MonitorsPublished on Nov 02, 2004
Energy News Monitor I Volume I, Issue 19
Is the pace of power reforms slowing down?

Electricity is one of the prime movers of economic development. Despite the impressive growth registered by the electricity industry, and several measures taken for implementation of reforms in distribution sector which were launched through Common Minimum National Action Plan for Power (CMNPP) in 1996, while I was Union Power Secretary, power distribution throughout India continues to be plagued by inadequate and deteriorating physical infrastructure, skewed tariffs, substantial agricultural subsidy, high negative rate of return, T& D losses, theft of energy, poor collection of revenue, lack of investment in private sector generation, extreme consumer dissatisfaction, and worst of all, the reforms and restructuring efforts are progressing rather slowly. The restoration of viability of the power sector is therefore considered as one of the foremost challenges faced by Government.


The Common Minimum Programme (CMP) of UPA Government attaches high priority for infrastructure development like power and reiterates its commitment to increased role for private generation and distribution. However, CMP also mentions review of the Electricity Act 2003 and the extension of mandatory date of 10th June 2004 for unbundling Electricity Boards, which is a serious setback for further progress of power reforms.


Electricity Act, inter alia, provides for formulation of the National Electricity Policy; National Tariff Policy; restructuring of SEBs; do away with licenses and techno-economic clearances for generation projects; provides for captive generation; open access; power trading; gives thrust to rural electrification; promotion of competition, protects interests of consumers and makes metering of all consumers mandatory. The Electricity Act was enacted after years of deliberations in various fora including the Parliament, and action is still to be initiated on many provisions. Under these circumstances, Government's decision to review the Electricity Act has totally dampened the efforts being made to reform the sector and unnerved investors and financial institutions, as a review, prima facie, appears open ended. It is essential that the Government at the highest level make it clear that the basic concepts will not be reviewed to remove uncertainty about the reforms.


Another serious setback for reforms is the decision of the Government to agree to extend the mandatory date of June 10, 2004 for unbundling and replacing Electricity Boards. The Government has already extended the date by one year in five states and by six months in six states. Government may find it difficult to resist any requests for further extensions.


One of the reasons for extending the mandatory date appears to be due to apprehensions among the Employees Unions that unbundling of the SEBs, would result in the privatization of distribution. The Unions need to be taken into confidence.  SEBs cover a vast geographical area of the state and continue to expand.  The pace at which SEBs are expanding makes them unmanageable and there is need for focused attention to obtain optimum results and improve efficiency. The objective in restructuring is to improve the creditworthiness of SEBs and to attract new investments to meet the growing demand for power, both qualitatively and quantitatively and to contribute for overall development of the State. There is clear proof from many reforming states that mere unbundling, corporatisation and autonomy, without privatization, has shown remarkable financial, commercial and overall improvements and better services to the consumers. Inspite of these advantages, only Orissa in 1996, Haryana, A.P and Karnataka (1999), Rajasthan and U.P. (2000), Uttaranchal (2001), Delhi and M.P. (2002) and none during the last two years have unbundled their power sectors which again demonstrates lack of will to carry forward the reforms. The unbundling of SEBs is one of the most significant components of reforms and should be done urgently for better management, supervision, control and efficiency improvements. Any setback in the progress of restructuring would seriously jeopardize  reforms.


Decision by state governments to give free power to farmers  increase consumption every year due to new connections; increase power theft and unauthorized connections, and face several other attendant adverse consequences on power distribution and on financial position of the state itself.  Though the initial impact of subsidy was negligible, agricultural consumption has increased by over 30% and the quantum of subsidy increased manifold over the years, with disastrous consequences on the finances of State Governments. Worse still is that the subsidy is contributing towards inefficient and indiscriminate on-farm use of power, wastage, over extraction of water, soil damage, and environmental degradation, declining water tables and distortions in crop pattern and has led to shortage of drinking water. As there is a steady deterioration in the revenue streams of states due to inadequate resource mobilization for fear of displeasing the electorate, it would be impossible to make huge budget provisions year after year. They are also competing demands from other sectors including rural roads, schools, hospitals, drinking water, social sectors and over all rural development. Inspite of this, many political parties are not willing to address the issue of subsidies, as agriculture sector is considered a 'big vote bank'.


Another factor, if not the most important, affecting implementation of reforms has been the lack of political will. The real challenge for the Government  is to develop political consensus for reforms among all political parties, as it is essential to do tariff reforms especially in the fields of agriculture and domestic sector, metering al all consumers, reducing  and proper targeting of subsidies and to get cost related tariffs fixed etc. There is therefore an urgent need to evolve a national consensus among all political parties and such political commitment can alone transform the sector from its current state of affairs. Speedy implementation is the essence to derive full benefits of power sector reforms.


P Abraham

Former Secretary, Ministry of Power, GoI

[email protected]

(Views are those of the author)


Three Cheers for Kyoto Protocol


It is a matter of cheer that the Kyoto protocol has cleared the last critical hurdle in the way of taking effect. On October 22, the Russian Duma ratified the protocol following the cabinet endorsement three weeks earlier. This remarkable turnaround of Russian position is bound to have a positive impact on the UN climate change meeting in Buenos Aires next month. It once appeared that after the United States and Australia, it would be Russia which would throw the protocol out of the window. However, after a long flip-flop on the issue, the Russian stamp of approval has salvaged the pact aimed at reducing emission of greenhouse gases that deplete the ozone layer and create global warming. It means the revival of the pact, the result of painstaking efforts by thousands of officials from more than 150 countries over a decade and a half, to protect the world from convulsing climatic destabilisation.


