- Energy Pricing
- Coal Sector
- Petro and Natural Gas
- Mock Questions
11th chapter is about infrastructure
|Infra related to||Example||Comment|
||I’ve already covered this content under Ch.10 (and its 5 sub-articles)|
- India is the fourth largest consumer of energy in the world after USA, China and Russia but it is not endowed with abundant energy resources
- 12th FYP Wants 1 trillion dollar investment (~56 lakh crore rupees) in infrastructure. This is nearly double of the investment made during the Eleventh Five Year Plan
- Infrastructure projects take a long time to plan and implement.
- Delays in land acquisition, municipal permission, supply of materials, tender process/award of work, operational issues, etc. continued to drag down implementation of these projects. here are some numbers to show the gravity of the situation.
|Sector||Total infra projects||Pending|
Performance / production
|Sector||Performance compared to previous year|
|Coal, cement, petroleum refinery||marginally higher|
|steel and power-sector production||lower|
|Fertilizer, crude oil, and natural gas production||lower|
Among the infrastructure services,
Performance / production
- coal, cement, petroleum refinery was marginally higher than previous year.
- steel and power-sector production was comparatively lower
- Fertilizer, crude oil, and natural gas production also declined during the first nine months of this financial year.
- Among the infrastructure services,
- growth in freight traffic by railways has been comparatively higher so far,
- civil aviation sector=negative growth
- cargo handled at major ports=negative growth
- was set up in 2006 for providing long-term financing for infrastructure projects that typically involve long gestation periods.
- Public private partnership helps bringing private-sector efficiencies in creation of economic and social infrastructure assets and delivery of quality public services
- According to a World Bank Report on Private Participation in Infrastructure (PPI), India has been the top recipient of PPI activity since 2006
- By end December 2012 there were 900+ PPP projects in the infrastructure sector with total project cost (TPC) of more than 5 lakh crore rupees.
- These projects are at different stages of implementation, i.e. bidding, construction, and operational.
- defined as the amount of energy consumed (Kwh) for generating one unit of gross domestic production (GDP) (rupee)
- Its unit= Kwh per rupee.
- Another unit = Kilograms of oil equivalent/US$
- for India, the Elasticity of energy use =less than 1.
- Out of the total consumption from all primary sources of energy
- Electricity > Coal > crude oil
- At microeconomic level, when Government provides subsidy on petrol, diesel, LPG=underpricing of energy
Underpricing of energy leads to
- This reduces consumer’s incentive for being energy-efficient,
- Increases fiscal deficit
- Leakages (e.g. diesel is subsidized for farmers but even drunk rich brats with SUVs also enjoy the benefits.)
- Inappropriate use e.g. Rickshawllas blending subsidized kerosene with petrol = more pollution.
- Increased reliance on imports = Trade deficit, CAD, BoP problems.
In recent years, Government has taken several initiatives for rationalizing the energy prices in different sectors
|1st Oct 2013||
- Pricing of gas is presently done under the New Exploration Licensing Policy (NELP).
- The Government provides the operator freedom to sell the gas produced from the NELP blocks at a market-determined price , subject to the approval of pricing formula.
- The Government is reviewing pricing under the price sharing contract (PSC) to clarify the extent to which producers will have the freedom to market the gas.
- For more on this go through Rangarajan Committee article click me
Under Integrated Energy Policy
|Earlier=Before 2012||Now (from 2012)|
|On basis of useful heat value (UHV)||on gross calorific value (GCV) basis|
|This even included heat trapped in ash content.||No|
- This “price-reform” is likely to increase the prices of domestic coal to some extent
- but this is a desirable adjustment because domestic thermal coal, continues to be underpriced.
Now let’s looks at the topics in segments: 1) coal 2) oil n gas 3) electricity 4) renewable
In ascending order of their quality (and price)
|Type||Note||Carbon content %|
- Coal India Limited (CIL)
- Neyveli Lignite Corporation Limited (NLC)
- Singareni Collieries Company Limited (SSCL)= a joint sector undertaking of Union + Andra state govt.
- Coal deposits are chiefly located in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Andhra Pradesh and Maharashtra.
- Why? To ensure fuel security to coal-based thermal power plants
- When? Aug 2012
- How? Indian Government issued a presidential directive to Coal India Ltd, asking them to sign fuel supply agreements (FSAs) with power companies.
- Fuel sharing agreements
- Signed between coal India ltd (seller) and thermal power companies (buyer/customer)
- Duration: The FSAs will be signed for a period of 20 years and will be reviewed after every five years.
- If coal India doesn’t provide 80% of the assured supply, then they’ve to pay penalty to buyer.
