CBM Coal Bed Methane Industry in India Part 2

With this post in our “Industry Overview” section, we continue to view the alternate energy segment in India with immediate focus on Coal Bed Methane (CBM) in India. Provided below is an overview of how Coal Bed Methane segment has evolved in India since Government of India took steps to develop the industry in 1997. Even though in its initial stages and with persistent confusion around policy and clearances, CBM segment has still attracted several national and international players, looking to tap onto the potential of huge coal reserves and hence corresponding CBM reserves in India.  

Current Status in India

Coal Bed Methane could be a promising energy solution for India, which has large deposits of coal and limited oil & gas reserves. The total coal resource of India is about 248 BT of which the Indian Gondwana Basins contribute about 99 per cent. Further, the Damodar Valley Coalfields of Eastern India contribute 50 per cent of this resource.

As per Directorate General of Hydrocarbons (DGH) database, India has an estimated 92 Trillion Cubic Feet (tcf) of CBM gas reserves. India is world’s third largest producer of coal, however commercial production of CBM is still at a very nascent stage in the country.

Legal Authority

Before 1997, Cal Bed Methane exploration and production activity was limited to R&D in India due to absence of administrative, fiscal and legal regime. In 1997 Ministry of Petroleum and Natural Gas (MOPNG) was made as the administrative Ministry for Coal Bed Methane by Government of India and DGH was nominated as Nodal agency for promoting CBM in India.

Coal Bed Methane Commercial Development

In 2001, DGH provided Cal Bed Methane policy inviting national and international companies to exploit the reserves through Production Sharing Agreements (PSC). CBM blocks are awarded through a competitive bidding process in India and until recently, four rounds of bidding have been successfully completed. Through these bidding rounds, 33 blocks were awarded to various national and international organizations with latest bidding round completed in October 2009. Total prognosticated CBM resource for awarded 33 CBM blocks, is about 63.85 tcf of which 8.92 tcf has been established as Gas in Place (GIP).

In India commercial production of CBM started in 2007 and latest production numbers are close to 0.30 MMSCMD (million std cubic meter per day).

Major CBM players in India

Since the release of CBM policy, many national and international players have been present in CBM segment in India. Among these ONGC, RIL, Essar Oil, and GEECL take the lead. Essar and RIL are awaiting clearances of their price formula submitted to the regulatory board for their respective assets in Raniganj (East) and Sohagpur. Another private operator and recent entrant is Arrow Energy (taken over by 50:50 JV of Shell and Sinopec) with assets in Assam. GEECL started production out of its Raniganj South field and has started distribution of gas through its pipeline to the industrial customers in West Bengal. Although at a small scale, GEECL is the first private company to have been successful in commercially operating CBM assets and recently realizing profits out of operations.

CBM project costs and benefits

A commercial CBM development project primarily consists of following cost elements:

Upfront project cost elements

  • Costs of drilling the first wells and gas recovery
  • Investment cost in drilling equipment and piping and collection station
  • Cost of drilling additional wells over the project’s lifetime

Upfront cost elements related to gas utilization

  • Gas compression and refuelling station
  • Truck conversion kits for transfer via tanks
  • Power generator and interconnection cost
  • Piping and distribution for transfer via pipelines

Standard operating costs of gas recovery and utilization

  • Labour
  • Insurance
  • Maintenance
  • Spare parts

Following benefits are expected out of a project related to CBM development:

  • Savings related to purchase of conventional energy source such as diesel and electricity
  • Opportunity to earn carbon credits through development of CBM under Clean Development Mechanisms (CDM) of the Kyoto Protocol as CBM falls under the category of environmentally friendly fuel.

Major challenges for commercial development of CBM assets

CBM resource development is quite new in India and hence there are several challenges faced due to lack of development of related infrastructure and peripheral services industry. Another challenge is faced at the sales and marketing front with lack of customer awareness and preparation toward receiving/utilizing CBM at their end.

  • Lack of technical expertise and experience in CBM related project development
  • Lack of data/information on field characterization and hence technology selection toward reserve development
  • Regulatory challenges in the form of clearances and pricing policies
  • Poor quality of reserves in terms of CBM saturation level

Future steps to realize CBM as a viable commercial source of energy

  • Investment in coal and gas transportation infrastructure, including gas gathering, transportation and distribution, is necessary to fill the gap and move CBM from coal fields to local and more distant end-use markets which include rural and commercial power generation and transportation fuels.
  • Provision of technical training, promotion of research and development, and transfer of CBM development technologies that can further the growth of the sector.

One big cost element faced towards CBM resource development is that of extraction and treatment of water (water extraction being the most conventional way of exploiting this unconventional source of energy till now). An alternate to CBM asset dewatering is Carbon Dioxide sequestration such that large amount of CO2 is pushed into the reserve. Since, CO2 has higher affinity for coal, methane is desorbed and released for utilization. While CBM production by CO2 sequestration has kicked-off in USA, Australia, and China; this technology is yet to be developed and introduced in India.

Despite all the technological and regulatory challenges faced for CBM project development in India, CBM poses a great potential due to increasing demand for energy and hence we can expect a brighter road ahead in this segment of energy.

Author: Nidhi Bansal - Nidhi is a Chemical Engineer from IIT Delhi and INSEAD MBA. She has extensive experience in energy sector with organizations such as Shell, Technip, and British Gas.

About nbansal
Chemical Engineer IIT Delhi, INSEAD MBA, Octavesim
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