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OBJECTIVES OF STUDY

Indian Oil & Gas Industry
• The Indian Oil & Gas Sector traces the trends that are most likely to emerge in this industry in the beginning of this new decade. • With the Government gradually giving up control on the oil & gas sector in favor of market forces, Indian oil companies both upstream and downstream players are getting exposed to international price fluctuations. • • This is changing the ground realities for this vital sector of the Indian economy. Hence in order to realize the importance of Indian oil sector this project can be very useful as it highlights the most successive challenges faced by the Indian oil sector.

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INTRODUCTION TO INDIAN OIL SECTOR

The Global Scenario:Globally, the oil & gas sector is dominated by certain large private companies who have a presence in almost all segments of the oil & gas value chain. Historically, oil price has been the single most important challenge facing the global oil industry. The problem is all the more acute as the large private companies account for only a small share of world oil production even as oil prices remain unpredictable and prone to wide fluctuations. Given this backdrop, global oil majors are now increasingly benchmarking their production costs against the oil production costs of the OPEC (Organization of Petroleum Exporting Countries), and increasingly relying on technological innovations and other cost cutting measures to lower their own production costs. The other factors influencing their decisions are the likely fall in oil prices after March 2000, rising demand for gas and lighter petroleum products, and the volatile and unpredictable nature of refining margins.

The Indian Scenario: Unlike their global counterparts, Indian oil & gas companies have so far been operating in specific segments of the value chain. Oil & gas exploration, crude oil refining, distribution and marketing of petroleum products, and natural gas distribution are the key sub-sectors of the Indian oil & gas sector. The total sales turnover of this sector as a whole was around Rs. 1,500 billion as on March 31, 1999. The Indian oil & gas sector has historically been a regulated sector, dominated by Government undertakings. The regulation took the form of the Administered Pricing Mechanism (APM) under which the returns on investment were guaranteed. But now, with the APM being dismantled in phases and private players gaining a presence in the Indian oil & gas sector, the existing public sector oil companies are getting exposed to market forces and competition.

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The Indian Upstream Sector: For the upstream players (the crude oil producers), the linkage to international crude oil prices implies volatility in earnings. While a rise in international crude oil prices would translate into a positive contribution to the bottom-line, a decline in the international prices, on the other hand, would exert pressure on the margins of all upstream companies. The national oil companies would, however, is protected from the downside risk by the floor price fixed by the government. But if the floor price is removed and the international oil prices drop to levels lower than the cost of production, even the national oil companies would require government intervention to protect their bottom-line. What aggravates the risk further is the fact that declining oil production and stagnating reserves dictate that the upstream companies venture into exploration areas that have a high-riskhigh-return profile (like deep water blocks). And this has implications for future exploration & production (E&P) costs. Given the emerging scenario, expects the strategies of the upstream players to focus on: use of better recovery techniques; employment of cost cutting measures; entry into high-risk-high-return areas (with the assumption that oil prices will not fall below the cost of production); integration into downstream areas; partnering; venturing into other geographical regions; and, undertaking organizational restructuring.

The Indian Downstream Sector: The phased dismantling of the APM has exposed the Indian downstream players (refiners and marketers of petroleum products) to market forces. The refining margins of the Indian refineries are now linked to the international refining margins. A fluctuation in the international prices of crude oil/ product translates into a variation in the domestic margins (although they are, to a large extent, protected by the positive net duty protection). In the first 18 months of decontrol (fiscal year 1999 and first half of fiscal year 2000), the profitability of Indian refineries has increased (and is expected to increase further) as their margins have increased following higher duty protection and linkage of crude and product prices with international prices. However, on the flip side, the expected surplus in the domestic market may limit this margin expansion. The other factors 5

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influencing the profitability of Indian refineries in the deregulated scenario would be refinery configuration, operating costs, and refinery location. The ownership of marketing and distribution infrastructure would be of strategic importance and would enhance profitability as the marketing sector is decontrolled. While the profitability of the integrated players would be higher and more resilient to economic troughs, the pure refining companies would find it difficult to sustain profitability in a decontrolled scenario. Accordingly, the pure refining and marketing companies are expected to be merged with the oil majors. A full decontrol of the marketing sector is likely to lead to severe competition among the various players in the industry, and a greater focus on branding and product differentiation. Given the changes taking place, expects the strategies of downstream players to focus on: strengthening import infrastructure; enhancing scale of operations; upgrading processing facilities; implementing environmental projects; strengthening marketing and distribution infrastructure and promoting brands; entering into strategic alliances; venturing into other areas of the energy value chain for optimizing the risk-return profile; and restructuring the organization.

The Indian Gas Sub-Sector: The share of natural gas in India's energy mix has increased more than three times since the early 1980s. Energy efficiency, multiplicity of applications, and environment neutrality are the key factors that are likely to propel further rise in demand for gas in India. The increase in demand could come both from the existing uses of natural gas and from newer applications. A rising demand for gas has implications on the supply level. An increased thrust on liquefied natural gas imports would signal positive developments on the supply front. Also expects the decontrol of the oil sector to enable the existing oil companies to pursue gas E&P activities more actively. The Gas Authority of India Limited, with a monopoly in natural gas distribution, is likely to benefit from the expected rise in natural gas supplies. Besides, its exposure to price risks would be minimal because of the fixed nature of natural gas transportation tariffs.

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Likely Strategic Initiatives: - Response to the phased deregulation, the strategic initiatives of the various players in the energy value chain would focus on the following factors. Product mix. This will have to be in line with market demand. Technology would play a major role in influencing the product mix. Strategic initiatives would also impact product mix. Cost competitiveness. Technological advancements and scale of operations would have an impact on operating costs. Infrastructure/Logistics. The ownership of infrastructure for sourcing crude oil and the logistics for distributing finished products would have a considerable impact on operating costs. Integration into different elements of the value chain would be imperative for bringing synergetic benefits, reducing volatility in earnings, and enhancing value addition. Brand building, pricing, and packaging. These would be used as tools to deliver greater value to customers.

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WHAT DOES PETROLEUM MEAN?
Petroleum is a liquid that is found underground. Sometimes we call it oil. Oil can be as thick and black as tar or as thin as water. Petroleum has a lot of energy. We can turn it into different fuels-like gasoline, kerosene, and heating oil. Most plastics and inks are made from petroleum, too. People have burn oil for a long time. Long ago, they didn’t dig for it. They gathered that seeped from under the ground into ponds. It floated on the water.

Petroleum is a fossil fuel:
Long before the dinosaurs, oceans covered most of the earth. They were filled with tiny sea animals and plants. As the plants and animals died they sank to the ocean floor. Sand and sediment covered them and turn into sedimentary rock. Millions of years passed. The weight of the rock and heat from the earth turned them into petroleum. Petroleum is called a fossil fuel because it was made from the remains of plants and animals. The energy in petroleum came from the energy in the plants and animals. That energy came from the sun.

Petroleum is non-renewable:
The petroleum we use today was made millions of years ago. It took millions of years to form. We can’t make more in a short time. That’s why we call petroleum non-renewable. We import more than half the oil we use from other countries.

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We drill oil wells.
Petroleum is buried underground in tiny pockets in rocks. We drill oil wells in to the rocks to pump out the oil. A few wells are more than two miles deep. A lot of oil is under the oceans along our shores. Oil rigs that can float are used to reach this oil. After the oil is pumped to the surface, it is send to refineries. At the refineries, it is separated into different types of oil and made into fuels. Most of the oil is made into gasoline. The oil is moved from one place to another through pipelines and by ships and trucks.

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We use petroleum everyday.
What would we do without petroleum? Our country would come to a stop! Most of our cars, trucks, planes are powered by fuel made from oil. Our factories use oil to make plastics and paints, medicines and soaps. We even burn oil to make electricity. We use more petroleum than any other energy source.

Petroleum can pollute.
Petroleum keeps us going, but it can damage our environment. Burning fuels made from oil can pollute the air. Pollution from cars is a big problem in many parts of the country. oil companies are making cleaner gasoline and other fuels every year. Oil can pollute soil and water injuring the animals that live in the area. Oil companies work hard to drill and ship oil as safely as possible. They try to clean up any oil that spills.