- If CIL cannot meet demand through domestic supplies, it can meet the shortfall through imported coal.
- But, if a customer does not accept imported coal, CIL doesn’t need to pay any penalties.
- The Children’s Investment Fund Management
- UK-based hedge fund TCI, the biggest foreign investor in Coal India ltd (CIL)
- It is a minority stakeholder in Coal India. (although largest investor in Coal India after Government of India)
- TCI accuses that Coal India doesn’t protect the interest of minority stakeholders, they just do things to please their political masters (after all Government of India owns the majority shares). It had initiated legal action against CIL in Kolkata High Court.
- Politically connected companies are receiving fuel supply agreements (FSAs) at half market price or a third of market price for coal.
- It is a system that encourages corruption because not everybody can get coal at half price. So obviously there is a massive incentive for companies to pay bribes in order to get FSA contracts.
- The thermal power companies that get cheap coal from Coal India (under FSA)- they don’t sell electricity at cheap rates. So the benefits are not trnasfered to the final consumer (aam admi).
- These thermal companies just extract monopoly and profit margins from the benefit of the cheap coal.
In case you wonder why should a UK based investor worry about all this?
Ans. Because TCI is a minority shareholder in Coal India. And recall the debt vs. equity article = Since TCI is a shareholder, they will get more money (dividend) only if Coal India makes more profit. But coal India is a mess, just like Air India.
Open pit mining
||As the name suggests: underground, via tunnels.|
|no||Require complex ventilation systems, structural support, lights, other safety measures = expensive. (and dangerous also for the laborers/miners)|
|Leads to more ecological degradation.||Less|
|85% of India’s coal produced from open mines. (imagine the damage!)||In China, 90% of the coal is digged from underground mines.|
- coal contains lot of dirt and incombustible material. This leads to increased transport cost (due to additional weight of those waste material) + pollution (due to the smoke)
- In coal washing process, the coal is mixed with a liquid to separate and settle the impurities. The “washed” coal produces less pollution.
- Coal washing= example of clean coal technologies.
- Coal and lignite will continue to dominate the energy scenario
- Therefore, Energy exploration, clean energy alternatives, energy conservation, and energy sector reforms will be critical for energy security.
- 11th Five year plan wanted to augment domestic coal production from captive mines.
- but there were problems like delays in forest and environmental clearances, land acquisition
- In 12th FYP, Coal India ltd (CIL) will continue to play a major role for coal supply.
- but CIL production alone will not be enough to meet the rising demand.
- So need to ensure that additional captive coal blocks start producing in Twelfth
- plan for larger imports of coal
- setting up independent coal regulator
- Increase Underground mining of coal.
- Encourage Coal washing
- Coal Mines (Nationalization) Act, 1973 does not allow private companies to mine coal for sale to third parties
- although it allows captive mining for specified end use sectors
- hence coal sector doesn’t attract big investment.
- There is need for large (foreign) investment and technology in the coal sector.
- Because a host of small (desi) players would not increase coal production to desired levels.
- The Ministry of Petroleum and Natural Gas is looks after the matters related to
- of exploration and production of oil and natural gas
- import of Liquefied Natural Gas (LNG),
- petroleum products: refining,marketing,distribution,import,export and conservation.
- Government of India approved the New Exploration Licensing Policy (NELP) in 1997 and it became effective in February, 1999.
To attract private investment into oil and natural gas. There have been nine rounds of bidding, starting with a first in 1998
Government has prioritized allocation of gas produced from NELP blocks in the following order:
- Fertiliser plants producing subsidised fertilisers
- LPG plants
- Power plants
- City Gas Distribution (CGD) for CNG and domestic PNG
- Steel, petrochemicals, refinery, captive power plants and CGD for industrial and commercial customers
- We also have oil n gas assets in Russia (Sakhalin, Magadan), Sudan, Brazil, Syria, Vietnam, Venezuela and Colombia.
- Production from overseas oil and gas blocks is presently about ~10 per cent of India’s domestic production
Reliance is largest refiner at any single location in the world. (capacity=~1.2 million barrels per day (MBPD).
Important are four: CBM, Oil Shale, Gas hydrate, Shale gas
- The primary energy source of natural gas is a substance called methane (CH4).
- Coal bed methane (CBM) is simply methane found in coal seams.
- CBM is generated either from a biological process as a result of microbial action or from a thermal process as a result of increasing heat with depth of the coal.
- Potential sites in India: Jharia and Raniganj coalfields
- from sedimentary rocks that contains “kerogen” (a type of fossil fuel).
