UNITED NATIONS DEVELOPMENT PROGRAMME PROPOSAL FOR REVIEW GLOBAL ENVIRONMENT FACILITY INDIA: COAL BED METHANE RECOVERY AND COMMERCIAL UTILIZATION GEF Focal Area: Country: Country Eligibility: Climate Change India Date of Ratification of FCCC: 1 November 1993 Eligible under financial mechanism of UN-FCCC Total Project Cost: US $ 19.226 million GEF Funding: US $ 9.19 million India Government Co-Financing: US$ 4.54 million India Government (in-kind) US $ 2.32 million UNDP Co-Financing: US $ 1.21 million Revenue from project US $ 1.96 million GEF Implementing Agency: Executing Agency: Local Implementing Agency: Estimated Approval Date: Project Duration: Government Approval Date: GEF Preparation Costs: United Nations Development Programme Government of India Central Mine Planning and Design Institute (CMPDI) , Subsidiary of Coal India Limited August 1997 4 years March 1997 None 1. BACKGROUND and CONTEXT 1. 1 Introduction World-wide efforts are now being made to control the emission of greenhouse gases and thereby reduce the pressures for accelerated climate change. Methane is a powerful greenhouse gas, as its adverse impacts are felt more intensely due to its shorter residency and higher potency in the atmosphere than carbon dioxide. However, methane is a remarkably clean fuel when burnt, and its combustion produces no SO2 or particulates and only about half of the CO2 associated with coal combustion. The emission of methane is related to various human activities like rice cultivation, livestock management, burning of bio-mass & fuels, coal mining and land-fills. Human activities account for about 60% of total methane emissions. Although the growth in emissions is loosely correlated with increases in population, presently the global concentration of methane is increasing by about 1% per annum. Coal mining is estimated to account for about 10% of all human-related methane emissions. Methane is associated with coal as a by-product of the coal formation process. It is trapped in coalbeds and released during and after mining. The methane associated with the coalbeds has caused disasters in underground coal mines all over the world. In order to reduce the hazard from methane explosions, mines are ventilated to reduce the methane content in the mines. Technologies are now available to recover the trapped methane from coal-beds prior to mining through drilling of boreholes, these provide an additional source of energy while reducing both the escape of methane gas to the atmosphere and the mining hazard. India is the third largest coal producer in the world and has substantial coal reserves (204 billion tonnes, plus 63 billion tonnes of prognosticated reserves). It is expected to produce 289 million tonnes in 1996-97. Opencast production accounts for 74% of the total output and the remaining 26% is met by underground production. The share of the underground output in the total production is expected to be maintained at the current level through the Ninth and the Tenth Five Year Plans i.e. up to 2010 even as the coal production increases . The average depth of the underground mines is 150-200 mts with a seam thickness of 2-3 mts and 60 mts for opencast mines with average seam thickness of 3-4 mts. On an average, 75% Indian coals are not highly gaseous. However, the underground coking coal reserves of the Eastern coal belt are highly gaseous and go up to gaseousness of degree three. Almost 45% of the underground coal output is met from the two coal fields in the sample sites selected in the brief, belonging to the eastern region of the country. The coal seams of the region primarily possess superior grade coal : prime and medium coking , and some semi and weekly coking coal . Coal mining activity in this region has been and will continue to be a major industry , maintaining a dominant share in the coal sector of the country given the demand for superior grade coal in the region with high concentration of industrial units( steel plants, chemical, ceramic, and glass industry, all of which demand high temperature long flame coal found in the region), and high population density . As such, use of coal has been a major contributor of methane to the atmosphere. If suitably harnessed, coalbed methane associated with coal reserves could be a significant potential source of energy both in the region and for the country. 1.2. Description of India's Energy Sector The development of the energy sector has been one of the priority areas of the government policy, and has received the highest consideration of the Government of India (GoI) in view of its importance for sustaining the growth of the economy and meeting the basic needs of the people. Integrated energy planning was recognized as an essential element of development as early as the 1960s and a strategy for energy 1 development forms part of the country’s economic development strategy. The efficient use of energy resources and long-term sustainability of energy supply are two important objectives of energy planning. Coal remains India’s predominant source of commercial energy, accounting for 60 % to 65% of the primary energy needs of the country over the last decade. In absolute terms the coal production has steadily increased from 72.3 million tonnes of oil equivalent (mtoe) in 1984-85 to 132 mtoe in 1995 -96. Petroleum and natural gas are the second largest energy sources to the economy, at 36.2 mtoe in 1996. To meet the increasing demand and clear the market distortions affecting the optimal use of coal by the end users, the Coal Industry has gone through a series of price deregulations in the last two years: The price of coking coal and grades A,B, and C were deregulated on April 1, 1996. This was followed by a similar deregulation for price for Grade D coal in April 1997. For the remaining E, F, and G grades ( power grade) partial deregulation has been introduced with coal companies having the right to revise coal prices bi-annually up to Dec 1999, after which prices stand deregulated automatically. The predominant position of coal in meeting the country's energy need is reflected in the above data. India is poised to produce 348 m tonnes of coal p.a. at the end of 2001-2002, which is well within the estimated reserves of the country. There is shortage of oil in the country, and the crude oil import in 1995-96 amounts to 27.34 million tonnes. Gas reserves stand at 707 billion cubic meters and can sustain a production of 30 million cubic meters per year for the coming 23 years. By the end of the ninth five year plan only 31% of the demand of natural gas is likely to be met from indigenous sources. Under the circumstances, India will continue to be largely dependent on coal for its energy requirements. This, however, will occur with negative environmental impacts brought about by the continued high emissions of methane and carbon dioxide. In this context, it is important to exploit and utilize the available resources of coalbed methane, which will supplement natural gas resources and partially reduce the dependence on coal. The substitution coal by methane gas for specific end uses can serve as an instrument for GHG mitigation. 1.3. Existing Programmes and Energy Sector Strategy In the Ninth Plan (1997-98 to 2001-02), the annual growth in coal demand is assessed at 7% and the total coal demand is estimated to be 439.2 million tonnes at the end of plan period. The power sector has been identified as the largest consumer of coal in the ninth, tenth and eleventh plan period. At the end of eleventh plan, a demand forecast of 328.2 million tonnes has been projected for the power sector out of which 299.7 million tonnes will be by power utilities. In the plan documents, the importance of exploitation of coalbed methane to meet the country's energy needs has been fully recognized. The Ninth Plan has envisaged active work in this field leading to extraction and utilization of this important resource. According to estimates of the Central Mine Planning & Design Institute/Coal India Limited, coalbed methane resources could add about 400 billion cubic meters to the conventional gas inventory of 707 billion cubic meters. Presently advanced methods of methane recovery are available in the world, using particularly specialized methods of drilling (vertical as well as horizontal) that could produce large amounts of coalbed methane. Development of coalbed methane is consistent with India's medium and long term energy strategy, which directs intensification of research and development activities in the field of new energy resources. It will also decrease GHG emissions from the coal mining sector in a very cost-effective manner. 2 1.4. Previous and Ongoing Assistance A number of projects in the coal sector with support from multilateral and bilateral agencies are currently under implementation. These have addressed issues such as mine safety, environmental benefits, productivity and production. Several of these projects have been taken up by GoI as a part of the Ministry of Coal initiatives. These support programmes have addressed such issues as laboratory facilities, coal washing and mechanization of underground and open cast mines. UNDP has also supported several coal sector projects, namely: IND/80/052 (CMPDI) Extension of lab facilities in Central Mine Planning & Design Institute Ltd. for application of advanced techniques in coal mines operations; IND/86/014 Modeling and control of water systems in coal mining environment; IND/87/001 Improvement of working conditions in mines; and IND/92/005 Human resource development for improving health and safety standards in mines. Two of the four projects listed above have addressed the issue of mine safety, developing measures to protect the miners from inhaling excessive gas and dust released during mining operation as well as addressing issues of heat and moisture control. To date, projects have not been developed that reduce the volume of methane released within a mine, preceding and during mining activity. In the past, some national and multinational private sector enterprises have expressed interest in harnessing coal bed methane in India. To date, they have had little success because they faced institutional problems regarding resource ownership and modalities of payment to the nationalized companies. While GoI has been supportive of initial moves to develop and recover methane (by providing working blocks without bidding or production bonus and a 12.5 percent royalty), the US-based multinational company AMOCO India Petroleum Ltd scrapped its multi-million project in India after 2 years of passing the Foreign Investment Board (FIB) approval. The status of similar private sector initiatives are reflected in the following table: TABLE 1. Status of Coalbed Methane Exploration /Exploitation in India SI. No. Company 1 M/S Modi Mckenjie Methane Ltd. 2 M/S AMOCO India Petroleum Ltd. M/S Reliance Industries Ltd. M/S ESSAR Oil Ltd. 3 4 3 Area Allotted Coalfield In Status sq. Km. Ranigan 225 Exploratory drilling taken up since 1996 Jharia 72 So far no North Karnapura 266 activity Ranianj 150 So far no Sohagpur 200 activity Remark Have withdrawn Application for allotment of area in Raniganj coalfield is under consideration. 