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ENERGY Background 8.1.1 The strategy for energy development forms an integral part of the overall economic development strategy. Efficient use of resources and long-term sustainability are the two important objectives of economic planning. The concept of sustainability takes account not only of natural resource and ecological balance but also of economic equity and self reliance. Any strategy for energy planning has, therefore, to be consistent with these broad objectives. 8.1.2 The short and medium term strategies of energy planning will, however, have to reckon with the available resources and the technological constraints that are prevalent in the system. As against this, there is the immediate compulsion to meet the priority needs of the economy. Parallel action is, therefore, necessary to ensure that the short-term concerns do not detract the economy away from the long-term goals referred to above. 8.1.3 The demand for energy in the economy arises mainly from the requirements of lighting and cooking in the household sector, irrigation and other agricultural operations, transport of passengers and freight, fuel and feedstock requirements in the industry and from the energy input needs of various other related activities of the services sector. A sizeable share of these requirements, especially those of the rural household sector, is met from non-commercial sources. The traditional sources of energy include fuelwood, crop residue and animal waste as well as human and draught animal power. The levels of efficiency at which useful energy is presently being realised from the resources are very low, varying between 10 to 15 per cent. However, non-commercial energy resources are steadily getting replaced by coal, oil and electricity which provide energy of a much higher quality and efficiency and involve at the same time high capital cost. Over the last several years, decentralised sources of energy based on non-conventional technologies have also appeared on the energy scene. Some of these new ources are likely to have considerable energy potential for the future. Changes in the Pattern of Energy Supplies 8.2.1 The total energy supplies, including both commercial and non-commercial forms, increased from 82.7 MTOE (million tonnes of oil equivalent) in 1950-51 to about 291 MTOE in 1990-91. In this, the share of non-commercial fuels has declined from 74 per cent in 1950-51 to 41 per cent in 1990-91. Fuelwood alone accounts for 65 per cent of the total non-commercial energy consumed in the country. 8.2.2 Among the indigenously produced primary commercial fuels, the relative share of oil and gas has increased from 1.2 per cent in 1950-51 to 33 per cent in 1990-91, whereas the share of coal has declined from about 98 per cent in 1950-51 to 61.8 per cent in 1990-91. Commercial Energy Production 8.3.1 Over the last four decades, the country has taken major strides in stepping up the production of commercial energy as shown in Table 1. 8.3.2 While coal continues to be the main source of primary commercial energy not only for direct energy use in industry but also for indirect energy use through power generation, concerted efforts made in exploration and development of hydrocarbons has led to a significant step up in the production of oil and natural gas. Between the two, natural gas is likely to play an increasingly more important role in providing energy in the coming years. Implementation of a large number of projects has also resulted in the increased availability of hydro-electricity. Finally, there have been additions to nuclear power generation capacity and nuclear power has contributed, though on a modest scale, to the overall electricity supplies in the country. Traditional Primary Energy Resources 8.4.1 Fuelwood is an important source of energy for the rural and, to some extent, urban households. The total forest area in the cguntry was earlier assessed at 75 million hectaces, a Table 2. Regionwise Hydro-Electric(HE) Potential
8.7.2 The present assessment of hydro power potential is provisional as further studies are in progress and the estimates are yet to be firmed up. Out of the total potential available, nearly 18 per cent has either been developed or is being developed. Apart from this, the Central Electricity Authority (CEA) had also undertaken extensive studies to identify the sites for the development of pumped storage schemes. Fifty six sites have been identified for this with a probable potential of 94,000 MW (Megawatt). There exists another nearly 5000 MW of potential for exploitation through mini/micro hydel schemes. A number of such schemes are under implementation. Oil and Natural Gas 8.8.1 India has about 0.04 per cent of the world's proven reserves of hydrocarbons. The prognosticated geological resources of hydrocarbons in the country are estimated at 21.31 billion tonnes of which 61 per cent are offshore and 39 per cent onland. Out of this, the geological reserves established are, however, 5.32 billion tonnes only. It is assumed that half of the prognosticated resource represents natural gas, of which only 12 per cent has been till now established. The possibility of discovering significant reserves of natural gas in the future will need to be kept in view for the purpose of planning. Nuclear Resources 8.9.1 The country has uranium resources adequate to meet the life-time requirement of the first stage of nuclear power development programme of 10,000 MW. Apart from this, there are also large deposits of thorium available in the country. The present estimates show that the known deposits may yield 363,000 tonnes of thorium oxide. Thorium resources, when used through breeder reactors may produce 900,000 Bkwh of electricity. Other Resources 8.10.1 There is also substantial potential in the form of solar and wind energy in India. While the availability of solar energy is abundant, subject to the techno-economic feasibility of converting it into useful energy, it is estimated that wind energy potential is of the order of 10,000 MW. There is also some scope for exploiting geothermal, ocean thermal and tidal energy at certain specifi locations. Extensive and intensive afforestation at the village and regional levels can meet the local biomass requirements such as fuel, fodder etc. Appropriate technologies are required to convert the biomass into energy in an efficient manner. Afforestation will also generate new employment opportunities apart from protecting the environment. Finally, there is considerable potential for conversion of both animal and human excreta into organic manure, extracting methane in the process, which can be used extensively for both cooking and lighting purposes. Pattern and Growth of Commercial Energy Consumption 8.11.1 Final commercial energy consumption increased from 19.76 MTOE in 1953-54 to 101.5 MTOE in 1990-91 at an implicit average annual growth rate of 4.52 per cent . During the last four decades, there have been changes in both the sectoral and the fuel patterns of consumption. Changes in the relative shares of the different forms of energy in final commercial energy consumption are indicated in Table 3. 8.11.2
