Coal Bed Methane Indian Perspective

What is Coal Bed methane?

Coal bed methane- which is nothing but a natural gas (methane) associated with the coal seams. India, having the fourth largest proven coal reserves in the world, holds significant prospects for exploration and exploitation of CBM. The Directorate General of Hydrocarbons of India estimates the deposits in major coal fields (in twelve states of India covering an area of 35,400 km2) contain approximately 4.6 TCM of CBM.

Significance of CBM in Indian Energy basket:

India is on the path of accelerated growth and the demand for energy will increase multifold every year from the current levels. 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. Currently, India is the world's 5th largest energy consumer accounting for about 4.1% of the world's total annual energy consumption. Currently Coal is the primary source of Energy meeting 52 % of the countrys energy requirement. However as the cheaper and cleaner fuel natural gas is widely accepted and consumption of the natural gas since last two decades in India is increased rapidly. As per BP statistical review 2010, the share of natural gas in Indias energy basket is expected to reach 20% by 2025 from current 10%. According to the 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 Asian region. An analysis carried out by Crisil has projected the supply demand gap for natural gas to be around 172 mmscmd between 2013 and 2020. The hydrocarbon resources of India are limited and it needs to diversify and explore energy resources, India is striving for indigenous natural gas because of major declination of KG basin output along with inclination of other domestic wells. Current consumption of natural gas is 161 mmscmd during 2010-11 and in this consumption 46 mmscmd of natural gas provided by rLNG which 29% of total consumption. In this scenario, if India can explore and exploit CBM then it will boost the Indian economy with the reduction of dependency for natural gas on foreign countries. Moreover, CBM extraction also potentially offers the opportunity of earning carbon credits under Clean Development Mechanism of Kyoto Protocol,

being an environmentally friendly fuel. Coal bed methane will clearly emerge as the one of the viable and clean routes to India's energy security.

Source: (BP statistical review of world Energy 2010)

Sector

Current Consumption

of

total

Consumption 37 23 9.06 4 12 3 4 3

Power Fertilizer CGD Shrinkage for Liquid extraction Refineries Petrochemicals Sponge iron Small consumers

61.41 37.74 15.06 7.18 19.77 5.67 7.01 having 5.81

allocation higher than 500 scmd Others Internal consumption TOTAL Source: (India Energy Book 2012) 4.45 2.06 166.16 3 1 100

Development of CBM in India: Policy for exploration of CBM formulated by GoI in 1997 and as coal block were also involved MoU signed between Ministry of Coal (Moc) & Ministry of Petroleum and Natural Gas (MoP&NG) for allocation of CBM blocks. During 1999-2000 DGH in coordination with MoC carved out several prospective blocks in different coal fields of West Bengal, Jharkhand and Madhyapradesh. Like NELP rounds GoI started CBM rounds in 2001 for allocation of CBM blocks for exploration of CMB from respective blocks. Government offered 7 blocks under 1st round of CBM out of which 5 blocks were awarded and 3 blocks were awarded on nomination basis. Under CBM round II Government came with the offer of 9 blocks out of which contracts for 8 blocks were awarded in 2003. In the year of 2006 Government came with the offer of 10 blocks and first time major foreign E&P companies participated in that bidding round. Government successfully awarded contract for all the 10 blocks. In 2009 4th bidding round was conducted, under CBM-IV GoI offered 10 blocks and contract was awarded for 7 blocks. Hence so far GoI awarded total 33 blocks under 4 bidding rounds and 13600 sq.km area is covered by this 33 blocks. According to the oil ministry officials total prognosticated CBM resources in 33 awarded blocks under four auction rounds is about 63.8 trillion cubic feet (tcf), but so far only 8.92 tcf reserves have been established, status of the 33 blocks by 2011 was as below: Status of awarded blocks No of Phase of the blocks Exploration Phase-I Exploration Phase-II Development Phase-III Relinquished after Phase-I Awaiting grant of PEL Source: DGH Commercial production of CBM during 2011-12 was 0.23 mmscmd while it is estimated to reach up to 4 mmscmd by 2016-17. Major leading players involve in CBM exploration are RIL, ONGC, Essar Oil Ltd., GEECL and Arrow energy. Government is trying to attract more and more private as well as foreign players in CBM exploration program. The CBM policy of an Indian Government provides an attractive fiscal & contractual terms blocks 10 8 3 3 9

which is the encouraging factor for private as well as foreign players to take participation. Some of the attractive terms in CBM contracts as per DGH are: No participating interest of the Government. No upfront payment. No signature bonus. Exemption from payment of customs duty on imports required for CBM operation. Walkout option at the end of Phase-I & II. Freedom to sell gas in the domestic market. Provision of fiscal stability. Seven years tax holiday.

Main encouraging fiscal term in CBM contract is PLP payment which is production linked payments unlike PSCs under NELP policy. As in production linked payment contractor shall pay royalty to Government based on average of daily CBM produced and saved during the month in the contract area and not on an investment in a scrutiny block like PSCs. Challenges for CBM development in India: DGH expected the production of 1.11 mmscmd of CBM in 2010-11 based on the allocation of CBM blocks but the current production stands at only 0.23 mmscmd. CBM production from blocks of Reliance Industries and Great Eastern Energy are behind their approved plan due to issues like the lack of market access and land acquisition. Although Government is trying to attract more private and foreign players but somehow it fails mainly because of regulatory issues and delays in consent from Government side. Two blocks held by RIL in Madhya Pradesh and one by Essar in West Bengal have not been able to produce gas for a year as the oil ministry has not approved their pricing formula. State-run ONGC, which is in the process of leasing out four CBM blocks to private operators, has invited bids from international energy firms but it is getting delayed since long time because Government has not extended PEL (production exploration license) for a long time. PELs of two blocks Bokaro and North Karanpura ha expired long back in 2008 while PELs of other two blocks Jharia and Raniganj has expired in 2011. ONGC has also sought extensions of Phase-II and approval of its field development plan since 2011 but still it is pending from Government side. One debatable term in CBM contract is Freedom to sell gas in the domestic market by contractor but the oil ministry issued a set of guidelines for the pricing and commercial utilization of CBM gas

on 15 June, 2011, which asks producers to inform the former of the quantity, location and timeline of expected gas availability in order to utilize the CBM gas for the priority sector hence Government is imposing Natural Gas utilization policy on contractor and contractor has to sell natural gas as per the priority defined in Gas utilization policy, also the government guidelines further state that the operator should undertake price discovery among priority-sector consumers, and final customers should be selected based on the proposals received from the Union and state governments, on the basis of the Centres aforementioned gas utilization policy hence contractor has not full freedom to explore market driven price. As per the opinion given by major private players like RIL and Essar said that this guidelines adversely affects their contractual rights and interest. Apart from regulatory issues, CBM development is not encouraged because of lack of infrastructure and technologies. CBM exploration company needs to transport extracted natural gas to its customers but still many parts of the country has not adequate pipeline infrastructure. There are other measures like provision of technical training, promotion of research and development, and transfer of CBM development technologies that can further increase the growth of the sector.