MonitorsPublished on Apr 09, 2008
Climate Change Targets:  Is the EU Sincere or Insincere?
Climate Change Targets: Is the EU Sincere or Insincere? by Peter Schrank

DEMAND agreement on a divorce settlement before you marry, and the world may believe many things of you: that you are prudent, or cynical, or just a bit mean. What it will not believe is that you are a swooning romantic, moved only by the high ideals of love. You can boast you are an idealist, in other words, or you can make a pre-nuptial agreement: you cannot plausibly do both.

Just such a test faced European Union leaders at their recent summit, when they reviewed their year-old plan to lead the world in the fight against climate change. A year ago they were brimming with selfless idealism. They agreed to make deep cuts in carbon emissions (by a fifth from 1990 levels by 2020), even if other rich countries did not follow. The signal was clear: Europe will start saving the planet now, even if the selfish Americans (not to mention the Chinese and Indians) are not ready. Bigger cuts were promised if other countries joined in, prompting much self-congratulatory talk about the EU's “leading role”.

That was then. A year on, with the world economy looking wobblier, the March summit was a less uplifting affair. Leaders from countries with powerful heavy-industry lobbies called for explicit measures to “protect” European firms in case talks on a global climate-change deal failed (and left the Europeans pushing ahead with tough curbs on their own). In a move that would make an American divorce lawyer proud, Germany, France, Austria, Italy and the Czech Republic all asked the EU to plan for failure, insisting that defensive measures must be agreed before climate-change talks in Copenhagen at the end of 2009.

Demanding “certainty” today for businesses that have to make long-term investment decisions, the heads of governments also asked for a list of energy-intensive industries “particularly exposed to international competition”. Industries making steel, aluminium, paper, chemicals and bricks were all cited, as were others such as cement that are barely touched by imports (being cheap and heavy, cement is usually produced round the corner from where it is used).

EU leaders then asked for a range of protective policies to be spelled out. Germany backed a carve-out for the most energy-guzzling factories, giving them continued access to free carbon credits from the EU's emissions trading scheme (ETS) after 2012, by which time other polluters will mostly be buying emissions allowances at auction. The worst idea came from France's president, Nicolas Sarkozy, who renewed calls for a carbon tax on imports from countries that “don't play the game” on climate change. The European Commission should find a way to “penalise” companies from such countries, he added—blithely ignoring the existence of firms that come from more than one country, source components from a dozen more and manufacture on every continent. Otherwise, he said, Europe would “get all the downsides [of fighting climate change], and none of the benefits”. Other than the benefit of saving the planet, one might retort: the project in which Europe claims a “leading” role.

Others were more subtle than Mr Sarkozy, but even more hypocritical, dressing up calls for handouts as concern for the world. Endless bigwigs said heavy industry would move to countries with “lower standards” unless helped to stay (by letting factories observe, er, lower standards). This argument even has its own jargon: “carbon leakage”, an ugly term gaining currency in Euro-circles, to convey the threat that carbon-spewing firms might move to places with weaker environmental laws.

Advocates of special favours for EU industry insist that factory owners will still have an incentive to install clean technology, because “free” ETS allowances will not really be free. They may be accompanied by benchmarks—eg, setting maximum carbon emissions for every tonne of steel produced—with free allowances given only to firms that meet the standard (and then only within a sector-wide cap). Another suggestion is to make importers enter the ETS and buy European emissions allowances to cover their products (though squaring this idea with fixed Europe-wide caps on allowances sounds a nightmare).

Yet listen to European industrialists, and they are saying something simpler: they may leave if carbon curbs make it more competitive to produce elsewhere. One can play with the details, but if carbon curbs bite at all, such a threat must remain. If they do not bite, it is hard to see how European production will become magically greener. (There is also the small detail, raised by countries such as Sweden, that investment may actually be more effective outside the EU: building a clean new plant in China to replace a Mao-era horror might reduce global emissions more than tweaking technology at a European factory, say).

Green fudge and pre-nups

As usual the summit ended in a fudge, after the dangers of pre-empting a global deal were pointed out forcefully by leaders from Sweden, Denmark, the Netherlands, Britain and the European Commission. The commission will “analyse” and “address” carbon leakage in a directive on the next generation of the ETS, coming out in early 2009. But details remain vague.

Germany's chancellor, Angela Merkel, insisted that the summit was “not calling into question” last year's headline targets. One might wonder. As one senior official notes, if Europe lets favoured industries fight Chinese or Indian rivals with a “race to the bottom” on emissions, that means other bits of the economy must slash emissions even more, if Europe means what it says on overall caps. There was much talk in Brussels of ensuring a “level playing-field” for EU industries. But here is the rub: if you do the right thing, you will not be on a level playing-field with those doing the wrong thing. Like marriage, fighting climate change involves a leap of faith. Does Europe accept that? Like a blushing bride suddenly demanding a pre-nup, it is sending out rather mixed signals right now.

Courtesy: The Economist, March 22-28, 2008.
















500 (27/05/07)





250 (31/05/07)





110 (16/06/07)





500 (18/06/07)


M.P. (WR)



40 (13/08/07)





250 (02/09/07)





250 (01/10/07)





740 (28/10/07)





300 (01/11/07)





250 (07/11/07)


W.B. (ER)



210 (20/11/07)






300 (24/11/07)


W.B. (ER)



500 (03/12/07)





250 (11/12/07)





300 (21/12/07)


W.B. (ER)




210 (24/12/07)


W.B. (ER)



110 (27/12/07)





250 (03/01/08)





250 (10/02/08)





250 (06/03/08)





500 (16/03/07)





300 (29/03/07)






Source: Central Electricity Authority.

Cutting Carbon, not Economic Growth: Germany's Path (part – II)

 (Anja Hartmann, Jens Riese and Thomas Vahlenkamp)


Continued from Issue No. 42…

Getting to 30 percent

To determine how Germany can get from the 17 percent reduction of emissions achieved by 2004 to any 2020 target it chooses, we applied our analysis of the extent and cost of the available abatement opportunities to a baseline projection of how emissions would develop in the remaining time period. We made certain key assumptions. One is that the German economy will continue to grow by around 1.6 percent a year. Another is that when goods and facilities reach the end of their useful lifetime, residential customers, businesses, and governments will replace them with technologies that have the average energy efficiency and greenhouse gas intensity of those sold today. As average technologies replace subaverage ones, the quality of the stock as a whole gradually improves. This “current technology” projection does not assume any future technological improvements in energy efficiency and greenhouse gas intensity.

Our study estimates that greenhouse gas emissions in Germany would rise slightly from today’s level, to reach 1,048 million tons of greenhouse gases in 2020, if nothing more were done to reduce them. Against this baseline, we found that the country could cut an additional 195 million tons of greenhouse gases annually by 2020 at a total cost that would neither curb economic growth nor require changes in consumer lifestyles. In this way, emissions of greenhouse gases would fall by 31 percent from the 1990 level. Cutting these 195 million tons of emissions would require the use of levers at each of three different cost levels (Exhibit 2).

Exhibit: 2 [Abatement potential in Germany, 2020 million tons of carbon dioxide and equivalent green house gases (CO2e)]

Source: Mckinsey, Costs & Potentials of GHG abatement in Germay, for Federation of German Industries’ (BDI) Business for Climate Protection Initiative.


1.     We identified a total of 127 million tons that could be eliminated by 2020 through the use of levers generating a positive payoff for the companies or consumers that adopted them. The costs of abatement would be recouped within the amortization period. This degree of potential abatement assumes that investments would be made in the most energy-efficient technologies available today and that some of them will be enhanced in the foreseeable future, improving the stock beyond the level assumed in the current-technology projection. These levers include heating systems, insulation for buildings, electrical drives in industrial plants, and power trains in cars.

2.     An additional 14 million tons of greenhouse gases could be eliminated at a cost of up to €20 a ton by implementing a number of industry-specific measures in certain production areas. These include the capture and decomposition of the greenhouse gas nitrous oxide in the manufacture of adipic acid, higher efficiency in new lignite power plants, and the increased use of combined heat and power (CHP) plants.

3.     Changing the energy mix in Germany toward the use of less emission-intensive sources of power—primarily wind power and biomass in the energy sector and biofuels in the transportation sector—could eliminate an additional 54 million tons of greenhouse gases. The cost of these abatement levers is relatively high: an average of €32 a ton and €175 a ton in the energy and transportation sectors, respectively. (As a point of reference, since trading under the EU’s Emission Trading Scheme began, the price of emission certificates has ranged from €6 to €31 a ton.) These measures will probably be implemented, as they currently enjoy broad political support and are already partially subsidized under Germany’s Renewable Energy Sources Act (EEG).3

The energy, industrial, buildings, transportation, and agricultural sectors can each contribute substantially to achieving this level of abatement—195 million tons—by reducing emission volumes roughly equal to their current share of total emissions.

Painful trade-offs

Germany would face difficult trade-offs if it decided to aim for emission cuts substantially beyond 30 percent by 2020. Such a target could be achieved if the government accelerated cycles of investment in abatement technology by way of incentives or other public-policy measures or restricted economic growth or the quality of life. Neither of these possibilities entered into our calculations, however. Otherwise, we found only two ways to reach higher targets, and both are painful.

One is to use a number of levers that could abate an additional 58 million tons of greenhouse gases annually, which along with the measures already described would provide for a 35 percent cut in emissions. But these technologies generally have abatement costs far higher than €20 a ton—and in some cases, such as hybrid cars, up to several thousand euros. In fact, each percentage point of abatement beyond 31 percent would exponentially increase costs, both for the companies directly affected and for the overall economy. Just reducing emissions by 32 percent (instead of 31) as of 2020 would add over €450 million a year to the cost of abatement.

The other possibility involves nuclear power, which Germany has decided to phase out by 2025. There is a strong popular consensus to stand by that decision. Our analysis shows that if the German people and their leaders decided to delay the phaseout, an additional 90 million tons of greenhouse gases4 could be abated by 2020, without extra costs. Combined with the 195 million tons achieved in the 31 percent scenario, delaying the phaseout of nuclear power could reduce emissions by 38 percent from the 1990 level. The cost would be about €4.5 billion a year lower than that of the basic scenario described in this article.


3 Our estimate of the abatement costs considers all benefits for investors—for instance, EEG payments, which in 2006 amounted to €3.2 billion. By 2020, the volume of payments is expected to increase to some €4 billion a year. For biofuels, we assumed that the current benefits will expire by 2020. We assumed that existing ethanol import tariffs, which contribute significantly to the high abatement cost of biofuels, will remain in place up to 2020.

4 After the nuclear phaseout, about 150 terawatt hours of gross electricity production from nuclear power stations would have to be replaced, primarily by generation from high-emission coal- and gas-fired power plants.

to be continued


(Anja Hartmann is a principal in McKinsey’s Hamburg office, Jens Riese is a principal in the Munich office, and Thomas Vahlenkamp is a director in the Düsseldorf office.)


Courtesy: The Mckinsey Quarterly









OVL qualifies for oil and gas contracts in Iraq

April 15, 2008. ONGC Videsh (OVL), the overseas arm of public sector Oil & Natural Gas Corp, qualified to bid for oil and gas contracts in Iraq to develop one of the world’s largest oilfields. OVL is the only Indian company in the list of 35 firms that the Iraqi government, headed by Nouri al-Maliki, has found to be eligible for bidding for the contracts. The list contains four Chinese firms: CNOOC, CNPC, Sinochem and Sinopic group. It also names seven energy majors from the US, including Chevron, Conoco Phillips, Exxonmobil, Marathon and Occidenal Petroleum. Reliance Industries had not participated in the qualification round after Baghdad threatened to blacklist the firm for signing contracts for two oil blocks with Kurdistan Regional Government. 

China Gas, GAIL to tie-up for CBM blocks

April 15, 2008. China Gas Holdings Limited has offered state-run Gail India Limited a partnership in its Coal Bed Methane (CBM) blocks in China. According to the China Gas Holdings Limited the company has some CBM blocks in China, the data for which is under evaluation. Upon evaluation a three-way partnership between China Gas, Gail India and Arrow Energy of Australia may be formed.

