The long-term supply of available domestic natural gas to stranded assets will always have top priority in such an analysis. Since available known domestic supplies of natural gas may not be enough even to meet the stranded demand over, say, 15–20 years, the yearly availability of domestic natural gas over the next 20 years does indeed need to be assessed with some degree of certainty. Such an assessment, together with the priorities in end use, is essential to any pricing policy.
Sethi said:
If I am going to make investments, I have stranded assets which need gas, that is, power plants which have already been built but are not getting gas, or I build new power plants and get new gas for them. If I make capital investments of that nature, I need assured supply of gas for at least 15–20 years before I sink that money into the ground. I need to have a commitment that this much gas will be provided over a 20-year period.
He explained that extracting gas is an art in itself. If your deposit is the same, you can extract very high amounts of gas in the initial periods and thereby deplete it very rapidly. Or you can have a steady rate over a longer period of time.
What this means is that after the operator has recovered, say, twice the investment from the sale of cost gas and its share of the profit gas, the government’s share would rise to, say, 85 per cent or more depending upon the terms and conditions in the PSC. A high capital expenditure would essentially reduce the government’s share, all other things remaining the same. Technically, it is possible that a very high capital expenditure may not even allow full cost recovery if the reserves are small and gas prices depressed. Under such a scenario, the government’s share remains insignificant because the relevant investment multiple is never reached. Sethi did not think that the total gas reserves had been certified. The gas reserves certified are much less than could support 80 mscmd of gas production as was being talked about, especially over an 18-year period. He pointed out that the contract that had been entered into was for a period of five years. ‘If you do not tell me what the total amount of gas reserves is over a twenty-year period, how can I allocate gas, how can I price gas?’ he asked.
Sethi, however, believed that there were many lessons to be learnt from the controversy. The Ambani brothers need to be thanked—for if they had not fought, the issue of real ownership of the gas would not have come out into the open. The siblings did something which Sethi could not do in eight years. The concerns raised as a result of the dispute between the brothers were applicable not just to gas, but equally, for other mineral and energy resources, such as iron ore or coal, which was also being allotted less than transparent terms. Energy, like money, is fungible and in the world’s most efficient energy markets, gas and electricity compete on near-level terms. The issue concerns the larger interests of the people and the land where the resources are located. It also has a host of implications for other issues: from prices paid by consumers to the country’s energy security.
Sethi saw the so-called resource curse as endemic to those countries where there are no regulatory frameworks and where proper government structures are not in place. This is essentially another manifestation of rent-seeking behaviour by the government. ‘Under the licence–permit raj, people used to corner licences. In this age, people are cornering whatever they can of natural resources.’ Such issues assume enormous significance in India where the national government owns most energy assets but fails to act as a fair and transparent custodian of resources that belong to the people of the nation.
9
THE KG BASIN IS ‘SINKING’?
Flying over the Bay of Bengal in a helicopter, one looks down and sees swathes of deep blue and emerald green waters stretching from horizon to horizon. Across the ocean, the blotches of blue, green and brown, mingling and merging in the swirling waters, present a spectacular yet strange panorama in the vastness below. Dotting the vast blue-green expanse below are inanimate structures apparently drifting aimlessly. These appear to be large ships from a distance but a closer look reveals vessels of a different kind. These are giant floating rigs. Looking like benign little toys from the sky, these massive structures have been ruthlessly scouring the bowels of the earth at depths of as much as nine kilometres below the ocean surface to reach the bed. To the uninitiated, it is difficult to imagine that the operation of these rigs that are being used to extract natural gas from the bed of the ocean have an ecological impact on the shoreline up to 20 to 25 km away.
