India’s Coal, Oil and Gas sector | UPSC Notes

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India's Coal, Oil and Gas sector | UPSC Notes


  • Daily revision in oil prices
  • Incomplete without granting powers to OMCs to set up prices on a competitive basis
  • Illegal mining – ministry of mines
    • Substantial increases in MP Rajasthan and Gujarat
    • Improvement in Jharkhand

Budget Proposal

  • Integrate upstream and downstream oil majors eg ONGC and IOCL and GAIL
    • Pro
      • Normal, economies of scale, costs, international, raise funds cheaper, duplication reduced, say over crude oil access, also benefit in National Pipeline grid, coordination
    • con
      • CAG – Air India and IA merger responsible for the current spate of Air India , monopoly, privatisation difficult, choice, jobs
    • like Bank merger

Shale Gas

  • Gas that is obtained from the Shale Rocks
    • Soft Sedimaentary rocks
  • Shale gas revolution in USA , which can be used as portable fuel for vehicles.
    • 2001 – only 1%, now 25%
    • US is likely to become the world’s largest producer
    • The production of cheaper oil is a primary reason, why is growing on a high, even though the world is still reeling under pressure
  • Tech
    • Horizontal drilling tech using Fracking – Which is used to develop cracks in the rocks
  • India
    • 2013 policy
    • Cambay, KG, Ganga Plain, Damodar valley

Cons of Fracking

  • May hamper Soil fertility
  • Price of Guar gum which is required in HF process has skyrocketed.
  • Availability is less than CBM. Shale: 65 trillion cubic feet, CBM: 450

Strategic oil reserve

  • India building strategic reserves to meet emergencies
  • crude
  • today only at 40$/ mBTU provides a cheap window
  • 3 reserves being set at Vizag, mangalore and Padur
    • 5.3 MT
    • Can last for 10 days using fully
    • Pales in front of over 100 MT of US
  • 4 more reserves under discussion
    • Will take total capacity to a month’s supply

Oil prices

  • change prices on a daily basis
    • Benefit –
      • OMCs better recovery
      • Will reduce sudden jump
      • Will reduce public outcry
  • Other measures required
    • Give OMCs permission to charge differently
      • Will enfuse benefits associated with competition
  • At 50$ a barell
    • Pointed out by EC last year – MC of shale production
  • Low now because
    • Demand low – Europe, china, US, No millitary escalations
    • Supply – Shale gas, Iran, Iraq, Libya, Saudi no longer acting as the swing producer, dumping by speculators (expected prices to rise, not doing for long )
  • 3 schools on future prices
    • Oil prices low for now only
      • Oil – No substitute in sight esp for transportation
      • The producers – Middle east, Venezuela, Russia are vulnerable states
    • Low for longer
      • Production diversifies – more countries – lesser coordination
      • Countries like Venezuela, Russia do not have fiscal space to absorb losses after a production cut
      • Shale that has been “shut in ” over the last 1 year due to low prices can be quickly brought back into production – low turnaround time
    • Low perenially
      • Alternative fuel – biofuel, ethanol blending, electric vehicles
      • Oil became prominent after British Navy ordered to replace coal with oil in ships in WW1 period. US Navy and Air force now expirementing with alternate fuels
      • Climate issues- COP 21
      • Rising efficiency of engines – Oil demand increasing logarithmically


  • Currently 75% of all oil, natural gas, etc
  • Domestic production falling every year even from Bombay High an db cairns barmer
  • By the current rate, oil imports expected to rise to 90% by 2025
  • India 4th largest consumer
  • Policy to reduce to 67% by 2022 and 50% by 2030
  • USA
    • India to import LNG from 2018
    • Indian firms to invest in American Shale

New Hydrocarbon Policy ( HELP )

  • Revenue sharing model
    •  Kelkar committee have recommended that – Deep sea offshore Blocks – Production Sharing Contracts Onshore and Shallow blocks – Revenue Sharing Model
    • Benefit
      • More revenue
      • More certainty
      • Less litigation
    • Con
      • May deter Big Investment
  • Uniform license
    • Allows to explore crude oil along with shale, CBM, tight gas, etc
  • Open Acreage
    • Companies can bid to explore
    • Even before the are has been confirmed to have resouces before
    • Will boost exploration
  • Concessional royalty for deep sea, high pressure and high temperature explorations
    • No royalty for govt for the 1st 3 years
    • Then after, it will be shared at a concessional rate
  • Freedom to sell domestically without govt intervention

