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In a move to boost gas infrastructure activities in India, the Ministry of Petroleum & Natural Gas has unveiled the National Dossiers and Draft City Gas Distribution (CGD) Policy for states.

  • The Prime Minister has laid the foundation for the ninth bidding for city gas distribution (CGD) projects, under the Petroleum and Natural Gas Regulatory Board (PNGRB), covering 129 districts and 65 geographical areas (GAs). 

What is natural gas?

  • Natural gas is a fossil fuel source consisting primarily of methane
  • It is often found associated with other fossil fuels, in coal beds, as methane clathrates, and is naturally created in a biological process by “methanogenic organisms” in environments such as bogs, land-fills, and marshes.
  • Natural gas is not used in its pure form; it is processed and converted into cleaner fuel for consumption. 
  • Many by-products are extracted while processing natural gas like propane, ethane, butane, carbon dioxide, nitrogen, etc, which can be further used.

Types of Natural Gas

Natural gas that is economical to extract and easily accessible is considered “conventional.” Conventional gas is trapped in permeable material beneath the impermeable rock. Natural gas found in other geological settings is not always so easy or practical to extract. This gas is called “unconventional.” 

  • Biogas is a type of gas that is produced when organic matter decomposes without oxygen being present. This process is called anaerobic decomposition, and it takes place in landfills or where organic material such as animal waste, sewage, or industrial byproducts are decomposing. 
    • Biogas contains less methane than natural gas but can be refined and used as an energy source.
  • Deep Natural Gas - While most conventional gas can be found just a few thousand meters deep, deep natural gas is located in deposits at least 4,500 meters (15,000 feet) below the surface of the Earth. Drilling for deep natural gas is not always economically practical, although techniques to extract it have been developed and improved.
  • Shale Gas - Shale is a fine-grained, sedimentary rock that does not disintegrate in water. Thick sheets of this impermeable rock can “sandwich” a layer of natural gas between them.
    • Shale gas is considered an unconventional source because of the difficult processes necessary to access it: hydraulic fracturing (also known as fracking) and horizontal drilling. 
    • Fracking is a procedure that splits open rock with a high-pressure stream of water, and then “props” it open with tiny grains of sand, glass, or silica. This allows gas to flow more freely out of the well. 
    • Horizontal drilling is a process of drilling straight down into the ground, then drilling sideways, or parallel, to the Earth’s surface.
  • Tight Gas - Tight gas is an unconventional natural gas trapped underground in an impermeable rock formation that makes it extremely difficult to extract. 
    • Extracting gas from “tight” rock formations usually requires expensive and difficult methods, such as fracking and acidizing.
  • Coalbed Methane - As its name implies, coalbed methane is commonly found along seams of coal that run underground. Historically, when coal was mined, the natural gas was intentionally vented out of the mine and into the atmosphere as a waste product. Today, coalbed methane is collected and is a popular energy source.
  • Gas in Geopressurized Zones - Another source of unconventional natural gas is pressurized zones. Geopressurized zones form 3,000-7,600 meters (10,000-25,000 feet) below the Earth’s surface.
  • Methane Hydrates - Methane hydrates were discovered only recently in ocean sediments and permafrost areas of the Arctic. Methane hydrates form at low temperatures (around 0°C, or 32°F) and under high pressure. When environmental conditions change, methane hydrates are released into the atmosphere.

Background

  • The economic development of a nation is hugely determined by its energy needs and is directly proportional to its share in global energy consumption. 
  • In the present world energy scenario, the market share of natural gas is quite less as compared to coal and oil in the energy mix.
  • India is the third-largest energy consumer in the world after China and the United States. 
  • India’s energy mix is dominated by coal and oil, which accounted for 57% and 30% respectively of total primary energy supply (TPES) in 2016. The share of natural gas was only 6.2%. Indian energy imports comprise 84% crude and 45% gas.
    • Gujarat has relatively better access to natural gas, is having a share of 25 percent in its energy basket.
  • Changing outlook: The Government of India (GoI) wants to make India a gas-based economy ‘by boosting domestic production and buying cheap LNG’. India has set a target to raise the share of gas in its primary energy mix to 15% by 2022 while the world average is 24%.
  • Gas consumption in India is driven by five sectors: fertilizer (34% ), electric power (23%), refining (11%), city gas distribution, including transport (11%), and petrochemical (8%) industries. 
  • Gas consumption growth was running at 11% in 2010 but growth slid to just 2.5% in the financial year 2018/19.
  • Currently, there is 16,226 km of gas pipelines having a capacity of 368.5 million standard cubic meters per day (mmscmd). Another 11,216 km of pipeline is under construction (one mmscmd is equivalent to 220 MW of electric power).
  • Gas Authority of India Limited (GAIL) currently operates a 12,160 km pipeline network and markets two-thirds of all-natural gas sold in the country. 

