Monday 10 September 2007

Oil & Gas--ONGC in trouble

Business India, December 2-15, 1996

Will Vasudhara dry up?

The falling crude production figures from ONGC’s prized discovery Bombay High - brings reservoir management and enhanced oil recovery methods into focus.

Shivanand Kanavi

Jawaharlal Nehru and Keshav Dev Malviya visited Gujarat’s Ankleshwar in 1959, to see the first indigenously explored and drilled oil well. In a burst of enthusiasm, Nehru named it Vasudhara- ‘spring of prosperity.

The latest production figures from Bombay High, the Oil & Natural Gas Commission's (ONGC) prized offshore oil field, however, show that the spring is drying up. In-house technical experts cautioned against the mismanagement of the Bombay High reservoir, but ONGC buckled under pressure from the petroleum ministry, allege oil industry insiders. This was apparently done in an effort to artificially boost the production record in the 1980s.

As things stand, the current situation has led to a financial crisis as the country's already high oil imports, due to an ever-increasing consumption, is rising further with the fall in domestic production. And with the oil price shooting up (currently, it is $24 a barrel), this will exacerbate the balance of payments problem.

What is alarming is that even the present government is acting shortsightedly, putting pressure on ONGC to increase its production targets. In fact, it is seven months since ONGC submitted its already reduced targets, but the government is putting unrelenting pressure on it to increase the same. What was a tragedy in the 1980s will turn out to be a farce in the 1 990s. At the same time, the government, given its management of the oil pool account, has suspended payments ONGC for the crude already pumped last month (the account is normally settled weekly, with a month's 'credit' built in), which does not help matters.

What is the issue of productivity and reserves all about? There are two important indicators of reservoir health the gas-oil ratio (GOR) and the water-oil ratio, or water cut. When these ratios go beyond the norms set according to the geological and physical characteristics of an oil field, alarm bells should start ringing for the producer, as they indicate it is fast getting depleted. The well will then either have to be abandoned or expensive enhanced recovery methods be used. But with water and gas content increasing, the continuity of the oil filament flowing into the well head also gets broken, and the blobs of oil that remain trapped in the reservoir become practically inaccessible.


THE OIL STORY

Millions of years ago, the earth teemed with plant and animal life, much of which was located in or adjacent to rivers, lakes and seas. And as plants and animals died, their remains were covered, in due course, by layer upon layer of organic materials, sand and mud. With oxygen consequently cut off from the organic material, the decomposition process was slowed down, and as these areas were repeatedly covered by rock, volcanic material or other layers of sedimentation thousands feet thick, the underlying organic material was subject to tremendous pressures and high temperatures. The sand and mud were compacted into rock while the organic materials trapped therein got 'cooked' - their long and complicated molecules broken down into lighter, shorter hydrocarbon molecules. Crude oil and natural gas, cocktails of the lighter hydrocarbons thus formed.

The most important point to note is that oil and gas exist in minute pores - the size of a pencil lead or even thinner ¬inside compacted rocks. So, if cracks appear in their upper impermeable layers, the oil and gas ooze out. While the lighter hydrocarbons evaporate away, the heavier ones collect on the surface along with sand and mud, forming the 'tar sands' discovered by ancient man and subsequent coinage of petroleum: 'oil from the rocks'. In fact, in India itself, as the tale goes, 106 years ago, workers at a tea plantation in Assam noticed oil oozing out. And their excited British supervisor exhorted them:
"Dig, boy, dig!" That is how the first oil field in India came to be known as Digboi!

Often, underground water also exists close to petroleum, and the pressure exerted by such water can act like a drive. Similarly under high pressure, natural gas dissolves in crude oil, and when the oil finds an outlet - through an oil well, for instance - this gas boils out, providing additional pressure. Undissolved natural gas, known as free gas, acts as the natural pressure drive.

However, the pressure existing in an oil-bearing rock structure will deplete as oil and gas gush out of an oil well. It is estimated that the natural mechanism provided by reservoir energy can lead to the recovery of only 15-20 per cent of the hydrocarbon reserves, so reservoir energy needs to be carefully nursed; even artificially enhanced. The technology involved here, to save large amounts of precious oil and gas from being lost, is called reservoir management.