For more than two years, the Putin administration hesitated, weighing up the political and economic costs of ratification, with one pronouncement contradicting with the other in an all too apparent display of official disconnect on the issue. President Putin's Chief Adviser on Economic Issues Andrei Illarionov, however, has always held firm on his opposition to the treaty and it is widely believed that it was Illarionov's inflexible stand that has long imperilled Russian thinking on the issue. He has reasoned that the environmental pact would pose too much of a hindrance to the economic growth Putin has made his high priority. "It is impossible to take on obligations that impose substantial restrictions on economic growth in the country," Illarionov had said last December, emulating Bush administration arguments when it rejected the pact more than three years ago. President Putin envisages to double his country's GDP, currently estimated $310 billion, by 2010.


Good long-term sense has prevailed over short-term economic gains when the cabinet, in a sudden change of heart, recommended the ratification of the protocol on September 29. After the cabinet's nod, the Duma's approval has been a formality. Illarionov, in sackcloth and ashes, said the decision to ratify was "not the decision we are making with pleasure".


Why is Russia important?


When the world's biggest single polluter, the United States, pulled out of the protocol in March 2001, Russia's standing on the issue had increased dramatically. To take effect, the protocol has to be approved by 55 industrial countries which, among them, represent at least 55 per cent or more of greenhouse gas emissions. The European Union, the accord's most enthusiastic supporter, ratified it in May 2002. So far, 120 countries have ratified it, representing about 44 percent of total global emissions. Russia accounts for 17.4 percent, so its ratification would put the pact into effect. Without it, the protocol will remain stillborn.


The US, which produces 36 per cent of world greenhouses gases, signed the pact in 1998 under the Clinton administration, but the Senate voted 97-0 against its ratification, alleging it posed threat to American economic competitiveness. President George W. Bush, with his own private financial interests too deeply and inextricably linked to Big Oil, declared just two months after he took office that the US will not ratify Kyoto, saying it could damage the US economy and it did not yet place any curbs on the developing countries. Under Kyoto, developing nations will have to accept reduction targets in a few years' time. The protocol's architects say it is fair to allow them a grace period, because the problem has been primarily caused by the industrialised nations. This exemption is strongly resented in US Congress.


What does the protocol require?


The Kyoto protocol, reached in 1997, requires industrialised signatories named in its Annex I to cut or limit output of carbon dioxide and five other types of carbon gases, most of which are a byproduct of burning fossil fuels, by an average 5.2 percent to 1990 levels by 2012. These gases are responsible for trapping heat in the atmosphere rather than let it radiate safely out into space, thereby warming the planet. Countries may offset the requirements by properly managing forests and farmlands that absorb carbon dioxide, known as carbon sinks. They can earn further credits by helping developing countries cut carbon emissions by switching to clean energy sources and manage their carbon sinks efficiently. The agreement allows for emissions trading: buying and selling the right to pollute. Signatory countries face mandatory punishment if they fail to meet emission targets.


Since indicating at a world summit in Johannesburg 2002, that it would probably ratify the deal, Moscow has adopted a back-and-forth posture on the issue. The first hint that Russia might not commit itself to the treaty emerged at a conference on climate change in September 2003 in Moscow, when Putin said that the Kremlin was concerned about the accord's effect on Russia's energy-dependent economy and wasn't prepared to accept it. He made a half-serious remark: "Russia is a northern country, so if it warms up two or three degrees, it's not terrible. It might even be good. We'd spend less money on fur coats and other warm things."


Why is the Kyoto protocol important?


One only hopes that President Putin was joking, for his sardonic humor cannot blur the horrendous impact a rise in even two or three degrees can wreak on earth. Writing in the December 2003 issue of the Journal Science, two top US government climate experts have said that, between 1990 and 2100, there is a 90 percent probability that average global temperatures will rise by between 1.7 and 4.9 degrees Celsius because of human influences on climate. Such dramatic warming will further melt already crumbling glaciers, inundating coastal areas. "The likely result is more frequent heat waves, droughts, extreme precipitation events, and related impacts, e.g., wildfires, heat stress, vegetation changes, and sea-level rise," Thomas Karl, director of the National Oceanic and Atmospheric Administration's National Climatic Data Center, and Kevin Trenberth, head of the Climate Analysis Section at the National Center for Atmospheric Research wrote.


For many months, the US has been putting pressure on Russia to walk out of Kyoto. It remained no secret that the Putin administration, too, was eager to find a common cause with the US in a bid to improve relations strained by differences over Iraq and clashing interests in the former Soviet republics in the Caucasus. However, now that the Duma has ratified it, and thereby helped the protocol's entry into force, Russia has isolated and shamed the US, the presumed leader of the international community, on such a critical issue concerning mankind. It will certainly add weight to calls for the US to reconsider its stand and share the responsibility to solve a small fraction of the problem it has done so much to create.


Why did Russia ratify the protocol?


Ironically, financial as well as political motives, not altogether altruistic considerations, brought Russia into the pact. The country could have raked in an annual windfall of $10 billion through selling its surplus pollution credit to the US and other quota deficient nations. Russia has a large amount of excess emission quota, since the limits are pegged to the 1990 levels when a majority of Soviet heavy industries were using obsolete technologies and were belching greenhouse gases in large quantities. However, when the Bush administration disowned Kyoto, the value of Russia’s credits dropped to at least $1 billion as the chances of American corporations buying Russian credits have virtually disappeared. Japan and the European Union are its only two lucrative customers now. It is understood that Moscow is attempting to get the best bargain out of these two by holding out the threat of veto. The political benefit may come in the shape of support from the European Union for Russia’s bid to join the World Trade Organization.


It is laudable that Russia did not precipitate the demise of the Kyoto mechanism, for without Russia it is hard to see any immediate future for global measures on climate change. Its collapse would have heightened fears that a clean environment has ceased to be a concern for governments worldwide. Though developing countries like India are not bound to emission cuts at the moment, talks are to start soon about the level of their pollution reduction commitment. With the entry of Russia into the pact, the US finds itself diplomatically isolated and morally cornered for its refusal clean up its act. Had Russia refused to ratify Kyoto, the developing world too might have lost interest in addressing the truly global problem of climate change. As Kyoto protocol has bounced back to life, negotiations can begin again on new, tougher targets for after 2012 and the possibility of getting developing nations to accept curbs.