It will be seen that the relative shares of oil and electricity in the
total final commercial energy consumption has increased steadily over
the years. Since these figures relate only to final energy consumption,
only the direct use of coal in industry, household sectors etc. has been
considered, excluding coal used in power generation. About 65 per cent
of the total quantity of coal consumed in the country is used as fuel
for thermal power generation. In terms of primary energy consumption,
the relative share of coal still continues to be significant. The use Table 3 Percentage share of Different Fuels in Commercial Energy Consumption +
* Provisional Table 4. Percentage share in Final Energy Consumption by different Sectors
of oil products and gas for power generation, non-energy uses and as feedstocks is similarly excluded from the final energy consumption shown in Table 3. 8.11.3 Table 4 shows the changes in the relative shares of the different sectors in final commercial energy consumption over these years. 8.11.4 The share of industry in commercial energy consumption has increased steeply over the years upto 1980-81 but has shown a declining trend thereafter. The reason for the decline in the share of the transport sector is mainly the replacement of coal in railways, by diesel and electricity which are more energy efficient than coal for transportation. Energy and Economy 8.12.1 Table 5 shows the average annual rate of growth in commercial energy consumption during the last four decades. 8.12.2
During 1953-54 to 1990-91, the average decennial rate of growth of commercial Table 5. Rate of growth in Commercial Energy Consumption
energy consumption ranged between 4.21 per cent and 5.47 per cent. An important point to note in this connection is that in view of the shortages and restrictions, the past trend of consumption of commercial energy does not really represent the growth of demand for such energy but merely reflects the growth of its actual availability. 8.12.3 The coefficients of elasticity of final consumption of the different forms of commercial energy with respect to GDP during the past four decades have been as shown in Table 6. 8.12.4 The rather steep decline in the observed overall point to point elasticity in the eighties is somewhat deceptive. This needs to be interpreted with due care. As the GDP growth rate tends to fluctuate unduly under the influence of monsoons, such elasticity estimates are affected by the fluctuation and the choice of the terminal year. However, significant lowering in the elasticity of energy use with respect to GDP between 1953-54 and 1990-91 could still be viewed as an evidence of changing technology of the economy and changing pattern of demand for the different forms of energy. 8.12.5
In the case of coal, the GDP elasticity (if consumption reflects only
the response in terms of reduced use of coal by sectors other than power.
The steel plants have used increas-
ing quantities of imported low ash coking coal. There has also been substitution of kerosene oil and LPG for soft coke in the household sector and of diesel for steam traction and electricity for diesel traction in the railways. 8.12.6 The development of commercial energy is highly capital intensive. Furthermore, energy costs enter into the cost strcuture of all productive sectors of the economy as a universal input. This emphasizes the need for reducing specific energy consumption and specific energy costs. Investments in this sector have steadily increased during the successive Five Year Plans. The share of investment in commercial energy as a percentage of total Plan outlay has risen steeply from the Fourth Plan onwards. 8.12.7 It will be seen from Table 7 that the share of the energy sector in the total Plan outlay has increased from 19.7 per cent during the First Plan to 28.2 per cent during the Seventh Plan. This brings out the crucial importance of this sector in the planning process.
8.12.8 One adverse consequence of our pattern of energy consumption is the dependence on import for crude oil and petroleum products, causing a heavy drain on the foreign exchange reserves of the country. The Table 8 indicates changes in the ratio of oil imports to total exports and the share of consumption of petroleum products met from indigenous sources over time. 8.12.9 The import bill on petroleum products continues to be substantial and in fact has increased in later part of the Seventh Plan, as the level of demand satisfaction from indigenously available crude oil has declined from 70 per cent in 1985-86 to 56 per cent in 1990- 91. This is on account of the stagnation in domestic crude oil production levels. Any further increase in dependence on oil imports, due to an increase in demand, is likely to put severe pressure en foreign exchange reserves and in view of the Table 8: Oil imports
in relation to Domestic Oil Production
uncertainty of world oil prices, make the economy more vulnerable. It would therefore be necessary to examine the oil intensity and dependence on petroleum products in each sector of the economy and to find ways to contain, and where possible to compress, the demand for the oil products. 8.12.10 The ratio of oil consumption indifferent sectors to the total consumption of oil in the country, the Oil Application Ratio (OAR) provides a measure of the importance of that sector in the consumption of petroleum products. Table 9 indicates the changes in OAR for different sectors over the last two decades. 8.12.11 The transport sector has remained the largest user of oil, its relative share having increased. Another important user is the household sector. Among other sectors the share of industry has declined while that of agriculture has shown some increase . 8.12.12 The intensity of oil use in a sector can be described in terms of the Oil Use Ratio (OUR), defined as the ratio of oil consumption in that sector to total energy consumption in that sector. Table 10 indicates the changes in OUR for different sectors over the last two decades. 8.12.13 There have been substantial increases in the intensity of oil use in the transport and household sectors over the years. In other sectors, the intensity ofoi! use has been declining. 8.12.14 The share of oil in the total commercial energy consumption has thus increased contrary to the recommendations of the Working Group on Energy Policy. One of the major factors contributing to this was the relatively 10, •cr prices and easy availability compared to alternate fuels. This led to a rapid growth in the consumption ofLPG, Kerosene oil (SKO), motor spirit (MS) and diesel oil (both HSD and LDO). In the context of non-availability of alternate fuels for cooking and lighting at affordable prices, the demand for kerosene which is sold at subsidised price has increased steeply over the years. LPG is also priced low and the consumption of LPG has been constrained by the supply position. The demand for MS has been growing fast as a result of a rapid growth in the population of personal transport vehicles. The Table: 9 Oil Application Ratio (OAR)
