Energy News Monitor I Volume I, Issue 11

National: Oil & Gas

 

 

 

NEWS BRIEF

 

NATIONAL

 

OIL & GAS

 

Upstream

 

NELP V

 

September 2004. NELP-V round is expected to be formally announced in October 2004. Around 20 blocks would be up for licensing. Twelve would be onland and 8 offshore. Five of the 8 offshore blocks lie in Deepwater.

 

ONGC to develop SEZ in AP

 

September 1, 2004. Oil and Natural Gas Corp will develop a port-based Special Economic Zone at Kakinada in Andhra Pradesh that may host a power plant and a Liquefied Natural Gas (LNG) import terminal. The project would be jointly undertaken with Kakinada Sea Ports Ltd (KSPL) and Infrastructure Leasing & Financial Services Ltd (IL&FS), ONGC said.   ONGC will be the single largest shareholder in the SPV (not less than 26 per cent) and the combined holding between ONGC and other Center and state PSUs shall not exceed 50 per cent, so that the SPV retains the private sector status. KSPL (a special purpose company established by International Sea Ports Ltd. Singapore in association with Konsortium Logistics Berhand of Malaysia) has already incorporated an SPV named Kakinada Special Economic Zone (P) Ltd. (KSEZ).  

 

ONGC to swap blocks

 

September 3, 2004. The government approved Oil and Natural Gas Corporation's proposal to acquire Cairn Energy's stake in two gas fields for a consideration of $ 135 million.  As per the deal, Oil and Natural Gas Corporation will buy into a deep-sea block in the Krishna-Godavari basin and another block off the Gujarat coast, while cairn will get a stake in an inland block in Gujarat and another in Uttar Pradesh. The deal had been awaiting government approval for over 18 months. Following the decision, ONGC will buy Cairn Energy's 90 per cent stake for a consideration of $ 85 million in a block in the Krishna-Godavari basin. One trillion cubic feet gas has been discovered in the block and the Oil and Natural Gas Corporation will now get operator rights. 

 

It would also farm-in 15 per cent exploration interest in a block in the Cambay Basin in offshore Gujarat and acquire another 10 per cent development interest in the Lakshmi and Gauri (LG) fields in the same block. At present, ONGC has 30 per cent interest in the LG fields, which are producing 109 million standard cubic feet gas daily. ONGC will pay $ 50 million for farming-in in the Cambay Basin block.  As part of the swap deal, the public sector company will transfer 30 per cent interest in two exploration blocks - one in the Ganga Valley and another in the Cambay Basin - to Cairn Energy. Cairn Energy will pay the Oil and Natural Gas Corporation $ 165,000 for the farm-in.  ONGC plans to commence extensive exploration and appraisal drilling on the Krishna-Godavari basin block once the transaction is completed following completion of the transaction. 

 

OIL to go global  

 

September 3, 2004. The smallest of the national oil companies Oil India Ltd (OIL) is set to become the government's new vehicle for seeking equity in oil and gas abroad. The move is aimed at creating an entity parallel to ONGC Videsh Ltd (OVL) instead of letting Indian Oil Corporation (IOC) and GAIL diversify into exploration overseas.  While the government is yet to decide on the mega merger plan of oil and gas PSUs, it wants to provide OIL with the financial muscle for seeking overseas opportunities in exploration. OIL, with its legacy of Burmah Oil Company, is said to be better placed on geological details of the Afro-Asian region. OIL’s weak point is its poor balance sheet restricting its investment ability.

 

It is felt that OVL alone cannot succeed in fully securing India's energy needs especially in the light of grossly inadequate domestic crude and gas production.  Besides, OVL is not keen on taking IOC and GAIL on board for equity hunt abroad. As for the mega merger plans six alternatives are being studied by the government. First, maintain status quo and let the competitive spirit take care. Second is to work towards better co-operation and understanding amongst them. Third option is to create two vertically integrated oil giants and the fourth option is to have independent oil and gas majors. The option of having a single oil and gas giant has not found favour from any quarter. The last option is to create a holding company for all PSUs (with supervisory boards). No decision on any of these options has been taken so far by the petroleum ministry.

 

ONGC Videsh to buy stake in Ivory Coast block

 

September 3, 2004. ONGC Videsh Ltd, wholly owned subsidiary of ONGC Ltd, has reached an agreement with Vanco Energy Company of US to buy 30 per cent stake in an exploratory block in offshore Ivory Coast. This will mark ONGC's first acquisition in Western Africa. The block is spread over an area of 4,156 square kilometres in San Pedro Basin. The hydrocarbon resource potential in the block is estimated to be in excess of one billion barrels. The acquisition will be completed after the Government of Ivory Coast approves it. ONGC has negotiated 40 per cent stake in the block CI-112, of which 10 per cent has been offered to Oil India Ltd, according to the agreement signed on September 1. The block will be in its second exploration period up to April 20, 2005. During this period, work commitment of one exploratory well is to be completed.

OVL and OIL shall bear 39 per cent and 13 per cent respectively, against their participating interests of 30 per cent and 10 per cent respectively, in the cost incurred during exploratory phase comprising Geological & Geophysical work done in the past, drilling of one exploratory well and one appraisal well. In the event of successful discovery, both OVL and OIL will have recovery rights.

 

Venezuela offers OVL stake in 5 oilfields 

 

September 6, 2004. Venezuela has offered ONGC Videsh Limited (OVL) stake in five oil fields for exploration and production. This is the first time it has offered oil concessions to a foreign company, outside the international tendering procedure.  OVL, a subsidiary of ONGC, is likely to sign an agreement with Venezuelan state oil firm PDVSA for joint investment in oil and gas projects, sources said. Venezuela has emerged as India's newest oil supplier. Between the Athabasca sands and Venezuelan Orinoco basin, there is more recoverable oil (with current technology) than all of the Middle East. The petroleum sector has emerged as a focus area of co-operation between India and Venezuela in recent years.

 

The largest single Indian investment in Latin America, the $50 million project is the result of an MoU signed between OVL and PDVSA last December in Caracas. This came up for discussion during the recent three-day visit of Venezuelan foreign minister Jesus Arnaldo Perez to India last week. The visit came after seven years.

 

ONGC denied exploration at KS-8

 

September 2004.  Ministry of External Affairs has denied permission to ONGC to carry out exploration at the KS-8 location along the Indo-Pak maritime border. Now, ONGC may move the drillship Belford Dolphin, which is currently drilling its fifth well under the company's deep sea explorations in the Gulf of Cambay, to the Mumbai offshore. The drillship, hired at $192000 per day since November 2003 has already encountered 4 consecutive dry wells.

 

Sir Creek estuary, a marshy land between Gujarat and Pakistan's Sindh province, which is believed to have rich deposit of Oil & Gas is expected to be put up as prospective blocks for bidding during future NELP rounds, following an expected early resolution of dispute of maritime boundary demarcation between India and Pakistan in the Rann of Kutch.

 

Downstream

 

Essar Oil to introduce 750 new petrol stations by '05

 

September 5, 2004. Essar Oil, one of the two privately owned auto fuel retailing firms in India, plans to increase the number of petrol stations it owns to more than 750 by 2005.  Essar Oil, which has a license to set up 1700 retail outlets to sell petrol and diesel in the country, has 4 petrol stations each in Punjab and Haryana, 3 in Rajasthan, 17 in Gujarat, 23 in Maharashtra, 2 each in Madhya Pradesh, Tamil Nadu and Dadra Nagar Haveli and 1 in Andhra Pradesh.  In addition, more number of retail outlets are in pipeline. By 2005, Essar plans to have 42 petrol stations in Punjab, 2 in Delhi, 33 in Haryana, 76 in Rajasthan, 31 in Uttar Pradesh, 8 in Bihar, 9 in Jharkhand, 8 in North-Eastern States, 5 in West Bengal, 1 in Chattisgarh, 3 in Dadar and Nagar Haveli, two in Goa, 170 in Gujarat, 212 in Maharashtra, 69 in Madhya Pradesh, 38 in Andhra Pradesh, 36 in Karnataka and 9 in Tamil Nadu.

 

Essar had entered into an agreement with Mangalore Refinery and Petrochemicals, a subsidiary of Oil and Natural Gas Corp (ONGC), and Numaligarh Refinery (NRL) for sourcing of fuel.  Besides Essar, Reliance Industries is the only other private sector firm to have started fuel retailing in the country.  Reliance, which operates a 33 million tonnes per annum refinery at Jamnagar in Gujarat, had set up 75 petrol stations by June 30 for marketing transport fuels diesel and petrol. The maximum 20 retail outlets are in Gujarat, 12 are in Punjab and 11 in Rajasthan. Reliance has nine outlets in Uttar Pradesh and another eight in Andhra Pradesh. It has four outlets each in Karnataka, Maharashtra and Tamil Nadu while West Bengal has three. Reliance Industries has a license to set up 5,849 petrol stations.

 

BPCL, Kochi Refineries may merge

 

September 1, 2004. Bharat Petroleum Corporation (BPCL) has revived its plan of merging its subsidiary Kochi Refineries (KRL) with itself in order to take advantage of high refining profit margins.  BPCL holds a 54.81 per cent stake in KRL, which operates a stand-alone refinery that processes 7.5 million metric tonne per annum (mmtpa) compared with BPCL's own refining capacities of 12 mmtpa in Mumbai. 

 

Refining profit margins have been high with the widening of the spreads between crude oil and product prices.  While BPCL's gross refining margins (GRM) stood at $4.60 per barrel, KRL's average refining margins stood at $5 per barrel. Numaligarh Refinery, another BPCL group company, had a GRM of $ 4.10 per barrel last year.  KRL operates a stand-alone refinery that processes 150,000 barrels a day (7.5 million metric tonnes per annum). BPCL processes 180,000 barrels of crude a day. Once the BPCL board approves the merger, it will hold talks with KRL shareholders to pick up the remaining equity in KRL. The Kerala government holds a five per cent stake in KRL. The price band which the oil companies are looking at corresponds to crude prices in a band of $37-$38 per barrel. However, the price of crude has already crossed that level to touch $45 per barrel.  Oil companies have been given the flexibility to raise prices within a band which is the average of the price within the last three months and one year.  On account of subsidies on liquefied petroleum gas (LPG) and superior kerosene oil (SKO), BPCL lost Rs 1,270 crore (RS 12.7 billion) last year. On the refinery front, BPCL is re-examining the size, quality and demand-supply outlook relating to its Bina refinery in Madhya Pradesh. The corporation has appointed Engineers India Ltd to configure the processes, cost, and latest quality norms.   Oman Oil has restricted its contribution to Rs 75 crore (Rs 750 million), the amount already spent.

