MonitorsPublished on Sep 24, 2004
Energy News Monitor I Volume I, Issue 14
Motive Power: Where will it take us?

The power to move around as and when one likes is probably a basic craving in every human being.  Personal transportation vehicles offer that power to every one who can afford a personal vehicle. But this ever growing thirst for motive power is not cheap at least as far as energy is concerned. 


The US which imports 60 per cent of its oil needs, keeps its oil prices lower than that of water or milk which has resulted in its population being ‘hyper-mobile’. The average American motorist drives 12,000 miles a year which is equivalent to driving to the moon every 20 years.  A typical baby boomer in the US drives or flies more than a million miles in their lifetimes.  Do we want to go the same way?


The share of the transport sector in total commercial energy consumption in India was 43.7 per cent in 1953-54.  This share gradually came down to 19.8% in 1990-91 primarily due to substitution of relatively inefficient steam traction in railways with more efficient traction modes like diesel and electric traction.  But since 1991 the share of transportation in commercial energy has shown an increasing trend standing at 22.94 % in 1996-97.  This is attributed to increase in road freight traffic, a mode which is 6-7 per cent more expensive than freight traffic by rail, as well as increase in consumption of oil products in passenger movement by personal and mass transport modes.  The transport sector in general has become more oil intensive.  Share of oil in energy consumption in transport increased from 38% in 1970-71 to over 98% in 1996-97.  Over 45 % of total consumption of oil is currently accounted for by the transportation segment. 



The urbanisation challenge


Though India is among the least urbanised countries in the world, it has the second largest urban population in the world - around 307 million.  By 2020 more than half of India’s population is expected to live in urban areas.   The process of urbanisation leads to the substitution of commercial energy for non-commercial energy in all sectors especially in the transportation sector primarily through the use of personalised vehicles.  Urban areas use about 80 per cent of commercial energy carriers (such as petrol, LPG, electricity etc) even though urban population share is only 32 per cent.   A major push for an unparalleled growth in personal transport vehicles came with the de-licensing of the auto industry in 1991. About 22 projects involving an investment of about Rs 20,000 crores (Rs 200 billion) were envisaged initially. Completed projects among these have a capacity to manufacture about 300,000 cars.  The sales of these vehicles were projected to be around 5.7 million in 2000-01.  As a result, personalised vehicle use is now growing much faster than that of public transport.  In the four metro cities they form nearly 83 per cent (52% two wheelers & 31% cars).  The share of public transport buses in total number of vehicles actually reduced to just 1.9 % in 1989-90 from 11.5 per cent in 1960-62.  A large share of this fall is also attributed to increase in intermediate personal transport vehicles such as taxis & auto rickshaws. Another reason for the growth of personal vehicles is inadequacy in public transport which is actually more energy efficient.  For example, buses in India consume, on average, about 6 ml of diesel per passenger kilometre while personalised vehicles consume on average about 16 ml of petrol. 



This disproportionate growth of personalised vehicles in India has several implications:


§   Road congestion

§   Reduction in speed

§   Increase in accidents

§   Increased energy consumption

§   Emission of local and global pollutants


Public Transportation: Not motivating enough


Highly subsidised public transportation does not generate adequate surpluses for investment in transportation infrastructure.  While users save on price of travel, cost of congestion, delays, inconvenience and air quality could be more than what they save through lower fares.  Estimating the full cost of travel including congestion, pollution etc and pricing travel accordingly along with promotion of mass transport systems that are energy efficient are policies that will improve personal motive power at minimum social and economic cost.  However just reducing the number of private vehicles will have a detrimental effect on the economic growth a city unless an efficient public transport is put in place first. 


§   Investment in transportation infrastructure without investment in public transportation will only encourage avoidable luxurious travel and lead to unsustainable transport performance.

§   With parallel investment in public infrastructure policies such as road pricing, quota for controlling private vehicle ownership (Singapore model) or Integrated planning for smaller towns that are projected to become megacities in the next 2-3 decades (e.g., Curitaba in Brazil) are necessary.


Skewed ‘Rail-Road’ Mix


Though railways are the most efficient mode of transport the share of railways in total energy consumption is declining.  Inadequacy of the rail network is cited among the many reasons.  This inadequacy has increased dependence on road transport, which consumes about 85 per cent of total transport energy, most of it for passenger traffic.  India thus finds itself in the perverse situation of transport volumes shifting to the road sector, which is 98 per cent dependent on oil - a resource the country does not have enough of.   


According to a World Bank study freight traffic by road is growing at an annual average of 12 per cent compared to less than 2 per cent for rail.  Passenger traffic by road is growing at an annual average of about 9 per cent compared to 4 per cent for rail.

Given the fact that intensity of energy use in freight movement by road is about 6-7 times more compared to traffic movement by rail, the National Transport Committee Report of 1979 had recommended that at least 67 per cent of freight traffic should move by rail by the turn of the centaury; the situation now is the exact opposite.   The rail: road mix, which currently stands at 40: 60, is projected to increase to something like 10:90 by 2020 if the current trend continues.   


Source: Plan Statistics 2002


Road vehicles are also major contributors to high levels of urban air pollution currently experienced in developing countries.  In Indian cities petrol fuelled vehicles – mostly two and three wheelers – are responsible for over 85 per cent of carbon monoxide and 35-65 per cent of hydrocarbons in the air from fossil fuels.   Diesel buses and trucks are responsible for over 90 per cent of nitrogen oxide emissions.   Along with high economic and environmental costs, the transport system in India is often unsatisfactory in terms of quality and quantity which hinders trade and economic development through increased delivery times.  Urban traffic is congested while rural areas are underserved. 


Poor land use planning which fails to match residences with jobs, schools and transport corridors also contributes to the inefficiency.  A switch to greater use of rail or other forms of mass transportation is widely recommended as a valuable way to save transport energy.  The example of Curitaba in Brazil is noteworthy.  70 per cent of the city’s population uses public transport systems that combine an efficient bus network and prudent land use planning.   This is in spite of the fact that per capita automobile ownership is highest in Brazil while fuel consumption per vehicle is the lowest. 


Where do we want to go?


The issue here is not whether or not we need to increase personal motive power - we need motive power for both economic and social reasons. The issue is ‘fuel’ for that power.  Without radical change in our thinking increasing personal motive power through an increase in personal vehicles extending current trends may serve no economic or social purpose.  It will however definitely add to our dependence on oil. 


Team energy ORF

(Views are those of the authors)




Short Term Oil Price Volatility: Transparency Matters


It is hard to predict short term oil market movements, but it is well known that short term price volatility is a fact of life for commodities and that they are irrelevant for long term trends. 


Current oil prices reflect fear, uncertainty and general under-investment in the oil sector.  Uncertainty and fear - triggered most recently by threat of gangsters in Nigeria - have added more than $ 10 to the price of oil.  Nigeria’s oil production is about 2.25 million barrels per day (b/d) which is a small fraction of the 82 million b/d global production.  But a threat of disruption in the supply of that 2.25 million b/d is sufficient to drive oil prices beyond $ 50 per barrel because unlike earlier times no one really knows the extent of excess capacity currently available with the Organisation of Petroleum Exporting Countries (OPEC). 


The margin of spare capacity has been narrowing because key producing countries have failed to upgrade and increase their production capacities to keep up with increasing global demand.  Uncertainty in the volume of excess capacity adds to short term price volatility in oil prices which are already victim of fear of political unrest in producing countries. 


The current refinery capacity constraint has been widely talked about.  In the past 25 years nearly all sectors of the petroleum industry suffered from large amounts of surplus capacity.  After a collapse in the early 1980s refinery capacity has increased substantially partly because refineries were closed in the OECD region and partly because demand growth returned after the 1980 price collapse.   If Asian collapse had not occurred major refining centres would all be running above 90 per cent capacity.  The same is true for global tanker industry and OPEC’s ability to produce oil.  Normally this behaviour is optimally efficient but when demand changes for economic,, political or weather related reasons there is little surplus capacity.  This is compounded by the industry’s decision in the mid 1990s to maintain so called ‘just in time’ inventories. 


Data lags can be as long as 3-6 months for production and consumption in developed countries and much longer for developing countries. The controversy over missing barrels also relates to data uncertainty. The amount of oil that is not accounted for swings a lot touching nearly 2 million b/d on either side.  These uncertainties are much more important for the short term than the long term because they shape the immediate future. 


OPEC quota discipline has always been imperfect as it is profitable behaviour for any member of a cartel to cheat. 


The growing role of developing countries in the oil market with lower physical transparencies is often overlooked as a factor influencing oil prices. A growing percentage of world’s inventories are located in developing countries but there is no measure of them.  Data from developing countries, if collected, is unreliable and suffer from reporting lag. Most data is released only on an annual basis.  Many of these countries, including India, undertake short term policy interventions like changing product price controls or altering subsidies, in the market attempting to influence prices, consumption and imports.


With regard to inventories of developing countries, International Energy Agency (IEA) and Oil Market Intelligence (OMI) use a formula under which consumption data is estimated with a seasonality adjustment and then multiplied by 55 days.  The number 55 is derived from an old Shell study which found that non-OECD inventories held enough oil for 55 days of consumption.  The number has never been updated nor has the dynamic behaviour of the number estimated. 



Oil market volatility is increasing and it is not clear if OPEC has the power to stabilise the markets.  There is no way to make economic growth more predictable or stable.  It is also not possible to expect the private sector to hold expensive inventory to stabilise the market. 


However there is one thing that can be improved which is increasing transparency.  Producing countries can allow outside audit of their production and excess capacity but this is unlikely.  OPEC nations may not yield control over their production which means that quota discipline will always be imperfect.  Consuming countries can improve data collection on consumption and inventory levels solving at least part of the problem. 


(Extracted & Edited from ‘Seeking Stability in the Oil Market by Michael C Lynch)












Sakhalin: OVL Cost over-runs put at $550-850 million


September 22, 2004. ONGC Videsh Ltd (OVL) the overseas investment arm of Oil and Natural Gas Corporation informed the Government that its $1.77-billion Sakhalin oil and gas project in Russia has suffered a cost overrun between $550 million and $850 million. Hence, OVL's total investment in the project has been pegged in the $2.32 billion to $2.62 billion range. So far, OVL has invested $1.3 billion in the project.  The revised cost estimates will pare the internal rate of return to 10-11 per cent, down from the original level of 14 per cent in 2001, when OVL entered the project. The Petroleum Ministry will now approach the Cabinet Committee on Economic Affairs and appraise it of the revised financials of the project. OVL indicated to the Government last November that the project was heading for an $800-million cost overrun.


While final estimates are awaited, OVL officials said the main reason for the cost overrun is the fact that 70 per cent of the machinery for exploration is being sourced from Russia, a mandatory stipulation enforced by the Russian Government. Other reasons for the cost overrun include delay in obtaining clearances from the Russian Government. The oil and gas reserves estimates of the Sakhalin block have been raised significantly since 2001, when OVL decided to participate in the project.  While Exxon Mobil claimed that the estimates have risen by 25-30 per cent, the Russian Oil Ministry pegged it at a more conservative figure between 6 per cent and 9 per cent. Following the upward revision in estimates, OVL expects to get about 2.5 million tonnes of crude each year for 15 years before the field goes on a natural decline besides 2.5 million tonnes per annum for the first five years of production against its loan to Rosneft, the Russian State-owned oil company. OVL will also obtain eight million standard cubic metres of gas per day for 15 years and another eight million in the first five years of production from Rosneft's share. OVL lent Rosneft around $770 million at an interest rate of LIBOR plus 3 per cent when it bought 20 per cent stake in the oil and gas block from Rosneft in 2001.

Massive exploration plan by ONGC


September 22, 2004. The Oil and Natural Gas Corporation (ONGC) is going to launch its biggest-ever exploration drive this winter to secure six billion tonne of oil and oil equivalent gas by 2021. The company will fan out 36 onshore field teams and 13 offshore vessels for exploration with an investment of Rs 3,500 crore (Rs 35 billion).  ONGC has set the target to discover 6 billion tonne oil and gas equivalent which can give 2 billion tonne of recoverable reserve. Of the in-place reserve, four billion tonne will come from deepwater blocks and two billion from onshore and frontier basins.  ONGC has one survey vessel which has an on-board data processing capability. The remaining 12 ships would be chartered for the survey work. The chartering cost alone would come about $ 200 million.  The exercise will not only cover new areas where exploration is at its early phase but also all 115 producing fields to increase output further. ONGC is optimistic on the Sagar Samridhhi, the deepwater drilling project. 


