[Energy] Coal Gasification, Syngas, CBM, hydraulic fracturing, Rangarajan Formula, NELP-X

Support StaffEconomy66 Comments

Mrunal’s UPSC GSM3-2020 Model Answer lecture: Science Technology, Internal Security Border Management Questions from last Mains Exam Solved!
  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


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

cover Economic Survey coal natural gas rangarajan formula

[Act 1] Coal mining

C1: Coal

Coal Types: In increasing order of their quality and price
Type Note Carbon %
  • Highest moisture content = smoke.
  • Most inferior.
LigniteBrown coal
  • Important states:
  • TN (Neyveli), Gujarat, Rajasthan
  • Upon heating, it releases a liquid called Bitumin.
  • Used to make coking coal, gas coal, steam coal
  • Chhattisgarh, Jharkhand, WB, MP, Odisha
AnthraciteHard coal
  • Short blue flame
  • Lowest moisture content.


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

Energy share india

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?

hydraulic fracturing technique unconventional gases

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)
  • 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

underground coal gasification syngas

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 4th 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

  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 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: 10th 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
Indian History Freedom Struggle Pratik Nayak

66 Comments on “[Energy] Coal Gasification, Syngas, CBM, hydraulic fracturing, Rangarajan Formula, NELP-X”

  1. Oooo…..I just thought to log out, then saw again a New Article (again)…..Thanks sir, ( Raat me jaga ke rakhne ke liye, as like Exam days ), just kidding, but thanks to make us passionate and motivated for Katl ki Raat……:)

  2. Sir are these articles from economic survey relevant from the point of view of prelims ? Furthermore, do we need to mug them up for mains as well ?

  3. 2000: New bill wants to permit all private companies from mining coal. Pending in Rajya Sabha

    Shouldn’t it had lapsed with the end of 15th l.s

    Shale gas problem is that formations are found spread over very large area unlike oil viz found in “pool”, due to this it needs directional drilling (nearly 90 degree turns in picture) and such maneuvers are very difficult & u.s isn’t giving secret technology on how to shake it like shakira

    1. bills originating in rajya sabha and pending therein does not lapse on dissolution of lok sabha(infact they are the only bills which do not lapse on dissolution of lok sabha)

      1. Correction according to Laxmikanth there are multiple ways in which a bill doesn’t lapse on dissolution of LS
        1. Bill pending in LS whether it originated in RS or LS
        2. Bill passed by LS but pending in RS

        Does not Lapse
        1. Bill pending in RS but not passed by LS
        2. Bill not passed by both houses due to disagreement but president has not notified joint sitting
        3. Bill passed by both but returned by President for reconsideration
        4. Bill passed by both houses but pending president’s assent
        5. Some pending bills and assurances that are to be examined by the committee on government assurances

        1. http://rajyasabha.nic.in/rsnew/legislation/introduction.asp … types of bill point number 10

          and i am not saying that above points mentioned by you are incorrect ,but this is like going into too much detail and getting confused though the points of president recommendation and send for reconsideration are worth remembering but others are too much detailing this is the only thing which i don’t like of lakshmikant

        2. correction point no. 2 – when president has notified his intention to summon a joint sitting. If laximant has given it, it is wrong .see clause 5 of art 108

    2. Yes, that’s absolutely fine. Bill lapse only in 2 condition & another third if you go into micro details.

      I guess this bill originated in R.S…cuz coal regulatory authority post coal scam bill lapsed.

  4. 3.23 AM and I am still up reading economics.. (important coz i was an economics hater)..
    Thanks Mrunal Sir for the selfless work that you keep doing time on..
    :) :)
    God Bless You

  5. sir, india is the largest exporter of guar gum and largest producer,it doesn’t need to import as there is no shortage.

  6. Sir..plz explain c.rangarajan pricing formula for domestic gas… avg( avg(us,uk,japan)÷import price)..but we are not importing from any where it is produced domestically..so what is import price here??

    1. Hello Raza
      Petro pricing (crude as well as refined products viz. petrol, diesel, etc.) in India is very complex. I will simplify it for you:
      crude oil: even if crude oil is produced within India, ONGC sells it to refineries at a price determined by TRADE PARITY PRICE (weighted average of export parity price and import parity price for Indian basket of crude). Import parity price: what will be the cost of same amount of crude oil imported from international market. Export parity price: what price will ONGC get if it exports all its crude.
      Refinery products: petrol, oil, gas: Ideally an industry decides its selling price based on input cost+process cost+profit margin. But problem with Indian refineries is that they don’t know what is individual cost for extracting petrol, diesel, LPG etc. separately for each component, as all of them are derived through same process. Further, 90% of input cost for a refinery is the crude oil. Further, they have not undertaken any exercise since independence to find out these costs. So how to price them? What the refineries do is they match their prices to a price index in Singapore, and through a complex formula arrive at price for petrol, diesel, etc. They sell these products to the marketing arm of OMCs(HPCL, BPCL, IOCL). Hence refineries in India are always in profit (subsidies have not come in as yet)
      OMCs: they sell these products to final consumers. For them, it’s simple: they know the price at which they buy products from refineries. They can add their total cost of marketing, storing etc. + taxes+profit margin and sell them to you and me. But government gives subsidy to people on diesel, LPG, kerosene. So they deduct this much from each product and thus we get the final selling price. This subsidy is shared by OMCs, ONGC & government. Government reimburses its share to OMCs by way of oil bonds. ONGC, despite sharing some burden of the subsidies, is still in profit. Why? Because it priced its product (crude oil) at Trade Parity Price, and not according to its input costs+profit. Because of this the margins for ONGC are huge. Likewise, Refineries (though most of them are part of parent OMC) are also in profit. But the OMCs declare under-recoveries every year, since the oil bonds provided by government are not sufficient to cover its share of subsidy burden. Note that it is “underrecovery” and not “loss” because loss can be calculated if you know your cost price in the first place. But you may have noted that none of the players in the chain know what their actual price is. So these underrecoveries are nothing but difference in selling price and the (international Singaporean price+cost of marketing+tax).
      Similarly for domestic gas. Pricing it according to international prices will mean huge profit for explorers and extractors.
      This type of pricing takes into account the opportunity cost of selling these products domestically v/s selling them internationally.
      I hope you are clear now about why import price.

