recommends “percentage revenue sharing formula”. This way, private players’ risk will be minimized. N7: Budget 2014: Natural gas related 15,000 km gas pipeline already laid. we’ll lay another 15,000km pipeline To bring entire country under gas grid. finance via PPP URL to article: http://mrunal.org/2014/08/economic-survey-ch11-coal-gasification-syngas-hydraulic- fracturing-rangarajan-formula-gas-pricing.html Posted By Mrunal On 12/08/2014 @ 01:02 In the category Economy