5 Relance Texaco 1.5 State of preparation Mehsana area of Gujrat Under consideration Development of methane resources has attracted attention in the recent years as an alternate clean energy source in many parts of the world. Over the past ten years, development of methane resources in the United States has achieved record levels and is now an important contributor to the amount of gas that is consumed in certain regions of the United States. At a number of areas in the northern and southern Appalachian basins gas is being recovered along with the coal that is being mined. Production of coal mine gas and coalbed methane has become a viable industry. In many cases, the revenues from gas sales are an important source of income for the mine. Following a GEF-sponsored UNDP project, China has introduced a very large and aggressive program for accelerating the recovery of methane associated with mining as well as from virgin coal fields. This represents a bold step forward and indicates the recognition of the importance of methane recovery to the energy economy of China. Similar initiatives are now being investigated in Poland, the Ukraine and Russia. 2. Project Strategy: This present technical assistance proposal draws on the recommendation put forth in India’s Ninth Five Year Plan recommending the development of new sources of energy. An interministerial meeting organized in October 1996 identified methane harness and utilization as one of the immediate GHG mitigation priority measures to be undertaken. To date, it has not been tapped because of lack of access to state-ofthe-art know-how and confidence in the commercial viability of gas-recovery techniques. Currently, many developing countries, including India, use degasification technologies to maintain mine safety, but none of this gas is used as fuel, thereby leaving a potential high quality fuel untapped. The UNDP-GEF project will support technical assistance and in-country capacity building for expanded methane recovery and use. Through representative demonstration plants, the project will introduce advanced techniques of gas resource assessment and harnessing methods relevant for Indian coal-mining conditions. Since appropriate methane recovery and use techniques can be heavily influenced by local geological conditions, mining methodologies, and gas quality, identification and techno-economic feasibility of projects have to be site-specific. The area chosen for the demonstration project, a representative sample of mines drawing on the CBM resource characteristics existing in many parts of the country, is in the state of Bihar and is principally located in the Jharia coal field. The coal field lies within a structurally-aligned basin located in the central and eastern part of the state. The maturation of the resources found in these fields ranges from high volatile bituminous coal to low volatile bituminous coal, and there are occurrences of naturally coked coal. Maturation of the coal has resulted in the widespread occurrence of coalbed methane resources. Some of these resources have migrated and been lost to the atmosphere long ago, but much of the methane remains trapped at depth until the gassy coal seams are extracted. Presently, mining reaches depths of only 500m, with very few exceptions. However, it is clear that the need for coking coal is going to take the mining industry in India to ever-increasing depths where gassy conditions are known to exist. For this project to demonstrate the effectiveness of recovering methane 4 and using it as a substitute for coal, diesel or LPG, it is necessary to find areas where two things are present: (1)the need for the demonstration of the technology, and (2) a sufficient quantity of resource and potential for development so that the demonstration is of a commercially interesting scale. Selection criteria for the mines being targeted consists principally of three conditions: 1. 2. 3. there are sufficiently large proven coal resources with high methane contents so there will be an ample supply of methane that can be recovered as the coal is mined; there is ready use for the gas, the most obvious of which is the conversion of gas into electric power; and there is a large volume of methane presently being released to the atmosphere. Three strategies for developing the coalbed methane resources associated with mining are proposed: 1. to drill ahead of mining by a number of years to pre-drain the gas that has existed in the coal seams for which mining is planned; 2. to recover methane from the surface by vertical drilling into the gob areas, which can recover a large volume of high-quality gas if appropriate monitoring and quality control systems are in place; and 3. to recover gas in inseam longhole horizontal drilling. Inseam longhole horizontal drilling, the last option, has two benefits: 1. The longhole drilling can develop a borehole that not only can be used for drainage but also for exploration of areas that are structurally complex, such as in Jharia. 2. The borehole can be drilled not only in-seam but also up and into the overlying strata so that as mining takes place, the borehole can be used as a gob drainage borehole. This has been proven to be effective in a number of mines worldwide. For this project, mining areas were selected on the basis of their history of methane emission and the potential for becoming larger coal producers through time. For example, the Moonidih mine has been beset by difficulties due to high humidity, high heat, and high methane emissions. The mine continues to struggle to meet production goals: only a maximum of 700,000 tonnes, out of the design capacity of one million tonnes, have ever been produced annually. This is due to the difficult mining conditions attributable largely to the gassy and temperature conditions. Development of a mine methane drainage system that allows for drilling ahead of mining, and thereby the safety of the miners, while decreasing the load on the ventilation system would be a boon to economic efficiency. The second coal mine that was chosen was the Amblabad coal mine, located southeast of the Moonidih project in the Jharia coalfield. It also has very gaseous conditions. In the past, both board and pillar mining and some longwall mining have been employed. However, longwall mining is going to become more difficult as long as the gas content of the coal remains high. The two mine sites have been chosen so that potentially three different mine drainage technologies can be used in each. That is, in each case, it could be possible to develop drainage ahead of mining, after mining in the gob areas, or in-seam through longholes. It is crucial that during the planning and preparation stages of this program, CMPDI experts in partnership with mine management determine which of these methods is most appropriate to each of the mine conditions. Each of the three methods will be matched with a suitable candidate to be chosen from the two mines. 5 The sites proposed in this project brief take advantage of the distributed nature of the gassy coal resource in the state of Bihar and the differences in the quality of the gas recovered . The selection of the representative mines was undertaken to reflect pre-mining and post-mining gas recovery methods from both room and pillar and longwall methods of mining . The combination of sites, technologies and stages of mine life reflected in the sample chosen are representative of the underground mining conditions for gassy mines existing in India, thus increasing the likelihood of replication elsewhere as ever-deepening underground mining become prevalent. They are conceptualized to operate efficiently without the support of a large infrastructure to transfer the gas from the source to the user. Two different end-uses for the extracted gas are proposed in this project brief. They are: The use of high to medium quality methane will be used in stationary engines for electric power generation. These engines not only use the methane as their fuel, but can use the ventilation air for combustion air in the engine cycle. Use of the very low quantities of methane present in ventilation air can result in as much as 15% increases in generation efficiency. Transmission equipment will be used to transmit high quality methane a short distance to a compression station where it will be compressed for use in fueling the coal mine’s dumper fleet. At this point in the development of the technologies for use of coalbed methane, none of the end-uses proposed in this project present unusual problems or barriers to the progress of methane development and use in India. 3. Project Objectives: The objective of this project is to demonstrate the economic viability of harnessing coal-bed methane in the Indian coal mining sector. The project will undertake techno-economic evaluation of in-situ gas in premining seams, gob areas, and existing mines and demonstrate optimal release and harnessing of methane from coalbeds. 3.1 Global Environmental and Development Objectives: Methane, a potent greenhouse gas, would escape into the atmosphere and contribute to accelerated climate change if not recovered before, during and/or after mining,. This project focuses on mine sites in the Jharia coalfield in Eastern India, which contains sizable prognosticated reserves of coalbed methane in metallurgical coal seams primarily suited to underground exploitation techniques. Successful completion of this project will lead to establishing state-of-the-art capacity to judge both the quantum of coalbed methane in a potential area and the economics of extracting and utilizing it commercially for alternate end uses. Also, emissions of methane to environment from coal mining activities and consumption of coal for energy purposes would be reduced. The global environmental objective of the project is to reduce CH4 emissions by beginning the process of capturing methane from being released into the atmosphere at various stages of mining activities. The development objective is to promote the widespread adoption of methane recovery techniques in the underground mines that are reasonably gaseous and to use the clean fuel to augment the supply of energy resources, thereby reducing the chronic energy shortage faced by power plants, industries, households, and the transport sector. 3.2 Goals 6 The goal of the project is to begin to develop the national capacity for increased methane recovery from coal mines and to demonstrate its commercial viability. This goal will be achieved by: 1. bringing to the country, through technology transfer, state-of-the-art resource assessment and recovery techniques under alternate mining conditions; 2. training a core group of mine planners, designers , engineers and geologists for designing, developing and operating methane capture projects on a sustainable basis; 3. strengthening the center for mine planning and design; 4. creating a mechanism to transfer information within India and from other coal producing countries of the world in the area of methane recovery and use at coal mines; 5. developing and adopting an action plan for replication of the successful aspects of the demonstration project; and 6. linking up with end users of methane and demonstrating a variety of methane utilization possibilities. Project work will address technical and managerial issues, and pay enough attention to the commercial viability of developing of coalbed methane resources so as to provide information attractive to potential private investors and joint-venture partners. A cell on coalbed methane will be established at Central Mine Planning and Design Institute (CMPDI) on behalf of MOC for facilitating and promoting commercial exploitation of coalbed methane. 