 

Reliance to open petrol pumps in West, North-West India

 

August 31, 2004. Reliance Industries, India's sole private sector oil refiner, will initially set up petrol pumps in the western and north-western regions of the country. The company, which operates a 33 million tonnes per annum refinery at Jamnagar in Gujarat, had set up 75 petrol stations by June 30 for marketing transport fuels diesel and petrol. Reliance has nine outlets in Uttar Pradesh and another eight in Andhra Pradesh. It has four outlets each in Karnataka, Maharashtra and Tamil Nadu while West Bengal has three.  Reliance Industries' closest competitor in the private sector Essar Oil has set up 58 petrol stations - 4 in Punjab, 4 in Haryana, 3 in Rajasthan, 17 in Gujarat, 23 in Maharashtra, 2 in Madhya Pradesh, 1 in Andhra Pradesh, 2 in Tamil Nadu and 2 in Dadra and Nagar Haveli. While Reliance Industries has a licence to set up 5,849 petrol stations, Essar can set up 1,700 outlets. 

 

BPCL may be merged with Indian Oil, OIL

 

September 2, 2004. The petroleum ministry has favoured an alternative plan for restructuring the state-owned oil companies in which Bharat Petroleum Corporation Ltd (BPCL) will be merged with Indian Oil Corporation and Oil India Ltd (OIL). While endorsing the earlier proposal of creating two oil behemoths, it now proposes that Hindustan Petroleum Corporation Ltd (HPCL) will go with ONGC and Mangalore Refinery and Petrochemicals Ltd (MRPL).  The logic of the alternative plan, now under discussion in the ministry, is that BPCL and HPCL cannot be part of one entity. The ministry has argued that IOC's strength in retailing and its long relationship with international players will help OIL, which is short of resources, to focus on exploration. Similarly, ONGC will concentrate on exploration and production while HPCL will capitalise on its expertise in retail. 

 

Last month, a proposal to create two oil companies, with ONGC, BPCL and HPCL forming one entity and IOC and OIL forming the second was discussed. The fate of Gail (India) Ltd is still to be decided under the new option.  In case Gail was not merged with either of the two entities, the ministry might look at merging it with BPCL to create a third entity.   The merger proposal has, however, not gone down well with smaller companies like HPCL and BPCL though IOC and ONGC are in favour of the consolidation move. The officials said the merger of the oil companies was necessary due to the entry of large domestic and foreign players in the Indian market. There was also a need to bid aggressively in overseas exploration ventures. There is more or less clarity on the IOC-OIL merger due to the synergy between the two companies. For instance, IOC owns the Numaligarh Refinery where crude is supplied by IOC. 

 

Joint venture between Indian Oil & Mitsui 

 

September 1, 2004. Indian Oil Corporation has signed an agreement with Japanese trader Mitsui to swap 40,000 bpd of Nigerian term crude. IOC plans to revive a term contract with Nigeria for 40,000 bpd of crude but the company is interested only in Bonny Light and Forcados grades. If other grades were supplied to IOC, Mitsui would swap them for the crude oil required by IOC.

 

BPCL to set up base oil production unit at Trombay

 

September 1, 2004. Bharat Petroleum Corporation Ltd is setting up a Rs 318-crore (Rs 3.18 billion), 180,000-tonne unit for producing base oil, raw material for producing automotive and industrial lubricants, at its Trombay refinery. The project, which is independent of BPCL's ongoing refinery modernisation plan, will help BPCL cut its dependence on imports and supplies from public sector competitors such as Hindustan Petroleum Corporation, a senior official said. BPCL sells over one lakh tonnes (100,000 tonnes) of lubricants each year but base oil supplies have been tight. Increasing crude oil prices in the international market have led to a quantum jump in prices of base oil. Many international lubricant producers operating in India, including Castrol which normally imports base oil, prefer to buy it from Indian public sector companies when prices in the international market increase. As a result, if the ongoing trend of rising crude prices continues, base oil sales will mean additional revenues for BPCL.

 

Every tonne of lube produced needs about 0.83 tonnes of base oil and 0.17 tonnes of additives. Material cost is about 56 per cent of the net price, of which 50 per cent is base oil costs, 33 per cent is additives costs and 17 per cent is the cost of packaging. As a result, high base oil prices affect the cost competitiveness of lube manufacturers. Especially, in the Indian lubes market where lower selling prices determine higher sales. So, most manufacturers try to ensure they have a reliable and affordable raw material supply source.   Since last year, the prices of base oil, which were stagnant or declining till 2002-03 because of overall surplus, especially in South East Asia, have been rising steadily.

 

Indian Oil plans retail foray into South Africa

 

September 3, 2004. After establishing its presence in the petroleum retail markets of Sri Lanka and Mauritius, Indian Oil Corporation is now evaluating opportunities to enter South Africa. The company is also in talks for setting up a retail joint venture with Nepal Oil Corporation.  Efforts for clearing the way for Indian companies, especially oil majors IOC and ONGC, have been on since late last year with the Indian Government trying to enter a bilateral agreement with South Africa for cooperation in the hydrocarbons sector. South Africa has the second largest refining capacity in Africa, with a total refining capacity of 48,547 bpd and multinational companies like BP, Petronas, ChevronTexaco, Shell and Total already have a significant presence in South Africa's downstream petroleum markets.  In the case of Nepal, Indian Oil, which has announced ambitions to become a trans-national major, has already established its presence in this market through sale of lubricants and bitumen. Nepal is deregulating its oil market and needs about 0.75 mm tonnes of petroleum products, including 70,000 tonnes of cooking gas a year. IOC is also planning to expand its presence in Mauritius where it has set up an 18,000-tonne products storage terminal. IOC plans to invest $18 million in Mauritius through its subsidiary Indian Oil Mauritius Ltd. IOC, which controls more than 50 per cent of India's retail petroleum business through 11,000-odd petrol pumps between itself and subsidiary IBP Ltd, is also looking for opportunities in Thailand and Indonesia.

 

BPCL may buy stake in Ceylone Petro

 

September 6, 2004. Sri Lanka plans to sell a $50 million stake in Ceylon Petroleum Corp. to Bharat Petroleum Corp. after China Petroleum and Chemical Corp. withdrew its bid, Finance Minister Sarath Amunugama said. The government had earlier planned to sell a third of Ceylon Petroleum, the national oil company, to raise as much as $90 million. It decided to reduce the size of the stake after the country's trade unions protested asset sales. The sale will help the Sri Lankan government finance spending and cut its budget deficit. China Petroleum and Chemical, or Sinopec, Asia's biggest oil refiner, withdrew its bid last month after the island's government refused to sell a majority stake. Bharat Petroleum kept its offer. The five-month-old government of President Chandrika Kumaratunga decided to retain a majority stake in the fuel distributor, maintaining its promise to sell few state assets, leading to Sinopec's pullout. 

 

Transport / Trade

 

US grant for GAIL study on gas grid 

 

September 2, 2004. US ambassador to India David C Mulford signed a $690,000 grant by the US Trade and Development Agency (USTDA) to the GAIL India Ltd, for the partial funding of a study to explore feasibility of a national gas grid in India. The public sector enterprise, under the ministry of petroleum and natural gas, is undertaking this energy infrastructure programme to build a natural gas transmission pipeline network that will eventually reach all major energy consuming areas in India. According to an US embassy release, expanded access to, and utilisation of, natural gas is expected to facilitate economic growth and maintain sufficient energy supplies to avoid potential shortages as India's energy demand grows.

 

GAIL to link Kakinada with Kolkata, Chennai

 

September 2, 2004. After finalising plans for laying the Rs 4,500-crore (Rs 45 billion)  Jagdishpur-Kolkata natural gas pipeline, GAIL (India) Ltd is now gearing up to lay Kakinada-Kolkata and Kakinada-Chennai gas pipelines. The projects may help exploit the emerging potential of Krishna-Godavari basin and Mahanadi basin in the long term. GAIL is pursuing exploration and production activities in three blocks in the Mahanadi Basin and Bay of Bengal. The blocks were awarded under the New Exploration and Licensing Policy (NELP) to consortia where GAIL is a participant.

 

GAIL has already conducted a detailed feasibility report, route survey and cadastral survey of both the Kakinada-Kolkata and Kakinada-Chennai pipelines. The environmental management plan or rapid risk assessment report has also been prepared.  The Kakinada-Kolkata pipeline will cater to a large part of Andhra Pradesh, Orissa, West Bengal and parts of the industrial areas in Chhattisgarh. The pipeline will pass close to Vizag and will provide a link between Vizag and the KG basin, sources said. The company is also in the process of entering into an MoU with Vizag Steel in this regard.

 

IBP to move LNG by road

 

September 3, 2004. IBP Ltd plans to invest Rs 15 crore (Rs 150 million) in buying cryogenic containers costing Rs 30 lakh (Rs 3 milion) each for a pilot project to supply LNG to remote areas of Gujarat not connected by gas pipelines. IBP will initially buy 20-tonne containers from the US Company, Chart Industries, which will move LNG just like LPG tankers do today. IBP's parent company Indian Oil has approved Rs 15 crore (Rs 150 million), to be used in two phases. The company will begin supplies to Dahej in Gujarat by January 2005.

 

India-Iran gas pipeline project to be on agenda 

 

September 4, 2004. India and Pakistan are moving on two different routes for economic cooperation between the two countries. While India wants the issue of Most Favoured Nation status be pursued first, Pakistan is more keen on clearing the way for the $4.16 billion Iran-India gas pipeline via its territory.  Petroleum minister Mani Shankar Aiyar and the visiting Pakistan foreign minister Khurshid M Kasuri would be meeting and India's position on the security of gas supplies to India through Pakistan, may be discussed.

 

Pakistan authorities have been saying that their government was willing to give all necessary security guarantees to New Delhi regarding the proposed gas pipeline project. Iran has been pursuing the pipeline proposal, with New Delhi and Islamabad since 1996, but tensions between the two countries have been blocking its progress. Mr Aiyar, who has favoured the pipeline to bridge the growing energy gap in India, held an hour-long meeting on Friday with foreign secretary Shyam Saran to get an update on the discussions. An international consortium of bankers and oil firms building and operating the project, with Tehran assuring supply of gas in form of LNG in case of sabotage, may be discussed as guarantees for secured supplies to India.

 

More than 1 supply line favoured by draft pipeline policy 

 

September 6, 2004. The final draft on natural gas pipeline policy provides for laying of more than one transmission pipelines along the same route. Further, it also proposes setting up of a Central Gas Authority (CGA) and a National Advisory Council (NAC) to promote and develop the gas sector in the country. The authorisation to lay one or more pipelines along the same route comes with a rider. As per the new policy note, the final decision will be taken by the regulator/government after studying the source of gas and the markets that these pipelines will serve, the proposed terms of transmission tariff and after considering the time frame for completion of the project.

 

The proposed CGA will act as the technical arm of the government/regulator and will be assigned the task of developing standards and code. NAC, on the other hand, would be chaired by the petroleum secretary and will comprise members from major gas consuming ministries/departments, states, major oil and gas companies in the public and private sectors, besides other industrial chambers/associations and expert bodies. Transportation of natural gas through pipelines, as per the note, would be on unbundled basis and any entity desirous of laying pipelines will have to do this only through a purely transportation company.  Under the new policy guidelines, all transmission pipelines for transportation of natural gas will be laid after authorisation is granted by the regulator. While deciding on the authorisation, the regulator will consider the long-term plan for development of pipeline network, early monetisation of gas, increasing availability of gas to the consumers, the impact on efficiency, and inter-connectivity of gas transportation system.  Any other entity interested in taking capacity in the pipeline would express its interest to the regulator and will enter into 'take or pay' contract with the company laying the pipeline. Expressions of interest (EoI) will be invited by the regulator for booking of the pipeline capacity from interested parties. "The pipeline capacity would be finalised after taking into consideration the aggregated demand and the mandatory requirement of building 25 per cent extra capacity," says the policy note. The extra capacity will be available on 'open access' basis at transportation rates, which will not be more than the ceiling rate approved by the government.

