Proactive Govt. policies to become the catalyst for the birth of a new era in CBM, shale gas sectors - Essar | Creating Value Proactive Govt. policies to become the catalyst for the birth of a new era in CBM, shale gas sectors - Essar

Proactive Govt. policies to become the catalyst for the birth of a new era in CBM, shale gas sectors

Energy Ensemble

Apr 10th, 2018

A cleaner fossil fuel has been the need of the hour for some time now but India has suffered due to lack of technology advancement. After all, unconventional natural gas resources are not easily extractable. This is where Essar Oil Gas Exploration and Production Ltd. with its tech prowess and strength is hoping to make a big difference. With the largest Coal Bed Methane (CBM) acreage of an estimated 10 trillion cubic feet at its disposal, the company is taking giant strides to help India bridge the demand-supply gap and attain higher environmental sustainability, says Vilas Tawde, CEO, Essar Oil Gas Exploration and Production Ltd to Energy Ensemble editor Kumar Shankar Roy in an exclusive interview. Having invested Rs 5000 crore in both domestic and overseas assets, EOGPL is keen on a Hydrocarbon Exploration and Exploitation Policy and is looking forward to collaborating with other potential investors in this space for developing unconventional assets in a cost-effective and fast-track manner, particularly in the eastern part of the country.

Tell us about the purpose, mission, and objective of Essar Oil & Gas Exploration and Production Ltd.

It is a fact that fossil fuels are not going to last forever. Therefore, the need for an alternative, a cleaner fossil fuel, has been on the anvil for quite some time. However, lack of technology advancements pulled India behind when compared to developed economies, like US and Japan, where maximum energy demand is met with natural gas. In view of India’s continued commitment to contain GHG emissions and reaffirm our stand on climate action, increase of natural gas in the country’s energy mix is crucial.

Given that India is a major importer of hydrocarbons as the energy source, our mission is to bridge the demand-supply gap, while attaining higher environmental sustainability. We strongly believe that unconventional Natural Gas resources like Coal Bed Methane (CBM), Shale Gas and Gas Hydrates will be a key contributor to augmenting the share of natural gas in India’s energy basket. This has therefore been our mission at Essar Oil & Gas Exploration and Production Ltd (EOGEPL).

We at EOGEPL aim to leverage our extensive Unconventional experience and expertise to develop unconventional gas resources in India. This would be the best possible alternative to India’s depleting conventional resources and help reduce our dependence on LNG imports. EOGEPL has established itself as a leader in CBM gas by successfully developing the Raniganj East CBM asset, which is now a showcase for the Indian CBM industry. We have the largest CBM acreage in India, with five blocks and an estimated 10 trillion cubic feet (TCF) of CBM spread across 2,700 sq km in the states of West Bengal, Jharkhand, Chhattisgarh, Madhya Pradesh and Odisha.

Tell us something about EOGEPL’s unconventional pursuit and its beneficiaries

Exploring and exploiting the CBM potential dates back to 1992 when Essar, in what was a pioneering effort, drilled and successfully test produced CBM gas from three wells in the Mehsana area of the Northern Cambay Basin (Gujarat). That was the beginning of our pursuit for Unconventional resources.

Based on the above results, the Government of India focused on CBM resources and allotted CBM blocks to several operators like Essar, ONGC, Reliance, GEECL, to name a few. As of now the country has a CBM production in the range of 2.5 mmscmd out of which the largest share is of Essar (in the range of 1.00 mmscmd from our Raniganj block). Thus in the Durgapur region, about 1.5 mmscmd of CBM gas is supplied to various industries—primarily the steel industry that was using other alternate fuels like coke oven gas, etc. This has had an unqualifiedly positive environmental impact in Durgapur. Likewise, we are certain that our four additional CBM blocks in the other states will also contribute to clean energy requirement in due course.

We are also looking expand the CBM activity in these four CBM blocks. An independent expert study of the shale potential that we conducted for EOGEPL’s CBM blocks has pointed to encouraging shale prospects across these acreages. The Raniganj block, for instance, has the potential of 7.7. TCF of shale gas, of which 1.5 TCF is recoverable.

How much of investment has gone into creating Essar Oil & Gas Exploration and Production assets and what is your investment plan for the next 3-5 years?

So far, EOGPL has invested Rs 5,000 crore in its Unconventional and Conventional assets, which are located both in India and overseas. Out of this, the major chunk has been our Raniganj asset, where we have invested Rs 4,000 crore on exploration and development. We have drilled 348 wells and set-up a state-of- art gas processing and evacuation network comprising five Gas Gathering Stations, Master Compressor Station and more than 300 km of infield and supply pipelines. We plan to drill another 152 wells over the next 2-3 years, which would require an additional Rs 900 crore. We plan to ramp up the production to a saleable volume of 2.3 mmscmd in due course.

What do you think about the potential of the area that Essar Oil & Gas Exploration and Production operates in?

EOGEPL’s CBM assets include five blocks that hold an estimated 10 TCF of gas spread across 2,700 sq. km in West Bengal, Jharkhand, Chhattisgarh, Madhya Pradesh and Odisha. The Raniganj block in West Bengal is producing 1.0 mmscmd of CBM. In addition, Raniganj also has an upside potential of 1.5 TCF of shale gas.

The Raniganj CBM production has established that Unconventional resources can be a viable alternative to LNG imports. The CBM Gas price discovery process in Raniganj has also led to a highly remunerative price of US$ 8.08 per mmbtu of CBM gas (as of March 2018). This makes for a very favourable ground for expansion in the Unconventional sector.