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ORIGIN OF PETROLEUM
During the past 600 million years incompletely decayed plant and animal remains have become buried under thick layers of rock. It is believed that petroleum consists of the remains of these organisms but it is the small microscopic plankton organism remains that are largely responsible for the relatively high organic carbon content of fine-grained sediments like the Chattanooga shale which are the principle source rocks for petroleum. Among the leading producers of petroleum are Saudi Arabia, Russia, the United States (chiefly Texas, California, Louisiana, Alaska, Oklahoma, and Kansas), Iran, India, China, Norway, Mexico, Venezuela, Iraq, Great Britain, the United Arab Emirates, Nigeria, and Kuwait. The largest known reserves are in the Middle East

PHYSICAL PROPERTIES OF PETROLEUM BASED OIL
Petroleum-based oil describes a broad range of natural hydrocarbon-based substances and refined petroleum products, each having a different chemical composition. As a result, each type of crude oil and refined product has distinct physical properties that affect the way oil spreads and breaks down, the hazard it may pose to marine and human life, and the likelihood that it will pose a threat to natural and man-made resources. For example, light refined products, such as gasoline and kerosene, spread on water surfaces and penetrate porous soils quickly. Fire and toxic hazards are high, but the products evaporate quickly and leave little residue. Alternatively, heavier refined oil products may pose a lesser fire and toxic hazard and do not spread on water as readily. Heavier oils are more persistent, however, and may present a greater remediation challenge. The rate at which an oil spill spreads will determine its effect on the environment. Most oils tend to spread horizontally into a smooth and slippery surface, called a slick, on top of the water. Factors which affect the ability of an oil spill to spread include surface tension, specific gravity, and viscosity.

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Surface tension is the measure of attraction between the surface molecules of a liquid. The higher the oil's surface tension, the more likely a spill will remain in place. If the surface tension of the oil is low, the oil will spread even without help from wind and water currents. Because increased temperatures can reduce a liquid's surface tension, oil is more likely to spread in warmer waters than in very cold waters.

Specific gravity is the density of a substance compared to the density of water. Since most oils are lighter than water, they lie flat on top of it. However, the specific gravity of an oil spill can increase if the lighter substances within the oil evaporate.

Viscosity is the measure of a liquid's resistance to flow. The higher the viscosity of the oil, the greater the tendency for it to stay in one place.

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The Importance of Oil and Natural Gas
When they hear of the decline of oil and natural gas, the first inclination of many people is to say, “Oh well. So I won’t be able to drive as much. I’ll just have to buy a hybrid car and a wood stove.” It is difficult to appreciate the true importance of hydrocarbons to modern civilization. It is doubtful that there is any facet of our technological civilization which will not be affected by the diminishing production of oil and natural gas. If you are reading this article in the morning paper, then the paper it is printed on was manufactured using the energy of oil or natural gas, while the ink itself is an oil product. The printing press which printed this newspaper was built using the power of oil and natural gas, and runs on energy provided by oil and gas. Unless the paper was delivered by a paperboy riding a bicycle (built using the energy of oil and gas, and riding on tires made of oil), then it was delivered by a motor vehicle which consumed oil, was built with the energy of oil and gas, incorporating plastic parts made from oil, and driven on roads made from oil. The light you are reading by was probably produced from electricity generated by natural gas. If not, then it was generated by coal or nuclear fuels both of which are mined and transported using oil. The chair you are sitting on was built using the energy of oil and natural gas, and if it is built with any materials other than wood (cut and transported using oil and gas) or metal (mined, smelted and transported using oil and gas), then they are probably artificial materials made from oil. The same goes for the clothes you are wearing. The coffee you are sipping as you read this column was transported and processed using the energy of oil. Likewise the bacon and eggs you had for breakfast. And the grain which went into the toast you are eating (harvested, ground, baked and transported using the energy of oil and gas), was grown using fertilizers produced from natural gas and pesticides produced from oil. The plate you are eating on was either made from oil, or

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baked in a kiln using natural gas. And your breakfast was cooked on a stove which used either natural gas, or electricity generated from natural gas. Beyond that, the materials used to build the house you are sitting in were transported using oil, as was every item in your house. Oil powered vehicles transport all raw materials to the factory, all finished products from the factory to the marketplace, and all purchases from the marketplace to your home. It is mainly due to the availability of cheap and plentiful oil that the average consumer in INDIA today can live like a king or queen. The average Indian citizen today is benefiting from the energy equivalent of 60 slaves working around the clock. We take our energy slaves totally for granted. A large portion of them are used on frivolous consumption. And, if we are denied our energy slaves for even a few hours, then most of us will kick up a big fuss until they are restored to us. Our civilization is built on oil, and an ever expanding supply of energy is vital to continued economic growth. To quote the Energy Information Administration, Department of Commerce and Bureau of Economic Analysis, “The availability of oil, natural gas, and coal is what made the United States’ rise to a global economic superpower possible. As energy consumption escalated, so did the nation’s economic output as measured by annual gross domestic product.” The converse of this last sentence is also true. As energy consumption declines, so will the annual gross domestic product. It is suspected that this decline will be precipitous rather than gradual. Once investors understand that diminishing energy production cannot be reversed, the market will collapse. The result could be a depression worse than the Great Depression of the 1930s; a depression with no end in sight. To see where we may be heading, it is only necessary to look back at the 1970s. In the year 1970, U.S. domestic oil production peaked and began to decline. This country has never again produced so much oil as we did in 1970. The result was spiraling inflation and gasoline rationing. Due to inflation, mortgage rates jumped 21%. There were trucker 16

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strikes, the Arab oil embargo, and a host of other difficulties. But we were able to overcome the peak of domestic oil production because the world as a whole had not peaked. We had someplace else where we could turn. By the early 1980s, Alaska’s North Slope oil was brought on line, as was Gulf of Mexico oil production and, more importantly, the North Sea deposits. Although the North Slope and Gulf of Mexico deposits were not big enough to change the peak of U.S. oil production, along with the North Sea oil they gave us enough leverage to break the back of OPEC for the time being. But today the North Slope and North Sea fields are all past peak, as are most of the major oil fields in the world. The vast majority of the remaining oil deposits are found in the Middle East, in the countries of Saudi Arabia, Iraq and Iran. Outside of this area, there are important deposits in Russia, West Africa and Venezuela, but these deposits are an order of magnitude smaller than the Middle East. And there are indications that Saudi Arabia’s Ghawar oil field—the largest single field in the world—has been overproduced and abused to the point of collapse. This is why many experts speculate that the end of cheap oil could bring about the end of civilization as we know it. After this will come an era of diminishing energy supplies, diminishing economies, and the faltering ability to even feed the number of people who live in the U.S. today, much less the entire planet.

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INDUSTRY STRUCTURE
The structure of the oil industry had been established in the early 1920’s and had been remarkably stable up until the 1990’s. In the last decade a range of competitive forces influenced two key structural changes – the consolidation of some of the historic majors, hand in hand with widening liberalization of gas and power markets. Today for the first time there was truly an energy market spread across firms competing against one another in oil, gas and power, compared with the segmentation of relatively static market structures maintained by barriers to entry or government control. Energy businesses which drove their operations to achieve cost reductions, to achieve growth in their markets and which were abreast of the electronic communications revolution in how they conducted their business were likely to succeed today, not simply those who had physical and resource assets. Oil markets had over the last 2 years broken out of the band of crude oil prices which had been the main trading range in the decade to 1998. Prices had halved and then tripled in two years, and the forward outlook for the next 2 years as reflected in oil futures would be relatively tight market conditions. The outlook was for price expectations of above Rs.840 per barrel for some time yet. The volatility of price was a sign that markets were working and often politicians were in favour of markets when prices were falling but wanted to intervene if prices rose. The main driver was essentially that the world was increasing its demand for oil (by about a million b/d each of the next 3 years) and asking OPEC to supply about 2/3rds of that growth. Despite the present revitalized cohesion of OPEC, calls for government intervention on the grounds of energy security were misplaced. The basic fact was that oil producers were mostly tied into a single commodity for their entire economic future, and they had no persistent incentive to stop or reduce supply. They were much more dependent and vulnerable to physical oil supply shocks than consumer economies were. 19

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NATURAL GAS AND TECHNOLOGY
Over the past thirty years, the oil and natural gas industry has transformed into one of the most technologically advanced industries in the United States. New innovations have reshaped the industry into a technology leader, in all segments of the industry. This section will discuss the role of technology in the evolution of the natural gas industry, focusing on technologies in the exploration and production sector, as well as a few select innovations that have had a profound effect on the potential for natural gas.