 

Dahej-Uran Pipeline

 

September 2004. GAIL has deferred its decision on construction of the 462 km Dahej-Uran pipeline till 50% firm offtake commitment from customers is achieved. Estimated to cost Rs 1972 crore, Dahej to Uran gas pipeline will flow 12 MMSCMD from Gujarat to Maharshtra. Dahej-Uran pipeline is planned to run upto Pune. The transportation tariff for the Dahej-Uran pipeline project has been calculated by GAIL at Rs 646.50 per 1000 SCM of gas at an IRR of 13%, without any escalation in tariff. Thus GAIL is demanding around 0.35 c/MMBtu for less than 500 kms of pipeline

 

Review of Tariff charged by GAIL

 

September 2004. As demanded by DOF, GOM has agreed for a review of the Tariff charged by GAIL to transport Natural Gas and RLNG. Tariff Commission has been asked to conduct the review.

GAIL to set up subsidiary in Singapore

 

September 2004. GAIL has zeroed in on S'Pore to set up a subsidiary company which in turn will direct the company's investments in Egypt, Myanmar, Philippines, Bangladesh, Turkey and other countries as well. GAIL plans to save dividend tax and long term capital gains tax out of GAIL's investment in the NatGas, Egypt. S'Pore was selected over other three countries namely UAE, Netherlands and Hong Kong on account of Oil and Gas hub in the region and tax saving treaties with Egypt.

 

GAIL plans Haldia-Jagdishpur pipeline

 

September 2004. GAIL has announced a gas pipeline connecting Jagdishpur to Haldia. GAIL claims that ROU was already with the company and it plans to go ahead with 850 km pipeline to feed the eastern states. This pipeline would be an extension of the HBJ pipeline. According to the plan, more quantity of gas will be pumped at Dahej in Gujarat into the HBJ pipeline to feed the eastern market. GAIL has also to increase capacity of Auraiya-Jagdishpur sector, as its capacity is only 4.5 MMSCMD. New gas pipeline draft policy does not provide exclusive monopoly to GAIL. If new draft policy is accepted, GAIL may not have claim for future pipelines

 

GAIL lowers tariff on Dadri-Panipat pipeline

 

September 2004. GAIL has offered to reduce the tariff on Dadri-Panipat gas pipeline from Rs 489 to Rs 280 per thousand cubic meters, in an attempt to persuade IOC from laying claims to building the pipeline which will transport RLNG from HBJ trunk line to IOC's Panipat refinery. It is reported that IOC has not agreed, as it desires to retain ownership of the pipeline. Petroleum Ministry is also expected to leave to companies to resolve the matter.

 

GAIL claims that it should lay the proposed pipeline as it wants to extend the line up to Bhatinda and integrate it with proposed National Gas Grid. IOC is reported to have maintained to lay this pipeline of their own.

 

Natural gas Production profile

 

Producer	2002-03		2003-04
	MMSCMD	%	MMSCMD	%
ONGC	66.4	77	64.6	74
OIL	4.8	6	5.2	6
Pvt/Jv	14.8	17	17.8	20
Total	86	100	87.6	100

 

Private company's contribution at 20% of total gas production is low, but these figures are expected to witness considerably upward movement in the coming years. The public sector companies have not registered any major discoveries in recent years and output from aging fields is expected to stagnate.

 

Shell and GAIL yet to sign GTA

 

September 2004. GAIL had signed HOA with Shell to transport around 3-5 MMSCMD of RLNG through their proposed Dahej-Uran pipeline from its 2.5 MMTPA LNG terminal at Hazira. Shell is believed to be sticking to its position that it will sign a firm contract when GAIL confirms that atleast 50% pipeline capacity has been booked. Meanwhile, GAIL thinks that they don't have to be dependent on Shell as they have other sources of supply namely PLL and additional gas from Tapti gas field. Originally, GAIL had planned to source 8-9 MMSCMD of RLNG from PLL, Dahej and 3-5 MMSCMD from Shell, Hazira.

 

GAIL has started approaching customers in Uran region and is trying to convert MOUs into GSPA. GAIL is in talks with existing customers namely RCF, Deepak Fertilisers, Tata Power etc. However, GAIL customers in Maharashtra are reported to be unhappy with high price GAIL is quoting for RLNG in the range of $4.3-$4.6 per MMBTU.

 

IOC and Railways object to high tariff rate by GAIL

 

IOC and Railways have objected to the high tariff of Rs 1.42 per MTKM imposed by GAIL on the users of 600 km long Vizag-Secunderabad LPG pipeline. Railways claim that rail tariff for the same distance is only Rs 1.01 per MTKM.  The pipeline is running up operating losses on account of under-utilisation

 

ONGC highlights GAIL's unwillingness to sign GSA

 

September 2004. ONGC brought GAIL's unwillingness to sign a "Take or Pay" agreement for supply of gas from ONGC to the notice of Petroleum Minister. ONGC also claimed that subsidised gas sold to GAIL is used to make Petrochemicals and LPG at market price and for internal consumption. GAIL, on the other hand claims that a GSA with ONGC can only be inked once the gas supply projections made by ONGC are firmed up.

 

Shell Hazira LNG project status

 

September 2004. Shell has reconfirmed its plan to commission the LNG Terminal by end of 2004. However, as of now, Shell has neither tied up the source of LNG nor the consumer. Shell is expected to declare their price soon.

 

LNG Hazira terminal under dispute between Shell and Essar

 

The $700 million LNG terminal at Hazira, expected to be commissioned by late 2004 is facing breach of trust by the Essar group, Shell's Indian partner in the consortium that was granted the LOI by the Gujarat Maritime Board in 1999. The bone of contention issue is Shell's decision to go solo at Hazira and keep out its bid partner, Essar from exercising its option to take a 50% equity position in the project. A question mark has been raised over the legality of an Indian port being handed over in to a foreign company.

 

IFFCO extends bid submission date

 

September 2004. IFFCO has extended the Bid submission date by 1 month to 20 September 2004. As informed, IFFCO had invited bids for supply of NG/RLNG for its proposed four combined cycle Power projects with a capacity of 1170 MW each, at Kalol(Gujarat), Nellore(AP), Aonla and Phulpur(UP). For the four Power plants, IFFCO has pegged its demand at 20 MMSCMD of gas/RLNG.  Preliminary bid along with rates to be submitted by the prospective Bidders.

 

RLNG supply contracts for Fertilizer companies

 

September 2004. Fertilizer Minister is expected to agree to proposal by Fertlizer Association of India to enter into RLNG supply contracts. Ministry of Finance is also expected to agree to the proposal as there will be significant subsidy saving given the rate differential between Naphtha and RLNG. Sources say that the arrangement will be interim in nature pending decision on the pricing of the LNG by IMG. The Fertilizer units are reported to be apprehensive that a delay in their contracting with the marketers of RLNG would lead to a situation where no gas would be left for them. Government approval is a prerequisite for entering into LNG supply contracts under the cost plus pricing regime in vogue for fertilizer companies.

 

Australian firm plans to supply RLNG to India

 

September 2004. Australian company Liquefied Natural Gas Limited (LNGL) has announced its intentions to supply RLNG from East Africa to Power plants India. The company has signed MOU with Aminex PLC on upstream side and MOI with GMR group, PPN Power and Apollo infrastructure on downstream side

 

Myanmars's A-3 gas field

 

September 2004. GAIL which has minority stake in A-1 gas field, is eyeing 50% stake in adjacent A-3 block along with OVL, which is also expected to hold similar reserve of 4-6 TCF. GAIL-OVL is negotiating the stake from Daewoo, which at present has 100% equity in the field and is the operator. However, Daewoo is willing to part holdings in the field upto 25% only. Ministry of Petroleum had sought assistance from government of S Korea to influence Daewoo in this matter, but the request has been turned down.

 

Import of gas from Myanmar

 

September 2004. Daewoo, majority holder and operator of A-1 and A-3 gas field is keen on exporting the gas as LNG to the lucrative markets of Korea, Japan and USA but only after assessing the cost economics. They feel that the project would be economically viable if the find is atleast 8 TCF, else they would allow GAIL to supply gas to India by pipeline. GAIL feels that if the amount of gas from Myanmar totals 10 MMSCMD, then shipping the gas as LNG would become economically viable. GAIL is also of opinion that C2/C3 and LPG can be extracted in Myanmar before shipping the lean gas. GAIL is awaiting the detailed feasibility study report from its consultant Snamprogetti before devising its transportation strategy.

 

It is reported that Myanmar authorities are keen to discuss the evacuation of their 65% gas with GAIL, but at the same time are engaged in negotiations with Daewoo and Kogas for offtake. Sources say that government of India is utilising the services of RAW to persuade Myanmar government.

 

Bangladesh revised pipeline proposal for Myanmar's gas to India

 

September 2004. A revised proposal is under review by the Bangladesh government. Proposal prepared by Mohana Holdings want a consortium of Myanmar, Bangladesh and India to fund and implement the project. Earlier, Mohan Holdings had planned to implement the project itself. The pipeline is designed for domestic and international transmission. This new proposal may serve Bangladesh to export its own gas to India. It is believed that Bangladesh is realising that time is running out for it to materialise its export plans to India following reports that India has struck huge gas in East coast. Adding the foreign exchange earning source into its kitty is also driving the motive.

 

Earlier, Bangladesh Energy Ministry has proposed several conditions in the draft sent to Prime Minister office for approval of allowing pipeline from Myanmar to India to pass through the country.

 

LNG import from Iran

 

September 2004. Iran lawmakers are angry at cheap LNG offered to India. Iran has communicated that earlier offer of $2.22 per MMBtu is no longer valid and that they are unwilling to go significantly below $2.53 per MMBtu that is paid to RasGas by PLL.  Iran is aware of the hunt for LNG import by Indian oil companies and the present high global demand does not warrant cheap sell of. ONGC is reluctant to agree to any LNG deal unless there is comprehensive deal with Tehran in the spirit of MOU signed between both countries in January 2004 in which Iran agreed to award to India one exploration and one development block, both on nomination in exchange for an Indian commitment to buy 5 MMTPA LNG for 25 years. Iran has offered India 20% equity in Khush-Husseineieh field through bidding. Iran is also promising 25% equity in South Pars natural gas liquification export unit.

Iran's plan to set up LNG export units will run up against US sanctions. Only the Americans have proven liquification technology. Alternative European technology is still in prototype stage. It is doubtful if lenders will be comfortable with a LNG export project.