British Gas plans to double investment 


September 23, 2004. British Gas intends to double its investments in India to $1 billion over the next few years and is expected to invest another $278 million in the Panna-Mukta-Tapti fields, where it holds 30 per cent stake. BG Group chief executive Frank Chapman said that the consortium comprising BG, Reliance and ONGC intend to invest around $750 million in the fields in Gujarat. A part of the fund would be allocated for the expansion of Tapti fields. Chapman said the group wanted to expand its geographical presence in India and wanted to enter the power generation business.


BG India would be looking at some cities in Gujarat for setting up city gas networks and was also evaluating the prospects of entering Chennai, Bangalore and Hyderabad for similar projects. The BG Group has identified India and Brazil as the key markets and that some of the best assets in the group’s portfolios were in India.  BG, which had bid for two blocks in the fourth round of New Exploration Licensing Policy would participate actively in NELP 5 when the government is expected to call for bids in December.


PSU oil companies team up to run foreign ventures


September 23, 2004.  The petroleum ministry is in favour of forming a new joint venture (JV) firm in which equity will be held by all PSU oil companies for their ventures abroad. The proposed company will have interests in the entire hydrocarbon chain — from oil and gas exploration, pipeline ventures and downstream businesses like refineries. The proposed JV route will take care of all the interests of the Indian oil companies. Unlike OVL, which today represents ONGC’s interests and investments abroad, the JV Company will represent all stake holders in the oil sector.  The petroleum ministry has also mooted a proposal to form an advisory committee, “synergy in energy” to drive this process of bringing all oil companies together to work towards increasing India’s presence in the global energy market.  Currently OVL has a near-monopoly over India’s energy interests abroad.


India enters in Saudi as service contractor


September 27, 2004. India may soon play a role in the exploration and production business in Saudi Arabia following recent oil diplomacy measures initiated by petroleum minister Mani Shankar Aiyar during his visit to Vienna for the last Opec meet. Saudi Arabia has indicated its willingness to allow Indian oil companies to participate in the upstream business, although as service contractor.  This would be the India’s first time in Saudi Arabia. Indian oil companies would only be allowed to take up work on the exploration fields on contract given out by the national oil companies in Saudi Arabia. For this, the Indian oil firms would be paid a service contract fee. Unlike other countries like Sudan, Vietnam or even Russia, Indian oil companies will not be in a position to strike oil equity in Saudi Arabia. Most of the oil and gas fields in the Opec member countries are controlled by national oil companies which do not share equity with foreign oil countries.




IOC raises $150 million oil import facility


September 24, 2004. Indian Oil Corporation Ltd (IOC), has entered into a loan agreement with HSBC to raise short-term oil import financing facility for $ 150 million.  Another loan agreement for $ 50 million was also signed. The proceeds from these loans will be utilised to finance the oil import requirements of Indian oil.


IOC refining margins soar 


September 24, 2004. Indian Oil Corporation (IOC), the country’s largest oil refining and marketing company, expects its gross refining margin (GRM) to increase from $6.50 a barrel in the April-June quarter to $8 in July-September. The high differential in the prices of crude oil and of petroleum products (the finished product) during 2003-04 ensured good margins for Indian refiners.  The gross refining margins of HPCL & BPCL last quarter (April-June) was about $5.50 per barrel.  The world over, refineries are stretching their capacity utilisation as there has been an increase in oil demand. Demand is expected to be higher by 2.6 million barrels per day in 2004 over levels in 2003. Of this incremental demand, 0.6 million barrels comes from the OECD countries and China accounts for 0.8 million barrels a day. In 2003-04, India’s total consumption of petroleum products was about 107.7 million tonnes, registering a growth of over 3 per cent for the second year in succession after a flat year in 2001-02. 


MRPL to produce Euro-IV fuel by year 2007


September 26, 2004. Mangalore Refinery and Petrochemicals Ltd, a subsidiary of the state-owned gas major ONGC, has stepped up the implementation of its Rs 600-crore (Rs 6 billion) investment plan to produce Euro-IV fuel by 2007, much ahead of the national fuel policy deadline of 2010. In pursuit of this, MRPL is to invest Rs 100-crore (Rs 1 billion) for creating off-site storage facilities and another Rs 150-crore (1.5 billion) on product value addition during the next two years.  The company had finalised plans to carry out capacity expansion to enhance by 3-million tonnes. The current level of production will take MRPL closer to the 12-million tonnes mark this fiscal. In 2003-04, it recorded 104 per cent capacity utilisation against 75 per cent in the previous year. At the current level of capacity utilisation, MRPL should touch 11.6-million tonne production this year.


BPCL ready for forward trading


September 26, 2004. Bharat Petroleum Corporation Ltd plans to begin forward trading in crude oil and petroleum products next month. BPCL has received approval from the RBI for hedging risks in the international crude and petroleum products trade.  The company was among the first Indian oil companies to study risk management options. BPCL obtained its first RBI approval to use hedging as a risk management tool in September 2002. However, it was only earlier this year that BPCL appointed the global consultant firm Accenture as its advisors to put in place elaborate risk management systems.  BPCL has strengthened its 22-member team that conducts physical trades in crude oil and products imports and exports. It will now have 36 people working on forward trading.


IOC's Paradip crude pipeline on the fast track


September 26, 2004. Indian Oil Corporation's Rs 1,178 crore (Rs 11.78 billion) Paradip-Haldia crude oil pipeline is set to become operational by end of 2005, at least 6 months ahead of its scheduled completion in 2006. Environmental clearance for the project is available and the notification process is under way for acquisition of Right Of Way (ROW) for pipeline corridor stretching from Paradip to Haldia. The bidding process has been completed for all major works and purchase orders have been placed.  Gammon India has been entrusted the task of constructing the main pipeline along with Dodsal, a specialist company in laying long pipelines. To accelerate the project execution, an initiative has been taken to form a core group comprising officers from IOC and the Paradip Port Trust (PPT) to leverage the existing port infrastructure facilities. An agreement with the port would be in place before start-up of offshore SPM operations.


The SPM at Paradip will be the first on the East coast and third in the country, with IOC having set up one in Vadinar and Reliance in Jamnagar on the West coast. The IOC project would also make Paradip a major petroleum hub and de-congest the busy ports at Kolkata, Visakhapatnam and Chennai. IOC is implementing the strategic cross-country Paradip-Haldia crude oil pipeline originating from Paradip in Orissa and terminating at Haldia in West Bengal for further conjoining with the existing Haldia-Barauni crude oil pipeline (HBCPL) to maximise the value of the operations of its refineries at Haldia and Barauni, in addition to Bongaigaon Refinery and Petrochemicals Ltd (BRPL) in Assam and future refinery in Paradip. Steps in the process involve setting up the SPM oil terminal in the waters of Paradip Port Trust (PPT) about 20 km offshore and bulk crude oil storage terminal onshore Paradip.

Transport / Trade


Iffco to tap BG, Shell, Petronas for gas 


September 23, 2004. Leading fertiliser firm, Indian Farmers Fertiliser Cooperative Ltd (Iffco), plans to seek gas supplies from the BG Group, Royal Dutch/Shell and Malaysia’s Petronas. It needs 32.5 million cubic metres, or 1.2 billion cubic feet, of gas per day for four power plants of 1,170 megawatts each it plans to build between 2007 and 2013 and to replace costly naphtha with gas as soon as it is available for fertiliser production. The company had floated a tender in June for gas or liquefied natural gas (LNG) from Indian and foreign firms, but did not get a satisfactory response. It received bids from state-run refiners Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL), gas transporter GAIL (India) Ltd, Gujarat State Petronet Ltd, a pipeline firm, and Gujarat State Petroleum Corp, an oil explorer. IOC, HPCL and GAIL have stakes in Petronet LNG, which imports LNG at its Dahej terminal in the western state of Gujarat.


Several power and fertiliser companies, which consume 80% of the gas produced in India, are considering a switch over to LNG from costly naphtha.  India imports 70 percent of its crude oil needs and produces only 65 million cubic metres (2.3 billion cubic feet) of gas a day, less than half its daily requirement.  Petronet LNG set up its import terminal this year with an initial capacity of 2.5 million tonnes and Shell’s Indian unit is expected to commission its terminal by the end of this year.


Indian oil plans piped gas foray 


September 22, 2004. The country’s largest refiner the Indian Oil Corporation (IOC) is planning a foray into the piped gas through a joint venture with Gail India Ltd. The IOC board has informally given the go-ahead for the joint venture which will initially supply piped gas to three cities in Uttar Pradesh. The UP government will hold a five per cent stake in the venture. IOC and GAIL will hold 22.5% each with the balance 50% being distributed between a clutch of institutional an individual investors.  The proposal is for supplying natural gas in three cities in UP Agra, Bareilley and Lucknow. The IOC move comes even as Gail has finalised a joint venture with Bharat Petroleum Corporation Ltd (BPCL) for supply of piped gas in Pune and Lucknow. A similar joint venture Mahanagar Gas formed by British Gas, GAIL and a Maharashtra government undertaking is supplying piped gas to consumers in Mumbai and have moved further to Thane.


NTPC to invite bids for additional gas supply


September 22, 2004. New tenders for supplying additional natural gas to NTPC's Kawas and Gandhar projects will be called on November 15 and December 1. National Thermal Power Corporation Ltd plans to place an order for supplies by March 31, 2005 for gas supplies to NTPC's 2600 MW capacity expansion. The company has already tied up 3 million tonnes gas supplies from Reliance Industries' Krishna-Godavari gas fields for the first phase of Kawas and Gandhar for $ 2.97 per million British thermal units. The company is looking for 2 million tonne LNG supplies at not more than $3 per million Btu.


Approval for multiple gas pipeline players likely


September 22, 2004. The government has proposed to allow competing gas transmission lines on the same route, but intends to put in place guidelines for separating transportation business from other activities of a company.  As per the revised draft of the Gas Pipeline Policy, ‘transportation of gas through transmission pipelines will be on an unbundled basis and any entity desirous of laying transmission pipelines will have to undertake that activity only through a purely transportation company, which will be at arm’s length with the parent company’. The proposed terms of transmission tariff and the time frame required for the completion of the project would also be factored in while taking a decision.  The designated capacity of the pipeline is proposed to be fixed at at least 25 per cent over the capacity required by the agency laying the pipeline and agencies which tie-up for capacity.  The extra capacity will be available on an open access basis. Till the regulatory setup for the oil and gas sector is put in place, the government will discharge the regulatory functions. 


GAIL expert advice for global gas projects 


September 22, 2004. GAIL (India) Limited has offered to share its expertise in cross-country pipeline operations with UK-based companies for major gas pipeline projects in various countries as well as its expertise in retail gas distribution and compressed natural gas (CNG).   Companies in the UK could tap the significant business opportunities in manufacturing and commercialisation of gas-based appliances in India, retail gas distribution projects, gas metering and other related services.  An MoU between GAIL and Society of British Gas Industry (SBGI), would also be signed in this regard.


Sikkim to get LPG connection at lower deposit


September 22, 2004. Petroleum Minister Mani Shankar Aiyar has approved a proposal to extend the benefit of lower LPG cylinder security deposit for new connections to Sikkim.  Sikkim is the only state in the north-east where domestic cooking gas consumers are not getting new connections at concessional rates.  The new LPG customers will henceforth be required to deposit Rs 500 per cylinder instead of Rs 650 per cylinder currently being deposited. The decision would come into effect from October 1. About 10,000 new connections were added in Sikkim in 2003-04. Total number of LPG customers in Sikkim as on April 1, 2004 stood at 78,000.


NTPC opens tender for LNG supplies to Kayamkulam unit


September 23, 2004. National Thermal Power Corporation (NTPC) has opened the tender for 2 million tonne of liquefied natural gas (LNG) supplies for Kayamkulam unit at Allappuzha, Kerala.  At Kayamkulam, NTPC is planning capacity addition of 650 mw in the Eleventh plan and 1,300 mw in the Twelfth plan.  If the cost of LNG was more than $3 per btu (British thermal unit), it will not be viable for NTPC to put a power plant based on LNG and other fuel options such as coal will be considered. 