Other steps

  • Discovered Small Field Policy 2016
  • Hydrocarbon Vision for North East
  • Minerals Act
  • Shale in USA
  • Other countries – ONGC Videsh – Russia, Sudan, Mozambique,

Other related schemes

  • Ujjwala
  • Urja Ganga
    • Gas Pipeline along Ganga
    • Inclusive – Gas Grid to eastern India
    • Will revive fertiliser plants of Barauni and Sindri

Problems with Mining

Mining accidents – Recent Lalmatia


  • Illegal Mining without ensuring safety
  • Outsourcing of mining works to private company – Inadequate incentives to work on safety
  • Lack of Safety Equipments
  • Underground Fire going on for decades – Near Jharia coal Fields
  • Unscientific use of Explosives
  • Lack of awareness
  • Inadequate Central Monitoring Mechanism

Train rerouting – Dhanbad

Illegal Mining

recently Mining Survellance System set up

Satellite, drone based tracking-


  • In COAL, output per man shift is about half of the world



Environment , Local Population





Mines and minerals Act






Exploration insufficient

National Mineral Exploration Trust



  • Forms – CBM, Methane Hydrates, Methane Vents, Biomethanation
  • Transportation – CNG, Pipeline based

CNG: Compressed Natural gas



    • CNG emits far less pollutants than petrol or diesel
    • CNG doesn’t have carcinogens like Benzene.
    • Success story in Delhi and Mumbai CNG-public transport.
    • Less import reliance
    • Calorific value
    • CNG filling station requires more investment than petrol pump.

Public not ready to buy CNG kits/vehicles because

    • Lack of CNG filling stations in many places.
    • CNG unavailable outside Delhi, so cars useless outside



LPG-Liquefied Petroleum gas

  • LPG is predominantly propane and butane. Propane constitutes 30-99%.
  • LPG can be derived from.
    • refining crude oil
    • natural gas
  • Hence no risk of “single source dependence”
  • LPG is globally surplus because of Natural Gas production.
  • In some countries, LPG is called “Auto-Gas” and used in taxis e.g. Korea, Turkey, Russia, Poland and Italy.

Good points

bad points

    • emits far less pollutants than petrol or diesel
    • Unlike CNG, the LPG does not require elaborate gas grid-network or compressor station at refueling stations.
    • Therefore, LPG refilling station can be opened with less investment. Cheaper in long run.
    • Today, cost per km for LPG car is almost equals petrol car.
    • So there is no cost-advantage to make public shift from petrol cars to LPG cars.

 Hydrogen fuel

Why Hydrogen

  • Energy output high – thrice that of petrol, diesel
  • Hydrogen available in plenty
  • Emission- Only Water Vapour – Climate change and Pollution
  • Import requirements saved
  • Las forever

Bad points:

  • Cost of hydrogen pipeline is 15x times more expensive than a CNG/LPG pipeline.Hence, only few areas of USA have hydrogen pipeline. In the entire world hardly 200 hydrogen refiling stations by 2013.
  • Hydrogen burns with colourless odourless flame, hence hard to detect leakage.
  • Impact on weather – Ony Water Vapur exhaust
  • Hydrogen is not found intact – Need to extract Hydrogen
  • Storing Hydrogen is a challenge
  • Cost of vehiles very high right now
  • Safety issues in the initial stages

Hydrogen Vision 2020 – (GIFT)

  • Ministry of New and Renewable Energy (MNRE)’s Green Initiatives for Future Transport (GIFT)
  • It has vision 2020 for Hydrogen.
  • Aim: sell Hydrogen at cost of 60-70 per kg
  • Build pipelines and refilling stations for hydrogen fuel.
  • Get at least 1 lakh hydrogen vehicles on Indian road
  • Safety regulation, laws and codes.
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  • Dominant use in three core sectors
    • power
    • steel,
    • cement.
  • Coal Industry itself too is part of core sector.
  • small scale industry involved in brick manufacturing or ceramics.
  • In spite of rise of clean and green tech, demand of coal will continue to rise a
    • because base infrastructure in all core sectors is designed for coal consumption
    • India’s supply of power and steel doesn’t match the demand.
    • Even new capacity additions in these sector using clean energies will fall short of incremental demand.