 

Policy / Performance

 

11 CNG units to come up in Noida

 

September 3, 2004. In a significant step, it has been announced that two compressed natural gas (CNG) outlets will begin operating in Noida, about the end of this year, as part of a larger and phased plan to bring CNG to Noida, Ghaziabad, Bulandshahr and Meerut. It has been planned to bring a total of 11 CNG outlets to Noida, Greater Noida and Ghaziabad each. In the next step, CNG will be supplied in Meerut and liquefied natural gas (LNG) will be supplied to Khurja potters. A road-map and schedule for this will be presented by Indraprastha Gas Limited, at a follow-up meeting on September 27.  It was also decided that a proposal to scale down local taxes on CNG to the level of those in neighbouring Delhi would be sent to the UP government. The officials also informed that LNG would be supplied by IPGL, to fuel the polluting units in the NCR cities.

 

Government opposed to ONGC, GAIL diversification

 

September 2, 2004. The petroleum ministry has disapproved the entry of ONGC into the power sector beyond production for its own use. It has also rejected GAIL (India) Ltd's plans to pick up 16.6 per cent equity in Haldia Petrochemicals Limited (HPL). GAIL's expansion plans in the area of telecom, along with its entry into power sector, are also under scrutiny. The ministry has also expressed reservations on ONGC's proposal to form two joint ventures - ONGC Coastal for managing offshore logistics services and ONGC Values for extending the retail chain for transporting fuel. It has also asked them to desist from unhealthy and growing competition amongst each other. According to the ministry, while any company can perform diverse activities, there are some which can be performed only by ONGC, Indian Oil and GAIL. While ONGC should focus on exploration and production (E&P) activities, IOC and GAIL too should concentrate on their core businesses.

 

As far as HPL is concerned, the ministry is of the opinion that IOC is a better partner than GAIL. IOC has synergy in terms of projects, location, feedstock, marketing and core competency, it has said. Moreover, GAIL's proposal to invest in the loss-making HPL did not involve management control, thus amounting to mere portfolio investment.  The ministry has now decided to meet all HPL stakeholders together with senior officials from the West Begal government to discuss the issue of equity participation by IOC/GAIL in HPL. Till then, the ministry has asked both IOC and GAIL not to hold any direct talks with West Bengal.  Even the clearance to ONGC on its plans in the petrochemical business comes with a rider. The in-principle clearance on its forward integration plans in the petrochemical buisness are subject to three conditions:

 

-Initially the feasibility of setting up of only one petrochemical plant at Dahej.

 

-There should be no diversion of natural gas from any of the existing plants because of setting up of ONGC's envisaged petrochemical plant.

 

-The matters concerning demand of products and optimal capacity of plant are appraised by professional agencies/merchant bankers and a proper techno-economic feasibility report is prepared.

 

Regulator for oil & gas sector

 

September 2, 2004. The Centre is likely to introduce in the winter session of Parliament a Bill to set up a regulator for the oil and gas sector. The draft has now been sent to the law ministry for final vetting. The board would regulate the petroleum operations post the crude oil and natural gas production phase, and cover refining, processing, storage, transportation, distribution, marketing and sale of petroleum and petroleum products. It will also regulate transportation of natural gas through pipelines, establishment and operation of LNG terminals, setting up for city or local gas distribution projects, and activities incidental thereto. While the NDA government had drafted the regulatory board Bill, the UPA government has made certain amendments, particularly of penalties. The Board would have powers to impose a penalty of up to Rs 25 crore (Rs 250 million) and Rs 10 lakh (Rs 1 million) per day in the case of continuing default. In the case of profiteering, the penalty is proposed to be up 5 times of the unfair gains make by the entity or Rs 10 crore (Rs 100 million), whichever is higher.

 

The main function of the regulator would be to protect consumer interest by fostering competition and fair trade among the entities. It would also authorize entities to market notified petroleum, petroleum products and natural gas; establish and operate LNG terminals; lay, build, operate or expand a common carrier with the objective of ensuring equitable access to all suppliers of petroleum products and natural gas and curbing anti-competitive behavior; and lay, build, operate or expand city gas or local gas distribution pipeline network in consultation with state governments. The board will comprise a chairperson and not more than four members, drawn from fields related to the petroleum and natural gas in dustry, management, finance, law, administration or consumer affairs. The government shall appoint a chairperson and other members for a period of 5 years, based on the recommendation of a Search Committee, headed by the Member of Planning Commission in charge of the energy sector

 

 

 

Shell, Caltex call for LPG subsidy

 

September 6, 2004. Multinationals Shell, Caltex and SHV Energy have petitioned the government to provide them subsidy on liquefied petroleum gas sold by them in India.  This has prompted the petroleum ministry to approach the finance ministry for passing the subsidy on cooking gas to the private players as well. At present, the government provides a subsidy of around Rs 25 for every cylinder of cooking gas sold to households.  SHV Energy has invested around Rs 300 crore (Rs 3 billion) in the LPG marketing since the market was opened to private players in 1993. But 95 per cent of the market was not available to multinationals due to the subsidy extended to the public sector. Multinationals demanded that the subsidy should either be withdrawn or the benefit also be made available to them. Shell has demanded that a decision be taken at the earliest. 

 

The only change required will be to make the private player eligible to get the benefit. This may mean that public sector companies will get lower refunds. The government has provided Rs 3,500 crore (Rs 35 billion) during the current fiscal for kerosene and cooking gas. As per a formula worked out by the petroleum ministry last year, the subsidy bill is shared equally between the upstream and downstream oil companies and the government. 

 

Power, fertiliser sectors to face rise in gas prices 

 

September 6, 2004. The government is set to increase the administered price of gas for the fertiliser and the power sectors by 12-26% to Rs 3,200 per mcm and Rs 3,600 per mcm, respectively. However, it will offer them a sop by way of a commitment to supply most of the gas to the two high priority sectors.  Gas produced by Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) from non-NELP gas fields awarded on nomination basis, is priced at Rs 2,850 per mcm. In contrast private/JV fields charge over Rs 5,000 per mcm. According to a note being prepared for the Cabinet, the gas pool account too is to be replaced by the North-East Subsidy Account to compensate OIL for offering concessional gas price in North-East. The outgo from the account will, however, be limited to Rs 150 crore (Rs 1.5 billion) per annum.  The gas produced from the joint venture fields will be de-linked from the APM gas and will be sold at market determined prices, (excep 1 MMSCMD from Ravva field in KG Basin) to sectors other than power and fertiliser, resulting in complete de-regulation of natural gas price for the remaining consumers. As per the note, the price of gas for the North-East region may be pegged at 60% of the general consumer price. At present, 26% of the APM gas is being used by industries other than power and fertilisrs. These include petrochemicals and LPG, sponge iron, CNG and glass ceramics. While increasing the consumer price of natural gas, it has also been proposed that the HBJ transportation tariff be increased by Rs 10 per mcm. However, in a presentation to the petroleum ministry last week, a mechanism was proposed wherein the tariff should be increased by Rs 3.34 per mscm for every increase of Rs 100 per mscm in gas price.

 

GAIL believes it should be compensated in the form of increase in transportation charges by 1% for every 10% increase in the consumer price index. However, with the gas pool account being replaced by the NE subsidy, GAIL has sought an adequate compensation mechanism for inflation. No decision has been taken on this issue so far. As per international practice and the 1997 Cabinet decision, the consumer price of gas, excluding transportation charges and local tariff, was to be linked to the price of a basket of international fuel oils. Price was to be reviewed at the end of three years (1999-2000) with a view to achieve 100% fuel oil parity over the 4th (2000-01) and 5th year (2001-02). However, the consumer price has remained static at Rs 2,850 /MCM since October 1999. Now with the cost of exploration and production going up, there is no attraction to gas producers to develop existing and new gas fields. Today it is un-economical for ONGC to subsidize gas from JVs. Private parties namely Cairn energy, BG and GSPCL are selling gas at market-related prices while the current producer price of ONGC does not cover even its bare cost of production. In order to ensure grid connectivity, the regulator will issue appropriate directions for operations of any pipeline network existing on the date of this new policy or for which authorisation has been granted and the pipeline is yet to become operational. The role of the regulator will be to regulate transmission, distribution, supply and storage systems for natural gas/LNG.

 

Differential pricing for Natural gas

 

The Petroleum Ministry is considering a proposal of differential rates for Natural gas. The gas produced from non NELP field of ONGC be supplied to Power and Fertilizer plants paying a lower tariff compared to other consumers. Currently, APM gas price is much less than what consumers pay for the gas from private companies and for RLNG from PLL. The proposal seeks nil hike for consumers in the core sectors i.e. Power and Fertilizer while allowing complete deregulation of the price of gas for remaining consumers. The upside of the proposal is that it will find political acceptability since the pricing of gas in core sectors are untouched. The down side is that the ONGC fields are aging and hence production is on the decline.

 

Of the 66 MMSCMD of gas sold to consumers by GAIL, 41.5 % or 27.5 MMSCMD goes to Power, 32 % or 21 MMSCMD to fertilizer and the remaining 26.5% or 17.5 MMSCMD to other than Fertilizer and Power sectors.

 

POWER

 

Generation

 

Kanoria Chemicals plans expansion

 

September 1, 2004. Kanoria Chemicals and Industries Ltd (KCIL) announced a Rs 180 crore (Rs 1.8 billion) expansion plan that will see the capacity of its chlor-alkali plant increase by 76 per cent and doubling of power generating capacity to 50 MW.  The expansion plans that are already underway are expected to attain financial closure by November 2005.  By doubling of the power plant's capacity, the company will be left with excess power of 12 MW which will be sold to Power Trading Corporation. The company expects to sign a power purchase agreement with PTC that will fetch Rs 2.25 to Rs 2.40 per unit. 

 

Himachal sets up another hydel unit

 

September 1, 2004. The Himachal Pradesh government has set up a second hydro-electric power corporation to harness the potential in the Yamuna basin.  According to an official spokesman, the new Pabbar Valley Hydro-electric Project (PVHP) will be a subsidiary of the Himachal Pradesh State Electricity Board (HPSEB). The Pabbar river is a tributary of the Yamuna. A potential of 500 MW in the Yamuna basin has been identified, of which so far only 79 MW has been tapped.  Swed Power, a Swedish power company, has prepared the feasibility report of the 86-MW Sawra Kudu project, which will cost around Rs 400 crore (Rs 4 billion).  This is the second subsidiary of the state electricity board. The government has set up the State Jal Vidyut Vikas Nigam (SJVNL), which is building six hydro projects in the Sutlej basin, including the 1,500-MW project that was completed in May this year.  The Himachal Pradesh government has already approved the agreement on the 400-MW Rampur hydro-electric project to be executed by the state government and Sutlej Jal Vidyut Nigam Ltd. The state government will have a 30 per cent equity in the project, which is expected to cost Rs 2,500 crore (Rs 25 billion). 

 

Nalco inks captive power pact with Gridco

 

September 3, 2004. The public sector National Aluminium Company (Nalco) has entered into an agreement with Grid Corporation of Orissa (Gridco) for sale of excess power produced at its captive power plant (CPP). The term of the agreement is for five years.  Nalco, at present, has a 960 MW captive power plant and it intends to increase the capacity to 1200 MW under second phase expansion programme. The new agreement replaces an earlier arrangement earlier under which Nalco, on an average used to sell 40 million unit power to Gridco every month.  Though the public sector unit was not happy with the payment records of the state unity with the arrears bills mounting, Nalco did not have any other option but to sell power to Gridco as the latter was the sole licensee for trading bulk power in the state and third party sale of power was not allowed under previous laws.   Constraints in third party sale of power were removed with the new electricity Act, 2003, coming into force recently. This had encouraged the aluminium major to look beyond Gridco for sale of surplus power to avoid payment problems. 

