The Hindu Business Line : Petrochem powers industrial growth

Once upon a time, industrial growth was fuelled by coal. The province of Bengal — which was then spread over entire Eastern and North-Eastern India — also reaped the harvest of its vast coal reserves.

Times began to change ever since Edwin L Drake drilled the world's first oil well at Titusville, Pennsylvania, in the US in 1859. The news caught the fancy of the colonial entrepreneurs who were then busy harnessing the vast natural resources of the East. Oil was discovered in Digboi in the dense rainforests of Assam by Assam Railways & Trading Company Ltd (AR&T) in 1889.

According to popular lore, an elephant working for AR&T in Assam returned with distinct traces of oil in its trail perhaps because of crude seeping out of the ground. "Dig! Boy! Dig," cried the Englishman to his men. Hence the name "Digboi," says one report.

But oil exploration never proved to be an easy task. Though the oil strike had led to drilling activity in the region beginning 1891, it took another decade till the first E&P company set foot in India.

In 1899, Assam Oil Company (AOC) was formed with £ 310,000 to take over the petroleum interests of AR&T. However, despite its best efforts, AOC could not enhance the production to the desired extent and approached the erstwhile Burmah Oil Company (BOC) of UK — which had already earned its place in history with a series of successful oil strikes in South-East Asia — for technical assistance.

The association — the first such tie-up in the Indian oil sector — led to the takeover of AOC's operations by BOC in 1921.

BOC's entry marked the beginning of the oil exploration and production age in India leading to more discoveries and enhanced oil production.

In 1937, BOC, Royal Dutch Shell and Anglo Iranian Oil Company applied for exploration licence in the country and initiated the first ever geo-physical survey.

The early enterprise, which came to a grinding halt due to World War II and later India's Independence, left behind a rich heritage of oil exploration and the country's first integrated oil company, Assam Oil. The company was also the only one of its kind till the advent of Oil India and ONGC soon after Independence.

Digboi Well No 1 is now the world's oldest continuously producing oilfield. Digboi Refinery, set up in 1901, is still operational. Both are under the control of OIL.

Indian Oil acquired the marketing activity of AOC and has retained the brand `Assam Oil'.

The clean energy age

The focus of industry has grossly shifted from the East and North East to the West during the last four decades of Independent India. One of the factors which had arguably fuelled this shift was discovery of large oil and gas fields in the Western offshore and the emergence of oil as not only a new-age energy source but also as a mother industry.

From plastics to paint, chemicals to computer, petrochemicals rule the roost of industrial and social activity today. The process has been further fuelled by the usage opportunities of natural gas as a viable and environmentally cleaner option than coal.

To take the argument forward, all industries right from steel to ceramic are looking at gas as a major energy option.

The breakthrough

As the most industrialised State in the entire eastern and north-eastern region, the political leadership of West Bengal was aware of the importance of the oil sector. While the oil exploration activities primarily led by ONGC and OIL failed to bring any ray of hope for the region as a whole, the State could attract only some peace-meal investment in upstream sectors such as refining (Indian Oil) and petrochemicals (Haldia Petrochemicals Ltd) due to its proximity to the sea.

Though ONGC was carrying out a parallel activity to explore coal bed methane (CBM) — as a viable alternative to natural gas — in the coal belt of Bengal and Jharkhand since mid-1980s, there was no major breakthrough on this front until very recently.

Overall, the region was completely devoid of new-age hydrocarbon options due to lack of discoveries and absence of gas pipelines (as is available in Northern India). Logistical constraints related to transportation of natural gas from the North East, loss of prominence of Assam in crude oil production and the political hindrances in bringing gas from Bangladesh added to the crisis.

The breakthrough finally came in 2004. Reliance Industries announced a major discovery in a New Economic Licensing Policy (NELP)-I block (NEC-OSN-97/2) in the Mahanadi basin in the shallow waters of Orissa coast. This was the first commercial discovery in the eastern region.

The gas field is expected to start production in 2008 and Reliance now awaits approval from the Union Ministry of Petroleum and Natural Gas for laying a gas pipeline from Orissa to the nearest consuming hub, West Bengal.

The discovery was followed by exploration drilling by ONGC in Mahanadi basin and up in Bengal offshore during the last two years. Cairn Energy has also initiated oil hunt in an on-land block in Bihar. There is also a ray of hope for the North East.

The Canada-based Canoro Resources took keen interest in oil exploration in the Assam-Arakan basin and now produces 500 barrels per day from a part of the once-abandoned Amguri oilfield in Assam. A consortium led by Geopetrol International Inc of France is due to initiate oil hunt in Arunachal Pradesh.

ONGC rolled out a project to revamp the oilfields in Assam to double production from a little over one million tonnes in three years.

Blessing in disguise

The spike in crude oil prices and the rising cost of natural gas (and its offshoots like LNG and CNG) have helped spread hydrocarbon exploration and production activities across the country.

The large number of bids received for the Mahanadi basin in the coasts of Orissa and on-land oil and gas blocks in Bihar, Arunachal Pradesh, Assam and Mizoram during the recently-concluded bidding process for NELP-VI confirms the trend.

Similar to NELP, the CBM Policy - III has also attracted record number of 54 bids. Of the same, 19 bids were received for only two blocks in Jharkhand and West Bengal.

CBM, a low-pressure gas (like natural gas) with high calorific value, is globally considered to be a new-age clean energy option to natural gas.

The other natural gas starved states to be benefited from this alternative are Chhattisgarh, Madhya Pradesh and Rajasthan.

While marginal oil and gas fields or CBM reserves which were previously considered unviable for commercial production are turning into productive assets, the unprecedented rush for striking oil may lead to many more surprise strikes.

The recent history created by Cairn in Rajasthan can well be repeated by ONGC in Bengal offshore or Geopetrol in Arunachal Pradesh.

The natural gas alternative

If coal had engineered the industrialisation of Bengal in the 19th century, indications are that it might play a major role again.

CBM — considered to be a geo-scientist's pipedream even a decade ago — will be produced and commercially marketed in Bengal and Jharkhand beginning 2007. The well-head price is expected to be lower than the existing national gas price benchmark of $4.75 per million metric British thermal unit.

The pioneers are ONGC and the UK-based Great Eastern Energy Corporation.

ONGC has taken up a Rs 900-crore project to explore and develop six CBM blocks in West Bengal and Jharkhand in the next few years. The total production is estimated to be 7.5 lakh cubic metres per day, half of which will start flowing from 2007.

Great Eastern Energy, on the other hand, embarked on a Rs 575-crore programme to produce CBM from the Ranigunj field by the first quarter of 2007. The company has pegged the reserve capacity of the block at 1.3 trillion cubic ft.

The projects have attracted the attention of the industry and the demand has far outstripped the projected supply. Among the interested parties are a steel major, power generation companies, prospective investors in fertiliser and several other user industries.

Other alternatives

While efforts are under way by GAIL and ONGC to set up surface and underground coal gasification facilities in the region, the recent proposal by South African Petrochemical major Sasol Ltd to invest $6 billion to produce diesel, naphtha and other liquid hydrocarbon fuels from coal points to the vast possibilities on offer.

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