OMEL to partner Total in Nigeria

April 15, 2008. ONGC Mittal Energy (OMEL), a joint venture between ONGC and the LN Mittal group is all set to take on board French oil major Total as a partner in its two Nigerian oil blocks. Total is likely to pick up close to 14% and 26% in highly prospective blocks, OPL-279 and OPL-285, respectively. The deal has almost been finalised. It is expected to be a reciprocal arrangement, with Total offering equity stakes to OMEL in its oil and gas assets in other countries. It is understood that a tie-up with Total will help the OMEL-led consortium to source equipment including drilling rigs. The tie-up is also significant as Total has expertise in undertaking exploration and production (E&P) activities in the region. The two are stated to be prize blocks. The production sharing contract (PSC) for both the blocks was executed on February 23, 2007, and OMEL had planned to bring in a partner by selling a participating interest to an international oil company. OMEL holds 60% participating interest in OPL-279 while the balance 40% is with the local Nigerian oil firm EMO. In block OPL-285, OMEL holds a 90% stake and EMO has a 10% participating interest. Even after selling stake to Total, OMEL will remain the operator in the two blocks. The blocks were awarded to OMEL under a mini bid round in 2006 where commitment to build infrastructure had been one of the pre-qualification criteria. The consortium had committed to build a refinery, a railway line and a power plant in Nigeria to bag the deal. OMEL, a joint venture company incorporated in Cyprus, has two major partners ONGC Videsh and Mittal Investments Sarl (MIS). OVL and MIS hold 49.98% and 48.02% shares of OMEL, respectively, with 2% held by SBI Capital. OMEL also holds participating interest in the AFPC Syrian assets, Turkmenistan and Trinidad & Tobago.

RIL in talks with BG, Chevron, Exxon for stake sale

April 14, 2008. Reliance Industries is in talks with global energy majors, including British Gas of the UK, Chevron Corp of the US, Exxon and Shell for a possible stake sale in its Krishna-Godavari basin gas fields. RIL is looking for a strategic partner for its KG-D6 gas block to get deep sea exploration technology. More than 10 per cent could be divested. India's corporate conglomerate has mandated Goldman Sachs for its possible stake sale that may happen after the block, that contains over 50 trillion Cubic feet of gas reserve, is hived off into a special purpose vehicle. At least five companies, including BG, Chevron Corp, Exxon, Shell and ENI of Italy has visited the data room set up in New York. Total of France, BG of UK and Petrobras of Brazil are also believed to be interested in Reliance's block that is to begin gas production from third quarter this calendar year. Currently, RIL holds 90 per cent participating interest in the block while Canadian company Niko Resources has the remaining stake. The two companies won the block in the first round of the government’s New Exploration and Licensing Policy (Nelp I) in 2000. RIL is set to begin production of 20 million cubic metres per day (mcmd) of gas from the block later this year. Within a year of production the rate will go up to a peak of 80 mcmd, which is equal to the current gas availability in the country. Reports of RIL selling stake in the D6 block have been doing the rounds for over a year now. The company has not, however, sold stake even at a time when other domestic oil majors, such as Oil and Natural Gas Corporation (ONGC), sold stake in their deepwater blocks to global companies, such as Brazil’s Petrobras, Norway-based NorskHydro and Italy’s ENI. While ONGC sold stake in its gas block to technology-rich foreign companies, RIL has managed to develop its block without selling a stake. Analysts say it would be unlikely the company would do so now when the block is close to production. RIL and Niko are spending $5.2 bn to develop the block. Once the production begins, the consortium will spend another $3.3 bn to maintain it. It is estimated that the profits from the sale of gas from the D6 block would be over $16 bn.

RIL’s KG basin could yield 50 pc more gas

April 11, 2008. India’s largest company by market value, Reliance Industries Ltd (RIL),may produce 50 per cent more natural gas from the country’s biggest field than the company estimated, easing shortages that idled utilities in the world’s second fastest growing economy. The Krishna-Godavari (KG)region in the Bay of Bengal may yield as much as 120 million cubic metres a day (mcmd) after eight new discoveries. The previous target for the field, scheduled to start production in the next 12 months, was 80 mcmd. RIL is investing $5.2 bn (Rs 20,800 crore) to develop the KG region, which will more than double the country’s output and may alleviate shortages that have shut down one-third of the nation’s gas-fired power plants. Demand may quadruple to 400 mcmd by 2025, if the economy expands at the government’s projected annual rate of 7-8%, according to the Ministry of Petroleum and Natural Gas.

Venezuela to supply 0.15 mn bpd of oil to Reliance

April 9, 2008. Venezuelan state oil company PDVSA will supply Reliance with 150,000 barrels per day of oil starting in June under a long term supply deal. The deal will help Reliance meet its refining needs as it "expands to reach a capacity of almost 600,000 barrels per day. The statement appeared to refer to Reliance's project to build a 580,000-barrel-per-day (bpd) addition to the 660,000 bpd Jamnagar refinery. The $6 bn expansion, which Reliance hopes to complete ahead of its original December target date, would make Jamnagar the world's largest refining complex. PDVSA and India's ONGC created a joint venture called Petrolera IndoVenezolana to boost production from 30,000 bpd to 60,000 bpd at Venezuela's San Cristobal field, which PDVSA says has reserves of 232 mn barrels. Reliance, the world's fourth-largest refiner, has been actively pursuing petroleum exploration activities around the world. Its subsidiaries have operations in countries ranging from East Timor to Colombia, and it is seeking to develop oil assets in Iraq.


Essar plans petchem project in Gujarat

April 15, 2008. Essar Group is planning an integrated petrochemical complex with its refinery expansion plans at Vadinar in Gujarat. It will have a big naphtha and off-gas cracker. The size will depend on the kind of crude it will process and the products it will get.

RIL sees Saudi dreams in Jizan oil refinery

April 15, 2008. Reliance Industries has set its sights on acquiring a majority stake in Jizan oil refinery in the Saudi Kingdom. Jizan oil refinery, with a capacity of processing up to 4,00,000 barrels of oil per day (bopd), will be the first refinery in Saudi Arabia to be wholly owned and operated by the private sector. RIL has been looking for an entry in the hydrocarbon-rich Kingdom for quite some time, but without much success. RIL last year announced investments to the tune of $24 bn in the Gulf region in various energy projects. Malaysia’s state-owned oil firm, Petronas, is also believed to be in the race for this project.

Petronet LNG to finish expansion by Dec

April 15, 2008. State-owned Petronet LNG Ltd is on schedule to complete doubling the capacity of its Dahej terminal in Gujarat by December. The expansion will allow the company to start importing 10 million metric tonnes (mt) of LNG annually. Imports, including purchases from Australia and spot cargoes, are expected at 7.5 million tonnes this year. Petronet is building two new storage tanks and an additional jetty at the Dahej facility in Gujarat state to handle larger ships. The company plans to construct a 2.5 mtpa terminal in Kochi in south India before switching its expansion focus to gas-fired power plants. State-owned Petronet plans to build a 1,200-MW power plant near Dahej at a cost of Rs 3,100 crore (about $776 mn). LNG is gas chilled to liquid form, reducing it to one-six- hundredth of its original volume for transportation by tanker to destinations not connected by pipeline. On arrival it is turned back into gas for delivery to users such as power plants, factories and households.

IOC losing $81 mn per day on fuel sales

April 14, 2008. According to Indian Oil Corporation (IOC), the company is losing Rs 320 crore ($80.9 mn) per day on fuel sales and if the situation continues for more than a year, its project may get impacted. Right now the company is able to manage, but if this continues for one more year, it will see investment in its project getting impacted. The company, is losing Rs 320 crore ($80.9 mn) per day on sale of petrol, diesel, LPG and kerosene. IOC plans to invest Rs 7,500 crore ($1.9 bn) in refinery and pipeline projects in 2008-09.

Indian Oil takes LNG to doorsteps of companies

April 12, 2008. Indian Oil, the largest commercial enterprise in the country, has started transporting LNG (Liquified Natural Gas) to the doorsteps of the companies. LNG, which is fast emerging as an alternative fuel globally, is currently transported via a web of pipeline network. However, companies which are located away from the pipeline are not able to tap this vital energy source. Indian Oil, through a pioneering innovation, has started supplying LNG by tankers, similar to how petrol is transported. The company will be supplying LNG by road to two companies at present but has identified four to five more customers and hopes to gradually increase the base. The expansion of this facility will depend upon the availability of LNG. Bulk of the LNG sourced by the company has been tied up and it is only a small quantity that will be transported by road for now. According to the company Gas market in India is opening up and more gas will be available over the next few years not only from imported sources but also from new discoveries in the country and more LNG can be transported by road. Presently, Indian Oil gets LNG by way of imports that land at Dahej in Gujarat. The company, presently, sources its LNG supply from Petronet LNG with which it has a joint venture. However, LNG can be transported by road for only about 300 to 400 km from Dahej. The cost of transporting LNG through road is higher as compared to the transport through pipeline.

RPL refinery may start by November

April 11, 2008. Reliance Petroleum Ltd (RPL) aims to start its refinery at Jamnagar from November. The company has been maintaining that it is on course to complete the project ahead of the scheduled start in December 2008. In January, RPL had achieved 82% of overall progress in just 24 months since the commencement of the project. While major units at the RPL refinery will start production from September, the rest of the units will start operation in the next 2-3 months.

Transportation / Trade

India to take up IPI project with Pak

April 15, 2008. Even as petroleum minister Murli Deora is scheduled to visit Pakistan next week to sort out the issues relating to the Iran-Pakistan-India (IPI) pipeline project, Pakistan President Parvez Musharraf was in China lobbying for the Iran-Pakistan-China (IPC) pipeline project. China is sharply increasing oil and gas imports to fuel its booming economy and Musharraf hopes that it would see Pakistan as an energy and trade corridor to the Middle East. According to the Pakistan President it is very much in favour of a pipeline between the Gulf and China through Pakistan. Pakistan is banking on China, the world’s biggest oil user after the US, to hedge its bets as talks resume on building a 2,100-km (1,300-mile) pipeline to carry Iran’s fuel to India. The project is stalled because India could not agree with Iran on the price for the gas or the fees to pay Pakistan for transporting the fuel.

GSPC seeks RBI nod to raise $325 mn abroad

April 15, 2008. Gujarat State Petroleum Corporation (GSPC) has sought RBI approval for raising $325 mn (approximately Rs 1,300 crore) ECB. This is part of the company’s programme for raising up to Rs 2,000 crore ($502 mn) loan finance in a phased manner. The fund will be used primarily in GSPC’s KG basin asset, which is reportedly on the verge of entering the development stage. KG basin apart, the company has recently committed to invest up to $470 mn in drilling 20 wells in two blocks in the Western Desert and in the offshore East Mediterranean, over a period of four years beginning March 2008. The Gujarat State PSU holds 50 per cent operating stake in the two blocks. GSPC’s fund requirements are expected to increase substantially by the end of this year primarily for development of KG asset, which is now expected to come into production by 2010-11.

RGTIL may start testing Kakinada Baruch pipeline soon

April 15, 2008. Reliance Gas Transportation Infrastructure Ltd (RGTIL), a RIL subsidiary, expects to start testing (dry run) the Kakinada Baruch pipeline shortly. The company is implementing the 1,440 km pipeline project from Kakinada (Andhra Pradesh) to Baruch (Gujarat) to transport gas from Reliance Industries Ltd’s (RIL) east-coast fields. The east-west pipeline for carrying gas from the D6 block of Krishna-Godavari Basin will have the capacity to transport 120 mn cubic metres a day (mcmd) of gas. The company has received all the pending clearances including the environmental clearance for the pipeline to pass through a forest area in Maharashtra and plans to start testing the pipeline network in phases. Subsequent to the east-west network, the RGTIL would be extending the pipeline to Chennai, Bangalore and Mangalore.

IOC, Petronet in joint talks with Exxon for LNG supply

April 14, 2008. India’s biggest state-owned refiner Indian Oil Corporation (IOC) is in talks with the world’s biggest publicly-traded oil firm Exxon Mobil to buy 2.5 mt of liquefied natural gas (LNG). LNG is proposed to be bought on long-term contracts from Exxon Mobil’s Papua New Guinea (PNG) project. Exxon holds 41.1% in the $10-bn venture. IOC is learnt to be negotiating a price of $6 per mmbtu, while the international LNG price is hovering over $10 per mmbtu. India has recently bought LNG from the spot market at $19 per mmbtu. LNG would be imported to its proposed terminal at Ennore. IOC and Petronet are jointly pursuing to buy LNG from Exxon Mobil so that they do not approach the same seller separately, resulting in price rise. IOC has 12.5% in Petronet LNG, which operates 5 mmtpa of LNG terminal at Dahej, Gujarat. The company aims to seal the deal by end-2008. Petronet and IOC are also in talks with Ras Gas of Qatar to buy additional LNG for their Dahej terminal. Exxon has a 25% stake in Chevron’s proposed Gorgon LNG project in Western Australia and leads a group set to start initial engineering and design work on an LNG plant in Papua New Guinea. IOC may also be interested in buying 10% stake in the PNG venture once Australian power retailer AGL Energy decides to exit the venture. LNG will meet about one-third of Asia’s natural gas requirements by 2030. According to a McKinsey report, in the next 12 years, global consumption of natural gas may grow at a compounded annual growth rate of 2.7% from 2,600 BCM in 2005 to 3,900 BCM in 2020. Rapid economic growth will make Asia the fastest-growing region in the world as consumption accelerates by 5.8% year-on-year from 2005 to 2020. 

