GOVERNANCE : The fuel dilemma

The industry and the government shot themselves in the foot with the ban on furnace oil and petcoke, which only resulted in shutting down of units. The answer lies somewhere else—in finding cheaper alternatives to gas


IN December 2016, India’s apex environmental body Environment Pollution Control Authority (EPCA) released a 14-page study about the ill-effects of Furnace Oil (FO or HFO) and petcoke on the air quality of NCR region, entitled “Mandating acceptable fuel to be used in NCR for air pollution control”. The EPCA body comprises of members from civil services, academia, industry and NGO representatives, among them being Sunita Narayan, Director General Centre of Science and Environment (CSE), India’s leading environmental NGO that made the highly publicised findings of pesticide residues in popular aerated drinks.

The Reports
The EPCA report on the atmospheric effects of FO and petcoke combustion, contrary to the CSE publications, was surprisingly amateurish, almost a cut and paste job that steered away from providing any hard numerical data, sources or analysis. It focused solely on evangelising the ill-effects of sulphur present in the two most used industrial fuels, FO and petcoke.

The second paragraph of the report claims that “The key contaminant in fuel that is responsible for high levels of pollution is sulphur—this is emitted in the form of particulates and also in the form of gas, sulphur dioxide (SO2). Depending on the level of moisture in the air, gas gets converted into particles. These ‘secondary’ particles are a key source of air pollution in Delhi/NCR. According to the IIT-Kanpur report, as much as 25-30 per cent of the winter sources are secondary particles, which are emitted from vehicles, power plants and industries. Any fuel, which is high in sulphur will also have heavy metals, which will add to contamination of the environment.” But without providing the percentage of sulphates present in the particulate matter.

It doesn’t really take an environmentalist or a chemist to discern that the statement is a gross oversimplification, to say it mildly. Though sulphur-derived SO2 and SO3 are potent pollutants and greenhouse gases, as are solid sulphates, the fact remains that most of the particulate matter (PM), both PM 10 (10 microns size) and PM 2.5 (2.5 microns size) suspended in Delhi’s air are composed of microscopic particles of soot (unburned carbon), ash and dust with only the secondary particles having traces of sulphates.

The 334-page IIT Kanpur report, titled “Comprehensive Study on Air Pollution and Green House Gases (GHGs) in Delhi”, used by the EPCA to justify their claims, does indeed say that the main sources of pollution during winter in Delhi are secondary particles (25-30 per cent), but also includes PM from vehicles (20-25 per cent), biomass burning (17-26 per cent), municipal solid waste burning (9-8 per cent) and soil and road dust. Sources of pollution during summer include, coal and fly ash (37-26 per cent), soil and road dust (26-27 per cent), secondary particles (10-15 per cent), biomass burning (7-12 per cent), vehicles (6-9 per cent) and municipal solid waste burning (8-7 per cent).

The IIT report clearly mentions, “It was observed that SO2 concentrations were low and meet the air quality standard,” (on pages 24, 38, 51, 65, 78, 91, 105) with regards to six locations in the region where air samples were drawn in summer and winter. Incidentally, figures released by the Central Pollution Control Board (CPCB) also show that the SOx (sulphur oxides) figures in the NCR region were well within limits.

With regards to sulphates in secondary particles, the IIT report lays the blame squarely on petroleum refineries and thermal power stations located in the periphery of the NCR region. “What are the sources of secondary particles, the major and consistent contributors to Delhi’s PM? These particles source from precursor gases (SO2 and NOx), which are chemically transformed into particles in the atmosphere. Mostly, the precursor gases are emitted from far distances from large sources. For sulfates, the major contribution can be attributed to large power plants and refineries. The prevalent wind from north-west and south-east can bring in the secondary sulphates and nitrates from large power plants and refineries almost from all sides in Delhi.” (Page 275-276)

THE report further suggested a complete ban on municipal waste burning (MWB) and switching to low sulphur automotive fuels, the need to impose emission controls in industries to reduce PM from industrial stacks and the need to monitor NOx levels. But nowhere does it indicate Petcoke or FO as the main culprits for the Capital’s terrible air quality. Actually the report doesn’t mention the two fuels at all.

What is most surprising in the EPCA report is that it largely glosses over the role of NOx, which is produced by every kind of combustion from industrial to vehicular, even if using the cleanest fuels, and is one of the key compounds responsible for the formation of smog, photochemical smog and acid rains.

