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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/ 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 Committees 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 doesnt 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. Well 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: well 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 dont 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 Indias 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
Whatre 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 doesnt 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.Ranagarajans 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, Indias 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 Indias 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 Mukeshs 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 industrys input cost will increase => Governments 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.
Itll 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.
well lay another 15,000km pipeline
To bring entire country under gas grid.
finance via PPP
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fracturing-rangarajan-formula-gas-pricing.html
Posted By Mrunal On 12/08/2014 @ 01:02 In the category Economy

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