4. Activity Objective 1 To strengthen and increase the capacity of the CMPDI by training personnel in the identification, design, and implementation of programs to recover and use coalbed methane in a costeffective and environmentally acceptable manner. Activity 1.1 Train members of a CBM exploration and development cell established within CMPDI. Introduce state-of the-art concepts by holding workshops and seminars on: 1.1.1 Assessment, and economic and financial evaluation of CBM resource development projects; 1.1.2 Modeling of coalbeds and other strata as reservoirs and potential sources of methane emissions in mining and non-mining settings; 1.1.3 Current practices and technology used in drilling, completion and production management of CBM recovery projects cited in unmined coal resources; 1.1.4 Current practices and technology employed in coal mine degasification recovery projects 1.1.5 New developments and applied technology for generation of power using recovered methane; 1.1.6 Use of methane as fuel in vehicles. Activity 1.2 To establish a comprehensive Coalbed Methane Information System comprised of : (1) a comprehensive CBM Library; (2) an Internet gateway, by installing a high quality telecommunication line for Internet access at CMPDI, Ranchi, and by designing and installing a relational database system via which the Project Team can collect, store, and analyze information on existing methods and technology employed worldwide for recovery and use of coalbed 7 methane gas; and (3) an intranet, by designing and installing a computer based network linking the Regional Institutes to CMPDI. Objective 2 To plan and prepare for execution of a project that demonstrates the recovery and use of methane in the Jharia and Raniganj coalfields. Activity 2.1 Choose, train and deploy members of an integrated CBM Project Team (comprised of geologists, mining engineers, electro-mechanical engineers, drilling engineers, geohydrologists and an energy economist) to track future and ongoing development of coal mining projects and to coordinate planning and development of methane recovery and use projects in India. Activity 2.2 Utilize information available in the library, accessible via the Internet, and resident in the CMPDI relational database to compare the geological and engineering parameters which characterize the coal mining conditions in India to the coal mining conditions found elsewhere. Identify critical parameters which dictate the appropriate courses of action and determine the selection of specific technologies for methane recovery and use elsewhere in the world. Use the results of these investigations to develop the best strategies and apply technologies for use at selected mining sites. Demonstrate the recovery and use of methane that would otherwise be emitted to the atmosphere during coal mining activities in the Jharia and Raniganj coal fields. Objective 3. To design, drill and produce gas from three drilling techniques on two proposed demonstration sites. Activity 3.1 Drill vertical wells from the surface and produce high heating value gas ahead of mining from coal reserves that will be mined within the next 15 years. Activity 3.2 Drill vertical gob wells from the surface into the mined-out areas lying behind active mining faces in order to produce medium to high heating value gas. Activity 3.3 Drill horizontal drainage boreholes from underground drilling galleries into coal seams in advance of mining and into overlying strata. Produce medium to high heating value gas from the unmined coal prior to mining and from the strata overlying the coal seam as it relaxes during and after mining as the gob forms. Objective 4 To utilize the gas harnessed in the above activities: Activity 4.1 Collect high heating value gas from vertical wells drilled in advance of mining and via a pipeline gathering system and transport it to centrally located compression and fueling station. Provide fuel for mine owned fleet vehicles with compressed methane gas. Activity 4.2 Collect the medium heating value gas produced from gob areas via a gathering system and engineer a system to capture ventilation air from the exhaust ventilation shaft and provide both to a nearby site at which stationary engine generator sets have been installed. Use the methane produced from the vertical gob wells for fuel and the captured ventilation air for combustion air. 8 Objective 5: To develop and adopt an action plan for replication of the successful aspects of the demonstration project. Objective 6: To establish a coalbed methane clearinghouse for dissemination of information, coordination of meetings and seminars and introduction of foreign potential business partners to appropriate managers and experts. 5. Rationale for GEF Financing: Through this short-term mitigation project, the methane recovered from two underground gassy mines, totaling approximately 134 million m 3 will be used as clean fuel. As most fuel uses in India end up replacing coal, global warming will be mitigated in two ways: decreased emission of carbon dioxide due to fuel substitution for coal and decreased methane emissions through leakage from mining operations 5.1. Cost effectiveness The project has a low unit abatement cost (UAC, $6.05/ tC), falling well within the upper limit of $10/ tC reference value for the GEF short-term window (see Table 2). Without GEF intervention, the project would not be undertaken. Successful demonstration is likely to draw large financial commitments for similar projects by private national/ multinational investors waiting for a “ proof-of-concept” activity under Indian conditions. The potential profitability of this project and anticipated future projects dealing with coal-bed methane resources in India are highlighted by the scenarios presented in Table 3. If the capacity building and training included in this project achieve their goals, future investments in coal-bed methane extraction and use will be extremely profitable, as demonstrated by Scenario Cases 3 and 4. A more detailed explanation of these scenarios is contained in Annex 8. 5.2 Country Priority The project concept has been identified by the Govt. of India as one of the priority mitigation options during an interministerial meeting organized in October 1996 by the GEF Focal Point for the Government of India as a follow up to the GEF workshop held in May. The meeting was attended by all the line ministries responsible for energy and environmental activities, NGOs and the scientific community. 5.3 Mitigation Plan Economic harnessing of coalbed methane and its commercial utilization was recognized and reiterated to have immediate GHG-reduction benefits, during the ALGAS ( Asia Least Cost GHG Abatement Strategy) Interim Results Workshop (Manila, February 1997). Since the potential for methane emission is high in the eastern coal-bearing strata and India’s coal production targets are growing steadily to utilize coals from these strata, the capability to harness the by-product of increased coal production as a resource was identified to have immediate cost-effective emission reduction advantages. The demonstration of two alternative end-uses of the harnessed methane based on the quality of the gas will increase opportunities for future replication of the project concept at the end of the GEF intervention. The training and information dissemination activities undertaken through this demonstration project will not only provide for in-country capacity building, but it will also provide valuable lessons in the large-scale 9 replication implementation of such projects in the future. As a result the past experience of potentially large investors disengaging from similar initiatives may not be repeated. 10 CH4 Converted as a CH4 Converted as a CH4 Converted as a CH4 Converted as a 100% Substitution 97% Substitution for 93% Substitution for 87% Substitution for for Coal, %0 for Coal, 3% for Diesel Coal, 7% for Diesel Coal, 13%for Diesel Diesel 50 t Dumper 85 t Dumper 120 t Dumper Table 2. Carbon Emissions Avoided 1000 m3 CH4 Recovered Density of CH4 in t/m3 % of C in CH4 Tons of Carbon Radiative Forcing Index 134,000 0.662 75% 66,531 21 Assume combustion efficiency of methane at 100% equivalence of methane recovered in power at 9.31 MWh/ MMm3= Assume combustion efficiency or coal at 95% Equivalent of tons of coal for energy conversion 8.14 MWh/ton of coal = Tons of carbon avoided by using methane substitute for coal with 88% fixed carbon Tons of carbon avoided by using methane substitute for diesel @ 0.001608 tCO2/t of diesel Tons of carbon released as methane if coal is mined containing 13m3/t Tons of carbon released during combustion of methane = 1,397,151 1,397,151 1,397,151 1,397,151 140,399 135,615 135,615 123,551 119,341 119,341 2.59 5.04 9.74 20,652 19,937 19,257 19,257 (66,531) (66,531) (66,531) (66,531) (939) 1,478,321 (939) 1,473,171 (939) 1,468,284 (939) 1,468,288 $10,880,000 $10,880,001 $10,880,002 $10,880,003 $1,507,240 $1,462,023 $1,401,733 $1,311,299 $495,744 $966,147 $1,865,649 $9,372,760 $1,957,767 $8,922,234 $2,367.880 $8,512,122, $3,176,948 $7,703,056 $6.34 $6.05 $5.79 $5.24 -4.5% -8.6% -17.3% 1,246,200 145,441 127,988 Net Carbon Avoided Estimated Alternative Cost Net Present Value of Revenues for Power Projects Net Present Value of Savings for CNG Project Total Savings Net Incremental Cost per ton of Carbon Increase in Cost due to increase in Diesel Substitution 11 Tons of Carbon Tons of Carbon Tons of Carbon Tons of Carbon Equivalency using the Equivalency using the Equivalency using the Equivalency using the RFI Index for CH4 RFI Index for CH4 RFI Index for CH4 RFI Index for CH4 Potential substitution scenario of Diesel to CNG Potential CNG Production in Mm3 Per Cent of Total Production Tons of Diesel Equivalent Equivalent tons of Carbon Emitted During Combustion 2,748 4,646 9,054 17,482 26,386 2% 3% 7% 13% 20% 3,487 5,894 11,486 22,179 33,475 1.53 2.59 5.04 9.74 14.70 12 Table 3: NET CASH FLOW SCENARIOS SCENARIO DESCRIPTION CASE 1 - PROJECT CASE Project pays for full capital and recurrent costs for drilling-Relatively low yields and returns from electricity and CNG use due to high learning costs CASE 2 - LEASING COMPANY CASE Project pays for only recurrent costs of drilling-leasing subcontractor provides service-Low yields due to high learning costs, same as in Case 1 CASE 3 - INCREASED YIELDS: COMMERCIAL OPERATION Commercial viability achievable even if project must account for all capital and recurrent costs following the completion of the GEF project as improved training and skill levels will lead to higher yields (lower search costs). CASE 4 INCREASED YIELDS AND LEASING COMPANY- -Recurrent costs only as leasing company covers capital costs. Higher yields due to higher skill levels as in Case 3. 