*Provisional Table: 10. Oil Use Ratio (OUR)
*Provisional steep increase in the demand for HSDO has been caused largely by the large scale introduction of agricultural pumpsets based on diesel and the rapid rate of growth of road traffic in preference to both freight and passenger traffic carried by the railways. 8.12.15 The relative shares of'LPG, MS and HSDO in the total consumption of petroleum products have changed during the last two decades as shown in Table 11. 8.12.16 HSDO and SKO together constituted about 54 per cent of oil consumption in 1990-91 and their share is likely to increase further unless suitable measures are taken to contain this ti c-nd. Both these products are imported at the margin in addition to the import of crude oil. 8.12.17 The world oil prices, after a steep fall in the late eighties showed a steep upward trend during the Middle East War. Despite the end of this crisis and a fall in crude prices, substantial outgo of foreign exchange is taking place even for meeting the existing level of oil demand. Considering the prospects of different onshore and offshore basins in the country and the investment that can be visualised during the next decade or so, it does not appear feasible to augment the level of indigenous production on a large scale during the next 10-15 years. Against this background, if the demand for petroleum products is permitted to grow unhindered, it will lead to an increased dependence on oil imports which the country can ill-afford. This will place a serious strain on the limited foreign exchange resources of the country. It is from this point of
* Provisional view that there is an urgent need for demand management in the petroleum sector. Energy Conservation 8.13.1 Energy conservation has been receiving considerable attention right from the first oil shock in 1973. The Fuel Policy Committee and the Working Group on Energy Policy had both laid emphasis on the need for energy conservation. The Report of the Inter-Ministerial Group on Energy Conservation in 1983 examined specific areas of energy conservation in different sectors. The Advisory Board on Energy (ABE) had recommended the setting up of a National Energy Conservation Organisation (NECO), backed by a comprehensive legislation on energy conservation. The Petroleum Conservation Research Association(PCRA) under the administrative control of Ministry of Petroleupi and Natural Gas has done pioneering work in bpinging about general awareness of the need to conserve the use of oil. Recently, the Department of Power has set up the Energy Management Centre to undertake studies and suggest an action plan for energy conservation and more efficient use of energy. 8.13.2 There has been some improvement over the years in the efficiency of use of commercial energy in several sectors of the economy. However, these efficiency improvements have been far too inadequate to make any visible impact on the pattern of growth of demand for commercial energy. The targets to be set in this regard for the Eighth Plan period need to be quantified and the performance continually monitored with a view to bringing about efficiency in the use of energy in the different sectors. Further details in this regard are indicated in the section on Energy Conservation. Energy Pricing 8.14.1 During the Sixth and Seventh Plans, emphasis was placed on evolving a rational pricing policy to reflect the true resource costs of energy production and supply to the economy. However, the regime of administered prices with implicit subsidies continues to exist, despite the recent price adjustments implemented in the case of some of the oil products. A tariff structure that does not fully reflect the cost of production and supply of domestic or imported energy resources is not conducive to efficient use of energy and optimum inter-fuel substitution. Moreover, such a tariff structure does not also provide adequate returns to the producing agencies so as to enable them to expand their operations in tune with the growing demand for energy. It is, therefore, imperative that a rationalised tariff structure is adopted in respect of different forms of energy. If subsidies are inescapable from the point of view of socio-economic imperatives, the concerned target groups need to be identified and subsidies restricted strictly to the target groups only. Indeed, alternate means of delivering the intended benefits to those target groups need to be carefully examined. This is particularly relevant in respect of electricity and certain petroleum products such as LPG and Kerosene oil. The tariff structure should be such that it optimises the use of energy for alternative productive purposes. Long Term Energy Planning 8.15.1 Several expert bodies in the past, such as Energy Survey of India Committee (1965), the Fuel Policy Committee (1974), the Working Group on Energy Policy (1979) and the Advisory Board on Energy (1983-88), have emphasised the need for integrated long-term energy planning. The Planning Commission has, therefore, carried out studies on long -run sectoral energy demand as well as long-run energy supply system optimisation. However, the earlier Five Year Plans have tended to reflect more of the short-term and medium-term concerns than the long- term policy imperatives in energy planning. Besides this, the emphasis of the earlier Plans has all along been on supply problems of the sector rather than on economy in the end-use of energy through conservation. During the Eighth Plan, importance will be given to long-term integrated planning with emphasis on energy end-use as well as efficient strategy of long-run energy supply. The studies of Planning Commission, as referred to above, need to be updated from time to time depending on the changes taking place in the internal and external environment and be used as a basis for integrated energy planning. Energy Strategy for the Future 8.16.1 Against the above background, it is desirable to adopt a long-term energy strategy which is consistent with sustainable development. Such a strategy should ensure that the highest priority is accorded to meeting fully the basic energy needs of the rural and the urban poor in the immediate future. It should also ensure gradual shift from non-renewable resources to renewable ones with increasing emphasis on demand management, conservation and efficiency. The short-term, medium-term and long-term priorities should accordingly he as follows. Short-Term
Medium-term
Long-term