  India coal policy

  • Currently mining only by CIL and minor state cos such as in Neyveli
  • Plus the captive mines of Tata, etc
  • Mining nationalised in 1973
  • Imports worth 15 billion dollars a year
  • Plan
    • Double production to 1.5 billion tonnes a year by 2020
    • 33% from private
  • Although private mining yet to be opened
  • Challenge in privatisation
    • Revenue sharing models
    • Dominant position of CIL
    • Perhaps, only unfavourable mines would be auctioned

Reserves in India

  • 4th largest reserves of coal
  • Indian coal is classified in 2 categories i.e. coking coal and non-coking coal.
    • This is a usage based classification, as coking coal is essential for Iron and steel industry.
    • 90 % of reserves are of Non Coking type and rest 12 % have high Ash and water vapour content.
  • Based on Geology
    • 75% of coal from Gondwana deposits – In Chotanagpur Platau ( Damodar), Orissa and Chattisgarh – Bituminous
    • 25% from others like Neyveli, Nellore, Meghalaya – Poorer Quality – Lignite
    • A limited ANTHRACITIC coal form J&K


  • 90% Non Coking coal
  • Efficiency – Half of world
  • Monopoly of CIL
  • Bulk is in the forested regions of Jharkhand, Orissa, Chattisgarh
  • Policy – Cancellation of Licenses
  • Transport Network weak
  • EODB

Coal formation

  • Formed by fossils of plants, trees, bushes etc. which got deposited in shallow basins millions of year ago.
  • Later decomposition by bacteria converts it into peat, which is generally unviable to mine.
  • After this bio- chemical action ceases and geo chemical action becomes dominant.
  • It results in gradual development of Lignite, Bituminous and Anthracite coal.
    • Peat is Impure, has very low carbon content (in turn calorific value) of about 40%.
    • Lignite, bituminous, anthracite coal has carbon content of 40-60%, 60-80% and 80-90% respectively.
    • Remaining matter in the coal is called volatile material such as moisture, ash content and sulphur content. These are gradually removed by metamorphic process i.e. pressure and heat.
  • Bituminous coal special because contains Bitumen, on heating in absence of oxygen is converted into coking coal. This removes volatile material in the coal and is further heated to get Coke, which is used in blast furnaces to extract iron from iron ore.
    • This type of Coking coal is what India lacks
    • Coking coal is used to make Pig iron through blast furnace
    • Other type of iron ‘sponge iron’ doesn’t need coking coal instead natural gas is used.
      • India is largest manufacturer of sponge iron in the world.
    • But most of the big corporates in India are dominantly involved in manufacturing of Pig iron

Coal sector In India

  • Almost wholly in hands of Coal India Ltd.
    • CIL, central government PSU.
    • Produces about 80 % of national production.
  • Coal mining of India was nationalized by passage of ‘Coal Mines Nationalization Act, 1973′ and CIL was formed.
  • Only a few captive mines with Tata Steels, Steel Authority of India and Damodar Valley Corporation were made exception.
  • Latter, this privilege was extended to power (1993), cement and coal to liquid sector(2006), in addition to iron and steel(1976).
  • For allotment of mines ‘screening committee’ was formed in 1993 which had representatives from Coal ministry, states and CIL to consider the applications and allocate mines to applicants.

Commercial Mining – Mine holder is allowed to sell coal in open market.

Captive mining – Miner will have to use coal in his own industry and can’t sell in open market.

Why in News?

