India's ONGC to Commence Second Phase of Coal Bed Methane Exploration

---

Researched by Industrial Info Resources (Sugar Land, Texas)--India's public sector energy major, Oil and Natural Gas Corporation Limited (BSE:500312) (ONGC) (Dehradun, Uttarakhand), recently announced that it would begin the second phase of coal bed methane (CBM) exploration by the end of this year. ONGC, which is carrying out a three-stage exploration process at the Raniganj block in West Bengal, completed the first phase of exploration in September 2008.

The CBM investigation and production process consists of three stages: the exploration phase, the pilot phase, and the final development and production phase. Eight core holes and one exploratory well were identified during the first phase, causing ONGC to decide to proceed with the pilot phase. In keeping with an agreement made with the Indian government, the firm is required to complete the second phase by 2011.

In a recent application to the government, ONGC indicated that it would give up CBM exploration activities in three allotted blocks - Vardha in Maharashtra, Barmer Sanchor in Rajasthan, and Satpura in Madhya Pradesh - as initial exploration activities had not yielded encouraging results. ONGC won the exploration rights to the three blocks under the New Exploration License Policy (NELP) in 2003. The firm is awaiting response from government authorities.

ONGC is also in the advanced stages of developing the $200 million Jharia CBM project in Jharkhand. The firm had completed drilling activity at four locations in the block before starting the exploration program in 2007. The wells have a production capacity of 15,000-20,000 standard cubic meters per day of gas.

ONGC has also identified two potential CBM deposits, Jharia 5 and Jharia 6, in the vicinity, covering an area of 30 square kilometers. However, recent reports suggest that some of the wells may have to be shut down, as they overlap with the area allotted to Electrosteel Castings Limited (BSE:500128) (Kolkata, West Bengal) for captive coal mining.

ONGC commenced the drilling process for "fish-bone" wells but ran into technical issues during start-up of production. Fish-bone wells cover a larger area than normal wells and increase the production of a well to more than 20,000 standard cubic meters per day. The drilling of the fish-bone wells has been completed, but technical constraints have hindered the flow of gas. The production of CBM from this project was estimated to be around 350,000 standard cubic meters per day over a three-year period. ONGC also signed a preliminary agreement with a Kolkata-based company to sell 5,000-15,000 standard cubic meters per day of CBM by the end of 2008 or early 2009. ONGC's CBM reserves in Bokaro, Jharia, and South Karanpura, Jharkhand, have increased from 9 billion cubic meters to 18 billion cubic meters.

The firm recently signed a memorandum of understanding with Australian company Arrow Energy Limited (ASX:AOE) (Brisbane) to carry out joint exploration of CBM in India and overseas, as well as field development, knowledge sharing and the exchange of technical expertise in this area.

Other Indian companies such as Reliance Industries Limited (BSE:500325) (RIL) (Mumbai) and Essar Group (Mumbai) are also developing CBM blocks in the country. Essar has completed the drilling of 12 core holds and 15 test wells at the Raniganj block in West Bengal. RIL is undertaking exploration activities at CBM blocks in Rajasthan, Gujarat and Madhya Pradesh. The drilling of five core holes has been completed in two blocks in Barmer Sanchor, Rajasthan. In Madhya Pradesh, RIL has established reserves at the Sohagpur East and the Sohagpur West blocks.

CBM is rapidly emerging as a popular fuel throughout the world. It is an environmentally friendly form of natural gas that is stored in the depths of a coal block during coalification, the process by which coal is formed from plant and animal remains over millions of years. While CBM primarily contains methane, it may also have small percentages of nitrogen and carbon dioxide, which are removed during processing. CBM is considered to be much cleaner than conventional feedstocks such as natural gas, oil and coal.

India has the third-largest deposit of coal in the world and is currently the fourth-largest coal producer. According to the Directorate of Hydrocarbons (New Delhi), prefeasibility studies indicate reserves of nearly 452.8 billion cubic meters of CBM in the country. In 2007, India joined the list of CBM-producing countries, with Great Eastern Energy Corporation Limited (LSE:GEEC) (Gurgaon, Haryana) commencing CBM plant operations in West Bengal. The facility currently produces 72,000 standard cubic meters per day of CBM.

To date, 26 CBM blocks have been awarded under the NELP initiative, with 10 new blocks currently on offer. These blocks are located in the states of Tamil Nadu, Chhattisgarh, Assam, Maharashtra and Jharkhand. In its bid to expedite the exploration process, the Indian government has reduced the allowed exploration period from eight years to five years.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.