L&T eyes new Cairn oil pipeline contract

April 9, 2008. Indian construction firm Larsen & Toubro Ltd hopes to get a contract to add a spur line to the crude pipeline it is building for Cairn India, which Cairn insisted would be commissioned on schedule. Cairn aims to begin production from its Mangala oilfield in the second half of 2009, and the contract for laying the 600 km (370 mile) pipeline to transport crude from the desert state of Rajasthan to Salaya in neighbouring Gujarat has been awarded to L&T. Cairn offered to lay the Mangala-Salaya pipeline in western India after the government rowed back from plans to build it. Cairn Energy was transformed by the discovery of oil in Rajasthan in 2004, which propelled it from obscurity into the FTSE 100 index of the UK's largest companies.

BG to sell LNG in India in 2008

April 9, 2008. Britain's BG Group Plc will start selling imported liquefied natural gas (LNG) in India later in 2008 and is keen to expand its city gas business in the energy-starved country. Indian fertiliser and power firms are increasingly switching to LNG or natural gas from costlier naphtha as feedstock, and BG sees an opportunity to tap the growing market. According to the company the Indian market is maturing, and this year it has paid a higher price for LNG as compared to the eastern Markets. BG India is in talks with Royal Dutch Shell and India's Petronet LNG Ltd to use their LNG regasification terminals in western India. Shell operates a 2.5 million tonnes a year terminal in Hazira while Petronet LNG runs a 6.5 million tonnes a year facility in Dahej, both in the western state of Gujarat. BG India's unit, BG India Energy Services Ltd, planned to import at least one cargo a month later in 2008, as soon as the two terminals expand their capacities. Shell plans to raise annual capacity to 3.5 million tonnes in the next few months, while Petronet aims to increase output to 10 million tonnes by December. LNG cargoes would be sourced on spot basis from BG Group's LNG production projects in Egypt and Trinidad and Tobago.

Indian Markets have started accepting spot cargoes and this trend is expected to rise. India, Asia's third-largest energy consumer, faces a natural gas supply crunch that will continue despite new finds in the Krishna Godavari basin off the east coast as demand for fuel rises at a faster pace. Global demand for LNG, led by the United States, China and India, is set to more than double to 400 mtpa by 2015 on the back of economic growth and environmental concerns. BG also owns stakes in oil and gas exploration and production blocks in India, as well as in city gas distribution firms. BG was keen to expand city gas distribution in India as demand for the cleaner fuel rises. India has city gas networks only in a few towns and cities, with millions of households using cylinder gas for cooking. BG controls Gujarat Gas Co Ltd, a gas utility that provides piped gas to households in western cities such as Ahmedabad and Surat. It also holds 50 percent of Mahanagar Gas Ltd, which distributes gas in Mumbai. BG India owns 30 percent in a joint venture that runs the Panna/Mukta and Tapti fields off the west coast of India and has recently bought stakes in two gas blocks off India's east coast. Gas demand in India runs at around 179 million standard cubic metres a day (mmscmd), but availability is only around 95 mmscmd. Production is expected to rise to more than 190 mmscmd by 2009 after the new gas fields come on stream in the east coast.

BCCL pushing for 4o pc price hike in coal

April 9, 2008. Steel Authority of India Ltd may have to cough up higher prices for its domestic coking coal procurement. Bharat Coking Coal Ltd (BCCL), which caters to approximately 12 per cent of SAIL’s total requirement, is now pushing the steel major for 40 per cent increase in prices from Rs 4,500 to Rs 6,300 a tonne for beneficiated or washed coal in 2008-09. BCCL is the lead company from Coal India Ltd family to negotiate the coking coal prices. The company has standing offers from other PSUs like Vizag Steel (Rashtriya Ispat Nigam Ltd) and Durgapur Projects Ltd (DPL) for supplying up to seven lakh tonnes of washed coking coal at Rs 6,300 a tonne. Supplies are also initiated to both the companies at smaller quantities than requisitioned by them at the offered price. Though on paper three other CIL subsidiaries like Central Coalfields, Eastern Coalfields and Western Coalfields also produce coking coal, the quality of their produce is far inferior and is largely not used for steel making. Coking coal spot prices are currently ruling at $210 per tonne (FOB) or (approximately Rs 8,400 a tonne) in Australia. SAIL consumes approximately 13.5 mmt (million metric tonne) of coking coal for producing 13 mt of saleable steel. Of the total requirement, 1.6-1.7 mt is supplied by BCCL. This apart, negligible quantities of steel grade coking coal are procured from other domestic sources including SAIL’s own mines. Overall, 75-80 per cent of its total requirement is met through imports. Since the company’s plants are not port based, import is a comparatively costlier proposition for SAIL. In 2006-07, the company procured coking coal at an average cost of Rs 6,259 per tonne, which was considerably higher than the price paid to BCCL.

Policy / Performance

Soaring prices may hit oil firms’ expansion plans

April 15, 2008. Huge retail losses due to soaring global crude oil prices are likely to hit the expansion plans of domestic oil marketing companies. The expansion plans of IOC, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), which also operate refineries and petrochemical plants, are currently being funded more through debt than by using internal cash reserves of these companies. IOC, which recorded a debt-equity ratio of around 0.7 last year, has seen it rise to 1. The debt-equity ratio of the other two companies has also risen from around 0.8 to around 1.

Major refinery projects around the world have been hit by rising project costs. For example, ConocoPhillips’ refinery in the UAE and a Saudi Aramco refinery project are being reviewed due to rising project costs. The debt component for these projects had grown bigger than equity, resulting in projects being reviewed. Although projects in other sectors, such as power, have very a high debt component compared with the equity component, a debt-equity ratio of more than 1 is not common for oil projects. The rate of interest on borrowings for IOC, the country’s largest crude oil refiner and marketer of petroleum products, has gone up to around 8.5 per cent compared with around 6.5 per cent a couple of years ago. Oil exploration companies such as Oil and Natural Gas Corporation (ONGC), on the other hand, can leverage loans at around 7 per cent.

Assocham for reduction in sales tax on aviation fuel

April 14, 2008. The Assocham President, Mr Venugopal N. Dhoot, has said that if the Government is to reduce sales tax on aviation turbine fuel (ATF) by 10 per cent tax and customs duty by 4-5 per cent the industry can save about Rs 6,000 crore ($1.5 bn) annually. In a statement, the chamber points out that domestic airlines pay over eight times higher taxes on ATF compared to what international airlines operating from India pay, thereby, eroding the annual profitability of domestic airlines by 11-16 per cent. The chamber feels that the monies saved by reducing sales tax on ATF and customs duty could be used for building airport infrastructure. The statement adds that the industry is impacted by multi-layered indirect tax system that includes value-added tax, service tax, excise and customs duty. The impact of indirect taxes is not uniform and there are substantial variations between the tax treatment under various legislations for different types of aircraft carriers which is something that needs to be corrected, the statement points out.

LPG cylinders containing half of the specified gas

April 13, 2008. During a raid in the national capital, the officials from Weight and Measure Departments found there was a shortage of gas ranging from 1 kgs to 6 kgs in the cylinders. This is also one of the major reasons for shortage and spiralling prices. The cylinder which usually lasts for a month empties in merely 15 days due to less quantity of gas, thus people end up spending more in purchasing gas. The dealers were trying to earn quick and easy money and diverting the clandestinely filled cylinders in the commercial places like hotels at the higher prices. Domestic LPG is heavily subsidised and hence comes much cheaper. Since each gas cylinder contains 14.8 kg of gas, the unscrupulous gas dealer by refilling the empty gas cylinders from the sealed cylinders try to earn quick buck. The officials had inspected 97 agencies and 46 prosecutions were launched against the gas dealers who were asked to shell out Rs 5000 as the offence is compoundable. So far 20 FIRs have been registered against the officials of the gas agencies after substantial discrepancies of LPG Control Order were noticed following an inspection in their offices. 

IOC wants fair share of KG gas

April 14, 2008. After its failed attempts to source gas directly from Reliance Industries’ (RIL) block in the Krishna Godavari basin, IOC has approached the government seeking close to one-third of gas (23 mmscmd) from the KG basin for its various gas-based projects. RIL is likely to pump over 80 mmscmd of gas from KG basin in the next couple of months. The government is likely to come out with a gas-utilisation policy and will allocate gas to different industries with fertiliser and power as priority sectors. 

Govt asks oil producers to rethink policy

April 13, 2008. India asked oil producers to rethink their policy which was imposing crippling burden on developing countries and sought a thorough review and overhaul of financial oversight and regulatory mechanisms. Union Finance Minister, P. Chidambaram, pointed to the dramatic rise in the price of crude oil and food which were adding to the woes of the developing world and warned that the trend will continue unless there are serious interventions. The prices of crude oil that have shot up to the region of $110 a barrel do not reflect either the cost of producing the oil or the risks inherent in the market and in fact, not even the inter-play of demand and supply. These runaway prices require producer nations to seriously contemplate the management of production and pricing policy and to reflect on the crippling burdens that expensive oil imposes on poorer nations. According to him, these food prices which hit the poor hardest, are expected to remain firm in the medium term unless we make serious interventions. The demand for biofuels will probably increase, and energy and fertilizer prices could be expected to remain high in the medium term.

India, Venezuela sign gas and oil agreement

April 9, 2008. Venezuela and India teamed up for exploration and production of oil and natural gas in eastern Venezuela. State-owned Petroleos de Venezuela SA, or PDVSA, will hold a 60 per cent stake in the joint venture. The rest will be controlled by Oil and Natural Gas Corp, or ONGC, India's top petroleum exploration company. ONGC will invest $450 mn (euro290 mn in the project, known as Petrolera IndoVenezolana. Venezuela estimates that over the next 25 years, the venture will yield 232 mn barrels of crude from the San Cristobal oil field, which spans 62 square miles (160 square kilometers) in the eastern states of Anzoategui and Guarico. Production is expected to begin within three years.

India keen to partner IPI gas project

April 9, 2008. India is keen to partner the proposed multi-billion Iran-Pakistan-India (IPI) gas pipeline project and has promised to resist all external pressures on the issue. Iran has sent a letter to Pakistan asserting that the export of gas to India through the pipeline is of paramount importance for the country. The Indian Petroleum Minister Murli Deora is set to arrive in Pakistan on April 21 to hold talks on transit fee to be paid to Islamabad on the USD seven billion IPI project. Iran has accused US, which is at loggerheads with Tehran over its nuclear programmes, of exerting pressure on India to withdraw from the project. Tehran insists its nuclear programme is focused on the peaceful production of energy, not the development of weapons as claimed by the US and many of its allies. Although Pakistan and Iran have finalised Gas Sales Purchase Agreement (GSPA) on the project, India stayed away from talks saying that it wanted to resolve the issue of transit fee first. The IPI project is a proposed 2,775 km pipeline to carry Iran's natural gas to Pakistan and India. The project, estimated to be completed in three to five years time, is expected to benefit energy-starved India and Pakistan. 



BHEL-led consortium may sell $14 bn equipment to NTPC

April 15, 2008. NTPC is in talks with a Bhel-led consortium, also involving Alstom and Siemens, to buy boilers/turbines worth Rs 55,000 crore ($13.8 bn) for its string of upcoming 600 MW and 800 MW units. Significantly, NTPC will require Cabinet clearance as it proposes to award the contract on a negotiated basis and not the tendering route. The company’s top brass has already sounded out the Union Cabinet secretary and the power minister in this regard. The Bhel-led consortium will supply boilers and turbines for NTPC’s power ventures that embrace super-critical thermal technology. Boilers and turbines form the core of a power station. The contract will involve procurement of boilers/turbines for some 10 to 12 odd upcoming NTPC projects. On receiving Cabinet clearance, NTPC plans to award the Bhel-led consortium the boiler/turbine package for the 650x2 MW Barh super critical project in Bihar. Alstom will supply boilers while Siemens will supply turbines. Interestingly, construction at Barh is yet to begin even though the project was inaugurated three years ago. At this stage, NTPC officials remain tight-lipped. NTPC wanted a bulk contract since it does not have the requisite super-critical technology for manufacturing equipment. Going forward, in its target to remain the largest generating utility of India, NTPC has decided to maintain or improve its share of India’s generating capacity. Towards this end, it has targeted to build an overall installed capacity of over 66,000 MW by 2017. 