 

Nalco agreed to sell its surplus power to Gridco after the latter made a commitment to make regular payment towards power purchase and also assured incentives to the company on operating its captive power plant at a higher PLF. Increase in the PLF of Nalco will immensely benefit the state utility which is exporting nearly 700 Mw power to other states.  While Gridco is buying Nalco power at Rs 1.05 per unit, it is selling the same at Rs 2.50 per unit. As per the new agreement, Gridco will pay Nalco Rs 1.10 per unit for the first 40 MU as against Rs 1.05 per unit paid earlier. It will pay two paise more per unit for the next 20 MU.

 

Reliance Energy to enter EPC

 

September 6, 2004. Reliance Energy, is now set to mark its foray in the engineering, procurement and construction (EPC) business of the electricity sector. The company has bagged a Rs 2,200 crore (Rs 22 billion) turnkey EPC contract for the 600 MW Yamunanagar power project in Haryana, beating domestic power equipment major Bhel in a competitive bid tender.  Reliance will be sourcing the generators and turbines for the power plant from Dongfang Electricity, the Chinese power EPC major that recently won a bid in West Bengal. While Reliance Energy put in a bid to develop two units of 300 MW at Rs 3.67 crore (Rs 36.7 million) per MW, Bhel, the only other contender, had quoted Rs 3.92 crore (Rs 39.2 million) per MW for two units of 250 MW each. On a like-to-like basis, Reliance's bid is understood to be lower by Rs 150 crore (Rs 1.5 billion). Haryana Power Generation Corporation had called the bids for 2x250 MW units with a flexibility to bid for 20% excess capacity.

 

Reliance's decision to procure bulk of the equipment from China only reinforces the emerging trend that domestic equipment companies may be forced to rework their costs to remain in the fray. Lower EPC costs translate to lower power tariffs for consumers, as EPC costs account for almost 80% of the project cost.  The EPC contract value for Mejia (West Bengal) and Paril (Maharashtra), which were given on a nomination basis to Bhel recently, is significantly higher than the Haryana bid. Senior officials in the power ministry said that EPC turn key contracts were usually in the range of Rs 4 crore (Rs 40 million) per MW in thermal projects.  Reliance Energy's foray into the EPC business will lead to vertical integration for the power company as it moves on to generation, transmission and trading. Among the larger projects where Reliance is expected to bid are some of NTPC's power plants. Although, Reliance is sourcing the equipment from Dong fang for this project, the company plans to keep its options open for other projects.

 

India opts for Chinese power equipment

 

September 6, 2004. Dongfang Electric, which is one of the largest power equipment manufacturers in China, will be bidding for new power projects to gain a foothold in the power generation market in India.  The company is planning an office in Kolkata that will scout for projects in the sector. It is also working on a project with the power generating arm of the West Bengal government.  A clutch of power projects are lined up in West Bengal, including the two 250 mw units at Budge to be set up by CESC. Dongfang Electric has been selected for two projects on account of its cheap offer. It has promised to build power plants at a little over Rs 3 crore (RS 30 million) per mw against the industry rate of around Rs 4 crore (Rs 40 million) per mw. The company corners around 33 per cent share of the thermal power segment and 40 per cent of hydel power in China. It is one of the largest power equipment manufacturers in China. 

 

In West Bengal, Dongfang Electric has been selected for the Rs 2,100 crore (Rs 21 billion) 2X300 Mw power plant project of the West Bengal Power Development Corporation (WBPDCL) at Sagardighi and a Rs 1,080 crore (Rs 10.8 billion) 300 Mw power plant for Durgapur Projects. Both companies handed over a letter of intent of Dongfang Electric recently.  Dongfang Electric officials said it was among the top 100 largest international contractors listed by the US. The company's generating equipment had installed capacity of 10,000 Mw. Dongfang Electric can produce large thermal power generating units of 300 Mw and 600 Mw capacity, and water turbine generator sets of 400-550 Mw in batch quantity. It possesses the technology for 700 Mw water turbine generators and 1,000 Mw nuclear power units as well, according to company executives.

 

Coal shortage trips thermal plants 

 

September 6, 2004. Thermal power plants are facing serious problems in coal supplies from mines of North-ern Coalfields, Eastern Coal-fields and Mahanadi Coalfields. The power ministry estimates that these plants would face an average shortfall of 10.66 million tonne per annum in the last three years of the Tenth Plan.  The ministry has estimated that out of 18,300 mw thermal generation target across the country, about 16,000 mw would be achievable during the Tenth Plan period. There was no report of generation loss on account of coal shortage till December 2003. But there was a loss of generation of 1.1 million units (mu) during February 2004 at IP Station at Delhi, 13.42 mu during January and February, 2004 at Paricha thermal power station and 9 mu during January 2004 at Santhaldih TPS. Besides, NTPC's various power plants had to operate under partial load conditions as a result of short coal supplies. The coal stocks in power plants are fast depleting since short supply leads to more use of stocked coal.

 

The average stock available during 2002 was sufficient for 22 days. This figure has come down to 11 days at present. The power ministry sources said coal supplies to most of NTPC's pit-head power plants are not keeping pace with their requirements. The depletion during April-July 2004 was severe. For instance, Singrauli STPS recorded a 3.5 lakh (350,000) tonne depletion. Similarly, the figure for Rihand STPS stood at 2 lakh (200,000) tonne, Vindhyachal STPS 4.3 lakh (430,000) tonne, Talcher STPS 4.50 lakh (450,000) tonne and Korba 1.5 lakh (150,000) tonne. Power ministry officials said thermal power plants in the country received only 89 per cent of the total allocation to them during 2003-04. This led to increased dependence on coal stocks. Another major challenge for the thermal power plants is of an anticipated spurt in growth during last year of the Tenth Plan. It is expected that more than 64 per cent of the coal-based capacity addition would take place during the period. This would translate into a sudden increase in demand for coal. The option for coal import is considered not viable in the long term due to commercial and technical reasons.

 

Transmission / Distribution / Trade

 

NTPC plans to import LNG

 

September 3, 2004. National Thermal Power Corp plans to import 1.5-2 million tonnes of LNG to meet fuel deficit at its power plants and is in talks with Petronet LNG Ltd and Royal/Dutch Shell for hiring their facilities for regasifying the imported fuel. NTPC has written to Petronet, RasGas of Qatar, Petronas of Malaysia, Yemen LNG and Oman for 7 to 9 million standard cubic meters per day of gas to meet the fuel deficit at its Anta (Rajasthan), Auriya (UP), Kawas and Gandhar (Gujarat), Dadri (UP) and Faridabad (Haryana) power plants.  The state-run power utility plans to source 6-7 mmscmd of LNG on 'cif' basis (supplier making arrangements to ship the gas in liquefied form) for a period of three years. NTPC is already in talks with Petronet LNG and Shell to use their storage and regasification facilities at Dahej and Hazira. Though the nameplate capacity of Dahej terminal is 5 million tonnes, the plant can process upto 6.25 to 6.5 million tonnes of LNG a year. Mathur said Petronet will offer its regasification facilities on tolling basis to other firms like Torrent Power and those in the fertilizer sector who wish to import LNG on their own.

 

Power and fertilizer industry feels that the $2.60 per million British thermal units (mBtu) cif price of LNG Petronet imports from Qatar was too high and they can get LNG at cheaper rates.

 After regasifying and adding transportation cost and margins, the delivered price of Petronet LNG to customes is $4.8 per mBtu, while power and fertilizer plants want to be around $3.5 per mBtu.

 

GAIL’s power proposal approved 

 

September 4, 2004. The ministry of petroleum has given a go-ahead to GAIL (India) to diversify into the power sector. This comes at a time when ambitious diversification plans of all state-owned oil companies are under scrutiny by the petroleum ministry. GAIL's entry into the sector would, however, be subject to it holding at least 26 per cent equity in a project so that it has a veto power in the board. Besides, GAIL will restrict its participation to gas-based power projects. Thirdly, it should be the fuel supplier for the project and most importantly, not insist on being the operator. Officials disclosed that GAIL's participation as the strategic partner in the proposed 1,000 mw plus Bawana power project (likely to come as a joint venture project with Tata Power and the Delhi government) was approved by the company's board. 

 

At present, GAIL holds a 12.5 per cent stake in a power project being developed by Gujarat State Gas Company. It has also signed a development agreement with the Tata-BP consortium to jointly take part in evaluating the Dabhol gas and power project.  In addition, GAIL is pursuing revival of Ennore LNG project, which too has a 1,050 mw linked power project. GAIL has initiated talks with the AV Birla group to pick 26 per cent stake in the Ennore LNG import terminal-cum-power project in Tamil Nadu.

 

The Dakshin Bharat Energy Consortium (DBEC), comprising Grasim Industries (an AV Birla Group company), CMS Energy, Unocal, Woodside Petroleum and Siemens Project Ventures, had been awarded the letter of intent (LoI) for the project. However, the project did not take off for want of payment and demand security.  The equity participation would give Gail an opportunity to grow its business besides widening the acceptance of the use of gas as a fuel for power stations. Such long-term fuel supply agreements would bring stability to the company's balance-sheet at a time when competition in the gas sector appears to be growing.

 

CERC draft norms for transmission licences 

 

September 4, 2004. Companies intending to move into inter-state power transmission may need to have a net worth equal to the estimated annual transmission charges. They must make public details of shareholding pattern and management profile. These conditions are part of the draft regulations issued by the Central Electricity Regulatory Commission (CERC). The draft guidelines are in pursuance of the requirements of Electricity Act 2003 which empowers CERC to specify any general or specific conditions applicable to transmission licensees. The guidelines also require that the applicant publish his application within seven days of making such application in at least one English daily newspaper and one vernacular. The company would be required to furnish details such as shareholding pattern and management profile of the applicant, location of transmission lines and sub-stations, long-term customers of the transmission project, etc.

 

Another important point is that companies would charge according to CERC tariff notification. However, CERC would adopt the tariff if it is determined through transparent process of bidding in accordance with the guidelines issued by the central government. The licence fee for the construction period shall be Rs 1 lakh (Rs 100,000). However, after commissioning of the project, the annual licence fee would be 0.1 per cent of the annual transmission charges subject to minimum and maximum of Rs 1 lakh (Rs 100,000) and Rs 1 crore (Rs 10 million), respectively. The transmission licence would be valid of 25 years from the date of issue unless revoked earlier. The terms and conditions of the licence may be amended by the commission in the public interest or on an application made by the licensee following the procedure outlined in the Act. The applicant company need not possess relevant technical experience but it has to deploy personnel with relevant experience. The licence may be revoked in the event of defaults or violation of any of the terms and conditions of the licence.