The state of Andhra Pradesh in southern India is often described by the moniker, ‘rice bowl of India’. The Krishna-Godavari (KG) basin is precisely where the rice bowl is situated. A large portion of the coastline of the state comprises the deltas of the Krishna and the Godavari, two of the largest rivers of peninsular India. The deltaic region occupies an area of roughly 10,000 square kilometres (sq km). Owing to the extremely gentle nature of the slope in these deltas, the five-metre contour extends almost 30 km inland here. Along Andhra Pradesh’s remaining coastal parts, the five-metre elevation runs 5-10 km inland from the shoreline. If the inter-delta lands are included, the total cropped area in the ‘rice bowl’ of the Krishna-Godavari (KG) basin comes to around 12,700 sq km.
Rich in agricultural produce, paddy is the dominant crop occupying about 4,606 sq km of area (or nearly two-thirds of the total area or, to be precise, 65.38 per cent of it). Fertile alluvial soils and water resources (a dense network of irrigation canals as well as abundant groundwater in some areas) enables the Krishna-Godavari deltaic region to sustain intensive paddy cultivation during both the summer (kharif) and winter (rabi) seasons. This region alone accounts for almost 92 per cent of the sown paddy area within a five-metre elevation along the coastline. With an irrigated area of about 1,500,000 hectares and two crops a year, the KG basin produces about one crore or 10 million metric tonne of rice per year. This fertile agricultural area is home to more than 10 million people; its population density is double the country’s average of 729 persons per square kilometre.
Apart from paddy cultivation, aquaculture is a prominent activity in the KG deltaic region. Of the 1,692 sq km area under aquaculture along the entire Andhra Pradesh coast, as much as 1,427 sq km(or 84.34 per cent) falls within the deltas of the two rivers. Extensive mudflats and tidal creeks make the area conducive for prawn culture. Besides, the entrepreneurial farmers of the region have converted some of their croplands into aqua-ponds for pisciculture using fresh water from irrigation canals as well as groundwater. In this proverbial land of plenty, plantations of coconut, mango, guava and banana are common. Casuarinas stand atop the sand dunes and beach ridges act as wind-breakers and sand stabilisers in this cyclone-prone area. Altogether, plantations occupy an area of about 322 sq km (or 4.57 per cent of the total land area) while salt pans cover about 78 sq km in the lower reaches of the deltas.
Another characteristic feature of the KG deltaic region is the extensive mangrove swamps and associated mud-flats and lagoons. Occupying about 612 sq km, the wetlands of this region are second only to the well-known Sundarbans in West Bengal in eastern India and along coastal Bangladesh. The mangrove swamps are an important wetland ecosystem protecting the coastal expanse from erosion and the impact of storm surges. On many an occasion, these mangrove forests have saved lives and property from the fury of gale winds and sea-water swells accompanying cyclones that frequent this part of the India’s eastern coast.
The KG delta’s unique topography, a very gradual rise from the sea, also makes it particularly vulnerable to the effects of sea level rise, a consequence of global climate change. Much of the Andhra Pradesh coastline, including the KG deltas will be submerged by the year 2100 if the predictions of the Intergovernmental Panel on Climate Change (IPCC) of a two-feet rise in sea-levels by then, come true. In fact, the Fourth Assessment Report’s warnings in 2007 portend that ‘more extreme droughts, floods, and storms, would become commonplace … and that these intense weather conditions would follow in close succession to each other, often in the same areas’. S
uch indeed is the grim climatic prognostication for Andhra Pradesh in general and the KG deltaic region in particular.
Consider what happened in 2009. That year, the state experienced a severe drought due to the failure of the monsoons, which resulted in a major setback to agricultural production. The kharif crop failed in 971 out of the total of 1,128 revenue mandals (or zones) in the state. There was full-scale crop failure in about 1.4 million hectares while in another 3.4 million hectares the loss of output was around 50 per cent. In October that year, a low-pressure climate system hovered over the Krishna basin for three days bringing about torrential rainfall that wreaked havoc on agricultural production. There were unprecedented floods which affected as many as five million people and destroyed whatever little crop had been left standing in several areas in the river Krishna basin.