13 PRESENT VALUE OF COSTS Capital Costs Recurrent Costs ($6,053,571) ($7,883,081) PRESENT VALUE OF NET PRESENT REVENUES VALUE From From Gas Electricity $1,462,023 $495,744 ($11,978,885) $0 ($8,868,466) $1,462,023 $495,744 ($6,910,699) ($6,053,571) ($7,883,081) $14,737,187 $4,461,700 $5,262,235 $0 ($8,868,466) $14,737,187 $4,461,700 $10,330,421 The proposed project has been designed bearing in mind that coal production and use is going to increase rapidly in India, utilizing deeper seams, especially for the bituminous coals. With methane as a by-product, the coal companies and other end-users will find a ready-to-use alternate source of energy. Numerous end uses ranging from direct use of gas by household residential sectors and industrial users/power sector to the direct use by the coal industry itself to run its transport fleet will involve consumers from different sections of the population. Private sector interest in these ventures have been keen but have not taken off up until now since modern seam gas recovery techniques that access the gas without damaging the coal reserves are not yet well-known. Specific skill formation, technology transfer and information systems will be facilitated throughout the life of the project . The project will train the very group of professionals who plan and design operations in the mining sector. It will assist them in the design of optimal methane capture and utilization strategies to be incorporated as routine mining practice. Once the activities under this project are completed, opportunities to use this fuel will be evident through demonstrations and will draw in private-sector investments. 6. Institutional Arrangements for Project Development and Implementation The success of a well-formulated project is largely dependent upon the strength and comprehensive implementation arrangement. Currently, there is no institution specifically directed to development of coalbed methane in India. However, the Ministry of Coal (MOC) has the responsibility for the exploration and development of coal and lignite resources in India, and for all matters relating to production, supply and distribution of coal. The Ministry has under its administrative control the Coal India Limited (CIL), Singareni Collieries Co. Ltd. and Neyvelli Lignite Corporation. CIL has seven (7) coal producing subsidiaries and Central Mine Planning and Design Institute Limited (CMPDI). The CIL and its producing subsidiaries account for about 88 percent of coal production in the country. On behalf of the Ministry of Coal (MOC), CMPDI will be the nodal agency for the execution of this project. CMPDI possesses a proven and continuous track record of over two decades of coal exploration and has acquired an in-depth knowledge of the major coalfields and coal characteristics. It has drilled over 5.691 million metres in the last two decades and established 56.65 billion tonnes of proven reserves. CMPDI has eight regional institutes attached to the 7 coal producing companies A number of national, local and international entities will be responsible for developing, managing and implementing the project. Their roles are summarized as follows: UNDP: UNDP will provide overall management and guidance from its New Delhi country office. The project will benefit from the worldwide experience of other UN agencies in similar project initiatives. The UNDP will be responsible for monitoring and evaluation of the project as per normal UNDP requirements. The GEF secretariat is currently developing specific monitoring and evaluation guidelines that will further direct planning and implementation review of the project, examination of the progress and the fulfillment of project objectives. In identifying the key milestones of the project UNDP with the help of the national counter part agency will monitor the revenues earned during the TA and demonstration phase of the project. In the event significantly higher revenues are generated during the working phase of the demonstration project appropriate mechanism will be put in place at the project development phase to ensure the revenue be used for further capture and utilisation of CBM from similar fields in the region. The revenue monitoring will be undertaken by independent agencies free of any conflict of interest. 14 CMPDI: The Central Mine Planning and Design Institute, a subsidiary of Coal India Limited and a GoI undertaking, has formulated and coordinated the project from its inception. CMPDI will work under the leadership and supervision of the Ministry of Coal, and will rely and work with other national institutes of repute viz., the Central Mining Research Station, the School of Mines, the Directorate General of Mine Safety (DGMS), and the Gas Authority of India (GAIL), as required. The pilot mine host companies (Eastern Coalfields Limited (ECL) and Bharat Cooking Coal Limited (BCCL)) and Regional Institutes that are subsidiaries of the CIL have already participated in the project formulation process and will continue to do so. These companies, along with the regional institutes will play a major role in implementing field trials at specific mine sites. NGOs: Both CMPDI and Central Mining Research Station (CMRS) will rely on variety of other research institutes, universities and technology institutes of repute to perform part of the study, research and engineering work involved through the various stages of the project. When found appropriate, the project activities will be let out on a competitive basis. The CIL \ Ministry of Coal will collaborate with end-users in the private sector, during the project phase to demonstrate multiple use of the methane that is sequestered during and before mining but not vented in the atmosphere. Private entrepreneurs consulted during the project formulation phase will participate in pilot projects demonstrating utilization. The CIL\ Ministry of Coal will negotiate a gas purchase agreement with the Gas Authority of India Limited (GAIL) and \or neighboring industries interested in direct purchase of gas from the methane recovery projects when the scale permits. India is new to the scheme of opening up to independent power purchase agreements and the project will serve as a model for the sale and purchase of gas for direct industrial/commercial use or for generation of electricity. 7. Public Involvement and Social Issuses: The project during the development phase will involve local community of miners who often suffer the environmental impacts of coal dust, high moisture and gassy mines in the form of resparatory ailments and other related health hazards. Information dissemination and participation in trainning programmes will spread the awareness of realising methane a potential source of revenue that can even be used by mine developers as a substitute fuel often distributed to miners as “payment in kind “.The possibility of substitution of low grade coal used currently as cooking fuel by clean gas will be a welcome feature widely appreciated by miners residing in the region. Increasing mine safety through methane drainnage will also be welcome among the mining community since many underground mines combine the fear of tmine explosions to the need to earn a higher wage under high risk situations. 15 8. Response to the STAP Reviewer’s comments The comments of the independent technical reviewer have been incorporated into the text of the proposal, where appropriate, and the proposal has been strengthened accordingly. An explanation for alterations made to the brief, comments that were already in the document or were not incorporated into the document are provided in the synopsis below: 1. Para. 3 - The reviewer suggests “that the proposal be modified to more clearly define the critical role that foreign CBM consultants and foreign private CBM companies will have in the process of detailed design and implementation of the project” to ensure success of the project. The project activities have been defined so that all training, technology transfer and technology demonstration are undertaken through internationally respected CBM consultants having successful track records and experience in commercialization of CBM. Budgetary allocations have been made in view of the above. 2. Para. 4 - The reviewer indicates that the project could be strengthened through demonstrating enduse possibilities. Extensive consultations have been held on this point. As a result of peer consultations among GEF colleagues, a decision was taken to keep the project simple – restraining project activities to the minimum necessary demonstration sites and end-uses. Instead of demonstrating numerous standard end uses of gas, it was decided to restrict focus on best “value” (electricity generation) and most innovative (fleet conversion) end-uses. Two other end-uses of gas that were included in a previous version (i.e., feedstock or for bottling plants to supply domestic consumption demand) were dropped . 3. Para. 6 - The reviewer indicates that the project would need to explore the legal and institutional barriers to CBM commercialization. The legal and institutional barriers seem to have been reduced considerably in view of very recent policy statements made by GOI in favor of private ownership. Specifically, the new exploration licensing policy (NELP) would support a range of standard operating procedures, including waivers of customs duties for new blocks and a seven-year tax holiday after the commencement of commercial production. At the moment, the major barriers to the utilisation of the CBM resources in India include lack of appropriate technical skill, technology, and technical and informational infrastructure. A further barrier is the perception of high risks associated with this type of project due to limited familiarity with CBM technology. The present project will address skill formation, technology transfer and capacity building , thereby ensuring a link with international expertise and experience. 4. Para. 7 - The reviewer indicates that training activities should include visits /participation at commercial CBM operations in the United States or Australia. The activities of the project have provided for a comprehensive set of training activities, including participation at training sites in the United States was well as at successful CBM recovery sites in China, especially the UNDP GEF financed project. 5. Para. 8 - The reviewer notes that the participation at the mine level would need to be confirmed before proceeding with the project at specific mines. The selection of mine sites was undertaken on the basis of exhaustive mine level consultations and data analysis through Regional Institutes under CMPDIL/CIL/MOC. All stakeholders are in agreement with project design, concepts and objectives. 16 6. Para.9 - Institutional arrangements - The reviewer highlighted the importance of maintaining consultations with relevant agencies. The document cites a large number of relevant institutions and organizations that have been consulted will be included at various stages of project implementation. The present document refers especially to the state electricity board, private utilities, and the Gas Authority of India (GAIL), given their long-term interest in sale and utilisation of gas. The project brief lists the Central Mine Planning and Design Institute as the lead agency to work on the project. It is a subsidiary of Coal India Limited , a nationalised company, owning approximately 88% of the coal mining area and is directly under the purview of the Ministry of Coal. The Ministry of Coal along with members of the CIL and CMPDIL have been involved with the various stages of the project development and will be involved with its implementation. 7. A description of tables2 and 3 and the assumptions therein are incorporated in Annex 4. Maps have been added as Annex 9. 