In recent years, demand for natural gas has grown substantially. However, as the natural gas industry in INDIA becomes more mature, domestically available resources become harder to find and produce. As large, conventional natural gas deposits are extracted, the natural gas left in the ground is commonly found in less conventional deposits, which are harder to discover and produce than has historically been the case. However, the natural gas industry has been able to keep pace with demand, and produce greater amounts of natural gas despite the increasingly unconventional and elusive nature. The ability of the industry to increase production in this manner has been a direct result of technological innovations. Below is a brief list of some of the major technological advancements that have been made recently:

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ADVANCES IN THE EXPLORATION AND PRODUCTION SECTOR
Technological innovation in the exploration and production (E&P) sector has equipped the industry with the equipment and practices necessary to continually increase the production of natural gas to meet rising demand. These technologies serve to make the exploration and production of natural gas more efficient, safe, and environmentally friendly. Despite the fact that natural gas deposits are continually being found deeper in the ground, in remote, inhospitable areas that provide a challenging environment in which to produce natural gas, the exploration and production industry has not only kept up its production pace, but in fact has improved the general nature of its operations. Some highlights of technological development in the exploration and production sector include:

22,000 fewer wells are needed on an annual basis to develop the same amount of oil and gas reserves as were developed in 1985. Had technology remained constant since 1985, it would take two wells to produce the same amount of oil and natural gas as one 1985 well. However, advances in technology mean that one well today can produce two times as much as a single 1985 well.

Drilling wastes have decreased by as much as 148 million barrels due to increased well productivity and fewer wells. The drilling footprint of well pads has decreased by as much as 70 percent due to advanced drilling technology, which is extremely useful for drilling in sensitive areas.

By using modular drilling rigs and slim hole drilling, the size and weight of drilling rigs can be reduced by up to 75 percent over traditional drilling rigs, reducing their surface impact.

Had technology, and thus drilling footprints, remained at 1985 levels, today's drilling footprints would take up an additional 17,000 acres of land. New exploration techniques and vibration sources mean less reliance on explosives, reducing the impact of exploration on the environment. 22

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Some of the major recent technological innovations in the exploration and production sector include: • 3-D and 4-D Seismic Imaging - The development of seismic imaging in three dimensions greatly changed the nature of natural gas exploration. This technology uses traditional seismic imaging techniques, combined with powerful computers and processors, to create a three-dimensional model Advanced 3-D Seismic Imaging of the subsurface layers. 4-D seismology expands on this, by adding time as a dimension, allowing exploration teams to observe how subsurface characteristics change over time. Exploration teams can now identify natural gas prospects more easily; place wells more effectively, reduce the number of dry holes drilled, reduce drilling costs, and cut exploration time. This leads to both economic and environmental benefits.

CO2-Sand Fracturing - Fracturing techniques have been used since the 1970s to help increase the flow rate of natural gas and oil from underground formations. CO2-Sand fracturing involves using a mixture of sand propants and liquid CO 2 to fracture formations, creating and enlarging cracks through which oil and natural gas may flow more freely. The CO2 then vaporizes, leaving only sand in the formation, holding the newly enlarged cracks open. Because there are no other substances used in this type of fracturing, there are no 'leftovers' from the fracturing process that must be removed. This means that, while this type of fracturing effectively opens the formation and allows for increased recovery of oil and natural gas, it does not damage the deposit, generates no below ground wastes, and protects groundwater resources.

Coiled Tubing - Coiled tubing technologies replace the traditional rigid, jointed drill pipe with a long, flexible coiled pipe string. This greatly reduces the cost of 23

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drilling, as well as providing a smaller drilling footprint, requiring less drilling mud, faster rig set up, and reducing the time normally needed to make drill pipe connections. Coiled tubing can also be used in combination with slim hole drilling to provide very economic drilling conditions, and less impact on the environment.

Measurement While Drilling - Measurement-While-Drilling (MWD) systems allow for the collection of data from the bottom of a well as it is being drilled. This allows engineers and drilling team’s access to up to the second information on the exact nature of the rock formations being encountered by the drill bit. This improves drilling efficiency and accuracy in the drilling process, allows better formation evaluation as the drill bit encounters the underground formation, and reduces the chance of formation damage and blowouts.

Slim hole Drilling - Slim hole drilling is exactly as it sounds; drilling a slimmer hole in the ground to get to natural gas and oil deposits. In order to be considered slim hole drilling, at least 90 percent of a well must be drilled with a drill bit less than six inches in diameter (whereas conventional wells typically use drill bits as large as 12.25 inches in diameter). Slim hole drilling can significantly improve the efficiency of drilling operations, as well as decrease its environmental impact. In fact, shorter drilling times and smaller drilling crews can translate into a 50 percent reduction in drilling costs, while reducing the drilling footprint by as much as 75 percent. Because of its low cost profile and reduced environmental impact, slim hole drilling provides a method of economically drilling exploratory wells in new areas, drilling deeper wells in existing fields, and providing an efficient means for extracting more natural gas and oil from undeleted fields.

Offshore Drilling Technology The offshore oil and gas production sector is sometimes referred to as Offshore Production - NASA of the Sea 24

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'NASA of the Sea', due to the monumental achievements in deepwater drilling that have been facilitated by state of the art technology. Natural gas and oil deposits are being found at locations that are deeper and deeper underwater. Whereas offshore drilling operations used to be some of the most risky and dangerous undertakings, new technology, including improved offshore drilling rigs, dynamic positioning devices and sophisticated navigation systems are allowing safe, efficient offshore drilling in waters more than 10,000 feet deep. The above technological advancements provide only a snapshot of the increasingly sophisticated technology being developed and put into practice in the exploration and production of natural gas and oil. New technologies and applications are being developed constantly, and serve to improve the economics of producing natural gas, allow for the production of deposits formerly considered too unconventional or uneconomic to develop, and ensure that the supply of natural gas keeps up with steadily increasing demand. Sufficient domestic natural gas resources exist to help fuel the U.S. for a significant period of time, and technology is playing a huge role in providing low-cost, environmentally sound methods of extracting these resources. Two other technologies that are revolutionizing the natural gas industry include the increased use of liquefied natural gas, and natural gas fuel cells. These technologies are discussed below.

LIQUIFIED NATURAL GAS
Cooling natural gas to about -260°F at normal pressure results in the condensation of the gas into liquid form, known as Liquefied Natural Gas (LNG). LNG can be very useful, particularly for the transportation of natural gas, since LNG takes up about one six hundredth the volume of gaseous natural gas. While LNG is reasonably costly to produce, advances in technology are reducing the costs associated with the liquification and regasification of LNG. Because it is easy to transport, LNG can serve to make economical those stranded natural gas deposits for which the construction of pipelines is uneconomical. 25

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LNG, when vaporized to gaseous form, will only burn in concentrations of between 5 and 15 percent mixed with air. In addition, LNG, or any vapor associated with LNG, will not explode in an unconfined environment. Thus, in the unlikely event of an LNG spill, the natural gas has little chance of igniting an explosion. Liquification also has the advantage of removing oxygen, carbon dioxide, sulfur, and water from the natural gas, resulting in LNG that is almost pure methane. LNG Delivery Facility with Tanker LNG is typically transported by specialized tanker with insulated walls, and is kept in liquid form by auto refrigeration, a process in which the LNG is kept at its boiling point, so that any heat additions are countered by the energy lost from LNG vapor that is vented out of storage and used to power the vessel. The increased use of LNG is allowing for the production and marketing of natural gas deposits that were previously economically unrecoverable. Although it currently accounts for only about 1 percent of natural gas used in the United States, it is expected that LNG imports will provide a steady, dependable source of natural gas for U.S. consumption.

NATURAL GAS FUEL CELLS
Fuel cells powered by natural gas are an extremely exciting and promising new technology for the clean and efficient generation of electricity. Fuel cells have the ability to generate electricity using electrochemical reactions as opposed to combustion of fossil fuels to generate electricity. Essentially, a fuel cell works by passing streams of fuel (usually hydrogen) and oxidants over electrodes that are separated by an electrolyte. This produces a chemical reaction that generates electricity without requiring the combustion of fuel, or the addition of heat as is common in the traditional generation of electricity. When pure hydrogen is used as fuel, and pure oxygen is used as the oxidant, the reaction 26

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that takes place within a fuel cell produces only water, heat, and electricity. In practice, fuel cells result in very low emission of harmful pollutants, and the generation of highquality, reliable electricity. The use of natural gas powered fuel cells has a number of benefits, including:

Clean Electricity - Fuel cells provide the cleanest method of producing electricity from fossil fuels. While a pure hydrogen, pure oxygen fuel cell produces only water, electricity, and heat, fuel cells in practice emit only trace amounts of sulfur compounds, and very low levels of carbon dioxide. However, the carbon dioxide produced by fuel cell use is concentrated and can be readily recaptured, as opposed to being emitted into the atmosphere.