Rajiv Jayaram

Observer Research Foundation

[email protected]

(Views are those of the author)


Yukos Remains in Trouble, but Investments Grow


The Federal Tax Service allowed YUKOS to transfer funds to the state budget in order to clear off its debt on tax returns. Experts estimate that the company will be able to pay off the $3.4 billion debt for the year 2000 in the near future. The overall sum of unpaid taxes for 2000-2001 that YUKOS will have to pay is $7.4 billion.   It is expected that YUKOS will face new tax charges, this time - for the year 2002 in the amount of several billion dollars. The sum will correspond to the amount of YUKOS debt for the previous years. As a result, the amount of YUKOS debt, not counting the part that has been already paid off, will approach the $7 billion mark, which approximately equals the company's capitalization. Meanwhile, the discussion between the authorities and YUKOS minority shareholders continues. Last week, the US State Department criticized the YUKOS affair. This week, critical comments came from Sweden. Former Swedish Ambassador to Russia Swen Hirdman addressed a letter to the RF Economic Development Ministry on behalf of Swedish investors whose combined portfolio investments in Russia exceed $3 billion, with the majority of funds invested in YUKOS. The letter states that the investors understand the desire of the Russian authorities to guarantee the receipt of tax returns from corporations that avoid fulfilling their obligations before the state; however, they doubt the effectiveness of measures taken by the Russian authorities and accuse the Russian courts of pursuing certain goals that differ from simple taxation. The Swedish investors see the only solution to the existing situation in appealing to international courts.   The Russian authorities, despite the international pressure, maintain their course of actions. Recently, a number of experts expressed their opinion about the YUKOS case. Russia's Minister of Economic Development German Gref believes that the situation around YUKOS is not favorable for Russia; however it is necessary for putting things in order in Russian economy. "It would be better if we didn't have this situation. However, it would have been still better if everybody had paid taxes and avoided problems with law enforcement bodies," Mr. Gref said. He also stated that all further procedures related to the YUKOS case must be transparent and based on the principles of market economy. "As far as I understand, YUKOS bankruptcy is not an issue at present," underlined the minister.   Russian President's aide Igor Shuvalov believes that in case of the forced sell-off of the company's assets they are going to be sold through an open public auction. In his opinion, the state must take all possible steps to make the situation around Yuganskneftegaz transparent. He also reiterated that "the position of the state in relation to the YUKOS case remains unchanged."   At the same time, Russia remains an attractive investment market with lucrative opportunities for foreign investors. According to the Minister of Industry and Energy Viktor Khristenko, the situation around YUKOS did not affect the interest of Western companies in Russian economy, and during the summer of 2004 the Russian government had a large number of contacts with representatives of the leading foreign firms. Meanwhile, according to President of US Chamber of Commerce Thomas J. Donohue, the YUKOS problem does not hinder the negotiation process between Russia and the United State on Russia's accession to the WTO. "It would be a mistake to consider an issue of one company as a serious obstacle to the negotiation process," he stated.


Nina Kulikova

RIA Novosti economic analyst

Courtesy RIA Novosti


IEA Experts Forecast Russian Oil & Gas Export Rise


October 26, 2004.  Experts of the International Energy Agency expect Russian oil and gas export to rise in the near future.   "In the short-term perspective Russia will play the main part in international energy supplies and trade, which will have influence on energy security," the experts said.   At the same time, the Russian economy's dependence on the energy sector has increased recently, as the output and prices grew higher. "The rates of dependence are approaching those of some OPEC countries," the agency reports.   "In the long-term perspective the Russian economic development will rest on the increase of competitiveness and the diversification of various industrial sectors and services offered on the international markets," the experts were quoted as saying.   However, the experts described the prospects of oil extraction in Russia as unclear. "In the recent years the volume of oil production has grown due to the modernisation of wells. And the volume is expected to continue expanding, at lower rates, though," experts at the International Energy Agency believe   According to them, the oil production increment will be exported in both the short-term and long perspectives. "However, after 2010 the share of Russian export in the world trade will start shrinking as the rates of Russian oil extraction will stabilise against the backdrop of a growing domestic demand," the experts remarked.   With higher rates of gas extraction, Russia will manage to meet the growing domestic demand, expand export supplies to Europe as well as new Asian markets, the agency remarked. "Although in 2030 Russia will still remain the world's leading gas exporter, the output of old gigantic gas fields is declining, consequently Russia will need huge investment in projects to develop new deposits," the experts said.   They believe the prospects for independent producers extracting definite volumes of gas are contingent on whether they will have "adequate access" to Gazprom's gas transportation system. 


Russia Very Important to OPEC: Experts   


October 26, 2004. OPEC is interested in the further development of its relations with Russia, acting OPEC Secretary General Maizar Rahman said at the Russian Oil and Gas Week.   He said that while Russia was not a member, it was a very important country for OPEC and that OPEC was interested in developing relations with Russia.   Mr. Rahman noted that relations between Russia and OPEC have considerably improved recently. He said that cooperation had expanded and that OPEC intended to develop all aspects of its relations with Russia: oil supplies, prices, the oil market, and production.   He said that if necessary, OPEC member countries were capable of boosting oil output by 2.5 million barrels a day before the end of the year.   Mr. Rahman said that OPEC countries had fears about an increase of supplies on the markets, which could be speculative gambling.   He said that in order to change the current situation on the world market, OPEC had already decided to double its output and increase it even more if needed.   In his opinion, oil will remain an important factor on the world markets over the next few years, and therefore, investments into the sector were necessary. He said that currently it was difficult to predict the amount of investments.   The expected amount of investments is not clear, he said and added that it would depend on the increase of supplies and prices as well as the policies of non-OPEC countries.   Mr. Rahman said that it was necessary for all OPEC members to work for the stability of the oil markets. 