17 Annexes: Annex 1 Annex 2 Annex 3 Annex 4 Annex 5 Annex 6 Annex 7 Annex 8 Annex 9 Incremental Costs Implementation Schedule Possibilities of occurrence of coalbed methane in India Discussion of Avoided Carbon Emission Internet/Intranet Information System STAP Reviewer’s Comments Government Letter of Endorsement Economic Viability of CBM Recovery and Utilization Project in India Maps 18 Annex 1 Incremental Costs 1.1 Broad Development Goals: The broad development goals being pursued by this project is the provision of capacity building and technical assistance to India to enhance coalbed methane recovery and utilization opportunities. This will provide additional energy resources to the economy where approximately 16% of the energy demand is unsatisfied. The generation of energy will be achieved in a decentralized manner which will avoid the current problem of transmission and distribution loss faced by the conventional grid based electricity. Such a goal can only be achieved if the coal industry in the country adopts methane recovery as a by product of coal production activities and uses the energy source efficiently. The private sector has shown keen interest in the resource but has not met with success yet Mobilizing them to ensure productive end use of the methane recovered will ensure the success of the development goal. 1.2 Baseline: Under the baseline, the coal mining industry, which is largely nationalized will undertake some mining operations that are common to the processes relevant for producing coal alone or producing coal as well as methane. These will include standard drilling activities and maintenance of degasification operations necessary for mine safety. However the mine safety regulations do not need as much drilling initiative in terms of skill number of boreholes and drilling techniques as needed for the economic recovery of in seam methane Therefore the necessary resources and the effort needed to achieve the later will not be forth coming from the nationalized coal company which is focused primarily on increasing mine production. Some aspects of training and skill formation is regularly undertaken in the mining industry, but this too is not guided towards the very specific skills and expertise needed for methane recovery. Under this projects UNDP IPF resources are to be funding the special capacity building needs in the project as part of its country programme initiative. 1.3 Global Environment Objectives: The global environment objective being pursued is the reduction of GHG emission under the short term category where the cost effective GHG reduction option of methane recovery is currently not undertaken primarily due to the lack of skill, training and access to relevant technology .The capacity to assess and access the maximum quantity of the inseam gas without damaging coal resource is not available in the country. As a mitigation option it is attractive because of the low $ cost of carbon saved if only the resource could be harnessed. Even in the case of sites where coal resources are exhausted, harnessing of methane will stop it from slow escape into the atmosphere Since the potential options for the recovered gas are very high, the capability to recover it will ensure cost recovery of such initiatives. In the long run mines will find it an asset to generate revenue from this additional energy resource hitherto allowed to go to waste. Since the project is cost effective and is a priority in the national mitigation strategy with a high probability of success (methane recovery has worked in a commercial basis in countries like the US and Australia), it is considered consistent with the GEF short-term projects concept. 1.4 GEF Project Activities 19 The GEF project activities are described in detail in the following table. They have been designed to provide for activities that are specific to technology transfer and their application in the context of mining characteristics commonly found in the eastern region of the coal fields in India .Two specific mine fields have been selected for this purpose after screening nine candidate fields. The screening criterion consisted of geological characteristic of the seam, mining technique currently being applied, the permeability of the coal, the expected life of the mine area, the depth of the seam, the gaseousness of the seams and the locational advantages for the end users. The gas recovery techniques are different depending on the stage of mine life. viz. recovery prior to mining, during mining and after mining. The GEF funds will be accessed to demonstrate recovery of gas from all three categories. 1.5 System Boundary: The project is being discussed in the context of the Indian economy and its energy system. The incremental cost table represents the costs of undertaking a technical assistance cum demonstration project that will show the complete process of coal bed methane harnessing activities and its successful utilization possibilities. 1.6 Incremental Cost Matrix: As shown in the incremental cost matrix the baseline project costs are funded by the Government of India ($4.544 million) and UNDP resources to the tune of $1.214 million. The cash resources from the GoI are also complemented by in-kind contribution worth $2.321 million. The UNDP resources cover for typical capacity building activities like training, information base, and laboratory facilities. The GoI will provide for the regular drilling operations’ expenses, wages and salaries and training expenses of the project personnel. Any incremental effort needed for the recovery of the CBM and not covered by the revenue stream from the project will be funded by the GEF. The following table illustrates itemized allocation of total project resources in cash and kind. The net revenue generated from the production and sale of electricity and substitution of diesel by CNG in the dumper fleet has been deducted from the funding request made of the GEF. 20 Incremental Cost Matrix COMPONENT Global Environmental Benefits BASELINE Increases willingness and preparedness to utilize methane as a potential source of clean fuel.; lowers CO2 emissions Domestic Benefits Increases CBM resources development skills and encourages use of gas. CMPDIL Center better able to carry out development and use of CBM; Links India to world body of knowledge on CBM; Expanded info & experience re: CBM leading to resources development skills Encourages the development of comprehensive resource utilization plan Recovers wasted resources, increases mine safety Improves fleet efficiency, therefore mine output Limited substitution of gas for diesel Increases probability of sustainable CBM development Encourages information exchange and introduces potential investors to India’s CBM resource. Increases capacity for development of clean burning indigenous resource, recovers wasted resources and increases mine safety. 21 ALTERNATIVE Increases awareness of global consequences of CBM emissions as well as opportunities for its utilization; Affords synergistic approach to common problems in recovery and use of CBM; New technology to improve gas yields; Lowers emissions of coal-bed methane; Lowers CO2 emissions and increases power generation efficiency; Lowers CBM emissions which may in the long run lower CO2 emissions; Increases energy supply ,encourages fuel substitution; and Develop skills for lowering CBM emissions and recovering more CBM Expanded info & experience re: CBM leading to resources development skills Encourages use of gas Improves upon existing mine safety conditions; Encourages the development of comprehensive resource utilization plan Improves upon existing mine safety conditions. Encourages the use of a clean burning fuel for transports; Substitutes gas for low quality coal used for power generation. Lowers particulates. Increases power generation efficiency and provides decentralized power. Encourages information exchange and introduces potential investors to India’s CBM resource. INCREMENTAL New technology use to improve yield of gas. Lowers emissions of coal mine methane to the atmosphere Lowers CO2 emissions and increases power generation efficiency.; Lowers CBM emissions and in the long run lowers CO2 emissions; Increases energy supply and encourages fuel substitution. Contributes to development of skills that lower the present level of CBM emissions and prepares India to recover additional quantities of methane as mining depths increase. Expanded info & experience re: CBM leading to resources development skills and encourages the use of gas Incremental Cost Matrix (continued) COSTS (US$000) Activities 1.1 & 1.2: Train CMPDI cell in for development/ use of CBM & establish CBM Info System Activities 2.1 and 2.2 Choose & train members of CBM Project Team and Plan & Apply best strategies for CBM dev’t Activities 3.1; 3.2; & 3.3 Drill vertical wells ahead of mining; Drill vertical wells into gob in mined-out areas; and Drill horizontal drainage boreholes into coal seams and overlying strata Activities 4.1 & 4.2 Collect, transport, and compress high heating value gas from wells drilled in Activity 3.1 for use as vehicle fuel and Collect & transport med. heating value gas produced in Activity 3.2 to stationary IC gensets Activities 5 & 6 Develop & adopt action plan for replication of demonstration project and Establish CBM clearinghouse to disseminate info & facilitate cooperation Totals LESS: Revenue from sales of electricity and diesel substitution Net incremental costs Plus: Executing Agency Support Costs (3%) Incremental Request from GEF BASELINE COSTS 424 (UNDP) 14 (GOI cash) 221 (GOI in-kind) 420 (UNDP) 70 (GoI cash) 300 (GOI in-kind) ALTERNATIVE COSTS 424 (UNDP) 14 (GOI cash) 221 (GOI in-kind) 360 + 420 (UNDP) + 70 (GoI cash) + 300 (GoI in-kind) 8,270 + 2,470 (GoI) + 500 (GoI in-kind) INCREMENTAL COSTS NONE 900 (GOI in-kind) 1,990 (GOI cash) 330 (UNDP) 900 (GOI in-kind) 1,990 (GOI cash) 330 (UNDP) NONE 40 (UNDP) 400(GOI in-kind) 2,250 40 (UNDP) 400(GOI in-kind) 2,250 10,880 4,544 (GoI Cash) 2,321 (GoI in-kind) 1,214 (UNDP) 10,880 2,470 (GOI cash) 500 GOI in-kind) 4,544 (GOI cash) 2,321 (GoI In kind) 1,214 (UNDP) 360 8,270 (1,960) 8,920 267.6 9,187 22 Annex 2 - Implementation Schedule Year 1 Year 2 Year 3 Year 4 Activity Name J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASOND Activity 1: Capacity Building Activity 2: Planning and Preparation Activity 3: Drilling & Production Testing Activity 4: Production and Use Activity 5: Develop Action Plan Activity 6: Establish CBM Clearinghouse 23 Annex 3 Possibilities of occurrence of coalbed methane in India Favorable conditions for occurrence of coalbed gases are generally limited to areas where bituminous coals (Vitrinite reflectance more than 0.65%) occur. In India, such areas are mostly located in coalfields of Damodar Valley namely Raniganj, Jharia, East Bokaro, West Bokaro, Ramgarh, South Karanpura, North Karanpura (eastern part) Coalfields. The Damodar Valley Coalfields have similar coal rank and burial depth to the Warrior and San Juan basins of USA which are leading producers of coalbed methane. The major difference between the Damodar Valley coal seams and those of the San Juan and Black Warrior basins are the thickness, area and maceral content. The cumulative thickness of coal seams in Damodar valley basins is at places more than 100m and is more than either the San Juan or Black Warrior basin's coal seams, but are confined to much smaller area. The prognosticated CBM gas in place resources, as estimated by CMPDI/CIL in the virgin area of the Damodar Valley Coalfields amount to 0.42 trillion cubic meter and is in conformity with other international agencies (0.4 to 0.7 trillion cubic meter) A study of the location of coal & lignite fields vis-à-vis petroliferous basins in India would indicate