In short, the EPCA report makes no secret that its clear-cut agenda is: Ban the usage of Petcoke and FO in the entire NCR region and force the Industry to convert to Natural Gas.

Residents of Delhi would remember that during both autumn 2016 and 2017, when dark smoke and smog enveloped the capital bringing life to a standstill, the dominant smell in the air was not of sulphur but that of burning vegetation with an acrid tinge. The former was the smell of unburned carbon and volatile organic carbon from the agricultural stubble set on fire in the surrounding areas, the latter caused by a potent chemical soup of methane (CH4), carbon monoxide (CO), nitrogen oxides (NOx) and other aerosols of creosote and silica.

The smell of sulphur and sulphurous compounds can be experienced mostly in areas that burn coal, especially nearby coal-burning thermal power stations or industries with coal-fired boilers, irrespective of how many pollution control equipment they have installed.

The Aftermath
By February 2017, the Supreme Court got into fray and asked the concerned governments of Rajasthan, Uttar Pradesh, Punjab and Haryana to pull up their socks and act on the recommendations of EPCA in banning FO and petcoke, as Delhi had already banned all high sulphur fuels in 1996. In October 2017, the Supreme Court without much ado passed a ruling banning the usage of both the fuels in the entire NCR region and further extended the ban to encompass the entire territories of the concerned States.

The ban virtually paralysed the entire manufacturing sector of the four States overnight due to the lack of fuel, as the only economical alternative—though it was still about 25 per cent more expensive which could be used immediately in place of FO—was Light Diesel Oil (LDO), while both Piped Natural Gas (PNG) and Liquid Petroleum Gas (LPG) were 3-4 times more costly and required expensive refitting of pipelines and burners. In the case of PNG, additional factors like availability of gas in a particular area, pipeline connectivity and supply contracts also play a major role for the conversion of a plant, and at a considerable expenditure.

In no time the refineries ran out of LDO as none manufactured it in sufficiently large volumes. Hence, they were unable to meet the sudden spike in demand. The combined average monthly production of LDO in all Indian refineries is about 37,000 metric tones while that of FO is about 600,000 metric tonnes.

Within a week, manufacturing in the SME sector almost ground to a halt. Companies that fired petcoke in their furnaces and boilers, were left with no alternative but to fish out their old liquid fuel burners or buy new ones.

ASSOCIATED Chambers of Commerce and Industry of India (Assocham) claimed that close to a 1,000 industrial units had temporarily closed down and over a lakh were affected by the ban, leaving 25 lakh workers jobless. By December end the Supreme Court relaxed the ban partially for thermal power plants and cement plants, but a comprehensive solution for the industrial fuel problem is yet to be found. LPG and PNG, despite being cleaner fuels, are much costlier and their usage in industries where fuel comprises a major chunk of the manufacturing costs, as in the case of iron and steel, makes them non viable.

Push for Gas
If viewed benignly, the EPCA report and the subsequent Supreme Court action can be interpreted as knee-jerk reactions to the perennial problem of poor air quality in the Capital, further aggravated by the terrible winter fog-turned-smog, the burning of stubble and the pollution caused by crackers and fireworks during Diwali. But a critical appraisal of the report and its aftermath can only be interpreted as blatant arm-twisting of the entire manufacturing industry into switching over to Natural Gas, something that India produces very little and is imported in the form of Liquid Natural Gas (LNG).

Today LNG comprises about 6.5 per cent of country’s energy mix and 19.7 million tonnes of it was imported in 2016, making India the world’s fourth largest buyer. In 2015, the government-owned Petronet successfully renegotiated a long-term import of 7.5 million tonnes of LNG from Qatar’s RasGas. Last year it convinced Exxon Mobil Corp to reduce prices of LNG from the Gorgon project in Australia. More recently, GAIL had also renegotiated for lower prices for its long-term Sale and Purchase Agreement of up to 2.5 million tonnes per year with Russia’s gas giant Gazprom, which was signed in 2012 with supplies starting from May 2018.