GAIL sets up overseas investment subsidiary


September 24, 2004. GAIL (India) Ltd has set up a wholly owned subsidiary in Singapore, christened Gail Global (Singapore) Pte Ltd, to undertake overseas investments. The subsidiary will make an investment for acquisition of 15 per cent equity stake in Egyptian National Gas Company (NatGas) one of the largest distributing companies of natural gas in the private sector in Egypt.  After ONGC Videsh Ltd, GAIL’s subsidiary would be the second entity promoted by a state-owned oil or gas company for its foray overseas. The shares will be acquired from Egypt Kuwait Holding Company in Egypt which currently holds 67 per cent of the shareholding of Natgas. Shell, with a shareholding of 18 per cent is another shareholder in Natgas. GAIL has already secured participation in two retail gas companies in Egypt - Fayum Gas Company and Shell CNG. The first dividend from Fayum Gas Company of an amount of $0.56 million has already been received. An investment of $22 million has been made in Egypt.


Gail preferred buyer for Myanmar Gas


September 25, 2004. Commercial gas discovery has been made in the A-1 block in Myanmar with estimated reserves of 6 tcf (trillion cubic feet).  The Ministry for Energy, Government of Myanmar, has confirmed Gail as the preferred buyer for the gas from the A-1 block. The Government of Myanmar is actively considering participation of GAIL in the A-3 block. GAIL is also at an important stage of negotiation with National Iranian Gas and Energy Corporation for finalising the terms to source 5 mmtpa LNG from Iran. GAIL has global business interests in countries such as Egypt, Turkey, the Philippines, Iran, Bangladesh, Myanmar and United Kingdom in the sphere of exploration and production, gas transmission, CNG and city gas distribution, LNG and petrochemicals. As part of its globalisation plans, GAIL is also looking at other African and West Asian countries and is keen to associate with Egypt Kuwait Holding Company and other players in cross-country gas pipeline projects in countries such as Syria, Jordan and Lebanon.


Ministry guidelines on LNG transport restrictive: Shell 


September 25, 2004. Shell LNG has termed the guidelines issued for transporting LNG by the shipping ministry as a ‘restrictive trade policy’, if implemented. It said that it would deprive Indian customers from accessing two-thirds of the global LNG volumes traded on CIF or ex-Ship basis.  The circular protects Indian shipping industry by making the Indian flag mandatory along with Indian ownership of at least up to 26%. It also compels to import LNG only on FOB basis. The guideline carries a huge risk for existing and would-be investors in expanding or building a new LNG terminal capacity. Shell claims that the norms do not provide any incentives for terminals which have been modelled around supplies of short-term traded LNG for supplying emerging markets where customers are unwilling to sign long term contracts. Shell has already embarked on building an LNG terminal at Hazira at an estimated cost of around $600 million. If implemented, this restrictive trade policy carries a huge risk for existing and would-be investors in expanding or building new LNG terminal capacity. The Indian user of LNG would also incur additional costs including the cost of financing LNG carriers, service taxes among others. The ministry is also making attempts to close the door for Cost, Insurance and Freight (CIF) or Delivered ex-Ship (DES) LNG supplies into India by asking the foreign-trade regulator to ban such arrangements, the Shell spokesperson said.


Countering the Shell argument, the Indian National Shipowners Association (INSA) said that it was trying to ensure of Indian ships irrespective of business model adopted. LNG supply contracts worldwide are for longer periods of 20-25 years while Shell is banking on some surplus LNG available for its spot purchase.


FACT signs pact with GAIL for LNG supply


September 25, 2004. Fertilisers and Chemicals Travancore Ltd (FACT) has signed a `heads of agreement' with Gail (India) Ltd for supply of LNG from the proposed terminal at Kochi for FACT's fertiliser and petrochemical units. LNG is expected to be available during 2006-07 and FACT's requirements will be in the order of 0.5 million tonne a year.  GAIL, which would be marketing 60 per cent of the 2.5 million tonne LNG from the proposed terminal to be set up by Petronet LNG Ltd in Kochi had already entered into similar agreements with 10 other prospective buyers last month.  Setting up of the terminal has been pending for the past five years for want of sufficient assured market. A market study conducted by GAIL earlier and the FACT Engineering and Design Organisation (FEDO) recently had shown adequate market for the gas from Kochi.


GAIL considers modular LNG foray


September 28, 2004. GAIL (India) Ltd is working on a strategy to monetise natural gas from small and remote producing fields through LNG route. The company has tied up with an Australian firm, LNG International, in this regard. The foreign partner will carry out a pre feasibility report for monetisation of the gas from PY-3 field, which is located off the coast of Tamil Nadu.  The concept of modular LNG is an emerging option for utilisation of natural gas from small or remote fields, where economics of piping the gas to markets is prohibitively costly. Modular LNG model could have cost advantage as this excludes elaborate and expensive infrastructure associated with traditional model. The Australian company has carried out similar projects in Australia, Indonesia and Malaysia. 


Policy / Performance


Industrial cylinder norms eased


September 22, 2004. The Government has notified the Gas Cylinder Rules, 2004 under the Explosives Act, 1884.  According to an official communiqué, the new rules are aimed at providing efficient and hassle-free Government-industry interface. Some of the salient features of the rules are interchangeability of gas cylinders from one gas to other, self-regulation in less hazardous applications, enhanced life of licences/renewals up to 10 years and delegation of licensing authority to subordinate offices.  The revision of the rules is expected to relieve gases industry from many regulations and reduce the frequency of licence approvals or requirements.


Review of VAT rate on diesel likely


September 24, 2004. The Finance Minister, Mr P. Chidambaram, has given an assurance to the State Finance Ministers that the issue of VAT rate on diesel would be looked into. The Empowered Committee of State Finance Ministers on VAT made a case for pegging the VAT rate on diesel at 8 per cent.  Meanwhile, the Centre is quite confident that the States would get additional revenues from the three Additional Excise Duty (AED), which is imposed in lieu of sales tax on items of sugar, tobacco and textiles as and when the power to levy sales tax on these items is conferred upon the States. The Centre is keen that the additional revenues that may arise to the States from the three items should also be factored in the compensation package that is being worked out for possible losses on implementation of VAT.  The current thinking in the Empowered Committee is that the three AED items should not be brought under VAT in the first year of implementation of VAT from April 1, 2005.






Guj Ambuja to set up  Rs 1.9 billion power plant


September 22, 2004. Gujarat Ambuja Cements has earmarked Rs 190 crore (Rs 1.9 billion) for setting up a 60 mw thermal captive power plant at its manufacturing unit in Ambujanagar in Gujarat. The unit currently draws power from a 54 mw captive power plant based on liquid fuel. The cost of generation has, however, gone up considerably owing to rising furnace oil prices.  The plant will be commissioned in two phases with 30 mw operational by February 2006, while the balance capacity will come up by December 2006. The project will primarily be funded through internal accruals, with a small debt component.


NTPC targets JVs for capacity addition


September 23, 2004. National Thermal Power Corporation is taking the joint venture route for capacity addition. The power company is setting up two 1,000-mega watt (MW) power projects in Tamil Nadu and Gujarat with 50% equity participation by the two respective state electricity boards (SEBs).  TNEB and GEB would pick up a 50% stake in these two power projects.  While the TN project will be coal-based, the Gujarat project is gas-based. The JV in Gujarat is the Pipavav Power Development Company (PPDCL). Another sector where the company is looking at a JV is coal mining to ensure an uninterrupted coal supply. NTPC is also betting on power trading and distribution. For trading, it has set up NTPC Vidyut Vyapar Nigam (NVVN), and for the distribution and supply of electrical energy, the company has formed another subsidiary — NTPC Electric Supply Company.  The company has also set up a wholly-owned subsidiary NTPC Hydro (NHL) to develop small and medium hydroelectric power projects of up to 250 MW capacity.


NTPC is currently setting up power projects of over 8,000 MW, and has initiated bidding for a further 5,000 MW. It has diversified from coal to gas and hydel. NTPC plans to add 9,370 MW capacity during the current Plan. A little over 2,000 MW projects would come up in the hydro power sector. NTPC plans to double its capacity to become a 40,000-MW company by 2012.


Coal shortage at power stations


September 24, 2004. Despite the Cabinet secretary's intervention, six thermal power stations in the country have coal stocks of less than four days, while another 20 are functioning with stocks of less than a week. Stocks of less than four days (super critical) are available at National Thermal Power Corporations (NTPCs) Badarpur station in Delhi, Simhadri station in Andhra Pradesh and Talcher Super Thermal Power Station and Talcher station in Orissa, according to data compiled by the Central electricty Authority. Parli and Dhanau Thermal Power stations in Maharashtra also have super critical stocks of coal.  The stock situation is 'critical' with stocks of less than a week available in another fifteen thermal power stations. These include Bathinda and Lehra Mohabbat in Punjab, Singrauli and Tanda in UP, Koradi, Bhuswal and Paras in Maharashtra and Vijayawada in AP. The coal stocks in Ennore in Tamil Nadu, Raichur in Karnataka, Mejia, Titagarh and Budge Budge in West Bengal are also critical. Thermal power plants are facing serious problems in coal supplies from mines of Northern Coalfields, Eastern Coalfields 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.


Alongside, a coal shortage, which had been building up since November last year, forced power stations to consume out of their stocks, which subsequently dipped to critical levels. The average stock available during 2002 was sufficient for 22 days. This figure has come down to 11 days at present. Power ministry officials said coal supplies to most of NTPC's pit-head power plants are not keeping pace with their requirements. The Cabinet secretariat is monitoring coal stocks in northern India power plants every day, with instructions to the Rail and Coal Ministries that power plants must receive 100 per cent priority for supply of coal.


810 MW capacity addition in West Bengal


September 24, 2004. West Bengal Power Development Corporation Ltd (WBPDCL) has firmed up plans of enhancing its thermal power generation capacity by another 810 MW at an investment of Rs 3,300 crore (Rs 33 billion) in the next couple of years. The expansion would involve setting up a sixth generation unit at Bakreshwar which would generate additional 210 MW. Plans have also been finalised to set up two more units of 300 MW each at its Sagardighi plant. The sixth unit at Bakreshwar would involve an investment of Rs 800 crore (Rs 8 billion) while WBPDCL will have to spend  another Rs 2,400 crore  (Rs 24 billion) for the Sagardighi units. 


At present, WBPDCL was setting up two 300 MW thermal power plants at Sagardighi which is being implemented by Chinese equipment manufacturer Dongfang Electric Corporation (DEC). The contract has already been awarded to DEC and ground work for the projects are on. The project cost for this project however is exceptionally low at Rs 2.7 crore (Rs  27 million) per MW, while the loaded cost of the project stands at Rs 2,100 crore  (Rs 21 billion) translating into a cost structure of Rs 3.6 crore ( Rs 36 million) per MW.  DEC had won the bid on the strength of its lower bid from majors like BHEL. The project is being part financed by Power Finance Corporation at an interest rate of three per cent per annum. The company is also setting up two additional units at Bakreshwar at Rs 1,680 crore (Rs 16.8 billion). This project with loan from Japanese Bank for International Corporation (JBIC) will be implemented by a consortium formed by Itochu and Bhel which emerged the sole bidder after Marubeni Corporation backed out from the race. Letter of intent for the project has recently been handed over to the consortium and it is likely to commence the project in the next few weeks.

NTPC eyes fuel security with captive sources 


September 28, 2004. National Thermal Power Corp (NTPC), the country’s largest power generating company contributing nearly 27% of the power generated in 2003-04 fiscal, is trying to obtain captive fuel sources as a part of its strategy to ensure fuel security. It has already applied to the Union coal ministry to allot coal blocks for captive use. NTPC’s installed capacity as on March 31, 2004, was 21,435 mw. It generated 149.2 billion units during 2003-04 fiscal using 13 coal-fired and seven gas-fired power stations. It also runs three joint venture projects with a total capacity of 314 mw and manages a 705 mw station owned by the government. The company is planning to double its capacity to 40,000 mw by 2012, which will also enhance its fuel consumption two-fold. But it is totally dependant on outside sources for fuels: entire 95 million tonne (mt) of coal it consumes annually is sourced from subsidiaries of Coal India Ltd (CIL) and Singareni Collieries Ltd, while six of its gas supply contracts are with GAIL (India) Ltd.


