L /!\J Document of the World Bank
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AJ ~L3 ,y5 L_ /!\J Document of The World Bank F'OROFFICIAL USE ONLY Public Disclosure Authorized Report LNo.9305-lN STAFF APPRAISAL REPORT Public Disclosure Authorized INDIA GAS FLARING REDUCTION PROJECT MAY 31, 1991 Public Disclosure Authorized Public Disclosure Authorized Transport and Energy Operations Division Country Department IV Asia Region This documenthas a restricteddistribution and may be usedby recipientsonly in the nerformanceof their official duties. Its contentsmay not etherwisebe disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (As of January 15, 1991) Currency units = Rupees (Rs) One Rupee = US$ 0.051 (approx.) One US Dollar = Rs 19.43 MEASURESAND EQUIVALENTS I Million cubic meters of gas = 37 million cubic feet of gas = 6,*n500barrels of oil = 890 mt of oil = 1,940 mt of (Indian) coal ABBREVIATIONSAND ACRONYMS ADB - The Asian Development Bank bbl - barrels BcFm billion cubic meters BICP - Bureau of industrial Costs and Prices CIL - Coal india Ltd. ECA - export credit agencv Ell. - Encgineers India Ltd. GAIL - Gas Authority of India Ltd. GOI - Government of India cOR - gas/oil ratio HBJ - Hazira-Bijaipur-Jagdishpur gas pipeline ICB international competitive bidding IOC - Indian Oil Corporation Ltd. 1-EXIM - The Export-Import Bank of Japan kgoe kilograms of oil equivalent km - kilometer LICB - limited international competitive bidding LNG - liquefied natural gas LPG - liquefied petroleuim gas NGL - natural gas liquids MMCMD - million cubic meters per day MMCM - million cubic meters per year MOEF - Ministry of Environment and Forests mt - metric ton MW - megawatt OIL - Oil India Ltd. ONGC - Oil and Natural Gas Commission FISCAL YEAR April 1 - March 31 i F)OROFFICIAL USE ONLY INDIA GAS FLARING REDUCTION PROJECT Loan and Project Summary Borrower. Oil and Natural Gas Commission (ONGC) Guarantor India, acting by its President Amount: US$450.0million equivalent Terms: Repayment over 20 years, including five years of grace, at the Bank's stan- dard variable interest rate. ONGC would bear the foreign exchange and interest rate risks. Guarantee Fee: The Government of India (GOI) would charge a guarantee fee of 1% p.a. on the outstanding amount of the Bank loan. Project Description: The objectives of the project are: (a) to eliminate the flaring of about 12 million cubic mnetersof associated gas per day (MMCMD) in the Bombay High oil field and improve the management of the Bombay High reservoir in order to arrest the decline of oil production and optimize the ultimate recovery of hydro- carbons; (b) to reduce energy shortages and contribute to greater efficiency of energy use in India's Westem Region; and (c) to promote a greater participation of private oil companies in India's oil and gas sector. The project is designed to recover about 25.3 MMCMD of additional gas from the Bombay High oilfield. The infrastructure facilities that will be constructed under the project will make it possible for ONGC to transport up to 29 MMCMD of additional gas supplies from offshore fields in the Western region to the Hazira gas terminal in the State of Gujarat and to Uran, near Bonmbay.The project, which has been designed consistent with environmentally sound principles, includes: * erection of two process platforms; * construction of three submarine pipelines: i.e. (i) a 28 inch pipeline from the southern sector of the Bombay High oilfield to the South Bassein gas field, (ii) a 42 inch ripeline from the South - Bassein gas field to the Hazira gas terminal, .. i (iii) a 30 inch pipeline from the southern sector of the Bombay sHiL.,oil field to the Heera oil field where it connects with the Heera - Uran trunkline; * the expansion of the existing gas terminal at Hazira to process the This document has a restri, ted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization, ii additional gas supplies. This will nearly double the current capacityof the terminal. • the provisionof support for a reservoirstudy of the BombayHigh oilfield. The aim of this study is to optimizeoil and gas production from this, India'slargest oilfield,and reduce the chances for the recur- rence of excessivegas flaring. In parallel, the projectwill provide support for the trainingof ONGCs technicalstaff. * the provisionof support for the implementationof a packageof mea- sures required to achieve proper reservoir mnanagementpractices in the BombayHigh oilfield. * the provisionof support also for ONGCs ongoing effortsto reduce the risk of environmnentaldamages from its offshoredrilling operations and to improve the overall safetyof theweoperations. ProjectBenefits: The investmentsunder the proposed projectwill increaseindigenous oil production by about 4 