mrunal economic survey ch11_ coal mining, rangarajan formula for gas pricing

8/11/2019 Mrunal Economic Survey Ch11_ Coal Mining, Rangarajan Formula for Gas Pricing

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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/

[Economic Survey] Ch11: Coal Gasification, Syngas, CBM, hydraulic fracturing, RangarajanFormula, NELP-X

1. Prologue2. [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.Ranagar ajan 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 Sur vey 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

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Coal Types: In increasing order of their quality and priceType Note Carbon %

PeatHighest moisture content = smoke.Most inferior.

40

LigniteBrown coalImportant states:

TN (Neyveli), Gujarat, Rajasthan40-60

BituminousBlack-CoalUpon heating, it releases a liquid called Bitumin.Used to make coking coal, gas coal, steam coal

Chhattisgarh, Jharkhand, WB, MP, Odisha

60-80

AnthraciteHard coalShort blue flame

Lowest moisture content.80-90

Coal Mining: Types

Open pit undergroundmajority 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-Steel3. Cement

4. Brick-Ceramic, unorganized small scale

Survey points: Why coal shortage in India?

1. Environment Clearance

2. Cyclone Phailin1. 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 plants2. 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, Chhattisgarh2. 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 importsbefore 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

varietiesCustom duty: 2.5%

counter veiling duty:2%

Clean Energy cess

Levied on coal, peat and ligniteto 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 PradeshMundra 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 inEnvironment 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





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?





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, wheremanual (labour) mining is impossible or costly.

They dig two wellsinjection 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 coalIndia 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 Price3. 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 itfor 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 methaneMethane + 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 IndiaTherefore, 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 plants2. 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.




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N5: NELP-X (Tenth Round)

2014: 10th Round- but delayed due to two reasonsGeneral 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 opinionVijay 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 beauctioned

Land 33Deep 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.

we’ll lay another 15,000km pipelineTo 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

mrunal economic survey ch11_ coal mining, rangarajan formula for gas pricing

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