Transmission / Distribution / Trade


CESC in power supply deal with PTC


September 28, 2004. To cope with the increased demand in the forthcoming festive season which starts next month, RPG Group Company and power utility CESC Ltd has entered into an agreement with PTC India for power purchase to service peak hour demand. The agreement entails supply of power by PTC for 12 hours a day from 11 am in the morning.  This was for the first time that PTC has managed to strike a deal, where a trading company is supplying power directly to an embedded customer of a state power system. This has been made possible through open access to the state’s system under the enabling provisions of the Electricity Act 2003.


The cost of power being supplied to the power utility would be around Rs 2.6 per unit on an average and would generally be peak demand price and would be marginally lower than price offered by West Bengal State Electricity Board. He also said that the company was looking at consuming 50 mw of power daily for the next few months. With a plant load factor as high as 96 per cent, CESC, at present, is not in a position to meet increased demand with improved PLF.  Although it has firmed up expansion plans, it will have to keep buying power from either PTC or West Bengal State Electricity Board until its new 250 mw Budge Budge plant starts generation. The trading activities undertaken by PTC include long-term trading of power generated from long power projects as well as short-term trading arising as a result of supply and demand mismatches, which inevitably arise in various regions of the country. Until sometime back, PTC has been buying power from West Bengal, in the off-peak period. West Bengal being a surplus power state in the off-peak period is well placed to supply power, but the state is not equipped to cater to demand during the peak season.


NTPC to foray into power distribution


September 28, 2004. The country’s largest generating company, National Thermal Power Corporation (NTPC), is in talks with the Gujarat and Karnataka governments to take up power distribution in these states. NTPC’s wholly-owned subsidiary, NTPC Electric Supply (NESC), has put in an application for a distribution licence with the Central Electricity Regulatory Commission (CERC).  NTPC is yet to firm up the investment corpus for its entry into power distribution at the state level but it will not invest huge sums in creating new distribution infrastructure in the country. For starters, it plans to upgrade the distribution networks of state electricity boards (SEBs) where it intends to start distribution operations. Indications are that NTPC will largely distribute its own generation.  At present, NTPC is a pure thermal generator and sells nearly its entire output to the SEBs. 


Policy / Performance


Private companies raise Rs 200 billion debt


September 22, 2004. Mega power projects of over 6,000 MW, mostly being set up by private companies, are now raising over Rs 20,000 crore (Rs 200 billion ) by way of debt.  A few projects, including Essar Power’s 1,500 MW gas-fired project in Hazira, Torrent’s 1,050 MW project and Reliance Energy’s 3,000 MW project in Dadri are close to achieving financial closure, while a few others, including Tata Power’s proposed 1,000 MW project in Maharashtra, are getting off the ground. A bankable Power Trading Corporation (PTC) is acting as a support base. PTC has signed power sale agreements with many state electricity boards (SEBs), and is now entering into contracts with as many electricity generators as possible. The Torrent project has signed power offtake agreement with two group companies — Surat Electricity Company (SEC) and Ahmedabad Electricity Company — apart from PTC. While SEC will source 50% of the electricity produced by the plant, AEC and PTC will account for the remaining 25% each. IDFC is lead-arranging the debt, over Rs 2,000 crore (Rs 20 billion), for the Rs 3,000-crore (Rs 30 billion) project.  The Torrent group is said to be currently in talks with LNG suppliers — Shell India and Petronet LNG — but is yet to firm up the contract.


NTPC to use IPO money for expansion 


September 23, 2004. National Thermal Power Corportion (NTPC) proposes to use the proceeds of its initial public offering (IPO) of 86.5 crore (Rs 865 million) shares to carry out the expansion of its generation capacity by 6,690 mw during the 10th Plan and part of the 11th Plan. NTPC also proposes to add about 20,000 mw by the end of 2012. The list of projects includes Rihan (1,000 mw), Vindhyachal (1,000 mw), Kahalgaon (1,500 mw), Sipat state-I (1,980 mw), Sipat state-II (1,000 mw), Unchahar (210 mw). The corporation proposes to provide Rs 11,906.9 crore (Rs 119.07 billion) for these projects.  Post-IPO, the Centre’s stake in NTPC will decline to 89.5%.


Energy sector pulls up infrastructure growth 


September 23, 2004. The energy sectors pulled up the growth of index of six infrastructure industries to 4.4 per cent during August this year as against 3.9 per cent in the corresponding period last year. The growth was, however, lower than the 7.4 per cent rise registered during July this year on account of a poor show from the coal, cement and finished steel sector. The index rose 5.6 per cent during April-August this year as against 4.2 per cent during the first five months of the last financial year. 


The index was estimated at 183.4 at the end of August this year compared to 175.6 in the corresponding period last year, according to the latest data released by the government. Coal production grew 1.2 per cent to 26.2 million tonnes during August 2004 as against a growth of 3.5 per cent in corresponding period last year. Oil product refining rose 4.4 per cent to 9.8 million tonnes during August, while crude production increased 5.1 per cent to 14.22 million tonnes. Electricity generation also rose 7.2 per cent during 46.18 billion kilo watt hour (Kwh) during August this year, while generation during April-August was estimated 7.8 per cent higher at to 241.84 billion Kwh. A large chunk of the increase was accounted for by a 24 per cent jump in hydel generation to 38.43 billion Kwh despite scarce rainfall in some parts of the country. While thermal production rose 6.11 per cent to 196.95 billion Kwh, nuclear electricity generation dipped 15.69 per cent to 1.17 billion Kwh due to maintenance work in some plants. 


Torrent Power inks debt syndication pact


September 24, 2004. Ahmedabad-based Torrent Power Generation Ltd (TPGL), the power generation entity of the Rs 2,000-crore (Rs 20 billion) Torrent Group, signed an agreement for debt syndication, worth Rs 2,167 crore (Rs 21.67 billion), with a consortium of lenders led by the Infrastructure Development Finance Company Ltd (IDFC). TPGL is setting up its 1,095 MW capacity power generation unit at Akhakhol near Surat which would be the group’s first major entry into power generation business. Two entities under the umbrella of Torrent, Ahmedabad Electricity Company (AEC) and Surat Electricity Company (SEC) are already into the power distribution business.  According to a company release the project being set up by TPGL at a total cost of Rs 3,096 crore (Rs 30.96 billion) is expected to be commissioned in 2007.


'States not cashing in on power'


September 24, 2004. Criticising states for not taking advantage of the opening up of the power sector, Assocham said that 21 states and union territories failed to add a "single unit of power" to their existing capacities and "drew blank" in wooing independent power producers (IPPs). Maharashtra topped the list by adding 3409 MW to its capacity followed by Gujarat (2226 MW), Tamil Nadu (1963 MW), West Bengal (1201 MW), Andhra Pradesh (1137 MW) and Karnataka (793.40 MW).  Delhi, Haryana, UP, Uttaranchal, Jammu & Kashmir, Punjab, Chandigarh and Bihar did not respond favourably to the need for inviting IPPs. Chhattisgarh, Dadra, Nagar Haveli, Sikkim, Orissa, Pondicherry, Arunachal Pradesh, Meghalaya, Tripura, Manipur, Nagaland, Mizoram and Lakshadweep also failed to tap IPPs in improving their power situation, the Assocham added. The IPPs could not penetrate the northeastern states due to insurgency and inconducive law and order situation prevailing there.


‘States can give free power but must pay in advance’


September 24, 2004. The power ministry now wants the amount given out in subsidy to be paid in advance to the distribution company by the state government. This has not been the case so far and states like Karnataka, Haryana, Kerala and Rajasthan have not paid the amount to power utilities in 2001-02 and 2002-03. The amounts of subsidy are enormous - in Andhra Pradesh in 2002-03, it was Rs 1,509 crore (Rs 15 billion), in Gujarat, it was Rs 1,800 (Rs 18 billion) and Karnataka, Rs 801 crore (Rs 8.01 billion). Power subsidies in Rajasthan and Kerala have been substantial in the past. The power ministry view is that if the money is paid in advance, it could act as a brake on the state government’s intentions, often populist. Also, given the state of finances of many states, the money may not be available. Sometimes, the subsidies are given in the hope that they will be written off in the future. The new plans would end that. The subsidy can be given to a pre-determined level, the ministry feels. The power ministry is also keen on a long-term policy for reasonable agriculture tariffs after taking farmers into confidence. With elections coming, free power to farmers is an issue but the power ministry wants the costs to be “reasonably computed, considering off-peak, interruptible supply and delivered quality.” The power ministry believes “user-charges for canal-irrigation can be one benchmark for power delivered to farmers.


SBI caps to spot buyer for SPGL project 


September 24, 2004. The Industrial Development Bank of India (IDBI)-led lenders to the 208 mw Spectrum project in Andhra Pradesh are close to appoint SBI Caps as merchant banker to find a new buyer. The lenders, who gained management control of Spectrum Power Generation Ltd (SPGL) since September 2003, have already held talks with the representatives of SBI Caps to finalise the contract. Reliance Energy Ltd (REL) and Tata Power Company (TPC) have already evinced interest to take over the Spectrum project. These companies have already held talks with the Andhra Pradesh government. The lenders’ move in this regard coincides with their meeting in London on September 21 and 22 with US government-promoted Overseas Private Investment Corporation (Opic) to decide the bidding process for the selection of new buyer for the now-closed Dabhol project. The lenders have an exposure of Rs 340 crore (Rs 3.4 billion) in Spectrum project while they have lent over Rs 6,200 crore (Rs 62 billion) in the troubled Dabhol project.


Focus on power reforms: World Bank


September 27, 2004. The reform of the power sector is crucial, as financial losses amount to 1.5 per cent of the gross domestic product (GDP). Power distribution should be the first priority for improving the commercial performance and financial viability of the power sector, says the World Bank Country Strategy paper for India. The paper, covering the period from 2005 to 2008, says that, even if the current level of losses were reduced dramatically, large investments in additional generating capacity would still be essential if power availability is not to constrain India’s capacity for rapid growth.  The bank would consider providing investment support in transmission through PowerGrid and in generation, for hydroelectric projects, it added. “The power sector continues to be one of the greatest constraints to maintaining growth and further reducing poverty in India. Much of the population remains unconnected to the public power system, and those who are connected, often receive infrequent and unreliable service, making power supply a brake on private sector development and economic growth,” the report said. While a number of states have worked to improve the commercial performance of their state utilities, progress has been difficult and slower than many originally hoped. 


Bihar power crisis to end 


September 27, 2004. The power shortage in Bihar would be solved in two years’ time, when the state’s two major power generating stations in Kaanti in Muzaffarpur district and Barauni in Begusarai district is fully operational, the minister of state for power Shyam Razak has said. The grim power situation was due to the formation of the state of Jharkhand, which was carved out of Bihar. After the formation of Jharkhand state, Bihar’s power generation capacity dropped to around 500 MW, as Jharkhand, with 2,000 MW, secured the lion’s share of power generated in Bihar. The state currently borrows around 800-900 MW of electricity from the central pool, paying Rs 80 crore (Rs 800 million) annually. The minister said all the villages in the state will be fully electrified by the year 2007 and all the domestic households will be electrified by the year 2012. Mr Razak said a detailed project report (DPR) for rural electrification of the state is being drawn up. The total cost of rural electrification will cost Rs 2,000 crore (Rs 20 billion).


The Rs 2,000-Crore (Rs 20 million) rural electrification project is being funded through 90 per cent grant from the centre and the balance 10 per cent is being funded from the state government’s Plan allocation. The PowerGrid Corporation of India (PGCI) is being given the mandate for rural electrification works in 31 districts of the state, while the National Hydro Power Corporation (NHPC) is being given the mandate for six other districts of the state. The state government is taking several measures to cut transmission and distribution (T&D) losses. To this end, the Bihar State Electricity Board (BSEB) is upgrading the infrastructure by installing 55,000 three-phase metres in the state and 20,000 system metres. The work in this regard will be completed within the next six months, the minister informed.


