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

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

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
• Will invest in “Ultra- Modern Super Critical Coal Power Technology”- to coal consumption and CO₂ 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

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?

• 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)	Guar gum too costly. India is largest producer of Guar gum. But due to heavy imports from US shalegas companies, its prices have increased by ten times within a year. Thus shortage for domestic industry- who cannot keep up with the prices offered by Americans.

G4: Syngas & Underground coal gasification

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	1st ever commercial extraction of CBM in India
Sohagpur, Madhya Pradesh	Reliance
Raniganj	Essar

[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 1/3rd of India’s gas demand met through imports.	based on Rangarajan formula Let A = average in US, UK, Japan. Let B = Import Price 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 m³ 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.

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	93

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