Courtesy RIA Novosti


Caspian Sea's Uncertain Legal Status


A convention dealing with the Caspian Sea's legal status will not be approved in the near future. The leaders of five littoral countries are set to meet in Tehran in January 2005 to discuss regional issues and the Caspian Sea's legal status in the context of these issues.   The need to adopt a new legal document on the Caspian Sea's status came with the disintegration of the Soviet Union in 1991, as the area had previously been controlled by the USSR and Iran. However, the emergence of the four post-Soviet states - Russia, Kazakhstan, Azerbaijan and Turkmenistan - led to a new problem, the Caspian Sea's re-division. The 1982 Law of the Sea convention does not cover the Caspian, while the norms and concepts of international maritime law also do not apply to this unique inland sea. Work on drafting a convention on the Caspian Sea's legal status started more than ten years ago. At the same time, the five littoral states agreed that the convention could only be adopted by consensus.   Ashgabad hosted the first regional summit in April 2002. The presidents of the five states noted their similar or coinciding positions on the legal status of the Caspian Sea, but there were some conceptual differences. The leaders were expected to come close to a decision on the Caspian's status at the Tehran summit, if not finalize the details. However, a Moscow session of an ad hoc working group dashed any hopes that consensus among all five littoral states (a mandatory condition for determining the sea's status) would be reached soon.   The fifteenth regular session of the working group held in Moscow on October 26-27 failed to produce any results. In comparison with the previous session in Baku, journalists were told nothing new. A session communiqué stated that the parties had brought their positions closer together and had agreed to continue work on solving problems. The Russian delegation's head, ambassador-at-large Andrei Urnov, said that the stumbling block remained key problems in drafting the new concept, primarily the division of the seabed and water area.   Although the Caspian Sea cannot be compared with the Persian Gulf, it does have substantial resources. Hydrocarbon deposits total an estimated 10-18 billion metric tons of fuel equivalent and proven deposits stand at 1-4 billion tons, which means they could satisfy 3-5% of the global oil demand. It would be naive to think that someone would voluntarily renounce his rights to the deposits to the detriment of his own economic interests.  In particular, Iran insists that the Caspian seabed and local waters be either used by all five littoral countries on a parity basis or be divided into five national sectors, with each country receiving 20%. The other countries suggest demarcating the seabed along national borders, while water surface should belong to everyone. Tehran would then be entitled to just 13% of the seabed. Naturally, Iran is not impressed with this idea and claims that adjacent seabed areas with Azerbaijan and Turkmenistan are disputed. Abdullah Ramazanzadeh, an Iranian government spokesman, noted on the eve of the Moscow session that each of the five littoral countries understood each other. However, when commenting on talks between Iran and Azerbaijan on the demarcation of the disputed territories, he said that results could not be expected in the near future given that the Caspian involved national interests.   The export of Caspian fuel and energy resources is also problematic and the need to build multi-branch regional pipelines is currently under discussion. At the same time, this concept aims to rid littoral countries of their excessive dependence on Russia. Moscow's opponents believe that the Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzurum gas pipeline must become the system's main elements. Moscow opposes any trans-Caspian project, believing that it could be environmentally dangerous, and is insisting that all five regional countries reach consensus on this issue. Tehran actively supports Moscow's position, whereas Baku and Astana are resolutely against it, believing that each littoral country has the right to take part in such projects.   The Caspian Sea's demilitarization is also being discussed. By proclaiming the "reasonable sufficiency" principle, Moscow believes that any talk of militarization is premature at this stage, particularly given the threat of international terrorism. At the same time, Moscow opposes any build-up of national armed forces by the sides. As Russia is the only country to have substantial forces in the area, the other nations do not support this position.   In other words, the Moscow conference proved that differences remain on key problems and that talks at the highest level will be needed to solve them. The sides agreed to once again examine the draft consolidated convention on the Caspian Sea's legal status in Ashgabad before the Tehran summit. However, it is already clear that this document will not be finalized prior to the summit. To all appearances, a "frontal attack" on the new legal status has failed to produce any results and now the issue will have to be decided along the "common to particular" principle.


Pyotr Goncharov

RIA Novosti commentator 

Courtesy RIA Novosty










India eyes more Russian oil fields


October 26, 2004. India, whose biggest ever investment abroad in the gigantic Sakhalin-I oil field of Russia begins production from 2006, is eyeing acquisition of more oil fields in the former communist nation. Government has signaled its interest in taking stake in Sakhalin-3, Severnaya Neft, Vankor, Prirazlomnoye and other fields. India also expressed interest in taking over Russian oil firm Yuganskneftegaz.


ONGC puts 19 offshore fields on sale


October 28, 2004. ONGC put 19 offshore fields up for sale. The company had recently sold six onshore oil fields to two companies. Three oil fields in Assam were sold to Assam Company Ltd and three others in Gujarat to Price Petroleum.  There are some marginal oil fields across the country, mainly in the northeastern and western parts of the country, which are too small for ONGC to invest in exploration and so ONGC has decided to sell those wells to other companies. Both domestic and international companies are showing interest for taking control of such marginal oil fields.


IOC, OIL set to form JV for overseas ventures


October 28, 2004. IOC and OIL are set to form a joint venture to bid for exploration and production facilities overseas. Both IOC and OIL would hold 50% stake each in the proposed joint venture. The two are expected to sign a memorandum of understanding (MoU) on the JV plan in a week. The companies estimate a total investment to the tune of about Rs 10,000 crore (Rs 100 billion) over 6-7 years. IOC is cash rich and OIL has a reserve of about Rs 4,000 crore (Rs 40 billion). While OIL has expertise in exploration and production, IOC has the required financial strength and enough international contacts due to its wide supply sources. The two are expected to utilize their respective strengths to bag lucrative exploration-production deals overseas.