that production centres of coal are mostly located in the Damodar-Son-Mahanadi valleys and are far away from oil and gas producing centres. CBM from such areas need to be explored and exploited. In the case of north-eastern region, although coal and oil fields are located close to each other, exploitation of CBM, would further add to gas resources. Thick seams have been encountered in almost all the major coalfields located in the Damodar-SonMahanadi valleys. Notable examples are coalfields like Jharia, East Bokaro, West Bokaro, Ramgarh, South and North Karanpura, Barakar measure coal seams in Raniganj, Ib Valley, Talcher, Singrauli etc. In these coalfields, major proportion of reserves are confined to the thick coal seams. These seams are being presently quarried in the shallower regions. However, dip extension of the quarry has to be restricted up to a certain depth depending upon thickness, grade, gradient and surface constraints. Presently quarries are being planned up to a maximum depth of 300 metres. At present, the maximum depth of opencast mine in CIL is about 150 m. Exploitation of thin, average, medium and thick seams beyond certain depth have their own limitations. Seams thinner than 1.2 metres are generally not considered mineable and as such left out from the process of underground mining. In thick and steep seams, the percentage of extraction is rather low. In certain areas, their exploitation is not at all feasible without full stowing due to presence of habitat, rail, road etc.. At depth beyond certain limits mining problems of strata control, methane emission, fire hazard etc. also multiply leading to limitations in exploitation and economic mining. Extraction of coal bed methane under such conditions helps in taking out a part of the stored energy and in some cases may also lead to removing the hazard of emission due to degasification. The seam characteristics of sites selected for study are listed below: Jharia Coalfield : The proposed area in the Jharia coalfield is located in the southern part of the coalfield where mining is not likely to be extended in the next 10 to 15 years. The proposed area is located to the south of Damodar river containing deep lying coal seams (depth generally > 300m). These coal seams are medium to low volatile type with vitrinite reflectance above 1.0%. The available data on gas content is given below : 24 Sl. No. Block Coal seam Gas Content (M3/tonne ) 1 Parbatpur (Within the proposed area) XVIII Top XVIII Bottom XVI Top XVI Bottom XVA XV XIVA XIV 8.40-9.43 7.31 9.92-10.90 10.50-11.10 10.57-11.02 12.50-13.10 13.19-14.60 14.10-14.93 2 Amlabad (Adjacent Colliery) XIV IX VIII 5.15-7.82 6.00-7.72 4.05-5.36 3 Sitanala (Within the proposed area) XVI Top XVI Middle 6.98 7.25-8.90 It would be seen that gas content up to 14.93 M3/tonne of coal at a depth of 795M have been recorded, which is quite promising. Also the coal mines located adjacent to the proposed area (Moonidih, Amlabad and Sudamdih ) are degree III mine (having gas emissions above 10 M3/tonne of coal ). East Bokaro Coalfield : The East Bokaro coalfield has been a traditional source of high rank metallurgical coal and contains high volatile to low volatile bituminous coals. The proposed area is virgin and is located in the western part of this coalfield, adjacent to Jarangdih, Govindpur, and Sawang Collieries. The Sawang Colliery is a degree III mine (having gas emissions above 10M3/tonne of coal ) and Govindpur and Jarangdih are degree II mine ( having gas emissions between 1 to 10M3/tonne of coal ). There is a strong evidence of presence of gas as one of the borehole drilled within the proposed area caught fire and had to be abandoned. The proposed project area is located in mining and industrial belt and the produced gas will have the advantage of a ready market. 25 Annex 4 - Discussion of Avoided Carbon Emissions Calculation Calculation of avoided carbon emissions was based on the following sequence of modeling steps and calculations: 1. Potential quantity of CBM produced from a vertical borehole into a coal seam was modeled using a commercially available and widely used numerical code, Porflo™. Porflo™. is a finite difference code developed to model the flow of fluids through porous media. The code has undergone additional proprietary modifications by its author to accommodate the thermodynamic processes associated with adsorption and desorption of gases on coal or other adsorptive substrates. Inputs for the model were acquired from data provided by CMPDI personnel; The data set included: the adsorptive and desorptive capacity of the coals found in the Jharia and Raniganj coalfields; permeability of the coals and surrounding strata; thickness of the seams being mined; depth of burial; and carbon content. By modeling these inputs it the drainage area of a borehole was determined and the ultimate recovery of gas from the coal seam was estimated. The results of the model were compared with production profiles from vertical wells drilled into virgin coal seams occurring in similar geologic settings. 2. Evaluation and estimation of the potential to produce gas from gob areas was made with using the Roofgas™ model to determine the lateral extent and upward growth of a gob area under the mining conditions found in these basins. The results of the estimated recovery from gob boreholes that could be drilled in the Moonidih mine to production from wells that have been drilled under similar conditions compared favorably. 3. Similar comparisons were made between horizontal well drilled in the central Appalachian Basin and those that could be drilled in the Amblabad or Chinakuri coal mines. Again a suitable model and estimate of the ultimate recovery from horizontal boreholes was selected. 4. There were a number of variables that affected the ultimate recovery from the various boreholes that were considered but the two most critical were the in situ gas content of the coal seams and the permeability. In all cases a conservative value was chosen to represent the conditions that could be expected in the field. 5. The number of boreholes that could be drilled over a fifteen-year period was determined and the amount of gas that could be produced from each was then summed. The following was concluded: Twenty vertical wells could be successfully drilled and completed into virgin coal seams. They could be drilled at an average rate of 2 per year for 10 years producing an average of 1.8 million cubic meters during their productive life. Eighty-five percent of the gas is produced in the first five years of the wells production history. A cumulative volume of 36 million cubic meters of methane could be expected from these wells over the fifteen years of project life. Twenty vertical wells could be successfully completed in gob areas forming in mined out sections of coal mines. They could be drilled at an average rate of two per year for ten years. Their productive life is estimated to be about four years, during which 3.4 million cubic meters could be produced. The cumulative production of these wells during the 15 year project life is estimated to be 68 million cubic meters. Twenty horizontal boreholes could be successfully drilled from underground galleries into a coal seam being mined or into the overlying strata. These drainage boreholes could be drilled at an average rate of two per year for ten years. Each borehole could produce 1.5 million cubic meters of methane over its productive life of two years. Cumulative production from these boreholes is estimated to be 30 million cubic meters. 26 A total of 134 million cubic meters of methane could be produced from the aggregate of wells described above. The volume of methane has been computed on a 100 percent concentration basis, but it is recognized that a greater volume of gas at lower concentrations will likely be produced. Variation in concentration has been considered when selecting utilization strategies for demonstration. Additional allowances were given for the potential for failure to successfully drill and complete wells in each category. Seventy-five percent success ratio was considered to be achievable, given that the wells will be drilled in well known mining areas during a ten out of the fifteen year project life. The calculation of the amount of carbon emissions avoided during the life of the project is done by assuming conversion of the methane into energy versus an equal amount of coal that would be converted. ( This assumption is somewhat of a simplification due to the fact that some amount of the methane will be used as a substitute for diesel fuel which produces less carbon dioxide than coal ). The revenue stream of the power generated and sold from this project has been calculated over the life of the project and subtracted from the incremental cost. 27 Regional CBM Clearinghouses in Poland, China and Russsia CIL Headquarters INTERNET CMPDI Region 1 CMPDI Region 2 Sattelite Phone Communication Intranet Server and Database Platform CMPDI Region 3 Field Workstation and Data Acquisition System Hardcopy Library CMPDI Ranchi CBM Information System CMPDI Region 4 Annex 5 - Information System 28 Annex: 6 : STAP Reviewers Comments From: Charles J. Johnson, Ph.D. Head, Coal and Environment Project East-West Center, HI,Date 21 May 1997 RE: India: Coal Bed Methane Recovery and Commercial Utilization 1. Overall Impressions This proposal on coalbed methane (CBM) in India, addresses emissions of a greenhouse gas that is likely to grow at a faster rate in India than any other greenhouse gas in the world. The proposed project will demonstrate the technical recovery of CBM in India, significantly reduce CBM emissions at the project sites, and have an important demonstration effect for the entire Indian coal mining industry. Successful implementation of this project can make an important contribution to both short and long term CBM emissions in India. This is the first CBM project of this kind in India, and should be implemented without significant delay. A number of suggestions have been made in the following review that will increase the effectiveness of the project, reduce project risks, and improve the longer term prospects for large scale CBM recovery and use in India. 2. Relevance and Priority to GEF The GEF program has focused considerable attention on the important emerging options in renewable energy, where support is clearly needed. However, the benefits of these activities are more than offset by growing environmental emissions from fossil-fuel use, particularly coal. An area of inadequate investment is on coalbed methane (CBM) assessment, recovery and utilization. World CBM emissions are a substantial contributor to greenhouse gases, and growing rapidly in coal-based countries with expanding coal production -- particularly China and India. The GEF program has an opportunity to slow the rate of increase of CBM emissions by funding selected projects in China and India that will demonstrate effective CBM recovery and utilization options, and promote the development of a commercial CBM industry. The project fits under the GEF “Short Term Project” category, although it also has important long term implications to the level of CBM emissions. The following criteria for a GEF “Short Term Project” are met by this project: (i) it is projected to mitigate carbon emissions at a cost of about $6/tC (~60 percent of the unit abatement cost ceiling of $10/tC); (ii) it has a high probability of success (hopefully, enhanced by the recommendations in this technical review); (iii) India has established CBM recovery as an important element of its Ninth Plan (1997/98 to 2001/02). It is likely that the high priority recently given to CBM in India will be sustained beyond the present plan, because of India’s emphasis on natural gas developments, and the good fit that CBM can make to an integrated natural gas strategy in a country with limited natural gas reserves, and large CBM resources. 