Since 1993 218 mines holding about 16.6% of India’s reserves were allocated were allotted, these were in 3 categories –

  • Captive use for above mentioned sectors : with specific end use
  • Central and State government PSUs, with no end use restriction
  • Ultra mega Power projects : Via Competitive bidding

Having said this, production from these reserves has been dismal mainly due to following:

  • Delayed environment and forest clearances: Environment ministry under Jairam Ramesh Classified ecological sensitive areas in ‘Go and No Go areas’. Total prohibition is there on mining in no go areas. And these areas contain 30 % of total allocated mining reserves. Further there are other clearances required from State and Central Governments.
  • Land Acquisition problems
  • Lack of adequate Technology
  • Corruption in screening committee

This resulted in situation where India has to import coal to the tune of 171 million tons. In comparison Coal India produced 462 million tons of coal. Some Indian companies and also CIL have acquired coalmines overseas to ensure continuous supply.


  • 2012 CAG 1.86 lakh crores controversy
  • PILs in Supreme Court pleading to cancel allocations.
  • Supreme Court cancelled allocations since 1993 on the ground of illegality only sparing few allocations (one of SAIL and three of UMPPs).
  • Grounds for this action was –
    • Coal Nationalization Act, 1973 – Allocation of blocks can only be made to central government PSU’s (not to state government) for commercial mining or for captive use of mines for sectors specified by amendments I.e. Iron and Steel, cement, Power and Coal to liquid sector.
    • Allocation process was arbitrary, discretionary and non-transparent. There was no consideration of Merit, no Price discovery mechanism for national resources . no ‘minutes of meeting’
    • Why allotments to State PSU’s were cancelled?
      • state PSUs got blocks with no end use restriction. can engage in Commercial Mining i.e. selling coal in open market against, Coal nationalization Law Apart
  • 2014 – Ordinance to take back mines and reallocating it.

By this ordinance –

  • Government aims to reallocate blocks to captive users through e-auction. There’ll be no guarantee of getting same block that a company currently holds.
  • Public sector companies/undertakings will get some reserved block as per their need on priority bases.
  • Government retains option to open commercial mining to private sector.
  • Proceeds from coal blocks will go to respective states. This step was much needed as Coal rich states such as Jharkhand, Orissa, Chhattisgarh are also poorest states.
  • Foreign companies will not be eligible.

Issues Involved –

  • Price of land will rise in buying it again

Pro private arguments –

  • Coal India – monopoly
    • prices high
    • supplying low grade coal,
    • no redressal of customer grievances.
    • Even NTPC has dragged CIL to ‘Competition Commission of India’ over the poor quality of coal. Coal India was fined Rs 1773 crores for ‘Anti- competitive Behaviour’
  • When more precious and expensive resource sector Oil and Natural gas is open for private sector, why discrimination against Coal sector?
  • Coal India is not able to fulfil demand of the economy and it still makes super profits.
    • Idia has 5th largest reserve in the world
    • Yet, India imports coal worth 15 billion $ every year
  • Coal Washing (a process which removes impurities and ash content in coal) facilities (washeries) of CIL are inefficient and steel manufacturers have to depend increasingly on private washeries.
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Pro CIL/public ownership arguments –

  • Before 1973’s nationalization, mining was in private hands and then position was even worse.
  • Allocation of captive blocks has revealed incapacity of private sector too. Most of the blocks were yet to commence production.
  • Private sector can engage in exports of coal which is not in national interest.

Expected reforms and desired steps

  • UPA government came with ordinance for ‘Coal regulatory authority of India’ for this sector but it never came reality. A similar bill is expected in next session of Lok Sabha.
  • Consent of Gram Sabha should be mandatory before commencement of mining.
  • Some proceeds of mining revenue should go to ‘Districts Mineral Foundation’ for benefit of affected persons and their families.

Clean Coal Energies

Coal Bed Methane

It is natural gas which is found in coal seams in absorbed form. It is similar to natural gas found in in oil & natural gas blocks (both are CH4). It is clean pipeline gas and can be used almost without any processing.

Why it is important to extract CBM?

  • Methane is hazard in Mines. Being poisonous, it can cause serious harm to miners. So it is better to extract this in advance.
  • Methane is very potent greenhouse gas (about 20 times than CO2). So it shouldn’t be let escape to environment when it can be captured.
  • It is very viable resource. It has good calorific value and about half the emissions that of coal.