Distributed Generation - Fuel cells can come in extremely compact sizes, allowing for their placement wherever electricity is needed. This includes residential, commercial, industrial, and even transportation settings.

Dependability - Fuel cells are completely enclosed units, with no moving parts or complicated machinery. This translates into a dependable source of electricity, capable of operating for thousands of hours. In addition, they are very quiet and safe sources of electricity. Fuel cells also do not have electricity surges, meaning they can be used where a constant, dependably source of electricity is needed.

Efficiency - Fuel cells convert the energy stored within fossil fuels into electricity much more efficiently than traditional generation of electricity using combustion. 27

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This means that less fuel is required to produce the same amount of electricity. The National Energy Technology Laboratory estimates that, used in combination with natural gas turbines, fuel cell generation facilities can be produced that will operate in the 1 to 20 Megawatt range at 70 percent efficiency, which is much higher than the efficiencies that can be reached by traditional generation methods within that output range. The generation of electricity has traditionally been a very polluting, inefficient process. However, with new fuel cell technology, the future of electricity generation is expected to change dramatically in the next ten to twenty years. Research and development into fuel cell technology is ongoing, to ensure that the technology is refined to a level where it is cost effective for all varieties of electric generation requirements.

Types of extracted natural gas
Based on its composition, extracted (biological) natural gas belongs to one of four basic groups: 1. Dry (weak) natural gas contains a high percentage of methane (95-98%) and a very small amount higher hydrocarbons, 2. Wet (rich) natural gas contains more higher hydrocarbons in addition to methane, 3. Acidic natural gas has a high content of sulfane (H2S), which must be removed in processing plants before natural gas is supplied to the distribution system, 4. Natural gas with a high content of inert gases, i.e. mainly carbon dioxide and nitrogen. 28

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As to higher hydrocarbons, natural gas contains mainly saturated hydrocarbons, which under normal conditions exist in gaseous form – ethane, propane, and butane. Natural gas from some deposits also contains hydrocarbons that are in a liquid state under normal conditions (pentane and higher) and are separated as a gaseous condensate during processing. Their mixture is called gasoline or biological petrol. At present, the most widely used natural gas is the so-called oil-based natural gas, which formed together with crude oil. In most cases, oil-based natural gas extracted together with crude oil is wet natural gas. Some deposits contain no crude oil, but only dry natural gas. Besides oil-based gas, carbon-based natural gas is used, which is removed from coal during the mining process for safety reasons. This natural gas is always dry. Carbonbased natural gas is used in areas with anthracite mining. Although the deposits of oil-based natural gas are sufficient, research is underway into ways of producing energy when all gas deposits will have been exhausted. One possibility is producing substitute natural gas through coal gasification.

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NATURAL GAS
Natural gas is a highly calorific, colorless, and odorless gas with excellent utility parameters. It is a mixture of gaseous hydrocarbons and non-flammable substances (mainly nitrogen and carbon dioxide). Its characteristic feature is high methane content. Without exaggeration, natural gas is a truly environment-friendly fuel because gases produced by burning this substance contain practically no solid particles (fly ashes) or sulfur oxides, and the content of other harmful substances, such as CO and NOx, is much lower compared to other fuel types. Natural gas contains pure energy that brings the heating comfort to households 24 hours a day, seven days a week, 365 days a year. The energy in natural gas can be very easily and efficiently regulated and used to the maximum. The specific characteristics of natural gas and its extensive applications have had an important effect on current trends in heating technology, where energy costs and heat savings are some of the key topics. Thanks to all these aspects, natural gas can be regarded as the economical, ecological, and prospective fuel for the 21st century. Recently, natural gas has found its way into the transport industry where it is successfully replacing traditional fuels. Unlike gasoline and diesel fuel, engines driven by natural gas produce minimal amounts of pollutants.

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Main advantages of natural gas:
• • • • • • natural gas is the only biological fuel that can be transported to customers without energy transformation and costly processing, transmission and distribution systems are unaffected by climatic changes, natural gas is available to customers with no restrictions 24 hours a day, 365 days a week, customers need no fuel storage space, gas appliances are easy to operate and control, natural gas is the most ecological non-renewable source of energy.

Natural gas is a biological mixture of gaseous hydrocarbons with a dominant content of methane (CH4) and variable amount of non-hydrocarbon gases (especially inert gases).

Origin of natural gas
There are several theories about the origin of natural gas. Since natural gas often comes from localities near crude oil (oil-based natural gas) or coal deposits (carbon-based natural gas), most theories assume that natural gas was gradually released during the formation of coal or crude oil as a result of the gradual decomposition of organic materials. Theories preferring organic origin therefore advocate that natural gas originates from vegetative and animal remains. In contrast, inorganic theories assume that natural gas was created from inorganic substances by a succession of chemical reactions. Recently, American scientists have proposed another, so-called abiogenetic hypothesis according to which natural gas was created by the fission of hydrocarbons that came to our planet at the time it was formed from cosmic matter. These higher hydrocarbons gradually disintegrated into methane, which subsequently advanced as far as the Earth's surface.

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Qualities of natural gas
Although the gas industry has relied on various gases during the close to 200 years of its history, only substances produced by the gasification or degassing of coal, natural gas, and propane- and butane-based liquid gases have been used to an important extent. Fuel gases produced by the gasification or degassing of coal have an average calorific value. In the Czech Republic, they are known as coke gas and city gas. While the most important constituents of these gases are methane, hydrogen, and carbon monoxide, they also contain nitrogen, carbon dioxide, and higher hydrocarbons. Due to high carbon monoxide content, these gases are toxic. Their calorific value ranges between 17 - 20 MJ/m3. Fuel gases with high methane content have excellent heating characteristics. In the Czech Republic, they include natural gas (carbon- and oil-based) and biogases. While their prevalent constituent is methane, they can contain higher hydrocarbons and inert gases. Their calorific value depends on methane content and ranges from some 20 MJ/m3 (biogases, carbon-based natural gas with high content of inert gases) up to 40 MJ/m3 (the calorific value may be even higher if the hydrocarbon content is higher). Fuel gases based on propane and butane have a very high calorific value. In the Czech Republic, these gases are used in a pure form or in a mixture known as propane-butane. Unlike the previously mentioned gases, propane- and butane-based fuel gases are distributed in liquid state. Their calorific value depends on the ratio of propane and butane in the mixture, and ranges between 101.7 (pure propane) and 133.9 MJ/m3 (pure butane) or 50 MJ/kg of mixture of these gases (they are sold per weight).

Natural gas deposits
Estimated to total 511 thousand trillion cubic meters, the total reserves of natural gas are expected to last up to 200 years. 33

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Natural gas reserves are divided into proved, probable, and potential .

Proved reserves of natural gas, which are economically extractable with currently
available technologies, amount to 164 thousand billion cubic meters and are expected to last until 2060 at the present extraction rate. The worldwide reserves or natural gas have key importance for the long-term prospects of gas use. At the end of 1960s, there was a prevalent opinion that natural gas is only a temporary energy source whose reserves would be rapidly exhausted. Today, it is certain that natural gas is and will be the fuel for the 21st century. This ambitious statement is supported by the current state of natural gas reserves and the history of their development. Deposits of fossil fuels and minerals are usually classified into several groups based on certain criteria. The classification methodology often differs based on the processing company or the purpose for which materials are used. For example, geologists use classification that is far more detailed than mining companies or institutions that compile statistics. At the beginning of 1970s, when the first concepts were drafted for transporting natural gas from the former Soviet Union to Czechoslovakia and Western Europe, proved reserves of natural gas worldwide amounted to no more than 39,443 billion cubic meters; 12,806 billion cubic meters of which was located in USSR. Rapid advances in geological surveying on land and continental shelves resulted in the discovery and acquisition of vast deposits of natural gas, which reached some 164,600 billion cubic meters in 2000. It is interesting to note that 71.7% of these deposits are located on land and 28.3% in oceans on continental shelves. In addition to size, the lifetime of natural gas reserves is an important factor for the long-term prospects of natural gas. The so-called static lifetime is the ratio of presently known reserves and current extraction expressed in years.