Why Natural Gas?

  • Energy Efficiency: Natural gas produces more energy than any of the fossil fuels. Does it have a 92? ficiency rate of transportation from source to consumer, compared to electricity generated by coal, which operates at only a 32? ficiency rates.
  • Reduced Health Risks- Indoor & outdoor pollution: Natural gas is a superior fuel as compared with coal and other liquid fuels being an environment-friendly, safer and cheaper fuel. As per the WHO database released in May 2018, India has 14 out of 15 world’s most polluted cities in terms of PM 2.5 concentration. 
  • Economic Cost Optimisation: Natural Gas (as CNG) is cheaper by 60% as compared with petrol and 45 % w.r.t. Diesel. There is no need to store cylinders in the kitchen and thus save space. 
  • Meeting Global Commitments: India made a commitment to COP21 Paris Convention in December 2015 that by 2030, it would reduce carbon emission by 33%-35% of 2005 levels.
  • Climate Sustainability: Natural gas, as domestic kitchen fuel, as fuel for the transport sector as well as a fuel for fertilizer industries and commercial units, can play a significant role in reducing carbon emissions.
  • Relatively Convenient:  Natural Gas is supplied through pipelines just like one gets water from the tap. There is no need to store cylinders in the kitchen and thus save space.
  • Wide-Ranging Applications: Natural gas is a clean fuel and can be used for power generation, city gas distribution (CGD) to support domestic activities, as an alternative fuel for the transportation sector, fertilizer and petrochemical industries.

Gas supply sources in India:

  • Domestic Gas Sources: The domestic gas in the country is being supplied from the oil & gas fields located in western and southeastern areas viz. Hazira basin, Mumbai offshore & KG basin as well as the North East Region (Assam & Tripura).
  • Import of Liquefied Natural Gas (LNG): In order to meet the gas demand, Liquefied Natural Gas (LNG) is imported through the Open General License (OGL) in the country.
  • Also, the country has four LNG import terminalsDahej and Hazira in Gujarat, Dhabol in Maharashtra and Kochi in Kerala — having a capacity of 26.7 million tonnes per annum (mmtpa). The liquefied natural gas terminal is a structure for liquefied natural gas to store.
  • Two more LNG terminals — one in Ennore, Tamil Nadu and the other one in Dhamra in Odisha — are under construction.

A Brief Of Major Gas Pipeline Projects 

  • Jagdishpur – Haldia/Bokaro – Dhamra Pipeline Project (JHBDPL) & Barauni- Guwahati Pipeline project (BGPL): Timely development of this project is supporting the revival of 3 Fertilizer Plants namely located at Gorakhpur, Barauni and Sindri, and new Fertilizer Unit at Durgapur. 
  • North East Region (NER) Gas Grid:  A joint venture of five (05) oil and gas CPSEs i.e. GAIL, IOCL, OIL, ONGC, and NRL named as “Indradhanush Gas Grid Ltd” (IGGL) has been entrusted to develop trunk pipeline connectivity in all North Eastern States i.e. Assam, Sikkim, Mizoram, Manipur, Arunachal Pradesh, Tripura, Nagaland and Meghalaya in a phased manner. 
  • Kochi-Koottanad- Bangalore-Mangalore (Ph-II) Pipeline Project (KKBMPL) 
  • Ennore-Thiruvallur-Bangalore-Nagapattinum– Madurai – Tuticorin Natural gas pipeline (ETBNMTPL): This pipeline will connect new Ennore LNG Terminal with various demand centers in the region.