The proposed JV would be mainly looking at South-East Asian countries like Thailand, Indonesia and Myanmar, besides some African countries, for taking up exploration blocks. The current plan envisages the proposed JV to opt for different business models in different countries, depending on the specific local laws applicable in these countries.


Temasek pips IOC for stake in Indonesian company


October 28, 2004. IOC has lost out in its bid to acquire a stake in Indonesian exploration company, PT Medco Energi. Those in the fray included PetroChina, one of China’s largest oil companies and the Singapore government investment arm, Temasek Holdings. It was Temasek Holdings which piped IOC to the post.  The deal size for an estimated 40% stake in the Indonesian company, was approximately put at $600 million. The stake is held by PTT Exploration & Production and Credit Suisse First Boston. For IOC, which has created a war chest of $2 billion to fund its plans for acquiring mid-sized exploration and production companies, the Indonesian experience may come as a setback of sorts, although the company is firm on its plan to acquire oil equity abroad to lower its dependence on imported crude. 


IOC in talks to buy out French, British firms


October 28, 2004. State-owned Indian Oil Corp is in talks to buy out French oil firm Maurel & Prom and Tullow Oil of UK. IOC was also exploring opportunities in Burren Energy. IOC is in the process of acquiring a mid-sized E&P company and for this purpose, discussions are being held with a number of companies. Maurel & Prom is just one of them. IOC, which owns 10 of the 18 refineries in India and half of the petrol stations in the country, has raised a war-chest of $2 billion for acquisition of a foreign E&P firm to realise its vision of foraying into the upstream business of oil chain.


RIL to explore CBM in Chhattisgarh


October 31, 2004. Chhattisgarh government has given permission to Reliance for prospecting coal-bed methane (CBM) gas in coal-rich Korea district of the state. The Chief Minister said it was an opportunity for the state in the energy sector since the methane gas is being used as a fuel in many industries and also for power production. The first phase of the prospecting would be of two years, during which Reliance would be involved in geological assesment and drilling activities. Subsequently the CBM would be produced for 25 years in the licenced area and 10 % of the cost of produced methane would be paid by the private company as royalty to the state government.


Reliance bids for oil & gas block in Oman


November 01, 2004. RIL has bid for acquiring an oil & gas block in the Gulf of Oman and is looking for oil assets in Qatar. RIL has put in a very aggressive bid in the Oman government tender for three Gulf of Oman deep-water blocks. RIL is focusing on west Asia, Latin America, Africa and Australia in general and Sudan, Venezuela and Iraq. Indian firms are acquiring oil and gas properties abroad to cut import dependence. India imports over 70 % of crude oil to meets its requirement and produces just half of its natural gas requirement. 




HPCL zeroes in on Rajasthan 


October 29, 2004. HPCL is likely to relocate its proposed 9 million tonne per annum refinery project from Bhatinda in Punjab to Rajasthan. The HPCL board will consider a proposal to sign a memorandum of understanding with the Rajasthan government to jointly scout for a location and deciding the fiscal incentives that the state could offer.  HPCL had originally planned to set up a 9 MMTPA grass root refinery project at Phulokhari in Bhatinda district of Punjab through its 100% subsidiary Guru Gobind Singh Refinery Ltd. The estimated cost of project was Rs 9,800 crore (Rs 98 billion) at June 1998 prices. Now, the relocation was being prompted with the Punjab government backtracking on the financial incentives originally offered by it. The robust demand coupled with the deficit scenario in the north zone made the company explore Rajasthan as an alternative location for the green-field refinery. It also had the potential to leverage HPCL’s own demand in the north zone by integrating the inputs from the refinery to the proposed Delhi Mundhra pipeline. Rajasthan had other attractions like the recent crude oil and gas finds in the state which can be processed in the new refinery.

Transport / Trade


Indo-Iran gas pipeline


October 28, 2004. Ministry of external affairs (MEA) continues to maintain its stance on the Indo-Iran gas pipeline. MEA officials said exchange of correspondence with Pakistan on the issue not withstanding, its core concerns remain unaddressed. These pertain to security of the gas pipeline as it transits through Pakistan and the security of the pipeline in the context of Indo-Pakistan relations. They stressed that matters of security continue to be ticklish.  New Delhi has suggested that it could meet the entire requirement of Pakistan by laying a pipeline from Jallunder to Lahore. Currently, Pakistan imports 4.5 million tonnes of diesel every year from Kuwait and other countries in the Middle East.


A gas cooperative in Anand


October 28, 2004. The Patel community of Anand in Gujarat has identified natural gas as the next big opportunity. In perhaps the first cooperative sector initiative of its kind, the Charotar Gas Sahakari Mandali Ltd, has entered the gas distribution business for both domestic and small scale industry (SSI) sector. In fact, the Mandali already has on board nearly 40 SSI units as customers and has recently started supplying piped gas to over 500 households from Gana, a small but prosperous village on the outskirts of India's milk capital, Anand. The cooperative was set up in 1999 and has been supplying gas from a private field in Bavla near Ahmedabad. It has acquired the gas distribution rights for Anand, Ahmedabad and Kheda districts of Gujarat.