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Probable reserves are reserves discovered in deposits that show high probability of
being extractable under economic and technical conditions similar to those that exist with regard to proved reserves. No technical facilities have been built at deposits of this type. In addition to proved deposits, the likeliness that probable reserves will be used is very high. The shift of a certain volume of probable reserves to the first category as a result of the continuing exploitation of deposits is the reason why the size and lifetime of proved reserves of natural gas continue to grow. Probable reserves amount to 347,000 billion cubic meters. Very interesting and favorable for Europe and the Czech Republic is the geographic distribution of both categories of reserves, as shown in the following diagram. According to international gas unions, the worldwide reserves of natural gas will last 136 to 156 years (up to 200 years according to some estimates), taking into account proved and probable reserves of natural gas in the world as of year 2000.

Potential reserves include so-called unconventional sources, especially methane
hydrates, a solid substance similar to snow that consists of methane (20%) and water (80%). Methane hydrates are located in the Earth's crust under the ocean bottom. These very important deposits have been known for a long time; however, extraction remains problematic. One possibility of extracting methane hydrates, which is currently being researched, is thermal breakup and depressurization. Modern geological surveying methods allow estimating the reserves of methane hydrates in a more and more precise manner. At present, the reserves of natural gas in hydrates amount to some 21,000,000 billion cubic meters. Another source of this kind, the so-called coal bed methane (CBM), is methane assumed to originate from anthracite seams. The gas is absorbed in coal seams, bound to the microporous structure of coal. The efficiency of extracting gas from this source depends on the degree of carbonization and permeability of coal.

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In most coalfields around the world, extraction of CBM is at the stage of research and pilot projects. Surveying is also underway in North Moravia where coal has been discovered to hold some 12.5 cubic meters of CBM per ton of coal, and reserves whose extraction would be economically viable amount to 70-370 billion cubic meters. One of the most important factors that has played a major role in the discovery and acquisition of new reserves is the introduction of new technologies. Three-dimensional seismic studies have identified new localities for directional boreholes with a great accuracy and reliability. The ability to reach new deposits through low-diameter, directional, and horizontal boreholes has changed the economics of gas extraction considerably. In addition, new types of sea-based oilrigs have had a major impact on the acquisition of deposits on continental shelves. In the future, gas hydrates may become an important source of natural gas. They consist of a mixture of methane, some higher hydrocarbons (ethane, propane), and water, which exists under high pressure and low temperature. The deposits of gas hydrates discovered so far are vast – their size on the northern hemisphere only is many times bigger than the currently extractable reserves of oil-based natural gas throughout the world.

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Long-distance transport
Due to the long distances over which natural gas must be transported, transportation is the most demanding part of its journey from a deposit to the customer. Processed natural gas can be transmitted via pipelines or, in liquid state, by tankers.

Pipelines – Europe is crisscrossed by a dense network of long-distance
pipelines. The operating pressures in modern pipeline systems reach up to 10 MPa, and pipes often have more than one meter in diameter (for example, the Czech Republic has close to 400 kilometers of pipelines with a diameter of 1,400 millimeters). Pipelines are located on both land and sea bottom. The latter are used for transporting natural gas from deposits in North Sea or Africa to Europe.

Tankers – This method is used for long-distance transport by sea. For example,
it used for transporting compressed natural gas (CNG, PNG) and liquefied natural gas (LNG) from Algeria, Nigeria, or Australia to Europe. Natural gas is compressed or liquefied on land (reducing its volume 600 times) and transferred to a tanker. At the destination, it is pumped into reservoirs where it gradually evaporates into pipeline systems.

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NATURAL GAS AND ENVIRONMENT
Natural gas is an extremely important source of energy for reducing pollution and maintaining a clean and healthy environment. In addition to being a domestically abundant and secure source of energy, the use of natural gas also offers a number of environmental benefits over other sources of energy, particularly other fossil fuels. This section will discuss the environmental effects of natural gas, in terms of emissions as well as the environmental impact of the natural gas industry itself.

Emissions from the Combustion of Natural Gas
Natural gas is the cleanest of all the fossil fuels. Composed primarily of methane, the main products of the combustion of natural gas are carbon dioxide and water vapor, the same compounds we exhale when we breathe. Coal and oil are composed of much more complex molecules, with a higher carbon ratio and higher nitrogen and sulfur contents. This means that when combusted, coal and oil release higher levels of harmful emissions, including a higher ratio of carbon emissions, nitrogen oxides (NOx), and sulfur dioxide (SO2). Coal and fuel oil also release ash particles into the environment, substances that do 39

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not burn but instead are carried into the atmosphere and contribute to pollution. The combustion of natural gas, on the other hand, releases very small amounts of sulfur dioxide and nitrogen oxides, virtually no ash or particulate matter, and lower levels of carbon dioxide, carbon monoxide, and other reactive hydrocarbons.

Fossil Fuel Emission Levels - Pounds per Billion Btu of Energy Input Pollutant Carbon Dioxide Carbon Monoxide Nitrogen Oxides Sulfur Dioxide Particulates Mercury Natural Gas 117,000 40 92 1 7 0.000 Oil 164,000 33 448 1,122 84 0.007 Coal 208,000 208 457 2,591 2,744 0.016

The use of fossil fuels for energy contributes to a number of environmental problems. Natural gas, as the cleanest of the fossil fuels, can be used in many ways to help reduce the emissions of pollutants into the atmosphere. Burning natural gas in the place of other fossil fuels emits fewer harmful pollutants into the atmosphere, and an increased reliance on natural gas can potentially reduce the emission of many of these most harmful pollutants. Pollutants emitted in the United States, particularly from the combustion of fossil fuels, have led to the development of many pressing environmental problems. Natural gas, emitting fewer harmful chemicals into the atmosphere than other fossil fuels, can help to mitigate some of these environmental issues. These issues include:

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Greenhouse Gas Emissions
Global warming, or the 'greenhouse effect' is an environmental issue that deals with the potential for global climate change due to increased levels of atmospheric 'greenhouse gases'. There are certain gases in our atmosphere that serve to regulate the amount of heat that is kept close to the Earth's surface. Scientists theorize that an increase in these greenhouse gases will translate into increased temperatures around the globe, which would result in many disastrous environmental effects. In fact, the Intergovernmental Panel on Climate Change (IPCC) predicts in its 'Third Assessment Report' released in February 2001 that over the next 100 years, global average temperatures will rise by between 2.4 and 10.4 degrees Fahrenheit. The principle greenhouse gases include water vapor, carbon dioxide, methane, nitrogen oxides, and some engineered chemicals such as chlorofluorocarbons. While most of these gases occur in the atmosphere naturally, levels have been increasing due to the widespread burning of fossil fuels by growing human populations. The Power Plants Contribute to the reduction of greenhouse gas emissions has Emission of Greenhouse Gases become a primary focus of environmental programs in countries around the world. One of the principle greenhouse gases is carbon dioxide. Although carbon dioxide does not trap heat as effectively as other greenhouse gases (making it a less potent greenhouse gas), the sheer volume of carbon dioxide emissions into the atmosphere is very high, particularly from the burning of fossil fuels. In fact, according to the EIA in its report 'Emissions of Greenhouse Gases in the United States 2000', 81.2 percent of greenhouse gas emissions in the United States in 2000 came from carbon dioxide directly attributable to the combustion of fossil fuels. Because carbon dioxide makes up such a high 41

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proportion of U.S. greenhouse gas emissions, reducing carbon dioxide emissions can play a huge role in combating the greenhouse effect and global warming. The combustion of natural gas emits almost 30 percent less carbon dioxide than oil, and just under 45 percent less carbon dioxide than coal. One issue that has arisen with respect to natural gas and the greenhouse effect is the fact that methane, the principle component of natural gas, is itself a very potent greenhouse gas. In fact, methane has an ability to trap heat almost 21 times more effectively than carbon dioxide. According to the Energy Information Administration, although methane emissions account for only 1.1 percent of total U.S. greenhouse gas emissions, they account for 8.5 percent of the greenhouse gas emissions based on global warming potential. Sources of methane emissions in the U.S. include the waste management and operations industry, the agricultural industry, as well as leaks and emissions from the oil and gas industry itself. A major study performed by the Environmental Protection Agency (EPA) and the Gas Research Institute (GRI) in 1997 sought to discover whether the reduction in carbon dioxide emissions from increased natural gas use would be offset by a possible increased level of methane emissions. The study concluded that the reduction in emissions from increased natural gas use strongly outweighs the detrimental effects of increased methane emissions. Thus the increased use of natural gas in the place of other, dirtier fossil fuels can serve to lessen the emission of greenhouse gases in the United States.