Govt. initiatives: 

  • Draft city gas distribution policy: The Ministry of petroleum and natural gas released a draft city gas distribution policy, which could be adopted by the states to facilitate speedy implementation of city gas distribution (CGD) networks and value-added services
    • The draft policy suggests setting up of a committee, under the chairmanship of the chief secretary, which will help formulate policies and streamline the processes for various permissions to develop the CGD infrastructure.
    • It will cause setting up a suitable single-window clearance mechanism for the same in the state for the promotion development of CGD infrastructure and ease of doing business. 
    • The committee will also make a suitable mechanism for permissions from state divisions of the Petroleum and Explosives Safety Organisation, NHAI, railways, etc..
    • CNG/LNG as the preferred fuel in public transportation: State transport corporations will accord priority to CNG/LNG buses, while purchasing new buses and retrofitting in present alternate fuel fleet (which is viable), in order to actively promote the usage of CNG/LNG in the public transport.
    • For affordable and reasonable rates, VAT rates may be reviewed and rationalized with a ceiling of 5%
    • To promote the safe usage of CNG/LNG in the transport sector, state policy thrust may be given by rationalizing road tax for factory-fitted CNG/LNG vehicles and making them at par with electric vehicles.
  • $60bn investment plan: An estimated investment of 60 billion US dollars is underway in building a gas pipeline and terminal infrastructure that are nearing or in advanced stages of completion.
  • National Gas Grid: Its objectives are:
    • To remove regional imbalance 
    • To connect gas sources to major demand centers 
    • Development of City Gas Distribution Networks in various cities for the supply of CNG and PNG.
  • GAIL is working on Urja Ganga Project: It is Jagdishpur – Haldia & Bokaro – Dhamra Natural Gas Pipeline Project.
    • It will transport gas to Bihar, West Bengal, Odisha, and Jharkhand as well as Kochi-Kootanad-Bengaluru-Mangaluru line and the Indradhanush North East Gas Grid under the National Gas Grid. 
    • Further, Pipeline from Barauni to Guwahati is also being implemented as an integral part JHBDPL project to connect North East Region (NER) with the National Gas Grid. 

These pipelines have been authorized by the Petroleum and Natural Gas Regulatory Board (PNGRB).

