Coal bed methane & other myths

The ministry informed the Economic Editors conference an annual event held shortly after the budget, where senior journalists covering the economic ministries are briefed by various ministers six months ago, for instance, that the country had huge reserves of coal bed methane in Bihar and other regions. The reserves, in fact, were believed to be several times those of natural gas in the country.

There was also evidence, ministry officials said, that there were large gas reserves off the Andamans, though not enough work had been done to estimate the size of the field. Just the right touch — announce the size of one reserve, and say you haven’t done enough work to even make a guess about the other one. Obviously, then, your estimate about the size of the larger reserve is taken seriously.

To top it all, a couple of weeks ago, minister of state for petroleum T.R. Baalu made an announcement that the reserves in the Andamans were roughly 1,700 billion cubic feet, making it the country’s second-largest gas reserve after the South Bassein fields. Those unitiated in the ways of the ministry of petroleum probably felt that, in the meanwhile, the ministry had managed to conduct more seismic surveys to determine the reserves. Nothing could be further from the truth. The ministry is still trying to get the National Institute of Oceanography of Goa to position a ship in the region to do some more seismics — experts, in fact, believe, that even this will not give accurate results and positive results can be obtained only after a few exploratory wells have been dug.

That means, at the minimum, a couple of years before firm estimates can be made about the amount of gas available — actually getting it out could take another few years. According to experts, the confidence being displayed about the coal bed methane (CBM) is even more misplaced. CBM has been tried in several countries such as the UK, China, and Russia, but has been successful only in the US. And this was largely due to the massive tax benefits given. For a period of twelve years, the US gave a tax credit of roughly 50 per cent on CBM exploration — at a time when the average well-head price of natural gas was $1.86 per million BTU, the tax credit given on coal bed methane was over 90 cents.

Immediately after the concessions expired, the number of fresh wells drilled fell dramatically, though production continued to increase as a large number of wells dug earlier began to reach their peak. What makes the ministry’s optimism about CBM even more surprising is that they, as well as officials in various bodies such as the Directorate General of Hydrocarbons, are well aware of how long it will take to develop CBM to commerically viable levels.

The sub-group report on exploration and prodcution for the 9th plan, in fact, states very explicity that CBM exploitation is a cost-intensive process and that substantial concessions like those of the US are required to make it commericially viable. According to the global investment bankers Kleinwort Benson, for example, CBM typically requires upto three times the number of wells compared to production from natural gas reserves.

Ironically, the ministry’s attempts to brush away the country’s dismal oil picture will lead to more problems for it. For while it may suit the likes of T.R. Baalu by allowing them to make pompous promises, a few years down the road, the ministry will have little to show for all its dreams. It is likely though, that by then, we’ll hear a lot more talk of the massive amount of oil reserves that exist in the country’s deep waters!