The state-owned Gujarat State Petroleum Corporation (GSPC) has recently started supplying 15,000 cubic metres per day of Regassified Liquid Natural Gas (RLNG) at Gana, where it has a junction point in its gas pipeline. The Charotar Gas Mandali now aims to ramp up its customer base and step up gas supply from 20,000 cubic metres to 80,000 cubic metres per day.  There are 158 GIDC (Gujarat Industrial Development Corporation) estates in the State that can benefit from the availability of natural gas in the State. Many industries spend nearly 25 % of their annual turnover on fuel. If they switch to gas, their profitability would increase. While the Government could not buy power from wind mill farms as it would turn out to be more expensive, Mr Patel said that Gujarat Government was encouraging captive wind mills and gas-based power plants to meet the needs of power by industries.


Petronet LNG approves Kochi terminal 


November 01, 2004. The board of Petronet LNG Ltd has cleared the setting up of a Rs 2,000 crore (Rs 20 billion) LNG terminal at Kochi in Kerala and Rs 1,000 crore (Rs 10 billion) expansion of its Dahej terminal in Gujarat to 10 million tonnes. Natural gas, which will be imported in liquefied form from Qatar or Iran, would be first used to meet the requirement of promoters and then sold to unmet demand of existing customers. If any gas is left thereafter, it would be sold to other customers. The Kochi terminal is being planned in a way to raise its capacity to 5 million tonne in future and the construction would be completed in two and half years. PLL would also begin work on raising capacity of its 5 million tonne Dahej terminal to 10 million tonne at an estimated cost of Rs 1,000 crore (Rs 10 billion).


ADB to pick up stake in GAIL project 


November 02, 2004. GAIL India Ltd’s Rs 11,000 crore (Rs 110 billion) piped gas project has evinced interest from Asian Development Bank (ADB). The bank made a presentation to GAIL expressing its desire to pick up equity in the project which is currently being implemented in 22 cities across India. GAIL is awaiting communication on how much equity ADB wants to pick up in its projects. The company has already formed consortiums for different cities which would include public sector oil companies - IOC, HPCL and BPCL. The promoters of the project — GAIL and its joint venture partners have decided to put a cap of maximum 50% stake in each of the consortiums. The balance 50% will be distributed between a clutch of institutional and retail investors. The joint venture partner includes the local state government which holds a 5% stake. GAIL and the other public sector oil company which participates in the project, holds a 22.5% stake each in the consortium.


The cost of the project for each city is estimated at about Rs 500 crore (Rs 5 billion). The debt-equity ratio of the projects is 2:1. The 22 new cities are spread across Uttar Pradesh, Madhya Pradesh, Bihar, Rajasthan, Gujarat, Andhra Pradesh, Tripura, Karnataka, Maharashtra and Tamil Nadu. Some of the major cities include Ahmedabad, Hyderabad, Rajkot, Allahabad, Gwalior, Indore, Jodhpur, Patna, Chennai, Agartala, Mathura and Bangalore. GAIL supplies compressed natural gas (CNG) to more than 2.4 lakh (240,000) households in Delhi, Mumbai and Baroda. GAIL enjoys a 84% market share in gas marketing and transmission which includes supplying gas as fuel to power plants and buses in Delhi.


Policy / Performance


India seeks strategic energy alliance with Russia


October 26, 2004. India is seeking a strategic energy alliance with Russia that would guarantee India's energy security and recast global energy equations. "In the first half century of Indian Independence Russia has guaranteed our territorial integrity, and in the second half century it may be able to guarantee our energy security," the Petroleum Minister, Mani Shankar Aiyar, said.  "What I am talking about the strategic alliance with Russia in energy security, which is becoming for India at least as important as our national security." During his four-day visit to Russia, Mr. Aiyar discussed proposals that would enable India to get direct access to Russia's booming oil and gas production and to join forces with Russia to form an Asian oil products market. He reached an agreement on using Russian technology for large underground coal gasification (UCG). The technology, developed by Russia's Skochinsky Institute of Mining, will enable India to extract gas from its vast unminable coal reserves, which will compensate for the shortage of natural gas. A final agreement on cooperation in UCG may be signed either before or during the forthcoming visit of the Russian President, Vladimir Putin, to India in December.


No gas for new industries in Andhra Pradesh


October 27, 2004. The Union oil and natural gas ministry has expressed its inability to give gas allocation to the new industries in Andhra Pradesh in the near future.  The move by the Union oil and natural gas ministry is also expected to weaken the state government’s efforts at renegotiating existing power purchase agreements with independent power producers in the state.  The previous NDA government sanctioned gas linkages to various projects based on the projected availability of 17.7 MMCMD of gas in KG Basin, when the actual availability was only 7.2 MMCMD. The situation would not be any different in the next two years.  The petroleum ministry’s response on further allocation of gas is expected to dampen the government’s plans on other fronts too. The new government has already been pursuing these independent power producers (IPPs) to postpone their operational plans till 2007, as these companies are entitled to generate power with alternate fuel like naphtha, which costs the state very dearly. 


Petroleum sector boosts core sector growth


October 27, 2004. The petroleum sector propelled infrastructure growth to 5.7 % during the first half of the current fiscal against 5.4 % during the same period last financial year. Crude petroleum output rose to 4.2 % during the first half of current fiscal against (-) 1.5 % during the same period of last fiscal. Similarly petroleum refinery products output grew 7.4 per cent against 6.1 per cent during the first half of 2003-04 financial year. While electricity sector grew by 7.8 % against 3 % during the first half of last financial year, coal sector rose 6.6 % during the first six months of this year against 4.1 % during April-September, 2003


Ministry puts Petronet above the rest


October 27, 2004. The petroleum ministry has consolidated the activities of PSU oil companies. It has decided that future LNG projects in the state sector will be developed on a consortium basis with Petronet LNG as the lead company.  As a result, Petronet LNG will bid for the Dabhol project in consortium with ONGC and IOC. The Kochi terminal will be developed by Petronet and Gail may have to give up its plans of developing yet another facility in the south-west coast. This strategy of merging the oil companies is to create a strong national oil company. The idea behind adopting the consortium approach is primarily to stop PSU oil companies from working against each other’s interests in the same fields. But this may not go down well with the oil companies which have drawn up extensive plans of expanding their businesses, many a times at cross purposes. Petronet LNG is a consortium of IOC, ONGC, BPCL and Gail India. Yet these oil companies are often pitted against Petronet for the same project.