‘Power sector set to meet plan target'


September 26, 2004. The Union Minister for Power, P. M. Sayeed, has said the power sector is on course to meet the 10th Plan target of adding 41,000 MW of generating capacity.  Mr. Sayeed said additions to power generation had fallen woefully behind target in both the 8th and 9th Plans. While the cumulative target for the two plans was to add 35,000 MW generating capacity, less than 50 per cent of this had been achieved. The shortfall in the last two Plan periods was mainly due to private sector participation continuing to be much lower than expected, he said, adding that with the Electricity Act 2003, in place and power reforms having been initiated in all States, "private players are regaining confidence to enter the power sector." Mr. Sayeed clarified that the Government would not give any counter-guarantee to power projects and they would have to compete with existing power-generating units on cost and quality. Even if the expected private participation was less in this Plan period, public sector power undertakings were fully prepared to meet the Plan targets on their own, he said.


Providing details of capacity addition in the power sector, Mr. Sayeed said in the 10th Plan, 7,458 MW had already been commissioned and a further 27,112 MW was under construction. In addition, non-conventional sources were expected to add 3,000 MW and power projects based on Krishna-Godavari gas would contribute another 3,000 MW.  He said detailed project reports were being prepared for 73 hydroelectric schemes, which would produce a total of 33,000 MW. These projects were expected to come up in the 11th Plan period.









Shell Canada plans C$4 billion oil sands expansion


September 21, 2004. Shell Canada Ltd. expects to spend C$4 billion ($3.1 billion) on the next major expansion phase at its oil sands operations to nearly double output by 2010. Shell Canada, which started up the country's third mining and synthetic crude venture, last year, aims to pump up to 290,000 barrels of tar-like bitumen a day from the oil sands by then, up from the current 155,000.  The Canadian arm of Royal Dutch/Shell Group will make modifications to the plants that are already in operation to increase output to as much as 200,000 barrels a day over the next three years, it said. The company aims to eventually produce half a million barrels a day from its Alberta oil sands holdings as the North American thirst for secure energy supplies intensifies. For its expansion, Shell Canada will employ a host of lessons learned during the initial construction to avoid a repeat of runaway costs.  The project started up in 2003 at a cost of C$5.7 billion, following a series of major overruns the company blamed on a squeeze on labor in Alberta and rising materials prices. Shell plans to expand in phases and construct much of the new equipment away from the harsh northern climate.


Indonesia may take over Exxon Mobil gas field


September 21, 2004. Indonesia may take over a huge natural gas field in the Natuna offshore area from operator Exxon Mobil Corp. when the contract expires next year because there has been no commercial activity.  The Natuna field operated by Exxon Mobil contains an estimated 222 trillion cubic feet (TCF) of gas, of which 46 TCF are thought to be commercially recoverable. In 1995, Indonesia and Exxon signed a basic agreement covering an estimated $40 billion to be invested in the offshore gas project in the South China Sea. However, tapping the reserves has been difficult and there is no market to buy the gas so far. The field is not yet in production.


Shell Malaysia reports oil discovery 


September 22, 2004. Shell Malaysia unit Sabah Shell Petroleum Co. Ltd, operator of Block G in deep water northwest of Sabah, has made another oil discovery the Malikai-1 exploration well off Sabah. Shell's joint venture partners in the well are Malaysia's Petronas Carigali Sdn. Bhd., and ConocoPhillips.  Specifics of the discovery were not disclosed. The well was spudded Aug. 4 and drilled as a vertical hole in water 565 m deep. It lies 110 km from earlier discovery Gumusut field in Block J.


Sakhalin energy to export liquefied gas to South Korea?


September 22, 2004. A tender for liquefied natural gas imports is coming up in South Korea and the Russian-based Sakhalin Energy Co. Project Sakhalin 2 operators is determined to compete.  Sakhalin Energy has faced the Kogas with initiatives to appear in the tender, and called the Kogas to come in its joint stock. 


Vietnam's Binh Thuan aims to tap potential of oil, gas 


September 22, 2004. The southern central Vietnamese province of Binh Thuan is putting all its efforts in fully tapping the potential of its oil and gas industry in the hope of a breakthrough in its economic development. Oil and gas are expected to bring a new economic potential for Binh Thuan because the exploitation of oil and gas has already been conducted at the Hong Ngoc (Ruby), Rang Dong (Dawn), and Su Tu Den (Black Lion) oil fields, about 60 km from the province.  Located on the coastal line convenient for the installation of oil and gas pipelines and services, Binh Thuan province has an area of 146,500 ha suitable for the construction of infrastructure for industrial parks, processing zones and warehouses. In particular, the province's Phu Quy island, 30 km from the oil and gas fields, is suitable for building an oil reserves centre to ensure the national energy security as well as a storage for crude exports.


Worldwide upstream spending rose 9% last year


September 22, 2004. Worldwide upstream spending for oil and natural gas increased by 9% to $161 billion in 2003, rebounding from a 4.4% decline the previous year, according to the latest annual global review of upstream performance by John S. Herold Inc. and Harrison Lovegrove & Co. Ltd. As a result of higher oil and gas prices cash flow was at a 5 year high in every region in 2003. Cash flow exceeded spending in five out of six regions. The lone exception was Africa and the Middle East, where the 36% year-over-year increase in spending led to a $3 billion cash deficit. In Canada, costs incurred have exceeded cash flow by nearly 40% over the last 5 years as a result of massive spending on mineable oil sands projects for which production gains are expected in the years ahead.


But while cash is pouring in, reinvestment has not risen at nearly the pace witnessed in prior oil and gas bull markets so far. Companies appear to be investing relatively cautiously and seeking to maintain capital discipline. They expect investments by oil and gas producers to increase, yet still lag cash flow by a wider margin this year than last.


Nigeria targets $14 bilion investment


September 22, 2004. Nigeria expects about $14-billion (11.4-billion) of investments to be made in the country's gas sector in the next six year.  The substantial capital requirements for the development of gas transmission infrastructure and upstream gas projects are beyond the capacity of the federal government. Nigeria now has gas reserves of about 187-trillion cubic feet, he said. About 1879 billion cubic feet are produced annually, with 1080 utilised and 799 flared. He said that by 2010 Nigeria would be earning about $6, 5-billion annually from the gas sector.


S. Korea's SK Corp finds gas off West Africa


September 22, 2004. SK Corp. South Korea's biggest oil refiner, said it has discovered natural gas and condensate in an offshore oil field in Equatorial Guinea, West Africa. The find was in a section labelled D-block, near the Alba Field, which has been producing crude oil and natural gas since 1991.  The refiner said it did not yet have an estimate of oil and gas reserves. SK Corp. holds a 9.4 percent stake in the D-block while U.S. firm Marathon Oil holds 84.6 percent, it said. The government of Equatorial Guinea held the remaining 6 percent, the company said in a separate statement. Condensate, a liquid form of pressed natural gas, is used as a feedstock to produce oil products such as naphtha and diesel.  The refiner, which controls nearly a third of South Korea's oil market, has stakes in 16 upstream oil or gas blocks in 11 countries including Yemen, Vietnam, Peru and Egypt. Energy-deficient South Korea, the world's fourth-biggest oil buyer, has been offering  favourable loans terms to encourage private companies to take part in upstream oil and gas projects abroad, in an effort to secure stable sources of energy. Seoul imports all of its crude oil and natural gas needs.


Energy firm BG signs Egyptian gas deal


September 24, 2004. British energy firm BG Group has signed agreements to export natural gas from Egypt in a deal that further strengthens its position in the gas sector, BG said. BG said it had signed agreements with Egyptian General Petroleum Corporation (EGPC), Egyptian Natural Gas Holding Company (EGAS) and Petronas to export the gas via the SEGAS LNG (liquefied natural gas) plant in Damietta, Egypt.

China's Sinopec signs oil storage deal with Iraq


September 27, 2004. A subsidiary of top Asian refiner Sinopec Group has signed a $14 million deal to build crude oil storage facilities in Iraq. The deal was signed with the Iraqi Oil Ministry last week and was pending approval from the Iraqi cabinet.  The survey, design and research institute of Zhongyuan Petroleum Exploration Bureau would design and build the eight facilities, each with a capacity of 58,000 cubic metres, near Basra, in the south of the country.  Construction was expected to be completed in about a year. China imports between 2 million and 4 million barrels of Iraqi Basra crude a month. 


Commercial light-oil find in Gabon 


September 27, 2004. Pan Ocean Energy Corp. Ltd., St. Helier, Jersey, UK, confirmed a commercial light-oil discovery on its Tsiengui prospect in the Maghena permit in Gabon. The 2 TST explorations well, north of 1 TST, was drilled to 1,816 m TD. Petrophysical logs and pressure analysis indicate net oil pay of 14 m in the Gamba sandstone. A gas column 31 m thick also was encountered. Pan Ocean plans to drill and complete a horizontal section immediately to prepare the 2 TST for production.


PetroTech Peruana to explore new block off Peru 


September 27, 2004. PetroTech Peruana SA recently closed a third offshore exploration and exploitation contract with Perupetro, the state oil agency, for B lock Z-33, in Peru's territorial waters off the Lima and Cañete provinces at depths of 400-1,200 ft. The company is committed to process and interpret 1,500 km of conventional seismic data, shoot 150 sq km of 3D seismic, and drill three exploratory wells. Perupetro estimates the company will invest $22 million in the new block.  PetroTech has been producing oil and gas in Block Z-2B for 11 years and has been exploring Block Z-6 in the same area since March 2002.

Irish firm wins Algerian gas deal


September 27, 2004. Petroceltic, a Dublin-based company listed on the UK stock market, has signed a production sharing agreement for oil and gas fields in Algeria. The contract was one of eight signed by Algerian state oil firm Sonatrach. Other contract winners include CNPC and Sinopec of China, US firm Amerada Hess, Australia's BHP/Woodside, Norway's Statoil and Repsol of Spain.  Algeria which supplies a quarter of the EU's gas imports, expects to grow in importance once pipelines to Spain and Italy are built. The contracts were Algeria's fifth oil and gas licensing round since the country reopened the industry to foreign investors in the late 1980s. 


More gas from the Statfjord field


September 27, 2004. The Statfjord Field on the Norwegian Shelf in the North Sea will be rebuilt, with the aim to produce more gas. This will mean new orders worth up to NOK 14 billion for Norwegian industry, according to NRK. So far, oil worth NOK 1000 billion has been produced by Statfjord, one of the world's largest oil fields at sea. This is equal to the accumulated value of the Norwegian National Oil Fund.  With today's equipment and installations the production is now coming to an end, but with rebuilding and new investments Statoil believes that the Statfjord Field will get a new lease on life. The new investments on Statfjord are so large that they have to be put before Parliament for approval.


Opec considers further output hike 


September 27, 2004. Opec has the capacity to raise oil output levels by a further 1.5 million barrels per day to help ease pressure on the market but new supplies may not lower prices, the organisation's president said. Purnomo Yusgiantoro said despite having already made the "psychological move" of increasing output by one million barrels per day (bpd) "prices did not budge" but Opec would consider bringing more supplies on line.  The renewed surge in prices has been caused by fears over supplies as Russian energy giant Yukos continues to struggle with financial troubles and US oil firms in the Gulf of Mexico pick up the pieces after the devastating hurricane Ivan.  "Opec can still raise supply we still have a spare capacity of 1.5 million barrels per day until the end of the year," Yusgiantoro said. He added that any raise will still have to be discussed by the group. Opec declared in Vienna on September 15 that it was raising its official production ceiling by one million barrels to 27 million bpd from November 1, but the decision left markets unmoved and has failed to bring down prices.  Yusgiantoro said current world oil supplies were more than enough to meet demand and high oil prices were based on "non-fundamental" factors.

Phases 4 and 5 of South Pars start gas export


September 26, 2004. First liquid gas consignments were exported from fourth and fifth phases of South Pars. Both phases would be fully on stream until February 2005 which have a reserve a total of 50 million cubic meters of gas.  Iran has ended negotiating with foreign companies over Phase 11.  Iranian energy experts had earlier planned to conclude contracts for ten phases of the project (15 to 24), but so far, contracts have only been made for the first ten phases. Iran has defined 28 phases on its part of South Pars, which is said to be the world’s biggest gas field ever. Qatar, the only other owner of South Pars, started operations on the field twenty years earlier than Iran.  POGC has not announced the result of its tender for 15th and 16th phases of South Pars project. Companies from Iran, France, Britain, Japan, and South Korea had applied their bids for the tender last year. Japanese companies along with the Norwegian giant Statoil will start operating three phases of the project (6, 7, and 8). These three are supposed to provide sour gas for Aghajari oilfield.