Though sulphur-derived SO2 and SO3 are potent pollutants and greenhouse gases, as are solid sulphates, the fact remains that most of the particulate matter (PM), both PM 10 (10 microns size) and PM 2.5 (2.5 microns size) suspended in Delhi’s air are composed of microscopic particles of soot (unburned carbon), ash and dust with only the secondary particles having traces of sulphates

It is probably pertinent to recall that import, sale and distribution of Natural Gas is also one of the core business interests of the Adani Group, which with its recent joint ventures with State-owned companies has formed an almost monopolistic gas combine. In 2016, Indian Oil Corporation and GAIL signed an agreement to purchase a 49 per cent stake in Adani Group’s Rs. 6,000-crore Dhamra LNG project in Odisha. In August 2017, the IOC board approved acquiring up to 50 per cent stake in Adani Group-backed Mundra LNG import terminal in Gujarat for an estimated Rs. 750 crore. So, by imposing a blanket ban on the two cheapest industrial fuels in the four industrial northern States, whether by accident or intent the government through EPCA recommendation and the Supreme Court ruling has provided a huge and ready captive market to the newly formed gas cartel.

Further, the EPCA in its advocacy of the ban has been reticent about the fact that India, thanks to her huge refining capacity, produces copious quantities of petcoke and FO as they are the inescapable by-products of the petroleum refining process. Neither have they mentioned what to do with resultant stockpile of these fuels as Indian Oil refiners produced over 11.7 million metric tonnes of FO and 12.9 million metric tonnes of petcoke in 2016-17.

Dirty Fuels, Dirtier Emissions
On the other hand, one cannot absolve the Indian manufacturing industry, especially the SMEs, from their role in leading to such a situation. For decades, virtually the entire Indian SME industry had blatantly flouted all atmospheric and effluent discharge pollution norms, both with and without the connivance of the officials of various government pollution control boards. Most of their pollution control equipment was just decorative, at the most working intermittently only during day to save on electricity. Private agents appointed by the pollution control boards came monthly, collecting cash envelops and in turn providing reports with immaculate readings. Meanwhile, waste was disposed off by contractors in unauthorised landfills or just by the side of the road.

The fuel of choice is invariably selected solely on principle of “the cheapest is the best” and most industries supplement their purchases from refineries with those provided by generic oil traders who, in turn, supply various petrochemical concoctions containing anything from marine waste oil to used engine oil, stolen crude, chemical waste, pitches and a motley collection of ingredients, together constituting what goes by trade monikers like ‘Campa, Pit Ka Maal’ or simply ‘Palti’.

Fuel transporters too had a field day moonlighting as adulterators as virtually no fuel ever reaches the destination without some amount of pilferage or mixing. The last decade also saw extensive usage of an oil derived from the pyrolysis of used tyres known as Tyre Oil, which matched the characteristics of LDO except that it is full of solvents like benzene and a host of other carcinogenic agents. The plants extracting it are themselves immensely polluting, contaminating the ground with carbon wastes and discharge effluents, and the air with noxious leakages from the pyrolysis unit.

The Economics of Gas
It is a fact that both FO and petcoke are low grade refinery by-products and relatively dirty fuels when compared to distillates and gas. FO does contain up to 3 per cent sulphur and the figure goes up to 7 per cent in the case of petcoke.

FO comprises of residual oils left from the distilling processes, while petcoke is a solidified carbon residue manufactured in refinery coker units and used as replacement of coal due to its higher energy content. Both are cheap and hence extensively used by the industry. Simply banning them would do little to clear up the Capital’s air quality but would force many industrial consumers to close shop.

As per data released by the Petroleum Planning and Analysis Cell, in the period April 2016-March 2017, Indian refineries produced 11.75 million tonnes of FO and the industry consumed 7.15 million tonnes, the excess being either exported or stockpiled. In the same period, the industry consumed almost 24 million tonnes of petcoke, of which 12.9 million tonnes was domestic, the rest being imported. There is no State-wise consumption data of these two fuels, but considering the large number of industries and industrial clusters in the four northern States where they have been banned, it wouldn’t be wrong to assume that it can be anywhere between 1/3rd to 1/4th of the country’s consumption.

AS the current price for industrial PNG is approximately Rs. 1,000 per mmbtu (million British thermal units) plus taxes (source: Adani Gas website), its kilo calorie (Kcal) cost is about Rs. 39 for 10,000 Kcal, or the gross Kcal of 1 kg of FO which costs Rs. 30 plus taxes (source: BPCL website). This means a straight 23 per cent hike in prices, not forgetting additional expenses of anywhere between a few lakhs to over a crore for equipment refitting costs for burning gas.