Smog, Air Quality and Acid Rain
Smog and poor air quality is a pressing Smog - Natural Gas Can Help environmental problem, particularly for large metropolitan cities. Smog, the primary constituent of which is ground level ozone, is formed by a chemical reaction of carbon monoxide, nitrogen oxides, volatile organic compounds, and heat from sunlight. As well as creating that familiar smoggy haze commonly found surrounding large cities, particularly in the summer time, smog and ground level ozone can contribute to respiratory problems ranging from temporary 42

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discomfort to long-lasting, permanent lung damage. Pollutants contributing to smog come from a variety of sources, including vehicle emissions, smokestack emissions, paints, and solvents. Because the reaction to create smog requires heat, smog problems are the worst in the summertime. The use of natural gas does not contribute significantly to smog formation, as it emits low levels of nitrogen oxides, and virtually no particulate matter. For this reason, it can be used to help combat smog formation in those areas where ground level air quality is poor. The main sources of nitrogen oxides are electric utilities, motor vehicles, and industrial plants. Increased natural gas use in the electric generation sector, a shift to cleaner natural gas vehicles, or increased industrial natural gas use, could all serve to combat smog production, especially in urban centers where it is needed the most. Particularly in the summertime, when natural gas demand is lowest and smog problems are the greatest, industrial plants and electric generators could use natural gas to fuel their operations instead of other, more polluting fossil fuels. This would effectively reduce the emissions of smog causing chemicals, and result in clearer, healthier air around urban centers. For instance, a 1995 study by the Coalition for Gas-Based Environmental Solutions found that in the Northeast, smog and ozone-causing emissions could be reduced by 50 to 70 percent through the seasonal switching to natural gas by electric generators and industrial installations. Particulate emissions also cause the degradation of air quality in the United States. These particulates can include soot, ash, metals, and other airborne particles. A study by the Union of Concerned Scientists in 1998, entitled 'Cars and Trucks and Air Pollution', showed that the risk of premature death for residents in areas with high airborne particulate matter was 26 percent greater than for those in areas with low particulate levels. Natural gas emits virtually no particulates into the atmosphere: in fact, emissions of particulates from natural gas combustion are 90 percent lower than from the combustion of oil, and 99 percent lower than burning coal. Thus increased natural gas use in place of other dirtier hydrocarbons can help to reduce particulate emissions in the U.S.

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Acid rain is another environmental problem that affects much of the Eastern United States, damaging crops, forests, wildlife populations, and causing respiratory and other illnesses in humans. Acid rain is formed when sulfur dioxide and nitrogen oxides react with water vapor and other chemicals in the presence of sunlight to form various acidic compounds in the air. The principle source of acid rain causing pollutants, sulfur dioxide and nitrogen oxides, are coal fired power plants. Since natural gas emits virtually no sulfur dioxide, and up to 80 percent less nitrogen oxides than the combustion of coal, increased use of natural gas could provide for fewer acid rain causing emissions.

Industrial and Electric Generation Emissions
Pollutant emissions from the industrial sector and electric utilities contribute greatly to environmental problems in the United States. The use of natural gas to power both industrial boilers and processes and the generation of electricity can significantly improve the emissions profiles for these two sectors. Natural gas is becoming an increasingly important fuel in the generation of electricity. As well as providing an efficient, competitively priced fuel for the generation of electricity, the increased use of natural gas allows for the improvement in the emissions profile of the electric generation industry. According to the National Environmental Trust (NET) in their 2002 publication entitled 'Cleaning up Air Pollution from America's Power Plants', power plants in the U.S. account for 67 percent of sulfur dioxide emissions, 40 percent of carbon dioxide emissions, 25 percent of nitrogen oxide emissions, and 34 percent of mercury emissions. Coal fired power plants are the greatest contributors to these types of emissions. In fact, only 3 percent of sulfur dioxide emissions, 5 percent of carbon dioxide emissions, 2 percent of nitrogen oxide emissions, and 1 percent of mercury emissions come from non-coal fired power plants.

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Natural gas fired electric generation, and natural gas powered industrial applications, offer a variety of environmental benefits and environmentally friendly uses, including:

Fewer Emissions - combustion of natural gas, used in the generation of electricity, industrial boilers, and other applications, emits lower levels of NOx, CO2, and particulate emissions, Emissions from Industrial Smokestacks

and virtually no SO2 and mercury emissions. Natural gas can be used in place of, or in addition to, other fossil fuels, including coal, oil, or petroleum coke, which emit significantly higher levels of these pollutants. • Reduced Sludge - coal fired power plants and industrial boilers that use scrubbers to reduce SO2 emissions levels generate thousands of tons of harmful sludge. Combustion of natural gas emits extremely low levels of SO2, eliminating the need for scrubbers, and reducing the amounts of sludge associated with power plants and industrial processes.

Reburning - This process involves injecting natural gas into coal or oil fired boilers. The addition of natural gas to the fuel mix can result in NOx emission reductions of 50 to 70 percent, and SO2 emission reductions of 20 to 25 percent.

Cogeneration - the production and use of both heat and electricity can increase the energy efficiency of electric generation systems and industrial boilers, which translates to requiring the combustion of less fuel and the emission of fewer pollutants. Natural gas is the preferred choice for new cogeneration applications.

Combined Cycle Generation - Combined cycle generation units generate electricity and capture normally wasted heat energy, using it to generate more electricity. Like cogeneration applications, this increases energy efficiency, uses less fuel, and thus produces fewer emissions. Natural gas fired combined cycle

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generation units can be up to 60 percent energy efficient, whereas coal and oil generation units are typically only 30 to 35 percent efficient . • Fuel Cells - Natural gas fuel cell technologies are in development for the generation of electricity. Fuel cells are sophisticated devices that use hydrogen to generate electricity, much like a battery. No emissions are involved in the generation of electricity from fuel cells, and natural gas, being a hydrogen rich source of fuel, can be used. Although still under development, widespread use of fuel cells could in the future significantly reduce the emissions associated with the generation of electricity. Essentially, electric generation and industrial applications that require energy, particularly for heating, use the combustion of fossil fuels for that energy. Because of its clean burning nature, the use of natural gas wherever possible, either in conjunction with other fossil fuels, or instead of them, can help to reduce the emission of harmful pollutants.

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POLLUTION FROM THE TRANSPORTATION SECTOR NATURAL GAS VEHICLES
The transportation sector (particularly cars, trucks, and buses) is one of the greatest contributors to air pollution in the United States. Emissions from vehicles contribute to smog, low visibility, and various greenhouse gas emissions. According to the Department of Energy (DOE), about half of all air pollution and more than 80 percent of air pollution in cities are produced by cars and trucks in the United States. Natural gas can be used in the transportation sector to cut down on these high levels of pollution from gasoline and diesel powered cars, trucks, and buses. In fact, according to the EPA, compared to traditional vehicles, vehicles operating on compressed natural gas have reductions in carbon monoxide emissions of 90 to 97 percent, and reductions in carbon dioxide emissions of 25 percent. Nitrogen oxide emissions can be reduced by 35 to 60 percent, and other non-methane hydrocarbon emissions Source: EPA could be reduced by as much as 50 to 75 percent. In addition, because of the relatively simple makeup of natural gas in comparison to traditional vehicle fuels, there are fewer toxic and carcinogenic emissions from natural gas vehicles, and virtually no particulate emissions. Thus the environmentally friendly attributes of natural gas may be used in the transportation sector to reduce air pollution. Natural gas is the cleanest of the fossil fuels, and thus its many applications can serve to decrease harmful pollution levels from all sectors, particularly when used together with or replacing other fossil fuels. The natural gas industry itself is also committed to ensuring that the process of producing natural gas is as environmentally sound as possible.