3. Project Approach The project’s approach is sound, and appropriate for the institutional and organizational environment in India. The proposal defines a comprehensive set of achievable objectives that cover training and institution building, data and information management, detailed design of project activities, drilling, recovery and use of the CBM. It is suggested that the proposal be modified to more clearly define the critical role that foreign CBM consultants and foreign private CBM companies will have in the process of detailed design and implementation of the project. CBM recovery has been widely practiced at mines around the world for safety reasons for many decades, however only recently have innovative approaches to CBM recovery proven to be successful in turning a waste product to a commercial product. The specific skills of 29 consultants and companies directly involved in “successful” CBM projects are considered essential to the project’s success. 4. Objectives The objectives of the project cover the areas that are important to achieving the overall objective of demonstrating the economic viability of harnessing CBM in the Indian mining sector. The projected doubling of coal production in India by 2010 or earlier will result in an exceptionally high growth in CBM emissions of 6-8 percent per year, the highest of any major coal producing country. Implementation of this project can be a critical factor in the rate of development of commercial CBM recovery and use in India, and can slow the rate of increase in coal related methane emissions. The dominant role of the state in the coal mining industry of India is unlikely to be fundamentally changed in the foreseeable future. Therefore, developing a national capacity for CBM recovery is more important than in a private sector dominated coal industry, such as Australia or the United States. The following six stated objectives are necessary to the project’s success: (i) technology transfer (from resource assessment to end use demonstrations), (ii) training, (iii) mine planning, (iv) establishment of mechanisms for the dissemination of CBM information within India, (v) developing a plan to replicate the demonstration project on a wider scale, and (vi) demonstrating viable end use possibilities. It is recommended that the following activities be added to the project: (vii) a more clearly defined role for experienced private sector CBM consultants and successful private CBM producing companies to provide inputs on technical matters in implementing the project; (viii) financial and economic analyses and review of the utilization options, and (ix) a review of the legal and institutional barriers to private commercialization of CBM, to ensure that both the state and private sectors play important roles in the future CBM industry in India. The last point (ix) may be beyond the scope of the present study, but was added because of its importance. 5. Background and Justification The background information on the coal industry and the target areas for CBM recovery agree with the generally recognized coal and methane resource situation in India. The CBM resources and emissions in India that are typically reported are surprisingly low, and should be viewed with caution, until more exploration and evaluation activities have been completed. It is this reviewer’s belief that the CBM potential of India will prove to be larger than presently estimated by most sources, consequently larger than expected long term CBM emissions. Note: A map showing the regional distribution of CBM resources and areas of high energy demand would be useful, but not critical, to the proposal. Also a graph showing the likely CBM emissions under a business-as-usual approach and an aggressive CBM recovery and use strategy for the 2000 to 2020 period would better illustrate the growing CBM problem in India, and urgency for action. 6. Critical Analysis of the Situation The critical analysis reflects an understanding of the important issues in implementing successful projects in India. Annex 4, “Discussion of Avoided Carbon Emissions Calculations”, and Annex 8 “Economic Viability of CBM Recovery and Utilization in India” are particularly relevant and important to the proposal. A fuller description of Table 2 “Carbon Emissions Avoided”, and its assumptions would make it easier for reviewers to check the results. Although, not critical to the analysis of the specific project, as previously noted, the report does not explore the legal and institutional barriers to CBM commercialization (this area needs to be investigated in developing a strategy for a long term large scale CBM industry in India). 7. Activities 30 The six objectives and associated activities will facilitate successful implementation of the project, and achievement of the stated objectives. Under activity 2.1, this reviewer suggests that an energy economist, with project evaluation experience, be included in the technical team to be trained. The training should include visits to, and if possible, a few weeks participation at commercial CBM operations in the United States or Australia. Perhaps a number of Indian students could be sent to appropriate foreign universities to complete masters degrees on the geology and commercial recovery and use of CBM. It is suggested that at an early stage of implementation of the project, that the options for CBM utilization be broadened to ensure the options selected balance the goal of the “highest value markets” for the gas with the “risks” of each end use option. There may be useful lessons learned from reviewing the Chinese experience with CBM recovery and use, which has historically failed to meet commercial expectations. Recent efforts in China to accelerate CBM developments, and legislation and institutional reforms to attract private foreign investors, may be useful to India in formulating its CBM strategies. 8. National Priorities and Community Participation The Indian government has established CBM as a priority, with strong support coming from the Interministerial meeting in late 1996 that recommended “immediate priority” to CBM recovery and use in India. The critical shortage of natural gas within India, and the high probability of major and expensive LNG imports over the next two decades, is a clear policy signal to India that urgent attention should be given to tapping its CBM resources to supplement its clean gas requirements. Participation at the mine level is planned, and will need to be confirmed before proceeding with project at specific mines. In addition, open meetings for the local community should be planned to ensure that the community understands the project, and its suggestions and concerns are considered and accommodated where reasonable. 9. Institutional Arrangements Given the dominant role of the Ministry of Coal in the Indian coal sector, it is logical that one of the divisions within MOC be selected as the lead agency for execution of the project. The proposal designates the Central Coal Mine Planning and Design Institute Limited as the lead agency. This agency’s extensive experience in coal, meets the basic requirements of designing an effective CBM program . A list of national and international entities is provided in the proposal that indicates broad-based institutional involvement. It will be important that consultation be maintained with selected other relevant agencies, including the natural gas industry, which should have a long term interest in CBM to supplement natural gas supplies, the electric power industry and the ministry responsible for environmental issues. 10. Time Frame The planned four year time frame is appropriate for a well managed project of this size and scope. The time frame should be reviewed annually to ensure that it remains realistic and on schedule. 11. Funding It is not possible to accurately estimate costs without a closer examination of the situation at the specific sites in India. However, the total project costs of approximately $19 million appear to be in the right price range (the project needs $15-20 million to be completed as planned). The GEF funding at 57% of the total (before deductions for sale of electricity) is critical to undertaking the project. The key technical areas of drilling and recovery are to be funded by GEF, and the GEF lead should allow it to require the highest level of first class technical support of these activities. 31 12. Innovative Features/Replicability The most innovative part of the project is to “technically demonstrate” (using modern drilling equipment, competent drillers, and advanced drilling techniques) that high quality CBM can be recovered at a sustained level, and justify development for commercial uses. Globally, commercial recovery of CBM probably has more failures than successes, and success of this project will have an important demonstration effect on the rate of adoption of commercial CBM recovery projects in India. More innovation in integrating the foreign private CBM sector into the project will enhance the commercial strengths of the project. 13. Sustainability It is not possible to give assurance of the long term sustainability of the project after GEF funding ceases. On-going drilling and development of wells will be needed to sustain CBM production. Indian mines are often short of necessary funds to modernize and expand coal production, therefore, assuring sufficient investments in a secondary product (CBM) cannot be assured by the nationalised sector alone. However, the demonstration impact of this project on the future CBM industry in India is likely to be substantial, especially for the private sector participation in view of the New Exploration Licensing Policy announced by the Govt. of India recently .The benefits are likely to far exceed the greenhouse gas benefits of sustaining this demonstration project. 14. Development Dimensions and Rationale for GEF Support There have been active discussions and conferences about CBM developments in India in recent years, but a failure to provide sufficient funds to establish viable CBM projects. Without GEF funding, viable sized projects will likely be delayed for a number of years. Even worse, the project or a similar CBM project might be undertaken with insufficient funds and foreign expert guidance. The risk is high that under funded, technically weak projects will fail, and can delay the development of a commercial CBM industry in India. 15. Additional Comments or Questions It is easy to find deficiencies and uncertainties in any major project proposal that addresses a wide range of energy and environmental problems. The key is to ensure that the main elements of GEF projects are realistic (have achievable objectives), and that GEF funding would make an appreciable difference in the likely success of the project, and its contribution to reducing greenhouse gases. This reviewer believes the proposed project meets the above and is a good GEF candidate, and strongly recommends GEF funding. The reviewer’s comments should be seen as suggestions to strengthen a good project for GEF support. 