Reliance Power gets nod for $2 bn ECB float

April 15, 2008. The Reserve Bank of India (RBI) has approved a proposal by Reliance Power to raise $2 bn (about Rs 8,000 crore) for its Sasan ultra mega power project. This could well be one of the first mega ECB clearances to have come through after restrictions were imposed on ECBs. While a chunk of this is expected to be raised from export credit banks such as the China Development Bank or Korean Exim, ABN Amro, Standard Chartered and HSBC are also likely to finance a part of it. The choice of the export credit bank would depend on where Reliance Power sources its equipment. The domestic debt of Rs 7,000 crore ($1.8 bn) would be primarily financed by lead manager State Bank of India as well as IDBI and IIFCL. Normally, a company can borrow only up to $500 mn for a single project through the automatic route, a move RBI had taken to restrict flow of foreign capital that was having an impact on the rupee and inflation. The restrictions were particularly with regard to projects where the money was brought in instead of being spend on project imports. Sasan Power, a wholly-owned subsidiary of Anil Ambani led Reliance Power, would start placing equipment supply and EPC orders for the project once the funding are in place by the middle of the next month. Interest rates on loans to Sasan Power will be reset annually. This is likely to benefit the project over its life as the rates are likely to come down in near future. The company will also provide its lenders a report prepared by rating agency Crisil on the future receivable of the procurers. Reliance Power has ensured its prospective lenders about the financial viability of the project. In case of payment default by any procurer, Sasan Power can sell the power to other buyers which mitigates the financial risks. Sasan UMPP is the country’s largest domestic coal-based power project at a single location in Madhya Pradesh. The project has the lowest levelised tariff of Rs 1.196 per unit. 

Gautam Thapar to invest $1 bn in power units

April 12, 2008. Billionaire Gautam Thapar, whose companies include India’s biggest paper maker, plans to invest at least Rs 5,000 crore ($1.3 bn) building two power plants to help the nation meet a shortage of electricity. Avantha Power and Infrastructure Ltd will construct two facilities with a capacity to produce 600 MW each. Avantha is seeking investment from private equity funds. Thapar will combine his electricity distribution and generation businesses as part of a plan to more than double revenue to $10 bn (Rs 40,000 crore) in five years. Thapar plans to combine all the utilities of the group under Avantha Power in the next 12 months. The company purchased two units from Ballarpur Industries Ltd with a capacity to generate 95 MW of electricity in 2006. The capacity of the two units is now being increased by 80 MW in the next two years. Crompton Greaves Ltd, a group company and the country’s fourth biggest equipment maker by value, won the rights last year to distribute electricity in three parts of Nagpur, Maharashtra.

NTPC impresses with high load factor

April 11, 2008. The provisional results of NTPC Ltd for the year ended March 2008 point to an impressive performance in the fourth quarter. The company reported that its coal-based plants recorded the highest ever plant load factor (PLF) of 92.24% for the year. PLF is the measure of output of a power plant vis-à-vis the maximum output it could produce, and it stood at 90.19% for NTPC’s coal-based plants in the nine months till December 2007. The fact that the year’s average has risen to 92.24% points to a marked improvement in the fourth quarter. NTPC has reiterated its plan to achieve 50,000 MW in capacity by 2012 (current capacity is at 29,144 MW). It will double coal imports to meet its input requirements.

Maharashtra sugar co-ops to produce 1k MW surplus power

April 11, 2008. Sugar co-operatives in Maharashtra plan to generate 1,000 MW of surplus power at an estimated investment of about Rs 4000 crore by 2010. It plan to add 1,400 megawatts through co-generation project by 2010. Of this 1,000 MW will be exportable surplus. At present, the state sugar co-operatives produce only 139 MW of surplus power. 

WB approves $450 mn for Tata Mundra project

April 9, 2008. The World Bank approved financing for a $4.2 bn coal-fired power plant despite calls by environmental groups to wait for further analysis of the costs and environmental impact. The World Bank board approved $450 million in loans by the International Finance Corp. (IFC), its private sector lending arm, for the Tata Mundra project, a 4,000 MW coal plant, which will expand access to electricity in five states in western and northern India. The plant would use super-critical technology, making it India's most efficient coal-fired plant. The plant's volume of carbon emissions is expected to be 40 per cent less than that from existing coal-fired plants in India. IFC’s funding was responding to India's enormous need for more and affordable electricity, while also supporting new technology that reduced emissions. The IFC had conducted a thorough evaluation of the project.

Transmission / Distribution / Trade

UPPCL asked to clear dues or face supply cuts

April 15, 2008. The Central Electricity Regulatory Commission (CERC) has ordered the Uttar Pradesh Power Corporation Ltd (UPPCL) to clear its arrears for over-drawing from the inter-state grid. If UPPCL fails to comply with the orders, the Commission plans to direct the Northern Regional Load Dispatch Centre (NRLDC) to curtail power supply to the utility without further proceedings. CERC has directed UPPCL to clear its dues in six equal instalments of Rs 128 crore ($32.1 mn) per month each, starting from May 2008. This is in addition to the timely payment of current dues, if any, on account of unscheduled interchange (UI) charges, the penalty to be paid by a utility for overdrawing from the grid during peak periods. The regulator has asked the NRLDC to keep it informed about the payment status of UPPCL with respect to the UI pool account. Over the last six months, UPPCL paid a total UI amount of Rs 190 crore ($47.7 mn), while the charges for over-drawing power during the same period were Rs 360 crore ($90.4 mn). The principal amount overdue from the State as on March 31, 2008 is Rs 767 crore ($192.6 mn). For the recovery of long-standing UI dues, which the State utilities are unable to liquidate, the Commission had suggested appropriation from the Central Plan Assistance in order to avoid physical curtailment of power to a State. Since the suggestion has not yet been accepted, the Commission has no alternative but to revert to physical curtailment of supply even if it jeopardises grid security.

GVK Power may hive off energy arm

April 14, 2008. GVK Power and Infrastructure is planning to hive off its energy vertical into a separate company, ahead of a possible initial public offering (IPO) for the proposed company. The ground-work for the hive-off has begun, with the company bidding for oil blocks in the seventh round of the new exploration licensing policy (NELP). But plans for the IPO of the proposed company are yet to be finalised. An equity carve-out happens when a company decides to launch an IPO for one of its subsidiaries or divisions. The IPO is usually preceded by an equity infusion by private equity funds. Many infrastructure companies are following this route to give shareholders a better investment choice. The asset base of the energy vertical is expected to touch Rs 12,000 crore ($3 bn) after the completion of projects in the pipeline. GVK Power and Infrastructure is executing six power projects and two coal mine projects. It now wants to have a slice of the pie in oil and gas exploration as well and has hence bid for a couple of oil blocks under NELP-VII. 

BHEL-PSSR turnover up 11 pc

April 11, 2008. BHEL-Power Sector Southern Region (PSSR), which includes the states of Kerala, Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Karnataka and Orissa, saw revenues during 2007-08 increase to Rs 675 crore ($169.4 mn) from Rs 603 crore ($151.4 mn) a year earlier.  The plans include new tools and plants high capacity cranes of 1,000 mt and above, manpower induction of fresh graduates and diploma holders, EPC in nuclear business of up to 700 MW, preparedness for executing supercritical thermal sets, developing a wider sub-contractor base and building knowledge base in core areas.

Power major’s JV with BHEL to bid for UMPPs

April 11, 2008. The 50:50 joint venture between state-run power generator NTPC and power equipment manufacturer Bharat Heavy Electricals (BHEL) is likely to bid for future ultra mega power projects once the joint venture is registered by month-end. NTPC and BHEL decided to form a joint venture last September to execute power sector projects in India and abroad. Earlier, there was friction between the two companies over a deal. NTPC blamed BHEL for delay in equipment supply while BHEL held that NTPC did not place the order on time. There were also reports that NTPC would begin manufacturing power equipment after the near fallout. Once the joint venture is registered, the company would also consider taking in a technology partner, which could also be a foreign firm. Meanwhile, NTPC is also carrying out feasibility studies for setting up a 700 MW power plant in Nigeria. The company had promised to set up power plants in the hydrocarbon-rich African country in exchange for liquefied natural gas (LNG). NTPC requires gas to fire its power plants in India.

Areva sees robust growth, plans to increase headcount

April 10, 2008. Power transmission and distribution major Areva India will hire more people in the near future as the company expects its business in the country to grow significantly. The Indian unit of the French nuclear giant, which gets almost 60% of its revenue from transmission, employs around 3,500 people in India and plans to take this up to 4,000 by 2010. The French parent owns 72% in Areva India and the rest is held by the public. This recruitment would be to support the Rs 700 crore ($175.5 mn) that Areva India is investing through capacity expansion programmes at Baroda, Hosur and Chennai. Apart from offering transmission and distribution services, Areva T&D India also makes power equipment.

DHBVN to set up 59 sub-stations of 33 kv

April 9, 2008. The Dakshin Haryana Bijli Vitran Nigam (DHBVN) will implement its biggest ever annual plan to set up 59 substations of 33 KV and augment the capacity of several existing substations at a cost of Rs 275 crore ($68.7 mn) within its jurisdiction and introduce a latest technology to set up unmanned substations during the financial year 2008-09. The jurisdiction of DHBVN comprises of districts of Sirsa, Fatehabad, Hisar, Bhiwani, Mahendragarh, Rewari, Gurgaon, Mewat and Faridabad. This project would include erection of new 33 KV lines, bifurcation and trifurcation of overloaded feeders, segregation of rural agriculture and domestic load and installation of new distribution transformers. With the completion of this work, the capacity of transmission and distribution system would be augmented by about 615 MVA. 

Policy / Performance

Power ministry hopes to revive Kishanganga

April 15, 2008. The power ministry is making renewed efforts to revive an 18-year-old 330 MW hydropower project on the Jhelum, egged on by the progress made by Pakistan on a competing 969MW downstream project. The project has seen a cost escalation from Rs 2,200 crore ($552.3 mn) to Rs 3,700 crore ($928.9 mn) due to higher risk premium. The project received Cabinet clearance in June last. The Jhelum orginates in India and flows into Pakistan, and according to the Indus Water Treaty of 1960, whoever builds the project first will have the first rights on the river water. In May, the Pakistan government decided to award the contract to a Chinese consortium. This project is of strategic importance to India. Ministry will be seeking fresh approval for the Kishanganga project, which is estimated to cost 68% more at Rs3,700 crore ($928.9 mn) and will be built by NHPC Ltd. The increase in estimates is due to the higher risk associated with the project due to difficult geology and its proximity to the border with Pakistan. Apart from being situated near the Indo-Pak border, this particular project has a heavy silt load. The state-owned company is also hoping that its initial public offering or IPO, will be cleared soon so that it can tap the capital markets by August this year. The IPO will be critical to NHPC’s success. The company has already applied for the mini-ratna status and will shortly be awarded one. It would play a critical role in increasing the share of hydro power in the country’s overall power basket from the current 25 per cent to the targeted level of 40 per cent in the next 20 years. The power utility will soon be forming a 51:49 joint venture with the Jammu & Kashmir Power Development Corporation. 

TNEB inks MoU with PFC to mitigate power shortage

April 15, 2008. In an initiative by the Tamil Nadu government to improve the efficiency of sugar mills in the state, the Tamil Nadu Electricity Board has signed a memorandum of understanding (MoU) with the Power Finance Corporation to set up co-generation projects. Under the terms of the MoU, PFC has sanctioned TNEB about Rs 1,200 crore ($301.3 mn) to generate around 250 MW of power out of co-operative and public sector sugar mills in the state. PFC will render its finance assistance to set up co-generation projects at about 17 co-operative and public sector sugar mills in Tamil Nadu. The MoU to this effect was signed between the two entities on March 31 in New Delhi. TNEB has been allocated a budget of Rs 335 crore ($84.1 mn) for 2008 by the Tamil Nadu government. Stung by criticism from the industry over frequent power cuts, the Tamil Nadu government is moving to enhance power capacity in a big way. Work on TNEB’s 600 MW unit in the North Chennai Thermal Power Plant at a cost of Rs 2,475 crore ($621.4 mn) is presently underway and tenders have been invited for setting up a 600 MW power plant at Mettur thermal power station. In January this year, TNEB signed a memorandum of understanding (MoU) with Bharat Heavy Electricals Ltd (BHEL) for establishing a 1,600 MW power plant at Udangudi in Tirunelveli district. TNEB also plans to augment capacity at its thermal power station in Tuticorin by 1,000 MW. Work has also started on establishing a 1,500 MW power plant in north Chennai as a joint venture between TNEB and the National Thermal Power Corporation. In the coming financial year, power transmission and distribution infrastructure in the state is proposed to be augmented at an investment of Rs 1,720 crore ($431.8 mn) by setting up 90 new electrical sub-stations.