  7. Hi Mrunal,

    I think India is the largest producer of “guar gum” with about 80% of world production. So, your reason that imported guar gum will be costly is wrong. Im talking about the hydraulic fracking disadvantages. :)

    Hope you’ll correct it soon for the benefit of all aspirants. :)

    1. The other interesting contribution to shale gas development in the U.S. is the export of guar gum from India, which helps in improving the viscosity and flow of water in the fracking process. The gum is extracted from guar ki phalli, grown mainly by farmers in Rajasthan and Haryana. Earlier, guar gum was used mainly as an additive in ice creams and sauces, but with the discovery of its use in shale gas extraction, its production has risen enormously, earning almost $5 billion during the period from April 2012 to January 2013.

      Source: http://www.thehindu.com/news/cities/Delhi/shale-gas-policy-a-game-changer-or-spoiler/article4924493.ece

      1. Exactly. When India was exporting to US itself, we cannot say that there is a shortage in India. Maybe it is a honest mistake on mrunal’s part. Or maybe there is some other explanation, like hoarding. Lets see.

    2. I see no issue with Mrunal’s explanations. He didn’t mean shortage in the literal sense as explanation provided afterwards suffice the reason.

  8. Thanks for the great work..it is very helpful… :)
    But have a query….after reading these chapters can we skip reading the eco survey directly….hope all the data s covered here..?

  9. UPSC has not released the notification for the changes so does it means all 80 questions marks counted?
    There is no clarity on pattern of paper 2

  10. Hi Mrunal Sir,

    In “NELP-X survey blocks to be auctioned” table content total seems to be incorrect. Its is 86 in place of 93.
    Please rectify this.

  11. Two cannot be true but both can be false. Identify the that follow the condition

    1. All animals are carnivorous
    2. Some animals are not carnivorous
    3. All animals are not carnivorous
    4. Some animals are carnivorous

    1&2, 2&3, 1&3, 3&4

    1. All trains are run by diesel engine.
    2. Some trains are run by diesel engine.
    3. No trains are run by diesel engine.
    4. Some trains are not run by diesel engine.

    1&2, 2&3, 1&3, 1&4
    Please reply and if possible, share the strategy to solve this kind of headache…

    1. both answers 1&3 … try to see if totally opposite statements are present or not .. if they are present then thats the answer … if not then go for the combination that is next best … wrongly framed options though that i wont deny … this question is from CSAT 2011 and was not asked in CSAT 2013 … so dont worry much abt it.

    2. according 2 aristotle square of opposition…

      Rule-1– A & E both can b false together but can’t b true together…
      Rule 2– I & O both can b true together but can’t b false together…

      So, apply rule one in given options, u get..
      1 & 3 is ans.

  12. can anyone provide information on:

    1) CSAT -2- whether english comprehension (ones provided only in eglish) are to be attempted (surely somebody must be haveing some idea, what are the thaughts of coaching ppl on this issue)
    2) if my signature is not there in admit card, do i need to make some sort of undertaking and go to exam centre..if yes..is there some standard language.

  13. 1&3, 1&3

    csat doesn’t depends on any formula. just wits and quick thinking. It’s not like cat.
    in this question go for selection by elimination. With this bol bacchan, I hope my answers are correct otherwise I will have to join coaching classes

  14. excellent article … very nicely linked … kindly clear the guar gum query and also .. one petty observation from my side .. NELP-X survey blocks to be auctioned
    33+30+30 = 96 total .. not 86 …. seems to be a typo error … thanks for ur efforts … wont have to read that lengthy pdf now :)

  15. Gaur gum is bought from India by videshi taquak who have deep pockets to pay in Dollars. Shortage is due to market forces. Secondly, even if India is largest producer, supply<<demand and hence high prices. Work is in slow progress to find synthetic replacement to gaur gum. Rajasthani farmers who grow gaur have become street smart, they do hoarding also.

  16. English comprehension included or excluded?
    No official statement comes out. Pls sr clear my doubt…..

    1. Don’t trust anything or anyone unless it is officially declared prepare all .. .if there are any changes UPSC will notify.

  17. guys … “english marks not to be counted in csat grading” does this statement by hon.minister still applicable ??? will there be questions on english comprehension (those with no translation) or not ??? a bit confused… can someone clear my doubt ??? thanks

  18. 22.5 marks of English comprehension will it going to be counted in final score Someone please clarify its frustrating

  19. Sir,
    We got lot of study material from you & in civil services aspirant family their is no such option, so please keep it future.
    I have watched the economic survey 2013-14 lecture video. Thank you Mrunal Sir

  20. as usual one more krantikari lekh by mrunal ji
    but percentage share of diesel is mere 1% and petrol is no where in energy diagram ???

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