This disastrous situation can also arise through 'flogging' oil wells. Producing oil at a rate faster than prudent leads to a sharp drop in reservoir energy - the energy of the oil trapped under pressure deep in the rocks (see box). It is alleged that, under pressure to produce more oil by the government then, this is precisely what ONGC did in the 1980s. And production data available to Business India indicates this charge may well be true.

For instance, the oil output during1987 -91 remained more or less the same from Bombay High North (Layer-II) whereas the GOR nearly doubled. In the larger Bombay High North (Layer-III), oil production remained more or less the same in 981-86, but the GOR shot up five times! At Bombay High South's largest reservoir (Layer-III), production remained more or less the same between 1983 and 1991, but I he GOR increased nearly four times!
Finally, a committee was appointed in 199] under the chairmanship of A.K. Dasgupta, former chairman of Oil India. It determined that nearly 90 Bombay High wells were flogged and so needed to be dosed down immediately to build up reservoir pressure. Ultimately, the government could not ignore its advice, and gave permission.

Consequently, production dropped drastically in 1992-93, but the important point is that, since 1992, the GOR has come down by about 30 per cent. The water cut, however, has been increasing at an alarming rate - it reached close to 1:1 in the rich Bombay High South Layer-III and 4:3 in the Bombay High North Layer-III! Obviously, the reservoirs have aged and might yet become uneconomical.

Reserve challenges
In order to recover more than the 15-20 per cent of the reserves possible with the primary method, a host of technologies called secondary and tertiary recovery methods, or enhanced oil recovery methods, have been developed. The most widely used is water injection, discovered nearly 100 years ago, when it was found that when the brackish water that comes out with oil seeps back into the earth, the surrounding wells produce more oil. Nowadays saline water is forced into injection wells drilled to particular depths around a production well. It then seeps back into the reservoir through cracks artificially created by carefully designed underground explosions, and pushes out any oil contained in the smaller pores of the reservoir.

Water injection can be made more efficient by using micro emulsions or micellar solutions, where certain surfactants (detergents) are dissolved in saline water and injected. This leads to greater cleansing of the oil-bearing pores, hence enhanced recovery.

A similar technique involves re-injection of the associated gas that comes out with oil, and even carbon dioxide has been used in this fashion. Some amount of these gases can dissolve in oil and reduce its viscosity, leading to greater oil flow.

Still, all flooding techniques can lead to the fluid front pushing ahead but bypassing large chunks of oil on finding easier paths of flow. So, one needs to slow down the fluid front and make it move as a near circular wave rather than break into a finger-shaped flow that could bypass oilhearing areas. It can be achieved by mixing certain polymers, like xanthum gum, and polyacrylamides in water and then injecting the solution. These longchain molecules effectively provide an impermeable front for the water flood.

Two other methods quite widely used are steam injection and in situ combust ion. These rely on the fact that heat leads to a remarkable drop in the viscosity of oil, and thereby, greater flow towards the well head. While the steam injection method is self explanatory, in situ combustion involves pumping compressed air into injection wells. Combined with the high underground temperatures that exist, this sudden availability of oxygen leads the combustion of some underground oil and gas and a slowly expanding heat wave in all directions, reducing the viscosity of the trapped oil and causing it to flow towards the well head. These two techniques are, at times, combined by injecting air and water alternately, leading to underground combustion and steam generation pushing the oil out.

Saline water injection is the secondary method most widely used by ONGC at both its onshore and offshore production fields. Micro-emulsion and polymer methods are being tested in its depleted wells, but such sophisticated enhanced recovery methods are expensive. In fact, it is estimated, they can become viable only when oil prices go above $32-34 a barrel

So, it is, indeed, surprising that the Centre has not approved ONGC'S production target for 1996-97 and is, instead, putting pressure on the company to produce more! Should ONGC again buckle under pressure from the government to flog the wells, it will prove disastrous.

What is, instead, required is increased R&D activity in developing economical enhanced oil recovery methods and massive investments in fresh exploration. And lastly, but most importantly, ensuring responsible management of the company, free from political interference.