Pvt sector to power India’s Bhutan

April 14, 2008. India’s government is looking at ways in which it can help private sector firms to tap opportunities in hydropower generation in Bhutan, marking a change in the country’s traditional approach of using state-owned companies to push its economic diplomacy agenda, especially among its South Asian neighbours. As an additional benefit, India, which needs power to feed the needs of a growing economy, will get most of the 8,940 MW generated from the five proposed hydropower projects that are part of this push. The government has started consultations to discuss ways and means to help private companies get projects in Bhutan. The companies likely to benefit from this move are Reliance Energy Ltd, GMR Infrastructure Ltd, DS Constructions Pvt. Ltd, Jaiprakash Associates Ltd, and a few others. The projects in Bhutan that are under consideration include Wangchu (900MW), Bunakha (180MW), Sankosh (4,060MW), Punatsangchu-II (1,000MW) and Manas (2,800MW). India and Bhutan have already signed an agreement in July 2006, where they agreed to facilitate, encourage and promote development and construction of hydropower projects and associated transmission systems, as well as trade in electricity. While Bhutan is estimated to have a potential to generate 30,000 MW of hydropower, it has an installed capacity of only 1,490 MW. The major river systems in Bhutan are Torsa, Wangchu, Sankosh and Manas. India has hydropower generation capacity of 32,000 MW and plans to add another 16,553 MW capacity by 2012. Of this, 35%, or 5,800 MW, is expected to be added by NHPC. However, the company has commissioned only 4,200 MW in 32 years of its existence, and seven of the 12 projects it is working on have been delayed due to unavailability of manpower and price disputes with private contractors working on the projects. The Indian government also plans to undertake the building of several commercially unviable hydel projects in Tajikistan as part of its efforts to gain a strategic toehold in a country that is the gateway to other central Asian countries rich in hydrocarbon reserves. Energy security is a key to sustaining India’s 8%-plus economic growth. The country’s consumption of petroleum products is around 112 million tonnes per annum and it imports 78% of its energy needs.

Power situation to improve in Delhi

April 14, 2008. Delhiites could hope for a better power supply situation this summer with the Centre and the Delhi Government taking measures, including increasing the capital's electricity quota and setting up a special fund of Rs 400 crore ($101 mn). The Centre has decided to increase the electricity quota of Delhi by ten per cent. The unallocated central power quota for Delhi will be increased from 22 per cent last year to 40 per cent in the running year to meet the growing demand. An investment of around Rs 33,000 crore ($8.3 bn) will be made in the next few years in Delhi, with 45-50 per cent contribution from the Centre. The measures are expected to result in an increase of power availability in the next five years to 10,000 MW from the present 3,200 MW now.

NHPC to form JV with J&K’s power utility

April 14, 2008. Hydropower utility NHPC will join hands with J&K’s state-owned Power Development Corporation (JKPDC) to form a company for setting up three power projects on Chenab. NHPC would own 51% of the company, tentatively named Chenab Valley Power Projects (CVPP). It would be registered in Srinagar. An MoU will be signed on April 26 in Jammu during Prime Minister Manmohan Singh’s two-day visit to the state. This will be the first such agreement that NHPC would be signing with any commercial organisation owned by any state government. NHPC has two such agreements with Madhya Pradesh and Manipur governments but not with any commercial organisations that any state owns. The three projects will have a cumulative installed capacity of around 2120 MW and would entail an investment of over Rs 12,720 crore ($3.2 bn). Of this, 30% would be the equity from the two sides. All the three projects are at different stages of clearance from various ministries and institutions. The three projects, to be set up in next four years, include 600 MW Kiru, 1000 mw Pakal Dul, and 520 MW Karwa. NHPC would set up the projects and if it fails the deadline, it would lose its equity participation.

Govt looks for new consultant for mega power projects

April 12, 2008. Audit and consulting firm Ernst and Young, an adviser to a government programme to set up large power plants, has become the first casualty of the controversy surrounding the first project to be awarded under this scheme. State-owned Power Finance Corp. (PFC), the agency that awards contracts for these projects called the Ultra Mega Power Projects or UMPPs, is now shopping for a new consultant. A government official confirmed that the search for a new consultant was on but said Ernst and Young, or E&Y, would remain as a consultant for the fourth power project under the scheme that will come up at Tilaya, Jharkhand. The government has already awarded projects under the scheme at Sasan, Mundra and Krishnapattnam, and E&Y was the consultant for all three. The Sasan project was the first of the projects under the scheme that were to be set up between 2007 and 2017. A consortium comprising Hyderabad-based Lanco Infratech Ltd and Globeleq Singapore Pte, a subsidiary of Houston-based Globeleq Generation Ltd, had initially won the bid to develop the project.

Govt asks Tata Power, REL to work together

April 10, 2008. The government has asked Anil Dhirubhai Ambani Group’s Reliance Energy Ltd, or REL, and Tata Power Co. Ltd, or TPCL, to share some infrastructure for power plants the two are building in Maharashtra because doing so will minimize the impact on the environment. The two plants have a combined capacity of 4,400MW. India’s ministry of environment and forests, or MoEF, has asked REL and TPCL to submit an integrated proposal for a coal-handling jetty, conveyor system, green belt, mangrove afforestation and utilization of waste water at Shahpur in Rai-gad district on the Maharashtra coast where the two plants are being built. Apart from minimizing damage to the environment, the government also wants to protect the limited freshwater reserves in the area. The integrated plan shall be prepared and placed before the expert committee (the MoEF body which studies environmental impact assessments or the projected impact a project will have on an area’s environment) in the next meeting to be held in April. The ministry has also asked both companies to form a joint committee that is mutually acceptable and inform the ministry by 15 April. Tata Power and REL were engaged in a protracted fight over the 3,490-acre plot of land allotted for the project at Shahpur. Both had obtained approvals from independent state industrial development agencies and claimed lien on the land. Eventually, the state government prevailed on REL to scale down its initial project plan so that both companies could set up their coal-based power projects. According to the terms of the compromise, REL decided to relocate its 1,600MW gas-based power project elsewhere. According to REL’s environmental plan, its power plant will use freshwater from the nearby Amba river and discharge waste freshwater back into the river. TPCL’s plan, on the other hand, calls for drawing brackish water from the river and running it through a reverse osmosis water treatment plant. Both plants are near the Amba estuary, and while REL will use water from the freshwater part, TPCL plans to use water near the end of the estuary, which is marginally salty. TPCL has offered to do this to reduce the stress on freshwater from the river. However, MoEF says it has a better idea. It has asked TCPL to consider the possibility of using freshwater effluent from the Reliance plant after treatment.

Govt to slap pre-condition on foreign power equipment companies

April 10, 2008. Concerned over proliferation of Chinese equipment suppliers in the power sector, the government is likely to make domestic manufacturing a pre-condition for allowing foreign equipment companies to make local supplies. The power ministry is finalising a policy for encouraging domestic manufacture of power equipment under which all future projects would be mandated to use equipment produced in the domestic market either by a local or an overseas manufacturer. The proposal has been approved by the prime minister's office (PMO) and is expected to be announced soon. This move would enable development of large capacities that would come handy at a time when the country is solely dependent on a single supplier, BHEL. However, Chinese companies are increasing their presence in the big Indian equipment market and the expectation is that Chinese companies would spread their reach to 20,000 MW of the country's generation capacity in 10 years. Once the changes are announced, companies bidding for a power project would have to go in for international competitive bidding (ICB) for sourcing equipment. The main condition in the ICB would be that equipment suppliers would have to set up a local manufacturing base. Once final, the companies could place their bids for power projects under tariff-based bidding process. At present, contracts with equipment are finalised after a company is awarded a power project under the tariff-based bidding route. The winning bidder has the choice of selecting the equipment supplier on the basis of price and supply specifications. The new regulations are meant for projects where orders for equipment have not been placed. This is expected to keep out 55,000 MW of the 78,577 MW capacity proposed to be added in 11th Plan where orders have been placed.

Give power to the people or hang head in shame

April 9, 2008. The power ministry appears to have finalised its action plan for the next one year. All steps would be taken to ensure that 11,000 MW of generation capacity targeted for commissioning during 2008-09 is achieved without any slippage. The newly appointed minister of state for power, Jairam Ramesh, set out an agenda clear to take on the challenge of achieving the targeted capacity addition for current fiscal or hang his head in shame. According to the minister public sector is still bulwark of capacity addition programme of the government and it would continue to remain in future. The minister also supported a strong BHEL that would meet the major portion of equipment requirements of the power sector.




Arctic could hold vast energy bounty

April 15, 2008. According to a research, the Arctic may hold 8.5 percent more of the world's undiscovered oil and gas resources than previously estimated. The region north of the Arctic Circle might contain 36 bn more barrels of oil equivalent than previously thought, or roughly twice the known reserves of Norway. Oil and gas producers such as StatoilHydro ASA are looking to the largely unexplored Arctic waters for petroleum deposits as existing production dries up. Rising demand for the fuel and surging oil prices have spurred exploration in harsher climates. The region holds about 15 percent of the world's known oil and gas reserves, mostly in Russia, and is currently estimated to contain about 24 percent of undiscovered resources.

 Based on assessments made by the U.S. Geological Survey, indicate the Arctic may contain undiscovered petroleum resources of 459 billion barrels of oil equivalent, compared with an adjusted previous projection of 423 billion barrels. Arctic ice is melting, making the area more accessible to the petroleum industry. The industry still faces ecological challenges such as safeguarding the Arctic's marine life. Parts of the Arctic are off limits to protect the environment, and disputes between countries over who has rights to what areas are also limiting energy exploration in the area. The amount of petroleum resources in disputed areas of the Barents Sea between Norway and Russia varies from about 48 bn barrels of oil equivalent according to the Russian Energy Ministry to about 12 bn according to the U.S. Energy Information Administration. StatoilHydro ASA, Norway's largest oil and gas producer, started up its Arctic Snohvit liquefied natural gas plant, Europe's first offshore Arctic field development, in August. It is currently the only producing field in the Barents Sea.

Maersk oil makes discovery in Danish North Sea

April 15, 2008. As operator for DUC, Maersk Oil has encountered hydrocarbons in the Bo-3X exploration well on the Bo South prospect located approximately 5 kilometers south of the Valdemar Bo field in the A.P. Moeller. The Bo-3X well was spudded by the Energy Endeavour and was drilled to a total depth of 8,730 feet (2,660 meters). Based on the data gathered in the Bo-3X well, studies will now be initiated to determine if the encountered hydrocarbons are commercial and if a possible development can be integrated with the ongoing development of the Valdemar - Bo Field.

PA resources total production 1 mn boe

April 15, 2008. Norwegian oil and gas producer PA Resources reported total production in the first quarter of 1.086 million barrels of oil equivalent (boe) down from 1.386 mn in the fourth quarter but up from 637,000 boe for the first quarter in 2007. According to the company average oil production per day during the quarter was 11,930 barrels per day, down from 15,066 barrels in Q4 but up from 7,082 boe in the first quarter last year. Oil sales during the latest quarter totalled 1.272 million boe and the average sales price was $96.61 a barrel. That compared with the fourth quarter's sales of 1.117 million boe on an average price of $85.48 a barrel. Production of oil increased, year-on-year, with the start-up of the Volve field in Norway and the El Bibane field in Tunisia, from two geographical areas and seven fields. The Volve field started production in mid-February and the El Bibane field at the end of March.

ExxonMobil lends its experience to MOL in Mako program

April 14, 2008. ExxonMobil Exploration and Production Hungary Limited, a subsidiary of Exxon Mobil Corporation, and MOL Hungarian Oil and Gas Plc. (MOL) announced an agreement to start a joint exploration program in blocks 106 and 107 in the Mako Trough in southeast Hungary. ExxonMobil will fund the work program and receive a 50 percent interest in the acreage upon completion. MOL will retain the remaining 50 percent. The exploration program covers 387,000 acres with wells drilled to depths of approximately 14,000 feet (4,300 meters). The comprehensive work program includes drilling and completion of wells using ExxonMobil proprietary technology and expertise. ExxonMobil plans to spud the first wells in 2008 and conduct well testing and reservoir evaluation studies over two to three years. The goal of the program is to evaluate the potential for commercial production of unconventional gas and liquid hydrocarbons. The exploration program is the next phase under an agreement signed in 2007 between MOL and ExxonMobil to undertake a joint technical study of basins in Hungary with unconventional hydrocarbon potential. The newly announced exploration program in the Mako Trough will gather further information on the source, extent and recoverability of this untapped hydrocarbon opportunity. The MOL exploration acreage is adjacent to the Mako Trough License Area where ExxonMobil announced a production and development agreement with Falcon Oil and Gas Ltd.

Osage acquires producing field

April 14, 2008. Osage Exploration and Development, Inc. has acquired 100% of Cimarrona LLC which owns a 9.4% interest in the producing Guaduas oil field in Colombia. The Guaduas Field is made up of the Dindal and Rio Seco blocks in the prolific Middle Magdalena Valley. The acquisition also includes 9.4% of a pipeline that can transport up to 20,000 bbls/day. The remaining 90.6% interest in both assets is held by Pacific Rubiales Energy (PEG-TSE), one of the largest independent Exploration and Production companies in Colombia. Osage has now established long term reserves and production in Colombia and will participate in the pipeline revenues as well.