Carbon Sequestering – This is technique for ‘enhanced coal bed methane recovery’. Here CO2 will be pumped in to coal seam. Coal has better absorption capacity of CO2 and it will result in more desorption of CBM. The greenhouse problem also solved

Coal Gasification and Liquefaction

Coal is Gasified

This gives SYNGAS- Methane, Hydrogen, Carbon monoxide by combination of Coal, Water and oxygen. These products can be used for power generation and industrial processes. Oxygen and water is pumped in seam which decomposes coal in above products and these are extracted through a well.

Same way, under liquefaction coal under heat and pressure is converted in high value petrochemical. However this is expensive process and only viable if prices of oil is high.

Government has made projects of underground coal gasification and liquefaction eligible to be treated as captive for allocation of coal mines.    


About the Bill:

The Coal Mines (Special Provisions) Bill was introduced in Lok Sabha in December 10, 2014. It seeks to amend the Coal Mines (Nationalisation) Act, 1973 and the Mines and Minerals (Development and Regulation) Act, 1957. The Bill replaces the Coal Mines (Special Provisions) Ordinance, 2014 that was promulgated on October 21, 2014.

Important provisions in the Bill:

  • The Bill seeks to enable private companies to mine coal for sale in the open market.
  • Auctionn
  • Eligibility: For the auction of Schedule I mines, any government, private or joint venture company is eligible to bid. For the government allotment process, only government companies and companies that have been awarded power projects on the basis of competitive bidding for tariff are eligible. For Schedule II and III mines, government, private and joint venture companies with a specified end-use are eligible to bid.
  • Purpose of mining: Coal mined from Schedule I mines can be used by companies for their own consumption, sale or any other purpose as specified in their mining lease.
  • Prior allottees: A prior allottee shall not be eligible to participate in the auction process (i) if he has not paid the additional levy imposed by the Supreme Court, or (ii) if he is convicted of an offence related to coal block allocation and sentenced to imprisonment for more than three years.
  • Central Govt- Nominated Authority to conduct auctions
  • Compensation for prior allottees: Prior allottees shall be compensated for land and mine infrastructure.From

MINES and MINERALS (development and regulation) ACT , 2015

  • All mineral concessions will be granted only through auction.
  • Uniform lease period of 50 years; no renewals; auction at the end of lease period; will solve issues arising out of all SC judgments on second and subsequent renewals.
    • Data required about earlier
  • District Mineral Foundation to take care of people and areas affected by mining.
    • transfer equal to 30% of royalty for the old (already mining) companies , and equal to 10% of royalty for the newly approved ones
    • Dubbed into a scheme called PMKKKY -PM khanij kshetra Kalyan yojana
    • Priority areas like drinking water, sanitation, education, women, skill development will get 60% of the fund
    • Rest for small infra project like bridges, roads, irrigation
    • Challenges
      • DMF’s trustee board that oversees comprises only of the beureaucrats
        1. Also, DM is member of both the trustee and the executive board
      • Decisions regarding DMF policy in states are unclear and non participative
  • National Mineral Exploration Trust to be set up for impetus to exploration.
    • Need
      • Only 10% of the Obvious Geologicla Potential (OGP) has been explored
      • Out of that, only 1-2% being mined
    • State will refer for the exploration and will release baseline data
    • Private player to be selected based on transparent auctioning
    • Will receive royalty basaed on Revenue- Sharing model in the form of cash/resource
  • Easy transferability of concessions obtained through auctions so as to attract private investment and FDI.
  • Powers to Central Government to intervene even where State Governments do not pass orders within prescribed time lines; this will eliminate delay.
  • Higher penalties and jail terms for offences; special courts may be constituted, if necessary.
  • The previous approval of the Central Government will not be required for grant of mineral concession except for Atomic Minerals, Coal and Lignite.
  • Other details
    • Transition period of minimum 15 years for captive mines and 5 years for other mines; no sudden stoppage as a result of amendment.
    • Central Government to frame separate rules for atomic minerals.
    • Enabling powers for reservation for the public sector to continue.
  • Update
    • Centre to conduction auction of mines on the behalf of states
      • PM Khanij Kshetra Kalyan Yojana
      • 6k crore per annum to be spent welfare scheme of districts adversely affected by mining
      • Also those for health improvements
    • 100% FDI in Mining