We are now keen to develop the other CBM blocks with an additional 5.2 TCF of resources estimated for in the Rajmahal and Sohagpur blocks. So for EOGEPL, these are the other growth opportunities in CBM sector.

What are the policy initiatives that are required from the Indian government side to enable your mission?

Developing CBM blocks asks for a significant amount of investment and the return on investment is achieved only over the longer term. Operators are required to work in tandem with government policies, which are certainly proactive. On the policy front, the industry needed marketing freedom. The Government has announced the Early Monetisation Policy for CBM blocks whereby CBM contractors will get the desired marketing and pricing freedom to set an arm’s length price in the domestic market.

The Open Acreage Licensing Policy (OALP) and Discovered Small Field Round (DSF) are also notable initiatives to boost the upstream industry. Further, developing distribution infrastructure will eventually help the players to reach end users quickly without flaring loss. The key developments taking place under the Urja Ganga Gas Grid across states like West Bengal, Odisha, Bihar, Uttar Pradesh, Chhattisgarh and Jharkhand are likely to change the entire picture. Soon, we will find CBM gas being used in multiple applications. The Urja Ganga pipeline work that is in progress envisages 2,655 km coverage with an estimated investment of Rs 20,000 crore. This will fuel Industrial growth in Eastern India.

There is synergy between CBM and Shale Gas in terms of transitional technology, usage of water, evacuation options, etc. Hence, a policy providing shale exploration rights to CBM operators is crucial, particularly in producing CBM blocks like Raniganj. According to officials of the Directorate General of Hydrocarbons (DGH), a policy for shale gas exploration in CBM blocks will be finalised by the end of this fiscal. A simultaneous Hydrocarbon Exploration and Exploitation Policy has been a long-standing demand.

Do you plan to tap the global market and in which way?

According to industry estimates, the global CBM market is expected to reach $17,956 million by 2023, registering a CAGR of 9% between 2017 and 2023. Further, we are of the view that demand for fossil fuels will continue to witness an uptick until 2035 after which renewables will take the charge. Until that happens, we have lots of ground to cover as far as natural sources of energy are concerned. This offers a great opportunity to grow in the natural gas segment globally. We are expecting that with positive fiscal terms for Unconventional exploration, the Far East countries will emerge as an interesting market where we can replicate the success we have had in India.

In India, Unconventional gas has the potential to account for 10%-12% of total natural gas production, primarily from CBM. This will be enhanced further when Unconventional plays, like shale, also show progress. In fact, it will be a game changer for the eastern part of the country.

Tell us about the employees at Essar Oil & Gas Exploration and Production and what kind of cutting edge work have they done so far.

Our workforce at our CBM blocks are our core strength across functions like well planning, drilling, marketing, distribution and gas price discovery. Now that we have produced from the field over the last five years, we have gained good experience in reservoir management as well. It is a complex structure for sure. And, we are blessed with the most efficient and dedicated workforce which is orientated to adopt path-breaking technologies and optimising production costs.

The Raniganj model has a unique assembly line approach—from drilling to final gas production and customer supply.

Today, we have reduced our costs substantially, making us more competitive with successful CBM plays in other parts of the globe.

Other key enablers have been a maximisation of local hands, prompt implementation of mid-course corrections and regular training and technology made available to the technical teams.

We currently employ more than 350 employees at the Raniganj block and provide indirect employment to over 1,200. Foreseeing the high potential, we aim to provide direct employment to over 1,200 personnel and indirect employment to nearly 7,000 individuals adjacent to our blocks.

What are the key developments that have happened in the past 5 years in the energy space that hold special importance?

There was scant awareness until recently about the CBM and shale gas potential. Further, absence of adequate technology infrastructure was considered a major roadblock. However, India has evolved over the years and has proven its prowess in the natural gas sector. We firmly believe that there is a lot to do and achieve in the CBM and shale gas sectors. While we are facing a decline in natural gas production, proactive government policies should become the catalyst for the birth of a new era in these sectors.

When did you formally take over the as the CEO of this company? What are your goals and expectations from this role?

Since I took over as CEO on 14 August 2017, we at EOGEPL have been able to cross some long-elusive thresholds, like surpassing the 1.0 mmscmd gas production from our Raniganj CBM asset. Alongside, we also crossed the production benchmark of 150 barrels a day of crude from our Mehsana block, which is a Conventional asset.

But these are just stepping stones for us—only perseverance paves the way to success. We are fortunate that the business environment has been in our favour, with the much-awaited CBM price discovery policy coinciding with our ramp-up plan at Raniganj. Not only that, we have a 15-year gas supply contract with GAIL that promises us a pricing of $8.08/mmbtu from our entire Raniganj output, which is calculated on the basis of the last three months’ average price of Brent crude. With the rise in crude prices in the foreseeable future, even better days are envisaged.

Going forward, some areas that we need to focus on include:
– Further strengthen our leadership in the Unconventional sector and venture into shale
– Improve the company’s financial bottom-line with a targeted turnover of Rs 600 crore in FY19 and Rs 1200 crore by FY21.
– Portfolio balancing, i.e. moving from a concentrated investment in Raniganj to making investments in our other CBM blocks, as also in striking the first oil/gas from our Vietnam and Nigeria assets
– Keeping abreast of technological advancement and innovations, which are the pillars of success in a knowledge-based industry

 

Source: Energy Ensemble