About the Petroleum and Natural Gas Regulatory Board Bill, 2005 

  • It establishes the Petroleum and Natural Gas Regulatory Board (PNGRB) to regulate downstream activities in the petroleum and natural gas sector.
  • The PNGRB will have the same powers as a civil court to settle disputes. 
  • The Appellate Tribunal under the Electricity Act will serve as the Appellate Tribunal for this Act.
  • Bio-CNG policy: It offers Rs 46 per kg of bio-CNG made from paddy stubble and a subsidy of Rs 7 crore if a project uses 70 tonnes per day of stubble. Bio-CNG is a purified form of biogas with over 95% pure methane. It is similar to natural gas in its composition (97% methane) and energy potential.
    • , Bio-CNG is a renewable form of energy produced from agricultural and food waste.
  • City Gas Distribution (CGD) network: PNGRB grants the authorization to the entities for developing a City Gas Distribution (CGD) network (including PNG network) in a specified Geographical Area (GA) of the country. 
    • CGD sector has four distinct segments – Compressed Natural Gas (CNG) predominantly used as auto-fuel, and Piped Natural Gas (PNG) used in domestic, commercial and industrial segments.
    • The revised regulatory framework helped in expanding the coverage of CGD to 228 GAs spread over 406 districts with the potential to cover about 53% of the country’s area and 70% of the country's population. It will make available environment-friendly fuel i.e. CNG/PNG to the public at large.
    • It has been decided to meet 100% gas requirement of CNG (T) and PNG(D) segments through the supply of domestic gas which is cheaper than imported gas.
  • SATAT initiative: It aims to set up Compressed Bio-Gas (CBG) production plants and make available CBG in the market for use in automotive fuels. It will promote better use of agricultural residue, cattle dung, and municipal solid waste, as well as to provide an additional revenue source to farmers.
  • GAIL has enabled an online portal through which third parties can easily book Common Carrier capacity for natural gas transmission services under GAIL’s pipelines.
  • Open Acreage Licensing Policy (OALP): The Central government approved a far-reaching policy that allows private and government players to explore and exploit unconventional hydrocarbons (including shale gas) in contract areas that were primarily allocated for extracting conventional hydrocarbons.
    • Irrespective of the basins, producers will get complete marketing and pricing freedom for oil and gas in future bid rounds.
    • Oil and gas acreage or blocks in all future bid rounds will be awarded primarily on the basis of exploration work commitment.
    • While companies will have to pay a share of the revenue from oil and gas produced in Category-I sedimentary basins such as Krishna Godavari, Mumbai Offshore, Rajasthan or Assam where commercial production has already been established, they will be charged only prevalent royalty rates on oil and natural gas in the less explored Category-II and III basins.
  • Discovered Small Fields Policy: It has the motive for extracting the Oil, Natural gas from the un-monetized small oil/gas discoveries that are available in the country. It provides an easy investment option for new and existing players with minimal risk.
  • Fertilizer Gas Pooling Scheme: Reviving fertilizer plants: It aims to supply gas at a uniform delivered price to all fertilizer plants on the gas grid for the production of urea through a pooling mechanism.
    • It is expected that the cost of production of urea at a pooled price would be less than the price of imported urea, which will encourage the existing urea units to produce beyond their reassessed capacity. 
    • This reform measure is also expected to help in reviving the Gorakhpur, Barauni and Sindri urea plants. 
  • Exemption from Environmental impact assessment: The Environment Ministry exempted oil and gas firms, looking to conduct exploratory drilling, from seeking environmental clearance. 
  • National Gas Hydrates Programme (NGHP) - Government of India formulated NGHP in 2000. The program is aimed at facilitating research, sharing knowledge and scientific data besides keeping the Indian scientists abreast of international developments. 
    • NGHP Expedition-01 was launched in 2006 to gather information on the presence of Gas Hydrates in Indian offshore areas of western, eastern and Andaman Sea.
  • Policy Guidelines for Exploration and Exploitation - The government in 2018 approved the policy to permit exploration and exploitation of unconventional hydrocarbons such as Shale oil/gas, Coal Bed Methane (CBM), etc. 
    • It will be carried out under the existing Production Sharing Contracts (PSCs), CBM contracts and Nomination fields to encourage the existing Contractors in the licensed/leased area to unlock the potential of unconventional hydrocarbons in the existing acreages.
  • Proactive Global Engagements - India has already begun to source LNG from Russia as per a 20-year agreement under which India will import 2.5 million tonnes of LNG from Russia. India has also demonstrated its intention to pursue investments in Russia’s Far East region.
    • Also, India and the US have institutionalized the dialogue process on energy issues, beginning in 2005 when they initiated the US-India Energy Dialogue.
    • The Centre is working out plans to expand gas networks to Myanmar through Bangladesh.

About India’s hydrocarbon policy

  • India began bidding out oil and gas exploration acreage in 1999 under New Exploration Licensing Policy (NELP) that awarded blocks to companies offering maximum work commitment. But companies were obliged to share with the government profits made after recovery of cost.
  • Two years back, the government brought in Hydrocarbon Exploration and Licensing Policy (HELP) that provided for blocks being awarded to companies offering maximum revenue at different levels of prices and production.