Petrobras, Ultra JVs for  petrochemical complex 


September 21, 2004. Brazil's state-owned oil company Petróleo Brasileiro SA (Petrobras) and Brazilian private petrochemical group Ultrapar Participações SA (Ultra) are negotiating the construction of what, if built, would be a $3 billion petrochemical complex, possibly at Itaguai, 80 km South from Rio de Janeiro.  The complex, which would produce 1.2 million tonnes/year of ethylene, polypropylene, and polystyrene, would also include a 150,000 b/d refinery with "revolutionary technology" developed by Petrobras to process heavy oil from the Campos basin. The proposed refinery would process mainly diesel and liquid petroleum gas plus raw materials such as propane and other aromatic derivatives for the petrochemical chain.


US strategic reserve oil sent to refiners


September 24, 2004. The Energy Department authorized 1.7 million barrels of oil to be sent from the nation's strategic petroleum reserve to Gulf Coast refineries operated by Shell Trading and Placid Refining Co.  The first shipment of 300,000 barrels was shipped to Placid's Louisiana refinery while an additional 1.4 million barrels will be shipped to Shell refineries in Louisiana and Texas.  The oil will offset recent supply disruptions in the Gulf region in the wake of Hurricane Ivan. Both companies submitted requests for oil to the Energy Department. Placid, controlled by Petro-Hunt, is a leading supplier of jet fuel to the U.S. military.  Shell Trading, a division of Royal Dutch/Shell Group has four refineries in Louisiana and Texas. The Energy Department announced Thursday that it would consider "short-terms loans" to refineries in the hurricane-battered region. The department has received further requests for oil supplies from the reserve that it has not yet acted upon.  The Energy Department has said all paybacks to replace the loaned oil will be returned to the reserve.


Similar loans in 2002 followed disruptions to Gulf Coast tanker traffic from Hurricane Lili, when about 300,000 barrels were released. Approximately 670 million barrels of oil are in the strategic reserve, a series of four underground caverns along the Gulf of Mexico. The SPR is expected to reach its full capacity, 700 million barrels, in 2005.


Shell may build chemical plant in Qatar


September 26, 2004. Royal Dutch/Shell Group agreed to consider building a chemical plant in Qatar that would help convert the nation's natural gas reserves, the world's third- largest, into raw materials used in plastics, the Gulf state's energy minister said. Shell, in partnership with Qatar Petroleum, is studying the feasibility of building a processing plant to take ethane out of gas produced from Qatar's North field, the world's largest, and produce ethylene, used in an array of products from antifreeze to solvents.  The Gulf state aims to develop a petrochemical industry that may rival Saudi Arabia, the region's largest chemical producer.  Shell, Europe's second-largest oil company, agreed last year to spend $5 billion on a project in Qatar to convert gas into diesel and other fuels, which is almost 10 times bigger than any other such plant now existing.

Transportation / Trade


ENI to transfer international gas pipelines to Snam RG


September 21, 2004. The president of Italy's energy regulatory agency called for the transfer of ENI SpA's ownership and right of use of international gas pipelines that supply the Italian market to the gas transport company Snam Rete Gas SpA.  In a speech in parliament, Ortis said that in order to further free up and rationalise the gas market "it could be very useful to transfer to Snam Rete Gas the ownership of international infrastructure linked to the Italian market and of the right of transport still held by ENI."


Chinese premier hopes Russia to choose Chinese route for pipeline


September 22, 2004. China's Premier Wen Jiabao voiced hope that Russia would choose a route to China for a crucial Siberian pipeline now in the works. “We are convinced that whatever the pipeline's layout, Russia's government and companies would give first priority to the Chinese route, since China is the most stable market for Russia's oil and gas," Wen said. "Before the pipeline is built, we would like to step up supplies of Russian oil, bringing them up to 15 million tonnes in 2006," the prime minister added. The construction of an oil pipeline giving energy-thirsty China access to Siberian oil will be one of the main topics for the prime minister's talks in Moscow, China's Ambassador in Russia Liu Guchang said earlier.  China has strongly lobbied for pipeline carrying Russian oil from Siberia through to Chinese territory but Moscow is believed to be leaning towards a rival pipeline that would run to Nakhodka on the Sea of Japan. China, a net importer of petroleum products since 1993 and of crude oil since 1996, is reliant on overseas producers for one third of its supplies and in turn accounts for about seven percent of world oil demand.


BP may help Gazprom access U.S. LNG market


September 27, 2004. BP may help Russian gas monopoly Gazprom penetrate the U.S. liquefied natural gas (LNG) market by agreeing to swap its LNG for Gazprom's pipeline gas in Europe. Gazprom, the world's largest gas company, is eager to export to the U.S. and such a deal would give it super-cooled gas that can be shipped in tankers a commodity it looks unlikely to be able to produce itself even in the medium term.  Gazprom, which supplies a quarter of Europe's gas, said last week it would begin LNG deliveries to the United States in 2005 by either buying the product from other firms or swapping it for its own pipeline gas in Europe.  A newcomer to the LNG market, Gazprom said the operations would allow it to learn more about the industry before it starts producing its own LNG next decade from the giant arctic Shtokman field and clinches long-term supply deals with U.S. customers.


Thai energy minister to hold talks with Iran 


September 28, 2004. Thailand's Energy Minister Prommin Lertsuridej will meet the Iranian government Oct. 3-6 to discuss buying crude oil and liquefied natural gas (LNG) for domestic use. Thailand plans to import from Iran around 5 million metric tons of LNG and 60,000 million barrels of crude a year from 2010 onward.  The purchases may be done through barter trade, on the condition that Iran imports rice from Thailand in exchange for the crude and LNG. Iran is the world's largest LNG producer, with reserves of around 900 trillion cubic feet. It is also the world's second largest crude exporter, after Saudi Arabia, with crude reserves of 131 billion barrels.


U.S. firm builds gas pipelines in Mexico 


September 27, 2004. U.S. Company El Paso Corp. signed an agreement to build gas pipelines in Sonora to transport natural gas to power plants in the region from an import terminal to be built in the Gulf of California. The agreement establishes that the firm El Paso Corp. will develop with the help of DKRW Energy more than 500 kilometers of gas pipelines in Sonora, where the liquefied natural gas terminal will be installed. The companies reported that the gas pipelines will be finished by 2008, at the latest. The projects will distribute the gas arriving in liquid state to the refrigeration tanks of DKRW in the Gulf of California. The gas will be evaporated and transferred to the power plants through the new pipelines. Other companies that announced projects to build natural gas terminals in the State of Baja California were Sempra Energy, Chevron Texaco and Marathon Oil Corp.


Uruguay sign gas sales agreement


September 27, 2004. Uruguay's energy and mines minister José Ignacio Villar signed an agreement with his Bolivian counterpart Guillermo Torres to buy 150,000 cubic meters of gas a day (cm/d) through Argentina.  The agreement considers two stages, the first involving the sale of 150,000cm/d of gas to a power plant in Uruguay in the short term, and the second stage for larger volumes of gas from 2006, when the proposed gas pipeline linking Bolivia and northwest Argentina will expand transport capacity in the region. Sales of Bolivian gas to Uruguay could come to 4mcm/d from 2006.


Iraq joins the Arab gas line project


September 27, 2004. The Egyptian minister of oil Sameh Fahemi announced that Iraq has joined the Arab Mashreq Gas transport project which so far includes Lebanon, Syria, Egypt and Jordan. Fahemi announced; following a meeting in Cairo included the oil and energy ministers in the five states "Iraq's joining the Arab Mashreq gas transport line project after the consent of ministers concerned in each of Egypt; Jordan; Syria and Lebanon to the Iraqi request." Upon the completion of the project, Egypt will provide each of Syria; Jordan and Lebanon with natural gas. The Syrian minister of oil Ibrahim Haddad said that the Arab line in Syria will feed the transportation of gas to Iraq from Homs district; noting that the Syrian line will be linked to Turkey with the possibility of exporting to Europe.


Russia may join Kazakhstan-china oil pipeline


September 27, 2004. Russia joining the Kazakhstan-China oil pipeline will depend, to a great extent, on conditions of exploitation, said Russian Minister of Energy and Industry Viktor Khristenko.  At the same time he believes that "the prospects of the two countries in oil and gas production and in transportation should be known to each other and coordinated as far as possible at the first stage."  A joint design company "Kazakhstan-China Pipeline" has been created with KazTtransOil, the largest oil transportation company of Kazakhstan and the Chinese National Corporation for the Oil and Gas Prospecting and Development being its founders. These companies have 50% shares of participation each. According to the design, the oil pipeline Atasu-Alashankou will be built from the Atasu oil pumping station in the Karaganda region (the center of Kazakhstan) to the Alashankou railway station on the territory of China. It will be 988 km long, have 813 mm in diameter, throughput capacity of 10 million metric tons a year at the first stage with the further increase of up to 20 million metric tons at the second stage of the project's realization.


Repsol, Shell in natural gas contract with Iran


September 25, 2004. The Spanish oil group Repsol YPF and British-Dutch group Shell have signed a project framework agreement involving the National Iranian Oil Company (NIOC) regarding liquefied natural gas in Iran, Repsol said. Repsol and Shell had signed an agreement worth 3.25 billion ( $ 3.96 billion) with Iran to exploit natural gas reserves.  The NIOC was associated with the contract which was signed in Vienna last week.   About $ 4 billion would be required for the extraction and marketing of natural gas from Iran.  Commercialization of gas would begin in 2010 with an annual production rate of 7 million tons of LNG, along with an additional 1 million tons of gas liquefied petroleum (GPL).  The contract reportedly includes the installation of two platforms in the Persian Gulf with an annual extraction capacity of 18 billion cubic meters per year and the construction of liquefication centers on the coast. El Pais did not, however, specify the exact location of the project. The LNG will be exported to European and Asian markets, including India.


AMEC wins  services contract in Azerbaijan 


September 24, 2004. AMEC has won a further oil and gas services contract in the Caspian region, extending its long term relationship with the Azerbaijan International Operating Company (AIOC) operated by BP.  The four-year contract, valued at a total US$175m (AMEC share US$50m), was awarded to the AMEC-led ATA consortium and is to develop the next stage of the giant Azeri – Chirag – Gunashli oilfields complex in the Azerbaijan sector of the Caspian Sea. AMEC will be managing the project and will be working very closely with the other members of the consortium.  AMEC is already involved in a range of both onshore and offshore projects in the Azeri-Chirag-Gunashli oilfields including project management services to Phase 1 of the development, as part of the ATA consortium, and the recent award of support services to the Chirag-1 Production Platform and surrounding platforms in the Caspian Sea. 


China fuel oil futures debut slow


September 24, 2004. Trade on China’s fledgling fuel oil futures market has been slow to build as Chinese traders are wary over the potential risks and foreign firms have yet to see its relevance as a hedging tool. Top state traders — Unipec, Chinaoil and Sinochem Corp — under close internal scrutiny to manage the risks in derivatives trade, wait to see if the first physical delivery due in January from the world’s only fuel oil futures contract, almost a month old, would run smoothly. The most actively traded January contract fluctuated between 25,000 and 35,000 lots, of 10 tonnes per lot, for most of the past month — a third of the volume on its strong Aug 25 debut — and has dipped to as low as 6,882 lots. The Shanghai Futures Exchange appointed five storage facilities with a total capacity of 380,000 cubic metres (2.4 million barrels) as the delivery spots. More than half of these tanks are in Zhanjiang city in the West of southern Guangdong province, away from the top import terminal Huangpu in eastern Guangdong.


Policy / Performance


China open to foreign investors


September 21, 2004. China plans to open six sub-sectors of the energy industry to foreign investors, the Beijing Times reported, citing Zhang Guobao, deputy director of the National Development and Reform Commission (NDRC). Foreign investors are being encouraged to participate in exploitation of the country's natural gas resources, energy infrastructure construction, sales of natural gas, coal mining, gas-fired power generation and the production of petrochemical products.  China's total oil reserves are now 122.1 bln tons and its natural gas reserves have topped 47 trln cubic meters. Proven exploitable oil reserves are 14-16 bln tons, while proven natural gas reserves are 10-15 trln cubic meters. 