8.16.2 The Eighth Plan programme of energy development will be so oriented as to be consistent with this strategy. OIL AND NATURAL GAS Demand for Petroleum Products 8.17.1 Despite the concern expressed time and again, the demand for petroleum products continued to rise rapidly and the share of oil in commercial energy supply registered a steep increase during the last few decades. The growth of the sector during the Seventh Plan and thereafter and the major areas of concern for the Eighth Plan are discussed below. Seventh Plan Review 8.18.1 As against the actual consumption of 38.8 million tonnes of petroleum products in 1984-85, the consumption in the terminal year of the Seventh Plan, i.e. 1989-90, was 54.1 million tonnes. This represents an average annual growth rate of 6.9% during the Plan which is higher than the growth rate of 6.4% anticipated for the Seventh Plan. This was also higher than the 5.4% per annum growth of consumption of petroleum products registered during the Sixth Plan. The factors contributing to this were broadly referred to in the preceding paragraphs. 8.18.2 On the other hand, as indicated in the following paragraphs, the increase in the indigenous availablity of crude oil has not kept pace with the rapid increase in the demand for petroleum products leading to a steady increase in oil imports. 8.18.3 The position .however, underwent some change in 1990 when the world market price of oil and oil products increased sharply consequent to the Gulf crises and the Government had to increase the domestic price of petroleum products and impose a series of physical restrictions on the supply and distribution of motor spirit, diesel etc. As a result, the consumption of petroleum products could be restricted to 55.04 million tonnes in 1990-91 which represented a growth of only 1.7% over the previous year. Even during 1991-92, the level of consumption is expected to be around 56.7 million tonnes. 8.18.4 The actual achievements in relation to the goals set out in the Seventh Plan are briefly reviewed below. Exploration 8.19.1 The exploratory effort put in by the Oil and Natural Gas Commission (ONGC) and Oil India Limited (OIL) led to an achievement of 2324.49 thousand meters of exploratory drilling as against the target of 2820.8 thousand meters set for the Seventh Plan. Even though the achievement in exploratory drilling was only 82% of the target, geological reserve accretion of 1536 million tonnes of oil and oil equivalent of natural gas was achieved against the originally anticipated target of 1453 million tonnes. As a result, in spite of a substantial step up in the level of production of crude oil during the Seventh Plan, the Reserve-to-Production (R/P) ratio at the end of the Plan was as high as 21:1 against 17:1 at the beginning of the Plan. The achievements in exploratory drilling during 1990-91 and 1991-92 were also lower than the targets. Exploratory drilling in 1990-91 was 615.65 thousand meters against a target of 738.04 thousand meters. In 1991-92, about 628.52 thousand meters of exploratory drilling is expected to materialise against a target of 652.05 thousand meters. 8.19.2 When the Seventh Plan was formulated, equal emphasis in exploration was proposed to be placed on both Category I basins with commercial production and Category II basins where hydrocrbons have been discovered but commercial production is yet to start. This strategy was largely based on the premise that exploration in Category I basins had reached a mature stage of exploration and any incremental exploration investment would yield lower returns. However, the position altered slightly during the course of the Seventh Plan when significant discoveries (e.g. Dahej and Gandhar in Cambay basin and Neelam field in Bombay offshore basin) were made in the relatively less explored parts of Category I basins. The experience gained in the Seventh Plan therefore, suggests that prospects of future discovery of hydrocarbons are reasonably good in the structural and stratigraphic traps of Category I basins. Exploration in such areas is likely to lead to hydrocarbon discoveries at a low-risk, even though the size of the discoveries may be small. This has also been true for Category II basins which have recently been upgraded to Category I basins (e.g. Krishna-Godavari, Cauvery, As-sam-Arakan) and where only 13-15% of the "resources" have been so far upgraded to "reserves". Intensive and extensive exploration work will need to be carried out in those basins which were explored in the past without success. Production of Oil and Gas 8.20.1 During the Seventh Plan, the level of production of natural gas increased by almost two and a half times, whereas crude oil production increased by about 20% as shown in Table 12. Table 12 : Oil and Gas Production in the Seventh Plan
8.20.2 The total cumulative production of crude oil during the Seventh Plan was 157.13 million tonnes against a target of 159.14 million tonnes. As far as natural gas is concerned, cumulative production during the same period was 59.65 billion CuM against a target of 59.68 billion CuM. However, actual despatches of natural gas for sale to consumers were only 40.41 billion CuM. The balance of the gas produced had to be flared due to technical constraints, non-lifting by consumers, non-availability of downstream facilities for utilising gas and also inadequacy of compression and transportation facilities for associated gas. The fall in oil production during 1990-91 and 1991-92 as compared to 1989-90 was largely due to the disruption in the oil production activity in Assam and technical constraints in other parts of the country. Refining and Marketing 8.21.1 The total refining capacity in the country increasd from 45.55 million tonnes at the end of the Sixth Plan to 51.85 million tonnes at the end of the Seventh Plan. The net imports of crude oil and petroleum products during the Plan period were 85.13 million tonnes and 11.37 million tonnes respectively. The middle distillates like HSD and kerosene constituted the bulk of the product imports. Eighth Plan Programme 8.22.1 Based on the experience of the Seventh Plan, the major areas of concern during the Eighth Plan will be: (i) the need to restrict oil imports to a reasonable level; (ii) the need to eliminate the flaring of natural gas at the earliest, in any case not later than 1996-97 and (iii) accelerating the pace of indigenisation of the exploration and development activity. The programme for the Eighth Plan will accordingly be as follows. Demand for Petroleum Products 8.23.1 The unrestricted demand for petroleum products in the terminal year of the Eighth Plan i.e. 1996-97 has been estimated at 81.19 million tonnes. Against this, as explained in the following paragraphs, the level of crude oil production from the different basins may at best reach 47.08 million tonnes by that year. This will be equivalent to about 44 million tonnes of products and will leave a gap of 37.2 million tonnes to be covered by imports. In other words, the level of oil imports will increase from 29.4 million tonnes in 1991-92 to 37.2 million tonnes by 1996-97, representing an increase of 26.5% over the 5-year period. 8.23.2 It is not going to be easy to find sufficient foreign exchange resources to sustain such a sizeable increase in the quantum of oil imports. Moreover, any further increase in the quantum of oil imports will correspondingly increase the vulnerability of the economy to the uncertainties in the external oil markets. It will be prudent to manage the oil budget so as to restrict the level of oil imports, as far as possible, to the level obtaining in 1991-92. This will call for the following strategy.