Petromin completes new gas well on Gilby lands

April 14, 2008. Petromin Resources Ltd. has successfully completed its latest well on its Gilby lands in Central Alberta. The primary target encountered 7 meters (23 feet) of potential gas play. In addition, another 6 meters (20 feet) of potential gas play was encountered in other sands for a total potential gas play section of 13 meters (43 feet). The well is the second successful well drilled on the lands and will increase the Company's cash position. The well directly offsets a gas pipeline. Petromin retains a 16.666% working interest in the wells.

Cairn awarded oil exploration licence in Tunisia

April 14, 2008. Tunisian authorities have awarded a new offshore oil exploration licence to Reap Tunisia GmbH, a unit of UK-based Cairn Energy Plc. Under the agreement, which is for the 3,352 square km Nabeul licence and sets out investment of $6 mn, exploration will be carried out in association with Tunisian state-owned oil company ETAP. According to ETAP estimates, Tunisia's reserves stand at 838 mn barrels of oil equivalent. The country expects to explore 75 wells and award 44 licences between 2007 and 2011.

Changqing oil, gas output hit 37-year high

April 11, 2008. CNPC Changqing Oilfield in the first quarter rolled out 3.304 mt of crude oil, up 9.53 percent year on year, and 3.542 bcm of natural gas, a y-o-y increase of 33.41 percent, marking a 37-year high in oil and gas output. Despite being stricken by snow disaster in February, Changqing Oilfield has put all qualified wells into operation since March. As one of CNPC's heavyweight oilfields, Changqing Oilfield targets to produce 30 mtpa of oil and gas equivalent by 2009.


Nippon to convert refinery into oil terminal

April 15, 2008. Nippon Oil Corp. and its consolidated oil refining subsidiary Nihonkai Oil Co., Ltd. announced that the companies will cease refining operations at Nihonkai Oil's Toyama Refinery and convert the facility into an oil terminal effective the end of March 2009. Nihonkai Oil has to date been a Nippon Oil Group's refining company that owns and operates the Toyama Refinery, which processes 60,000 barrels of crude oil per day. In the nearly 40 years since it commenced operations in 1969, the Toyama Refinery has produced petroleum products and is now the sole operating refinery in Japan's Hokuriku region. However, the decline in domestic petroleum demand and the increase in crude oil prices have created a difficult business environment for the domestic petroleum industry. Because the Toyama Refinery has no heavy oil cracking units and must use light crude oil for refining, the facility's refining margin has steadily deteriorated. The companies have considered multiple possible options for the future use of the Toyama Refinery, which is not cost-competitive compared with other domestic refineries and concluded the best course of action would be to cease refining operations at the facility and convert it into an oil terminal. Even after the Toyama Refinery ceases refining operations, Nihonkai Oil will continue to be a part of the Nippon Oil Group as a large oil terminal company and will contribute to the development of the local economy as a stable supplier of petroleum products.

Petrobras in talks to buy Valero's Aruba refinery

April 15, 2008. Brazilian state-controlled oil giant Petrobras is negotiating the purchase of a refinery on the Caribbean island of Aruba as part of a strategy for expanding its presence in the U.S. market. U.S.-based Valero Energy earlier this month planned to sell the San Nicolas refinery in Aruba in mid-2008. The San Nicolas refinery can process 275,000 barrels per day (bpd) of crude. Brazilian giant strategy is to take advantage of the production surplus forecast for the next few years (in Brazil) to process and add value to this oil. The Brazilian giant’s one of the targets for expansion is the United States, as well as Japan, where Petrobras recently closed on the purchase of a refinery in Okinawa for $50 mn. Petrobras's plans call for reaching total refining capacity abroad of 330,000 bpd in 2011. The company currently refines 140,000 bpd in Argentina and some 50,000 bpd in the United States. Some 70 percent of Petrobras's foreign investment is currently focused on exploration and production, with 25 percent going to refining. Brazil has the potential to become a global oil power, with possible reserves of 80 billion barrels of oil equivalent.

Pemex refinery expansions would erode crude imports

April 14, 2008. Mexico's plan to boost domestic refining capacity through privately run plants could put U.S. oil imports at risk. Mexico is the third-largest foreign supplier of crude to the U.S., and many U.S. refineries are specifically made to process Mexico's heavy grade of crude. But Mexico, which currently imports 41% of its gasoline, wants to process more of its oil at home to avoid costly imports of refined products. Advantages of having the oil refined in Mexico, even by third parties, would include savings in transport costs, the economic-development impact of having the refinery in Mexico, and the refineries being specifically configured for the kind of crude that would be processed. With Mexico's current low refining capacity, it's very unlikely that Pemex would be unable to meet crude supply commitments in the foreseeable future. The export crunch will not happen for at least five years the minimum state-run Petroleos Mexicanos says it would take to build an oil refinery. Regardless, the U.S. would become increasingly dependent on Middle Eastern and African exports if Mexico bolsters its downstream oil industry over the next decade. Pemex currently refines around 1.5 mn barrels a day, with the remaining 1.4 mn barrels a day of oil production heading to markets in the U.S., Europe and Asia.

Petrolimex set to join Central Vietnam refinery

April 11, 2008. State-owned Vietnam National Petroleum Corporation (Petrolimex) is likely to join hands with foreign partners to construct an oil refinery in Central Khanh Hoa province with initial investment of US$2 bn in the near future. The future refinery named Van Phong will have annual processing capacity of at least 10 mt. Petrolimex currently holds a domestic petroleum trading market share of some 60 percent. Vietnam is reducing export of fossil fuels like crude oil and coal to foster its petroleum and petrochemical industries, and ensure sufficient supplies for energy-thirsty industries like electricity and cement. Dung Quat, the country's first refinery with an annual processing capacity of 6.5 mt of crude oil under construction in central Quang Ngai province, is scheduled to operate in early 2009.

Transportation / Trade

NEB approves extension to Enbridge's line 4 pipeline

April 15, 2008. The National Energy Board (NEB) has approved a 180-kilometer extension to Enbridge Pipeline Inc.'s Line 4. The Board also approved Enbridge's application for its tolling method and to reactivate three sections of pre-existing pipeline. The Enbridge Mainline from Edmonton to Hardisty currently includes three oil pipelines, while the Enbridge Mainline downstream of Hardisty includes four oil pipelines. This project is intended to extend Line 4 upstream from Hardisty to Edmonton to relieve a potential bottleneck. Enbridge plans to construct 137.6 kilometers of new 914 mm (36-inch) diameter pipe that will be connected to three pre-existing, but currently inactive segments of 1219 mm (48-inch) diameter pipe. The proposed $300 mn upgrade to Enbridge's highest capacity line would match the current Line 4 capacity of 140 000 cubic meters or 880 600 barrels of crude per day. The project triggered an environmental assessment under the Canadian Environmental Assessment Act which found that it is not likely to cause significant adverse environmental effects. The NEB attached 15 conditions to its approval, including a requirement for Enbridge to file an updated Environmental Protection Plan for the Board's approval, at least 45 days before construction at the existing Line 4 station facilities begins. The NEB is an independent federal agency that regulates several parts of Canada's energy industry. Its purpose is to promote safety and security, environmental protection, and efficient energy infrastructure and markets in the Canadian public interest, within the mandate set by Parliament in the regulation of pipelines, energy development and trade.

Slovakia in talks to reverse Druzhba flow

April 15, 2008. Slovakia is negotiating with the Czech Republic about the possibility of reversing the flow of the Druzhba oil pipeline in an effort to safeguard supplies. By reversing the flow, Slovakia could receive oil from the west, which would safeguard against disruption to supplies from Russia. However, reversing the flow to send supplies from the Czech Republic to Slovakia would cost several tens of millions of crowns.

Gazprom's South stream talks with Austria faltering

April 14, 2008. Russia is facing difficulties in its talks on plans for Austria to host a section of the strategic South Stream gas pipeline and could bring Slovenia on board instead. Talks between Russia's OAO Gazprom energy monopoly and Austria's OMV AG were floundering due to a dispute over Russia's gas trade with Austria. Bringing Slovenia into the project was aimed at sending a message to Austria that it could be excluded. The South Stream pipeline, which Gazprom is developing together with Italy's Eni SpA., is planned to go under the Black Sea before splitting in two branches across southern Europe, with Austria straddling the northern route.

KBR to study feasibility of Trans Caspian pipeline

April 14, 2008. KBR consulting subsidiary Granherne has been selected as the contractor for the United States Trade and Development Agency (USTDA) funded Trans Caspian Oil and Gas Study by the State Oil Company of the Republic of Azerbaijan (SOCAR). The feasibility study will involve services for conceptual pipeline routing and design, financial analysis and economic modeling, capital expenditure (CAPEX) and operating expenditure (OPEX) estimates, as well as marketing of products and environmental reviews. The study will also examine the feasibility of building new pipelines to transport oil and gas from the region to other world markets.

PGNiG eyes link to Nabucco

April 14, 2008. Polish gas company PGNiG SA is studying the possibility of building a link to the planned Nabucco gas pipeline. The 3,300-kilometer Nabucco pipeline, which aims to bring gas from the Caspian Sea region to central Europe, with a planned maximum capacity of 31 bcm per year, will cross Turkey, Bulgaria, Romania, Hungary and end in Baumgarten, a major natural gas hub in Austria. As per the analysts say PGNiG's room for manoeuvring in its already extensive investment plans may be limited by a decision by regulators to limit a rise in gas prices to less than half of the 33 percent proposed by PGNiG.

Policy / Performance

OPEC: World oil demand growth at 1.2 mn bpd

April 15, 2008. The Organization of the Petroleum Exporting Countries (OPEC) kept its 2008 global oil demand growth forecast unchanged at 1.2 mn barrels per day, as slowing economic growth in the industrialised world is offset by burgeoning consumption in developing nations. The oil cartel predicts global oil demand in 2008 will average 87 mn barrels per day (bpd) largely unchanged from its previous estimate. Non-OECD (Organisation for Economic Co-Operation and Development) oil demand mainly from China, the Middle East, India, and Latin America is forecast to be strong, offsetting weak OECD oil demand this year. While oil prices have touched a fresh all-time high of $112.97, OPEC still sees demand for crude remaining strong due to growth in the developing world. Expected demand during the seasonal second-quarter lull between the end of winter and the start of the summer driving season has been revised upward by 90,000 barrels per day to stand at an average of 85.7 mn bpd. However, the cartel cautioned that a slowing U.S. economy could see second-quarter demand fall by more than its seasonal norm. With growing concerns about the slowing U.S. economy and higher gasoline prices, there is a chance that the decline could be more pronounced, leading to even lower demand in the second quarter. The cartel has blamed the recent run-up in prices on weakness in the U.S. dollar, rather than lack of supplies in the market. Prices have mainly been driven by non-fundamentals, in particular the turmoil in the financial markets, the depreciation of the U.S. dollar, and the worsening U.S. economic outlook. The inflow of financial investments in the commodity markets has helped to repeatedly push crude oil prices higher. OPEC production averaged just over 32 mn bpd in March, a slight decline of 141,000 from the previous month. Average OPEC output over the first quarter of the year stood at 32.1 mn bpd. The cartel sees demand for its crude at around 31.75 mn bpd in 2008, 70,000 bpd higher than last month's estimate due to expectations that output from the United States and Mexico could be slightly lower than first anticipated. Non-OPEC supply is now seen averaging 50.28 mn bpd this year, down about 90,000 bpd from last month's report. The cartel is responsible for over a third of all oil in the market. OPEC has rejected calls from consumers to increase output quotas at its last three meetings, despite prices rising to record levels. The group is not due to meet again until September.

Mexican lawmakers reject compromise on oil-reform bill

April 15, 2008. Left-leaning lawmakers in Mexico rejected an offer to compromise on debating a bitterly disputed energy-reform proposal. They demand that Congress schedule a four-month national debate on President Felipe Calderon's energy bill. Oil production in Mexico, one of the top suppliers to the United States, is declining, and reform advocates say state oil company Petroleos Mexicanos, or Pemex, needs outside resources to explore for reserves. The bill would allow Pemex to partner with private companies for exploration and refining. Opponents claim the bill would lead toward selling off parts of Pemex and threaten national sovereignty. Mexico's Constitution bans most private and foreign involvement in the oil industry, although Pemex subcontracts some work to private firms. The bill would allow Pemex to pay bonuses to private companies but not give them a share of the oil profits.