 

Policy / Performance

 

Mega power producers may have to sell 25% to more than one State

 

September 1, 2004. The Government is planning to make it mandatory for ‘mega' power producers to sell a minimum of 25 per cent of their project capacity to more than one State. The move, which the Power Ministry is in the process of piloting as a Cabinet note, is aimed at minimizing the risk perceived by financial institutions (FIs), which fund 70 per cent of the project cost. The risk for generation companies is intrinsically high since power is being sold to State electricity boards and their successors, whose ability to pay for power is suspect owing to lack of adequate reforms. The FIs have sought this comfort of a minimum 25 per cent offtake by another State, as this distributes the risk posed by an otherwise single buyer. The current mega power policy allows a power producer to qualify for the `mega' status even if it sells one megawatt to another State, which FIs see as an inadequate safeguard.

 

Projects with a minimum capacity of 1,000 MW in the thermal or gas generation business or 500 MW in the case of hydel projects qualify for the `mega' project status, which allows them Customs duty waiver that reduces the tariff by around 10 paise per unit, thereby making the power price more competitive. Although, no ‘mega' power projects have been commissioned as yet, several are in the pipeline. The proposed policy move has interest of Power Trading Corporation (PTC), a publicly traded company and the market leader in the power trading business. This is because power producers are comfortable in doing business with PTC, which has an enviable track record in ensuring payment for power sold by them. According to PTC several ‘mega' producers have already made enquiries and in one case, an MoU has already been signed. PTC, which sold 11 billion units of power (2 per cent of the country's power generation last fiscal), is in the process of contracting long-term power sale deals.  The Torrent Group has entered into an MoU with PTC for long-term power sale from its proposed 1,050-MW Akhakhol project in Surat. The Cabinet note also seeks to dilute the pre-conditions for qualification for the incentives under the mega power policy. Currently, the State purchasing power from a ‘mega' power project must allow the power generator access to the Central Plan Allocation in the event of default in payment of power bills. 

 

Govt clears Reliance’ FDI proposal

 

September 3, 2004. The government has cleared a proposal from Reliance Energy to bring in foreign direct investment (FDI) worth Rs 450 crore (Rs 4.5 billion) in power generation, distribution and transmission. The proposed investment is to come from Aranda Investments of Mauritius. The Reliance Energy project was among 48 FDI proposals, entailing an investment of Rs.793 crore (Rs 7.93 billion), which were cleared recently by finance minister P Chidambaram. The Rs.450 crore (Rs 4.5 billion) being invested by Aranda of Mauritius amounts to 50% stake in Reliance Energy project.

 

 

INTERNATIONAL

 

OIL & GAS

 

Upstream

 

Petrobras to start developing light-oil field

 

August 31, 2004. Brazil's' state oil company Petrobras said it has confirmed as viable a reserve of 76 million barrels of light oil, rare for Brazil, and will start developing the field. The company planned to install a temporary production unit at the field to start pumping crude from the SEAL-100 block in the Sergipe-Alagoas basin in less than a year's time. The crude is 41-43 grade on the API scale, which is much lighter than the oil normally found in Brazil. A year ago, Petrobras reported several light oil finds with total estimated reserves of some 1 billion barrels. The Sergipe-Alagoas reserve was then estimated to contain 150 million barrels.

 

Husky oil signs oil sands development deal

 

August 31, 2004. Husky Energy Inc. gave a C$290 million ($221 million) design and build contract to SNC-Lavalin Group Inc. and PCL Industrial Management Inc. for Husky's Tucker oil sands project in northern Alberta. SNC and its co-partner PCL will work on the central plant facilities of the Tucker project, expected to be finished in 2006.

 

Iran, Venezuela to expand oil cooperation

 

September 1, 2004. Oil Minister Bijan Namdar Zanganeh and Venezuelan Minister of Foreign Affairs Jesus Arnold Perez in a meeting here discussed ways of bolstering oil cooperation between the two countries. A report released by the Public Relations Department of the Oil Ministry said that in the meeting, Zanganeh congratulated Perez on the victory of President Hugo Chavez in the recent Venezuelan referendum and referred to Venezuela as a friendly country in view of following policies quite similar to those of Iran, as a member of OPEC. Turning to the growing trend of the oil industry, he announced Iran's readiness for bolstering of bilateral relations in various economic, industrial and technological fields, in particular in oil, gas and petrochemical sectors. For his part, Perez referred to industrial and economic developments in Iran as an indication of the country's potential in favorable planning and organizing. At the end of the visit of Perez to Iran, he and his Iranian counterpart, Kamal Kharrazi, signed an agreement on establishment of Iran-Venezuela Joint Commission.

 

Colombia to load 3 mln bbls of sour oil in Oct

 

September 1, 2004. Colombias state oil firm Ecopetrol will load six cargoes of its sour crude Vasconia for export in October for a total of 3 million barrels. All six cargoes will be 500,000 barrels. That is about the same as the September program, but much more than what it exported in the spring. Its April export program, for instance, consisted of only three cargoes. Ecopetrol will market three of the October cargoes, while U.S. independent refiner Valero Energy Corp. VLO.N will sell two and Brazils state oil company Petrobras will sell one, traders said.

 

TransCanada, Petro-Canada to build LNG plant

 

September 1, 2004. Two of Canada's biggest energy companies, TransCanada Corp. and Petro-Canada Inc., plan to build a liquefied natural gas plant in northeastern Quebec to meet North Americans' growing demand for the fuel. The two Calgary-based companies announced they had struck a joint venture deal to build the Cacouna Energy plant in Gros Cacouna, northeast of Riviere-du-Loup near the Quebec border with New Brunswick.  If approved by regulators, the plant would begin operating in about two years. The proposed TransCanada-Petro-Canada plant would be capable of receiving, storing, and regasifying liquefied natural gas with an average annual capacity to send out about 500 million cubic feet a day of natural gas. TransCanada would operate the plant, while Petro-Canada which is also in talks on a proposed liquefied natural gas plant for Russia will supply the gas.

 

In Canada, LNG plants are being developed in the Maritimes by Irving Oil and Anadarko Petroleum Corp. Meanwhile, Quebec's dominant natural gas distributor, Gaz Metro, and partners Enbridge Inc. of Calgary and Gaz de France, have proposed a 2.7 billion Canadian dollar ($2.1 billion) project for a deepwater port and liquefied natural gas terminal near Quebec City.  In the United States, seven to 10 new terminals are needed by 2025.l Petroleum Council, which studied the issue for the U.S. Energy Department.

 

Ecuador to auction 1 billion barrel oil field in 2005

 

September 2, 2004. Ecuador will seek an operator for its 1-billion barrel Ishpingo-Tambococha-Tiputini oil field in an auction in the second half of 2005, the government said. The Amazon jungle field known by its initials ITT will require investment of $4 billion to get going and could produce 165,000 barrels of heavy crude per day, according to the government. Ecuador produces about 513,000 bpd of oil, its greatest source of export income, but it needs foreign investors to provide the resources and infrastructure to develop fields like ITT. One of Ecuador's richest fields, it lies 235 miles (375 km) east of the Andean mountain capital Quito.

 

Mexico bets big on offshore

 

September 3, 2004. Mexico's state-owned oil monopoly, Petroleos Mexicanos, may get more than a third of projected crude output by 2006 from 47 offshore platforms now under construction, according to a government report. The wells will pump as much as 1.5 million barrels of oil a day in two years, or about half the company's current output, helping make up for declining output in older oil fields. Pemex, as the company is known, awarded contracts this year worth about $600 million to build the first 20 wells in the Gulf of Mexico. The new wells are part of Pemex's plan to increase production to 3.8 million barrels a day in 2005 and 4 million by the end of Fox's term in 2006. Mexico, the world's fifth-largest oil producer, pumped an average of 3.36 million barrels of crude a day in July, down from 3.44 million barrels per day in June.

 

The 47 new wells will also produce about 1.4 billion cubic feet of natural gas per day, according to the report.

 Fox, in his annual address at the lower house in Mexico City, said exploration efforts in the Gulf may help double Mexico's proven oil reserves. Mexico's proven reserves of crude oil and condensate liquids, such as liquid gas, fell to 16 billion barrels at the end of 2003 from 17 billion a year earlier. Mexico's proven reserves, underground reservoirs of oil that have been confirmed, would last the country about 12 years at current production. Discovery of a rich oil field would help end a 22-year decline in reserves in Mexico, where Pemex has pumped more oil each year than it discovers.

 

More capacity needed to cool oil prices: IEA

 

September 5, 2004. An extra three million barrels per day (bpd) of production capacity world-wide is needed to avoid another year of blistering oil prices, Claude Mandil, executive director, International Energy Agency (IEA), said. It expects oil demand to be around two million barrels per day more in '05 against the average in '04 so three million barrels per day of additional capacity is required globally to avoid another year of high prices.  The IEA has calculated that a $10 increase in oil prices would cause global GDP growth to contract 0.4%.  Saudi Arabia is the only Opec producer with any significant spare capacity. The Opec cartel is already pumping near 25-year high. A latest survey showed total August output from Opec rose 100,000 bpd to 29.6m bpd. Saudi Arabia raised supply to 9.5m bpd, up 250,000 bpd. Cartel production is near its highest since December '79, just below the 29.8m it pumped in November '00. Surging oil prices were not changing the attitudes of oil companies on investment in new capacity, who continued to take a conservative $20 view of prices.

 

Downstream

 

Chinese oil firm seek stake in Nigerian refinery, oil blocs

 

September 3, 2004. Chinese National Oil Company expressed readiness to participate in the operation of Nigeria's refineries as well as new oil blocs in the on-shore or deep off-shore areas. The company is happy to be given opportunity to participate in the development of the oil blocs and in taking up stakes in the nation's refineries being privatized.  Series of reforms in the Nigerian oil sector were directed at achieving overall development of the industry, by reaching a 4.1 million barrels per day production capacity, 36 million barrels in recoverable reserve and stamping out gas flaring by 2006.

 

Israel's oil refineries to buy Yam Thetis gas

 

September 5, 2004.  Israel's Oil Refineries Ltd has agreed to buy natural gas from U.S.-Israeli energy consortium Yam Thetis for its southern plant in a deal worth between $75 million and $120 million, a shareholder in Yam Thetis said. Israeli energy and real estate conglomerate Delek Group said in a statement to the Tel Aviv Stock Exchange Yam Thetis will supply state-run Oil Refineries' Ashdod plant with between 0.8 to 1.3 billion cubic metres (bcm) of gas. The amount to be supplied, and the value of the deal, depended on the construction of a new gas-fired power plant there. If the plant was not built, Oil Refineries would buy 0.8 bcm of natural gas. The agreement was either for 10 years or until the amount was supplied.

 

The Yam Thetis consortium, which is developing natural gas fields off Israel's southern Mediterranean coast, consists of: Samedan Oil Corp., a subsidiary of Noble Energy Inc  Avner Oil Exploration and Delek Drilling , which is owned by Delek Group. State-owned Israel Electric Corp. signed an agreement in 2002 with Yam Thetis for the supply of 18 billion cubic metres of gas over 11 years, starting from 2003.