million tons per year and eliminatethe flaring of about 12 MMCMDof gas. The resulting increasein gas supplies will reduce imports of naphtha, which would be otherwiserequired for the manufacture of fertilizer,and of middle distillatesfor peak load power generation.This will save India about US$350million of foreignexchange annually (from 1995/96onwards) that would otherwisebe required for the import of these fuels. The total net present value of the investmentis approximatelyUS$1.3 billion. Project Risks: The projectfaces three major risks, i.e. (i) delays in the implementationof the project which would sharply reduce its viability,(ii) delays in the offtakeof the additional gas that willbe made availablethrough the project,and (iii) the possibilitythat ONGC will not be able to raise the foreignexchange required for the project. To minimizethe risk of implementationdelays, ONGC has agreed to award the constructionof major items, such as plat- forms and submarine pipelines,on the basis of a series of contractsunder single responsibility.In addition,ONGC has w-srzd closelywith the Bank to streamline its organizationand managementfor the implementaticnof projects. The bidding documents for all but two of the major componentsof the project will have been reviewed by the Bankbefore the loan becomes effective. The risk of delays in the offtake of the gas will be signiticantly reduced through the Govemment'sdecision to set up a specialmonitoring committeein the Departmentof Petroleumand Natural Gas that will review quarterly the progressin implementingthe proposed projectas well as the projectsthat will utilize the additional gas supplies. The quarterly reports of the monitoringcommittee will be submitted to the Bankfor review together with recommendationsin case of any slippage in projectimplementatioi.. The Bankwill have an opportunity to review the implementationof these recommendations.To minimizethe risk that difficultiesin the financingof the foreignexchange components delay the project,the Bankhas worked closely with ONGCand the Govemmentto ascertain the availabilityof financethrough export credit agenciesand suppliers' credits. isi Estimed Costs: CostComptmts Foreign L=al Total -- US$ MiOO-- Proce platform, NQP 209.0 50.2 2592 Compresor, SHG 125.0 30.0 155.0 Proces platfDorm,SHC 230.0 55.2 285.2 Unepipe, SHGBPB 58.0 17.4 75.4 Co4dngand wrapping,SHG-BPB 15.7 6.1 21.8 Platformmodifiacdons 63.3 15.2 78.5 Unepipe,ICP-Heera 70.0 21.0 91.0 Laying coting a*ndwrapping, ICP-Heera 97.0 23.3 120.3 iUnepipe,BPB-Hazira 220.0 66.0 286.0 Laying, coahlngand wrapping, BPB-Hazira 129.3 31.0 160.3 Expmnson Haim p terminal 275.3 217.8 493.1 Resrvoir nanagement servic and equipment 67.4 61.7 129.1 Engineering andproet management 7.5 22.5 30.0 Studiesand trining 2.0 0.6 2.6 Environmental component 14.7 9.8 24.5 Base cost (991 prices) 1,5842 627.7 2,211.9 Physicl contingendes 158.4 62.8 2212 Pricecondngncndes 239.5 205.8 445.3 Total project coat 1,982.1 896.3 2,878.4 lnterestduring construction 204.1 101.8 305.9 Total FinancingRequired 21862 996.1 3,184.3 Note:Base cost indude custoas duties od US$3744 il4ion equivalcnt. ONGCcharges interest during construction to opetios. Financing Plan: Srav of Finaer L1x Forei8p Totl Percent -- US$ ilo World Bank 450.0 450.0 14.2 Asian DevelopmentBank - 300.0 300.0 9.4 Export-ImportBank of Japan' 350.0 350.0 11.0 Export/suppliercredits - 745.6 745.6 23.4 ONGC 998.1 340.6 1388.7 42.0 Total 998.1 2186.2 3184.3 100.0 GOf'srequest for financngis currenlyunder study by J-EXIM Estimated Disbursements: IBRD Fisa Year Year 7 Yer 2 Year3 Yer 4 YearrS FY92 FY93 FY94 FY95 FY96 -- -US$ milon Annual 111.1 139.4 135.0 61.0 3.5 Cumulative 111.1 250.5 385.5 4465 450.0 Economic Rate of Retumr 30% iNDIA GAS FLARING REPUCTICN4 PROJECT Table of Contents Eage No. 1.THE ENERGY SECTOR................................................ 1 Role of Energy in the Indian Economy ................................................ 1 India's Rapidly Growing Energy Demand .................................................. 1 High Energy Intensity ................................................ 2 Energy Conservation ................................................ 4 Constraints to Expanding Indigenous Energy Production ................................................ 5 Energy Prospects for the 1990s ............................................... 7 The Govemment's Energy Strategy ............................................... 7 11.THE NATURAL GAS MARKET............................................... .. 9 Developmnentof India's Gas Resources ................................................ 9 Gas Reserves ................................................ 9 Reasons Behind the Extensive Gas Flaring ..............................................