Challenges

  • Energy Trilemma: India is ranked 109th on wec’s energy trilemma index. The index assesses countries on their ability to provide sustainable energy through 3 dimensions: energy security, energy equity (accessibility and affordability), environmental sustainability.
    • Though India scores high on energy security, the index has dipped almost every year since 2000. Reasons: Reduction in energy storage, and diversity of primary energy supply as well as an increase in import dependency.
  • Global disruptions: Today, the global oil market remains vulnerable to a wide range of risk factors, including natural disasters, major technical accidents, and geopolitical tensions.
  • Low investments: There has been a lukewarm response from the private sector to laying of gas pipelines in India, as there is no certainty on availability and the domestic market is not conducive to absorbing expensive imported gas.
  • Cooperative Federalism issues: Petroleum (including gas) is in the union list. Pipeline laying has faced land acquisition challenges due to local farmers’ protest and unviable routes proposed by state governments, causing major project delays.
    • Recently, the government has amended the Petroleum and Natural Gas Rules 1959 to include shale in the definition of petroleum, a change that would allow private companies to explore and produce the resource in the blocks they already operate.
  • Ensuring the ready availability of natural gas: During 2017-18, the import dependency was 45.6 percent. With domestic production of gas stagnating and consumption growing at a CAGR of 4.5 percent, there’s still a long way to go for transforming the economy to a gas-based one.
  • Production lagging: Domestic production, especially from the KG gas-fields, has not been encouraging and that is why the country is still a large importer of gas, especially from Qatar.
  • Imports insufficient: At present, more than half of the total installed capacity of natural gas-based power of 24,842 MW remains idle for want of domestic gas. Energy consumption in India is growing at 4.2 percent per annum, which is the fastest among major economies of the world.
  • City gas distribution (CGD) projects are not able to keep up with the timelines set by the Petroleum and Natural Gas Regulatory Board (PNGRB) due to lack of major anchor customers in non-metros, lack of policy and judicial support and local or state level clearances and administrative challenges.
  • Unused infrastructure: GAIL is getting hit over the scarcity of domestic natural gas leading to underutilization of its 11,500 km of the pipeline network. Its network is operating at an average of 47?pacity.
  • Within the power sector, natural gas has received little traction primarily because the per-unit cost of electricity generated by a gas-fired power plant in India is higher than that from fossil fuels such as coal
  • National security vs. energy security: The Union Home Ministry has advised the Petroleum Ministry against considering Chinese firms for the award of exploration rights in oil and gas blocks due to “security reasons”.
  • Inadequate LNG terminals in East: Most of India’s liquefied natural gas (LNG) import terminals are in the west, making it difficult for the industry in the east and elsewhere to secure regular gas supplies.
  • Delay in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline: It is a 1,814km trans-country natural gas pipeline running across four countries. But Islamabad has failed to implement execute its share, and negotiations are underway to convince Pakistan to get the job done.
  • Environmental concerns: Offshore drilling operations can possibly affect fish, lead to a build-up of heavy water contaminants, disorient whales and sea life that rely on sonar for navigation and exacerbate the risk of oil spills.

Way forward

  • Import diversification: The current gas market is dominated by countries such as the United States, Qatar, Russia, and Australia. Recently, new gas production centers have begun to emerge in Africa, Middle-East, Southeast Asia, and the Gulf. 
    • India must make use of these multiple gas production centers and ensure a balanced geographical portfolio of imports to ensure a robust and secure natural gas strategy.
  • Following up on Integrated Energy Policy: It recommends that the various ministries currently engaged with energy and the environment should be collapsed into one omnibus Ministry of Energy and Environment. 
    • The broad objectives of the policy are enhanced energy independence, increased access at affordable prices, greater sustainability, and higher economic growth.
  • Domestic production of natural gas through technological advancements: India will have to embark on a balanced approach to develop indigenous gas resources, maybe through technology-intensive deeper drilling techniques and large scale import tie-ups. 
  • Viability gap funding: In order to remove shortcomings and to bring in private sector efficiencies, the government should promote envisaging projects through viability gap funding
    • In the VGF model, a one-time grant is provided to projects that are economically justified but fall short of financial viability.
    • The bidder quoting the least transporting tariff and seeking minimum viability gas funding would win the project. 
  • Pricing: This is the stage when natural gas must be brought under GST (Goods and Services Tax) and more importantly, the gas should be treated at par with coal with 5 percent GST.
  • FICCI also proposed a customs duty waiver on LNG (Liquefied Natural Gas) and mandating the use of gas in industries instead of fuel oil, furnace oil, and petcoke to address environmental issues.
  • A sector-specific EIA manual on exploration and production of unconventional hydrocarbon resources may be a good idea.

Security measures: Instead of trying to keep out companies from one country or the other, the government would do well to create a reporting and monitoring system that will enable security agencies to keep an eye on the activities of these companies.

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