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CONTRIBUTION OF OIL AND NATURAL GAS CORPORATION LTD. (ONGC) BACKGROUND
1947-1960 During the pre-independence period, the Assam Oil Company in the northeastern and Attock Oil company in northwestern part of the undivided India were the only oil companies producing oil in the country, with minimal exploration input. The major part of Indian sedimentary basins was deemed to be unfit for development of oil and gas resources. After independence, the national Government realized the importance oil and gas for rapid industrial development and its strategic role in defense. Consequently, while framing the Industrial Policy Statement of 1948, the development of petroleum industry in the country was considered to be of utmost necessity. Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil Company) was engaged in developing two newly discovered large fields Naharkatiya and Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint venture between Government of India and Standard Vacuum Oil Company of USA) was engaged in exploration work. The vast sedimentary tract in other parts of India and adjoining offshore remained largely unexplored. In 1955, Government of India decided to develop the oil and natural gas resources in the various regions of the country as part of the Public Sector development. With this objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a 49

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subordinate office under the then Ministry of Natural Resources and Scientific Research. The department was constituted with a nucleus of geoscientists from the Geological survey of India A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural Resources, visited several European countries to study the status of oil industry in those countries and to facilitate the training of Indian professionals for exploring potential oil and gas reserves. Foreign experts from USA, West Germany, Romania and erstwhile U.S.S.R visited India and helped the government with their expertise. Finally, the visiting Soviet experts drew up a detailed plan for geological and geophysical surveys and drilling operations to be carried out in the 2nd Five Year Plan (1956-57 to 1960-61). In April 1956, the Government of India adopted the Industrial Policy Resolution, which placed mineral oil industry among the schedule 'A' industries, the future development of which was to be the sole and exclusive responsibility of the state. Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent that it would not be possible for the Directorate with its limited financial and administrative powers as subordinate office of the Government, to function efficiently. So in August, 1956, the Directorate was raised to the status of a commission with enhanced powers, although it continued to be under the government. In October 1959, the Commission was converted into a statutory body by an act of the Indian Parliament, which enhanced powers of the commission further. The main functions of the Oil and Natural Gas Commission subject to the provisions of the Act, were "to plan, promote, organize and implement programmes for development of Petroleum Resources and the production and sale of petroleum and petroleum products produced by it, and to perform such other functions as the Central Government may, from time to time, assign to it ". The act further outlined the activities and steps to be taken by ONGC in fulfilling its mandate.

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1961-1990 Since its inception, ONGC has been instrumental in transforming the country's limited upstream sector into a large viable playing field, with its activities spread throughout India and significantly in overseas territories. In the inland areas, ONGC not only found new resources in Assam but also established new oil province in Cambay basin (Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both inland and offshore). ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay High, now known as Mumbai High. This discovery, along with subsequent discoveries of huge oil and gas fields in Western offshore changed the oil scenario of the country. Subsequently, over 5 billion tonnes of hydrocarbons, which were present in the country, were discovered. The most important contribution of ONGC, however, is its self-reliance and development of core competence in E&P activities at a globally competitive level. AFTER 1990 The liberalized economic policy, adopted by the Government of India in July 1991, sought to deregulate and de-license the core sectors (including petroleum sector) with partial disinvestments of government equity in Public Sector Undertakings and other measures. As a consequence thereof, ONGC was re-organized as a limited Company under the Company's Act, 1956 in February 1994. After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its shares through competitive bidding. Subsequently, ONGC expanded its equity by another 2 per cent by offering shares to its employees.

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During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas Authority of India Limited (GAIL) - the only gas marketing company, agreed to have cross holding in each other's stock. This paved the way for long-term strategic alliances both for the domestic and overseas business opportunities in the energy value chain, amongst themselves. Consequent to this the Government sold off 10 per cent of its share holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the Government holding in ONGC came down to 84.11 per cent. In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified into the downstream sector. ONGC will soon be entering into the retailing business. ONGC has also entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment in Vietnam.

ONGC PROFILE Global Ranking:•

Is Asia’s best Oil & Gas company, as per a recent survey conducted by US-based magazine ‘Global Finance’.

Ranks as the 2nd biggest E&P company (and 1st in terms of profits), as per the Platt’s Energy Business Technology (EBT) Survey 2004

Ranks 24th among Global Energy Companies by Market Capitalization in PFC Energy 50 (December 2004). [ONGC was ranked 17th till March 2004, before the shares prices dropped marginally for external reasons.

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Is placed at the top of all Indian Corporate listed in Forbes 400 Global Corporate (rank 133rd) and Financial Times Global 500 (rank 326th), by Market Capitalization.

Is recognized as the Most Valuable Indian Corporate, by Market Capitalization, Net Worth and Net Profits, in current listings of Economic Times 500 (4th time in a row), Business Today 500, Business Baron 500 and Business Week.

Has created the highest-ever Market Value-Added (MVA) of Rs. 24,258 Crore and the fourth-highest Economic Value-Added (EVA) of Rs. 596 Crore, as assessed in the 5th Business Today-Stern Stewart study (April 2003), ahead of private sector leaders like Reliance and Infosys. ONGC is the only Public Sector Enterprise to achieve a positive MV A as well as EVA.

Is targeting to have all its installations (offshore and onshore) accredited (certified) by March 2005. This will make ONGC the only company in the world in this regard.

Owns and operates more than 11000 kilometers of pipelines in India, including nearly 3200 kilometers of sub-sea pipelines. No other company in India operates even 50 per cent of this route length.

Crossed the landmark of earning Net Profit exceeding Rs.10,000 Crore, the first to do so among all Indian Corporates, and a remarkable Net Profit to Revenue ratio of 29.8 per cent. The growth in ONGC's profits is not solely due to deregulation in crude prices in India, as deregulation has affected all the oil companies, upstream as well as downstream, but it is only ONGC which has exhibited such a performance (of doubling turnover and profits).

• •

Has paid the highest-ever dividend in the Indian corporate history. Its 10 per cent equity sale (India's highest-ever equity offer) received unprecedented Global Investor recognition. This was a landmark in Indian equity market, establishing beyond doubt, the respect ONGC's professional management 53

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commands among the global investor community. According to a report published in 'The Asian Wall Street Journal (Hongkong)', ONGC's Public Issue brought in 20 Foreign Institutional Investors (FIls) to India, as (it was reported), 'they could not ignore the company representing India's energy security'.

The Market Capitalization of the ONGC Group (ONGC & MRPL) constitutes 10 per cent of the total market capitalization on the Bombay Stock Exchange (BSE). ONGC has an equity weightage of 5 per cent in Sensex; 15 per cent in the Nifty (the only Indian corporate with a two-digit presence there); ONGC commands a 7 per cent weightage in the Morgan Stanley Capital International (MSCI) Index.

The growth in ONGC's Market Capitalization (from Rs. 18,500 Crore before May 2001 to Rs. 1,25,000 Crore in January 2004) is unprecedented and except Wipro (who had a higher market capitalization temporarily), no other Indian company (either in public or private sector) has seen such a phenomenal growth.

ONGC has come a long way from the day (a few years back) when India and ONGC did not figure on the global oil and gas map. Today, ONGC Group has 14 properties in 10 foreign countries. Going by the investments (Committed: USD 2.708 billion, and Actual: USD 1.919 billion), ONGC is the biggest Indian Multinational Corporation (MNC).

ONGC ended the sectoral regime in the Indian hydrocarbon industry and benchmarked the globally- established integrated business model; it took up 71.6 per cent equity in the Mangalore Refinery & Petrochemicals Limited (MRPL), and also took up a 23 per cent stake in the 364-km-long Mangalore-HasanBangalore product Pipeline, connecting the refinery to the Karnataka hinterland. By turning around MRPL in 368 days, ONGC has set standards of public sector companies reviving joint (or private) sector companies, proving that in business, professionalism matters, not ownership.

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ONGC Represents India’s Energy Security
ONGC has single-handedly scripted India’s hydrocarbon saga by :

Establishing 6 billion tonnes of In-place hydrocarbon reserves with more than 300 discoveries of oil and gas; in fact, 5 out of the 6 producing basins have been discovered by ONGC: out of these In-place hydrocarbons in domestic acreage, Ultimate Reserves are 2.1 Billion Metric Tonnes (BMT) of Oil Plus Oil Equivalent Gas (O+OEG).

Cumulatively producing 685 Million Metric Tonnes (MMT) of crude and 375 Billion Cubic Meters (BCM) of Natural Gas, from 115 fields.

India’s Most Valuable Company:

With a market capitalization having exceeded Rs 1 trillion, ONGC retains it’s position as the most valuable company in India in various listings.

As per 5th Business Today Stern-Stewart study, ONGC was the biggest Wealth Creator during 1998-2003 (Rs 226.30 billion). It was again the highest wealth creator during 1999-2004, as per Motilal Oswal Securities.

ONGC’s mega Public Offer (India’s biggest-ever equity offer worth more than Rs 100 billion was over subscribed 5.88 times.