- Pyrolysis : under this process, above rocks are heated at extreme temperature without oxygen. Thus kerogen is released. It is further refined and thus we get shale oil.
- Oil shale can be mined and processed to generate oil similar to oil pumped from conventional oil wells;
- Challenge: extracting oil from oil shale is more complex than conventional oil recovery, hence more expensive
- also known as clathrate hydrates (methane ice, fire ice)
- it is solid ice-like form of water.
- it contains (methane, ethane etc.) gas molecules in its cavities
- they are essentially natural gas in a “frozen” state.
- Some estimates suggest that the total amount of natural gas bound in hydrate form may exceed all conventional gas resources – coal, oil and natural gas, combined.
- Challenge: When gas hydrates are brought to the surface the pressure is reduced and the temperature rises. This causes the ice to melt and the methane to escape. Hence drilling, extraction, commercial use = difficult and expensive.
- Basics of Shale gas already covered under https://mrunal.org/2012/07/enb-shalegas.html
- India has several shale formations
- In the sedimentary basins of Cambay, Gondwana, Krishna-Godawari and Cauvery.
- USA and India have signed MoU for giving training to Indian geo-scientists and engineers for exploring shale gas.
- A 1680 km pipeline from Turkmenistan – Afghanistan – Pakistan – India (TAPI)
- It’ll become operational by 2018.
- It will carry 90 million metric standard cubic meters a day for a 30 year period.
- India has to pay a transit fee to Pakistan and Afghanistan as the pipeline passes through these nations.
- More on https://mrunal.org/2012/07/diplo-tapi.html
- Approved by the Government,
- for upgradation of the quality of auto fuels (Petrol and Diesel)
- to Bharat Stage (BS) IV in 13 identified cities
- to BS-III in the rest of the country.
- During 2011-12, BS-IV fuels have been introduced in seven cities, namely, Puducherry (UT), Mathura (UP), Vapi (Guj), Jamnagar (Guj), Ankaleshwar (Guj), Hissar (Haryana) and Bharatpur (Raj) between January to March, 2012.
- Efforts are being made to progressively expand coverage of BS-IV fuels with introduction of these fuels in 50 more cities by 2015.
- LPG ‘Vision-2015’: wants to raise LPG population coverage in rural areas and in the areas where LPG coverage is low.
- 2009: Rajiv Gandhi Gramin LPG Vitaran Yojana (RGGLVY) for small-size LPG distribution agencies.
- Under this scheme 75 per cent population is to be covered by 2015 by releasing 5.5 crore new LPG connections.
- When the drilling company burns the natural gas that cannot be processed or sold= this is known as Gas flaring.
- Gas flaring is also done during emergencies like power failures, equipment failures etc. to prevent any accident.
- Currently ~3% gas produced by ONGC and OIL is flared.
- 12th FYP seeks zero flaring of gas and use it for commercial purpose.
- Explore Alternate Sources of Hydrocarbons such as coal bed methane, gas hydrate, shale gas, oil shale
- National Gas Hydrate Programme
- 0% Flaring of Natural Gas
- Phasing out subsidies on domestic LPG and PDS kerosene.
- Reduce Kerosene supplies because RGGVY and LPG connections are being given in the rural areas.
- Rationalise tax structure in sales of petroleum products considering its thermal value for its use in transport, industry, power, households and other sectors.
- Give ‘Declared Goods Status’ for natural gas/ LNG so that it is available at uniform price in most of the States.
- Elasticity of energy use means
- Amount of GDP spent for producing one unit of energy.
- Change demand of energy with change in price of energy.
- Amount of energy consumed for generating one unit of GDP.
- Change in the consumption pattern of energy with rise in income.
- At present, Coal pricing mechanism is based on
- useful heat value
- gross calorific value
- net calorific value
- none of above
- in terms of quality, which of the following is lowest?
- peat coal
- brown coal
- black coal
- hard coal
- in terms of price, which of the following is most expensive?
- brown coal
- black coal
- hard coal
- Correct statements about fuel sharing agreements (FSA)
- they are to be signed between ONGC and fertilizer companies.
- Under the agreement, ONGC is liable to pay penalties for shortfall in supply of gas.
- Correct statements
- Singrauli mines are located in Andhra
- In India, majority of domestic coal supply comes from opencast mines.
- Reliance is the only private sector refinery in India.
- None of above
- which of the following reduces air pollution?
- Gas flaring
- Coal washing
- Oil shale is obtained from
- coal bed methane
- Metamorphic rocks containing clathrate hydrates
- sedimentary rocks containing kerogen
- None of above