That ONGC has not paid enough attention to enhanced oil recovery seems clear. The importance of this is indicated by the fact that estimates show that if recoverability improves by 1 percent, total production increases by an amount equivalent to the current annual production of ONGC!

An Indian tale
Inexpensive enhanced oil recovery methods can be found. G.D. Yadav, who holds a doctorate in chemical engineering from UDCT, Bombay, was drawn towards enhanced oil recovery methods while doing post-doctoral work in the UK. His work aroused the interest of a group in the University of Waterloo at Kitchener, Canada, who extended an invitation to him to continue his laboratory studies there. He returned in the 1980s to continue his work at UDCT.

Applying his ideas on enhanced oil recovery in 1991 led Yadav and his doctoral students, S.A. Trailokya and K.N. Subramanian to claim they could recover 90-95 per cent of the oil from a reservoir with their methods! The claim was truly astounding as all the other methods known deliver only 30-35 per cent of the total reserves.

Like all good ideas, Yadav’s idea is remarkably simple. He advocates alternate gas and water injection after placing a semi-permeable membrane at the well head. The membrane, on the one hand, allows only oil to seep through and not water, and on the other, slows down the flood front just as the more expensive polymer method does, only from the reverse direction

It will lead to a more complete flushing of the reservoir as the injected gas and water slowly push the remaining oil from both large and small pores. The membrane can be made of stainless steel and even natural substances like sandstone. Additional advantages will be that no water will be produced at the wellhead and the injected gas will remain inside. Thus, the associated gas being flared today could be stored until it was needed.

Another detailed proposal was submitted, for further laboratory studies and actual field trials in abandoned oil wells at Balol and Kalol in Mehsana, north Gujarat. The project would have cost hardly Rs.15 lakh in 1991, and Yadav offered to share the worldwide patenting rights for the technology with ONGC. Despite numerous reminders, nothing has been heard from ONGC till date.

Yadav has now given up his research on enhanced oil recovery and is applying his knowledge to catalysis. This new preoccupation has already led to six new patents filed in catalysis, and recognition as one of the top three earners in UDCT through consultancy, But he still nurtures the fond hope that, some time in the future, the bureaucracy at ONGC may become permeable to new ideas.

ONGC finds itself bound by chains of administered prices and the government's apathy. Just one example - its Neelam field was discovered in 1984-85 and supposed to be productionised by 1991-92, but the government dithered in awarding the offshore platform construction contract. Finally, after a delay of four years, the contract was given to the very same contractor, Hyundai!

Meanwhile, Bombay High offshore production dipped from 20 million tonnes (MT) to less than 14 MT for two consecutive years (1992-93 and 1993-94). The production returned to 20 MT again only in 1994-95, once Neelam began producing. Hence, the big gap between projections made for the 1990s in ONGC’S Perspective Plan 1985-2005 and its actual production (see graph).

As for oil exploration, ONGC has never received any funds from the Oil Industry Development Board. Despite the government collecting huge sums from the oil industry, hardly any money has been ploughed back. So, now that its big find of Bombay High is about to dry up, there are no new big discoveries. As ONGC gets a measly $12.5 a barrel, and $5 of that goes as royalty to the state and Central Governments, it hardly has any money left liver for serious exploration. One needs between Rs.10-20 crore to dig a single exploratory well! And the oil game calls for a large number of wells and the risk of no oil, despite three-dimensional surveys and sophisticated data-gathering.

Drilling offshore Bombay has been restricted so far to shallow water, about 100-150 metres deep. There could be promising oil fields along the western continental shelf, where survey data advises drilling under 400 metres of seawater, but large investments are needed. Similarly, exploration in the greenfield of Gondwana (MP) will be expensive. Surveys further indicate vast gas reserves at great depths under the Indian plate, where extreme conditions have turned gas into the solid form of hydrates, but all these will remain unreachable if ONGC is not paid the international market price for its crude to enable it to invest in exploration.

Eventually, the Vasudhara at Bombay High will dry up, but will new ones be discovered?

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