By 2009, the problem of land subsidence in the fragile deltaic region had become a major issue. In June 2008 the NGO Krishna Godavari Deltala Parirakshana Samithi, Bhimavaram, West Godavari of Andhra Pradesh filed a writ petition (No. 13341/08) in the Andhra Pradesh High Court calling for government action to check land subsidence that was taking place as a consequence of offshore oil and gas exploration. Apprehensions about the delta land subsiding first started with ‘evidence’ coming in the form of fresh groundwater in wells turning saline. It was found that water levels in drains connected to the sea were rising dramatically during high tide as compared to how much they had risen in the pre-exploration period. Farmers began noticing this only around 2008–9.
Subsequently, more damning evidence was gathered by scientists such as geological expert Professor Gangula Krishna Rao. His efforts were backed by E.A.S. Sarma, a former bureaucrat who held the post of secretary to the government of India and who has been vehemently opposed to the manner in which oil and gas exploration has taken place in the KG basin, not just on environmental grounds but also on account of the various other irregularities that have taken place. For this reason, he has written a series of letters to the prime minister voicing his concerns on several issues, notably omissions and commissions in the awarding of contracts for oil and gas exploration in the KG basin.
Exploration for oil and natural gas first began in the KG Basin as early as 1977 when the Oil & Natural Gas Commission (as ONGC was then called) commenced drilling operations. Production of natural gas started from the Rajolu onshore field in October 1988 while offshore gas production commenced in 2001. Intensive production from the central delta region began in 1998. With the commencement of the New Exploration Licensing Policy (NELP) in 1997, various private players like Reliance Industries Limited (RIL), Gujarat State Petroleum Corporation (GSPC), Cairn Energy of the UK and others jumped into the exploration business.
It is contended that natural gas extraction in the offshore and onshore KG basin (oil production is rather limited) over the last decade—in some areas, oil and gas production has been going on for over two decades—has slowly led to a deterioration in the quality of groundwater by making it saline and unfit for drinking or farming. As explained earlier in this book (see Chapter 7), gas blocks such as D6 in the KG basin operated by RIL are deepwater discoveries at water-depths of 1.2–1.3 km. The gas wells are in an area where the continental shelf is initially narrow, followed by a sudden slope. Therefore, at a distance of hardly 30–40 metres from the shore, one suddenly comes across water depths of between one and 1.5 km. The topography of India’s east coast is very different from the west coast, where Bombay High is located. Along the west coast, there is a near- uniform water-depth of about 100 metres for a distance of around 100 km into the Arabian Sea. This makes exploration and drilling work in the west coast relatively easier. In the KG basin, by comparison, the task is much tougher. Moreover, ‘ultra’ deepwater drilling technology at depths beyond two kilometres is still evolving across the world.
When one drills in shallow-water, as in the Bombay High area where water depths are just about 60–70 metres, the drilling platforms stand on legs as high as 300 metres. For water-depths between one and two kilometres and deeper, it is impossible to explore and drill using jacked-up platforms. What is required instead are floating rigs that have thrusters attached to help stabilize them in the turbulent open seas and to prevent the ‘string’ of drilling pipes from breaking. Inspecting and exploring the ocean bed on floating rigs makes it a most challenging exercise. At depths of two to three kilometres, rocks are found and discoveries are sometimes made at even greater depths.
In the KG basin, rocks stretch upto depths of around six kilometres and hydrocarbons are found at an even greater depth of nine kilometres below the surface of the sea. It is this offshore drilling for oil and gas that causes indiscriminate environmental damage. Experts are of the view that offshore production of natural gas would have its impact over distances of tens of kilometres extending on to the onshore delta land. Offshore drilling also results in many other ecological complications like submarine mass movements which affect the stability of the delta lands.