S. Korea signs $4 bln oil deals with Russia


September 21, 2004. South Korea signed energy deals worth $4 billion with Russia, seeking to cut its reliance on Middle East oil and signalling Russia is open for business despite concerns Moscow is rolling back reforms. The string of deals was signed on a visit by President Roh Moo-hyun to Moscow, where Kremlin chief Vladimir Putin hailed a breakthrough in relations between Russia, the No.2 world oil exporter, and South Korea, the No.4 oil buyer. The deals came a day after South Korea clinched a major energy pact with resource-rich Kazakhstan, set to become a major oil exporter next decade. They included a memorandum of understanding between state-run Korea National Oil Corp. (KNOC) and Russian state oil firm Rosneft.  The two firms planned to invest $150 million in Kamchatka, a Pacific peninsula where no big oil reserves have yet been discovered. Another $100 million would be invested in one of Rosneft's deposits on the remote eastern island of Sakhalin, the Sakhalin-3 Veninsk block, estimated to contain around 90 million tonnes of oil and gas condensate.


China tries to reduce thirst for gas 


September 23, 2004. Brushing aside concerns from the auto industry, the Chinese government has imposed fuel-economy standards on new cars, sport utility vehicles and vans for the first time. The regulations represent a broad effort by Beijing to address China's soaring dependence on imported oil, a dependence that has helped lift oil prices around the world as producers struggle to keep up with demand. The new rules coincide with growing difficulties in the past few months in China for multinationals and domestic automakers alike, which find themselves stuck with large and growing inventories of unsold cars. After rising at a breathtaking annual pace of 70 percent since late 2001, auto sales peaked in March and have been sliding steadily since as the government sought to forestall inflation by cooling the economy with a variety of administrative controls. The new fuel-economy rules are identical to those in a draft prepared last November by an interagency committee in Beijing. Auto executives complained over the winter that the standards were too strict for larger, heavier cars, minivans and especially sport utility vehicles, but have become largely resigned to the new standards.


The new regulations are more stringent than U.S. standards but less strict than the semi-voluntary standards that the auto industry has adopted in Europe to head off regulation there. The Chinese standards for the first phase are similar to the average fuel economy required for most cars now sold in the United States, with some improvements mandated for the second phase. However, the Chinese standards for minivans and sport utility vehicles are more stringent for the first phase and much more stringent for the second phase than what such vehicles now achieve in the United States.






7 New Jersey generators to retire


September 21, 2004. PSEG Power said it wants to retire seven old oil- and natural gas-fired power plants capable of generating 1,132 megawatts in New Jersey as they are no longer economically viable. PSEG Power, a unit of Newark, New Jersey-based diversified energy company Public Service Enterprise Group Inc. said it will talk with regional power grid operator PJM Interconnection about the plants' future.  PJM operates the grid for over 35 million people in all or parts of Pennsylvania, New Jersey, Maryland, Delaware, Ohio, Illinois, Virginia, West Virginia and the District of Columbia and must approve any power plant retirement in its territory.


Hydro and Statkraft to build gas-fired power plant


September 22, 2004. Statkraft SF and Norsk Hydro ASA, the owners of Naturkraft AS, have agreed to proceed and realize their plans to build a gas-fired power plant at Karsto. The intended plant will be based on the best available technology with regard to the environment, safety and efficiency. The new gas-fired plant will be the most modern and environmentally-friendly in Europe. Karsto is a very suitable location for a profitable, Norwegian gas-fired power plant. The plan is to construct a plant with a production capacity of roughly 400 MW, which at full capacity utilization will represent an annual production of some 3 TWh. This will provide an increase in Norwegian electricity supplies of approximately 2.5 percent. Gas-fired power will boost the Norwegian energy balance and help reduce the need for imported power. The project will therefore help reduce overall emissions of greenhouse gases.  The plant can come on stream in 2007. The total investment amount for the project is estimated to be somewhat more than NOK 2 billion.


Endesa Chile inaugurates Ralco hydropower plant


September 27, 2004. Endesa Chile inaugurated its biggest hydropower dam in Chile on Monday, a $570 million project that met with delays due to political opposition, but said it was not happy with government energy policy that was stalling other projects. Ralco, with a potential capacity of 570 megawatts and located 300 miles (500 km) south of Santiago, will provide 9 percent of the power in Chile's biggest power grid, which serves the capital and the center of the country. Endesa, based in Chile, has a total of 45 power plants here and in Argentina, Brazil, Colombia and Peru, with an installed capacity of 12,211 megawatts, 69 percent from hydro power.


China seeks overseas supplier for nuclear reactors


September 28, 2004. China may award an $8 billion order for four nuclear reactors to an overseas supplier such as Areva SA, Westinghouse Electric Co. or Siemens AG as part of the world's biggest nuclear power construction program.  A single foreign bidder may be chosen to build the reactors, with work commencing by 2007.  China Nuclear and affiliate Guangdong Nuclear Power Co. will build another four in addition to the 11 already operating or under construction in China.  China needs to add two reactors a year to meet a target of generating 4 percent of its power from nuclear plants by 2020, from 1.7 percent now, Yu said. The expansion of nuclear power in China and other Asian nations such as India is reviving an industry that hasn't had a new reactor order in the U.S. since the failure of a unit at Three Mile Island, Pennsylvania, in 1979. The eight planned Chinese reactors will be built in the southern province of Guangdong and the eastern province of Jiangsu, Yu said. National Nuclear and Guangdong Nuclear may start construction of the first four as early as October 2005. 


Mini-hydroelectric power growing


September 27, 2004. Eco-friendly, small-scale hydroelectric power generation is quietly becoming a big thing, with small output generators being established near mountain streams or on public water supplies. On Yakushima island in Kagoshima Prefecture, a microhydroelectric power facility was installed by the Kamiyakucho municipal government at Shirotani-Unsuikyo gorge, a densely wooded mountain area said to have been the inspiration for the forests in Hayao Miyazaki's animated film "Princess Mononoke."  From the upper parts of Shirotanigawa river, water flows through two 524-meter-long pipes with a diameter of 7.5 centimeters, dropping 76 meters and turning a small turbine with a diameter of 26 centimeters. The system generates 4 kilowatts of electricity, which supplies energy for a mountain office and toilets for tourists. The New Energy and Industrial Technology Development Organization (NEDO) defines microhydroelectric power facilities as having a maximum output of 100 kilowatts or less, while those with a maximum output of up to 1,000 kilowatts are called mini-hydroelectric power facilities.


20% of Armenia’s power from Iranian gas


September 28, 2004.  Armenia plans to consume up to 20% of the electricity it generates from Iranian gas, Armen Movsesian, the Armenian energy minister, told. Armenian officials earlier said Armenia would export all the electricity it generates with Iranian gas to Iran and, possibly, to Georgia. The Energy Ministry said it would export 3 kilowatt-hours of electricity to Iran for 1 cubic meters of gas received from Iran. Armenia and Iran have signed a $30-million credit agreement to finance the construction of the Armenian section of the Iran-Armenia gas pipeline. The pipeline is 141 km long, inducing 41 km in Armenia and 100 km in Iran. The total cost of the project is estimated at $210-$220 million. The pipeline is expected to be launched before January 1, 2007.  Gas should start to arrive in Armenia from January 2007 and will be used at Armenian thermal power plants to produce electricity for export to Iran. Iran will supply 36 billion cubic meters of natural gas to Armenia over 20 years according to the document.


Transmission / Trade


Panel of nine to review Singapore power grid


September 23, 2004. High-Powered committee of nine local and international energy experts has been formed to review Singapore's electricity and gas delivery systems. Chaired by Mr Jock McKenzie, a former top boss at oil giant ChevronTexaco Corporation, its formation is a response to the massive June 29 blackout that darkened 300,000 homes here for up to two hours. The panel is expected to submit a report to the Government, with recommendations for bolstering the reliability of the power grid, next year. The June blackout - caused by a tripped valve in the pipeline supplying Indonesian gas to power plants here - led then-Trade and Industry Minister George Yeo to comment that it could have caused a lot of harm to industries for which electrical supply is critical.


Vietnam to buy electricity from China


September 27, 2004. Vietnam will start buying electricity for the first time from neighbouring China to feed its fast- expanding economy, dominant state utility Electricity of Vietnam said. The purchase has been made possible because China, which has been facing a severe power shortage, has surplus capacity at its Yunnan province that borders Vietnam.  In April, the firm closed a deal with China's Yunnan Electric Power Group Co. to buy 180-220 gigawatts hour of electricity a year. Yunnan will supply the electricity to Vietnam's Lao Cai province via a 110 kilovolt-transmission line, the utility said.  Vietnam, where power demand has been growing between 15 per cent and 17 per cent per year, aims to buy up to 480 megawatts of electricity from China by 2008 when sufficient transmission lines are installed, from 40 megawatts it hopes now.


Policy / Performance


Brussels clears £3.4 billion nuclear bail-out


September 23, 2004. British Energy won approval from Brussels for its £3.4 billion government-backed bail-out, under the condition that the cash is used exclusively for decommissioning nuclear power plants. The go-ahead for an injection of taxpayers' cash was welcomed by the Government as a vital step forward in the restructuring of Britain's biggest power producer, which came close to collapse in 2002 when electricity prices slumped. It also strengthens BE's hand in its fight with rebel shareholders, led by the US hedge fund Polygon Investments, who are attempting to block the financial restructuring of the business.


South Korea aims to overhaul energy sector


September 23, 2004.  President Roh's visit to Kazakhstan, Russia allows nation to tap new sources of energy. Korea was granted a powerful tool for reconfiguring the nation's energy sector this week as President Roh Moo-hyun's visit to Kazakhstan and Russia is expected to secure new sources of energy for the country.  Because it imports all of its crude oil, Korea, the world's twelfth-largest economy, ranks as the fourth-largest oil importer and the second-biggest buyer of liquefied natural gas, or LNG. This heavy dependence on imports underlines the importance of the agreements signed in the two countries, which are expected to expand bilateral development of oil and other natural resources in Siberia and the Caspian Sea region.  A liquefied natural gas distribution plant at Korea Gas Corp’s Pyeongtaek facility in Gyeonggi Province. In Astana, Minister of Commerce, Industry and Energy Lee Hee-beom persuaded Kazakhstan to agree to jointly extracting oil from below the Caspian Sea, a project that could bring Korea some 450 million to 650 million barrels of crude oil.  Lee is accompanying President Roh Moo-hyun on the six-day trip to Kazakhstan and Russia.


Russia-Japan focus on energy projects


September 24, 2004.  Energy projects will be one of the main areas of Russian-Japanese cooperation in the next few years, Georgy Petrov, vice president of the Russian Chamber of Commerce and Industry, announced. "In the next few years, our countries will pay close attention to energy related issues, including gas pipelines and LNG supplies," he said at a meeting with a delegation of the Japanese chamber of commerce. Nobuo Yamaguchi, the chairman of the Japanese chamber of commerce, stressed Japan's interest in Russia's energy sector.  To further develop their cooperation, Russia and Japan need to create an adequate infrastructure and investment climate, Mr. Yamaguchi said. Mr. Petrov, when speaking about the state and outlook of the Russian economy, said the Russia had much to do, as the pivotal reforms were only in their early stages.


Pakistan proposes joint ventures for N-power


September 24, 2004. Pakistan proposed to the international community to consider setting up nuclear power parks, as joint ventures to meet increasing power demand in the developing countries. The Pakistan Atomic Energy Commission (PAEC) chief Parvez Butt said these joint ventures could be located in specially designated sites and covered by appropriate IAEA safeguards to mitigate proliferation concerns. Butt, who is representing Pakistan as one of the governors on the IAEA board, said with increasing global warming and an alarming outlook of oil price hikes, the nuclear power is resurging.  Pakistan with more than 30 years of experience of nuclear power generation, fully recognizes its responsibility towards safety and security of its power plants he said.