 

Transportation / Trade

 

China’s East-West pipeline opens

 

September 3, 2004. State media reported that China will officially open its west-east pipeline, starting the flow of natural gas from the far west to the fast-growing east. The pipeline, built at a cost of US$4 billion (S$6.9 billion) to US$5.2 billion, will transport 12 billion cubic metres annually from the Tarim Basin in the north-western Xinjiang region to the Yangtze Delta region in the east. The Tarim Basin boasts a gas reserve of 8,400 billion cu m. It is estimated that its total verified geological gas reserve will exceed 10 trillion cu m by 2010. The pipeline will guarantee a stable gas supply for at least 30 years.

 

BP seeks bids to supply 5 LNG ships for Indonesian gas project

 

September 2, 2004. BP said it's seeking bids from Indonesian shipowners to supply five liquefied natural gas ships, valued at about $850 million, to carry the fuel from its proposed Tangguh plant in West Papua.  PT Humpuss Intermoda Transportasi, a shipowner controlled by Hutomo Mandala Putra`Tommy’ Suharto, the imprisoned son of former Indonesian President Suharto, and PT Samudera Indonesia, the nation's largest container line, are among the companies that may bid to supply the ships. 

 

BP's $5 billion Tangguh project, which will start in 2008, may boost orders at shipbuilders such as Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. Shipyards have received orders for 39 LNG carriers this year, double last year's total, as companies including London-based Golar LNG buy new vessels to meet surging demand for the fuel.  BP is seeking ships to carry gas from Tangguh to customers including South Korea's SK Corp. and Posco. BP also expects to sign an agreement this month to supply the fuel to Sempra Energy, which is building an import terminal in Mexico. 

 

Hongkong Electric to enter gas distribution in UK

 

September 1, 2004. Hongkong Electric, the power flagship of tycoon Li Ka-shing, is in talks to enter Britain's gas-distribution business for the first time by acquiring part of Cheung Kong Infrastructure's (CKI) stake in a network of gas mains in the north of England. CKI holds 38.9 per cent in Hongkong Electric, which currently only has overseas investments in the power sectors of Australia and Thailand. Cheung Kong Infrastructure announced that it was seeking to introduce new shareholders by reducing its 69.8 per cent stake in a network of 36,000 kilometres of gas pipelines in north England to less than 50 per cent before the deal closes by the beginning of April 2005.

 

British power and gas giant National Grid Transco agreed to dispose of its northern England gas mains to the Gas Network consortium for more than  1.39 billion (HK$19.44 billion) in cash. Cheung Kong Infrastructure's partners in the consortium are the privately held Li Ka Shing (Overseas) Foundation, which holds 15.2 per cent, and British water company United Utilities, with 15 per cent. United Utilities denied it was interested in raising its stake in the deal.

 

BHP unveils plans for Australian LNG plant

 

September 2, 2004. BHP Billiton unveiled plans for a multi-billion dollar liquefied natural gas (LNG) plant in Western Australia to supply the U.S. west coast or Asia. The plan would tap a further 8 trillion cubic feet of Australia's estimated 150 trillion cubic feet of gas reserves for delivery to the world's number one energy consuming nation and fast expanding Asia. Australia-based BHP, the world's biggest diversified mining company, said the offshore Scarborough gas field would supply the first BHP-operated LNG plant at Pilbara, around 4.5 km (2.8 miles) southwest of Onslow in northwest Australia. The project is near the existing giant North West Shelf LNG venture, which is set to start supplying China from 2006 under a $25 billion, 25-year deal.

 

BHP has a one-sixth interest in the North West Shelf development, operated by Australia's top oil and gas firm, Woodside Petroleum Ltd. LNG is natural gas compressed until it liquefies for easier transport. It is sent in special ships to markets were it can supplement or replace gas brought via pipelines.

 

Shell awards Saipem Soku LNG plant expansion EPC contract 

 

September 2, 2004. Shell Petroleum Development Co. of Nigeria Ltd. awarded Saipem a 120 million euro contract for debottlenecking the Soku LNG gas supply plant facilities in Nigeria. Saipem will perform engineering, procurement, and construction of additional facilities at the plant to increase capacity and improve operability. Completion is expected in second half 2006.

 

BBL awards Saipem North Sea pipeline contract 

 

September 2, 2004. BBL Co. awarded ENI SPA's unit Saipem SPA, Milan, a 100 million euro contract to install 230 km of 36-in. natural gas pipeline across the North Sea from Callantsoog, Netherlands to Bacton, England, a short section of onshore pipeline at the Dutch entry point, and associated tie-ins and landfall work at Bacton. Saipem's Castoro Sei pipelay vessel will install the pipeline between the second and third quarter 2006. BBL Co. is a joint venture of NV Nederlandse Gasunie 60%, Ruhrgas AG's unit E.ON Ruhrgas 20%, and a subsidiary of Belgium's Fluxys 20%.

 

Policy / Performance

 

California regulators approve gas flows from Mexico

 

September 2, 2004. The state Public Utilities Commission voted to allow liquefied natural gas to be shipped from Mexico through California pipelines for use in Western states. The PUC decided to allow Sempra Energy and Shell to create a border point where LNG would move from Mexican to U.S. pipelines. The commission voted against a proposal to delay its vote so the economic and environmental effects can be studied. LNG carries advantages for companies in cost and increased transportation capacity, but it also is extremely volatile. In January, an explosion at an Algerian LNG plant killed 27 people. Nevertheless, several companies have been considering establishing facilities for the fuel in California. San Diego-based Sempra and Shell have won Mexico's approval to build a new plant at Costa Azul, about 55 miles south of the border, to process up to 1 billion cubic feet of liquefied natural gas daily when it opens in 2007.

 

Diesel and kerosene price hike in the Philippines

 

September 4, 2004. Petron Corp., the country's largest oil refiner, raised its prices for gasoline by 30 centavos, diesel and kerosene by 45 centavos, and liquefied petroleum gas (LPG) by P1 per kilo.  The publicly-listed oil firm, partly owned by the government through the Philippine National Oil Co. (PNOC), followed the moves of Pilipinas Shell Petroleum Corp. and small independent oil players, which increased their prices by the same level early this week. It was learned that Caltex Philippines Inc. also raised prices but opted not to announce the price hike to the public.

 

Call for New Zealand to import LNG

 

September 4, 2004. Major energy companies call for New Zealand to import liquefied natural gas to make up the shortfall left by the rapidly dwindling Maui reserve. BP has already declared its hand. At the Gas Industry Reform conference in Auckland this week, the oil giant's man in New Zealand, Peter Griffiths, made a compelling case for the fuel, dubbing it "Maui in a can". Others are sure to follow.  Some suggest Contact Energy's recent high-profile public education campaign was designed to soften up the public for the fuel.

 

LNG is capable of filling the gap left by the Maui gas field; it is less polluting than stations fired by coal (the main indigenous contender to make up the shortfall) and LNG supply is as secure as oil, which to be fair is not saying much. It will also allow New Zealand to get the most out of its huge investment in gas infrastructure, such as pipelines and the controversial $520 million Government-backed Genesis station at Huntly. Associated with these advantages are those linked with electricity generated from gas of any provenance: power stations can be built where demand is greatest, minimising investment in transmission lines; gas-powered stations are relatively easy to fire up to cope with peaks of demand, or to take up the slack if the wind does not blow; gas-fired stations are smaller than alternatives and not such a blight on the landscape.

 

POWER

 

Generation

 

AEP to build plant with clean-coal technology

 

August 31, 2004. American Electric Power Co. Inc. said it plans to spend $1.6 billion to build a power plant using a technology that reduces emissions, a move that attempts to address environmental concerns. The Columbus, Ohio, company, the largest coal consumer in the Western Hemisphere, also said a report released by an independent committee of the company's board of directors determined that AEP is "well-positioned" to deal with proposed federal legislation and regulations for reducing regulated emissions and carbon dioxide. AEP is proposing by 2010 to build at least one plant that would be able to produce as much as 1,000 megawatts of power and use a technology that pulverizes coal into gas before burning it, substantially reducing harmful emissions of nitrogen oxides, sulfur dioxide, mercury and carbon dioxide.

 

AEP, which owns the most U.S. power plants, said the technology is known as integrated gasification combined cycle, or IGCC. No decisions on construction timetables or locations have been made.  In the near term, AEP said its plan to invest $3.5 billion in new environmental equipment to cut greenhouse gases in its existing plants is unlikely to be stranded, meaning the money will not end up being scrapped in 10 years because new environmental regulations force them to retire the plants. However, the company may have to invest more after 2010 than the $1.5 billion it currently plans, depending on what happens with proposed regulations. Coal-fired power plants generate about half of the nation's electricity supplies, but few new plants have been built in the last decade because of uncertainty over federal clean air standards. The U.S. Department of Energy estimates the nation will need more than 100 new coal plants by 2025 to keep pace with growing electricity demand.

 

Massive coal-fired power plant to come up in China

 

September 1, 2004. China, grappling with a widening power crunch, is planning a giant coal-fired power project that will generate more electricity than even the massive Three Gorges Dam. Huaneng Group, the parent of Huaneng Power International, aims to build the giant thermal plant with China Power Investment Corp and Huainan Mining Group. The project, to be built in the eastern province of Anhui, is expected to have a capacity of 20,000MW by 2020, outstripping the world's biggest hydropower project being built on the Yangtze River. The Three Gorges Dam will have a capacity of 18,200MW when all 26 generators start operation by 2009. Worried that transportation bottlenecks and a lack of long-term contracts could lead to shortages of the chief fuel for the world's seventh-biggest economy, China's Cabinet recently called for greater industry cooperation.

 

A coal squeeze since late last year has threatened normal operation of thermal power plants and contributed to the worst electricity crunch in 20 years, with China facing a shortfall of 40,000MW this year. Pit-mouth power plants will effectively ease the bottleneck and reduce transportation costs. China's coal production is based mainly in the northern and western areas while most demand is on the eastern coast. But the overloaded railway system can transport only 40 per cent of the coal that needs to be shipped.

 

Clean coal plant projects in the USA

 

September 1, 2004. Consol Energy Inc. and FirstEnergy Corp. are looking at building coal-burning power plants with technologies that could reduce harmful emissions while still meeting electricity needs, the companies said. The announcement came one day after American Electric Power Co. Inc. said it planned to build at least one power plant by 2010 that will use technology that substantially reduces emissions of nitrogen oxides, sulphur dioxide, mercury and carbon dioxide.

 

Coal-fired power plants generate about half of the nation's electricity supplies, but few new plants have been built in the past 10 years because of uncertainty over federal clean air standards.

 

400 MW power plant in Italy

 

September 1, 2004. A subsidiary of Foster Wheeler Ltd. has been awarded a lump-sum turnkey contract by SET for the engineering, procurement, and construction (EPC) of a 400 MW grassroots combined-cycle plant to be built at Teverola, Italy. SET is a project company. Its majority shareholder is Ratia Energie AG, a Swiss utility company, and its minority shareholder is Merloni S.p.A.

 

The terms of the contract were not disclosed, and the booking is included in the second-quarter. 

