All Gas And No Pipeline

IF a survey is conducted to ascertain which public sector unit burns up the most money, the Oil and Natural Gas Commission (ONGC) will surely top the list. According to estimates, ONGC is flaring over five million cubic metres of gas every day in each of its exploration sites. This amounts to an annual loss of Rs 750 crore. There are a host of reasons why the gas has to be burnt rather than used, but little imagination seems forthcoming in tackling the issue and containing the loss.

The first of ONGC's problems relates to the fact that it cannot market the gas from its oil wells. While ONGC drills and explores the gas, the task of marketing it lies with another public sector company, the Gas Authority of India (GAIL). Often the logistics and needs of one corporation are at variance with those of the other. Second, the Government of India's grand plan of establishing a southern gas grid to link up Bombay High with other major fields in the south, the Krishna-Godavari (KG) basin and the Cauvery basin, remains a pipe-dream. Third, the cost of importing gas is seen to be more economical in the short-term than creating a huge infrastructure.

The issue is bound to take political overtones of federal polity versus the centralised functioning of the PSUs, with the southern states deciding to oppose the flaring of gas. Tamil Nadu was the first to raise the issue. Informally, it asked ONGC to put pressure on Hardy Exploration, a multinational consortium, and its partners to stop flaring gas from the PY-3 offshore fields located in the Cauvery basin. At this site alone, about 12 cubic metres of gas, worth Rs 3 crore, is flared daily. In the post-liberalisation set-up, most companies to which ONGC has given rights for exploration are interested only in the production of oil and not in harnessing the gas.

The gas comes out along with the oil and the only way to stop producing gas is to stop producing oil. Most of the fields, according to the companies involved in the exploration, are too small to make huge investments in tapping the gas. Says Les Blair of Hardy Exploration: "By the time one gets clearances and puts up a pipeline, there may not be much gas to be produced."

 Given that the entire exercise is fragmented, conserving the fossil fuel is extremely difficult and no single agency is willing to take up the responsibility of harnessing the most scarce fuel. Karnataka and Kerala appear to have given up on the idea of the southern gas grid. According to Amitabh Kant, managing director of the Kerala State Industrial Development Corporation, the nodal agency for the southern gas grid feasibility study, the critical issue is that the LNG terminal must have a minimum size of 2,000 MW. Most states do not have the ability to pay for 2,000 MW of power on power projects financed by non-resource financing.

Says Kant: "The state electricity boards would have to be restricted and made commercially viable before either the southern gas grid or the LNG terminals can take off." Despite the logistical hurdles, sources in ONGC contend that bureaucrats in the petroleum ministry are the major stumbling block. In October 1984, ONGC's K.D. Malaviya Institute of Petroleum Exploration had prepared a report on the national gas grid, discussing the natural gas availability by AD 2005 and its distribution through a pipeline network to all parts of India. But petroleum ministry mandarins did not take note of the possibilities of tapping the gas.

Interestingly, there is demand for gas and industries move in wherever there is an assured supply of gas. For instance, the Delta Paper Mills in Andhra Pradesh was the first consumer of the gas produced from the KG basin. The bulk of the demand for gas in south India is in the power sector followed by the fertiliser industry. In fact, from 1989 onwards, the Tamil Nadu government has been trying to create an industrial estate for gas-based industries at Bhuvanagiri, which is close to the Cauvery basin. However, ONGC officials say they cannot promise a steady supply of gas as it is impossible to quantify the exact reserve, the quality of the gas and the period of supply.

 Even though ONGC has become an independent corporation, its operations in the south are yet to break even. "We are getting a budgetary support of nearly Rs 200 crore to sustain the southern operations. Exploration is an expensive speculative activity and one may return with nothing," says a senior official. On the other hand, GAIL is also feeling the pinch of constant cost escalation and a maze of controls. "It is not easy when you have to serve five state governments and a central government. Every minor shift in the regions of priority hampers our planning," laments a senior GAIL official.

The Tamil Nadu government has already told ONGC to put oil production on hold if it has no plans for effectively using the gas. But private explorers feel such a move is inconsistent with their corporate goal. "We would like to produce as much oil as possible and then move on to other fields," says a private explorer. Says Blair: "We have looked into all options carefully and found no way to utilise the gas economically." Tamil Nadu has suggested putting up of mobile generators mounted on a barge to use the gas. ONGC is seriously pursuing this option. The state government says it would pick up the power for its electricity grid from these mini-generators. The state feels it can easily generate up to 200 MW from various offshore sites where the gas is being flared. Everyone agrees that this would be far cheaper than laying pipelines. But the all-important question is whether the petroleum ministry will give the go-ahead before the entire gas goes up in flames?