ONGC is the only Indian company to have earned a Net Profit of over Rs 10,000 crores (2002-03).

The market capitalization of the ONGC group constitutes 8% of the market capitalization of BSE. 55

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ONGC added 49.06 MMT of ultimate reserves of O+OEG during 2003-04 (including overseas acquisitions), maintaining the trend of positive accretion for the third consecutive year.

ONGC’s Pioneering Efforts:
ONGC is the only fully–integrated petroleum company in India, operating along the entire hydrocarbon value chain:
• • • • •

Holds largest share (57.2 per cent) of hydrocarbon acreages in India. Contributes over 84 per cent of Indian’s oil and gas production. Every sixth LPG cylinder comes from ONGC. About one-tenth of Indian refining capacity. Created a record of sorts by turning Mangalore Refinery and Petrochemicals Limited around from being a stretcher case for referral to BIFR to among the BSE Top 30, within a year.

Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline (MHBPL), connecting MRPL to the Karnataka hinterland.

Competitive Strength

All crudes are sweet and most (76%) are light, with sulphur percentage ranging from 0.02-0.10, API gravity ranging from 26°-46° and hence attracts a premium in the market.

Strong intellectual property base, information, knowledge, skills and experience.

Maximum number of Exploration Licenses, including competitive NELP rounds. 56

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ONGC owns and operates more than 11000 kilometers of pipelines in India, including nearly 3200 kilometers of sub-sea pipelines. No other company in India, operates even 50 per cent of this route length.

Strategic Vision: 2001-2020
Focusing on core business of E&P, ONGC has set strategic objectives of:

Doubling reserves by 2020; out of this 4 billion tones are targeted from the Deepwaters.

Improving average recovery from 28 per cent to 40 per cent.

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Tie-up 20 MMTPA of equity Hydrocarbon from abroad. The focus of management will be to monetize the assets as well as to assetise the money.

The focus of management will be to monetize the assets as well as to assetise the money.

Sagar Sammriddhi : Biggest Global Deepwater Campaign
ONGC launched ‘Sagar Sammriddhi’, the biggest deep-water exploration campaign ever undertaken by a single operator, anywhere in the world.
• • •

Strategic plan to accrete 4 billion tones of reserves by 2020. US$0.75 million per day investment. Integrated Well Completion approach. Plans to drill 47 deepwater wells up to water depths of 3 kms

Leveraging Technology

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To attain the strategic objective of improving the Recovery Factor from 28 per cent to 40 per cent, ONGC has focused on prudent reservoir management as well as effective implementation of technologies for incremental recovery to maximize production over the entire life cycle of existing fields Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) schemes are being implemented:
• • •

In 15 fields including Mumbai offshore At a total investment exceeding US $2.5 billion. Yielding incremental 120 MMT of O+OEG over 20 years

Sourcing Equity Oil Abroad
ONGC's overseas arm ONGC Videsh Limited (OVL), has laid strong foothold in a number of lucrative acreages, some of them against stiff competition from international oil majors. OVL has so far, acquired 15 properties in 14 foreign countries, and striving to reach out further. OVL’s projects are spread out in Vietnam, Russia, Sudan, Iraq, Iran, Lybia, Syria, Myanmar, Australia, and Ivory Coast. It is further pursuing Oil and gas exploration blocks in Algeria, Australia, Indonesia, Nepal, Iran, Russia, UAE and Venezuela.

Production Sharing Contract in Vietnam for gas field having reserves of 2.04 TCF, with 45 per cent stake in partnership with BP and Petro Vietnam. Gas production has commenced from January 2003.

20 per cent holding in the Sakhalin–1 Production Sharing Agreement. The US $ 1.77 billion investment in Sakhalin offshore field is the single largest foreign investment by India in any overseas venture and the single largest foreign investment in Russia. It is scheduled to go on production during 2005-06

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Acquired 25 per cent of equity in the Greater Nile Oil Project in Sudan, the first producing oil property. ONGC Nile Ganga BV, a wholly-owned subsidiary, has been set up in the Netherlands to manage this property. Around 3 Million Tonnes of crude oil is coming to India annually from this project. This is the first time that equity crude of a group of companies in India is being imported into India for refining by the group

Discovered a world-class giant gas field ‘Shwe” in Block A-1(where OVL has 20 per cent share) in Myanmar, with estimated recoverable reserve of 4 to 6 trillion cubic feet of gas.

Besides taking equity in oil & gas blocks and looking for stakes in E&P companies, OVL is also bagging prospective contracts (like the refinery upgradation and pipeline contracts in Sudan, awarded to OVL on nomination basis due to its performance in that country), which will increase ONGC’s equity oil basket. ONGC’s strategic objective of sourcing 20 million tones of equity oil abroad per year is likely to be fulfilled much before 2020. In fact, OVL is now eyeing a long-term target of 60 MMT of Oil equivalent per year by 2025.

Going by the investments (Committed: US $ 4.3 billion, and Actual: US $ 2.75 billion), ONGC is the biggest Indian Multinational Corporation (MNC).

Frontiers of Technology
• •

Uses one of the Top Ten virtual Reality Interpretation facilities in the world Rolled out ICE, one of the biggest ERP implementation facilities in the world

Best in Class Infrastructure and Facilities

ONGC’s success rate is at par with the global norm and is elevating its operations to the best-in-class level, with the modernization of its fleet of drilling rigs and related equipment, at an investment of around US $ 400 million.

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ONGC has adopted Best-in-class business practices for modernization, expansion and integration of all Info-com systems with investment of around US $ 125 million.

ONSHORE
Production Installation Pipeline Network (km) Major Offshore Terminals (including CFU, LPG, Gas, Sweetening plants, Storage Tanks) Drilling Rigs Work Over rigs Seismic Units Logging Units 75 66 33 35 225 7900 2

OFFSHORE
Well platforms Well-cum-process platforms Process platforms Drilling/jack-up-rigs Pipeline networks (km) Offshore supply vessel Special application vessels 131 5 28 18 3200 32 4

Financial (2003-04)
• • •

Highest-ever dividend paid to shareholders (US$ 930 million) Practically zero debt Corporate Contributed over US $ 20 billion to the exchequer 60

INDIAN OIL SECTOR

The Road Ahead
ONGC is entering LNG (regasification), Petrochemicals, Power Generation, as well as Crude & Gas shipping, to have presence along the entire hydrocarbon value-chain. While remaining focused on its core business of oil & gas E&P, it is also looking at the future and promoting an applied R&D in alternate fuels (which can be commercially brought to market). These efforts in integration are basically to exploit the core competency of the organization – knowledge of hydrocarbons, gained over the five decades.

New Business
ONGC has also ventured into Coal Bed Methane (CBM) and Underground Coal Gasification (UCG); CBM production would commence in 2006-07 and UCG in 200809. ONGC is also looking at Gas Hydrates, as it is one possible source that could make India self-sufficient in energy, on a sustained basis.

Continuing On the Growth Trajectory
The ONGC Group has doubled its turnover from 5 billion US dollars to 10 billion US dollars (from Rs 23,238 Crore to Rs 48,368 Crore) in the last 3 years (2001- 2004); and it aims to go to 50 billion US dollars in the next 5 years. As this implies a commendable annual growth rate (compounded) of 40-50 per cent, this objective of ONGC, when realized, would be an outstanding achievement, by any standards.

ONGC Is Now Geared To Meet Its Vision

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To be an Indian Integrated Energy Multinational (PSU); Target: A Turnover of 50 Billion US dollars in 5 years.

CONCLUSION
This project gave me a great opportunity to explore a totally new and giant world of such a wonderful subject without which the whole country might come to a halt. “INDIAN OIL SECTOR” Today Crude Oil is used for enormous purposes. Because of it’s flexibility in transforming into various types of fuels it has created an impact in each and every sector. Almost 90% of the resources which we use daily are able to work due to availability of Crude Oil which can take any form of fuel. It has tapped each and every sector like Transportation, Production, electricity etc. Hence it is very important to understand that such a precious resource should be used very carefully as it cannot be produced and is limited.

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BIBLIOGRAPHY
1. 2. 3. 4. PETROLEUM REVIEW OIL AND GAS 2000 OIL AND GAS 1990 INDIAN OIL AND GAS REPORT 2005

WEBLIOGRAPHY
1. 2. 3. 4. 5. www.bharatbook.com www.researchandmarkets.com www.ongcindia.com www.ongcvidesh.com www.naturalgas.org

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