Efforts should be made during the Eighth Plan to achieve a demand reduction of at least 6-7 million tonnes through these measures in the year 1996-97. 8.23.3 Simultaneously, it will also be necessary to maximise indigenous production of crude oil. Efforts should be made by the oil producing agencies to realise an additional production of 1.5 to 2.0 million tonnes per year by 1996-97 by rehabilitating sick and idle wells and other appropriate measures. Private sector investments in oil exploration and development activity during the Eighth Plan period is also expected to yield an additional production of 0.75 million tonnes per year by 1996-97. This will imply total indigenous crude oil production of about 50 million tonnes in 1996-97. Exploration and Reserve Accretion 8.24.1 As stated earlier, the exploration strategy for the Eighth Plan envisages intensive exploration in Category I basins, specially in parts adjacent to the known producing areas and the blocks still inadequately explored. Emphasis will be laid on exploration in new Category I basins (Krishna-Godavari, Cauvery and part of Assam-Arakan). An optimal mix of intensive exploration (following trends) and extensive exploration (for identifying new target areas) will be adopted in zones where encouraging leads have been obtained - e.g. Rajasthan and Kutch (Offshore) basins. 8.24.2 Limited exploratory drilling with emphasis on close-grid seismic data acquisition will be taken up in other Category II and III basins. In addition, a phased exploration programme will be initiated in the deeper continental shelf (more than 200 metres depth). 8.24.3 Indian participation in overseas exploration ventures will be substantially increased in the Eighth Plan. 8.24.4 There will be greater emphasis in the Eighth Plan on 3-D seismic surveys. With progressive technological upgradation of 3-D survey methodology, this will have the advantage of marginally reducing the exploratory drilfyig efforts needed for delineating new structures. Total exploratory drilling in the Eighth Plan is envisaged to be 3041.83 thousand metres i.e. 31 % more than the level of achievement in the Seventh Plan. 8.24.5 Total geological and recoverable reserve accretion during the Eighth Plan is expected to be 980.60 million tonnes and 276.30 million tonnes respectively in the case of oil and 344.40 billion CuM and 178.10 billion CuM respectively in the case of natural gas. These targets are exclusive of reserve accretion, if any, on account of the exploratory effort to be put in by private contractors. The following are the targets set out for exploration in the Eighth Plan. Development Drilling 8.25.1 The total development drilling metre-age of 3809.36 thousand metres planned for the Eighth Plan involves a step up of 37% over the Seventh Plan achievement of 2774.12 thousand metres. The development and production strategy during the Eighth Plan will involve (a) drilling of infill wells for improved recovery , (b) maintenance of production through faster liquidation of sick wells, (c) adoption of suitable Enhanced Oil Recovery (EOR) methods, (d) stimulation of poor producers, (e) accelerated development of new fields and (f) placing new fields in isolated areas on Early Production System(EPS). Production of Crude Oil and Natural Gas 8.26.1 Against an oil production level of 34.09 million tonnes reached in the terminal year of the Seventh Plan, the corresponding production level in the terminal year of Eighth Plan is targetted to be 50 million tonnes. The actual cumulative oil production in the Seventh Plan and the expected cumulative production in the Eighth Plan are 157.13 million tonnes and 197.32 million tonnes respectively. 8.26.2 So far as natural gas is concerned, the terminal year production will increase from 16.99 billion CuM in the Seventh Plan to 30.17 billion CuM in the Eighth Plan. Necessary infrastructural facilities such as augmentation of the capacity of existing pipelines, adequate compensation and evacuation facilities etc. will be created to ensure that flaring of associated gas is minimised and any produced gas is fully utilised. 8.26.3 The production targets for crude oil and natural gas are indicated in Annexures 8.1 and 8.2. Technological Upgradation in Oil Exploration and Production 8.27.1 For enhancing the capabilities of finding hydrocarbons at an optimum cost, the oil companies will continue to adopt the latest techniques and equipment in horizontal and deep water drilling, sub-sea completions and laying of pipelines, installation of Early Production Systems(EPS), the use of floating process platform in offshore areas, exploration of heavy oil deposits, adoption of suitable Enhanced Oil Re-covery(EOR) techniques for tertiary recovery from depleting wells etc. 8.27.2 There is need to adopt improvements in refining technology for maximising the yield
of middle distillates for meeting the requirements of the country. Indigenisation of Oil Exploration and Production 8.28.1 While the dependence on imports in the high technology area of exploration and production will continue, all efforts towards progressive indigenisation of oil field equipment will be supported by the ONGC and OIL. The foreign exchange content of offshore drilling projects still ranges between 65 and 75 per cent of the total cost despite the efforts made by ONGC and OIL over the years to indigenise their activity to the maximum extent feasible. During the Seventh Plan, indigenisation was achieved in the manufacture of onland and offshore drilling rigs (jack- ups and drilling ships), well platforms, offshore supply vessels and certain types of casings. The efforts towards indigenisation will continue during the Eighth Plan. The indigenisation process cannot however, be pushed beyond a certain level due to the very low demand for certain items and the rapid obsolescence involved in the "high - tech" equipment used in the oil industry. The thrust during the Eighth Plan for indigenisation will be development of adequate capacity for all sizes of casing pipes, indigenous capability for services like mud-log-gtng, cementation, well stimulation and equipment inspection services. Indian companies and joint venture companies will continue to be encouraged to provide oil and gas field services in future. Oil Refining and Marketing 8.29.1 By the end of the Tenth Plan, the demand for oil products is estimated to reach a level of 125 million tonnes. In determining the refining capacity that needs to be added during the Eighth and Ninth Plan periods, due consideration will be given to the region-wise pattern of demand, the sources of indigenous crude oil and optimal choices regarding the location and technology of new refining capacity. 8.29.2 Against these projections, the indigenous refining capacity at the end of the Seventh Plan was 51.85 million tonnes. Considering that indigenous crude availability in 1996-97 has been targetted at 50 million tonnes and that in addition to this quantity, a minimum of about 15 million tonnes of imported crude oil of appropriate quality needs to be processed specially to meet the domestic requirements of lubricants and bitumen, it is necessary to augment the refining capacity to about 65 million tonnes by 1996-97. Any further addition to refining capacity will depend upon the relative economics of import of crude oil vis-a-vis petroleum products. This needs to be evaluated carefully in the context of the prevailing uncertainties in the world oil market, the progress of inter-fuel substitution and other relevant factors. 