Musharraf proposes building Pakistan-China pipeline

April 15, 2008. Pakistani President Pervez Musharraf proposed building an oil and gas pipeline to China during talks with Chinese leader Hu Jintao. According to the President Musharraf a pipeline would significantly shorten the route of China's energy supplies from the Gulf. Oil and gas are currently being shipped to China along the Indian coast and through the Malacca Straits. A railway along the Karakoram Highway, linking China and Pakistan should also be built.

Chinese sovereign fund builds £1bn BP stake

April 15, 2008. A Chinese sovereign wealth fund has built a stake of about £1 bn in BP, accumulating just under 1 per cent of the oil group. The British Government is understood to be monitoring the situation closely. The fund has also built an interest in Total, the French oil giant. It was revealed this month that the State Administration of Foreign Exchange had amassed a 1.6 per cent stake in Total worth €1.8 bn (£1.4 bn). However, the Government is actively seeking greater trade ties with China. BP has several other sovereign wealth funds on its share register, including the Kuwait Investment Authority.

Poland, Ukraine agree on Euro-Asia oil transport

April 14, 2008. Poland and Ukraine agreed on an ambitious oil transportation project in cooperation with a major US energy firm to connect Central Asian fields with European consumers. Sarmatia, a company jointly owned by the Ukrainian and Polish governments, and US-owned Granherne Ltd., a subsidiary of KBR Energy, signed contracts for the project in Warsaw. The development program foresees the extension of a little-used trans-Ukrainian oil pipeline, to run from the Ukrainian Black Sea port Odessa, to the Polish Baltic port Gdansk. An initial step in the development program would be a Granherne evaluation of the state of Ukraine's pipeline system, and the investment necessary to bring it up to an international standard. An agreement detailing the scale of later investment and specific development planning to complete the pipeline is likely at an Polish- Ukrainian energy summit later this year. The partially-built pipeline, designed to transport Caspian Sea crude expected to come on line in the coming decade to Poland and its neighbors, would if completed break current tight Russian control of Central Asian oil exports, as Central Asian crude oil currently use Russian pipelines to reach Western markets. The new link, called the Odessa-Brody-Plotsk-Gdansk pipeline, would bypass the Russian route by allowing Kazakhstan and Azerbaijan to transport oil to market across the Black Sea, via the Georgian port Poti by tanker to Ukraine's Yuzhny oil terminal, and onward via a pipeline across Ukraine and Poland to consumers. The Ukrainian section of the line and the Yuzhny port terminal were completed in 2004. Currently the terminal is unused and only sections of the Ukrainian line is used, to augment pipelines shipping Russian oil, as Caspian product has not been forthcoming.

Uzbekneftgas, CNPC team up on gas pipeline

April 14, 2008. Uzbek energy firm Uzbekneftgas has formed a joint venture with China National Petroleum Corp (CNPC) to build a pipeline that would bring gas from Turkmenistan to China. The plans by energy-hungry China and the Central Asian states would break Russia's virtual monopoly on transit of Turkmen gas. CNPC secured a 30 year gas-import deal with Turkmenistan last July. The Uzbek-Chinese venture, named Asia Trans Gas, would build the 530 kilometer (330 mile) pipeline section from the Turkmen border across Uzbek territory to the Kazakh border, from where it would go on to western China. A first pipeline, including one compressor station, is to be built by the end of 2009 and a second by the end of 2011. Uzbekistan signed an agreement last year with China on building a pipeline with a capacity of 30 bcm for shipping Turkmen gas. Uzbekistan's reclusive neighbour Turkmenistan has gas reserves estimated to be about the 10th largest in the world but almost all its export pipelines pass across Russian territory, limiting the Turkmen leadership's room for manoeuvre. However China is showing an increasing appetite for Central Asian energy resources.

Nicaragua awards exploration contracts to U.S. energy firm

April 9, 2008. The Nicaraguan government awarded two exploration and production contracts to U.S.-based MKJ Exploraciones Internacionales S.A., for six years which will search for oil and gas in the Caribbean. MKJ, a unit of Louisiana-based MKJ Xploration, will look for oil in two areas of the Caribbean shelf, one located some 120 kilometers (74 miles) east-southeast of Puerto Cabezas, capital of the Caribe norte region, and the other 170 kilometers (105 miles) northeast of Bluefields, the capital of the Caribe sur. The two areas cover a combined 800,000 hectares (1.97 mn acres), or nearly 8,000 square kilometers (3,088 square miles). If the U.S. company finds commercially viable reserves, it will have the right to produce oil and gas for 30 years. Under the contract terms, MKJ will pay a 15 percent royalty to the Nicaraguan central government and the Caribbean regional governments, which are autonomous. MKJ will also pay a 30 percent tax on its profits to the Nicaraguan state and 3 percent for environmental protection, health, education and infrastructure development projects in Caribbean communities. The project's first phase, which will last for about a year and involve seismic studies, will require investment of $5 mn to $10 mn. The second phase, when drilling will take place, is expected to cost $25 mn to $50 mn and take one to three years to complete.



Duke Energy sets goals to reduce emissions

April 15, 2008. Duke Energy Corp. hopes to have far fewer coal-fired plants generating electricity by 2030. According to Duke's 2007-08 sustainability report, Duke Energy Carolinas could retire about one-third of its coal-fired plants, while tripling its gas-fired plants and doubling its nuclear power plants. The plan lays out a 22-year plan for reducing the company's dependence on coal and cutting greenhouse-gas emissions. While the goals are not hard and fast, the company believes they provide a realistic baseline for discussions about cleaner energy production. For instance, the company says it could double its natural gas-fired generating plants in the Midwest by 2030 and retire about one-fourth of its coal-generating capacity by then. Renewable sources of energy could provide about 10 percent of the company's power generation by 2030. Reducing nitrogen oxide and sulfur dioxide emissions this year from its coal-fired plants by 10 percent and 35 percent, respectively, from 2006 levels; Reducing emissions from its on-road and off-road vehicles by an average of 35 percent by 2012, compared with 2006; and Replacing older natural gas lines to reduce leaks.

New coal-fired power plants opposed in Michigan

April 13, 2008. In the battle over global warming, front lines are forming in places like Bay City and Midland - proposed sites for Michigan's first large coal-fired power plants since 1984. If given the go-ahead, the plants could operate for 50 years. That's an eternity to environmental groups upset that existing coal plants pollute the air and emit greenhouse gases linked to climate change. The $1.9 bn project is a joint venture between LS Power of New Jersey and Texas-based Dynegy Inc. With help from the Sierra Club, grass-roots opposition also has started 20 miles away near Bay City - where Michigan's second-biggest electric utility, Jackson-based CMS Energy Corp.'s Consumers Energy, plans to build an 800 MW coal plant costing $2 bn or more. A citizens group opposed to a proposed Wolverine Power Cooperative coal plant outside Rogers City has sued to stop state environmental regulators from issuing air quality permits for new plants until they regulate carbon dioxide emissions. Environmentalists' goal is to block construction of the "dirty" plants altogether or at least until they're absolutely necessary.

Those proposals are pending in the Legislature but are linked to bills helping utilities secure financing to build large plants capable of running continuously rather than just during periods of peak demand. The state Public Service Commission assumed older plants totaling 3,500 MW of electric capacity will be retired by 2025 because Michigan has the second-oldest fleet of baseload plants in the country. Their average age is 49 years. The last coal plant, a small one near Manistee, came online in 1990. Both Consumers Energy and LS Power are proposing coal plants they say are more environmentally friendly than old plants.

Russia could build nuclear power plant in Mongolia

April 10, 2008. Russia could sign a deal with Mongolia to build a small or medium-sized nuclear power plant in the country. Mongolia would sign a joint action plan for nuclear energy cooperation, which could envisage investing jointly in uranium production, handling supplementary exploration of Mongolian uranium deposits and building small or medium-sized nuclear power plants in the country. According to Mongolian estimates, uranium reserves in the country amount to 60,000 mt. However, Russian experts have assessed Mongolia's uranium reserves at 120,000-150,000 tons.

Transmission / Distribution / Trade

Westinghouse to provide parts for Georgia nuclear plant

April 9, 2008. Westinghouse Electric Co. has signed a contract with Georgia Power to provide parts for two nuclear power plants. The Baton Rouge, La.-based Shaw Group, which owns 20 percent of Westinghouse, also signed the engineering, procurement and construction contract. It is the first nuclear power plant construction contract announced in the United States since 1979, following the meltdown at the Three Mile Island plant in Pennsylvania. The AP1000 nuclear power plants will be built near Waynesboro, Ga., and are expected to be completed in 2016 and 2017, pending approval from the Georgia Public Service Commission.

Policy / Performance

EU energy chief backs nuclear in climate fight

April 15, 2008. The European Union's energy chief gave unusually forthright backing to nuclear power as a means of helping to fight climate change, but he stressed the need for tighter security. The European Commission largely skirted the controversial issue in January when it announced a package of measures aimed at combating climate change. EU member states are divided in their approaches to nuclear power, with France using it as a source of 78 percent of its electricity, Britain eyeing an expansion beyond the current 19 percent, but countries like Germany and Austria firmly opposed. The EU aims to cut carbon dioxide emissions to at least 20 percent below 1990 levels by 2020, but by then many of its existing nuclear power stations, which have virtually no emissions, will have closed. To encourage fresh investment in nuclear power, the European Commission is examining ways to streamline licensing and financing.

China's coal demand may top 3 bn tons in ’10

April 15, 2008. China's coal demand may surpass 3 bn tons in 2010. The country now has 2.03 bn tons annual coal production capacity. A total amount of 1.1 bn tonnes of coal output capacity is scheduled to be under construction, among which around 200 mt has been approved. The country's crude coal production volume increased from 1.42 bn tonnes in 2002 to 2.54 bn tons in 2007, up 12.38 percent year on year. China now is endeavoring to build 13 large coal production bases. Those coal bases would be formed in the country's coal-rich Shanxi, Shaanxi, Shandong, Henan, Yunnan, Guizhou, Ningxia and Inner Mongolia to ensure stable supply of coal in the country.

China's Datang plans $3 bn coal gasification plant

April 14, 2008. Datang International Power Generation Co Ltd, China's second-largest listed electricity firm, plans to set up an 18.78 bn yuan ($2.68 bn) coal gasification project. The joint venture in northern Inner Mongolia region, with three other partners, will produce gas to supply Beijing. Due for completion by 2012, it is part of a national clean-energy drive and will use coal from nearby Shengli to produce 4 bcm of gas and other by-products annually. Coal gasification technology uses heat and pressure to convert coal or any carbon material into a synthetic gas. It allows for the separation of pollutants such as nitrogen oxide, sulphur dioxide and mercury. China, battling serious pollution problems, is keen to boost the use of clean burning gas but is reluctant to commit to long-term deals as international prices soar. Although turning coal into gas is energy and water intensive, it allows the country to curb its reliance on imports and turn instead to its plentiful domestic deposits of the black fuel. Datang will provide 51 percent of the 100 mn yuan in initial registered capital of the venture, Keqi Coal-based Gas Co. Beijing Gas Group, a subsidiary of Beijing Enterprises Holdings Ltd, will provide 33 percent, China's state-owned CDC, Datang's largest shareholder, will provide 6 per cent and Hong Kong fund company New Horizon Capital will provide 10 per cent. 

US welcomes power-sharing deal in Kenya

April 14, 2008. The United States welcomed Kenya's power-sharing agreement, calling it an important first step toward a solving the country's political crisis, and urging prompt institutional reforms. The United States welcomes the announcement by President (Mwai) Kibaki and Prime Minister-designate (Raila) Odinga that they have reached agreement on the composition of the coalition cabinet. The power-sharing agreement was brokered by former UN chief Kofi Annan, amid intense international pressure for Kibaki and Odinga to bring an end to the unrest.

IBM launches energy efficient server

April 14, 2008. IBM launched two products, a UNIX server and a water-cooled supercomputer, which have energy-saving capabilities. The new products are energy efficient and would help reduce bottom line operating costs. The new UNIX Enterprise Server is the fastest Unix server in the world and is targeted at the existing IBM clients. IBM's new Power6 Hydro-cluster supercomputer is built to help users tackle problems in fields such as energy, aerospace and weather modeling. The new system, uses an in-rack, water-cooling system which offers users nearly five times the performance and more than three times the energy efficiency of its predecessor. The two launched are part of a comprehensive launch of a new generation of IBM Power Systems which began last week.   

