Very soon (1)/ I realised (2)/ that he is at fault. (3)/ No error. (4)

Answer

3

Explanation

was will replace is because -
the Reporting Verb is in Past Tense. In Indirect Speech, the Reported speech changes into Past Tense when the Direct Speech is in Present Tense. Look at the examples given below :
He said, "I am going to office."
(D.S.)
He said that he was going to office. (I.S.)
Hence, he was at fault is the right usage