8.29.3 In planning additions to the refinery capacity, the highest priority will be accorded to cost-effective debottlenecking schemes and low-cost expansions. An additional refining capacity of 12.2 million tonnes can be expected from such expansions. These projects are refinery expansions at Koyali (3 million tonnes), Cochin (3 million tonnes), Madras (0.9 million tonnes), Vizag (2.5 million tonnes), Bongaigaon (1 million tonnes), Barauni (0.5 million tonnes), Gu-wahati (0.15 million tonnes), Digboi (0.65 million tonnes) and Bombay (0.5 million tonnes). Added to this, new refineries at Cauvery (0.5 million tonnes), Mangalore (3 million tonnes) and Karnal (6 million tonnes) will also get commissioned during the Eighth Plan. Advance action on any additional grassroot refining capacity to be commissioned in the Ninth Plan needs to be initiated during the Eighth Plan. However, keeping in view the heavy investments required for setting up new refineries, such proposals will have to be carefully evaluated in relation to the relative economics of import of crude vis-a-vis petroleum products in the context of the trends in the world oil market. In such an evaluation, security of supplies and the future prospects of availability of crude oil and products are important factors that need to be considered. 8.29.4 In the choice of technology for secondary processing in the refining sector, due consideration will be given to the techno-economic implications of different processes like FCC, Hydro-cracker etc. in relation to the need to maximise the production of middle distillates. 8.29.5 In the refinery sector, priority will be given to energy use optimisation, energy conservation and schemes for quality improve-* ment of MS/HSDO. Efforts will be made to* reduce the technical losses in the refining process. It is also proposed to optimise the productyield pattern in the various refineries through the use of digital process control systems. 8.29.6 In view of the increase in the demand for petroleum products, expansion of various facilities for the distribution and marketing of petroleum products will be required. Some of the existing pipelines will have to be extended, while some pipelines like Koyali-Ahmedabad pipeline will have to be expanded. There is also need to construct new product pipelines wherever found economical. Major ports like Pa-radeep and minor ports such as Kakinada, Karwar etc. will need to be developed in order to cater to increased traffic involving imports/coastal movement. 8.29.7 In the context of the severe limitations on resources, it will not be feasible to take up all these schemes in the public sector. It is, therefore, imperative to attract private investments to the maximum extent possible in refining and marketing operations. Research and Development 8.30.1 The Eighth Plan will place considerable emphasis on R and D projects aimed at indi-genisation and improving the overall efficiencies of this sector through technological upgradation and cost optimisation. Oil and Gas 8.30.2 The ONGC's R and D efforts are backed by five R and D institutes. Two more institutes are in the process of being set up. The institutes are briefly described below.
Oil India Ltd. (OIL) 8.30.3 OIL has R and D facilities at Duliajan which deal with problems related to production and development drilling, application of EOR methods, well stimulation techniques and environmental and pollution control measures. Refining and Marketing 8.30.4 In the case of refining processes and product development, areas for study have been identified after considering the product needs and product development requirements in the country. In addition, pilot plant studies for deas-phalting at Madras Refineries Ltd. (MRL), crude test distillation facilities at Cochin Refineries Ltd.(CRL), Fludized Catalytic Cracker at CRL, dearomatisation ofATF/SKO at Hindusthan Petroleum Corporation,, Bombay have also been planned. 8.30.5 Studies will be commissioned An product development and application with particular reference to lubricants and automotive fuels. Indigenous development of additives will also be included in the R and D programme. 8.30.6 The Centre for High Technology (CHT), which was established during the Seventh Plan, has identified several areas for R and D works including project-oriented basic research and fundamental research work. These studies will be undertaken at the different R and D centres of the companies under the overall coordination of CHT. Natural Gas Utilisation Policy 8.31.1 The use of natural gas should be consistent with the need to ensure long run resource conservation and optimum utilisation of the limited hydrocarbon resources. The different fractions of natural gas can yield valuable chemical products. Natural gas can also be used for power generation. While gas- based power generation projects have the advantage of a short gestation period, it is desirable in the long run to promote the use of natural gas as a feedstock for producing valuable chemical products. It is necessary to carefully analyse the short and long term implications of alternative uses of gas and evolve a policy ofinter-sectoral allocation of gas consistent with the objective of maximising its value to the economy. 8.31.2 Production of LPG from natural gas will also be maximised to reduce its import. Facilities for city gas distribution will be set up to replace mainly kerosene oil and LPG, in areas where natural gas supplies are easily available like Bombay city, Baroda and Ahmedabad. The use of compressed natural gas (CNG) for substituting motor spirit and HSDO in the transport sector will be promoted. Pilot plants will also be commissioned for the conversion of natural gas into middle distillates for assessing the techno-economic feasibility of the process. All public sector organisations will be encouraged to introduce schemes to conserve petroleum products, use natural gas wherever feasible and to improve the efficiency of equipment and operational processes. 8.31.3 Possibilities of substituting natural gas for petroleum products, such as naphtha will also be explored and utilised to the extent feasible. 8.31.4 It should be mentioned, however, that the latest projections regarding the availability of natural gas fall short of the earlier expectations. This calls for a close examination of the production profile of natural gas in the case of different basins and a periodical review of the supply-demand scenario. This is to ensure that the supply and utilisation of natural gas can be planned in the long-run in an integrated and optimal manner. Outlay 8.32.1 The Eighth Plan outlay for petroleum sector is Rs.24,000 crores as compared to Seventh Plan expenditure of Rs. 16025.22 crores. These figures are exclusive of the outlays for petro-chemicals. The outlay includes Rs. 20,000 crores for exploration and production and Rs. 4,000 crores for refining and marketing. COAL AND LIGNITE 8.33.1 Coal and lignite are major energy resources available in the country and the development of these resources constitutes an important element of the long-term energy strategy. Both the development and management of the coal industry were mostly in the private sector till the industry was nationalised in early seventies. The industry was reorganised in 1975 with the creation of Coal India Ltd. (CIL) as a holding company. The Singareni Collieries Company (SCCL), however, continued as a jointly owned company ofAndhra Pradesh State Government and the Central Government with the former continuing to have the major shareholding. The development of lignite is being looked after by a seprate centrally owned company viz. Neyveli Lignite Corporation (NLC). Review of the Seventh Plan 8.34.1 The development of the industry in the Seventh Plan and during 1990-91 and 1991-92 and the priority areas that should receive attention during the Eighth Plan are discussed below. Coal Resource Inventory and Allied Exploration 8.34.2 Systematic surveys during the Seventh Plan increased the coal reserves of the country from 156.0 billion tonnes at the beginning of the Plan to 186 billion tonnes as on 1.1.90 The reserves as on 1.1.1992 stand at 196.02 billion tonnes. Exploratory work carried out in Msld-hya Pradesh revealed occurrence of superior grade non-coking and coking coal reserves which were hitherto largely confined to Bengal and Bihar Coalfields. There were substantial additions to coal reserves in Orissa Coalfields and new discoveries were also made in Birbhum District of West Bengal. The latter, adjoining the Rajmahal trap, are fairly thick seams but the goo-mining conditions there pose technological problems because of their depth, penetration of the trap and low recoverability of coal from very thick seams in the underground mines. A methodology for efficient coal extraction in this area using special expertise is under consideration. 