Petronet LNG will be the only company, which will develop the Kochi terminal, thus putting a spade in GAIL’s plans. In the Mangalore project, ONGC has been directed to allow other oil companies to pitch in so that they can avail of their LNG demands as well. For Dabhol, although GAIL gas been allowed to retain its tie-up with the Tatas and British Gas, other oil companies will join in with Petronet LNG. IOC and ONGC have sent in their consents for bidding jointly with Petronet LNG.

India criticises oil producers


October 28, 2004.  India charged some of the oil producing nations and companies with building inventories that resulted in "unjustifiable" rise in crude prices globally and impacting the economic growth of developing nations. Oil producing countries are exploiting the situation and raising the prices of oil. If oil prices continue to rule high, it will rob developing countries like India of a critical percentage of their potential growth. Every $ 5 increase in oil prices per barrel affects our GDP by nearly 0.5 per cent and also contributes to inflation. Although the gap between supply and demand of crude has narrowed, there is still a small surplus on the supply side. Even if the demand has risen especially from China and India, there is no justification for any price beyond $35-40 a barrel.


Delay of gas supply upsets AP power plans


October 28, 2004. News that there would be no supply of gas from the Krishna-Godavari Basin to the state until 2007 is expected to upset the plans of several independent power producers (IPPs), who are slated to invest close to Rs 7,500 crore (Rs 75 billion) to generate about 1,500 MW of gas based power.  The four IPPs  Vemagiri Power Generation Limited (370MW), Gautami Power Limited (464 MW), GVK Extension Project (230 MW) and Konaseema EPS Oakwell Power Limited (445 MW)  have a total firm allocation of 6.4 million cubic meters per day (MMCMD) and have signed power purchase agreements with the state utility, APTransco. The four new projects which are scheduled to commence operations in the next two years will be the worst hit in the absence of additional gas supplies, apart from existing gas-based power projects which already are facing an acute shortage of gas. 


The estimate of energy demand in the state is expected to go up to 8,500 MW by 2007 from the existing 7,500 MW, that too if the load on agriculture sector was being restricted. As direct fallout, the pressure on the country’s coal supplies from the ever-growing power demand is expected to build further in the coming days. Power generation in the country, as well as in the state, will continue to be coal driven, starving other sectors. The state is breathing easy now as good rains this year has buoyed the hydel power generation, which otherwise would have resulted in a supply-demand gap of at least 6%. The new thermal units including the 420 MW Rayalaseema Thermal Power Project Stage-2, and Ramagundam and Talcher with 500 MW capacity each  are expected to fill the future demand-supply gap to a great extent, provided efforts on substantial reduction of T&D losses are made simultaneously. Even then, load reliefs during peak hours may not be ruled out. The dependence on additional power purchases from outside the state is also expected to grow in the future. 


Incentives sustain oil demand surge  


October 29, 2004. Governments around the world are helping sustain rapid oil demand growth by subsidising fuel or keeping duties low, limiting bills for consumers to avoid a public backlash over record prices. Many analysts say governments should instead cut costly fuel subsidies and invest billions in public transportation, electricity generation and increased oil refining capacity, to avoid economic damage from longer term high prices. It gives the wrong signal to consumers and lengthens the time to slow demand. Either consumers are going to pay the bill or government deficits will hurt economic growth. Oil markets have been caught out this year by the fastest demand increase in a generation, driven by global growth and a booming China, which boosted oil prices to recent record highs of over $55 a barrel and led to fears of an economic slowdown. Governments in Asia, Africa and South America cushion consumers from surging world prices with heavy subsidies, while the United States keeps gasoline duty low and European countries face revolts over high fuel tax policies. The French government granted farmers a reduction in domestic duties earlier this month after truckers and fisherman blocked ports to protest against high prices. The UK also deferred a September fuel duty rise, fearing protests. Jet fuel is still not taxed in Europe and air passenger traffic is soaring as cheap flights entice holidaymakers.


Rising oil prices may hit growth 


October 29, 2004. Admitting that rising oil prices were becoming a cause for major concern, finance minister P Chidambaram said a hike of  $5 per barrel pulls down GDP by 0.5%. He said the abnormal hike in prices could be due to building of inventories by a few countries.  “It is possible that some countries and companies are increasing their inventories of oil. It is also possible that oil producing countries are exploiting the situation and raising the prices. If oil prices continued to remain high, it would affect the growth rate of the developing countries while fueling inflation,” he said. He said this in turn would impact developing countries. He said that though the demand supply gap had narrowed, there was a “small surplus on the supply side.” However he said, “though prices are beyond control, we must find innovative ways to cut costs.”


AP Govt to offer tax rebate on ATF 


November 01, 2004. In a first ever move by any government in the entire country which will impact the air traffic over the state’s skies, the Andhra Pradesh government has offered a sales tax rebate of up to 70 per cent on aviation turbine fuel (ATF) to air carriers who operate 100 and more flights a week from Hyderabad.  The sales tax rebate is part of the move by the state government to encourage all major national and international airlines to set up their hub in the state capital.  The sales tax concessions will be in two slabs. According to the orders issued by the state government, any airlines which operate 140 and more flights per week (starting from Monday and ending with Sunday) will be given concession from out of the sales tax levied and paid at the present rate of 30.55 % on ATF to the extent of 25 % by way of reimbursement.  The resultant levy of sales tax would be only 5.55 % for the airlines which can avail of the top slab concession.  Under the second category, any airlines operating between 100 and 139 flights from Hyderabad will be given a 15 % concession, which means the resultant sales tax being paid by the airlines on ATF would be 15.55 per cent. 