The plant is a natural gas-fired power station and will produce electricity to be delivered to the Italian National Grid. The power island includes a multi-shaft arrangement consisting of a gas turbine, a heat recovery steam generator (HRSG), and a steam turbine, connected to an air-cooled condenser.

 

U.S. Mirant, Japan firms eye Philippine power plant

 

September 1, 2004. A unit of U.S.-based Mirant Corp is among 22 firms, most of them Japanese, seeking to buy the Masinloc power plant next month, the first major power plant to be sold by the debt-strapped Philippine government.  Mirant Philippines Inc., the largest private power producer in the Philippines, submitted a letter of intent to bid for the 600-megawatt coal-fired power plant in Zambales province on Luzon island. Masinloc is one of 28 plants of state-owned National Power Corp (Napocor) to be sold from October to April 2006 in what analysts say is a key test for the Philippine government as it tries to cut a crippling budget deficit and prevent looming power shortages. Earlier this year, it sold three small hydroelectric power plants. The Philippines, Asia's largest sovereign debt issuer after Japan, hopes to sell the plants and the nationwide power transmission facilities of National Power to raise between $4 billion and $5 billion. Mirant Philippines has several plants in the country, with a total generating capacity of about 2,500 megawatts.

 

Iran’s combined cycle power plant to come on stream next year

 

September 2, 2004. Director of combined cycle power plant project of Yazd noted that the plant will become operational in early 2006. Yadollah E'temadnia added that the project including two gas-fueled units of GE917E type with the capacity of 123.4MW. "The plant's main fuel is gas with the second fuel being diesel," he said.E'temadnia said additional flairs were used in boilers to increase production by turbo-generator."The steam section of the power plant includes two H.R.S.G. horizontal thermal boilers with additional flairs and a turbo-generator with output capacity of 160 MW.

 

China to build 27 more nuclear power plants

 

September 2, 2004. China plans to build 27 nuclear power plants by 2020, a marked increase from the current nine in operation. This would work out to two to three 1,000MW nuclear plants being built annually for the next 15 years, said Mr Zhang Huazhu, chairman of the China Atomic Energy Authority (CAEA). The new plants, alongside existing ones, will be located in the more economically developed south-eastern and coastal regions, such as the Guangdong, Jiangsu and Zhejiang provinces. Nuclear power already accounts for more than 13 per cent of the electricity supply in Guangdong and Zhejiang.

 

A report in July by the World Nuclear Association (WNA), a global industrial organisation promoting the peaceful use of atomic energy, listed Fujian and Shandong as the next two likely provinces to go nuclear with two new plants each. These provinces house a large part of China's manufacturing base but are far from the coalfields in the north or north-west. As a result, they are among the regions worst hit this year by the energy crisis as electricity demand soars and the transportation bottleneck shows little sign of easing. Though several inland Chinese provinces have requested permission to build nuclear power plants as well, comments by the CAEA suggest that the central government is unlikely to accede to such requests. China relies on fossil fuel, mainly coal, to generate about 80 per cent of its electricity, with hydropower and nuclear energy accounting for the rest. Even with 27 new nuclear plants by 2020, this figure is expected to increase only marginally to 4 per cent. There are now 100 nuclear power reactors in six Asian countries - with Japan topping the list with 53 plants and 56 other reactors for research purposes in 14 countries in the region, the report added.

 

17 power projects inaugurated in Iran

 

September 4, 2004. During President Khatami's visit to Yazd Province in central Iran, 17 electricity supply projects have been made operational. Khalil Zaerolhosseini, director of Public Relations Department of Yazd Regional Electricity Company said implementation of 10 distribution projects cost about 35 billion Rls. while seven power supply projects to rural areas were carried out at the cost of 101.512 billion Rls. He also noted that a project for converting Shahid Zanbaq power plant's fuel system to natural gas at the cost of 2.32 billion Rls. was also launched during President Khatami's visit.

 

China to build more hydro electric plants on Yangtze River

 

September 5, 2004. China plans to build four more hydro-electric power stations on the upper reaches of the Yangtze River. The new plants will be built on the middle and upper reaches of the Jinsha section of the Yangtze River, at the border between the southwestern provinces of Sichuan and Yunnan. They will have a combined capacity of 38.5 million kilowatts. Construction will begin next year. The Yunnan provincial government hopes to turn the middle and upper reaches of Jinsha into the country's largest energy production base.

 

Transmission / Trade

 

UK National grid Transco sells four networks

 

August 31, 2004. The British power and gas system operator National Grid Transco PLC said that it has sold four regional natural gas distribution networks for 5.8 billion pounds ($10.4 billion) in three deals. The sales of the networks, which move gas around Britain to residential and commercial distribution points, must be approved by regulators. National Grid said it sold its network in northern England to a consortium led by Hong Kong's Cheung Kong Infrastructure Holdings Ltd. and United Utilities PLC for 1.4 billion pounds ($2.5 billion). Its Wales and western England system will go to a group led by the Macquarie European Infrastructure Fund, which is managed by Australia's Macquarie Bank Group, for 1.2 billion pounds ($2.2 billion). The Scotland and southern England networks were being bought for 3.2 billion pounds ($5.7 billion) by a consortium made up of Scottish and Southern Energy PLC and Canada's Borealis Infrastructure Management Inc. and Ontario Teachers Pension Plan. National Grid will keep four other distribution networks, covering the west Midlands, London, eastern England and northwestern England, reaching a total of 11 million customers. The company's chief executive Roger Urwin said it remains interested in boosting its electricity transmission holdings in America.

 

 

Policy / Performance

 

Japan's Tepco to cut power rates to keep customers 

 

September 6, 2004. Tokyo Electric Power Co. announced that it will lower power rates by an average of 5.21 per cent from Oct. 1. To make possible the first large-scale rate cut since a 7.02 per cent reductionin April 2002, the utility has been striving to hold down capital investment and reduce employees. With power market deregulation to be expanded next April, Tepco hopes that lower charges will entice its customers to stay with the firm. But rival Tokyo Gas Co. and newcomers will likely follow suit and further intensify competition. Tepco said it will lower power rates by 5.2 per cent, or 337 yen a month, for typical households.

 

Cuts for small and midsize factories will come to 3 per cent, while those for offices and other business facilities will be 6.1 per cent to 6.4 per cent. The company will be more generous with volume customers. For example, the rate cut for large supermarkets will be at around 10 per cent because their power market has already been liberalized and there has been intense competition with newcomers. Like other electric companies, Tepco has a quarterly rate adjustment system that automatically reflects fuel cost fluctuations in power rates. Under this system, the firm has decided on a rate hike of around 1 per cent, or 61 yen a month, for typical households from October to reflect high crude oil prices.

 

Syria-Lebanon electricity cooperation

 

September 5, 2004. Meetings of the Syrian-Lebanese Joint Committee for Electricity Affairs will start in the framework of executing the signed agreements between the two countries in a way that contribute in developing joint cooperation in all fields. An agreement on supplying Lebanon with electricity power will be singed during the meeting. Meetings also will discuss projects of sevenfold electricity grid project, particularly the grid between the Syrian and Lebanese electricity network.

 

 

Global Renewable Energy Trends

 

32 MW wind farm to be set up in India

 

September 1, 2004. MSPL Limited, a company involved in iron-ore mining, will set up a 32.40 MW wind-farm project in Karnataka with an investment of Rs 133 crore (Rs 1.33 billion). Rabo India acted as financial advisors for the transaction and also provided part of the project finance through Rabo India and Rabobank, Singapore branch. Rabo India Finance has structured an amortising Rupee and USD project finance facility for the project and this amount will be used by MSPL towards part-financing the wind farm project. MSPL is among the pioneers in systematic and scientific mining in India and is one of the largest exporters of iron ore in India. 

 

Green power grows 12-fold among OECD nations

 

September 1, 2004. The generation of non-hydro green power has grown 12-fold in OECD nations since the OPEC crisis, according to the International Energy Agency.  Geothermal accounted for 6,530 GWh in 1973, says ‘Energy Statistics of OECD Countries,’ of which 2,612 was in North America, 2,506 in Europe and 1,512 GWh in Pacific member countries of the OECD. By 2002, that output had increased to 32,889 GWh, of which North America was responsible for 20,337 while Europe and Pacific countries generated 6,250 GWh each. Solar electric was noted as zero in 1973, but was 680 GWh by 1990, growing to 930 GWh in 2002. Of that output, North American accounted for 626, Europe for 293 and the Pacific for 11 GWh. Solar PV was 361 and solar thermal electric was 569 GWh. Wind, tide and wave collectively generated 559 GWh in 1973, all in Europe, and had grown to 50,143 GWh by 2002, of which 37,370 was in Europe, 11,194 in North America and 1,570 in Pacific countries. In this category, wind accounted for 47,616 GWh of total output. Combined, those renewable energy sources grew from 7,189 GWh in 1973 to 83,962 GWh in 2002. Combustible renewables (biomass) and waste generated 7,152 GWh of electricity in 1973, and was 168,366 GWh in 2002. Of that output, 79,056 was in North America, 60,097 in Europe and 29,213 GWh in the Pacific. Hydroelectricity has always been the major technology in renewable energy, contributing 925,557 GWh in 1973 and rising to 1,300,846 GWh in 2002, lower than the peak of 1,386,618 GWh in 2000. Total generation among OECD nations in 2002 was 9,827,451 GWh.

 

PV sets roadmap in Australia

 

September 1, 2004.  Australia needs a "vibrant national market" for solar if it is to attract a share of the "considerable investment" being made around the world in PV technology, concludes an industry roadmap.  That goal can be achieved by a “long-term policy framework that gives industry confidence to invest, leverages the growing public concerns for the environment and support for renewable energy, and makes good economic sense,” says the ‘Sunrise Vision.’

 

“Such an approach can create a billion dollar PV industry in Australia with significant exports, delivering local jobs and investment, while contributing to significant long-term reductions in Australia’s greenhouse emissions,” it concludes.  “The Australian PV industry is at the crossroads,” with past success driven by the extensive roll-out of PV in off-grid applications, and it is one of only four countries that export PV modules. “Our position in the international rankings has slipped due to reduced competitive advantages, and we now risk losing our place in this growing and dynamic industry.” The PV industry in Australia, as in other developed countries, has been supported by ad hoc government support programs that have created 1,100 jobs and annual sales of Aus$200 million, half of which are exports. Government support has leveraged increasing domestic sales and installed costs have continued to fall.

 

First offshore wave generator supplies power to UK grid

 

September 1, 2004. The first commercial-scale floating wave energy converter is feeding electricity to the UK grid.  The 750 kW Pelamis was developed by Ocean Power Delivery and installed at the new European Marine Energy Centre in Orkney. Development took six years and each turbine can generate sufficient power for 500 homes. Since its launch earlier this year, the Pelamis has undergone extensive sea-trials to test and commission systems prior to installation at EMEC and connection to the grid. In August, an anchor-handling vessel towed the unit into position where it was connected to pre-placed moorings and power was feeding into the grid on the same day. The Pelamis is the first full-scale machine to be installed at the EMEC test centre, which will verify and test the full-scale machines. The unit is 120 m long and 3.5 m in diameter, and weighs 750 tonnes.

 

 

 

 

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