When comparing natural gas prices with petcoke—costing about Rs. 11 per kg containing 8,000 Kcal—again on the basis of 10,000 Kcal, its a straight increase of Rs.22.50 or 236 per cent hike, plus the additional cost of equipment. Even if we compare the cost appreciation using LDO, which costs about Rs. 38 per litre and is in very short supply, the price difference on Kcal basis with FO and petcoke is Rs. 4 and Rs. 20, respectively.

The ham-fisted approach of demanding a blanket ban on the two cheapest industrial fuels may seem justifiable to environmentalists and learned judges, but the fact remains that all LNG is imported, is expensive, requires extensive and expensive retrofitting of equipment, which many companies may simply not be able to afford and, best of all, is not even available everywhere. Ecologists and clean air advocates may argue that the increase in fuel cost is a small price to pay for health and clean air, but for most of the industries already reeling in recession, this strikes a deadly blow if not the death knell.

A more grounded approach for the EPCA and the Supreme Court would have been learning from International Maritime Organisation (IMO), which is enacting its 2020 global sulphur limit for ships by specifying PM, NOx and SOx emission limits without banning or recommending any specific fuel, but with strict monitoring and enforcement.

A Ready Solution
In its zeal to ban FO and petcoke and promote natural gas, EPCA completely ignored the existence of mature and time-tested fuel modifying processes like Fuel-Water Emulsification and Fuel-Water Slurries that enhance combustion and also drastically reduce emissions from PM to CO, NOx and SOx. Both are technologies that can be implemented at minimum cost with little or no appreciation in the final fuel price. FO can be easily emulsified and petcoke can be converted into a Carbon Water Slurry (CWS) fuel.

Numerous studies from around the world—from the Environmental Protection Agency (EPA) of the US to the Kobe and Kanagawa Universities of Japan—attest that emulsions burn much cleaner than stock fuel. The EPA study on emission factors of Fuel Oil combustion stated that emulsification of No 6 Fuel Oil (equivalent to our FO) with 9 per cent water, reduced NOx by 41 per cent, CO by 33 per cent and PM by 45 per cent. Another EPA study says “The CO emission factor was 24 per cent lower for the emulsified oil compared to the base oil, the NO emission factor was 35 per cent lower for the emulsified oil compared to the base oil, and the PM emission factor was 38 per cent lower for the emulsified oil compared to the base oil.” Emulsification of FO slightly reduces SOx emission, though the process can be enhanced to reduce levels even further by adding certain proprietary chemical formulation into the emulsion.

THE CWS technology had been extensively developed during the 70s and the 80s, but was largely sidelined when oil prices came down. Today the technology is widely used in coal gasifiers and in niche segments as a replacement for FO at a much lower price. Combustion of CWS reduces NOx emission between 35-40 per cent and PM by 30 per cent. SOx levels emissions of petcoke CWS can be partly reduced by mixing special sorbent materials during preparation and by attaching a wet scrubber to the exhaust duct to further clean the gas.

In its zeal to ban FO and petcoke and promote natural gas, EPCA completely ignored the existence of mature and time-tested fuel modifying processes like Fuel-Water Emulsification and Fuel-Water Slurries that enhance combustion and also drastically reduce emissions from PM to CO, NOx and SOx

The process can be undertaken in centralised locations where FO and petcoke is procured from refineries and converted into Emulsified FO and CWS under strict quality control so that the end product meets the set emission norms upon combustion, and shipped in tanker trucks to the end client. This way, the industrial fuel consumers would be spared the cost of purchasing the Fuel Emulsifying or CWS equipment, thus saving them a considerable investment. It would also ensure that the units doesn’t lie idle or underperform like in the case of most pollution control equipment. Besides, they won’t have to increase their fuel expenses and cost of production by converting to gas, nor invest in gas burners and ancillary equipment.

Though the emission may not be as clean as in the case of Natural Gas, there would still be an average of 40 per cent less PM and NOx with a considerable reduction in CO, CO2 and SOx. At the same time, the country reduces its import burden of LNG and gets to utilise its entire FO production without having to export it at a discount. All that is required is for the government to set emission norms for NOx, PM and SOx and to declare that the only way to use FO or petcoke as fuel is to emulsify or convert it into CWS. gfiles end logo

GOVERNANCE / Oil / Pricing

VOL. 12 | ISSUE 1 | APRIL 2018

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