How to Balance Tribal/ Local interests ? See Vulnerable people – Cooperative, return – Xaxa

Corruption in Mining 

Recommendations of Shah Commission on Illegal Mining   

  • It recommends ban on iron and manganese ore exports.
  • Reason is that due to high Chinese demand, the prices have gone up multiple times and mafia has gotten involved. This mafia can corrupt the state agencies and is underselling national wealth.   

Rat Hole (Coyote Hole) Mining in Meghalaya

  • Meghalaya has no mining policy and individuals operate at will. Miners use rudimentary gear and face multiple risks including lung diseases by inhaling coal dust. Most of the land is tribal owned who consider it a matter of customary right to extract coal.
  • Coal is Meghalaya’s biggest source of revenue so it may not be possible for it to ban coyote mining suddenly.
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  • Oil & gas industry divided in Upstream, Midstream and Downstream sector, based on the value chain which starts from crude oil and ends at products such as Petroleum, High speed diesel, LPG, Polypropylene, Synthetic Rubber reaching the customers.
  • Huge investments and technicality at every stage, particularly in this sector, makes these distinctions desirable. T
  • here are very few companies in the world which take up all three sectors simultaneously.

Upstream Sector

  • It involves oil exploration, prospection and extraction/production from oil wells.
  • There are about 40000 oil well across the world -India, ONGC, Oil India ltd, Reliance Industries and Cairn Energy are involved in exploration.
  • Oil may be founf bit not vialble, to drill -business quite risky  
  • In last 15 years, sedimentary basin area under exploration increased from 11% to around 58% and number of companies operating in this field is nearly 70.
    • Sedimentary Basins
      • regions of earth which are subsided (worn off) from long and are later filled by sediments.
      • results in gradual thinning of crust by sedimentary, tectonic or volcanic loading.
      • These basins are rich in Organic material (detritus)or fossils, which over time under pressure gets converted in fuel. 
      • oil and gas are formed from the organic remains of marine organisms which become entrained within sea-floor sediments.
      • Coal, by contrast, is typically formed in non-marine settings from the remains of land vegetation.
      • India has about 3.1 million sq. Km. (nearly equal to Indian mainland area) of sedimentary area, which comprises of 26 basins and out of these 18 basins are presently under exploration. 
      • Of this 57 % area is in deep water and remaining 43% area is in on land and shallow offshore.
      • Most reserves are in western basin, in Gujrat and Rajasthan. Assam Arkan basin (Myanmar border ) is also important reserve and holds 23% reserves and 12% production.

Natural Gas

  • by product of crude oil and is considered as clean fuel.
  • India imports 25% of its natural gas requirement, mainly from Qatar.
  • India has significant natural gas reserves in offshore block.
  • It is originally in gaseous form and is stored in liquefied forms in LNG tankers at ultra-cool temperature. Transportation by ships is also done by using these tanks,
  • pipelines it is transported in gaseous and compressed form. 

Steps being taken to make India a Gas Based Economy

  • Exploration
    • HELP
    • National Mineral Explration Trust
  • Pipeline
    • Urja Ganga Yojana  
    • 15k of pipeline
    • 15k of pipeline under construction
  • Investment
    • Integration of Oil Majors
    • Indian firms to invest in US shale
  • Imports
    • International Pipelines – TAPI, Myanmar, Russia
    • Treaty with Brunei, Qatar
    • FY 18 – Tax reduced on LNG imports
  • Demand
    • CNG vehicles
    • Promotion of Gas based Power plants

Gas Pricing

Recently Reliance Ltd stopped Natural Gas production from Krishna-Godavari basin block claiming unviability of operations. In order to make this sector lucrative for investors

Rangarajan Committee was appointed which suggested linking gas price to price of imported gas and gas prices prevailing in exchanges of USA, UK and Japan (weighted average) so as to bring it at parity with international prices. This would result in increase of price from $ 4.2 mmbtu to$ 8.4 mmbtu, this formulae was approved by UPA Government, but was not implemented.