A research paper by K. Nageswara Rao et al presented at a workshop on the impact of climate change on agriculture organised by the International Society for Photogrammetry and Remote Sensing (ISPRS) infers that delta land has sunk by one and two metres in the West and East Godavari districts of Andhra Pradesh.1 Nageswara Rao is a geographer who has conducted studies on topographic changes and coastal erosion in the deltas. His observations appear to be in complete consonance with the intensity of natural gas (and oil) exploration in these areas.
As a consequence of the subsidence, water at high tide water is now flowing to longer distances and at higher levels than before. Sea water is even entering the Kolleru Lake, located nearly 70 km away from the Bay of Bengal, which straddles the Krishna and West Godavari districts. The lake is home to some two million avian visitors in winter; it was notified as a wildlife sanctuary in November 1999. The lake was also designated a wetland of international importance in November 2002 under the Ramsar Convention.2
In the KG deltaic region, even the surface water in drinking water tanks or fish tanks in some southern parts of the region are reportedly contaminated with saline groundwater oozing from below the surface of the ground. ‘Oozing of old sea water is a confirmation of subsidence,’ said Prof Krishna Rao, adding that in some parts of the East Godavari district, land up to around 10 km from the coast has become unproductive due to soil salinity caused by invasion of sea water through drains and the oozing of saline water from below the ground.
These changes have been observed over the last three years in the East Godavari district and 10 years around Narasapur in the West Godavari district. Production of natural gas commenced around the year 2000 in the onshore areas of East Godavari district and a decade earlier in other areas such as Narasapur. The rate of land subsidence has been found to be varying between 2.5 to 10 cm per year. Such subsidence is most pronounced in the proximity of production wells.
The thickness and the type of reservoir rocks is another factor which determines subsidence. In some cases, unconsolidated rocks can cause entire wells to slump. The rock formations in the KG basin are relatively young ‘semi-consolidated sandstone’ belonging to the ‘tertiary age’. At current rates of subsidence, surface waters through canals, drains and rivers could become stagnant in the coming five to 10 years with sea water encroaching gradually from the southern side, apprehends Prof Krishna Rao, pointing out that this would force people to migrate since they would be deprived of drinking water and food.
Waterlogging has become common in many areas in the deltaic region, even in areas that are located 20 km inland from the coast. With water levels in drains higher than in the adjacent fields, during high tide and during the rainy season, flood waters take much longer to recede resulting in salinity in the soil going up, which, in turn, lowers crop yields. Oozing saline groundwater also damages crops and the aqua fields. In the first half of 2012, sea water encroached and damaged about 1,000 acres of transplanted paddy fields in the North
Kothapalli panchayat area in the Uppalaguptam mandal in East Godavari district. In some places, sea water enters fields even during low tide. Sea water is also reported to be flowing upstream of the Godavari distributaries for long distances. Areas that are as much as 10 to 20 km inland have been damaged by high tide sea water entering agricultural fields. Specific investigations by state government and Union government agencies have found damaged fields that are located up to 40 km inland in the districts of Krishna and Guntur.
Prof Krishna Rao estimates that half the land in the deltaic region has already suffered some damage or the other between 2007 and 2012 as a consequence of land subsidence on account of extraction of gas and oil. The extent of subsidence of land ranges from 0.5 m to 1.5 m in different parts of the region and the rate of sinking has been assessed to be up to 10 cm per year. With the maximum elevation in the delta region less than 10 metres, irrigation canals are also reporting reduced velocity of water flow due to the fall in topographic gradient. The tail-end areas of the canals are suffering the most because of the reduced flow. These and other related issues have been brought to light thanks to the relentless efforts of Dr Krishna Rao, a retired professor of geology from Andhra University, Visakhapatnam, who also happens to be a resident of the area and is the convenor of the technical committee of the NGO that has filed the petition in the high court. ‘My house is just twenty kilometres from the sea,’ he said.
GAS WARS: CRONY CAPITALISM AND THE AMBANIS Page 25