Uganda drafts Nuclear energy bill

April 14, 2008. In the wake of oil discovery the government has drafted a new bill seeking to guarantee peaceful application of nuclear energy in Uganda. The Atomic Energy Bill, 2007 was not for manufacturing nuclear weapons. This Bill is going to help to increase power generation capacity in the country. If passed by Parliament, the new Bill would also establish the Atomic Energy Council, a body corporate to facilitate the implementation of the objectives of the legislation on application of ionized radiation. The new legislation seeks to offer peaceful atomic energy applications, radiation, protection, safety, storage and disposal of radiation sources and wastes. The absence of an effective legal and institutional framework responsible for regulating atomic energy matters has affected the operations in the sub-sector and the flow of technical assistance from prospective development partners, like the International Atomic Energy Agency (IAEA). The IAEA works for the safe, secure and peaceful uses of nuclear science and technology. Its key roles contribute to international peace and security, and to the World's Millennium Goals for social, economic and environmental development. Atomic energy matters are regulated by the Atomic Energy Decree No.12 of 1972. Although the decree established an Atomic Energy Control Board (AECB), it was never constituted.

UK to sweeten nuclear auction

April 13, 2008. Britain may try to make a number of nuclear sites currently up for auction more attractive to buyers by including assets owned by up-for-sale British Energy. The move would ease fears that the eventual buyer of BE will have total control of the country's nuclear power industry, which is enjoying a renaissance after the government sanctioned the building of a new fleet of stations. The new set of nuclear stations is highly likely to be built on the NDA and BE sites. The Nuclear Decommissioning Authority (NDA), owns 18 sites, including two with operational reactors. The government is keen to avoid competition problems by making sure the two site portfolios go to different companies. The NDA offering is said to be of a lower quality, but adding BE sites to the mix may encourage a loser in the fight for BE to bid for the NDA sites as a consolation. The British government indirectly holds a 35 percent stake in the company, and is likely to play a crucial role in the outcome of the battle.

Renewable Energy Trends


A new solar cooker that can even cook dinner

April 15, 2008. Solar cookers have been around for over 200 years now. Their use is limited because of shortcomings related to cooking time and a very basic problem of cooking dinner. Two professors at Jodhpur have come up with an improved version of a solar cooker, which they claim addresses the problems. But critics have reservations about the improvised cooker. Solar cookers work on the principle of converting sunlight to heat, which is used for cooking. Broadly, they come in three designs—box, panel and concentrating cookers. Reflective surfaces such as mirrors or aluminium foils are used to convert light into heat energy. The researchers, who focussed on box cookers, found their model fared better than existing ones in terms of collecting light energy and retaining high temperature in the cooking chamber. In the new model, the researchers added four extra mirrors to the basic cooker. The glass panel, horizontal in the basic design, was tilted to face the sun directly. The cooker can now fit in a window and food can be loaded from the front and not the top, as was done in the basic model. A number of experiments were carried out using the basic and improved version of the cooker. Temperature in the cooking box was recorded over a day. The scientists observed the new design achieved a higher temperature than the basic cooker, thus decreasing cooking time. Temperature in the new cooker remained higher in the evenings than the basic design. This implied that the cooker can keep meals warm for a longer time. To simulate cooking twice a day, the authors experimented with food-loads that were kept and removed twice a day.

PM says no to bio-fuel production out of foodgrains

April 13, 2008. India may be engaging in serious discussion with Brazil over the bio-fuel production that would support its fuel sustainability. But Prime Minister Manmohan Singh is very particular that the country would not follow Brazil to use sugar for bio-fuel production. According to Vilasrao Muttemwar, the minister for non-conventional energy, who is accompanying President Pratibha Patil on her visit to Brazil, Mexico and Chile, Manmohan Singh has specifically asked his government not to use foodgrains for the production of bio-fuel in his country, which is facing an unprecedented inflation and shortage of foodgrains. The government has proposed to constitute a bio-fuel board to formulate and implement a comprehensive plan for the production of alternative energy sources. Economists have raised concern that the US move to use maize in the production of the ethanol was one of the reasons behind the current food crisis in the world.

Nandan Bio claims breakthrough in Jatropha

April 12, 2008. Nandan Biomatrix Ltd has claimed new developments in various aspects of Jatropha crop. The company had applied for patents in India in the areas of process of developing Jatropha curcas, hybrids for high oleic content and high-seed yield and high oil content and inter-specific hybrid. The company is also planning to apply for patents in the US and Europe. The company had drawn up a three-phase research and development beginning 2004 to study the various aspects of Jatropha cultivation and processes involved.

Carbon credit futures trading starts on firm note on NCDEX

April 11, 2008. Futures trading in carbon credits kick started on a positive note on the leading agriculture commodity bourse in the country, the National Commodity and Derivative Exchange (NCDEX). At 3 pm, December contract was trading up by 1.21% at Rs 1,007 per certified emission reduction (CER). The spot prices stood at Rs 1,010.04 per CER. Carbon credit futures is a development product. It would provide transparency to markets and help producers earn remunerative returns out of environmentally clean projects. NCDEX is the second exchange in the country after MCX which started carbon credits futures. Carbon trading will grow in the coming days amidst the burning issue of climate change. The Multicommodity Exchange of India, or MCX, started futures trading in carbon credits by launching five contracts in January. Carbon credits are generated by companies in the developing world by using cleaner technologies and, thereby, saving on energy consumption. This consequently reduces their greenhouse gas emissions. With each reduced tonne of carbon dioxide emission, an organization receives a carbon emission certificate, which it can sell, either immediately or through a futures market, just like any other commodity. Carbon trading is carried out under the United Nations Framework Convention on Climate Change (UNFCCC). India would account for 14.69% of the expected annual number of CERs from the registered projects under the Clean Development Mechanism (CDM) of the UNFCCC. Of the 978 projects that are registered under CDM, 332 are from India. Another 543 projects are in pipeline at various stage of validation. By 2012, these projects are expected to yield around 400 million CERs. A government notification on 4 January had paved the way for futures trading in CERs by bringing carbon credits under the ambit of tradable commodities.

RIL plans bio-fuel unit in Kutch

April 11, 2008. Reliance Industries (RIL) has now set its eyes on the dry land of Kutch. It is aiming to set up a bio-fuel plant for blending petrol with 5 per cent permissible ethanol. One of the most popular ways of producing ethanol is from molasses extracted from sugarcane. Another view by the industry experts is that the sugar industry in South Gujarat is not finding enough takers for the ethanol produced. So Reliance might enter into an agreement for buying ethanol from the sugarcane industry. The company had planned a bio-fuel project a couple of years ago, but did not shortlist the location. With petrol reserves nearing exhaustion, ethanol blending is being favoured for overcoming the shortfall.

100 MW green power units this fiscal

April 11, 2008. Ten renewable energy projects with a composite capacity of 100 MW are likely to be commissioned in West Bengal by the end of 2009. Among these ten projects includes the proposal to set up a 50 MW wind park project and a solar park with a capacity of 26 MW. The wind power park is to be set up in Dadanpatra in East Midnapore district at an investment of Rs 300 crore ($75.3 mn). Out of the composite capaciy of 50 MW, Suzlon will be contributing 40 MW and the rest will come from other players. The project requires 700 acres of land which has already been identified. The solar park to be set up in Purulia by 2010 will have capacity of 26MW. Private players like Reliance Power and US-based Azure Solar Power were keen on setting up solar power plants near Purulia. The balance 24MW of green energy would come from other renewable energy sources like micro hydel power, biomass and municipal solid waste. WBREDA was in talks with IL&FS Infrastructure Development Corporation (IL&FS IDC) for undertaking municipal solid waste projects. The overall renewable energy potential in West Bengal was estimated at around 10,000MW while installed capacity of renewable energy in the state was 76MW, with solar power contributing 7MW. Nationwide, the installed capacity of renewable energy was 8,000MW and it was expected to reach 20,000MW by 2012. 

Biomass power project for Palwal

April 10, 2008. Six mega watt biomass Power Project at a cost of about Rs 27 crore ($6.8 mn) will soon be set up in block Palwal of Faridabad district by Messers True Electrics and Transmission Private Limited. A MoU to this effect was signed by the Haryana Renewable Energy Development Agency (HAREDA) and the company. The project would be constructed by the firm on Built, Operate and Own (BOO) basis.

The power from this project would be fed to the State grid for which the Haryana Electricity Regulatory Commission (HERC) had already fixed a tariff of Rs 4 per kilowatt. HAREDA had already signed MOU with five Independent Power Producers in February, 2007 for setting up of Biomass Power Projects in the State. So far, 14 Detailed Project Reports of 127 MW had already been approved and the Independent Power Producers were in process of signing the Power Purchase Agreements with the concerned Power Utilities and other statutory clearances from the various departments were being obtained. Besides this, six more detailed project reports of 56 MW capacity had been received which were being examined and the approval for the same was likely to be conveyed soon. These projects were likely to be commissioned by mid of 2009.

PE invests in Kalyani group’s wind energy company

April 9, 2008. The $2.1-bn Kalyani Group, a player in the auto component sector, has announced that First Reserve Corporation, an energy-focused private equity firm, has invested in Kenersys, the newly-formed integrated wind energy company focused on design, assembly and marketing of wind turbine generators. First Reserve has an investment program in the renewable energy sector and has invested in seven companies covering biofuels, waste to energy, carbon dioxide offset origination & renewable generation, solar and wind. With over $1.2 billion invested and committed to alternative and renewables companies, First Reserve is one of the largest investors in renewable energy and is targeting up to 15 per cent of funds under management to this sector.

The Kalyani Group, including Bharat Forge, currently supplies key wind turbine sub-components to component manufacturers and has utilised these relationships to secure components for Kenersys. Kenersys will design and develop several key components for OEM’s & Tier I companies in the industry, thus reducing their reliance on outside suppliers. Kenersys, with its design set-up in Germany and two operating companies in Germany & India, will initially focus on assembling and marketing turbines in Europe and Asia Pacific. The Indian organisation will also focus additionally on turnkey wind farm project development. Other regions, including North America, are expected to follow.

Solar power plan gets positive response

April 9, 2008. The Ministry of New and Renewable Energy’s efforts to promote setting up of large, grid-connected solar photovoltaic (SPV) power plants have received positive response. Private sector companies have come up with proposals to set up units totalling an installed capacity of nearly 1,000 MW within a few months of the Ministry’s announcement of a programme to promote solar power. The total capacity that was likely to come up in Rajasthan alone was around 250 MW. To ensure that efforts fructify on the ground, the State Government was collecting a registration fee of Rs 25,000 for each MW. The Ministry had set a goal to add an additional 14,000-MW of grid-quality power through renewable resources by the end of the Plan, including solar installations. Solar photovoltaic installations essentially capture sunlight and convert it into electricity to feed to the power grid. India has been keen to take advantage of the favourable natural conditions for large-scale harnessing and deployment of solar energy.


Gulf Ethanol orders prototype cellulosic processing unit

April 15, 2008. Gulf Ethanol Corp. has delivered the purchase order and initial payment for the manufacture of its initial prototype bio-processing unit. This unit will be designed to preprocess cellulosic biomass into a very fine, dry powder ready for processing into ethanol. The unit is expected to be ready in about two months. One of the obstacles faced by the cellulosic fuels industry is the pre-processing of large volumes of biomass into a treatable powder that can be easily transported and processed into ethanol.

The challenge for cellulosic ethanol producers is to achieve a level of efficiency better than or equal to corn-based ethanol. According to the U.S. Department of Agriculture, U.S. food prices rose 4 percent in 2007, compared with an average 2.5 percent annual rise for the last 15 years and the agency says 2008 could be worse, with a rise of as much as 4.5 percent. Many ethanol plants were originally built to produce ethanol from food-based feedstocks such as corn. The increased demand on food based feedstock has contributed to increases in food prices and stressed the profitability at these facilities. Companies such as Archer Daniels Midland and Bunge Limited have led in the development of traditional feed-stocks and recently Chevron Corp. announced a joint venture with Weyerhaeuser Co. to develop cellulosic feedstocks from wood products. Integrating cellulose production with a traditional dry mill plant will improve efficiency and enhance profits. Gulf Ethanol is an alternative energy company focused on developing two types of fuels. For the U.S. market it is developing technologies for the processing of cellulosic biomass into ethanol. In Central America, it is developing biodiesel technology to convert plentiful oils into motor fuels.

Biofuel's impact on food crops under study

April 13, 2008. Strategies to develop biofuel production without sacrificing food supplies will be one of the headline issues today. UN Food and Agriculture Organization (FAO) studies show demand, and therefore prices, for food is skyrocketing in developing countries, while interest also is growing in transforming arable land into profitable biofuel terrain. Brazil has a leading role in the debate, being both a major agricultural and biofuel exporter. Some countries, including Brazil, are benefiting from the extra money flowing into their coffers from exports. But the FAO sees that scenario as being volatile, according to a report on biofuel production and food security. The report details the pros and cons of using crops to make fuel, along with the scale of exchanges, the systems used and the structure of markets dealing with the output. It is not all negative. The report also notes that, if properly applied, biofuel programs can bring benefits to family run farms across Latin America.

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