16. Complementary comments provided by C. Johnson in his 29 May 1997 correspondence: This is a follow up to our telephone discussion and your fax of May 22, 1997 pertaining to the review of the CBM proposal. The explanations you provided relating to my suggestions are reasonable, and I support your proceeding with the submission as we discussed on the telephone. The likely benefits from this project, given the solid work behind the project proposal, and its clearly defined scope, support my belief that the project justifies a high priority for GEF funding. 32 Annex 7: Government Letter of Endorsement 33 Annex 8: Economic Viability of CBM Recovery and Utilization Project in India The project's sustainability in the long run will be determined by the future costs of gas extraction, and the potential revenue streams. Once the GEF initiative is completed, these are anticipated to be very favorable. The scope of the coal-bed methane resource in India is significant on both a national and global scale. Potential for Cost Reductions in Gas Extraction: The post-GEF phase costs of the project are expected to be lowered quickly and considerably in comparison to the demonstration phase, on three counts: The " finding costs" ( term used in the CBM literature) go down as improved data base provides a exploration guide, identifying a set of "recognition" criterion for areas with good prospects of finding gas and it is recovered by running fewer tests than the initial years. With the back up data and built up information base, the frequency of ending up with dry spots reduces and finding sweet spots go up. The training and the skill formation goes a long way in ensuring more refined capability of turning gas reserves to resource. International experience has shown finding costs to drop on an average within a period of five years by more than $15 per mt drilled. The mix of output from horizontal, gob and vertical wells will determine the actual costs. The capital costs per m3 of gas recovered will also be lowered. Because of the geophysical log information built up over the years, and the tabulation of fraccing results, not only does the number of holes drilled per unit of gas recovered go down, the cost per drill hole goes down too. Instances like losing the entire bore hole or the equipment become far and few. This reduces the capital cost. Experiences at successful sites within the USA has shown the cost of drilling wells to have reduced by 50% of the original cost in a 5 year period. While the finding costs in the US are currently in the range of 90 cents per thousand cubic ft, the cost per ton of carbon avoided is currently stabilized at $2.5 to $3. Once experience and technical expertise in the operation of CBM drilling rigs has reached a sufficient threshold size, the productivity of the drilling teams will be substantially increased, thereby decreasing further the operating costs. This will result in the development of commercial drilling operations whose overall productivity will be higher than that achievable in a demonstration-project context. The following cost and output mixes are envisaged in the present exercise. The costs are drawn on the total meterage to be drilled i.e. approximately linear 42000 mts. The final column provides an estimate of what the eventual extraction cost might be after project success. Although we do not expect these cost reductions to be achieved within five years (as was the US case), we would expect them to be eventually achieved within the lifetime of the project. The current price of gas stands at $85.50 Mm3 (HBJ pipeline, charged by GAIL from consumers other than the fertilizer industry ). As shown in the table below, 73% of the output in the present exercise is from sites where extraction costs are already below the price received by the primary producer and distributor of gas. 34 Drilling Method Output Mm3 Cost Range $/Mm3 Expected Extraction Costs $/Mm3 Vertical well 36 130 to 132 ~65 Gob Well 68 44 to 46 ~22 Horizontal well (Virgin Coal) 30 58 to 70 ~29 Potential for gas recovery: As explained, the capital costs of recovering gas declines with time as larger volume of gas is recovered per drill hole. The demonstration sites of the present project assesses the potential for gas recovery by taking the most conservative estimate from deploying 3 drills.( Of the schedule of holes per drill, we assumed at least 45% will fail to begin with ) and is expected to give 134 million m3 of gas from an area of 5km * 15km. Gas content data and an Isotherm index in the region (covering 10 times the surface area) indicated 68 billion m3 of gas resources. Even if the ratio of the RRR ( resource recovery rate) to reserve is assumed to be 10%, the potential for gas recovery ranges up to 600 million m3, in the neighborhood of the sample sites.1 Thus, lowering of costs is matched by an increasing revenue stream from harvesting of gas, as higher mine depths encounter increasingly gassy seams. For the sample mines in the present study table I indicates the projection of gas collection and figure (I) indicates the cut of year beyond which the concentration of methane in ventilation air can not be allowed to increase any further. The later will maintain methane concentration at 2% to ensure the mine is fit for production activities to continue, there by necessitating a higher volume of gas to be harvested. Potential Revenues On a very conservative note, the project shows a net revenue of $ 1.96 million on the basis of the savings enjoyed by the sample mines if the gas recovered is predominantly used for producing their own power from fuel cell and IC engine generators. As a demonstration of gas being used for bi-fuel systems, a fleet of representative size dumpers will be converted from the diesel system, using 3% of the gas. The diesel displaced is valued at the international price and the so is the well head gas price. It is interesting to note in columns two and three (see Table 3) the scale advantages lowering the cost of carbon saved, due to increase in the size of dumpers. With increased thrust on opencast mining, the industry is preparing to move towards fleet conversion to larger size and the reduction of cost of carbon avoided due to scale, adds to the 1 For the sites examined time series of ventilation data, methane concentration data and bore hole data from premining areas were put together. The in situ gas content in the region under study is known to be 14 standard m3/tonne (10 makes it gassy of degree three), where as the specific emission is as high as 29 m3/tonne(Moonidih). This is evident among the underground mines in the eastern region of the country, rich with superior grade prime and medium coking coal. The underground mines contribute 43% of the coal output in this region as against 26% of the national average. In comparison to the UG mines in the region the average gas content for non coking coal strip mines is as low as 3-5 m3. 35 sustainability of the project. The costs of trying out this particular end use option was included since the conversion technology is not currently available in the country and there exists a strong possibility of public-private sector partnership collaboration in developing it. While the cost of installing the fueling station is borne by the Govt. of India ($1.89 million), the conversion cost of $300 thousand is expected to be borne by GEF resources. During the demonstration phase it is felt that most of the gas will be used for on site and near-site power generation not requiring major infrastructural support. The benefit stream of power is calculated on the basis of avoided cost (i.e., the NPV of the price at which the mine will be able to buy and sell power, $0.04/kWh). Currently electric utilities in the state produce or purchase power at two and a half cents per kWh and sell it at an average of four cents per kWh. The NPV has been calculated on the basis of these prices. In several neighboring states, the purchase prices negotiated with IPP’s have gone up to 7.5 cents. If similar prices are put in place in Bihar (which is expected because of the acute power shortage), the profitability of the activity increases even more. If gas were to be piped and consumed by the industries concentrated heavily in the area, the current sale price of $0.026 cents per ‘000 cubic feet offered by GAIL ( ie., equivalent to $0.0225/kWh) approximates the avoided cost of two and a half cents per kWh. The GAIL however has expressed a firm commitment to enter into negotiated price regime with individual consumers, in the event enhanced scale of operation dealing with methane gas matures. This is well in line with IPP agreements for the electricity sector.. Potential Profitability Table 3 in the text presents 4 different scenario cases demonstrating the potential profitability of the project. Case 1 in the table corresponds to the situation being presented by this project. Learning costs are high and all capital and recurrent costs are met by project funds. The net present value of the project under these assumptions are a $(-) 11.9 million, roughly equivalent to the gross incremental cost presented in Annex 1. As a result, the initial profitability is low. Case 2 corresponds to a case where the learning costs are still high, but all drilling services are obtained from a leasing company which charges only recurrent costs, including a fee for the amortization of the drilling equipment. Profitability under these assumptions is still very weak, and the incremental costs would also be negative. Case 3 represents the post-project situation, where sufficient training and institutional capacity-building has occurred to lower the finding costs (ie., fewer unsuccessful wells will be drilled). As a result of the national capacity being built up by the project, the gas yields (and therefore the revenues from CNG substitution and electricity generation) are considerably higher than in Cases 1 and 2. Profitability is therefore much higher, with a NPV of approximately $5.3 million. Case 4 includes both the drilling/leasing company and the post-project situation to demonstrate approximately the commercial viability of the coal-bed methane enterprise. The NPV of this future enterprise-- which is able to take advantage of higher skills and the economic advantages of leasing services-- is estimated at over $10 million. 36 Annex 10: Regional Energy Scenario in India, with Specific Emphasis on Eastern India Peak (MW) 92-93 93-94 94-95 1991-92 92-93 6,210 4,350 -1,860 6,785 4,360 -2.425 7,295 5,045 -2,250 7,320 5,766 -1,554 34,075 28,941 -5,134 -30 -35.7 -30.8 -21.2 48,055 39,027 -9,028 52,805 41,984 -10,821 54,875 44,830 -10,045 -18.8 -20.5 -18.3 S1 . N o. Region 1 Eastern Region - (Bihar, West Bengal, Orissa) a) Requirement b) Availability c) Surplus (+ )/ Deficit (-) % d) Surplus (+) / Deficit (-) % 2 95-96 35,760 29,362 -6,398 37,910 32,530 -5,380 40,340 35,118 -5,222 42,765 38,437 -4,328 -15.9 -17.9 -14.2 -12.9 -10.1 57,530 48,066 -9,464 288,974 266,432 -22,542 305,266 279,824 -25,442 323,252 299,494 -23,758 352,260 327,281 -24,979 389,721 354,045 -35,676 -16.5 -7.8 -8.3 -7.3 -7.1 -9.2 Per Capita electricity consumption (kwh) (199495) 178.86 All India a) Requirement b) Availability c) Surplus (+ )/ Deficit (-) % d) Surplus (+) / Deficit (-) % 37 1991-92 Energy (Million kwh) 93-94 94-95 318.84