Renewable Energy Trends


Renewable Trends: National


`Renewable energy streams untapped in Gujarat’


September 22, 2004. Gujarat has a tremendous opportunity to utilise renewable sources of electricity, according to study by the Gujarat Energy Development Agency (GEDA), established by the government of Gujarat.  In environmental terms, Gujarat has rich renewable energy resources - 300 days of sunshine, good winds along its long shoreline and scope for vast energy plantations on its wastelands. Moreover, the state has opportunities to use the waste land to grow energy plantations and waste-to-energy options available.  The state is blessed with a long coast line of 1600 km where the wind speeds are adequate for conversion in to electrical energy. Similarly, certain inland hilly areas have potential wind speed for the same. In terms of power application, the state of Gujarat has a technical potential of 1450 MW of wind power generation. More than 70 per cent of the population in the state is living in rural or semi-urban areas. About 900 mw electric power could be generated from the 24 million tonnes of biomass to meet the energy requirements of almost all villages in the Gujarat, the study says. The biomass includes crop residues, agricultural waste and animal dung, which easily available in the state having the large base of agriculture and animals. The potential sites for tidal power development have already been located in Gujarat. The most attractive locations are the Gulf of Cambay and the Gulf of Kutch on the west coast where the maximum tidal range is 11 metres and 8 metres with average tidal range of 6.77 metres and 5.23 metres respectively. 


The tides are generated through a combination of forces exerted by the gravitational pull of the sun and the moon and the rotation of the earth. The Gulf of Cambay and the Gulf of Kutch have potential to generate about 7000 MW and 1200 MW respectively. The Kutch Tidal Power Project with an installed capacity of about 900 MW is estimated to cost about Rs. 1460 crore (Rs 14.6 billion) is under techno-economic feasibility examination. The state enjoys about 300 days with clear sky and sunshine that is the chief resource of energy. Solar Thermal Technology (STT) and Solar Photovoltaic Technology (SPT) can be employed for collecting and converting the sun energy to heat energy and to directly convert solar energy to electrical energy by the using “solar silicon cell”.  The power of the solar energy can not be estimated due its natural attributes. But one thing is sure that Gujarat has the great opportunities lying ahead with use of solar energy as it is available abundantly. There is only one time establishment cost involved for solar energy’s utilization.  


‘Move towards renewable sources of energy’: UNIDO


September 22, 2004. The United Nations Industrial Development Organisation (UNIDO) recommended some cardinal principles to the industry in order to ensure eco-friendly growth.  The United Nations’ body wanted the industries to move towards closing the material loop within industries; reuse materials and energy to eliminate wastage; and move from non-renewable to renewable sources of energy. Unido has been promoting cleaner production practices in various sectors for the last 10 years. The impact has been a considerable improvement in the consumption of natural resources, even as it raised the productivity levels.


Government pumps up hydrogen


September 22, 2004.  The Ministry of Non-conventional Energy Sources (MNES) wants to push the hydrogen option in India. India's nascent research efforts can be put on the fast track, given the scientific capabilities. A portable hydrogen-oxygen generator has been developed under a Technology, Information Forecasting and Assessment Council initiative. One option can also be to use the enormous heat generated as a waste product from nuclear power reactors to separate hydrogen from water. Experiments have demonstrated that wind power too can be used in this process and as this is a cheap, renewable source of power, production of hydrogen could become commercially attractive. The MNES decision to allocate Rs 250 crore (Rs 2.5 billion) for projects under the hydrogen energy programme and the Planning Commission's recommendation for an additional Rs 200 crore (Rs 2 billion) augur well for attempts to propel India as a `Hydrogen Economy', and be among the frontrunners in the use of `Hydrecity', as the power produced from hydrogen is called.


Centre pushing for bio-fuel


September 22, 2004. As part of the effort to reduce petroleum imports and introduce ecological measures, the Prime Minister’s Office is holding a high-level meeting on bio-fuel. Mr TK Nair, principal secretary to the Prime Minister, Dr Manmohan Singh, is chairing a meeting on bio-fuel for which secretaries of the ministries of rural development, agriculture, petroleum, non-conventional energy and the Planning Commission and also, a senior official from the Council of Scientific and Industrial Research have been called. The report will be placed before the PM immediately after his return. The President, Dr APJ Abdul Kalam, is also ‘pushing’ the bio-fuel issue and has said cultivation of jatropha seeds for bio-fuels could reduce the number of unemployed people in India by half in the long term. The Planning Commission has been pushing for a national mission on bio-fuels.


Bio-gas from poultry droppings


September 27, 2004. SBEL Power Consultancy India Limited has developed an innovative and indigenous technology to produce bio-gas for power generation and nutrient-enriched organic manure to supplement the use of fertilisers and pesticides from poultry droppings. The consultancy has developed a technology which is most suited for tropical conditions through bio-methanation process that can generate power from poultry waste. Untreated poultry droppings can cause green house gas emissions, obnoxious gas odours, ground water pollution, health hazards and spread of disease-causing pathogens. If pooled together, the daily droppings have the potential to generate 36 mw of power on a daily basis. The bio-gas can also be used as fuel in petrol and diesel engine motorcycles and in other automobiles. 


Renewable Trends: Global


Wind power may be more than a phrase


September 22, 2004. High oil prices in 2003-2004 have prompted more intense political interest in the alternatives provided by renewable energy, particularly wind power, according to a report released by Standard & Poor's Ratings Services (S&P). "Wind power remains often more expensive than traditional energy sources, however, although it is becoming increasingly price competitive." He noted that over the last five years, the financial support for the sector had largely been driven by governments' commitments to reduce emissions of greenhouse gases to levels under those contained in the Kyoto protocols.  Support from tax subsidies, renewable certificates, or subsidised prices remained important. "An increase in funding diversity will have to accompany the increase in wind generation capacity. Sponsor capital and bank financing have historically been the dominant funding sources for wind projects."


In absolute terms, the sector's contribution to global energy production remained insignificant. Nevertheless, it was growing strongly, particularly in Europe, where about 70% of the global wind power installed capacity was located. At the same time, emerging markets prone to energy shortages, such as India, had recognised the competitive advantage that wind projects could deliver, compared with the more capital-intensive requirements of conventional energy sources. The article, entitled "Wind Power Sails Before the Oil Price Storm", considers the performance of the two rated wind transactions and the sector as a whole in the U.S. and Europe. It also discusses future challenges and opportunities, including the potential for offshore wind farms.


Power from Spinach


September 22, 2004. Scientists at the Massachusetts Institute of Technology (MIT) have conducted a successful lab experiment which brings into the realm of possibility, spinach-powered electronic gadgets. They first isolated a set of spinach proteins that produced energy when exposed to light. Next, they found a way to use peptides (broken bits of proteins) to attach this material onto a piece of glass coated with a thin layer of gold. When hit with light from laser, the ‘green’ chip evidently produced a stream of electrical current! Indeed Intel, the chipmaker, has already been galvanised into action, pitching in with funds for further research. But, there is still a long distance to be traversed between the lab and factory floor — quantified into a few million dollars and 10-odd years.


GE, FPL expect boom in wind power business


September 27, 2004. U.S. power companies such as FPL Energy Group Inc. & GE that develop windmill farms will probably install a record number of turbines next year after Congress renewed the tax credit needed to make the plants cost effective. Over a thousand new windmills, typically twenty stories high with three 40-foot blades, will crop up in fields in Oklahoma, ranches in Colorado and off the coast of Massachusetts. U.S. wind power will increase by more than the 1,687 megawatts built in 2003. Wind turbine installations will drop to about 500 megawatts this year because the tax credit lapsed, putting projects on hold for nine months. Amid inconsistent support, U.S. wind power lags behind Germany, which gets 6.5 percent of its power from wind. Reliance on natural gas for U.S. power plants has grown as production of the fuel has declined.


India to promote renewables 


September 22, 2004. India's support for sustainable development by the promotion of renewable energies will result in a "relatively GHG benign growth path." The government has issued a draft ‘National Environment Policy' for comments until the end of October. The document will replace a number of current policies for environmental management contained in forestry, conservation, pollution and other regulations.  "The direct causes of air pollution are emissions from the use of fossil energy, and other industrial processes, and some consumption activities," it explains. "In terms of primary energy use, India's share of renewable energy at 36% is far higher than industrialized countries can hope to reach in many decades." "Since GHG emissions are directly linked to economic activity, India's economic growth will necessarily involve increase in GHG emissions from the current extremely low levels," it continues. "Any constraints on the emissions of GHG by India, whether direct, by way of emissions targets, or indirect, will reduce growth rates." "Sustainable development concerns in the sense of enhancement of human well-being, broadly conceived, are a recurring theme in India's development philosophy," it adds. "For this to occur there is a need for balance and harmony between economic, social and environmental needs of the country." "It is recognised that maintaining a healthy environment is not the state's responsibility alone, but also that of every citizen," and the Policy is designed to "mainstream environmental concerns in all development activities."


U.S. extends tax credit for wind


September 22, 2004. The U.S. government will reinstate the federal wind energy Production Tax Credit through 2005, according to the American Wind Energy Association.  The PTC expired last year on December 31, but will be extended retroactively to the end of 2005 and is a “critical factor in financing new wind power installations,” says AWEA. The extension is part of the H.R. 1308 tax package that extends a number of individual and business tax provisions. Both the federal House of Representatives and the Senate have approved the bill and President George Bush is expected to sign it into law. The measure provides a tax credit of 1.5¢/kWh (adjusted annually for inflation) for electricity generated by wind turbine. This action by Congress and the expected signature of President Bush mean that about $3 billion in wind energy investments forecast over the next several years are now back on track across the country. More importantly, hundreds of furloughed wind industry employees can now go back to work building and installing new high-tech wind turbines


Major wind project scuttled in Canada


September 22, 2004. A proposal to install 150 MW of wind capacity in western Canada has been cancelled.  The provincial utility in Saskatchewan, SaskPower International, says detailed discussions with ATCO Power since the proposal was announced last year have concluded that the deal will not proceed. ATCO of Alberta has 5,000 MW of power generation facilities in Australia and the United Kingdom, as well as Canada. SaskPower operates 16 turbines at the Cypress windfarm, as well as seven hydroelectric stations, four natural gas stations and three coal-fired stations with total generating capacity of 3,000 MW. It contracts capacity from the SunBridge windfarm When the joint venture was announced last September, SaskPower said the 150 MW would be the largest initiative in its Green Power Portfolio, which had been announced earlier that year in the provincial Throne Speech. Commissioning was predicted as early as this year, with all 150 MW of capacity to be operational by March 2007.


PV manufacturer to double production capacity


September 22, 2004. Kyocera will expand its manufacturing infrastructure for solar photovoltaic modules by adding new production operations in North America, Europe and Japan.  The company says its plan is to double its PV manufacturing output within the next year and to become the world’s largest ‘fully-integrated’ producer of PV. It will handle every step of the manufacturing process, from casting silicon materials and producing individual solar cells, to assembling finished PV modules and integrating them into solar electric generating systems. The first of the new production centres will open in Tijuana, Mexico on October 1 to supply PV modules throughout the Americas. A second facility will open next April in Kadan, Czech Republic, to supply PV modules to Germany and other EU countries. The company will add a new facility to its Yohkaichi plant in Japan's Shiga prefecture to double the output of solar cells, which will create a framework for manufacturing 240 MW a year by next August. The expansion marks Kyocera's 30th anniversary in the solar field and is in response to strong global demand for solar electric generating systems. Combined with its established plants in Japan and China, the new operations will give Kyocera significant local production capabilities in the world's top four solar PV markets.


Renewables group opposes nuclear


September 22, 2004. Two global energy groups have a different view of the future role of nuclear power.  The general conclusion at the recent congress of the World Energy Council in Australia is that fossil energy will remain as dominant as in the past and that nuclear needs to increase its share in world energy supply. Hermann Scheer of the World Council for Renewable Energy says that the congress theme of ‘Delivering Sustainability: Opportunities & Challenges for the Energy Industry’ examined the opportunities and challenges only of the conventional energy industry but not the challenges connected to energy which the global environment is facing. “The World Energy Council predicts that nuclear energy ‘will increase its role in delivering sustainable energy in both developed and developing countries in the years to come’ but it did not explain that a sharp increase of nuclear energy based on today’s technology will be impossible due to the scarcity of uranium resources, that new nuclear technologies like fusion reactors will not be available for at least the next 50 years if it could become available at all, that nuclear energy has already consumed world-wide $1 trillion of subsidies and will further rely on it, and that huge accidents in the past and possible more in the future and the unsolved waste disposal contaminate our environment and threaten human life,” he says. “In the same time, the WEC denounces the potential of renewable energy to provide an environmental friendly total world energy supply” and concludes that renewables will play a minor role,” he adds. For 80 years, WEC “has been the leading advocate for the fossil and later nuclear energy industry”.


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