8.34.3 The Seventh Plan laid special emphasis on regional exploration to broaden the base for detailed exploration and project formulation with an adequate range of choice. A separate Plan fund was created for that purpose as different from project linked detailed exploration. The aim was to provide a new thrust to resource-oriented regional exploration as distinct from production-oriented detailed exploration. 8.34.4 As against a detailed exploratory drilling target of 21.67 lakh metres during the Seventh Plan, the actual achievement was 21.10 lakh metres i.e., nearly 98% of the target. 8.34.5 Based on tentative estimates, out of the 196 billion tonnes of in-situ reserves as on 1.1.1992, around 144 billion tonnes may now be considered mineable. Out of this around 70 billion tonnes can be extracted economically on the basis of present technology. Demand for Coal 8.35.1 Coal consumption during the Sixth Plan registered an average annual growth of 5.5% . When the Seventh Plan was formulated, the demand for raw coal in 1989-90 i.e, the terminal year of the Seventh Plan was estimated at 236.70 million tonnes. At the time of the mid-term appraisal, however, this had to be scaled down to 222 million tonnes. Finally, the actual consumption in 1989-90 was only 199.79 million tonnes, repersenting 84% of the original projection. Against the projected growth rate of 11.2% per annum during the Plan, the actual growth was only 7.34 percentage. The growth of coal consumption in the power sector, which continues to be the major consumer of coal, was 12.7% per annum whereas the growth in demand from the other sectors remained sluggish at around 2.3 per cent. Coal Production 8.36.1 At the time of the formulation of the Seventh Plan, the coal production target for 1989-90 was set at 226 million tonnes. This took into account the anticipated drawals from the large accumulated pit-head stock of coal which stood at 29.70 million tonnes at the hegining of the Plan. The need for importing limited quantities of superior grade coking coal for the steel industry was also considered in fixing this target. 8.36.2 As against this target, the actual production achieved in 1989-90 was only 200.89 million tonnes which implied a shortfall of 11 per cent. As against the projected annual growth growth rate of production of 8.9% during the Plan, the actual annual rate in production has been only 6.4 per cent. The shortfalls in production in the case of CIL and SCCL were 9% and 26% respectively. The shortfall in SCCL, which was expected to cater to the requirements of the consumers in the South to a very large extent, resulted in ad-hoc changes in coal linkages to the consumers and, consequently, considerable irrational movement of coal. Supply-Demand Mismatches 8.37.1 Even though the shortfalls in the consumption and production of coal in 1989-90, were 16% and 11% respectively at the all-India level, there were serious mismatches in the supply vis- a-vis demand throughout the Plan period as indicated below. (i) Due to various constraints including railway transportation bottlenecks, the pit-head stock of coal, increased from 29.70 million tonnes as on 1-4-1985 to about 37.43 million tonnes as on 1-4-1990. The stock build-up was largely in the coal fields of Bihar and West Bengal whereas there was considerable unsatisfied demand in the Southern and Western regions. (ii)The stock build-up was also partly on account of problems of coal quality, particularly for the steel industry, as a substantial quantity of coking coal was not found suitafle for use in the blast furnaces of the integrated steel plants. Consequently, 4.45 million tonnes of coking coal had to be imported in 1989-90. A number of improvements were suggested by an Expert Committee constituted immediately after the formulation of the Seventh Plan to facilitate increased coal production from Bihar and West Bengal. These included the setting up of captive power plants in the coal mining areas in the region. These projects which were to be commissioned in the Seventh Plan have however now slipped into the Eighth Plan. Some of the improvements to be effected in the case of washeries for coking coal supplies to the iteel industry also have similarly got delayed. (iii) Against the originally envisaged share of 44%, the underground mines contributed only 37% of the coal production in 1989-90. The output per manshift (OMS) in underground mining operations remained stagnant at around 0.55 tonnes. The OMS in the case of opencast mines increased from 2.07 tonnes in 1984-85 to 3.11 tonnes in 1989-90 in Coal India against an envisaged level of 3.0 tonnes in that year. (iv) Due to various factors including industrial relations, the SCCL fell short of its production targets leading to an annual shortfall of around 3 to 4 million tonnes for the consumers in the South throughout the Seventh Plan period. This led to ad-hoc allocation of coal from the Orissa and Wardha Valley coalfields of CIL to consumers in the South resulting in high costs of transportation of coal and its ad verse impact on the cost of electricity generation. (v) Despite the emphasis placed time and again on the propagation of soft coke and Special Smokeless Fuel (SSF) as substitutes for petroleum products and fuelwood for domestic use, the availability of these fuels continued to remain at a marginal level throughout the Plan period. Soft coke production in 1989-90 was only 1.3 million tonnes (raw coal equivalent) against the target of 5 million tonnes. Both pricing and distribution problems have come in the way of promotion of these fuels. (vi) Coal shortages and problems of quality continued to have an adverse impact on the economy throughout the Seventh Plan. Against 56% of the coal produced from different coal fields passing through Coal Handling Plants (CHPs) at the begining of the Seventh Plan, about 95% of the coal despatched as on 1-4-1991 passed through CHPs. Environmental Implications of Coal Mining 8.38.1 Coal mining and associated processes have environmental implications especially in terms of degradation of valuable agricultural and forest land, displacement of population etc. The coal projects are subject to detailed environmental impact assessment before they are approved for implementation. The necessary safeguards are built into the project profile to ensure that these projects do not adversely affect the environment. However, subsidence of certain coal mines in the Raniganj area continued to pose problems. Delays in Project Implementation 8.39.1 As a result of the continued efforts made by the concerned agencies, the proportion of delayed projects in the total number of projects taken up, declined from 40% as at the beginning of the Plan to about 26% at the end of the Plan. However, delays in the acquisition and the taking over of physical possession of land, delays in environment and forest clearance of projects, slippages on the part of the suppliers of equipment and machinery for coal mining and the uncertainties associated with the geo'mining conditions in individual projects continued to delay the commissioning of coal projects leading to substantial cost overruns. The number of coal projects sanctioned ( each of more than Rs. 2 crores) since nationalisation of the coal industry and the number still under implementation as on 1-1-1992, as shown below, illustrates the overhang otthe past commitments in this sector.