New formula

New Domestic Natural Gas Pricing Guidelines, 2014,

  • These guidelines will be applicable to all natural gas produced domestically, irrespective of the source, whether conventional, shale, CBM etc.
  • also applicable for PSUs like ONGC/OIL
  • Japan, which was a pure importer, unlike US, UK or India was left out of the formula. Also, Japan’s import price was higher as it is gradually reducing its dependence on nuclear energy . So, ready to buy at higher prices
  • Now includes gas surplus countries – USA, Canada, Russia, Mexico
  • This is only well head price. Transportation, etc on top of this
  • Extra premium for Deep (> 1000m )and Ultra Deep Wells (>1500)
  • The average will be revised every 6 months
  • Issues
    • Although, still this price is lowest in Asia Pacific
      • China pays at the rate of 11$
      • Other Asian Pacific pay @ 9-10 $
    • The 4 countries are gas surplus countries
    • Also affects gov’t – ONGC
    • Some allege why link to market when domestic cost as with reliance is much less
    • Price for today is almost a year old price of the four countries

Midstream sector

  • transportation, storage of oil and gas from blocks to refineries and distribution centers.
  • Most cost effective way is through pipeline, in comparison to road and railways which higher economic and environmental costs.
  • Max in North and West India, which accounts for 60% of gas pipelines and 80 % of gas consumptions.
  • To remedy this, central government has proposed to set up National Gas Grid under which additional 15000 km of pipelines will be laid down. This is expected to cost Rs 75000 Crore. It will be executed under PPP model and will be eligible for ‘Viability Gap Funding’. – URJA Ganga scheme
  • Indian Oil Corporation and Gas Authority of India are two PSUs involved in this sector. GAIL have largest network of pipelines (15000 km.)
  • City Gas Distribution network is there only in few cities. Wastage by leakages and theft, quite expensive to operate.

Viability Gap Funding – Central and state governments undertake to provide support funding to successful bidders. Bids are made as to requirement for funding from government and one whose requirement for state funding is least is awarded the project.

International Gas transit pipelines

  • India imports gas through LNG terminals which get imported gas in liquefied form in tankers and then they regasify it by heat and compression.
    • This again is expensive process and gas from central Asia this way will be even more expensive.
    • Turkmenistan – Afghanistan – Pakistan – India (TAPI),
    • Iran- oman- India pipeline
      • Proposal for deep sea pipeline now
      • Called SAGE
  • Myanmar – Bangladesh -India.
  • To deal with the problem of non execution of pipelines, ALTERNATIVE SOLUTION is requried
    • Eg Creation of Fertiliser Plants in foreign country and then transporting it
    • A successful model exists in Oman where India has a Urea manufacturing plant
    • Plans to create such in Chahbar as well

Downstream sector

This sector involves refining, processing and marketing of products and byproducts of crude oil

OMCs for their under recoveries are compensated by government by issuing them ‘Oil Bonds’. Bonds are instruments by which government acknowledges their liability in favour of OMCs. But this doesn’t solve problem as these have very high maturity period of 5,7,10 or even 20 years. OMCs generally sell these bonds and get cash, or sometimes keep with them, and earn interests

Petrol and High Speed Diesel have been deregulated by government

After recommendation from Kirith Parekh which also recommended – abolish subsidy on Diesel and increase price of diesel, Reduce subsidized cylinder from 9 to 6 ( but soon it was increased to 12), subsidy on kerosene be given by direct cash transfers.

FDI – 100 % FDI allowed in upstream, downstream, midstream sectors

If you have read this article make sure you attempt some questions –

  • What are the roadblocks to India’s energy security and what policies/actions government adopted to overcome these? How successful were those efforts? (200 words)
  • Analyze New Economic License Policy’s shortcomings and suggest alternatives or improvements. (200 words)
  • What are the reasons for recent crash in Oil prices and tell its implications to India and how India can capitalize on this opportunity. (200 words)

History of Oil Pricing in India