8.39.2 It is necessary that the projects on hand are completed at the earliest. EIGHTH PLAN 8.40.1 The following are the priority areas of coal and lignite development in the Eighth Plan.
Demand 8,41.1 The power sector is so far the largest consumer of coal. The other major consumers are: steel, cement, railways, fertilisers and the household sector(soft coke). A large number of consumer groups such as jute, paper, cotton textiles, chemicals, brick kilns etc. which constitute an important segment of economic activity are clubbed together as "other industries". For the major sectors, the demand is related to the sectoral targets of production while for the "other industries" category, in the absence of reliable data, the demand forecast is based»on trend analysis. The overall demand in 1996*97 has been projected at 311.0 million tonnes "in Table
13 Cod Demand
Note:- 1.* Including
imported coal of 6.09 Bullion tomes. 8.41.2 While consiMBptioa of raw coal increased annually at 7.34 per cent during the Seventh Plan, it is expected to (row it r annual rate of 6.32 per cent during th« Eighth Plan. Out of the total estimated coal demand of 311.0 million tonnes of raw ooai ia the year 1996-97, the power sector accounts for 200.30 miUioa tonnes of which the requirement of power utHi-ties is 185.3 miUioa tonnw and of captive power plants 15.0 iDillioa tomes. This excludes a quantity of 6.10 Bullion tonnes (utilities 4.7 million tonnes; cantiva plants 2.1 million tonnes) of Middlings likely to be made available fro— coking coal washeries for use in power stations. To reduce the ash percentage in coking coal supply to the steel plants, 3.0 million tonnes of imported low-ash coking coal is expected to be blended with indigenous coal. Production 8.42.1 The coal production that will be realised by 1996-97 wiM be 308 million tonnes against an •anticipated demand of 311.0 million tonnes in that year. Thi« implies that the average annual growth in production during the Eighth Plan will be 6.08 per cent against the actual growth of 6.4 per cent during the Seventh Plan. The Com-
* Mahanadi Coalfields Limited is a new subsidiary of CIL covering Orissa Coalfields of erstwhile SECL from 1.4.1992. Table 15 Contribution to production from projects at
pany-wise details are shown in Table 14. The details of the contribution to the production programme in 1996-97 of projects at different stages of implementation are shown in Table 15. 8.42.2 The annual growth rate of coal production during the Eighth Plan will be somewhat high in thecase ofECL, CCL, NCL and SCCL but it will be seen from Table 15 that a substantial part of the increase is expected to come from sanctioned and on-going projects. New projects are expected to yield an incremental production of only 32.59 million tonnes out of the target of 308.00 million tonnes. None the less, the task of producing 32.59 million tonnes from the new projects underscores the importance of timely completion of all projects, a task which assumes added importance in the present context of overall energy situation and severe foreign exchange constraints faced by the country. 8.42.3 In the past two Plan periods, surface mining operations were stepped up for augmenting coal production by using heavy earth moving machinery. Similarly, increased mechanisation of underground mines had also been taken up in the country by deploying longwall mining and other suitable mining approached to improve productivity. However, such mechanisation in underground mines is yet to yield the desired results. The present declining trend in underground mining is proposed to be contained and, if possible, reversed in the foreseable future in view of the following two constraints: (i) Land requirement for opencast mines is very large compared to underground mines. It is becoming progressively more difficult to release land fur coal mining from other important activities such as agriculture etc. (ii) Out of the total geological reserve of 186 billion tonnes as on 1.1.90, about 20% is suitable for opencast mining with the available technology. 8.42.4 It is desirable to maintain in the lung run a reasonable mix between opencast and underground mining so as to keep the average cost of production of coal at an optimum level in future. The Eighth Plan, therefore, places emphasis on improving the performance of underground projects, adoption of appropriate technologies and taking up development of new underground mines wherever possible. Shortfalls in achieving the production targets of ECL, BCCL and Sin-gareni have resulted in shortages of both high quality coal as well as coal for consumers in the Southern region. Steps are therefore proposed to be taken to increase the pace of implementation of projects in these three companies. 8.42.5 Two aspects of project implementation and operation need special attention of the concerned authorities. First , some of the hitherto underground mines, with shallow overburden, have considerable quantities of unutilised reserves of coal which can only be recovered by "daylighting" operations, that is, by conversion of the underground mines into opencast mines. Many such "daylighting" operations are being carried out by acquiring of heavy earth moving equipment, although large labour force employed in these mines remains without any work. The use of manual labour for removing the overburden wherever feasible could help in containing the costs without any adverse implications and also in providing productive employment. Secondly, in the opencast mines, many items of equipment, like shovels, dozers and dumpers, are not being used fully even after taking into account the downtime for repair and maintenance. If the rate of utilisation of such equipment can be improved, a significant increase in output can be obtained even from the existing mines, the existing manpower and equipment. These are areas of priority in the Eighth Plan. |
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