OP Jindal group eyes mines abroad


October 27, 2004. The O P Jindal group is also looking at acquiring stake in coal mines overseas. The company is in negotiations to acquire stakes in coal mines in Australia and Canada for capacities of around 5 million tonnes and have outlined an investment of around $100 million.  The group would be eyeing a stake of around 20-30 per cent in the coal mines. The group has identified six companies in Australia and two companies in Canada, with which it is currently in discussions.  The coal will be utilised by companies under the Sajjan Jindal-controlled Jindal South West group, Ratan Jindal-controlled Jindal Stainless Steel Company and the Naveen Jindal-controlled Jindal Steel and Power Company. 


Karaikal power plant plans to enhance capacity


October 26, 2004. The gas-based power plant of the Pondicherry Power Corporation Limited, at T.R. Pattinam in Karaikal, has drawn up plans to expand capacity by 100 MW with an estimated investment of Rs. 400 crores (Rs 4 billion), the Chief Minister, N. Rangasamy, said. He said the Union Territory was seeing an increased growth in industrial activity. Therefore, there was a need to expand the plant and enhance power generation. While the plant would require for its expansion about 4.85 lakh (485,000) cubic metre of gas a day from the gas wells at Narimanam in the Cauvery basin, the Union Petroleum Ministry had only allocated three lakh cubic metres of gas daily on a fallback basis.


Mangulam hydel scheme


October 28, 2004. The Kerala Electricity Minister, Mr Aryadan Muhammed, will commission the small hydroelectric project that has come up at Mangulam Panchayat in Idukki district. This is the first hydroelectric project to be set up by a village panchayat. Mangulam is not connected to the State grid by the Kerala State Electricity Board (KSEB). The project has been jointly sponsored by the Village Panchayat of Mangulam, Energy Management Centre, Unido and the Unido Regional Centre based in Thiruvananthapuram. It has a 100-KW capacity and will provide electricity to 200 households in the panchayat.


Four new power projects by Genco


October 27, 2004. The Andhra Pradesh Genco is constructing four new power projects at Vijayawada, Bhoopalapalli, KPTS and Jurala, the Director (Thermal) of A.P. Genco, G. Vijaya Kumar, said. A technical hitch will be overcome soon and tenders will be called for the 660 MW fourth phase of Vijayawada Thermal Power Station. A new thermal power plant was being set up at Bhoopalapalli in Warangal district with an installed capacity of 500 MW (two units of 250 MW) and construction was in a primary stage. Similarly, construction of the sixth phase of the Kothagudem Thermal Power Station (two units of 250 MW) was also in a preliminary stage.


ACC to buy Tata's power generating unit 


October 28, 2004. Associated Cement Companies Ltd (ACC), India's second-biggest cement maker by capacity, said it has agreed to buy Tata Power Company Ltd's power generating unit for 238 crore (Rs 2.38 billion) rupees. The acquisition of the 75 megawatt unit was subject to requisite approvals.


Record growth in electricity generation


October 29, 2004. Recognising that an essential prerequisite to sustained economic growth is development of corresponding infrastructure facilities, concerted efforts are being made towards an all-round development of the country’s power and telecom sectors, speakers at the Confederation of Indian Industry (CII) Annual Conference 2004 said.  Giving a perspective of the power sector in the country, power minister PM Sayeed said that power generation in the country during April-September this year has registered a record growth of 7.8% as compared to 3-4% growth during the corresponding periods in the last 3-4 years. This has boosted the growth in the manufacturing sector.


REL eyes options on N-power 


November 01, 2004. As part of the base-load requirements of the country, Reliance Energy is looking at possibilities to set up nuclear power stations. “However, this requires a lot of support from the government,” Dr VK Chaturvedi, the newly appointed director of new power initiative of Reliance Energy said, adding that perhaps for the first time in the country any private company would be entering the nuclear power market. Mr Chaturvedi, who was the former CMD of Nuclear Power Corporation of India Ltd (NPCIL) said, “It will be necessary to have technical support from the Department of Atomic Energy and NPCIL.”  For the country’s expected demand of 600 to 700 gigawatts of electricity by 2050, “The new resources should be looked into without any delay,” he said. At present, Reliance Energy is pursuing thermal power programme, using gas and combined cylces in a big way and already a 3,500 mw gas thermal power plant is being set up at Dadri in Uttar Pradesh which would be ready by 2008.


ONGC to set up power plant in Tripura


November 2, 2004. Oil and Natural Gas Corporation will set up a Rs 3000 crore (Rs 30 billion, 750 MW gas-based power plant in Tripura to utilise idle natural gas reserves in the North-Eastern state. ONGC will float a special purpose vehicle (SPV) with Tripura Power Development Corp Ltd and IL&FS for setting up the power plant, company CMD Subir Raha said here. "The power plant will help us utilise idle gas in the state," he said.  ONGC has gas fields which can produce four million standard cubic metre per day of natural gas but is currently restricting the output at 2.3 mmscmd. "We are losing Rs 150 crore a year on idle gas," he said. The power generated at the Tripura Power Plant will be sold to Power Trading Corp (PTC).

Transmission / Distribution / Trade


New sub-station at Thumba on stream


November 1, 2004. The Kerala State Electricity Board (KSEB) has commissioned a 110-kV sub-station at Thumba. This is the third 110 kV sub-station to become part of the transmission network in the State, since the Government announced its 100-day new initiatives programme. It is expected to improve quality of power supplied to the hinterland. The KSEB expects that the new installation, constructed at a cost of Rs 8 crore (Rs 800 million), will bring about a 20 per cent improvement in voltage. It will also help avoid frequent tripping in Thiruvananthapuram city, the KSEB said.


Reliance, Tata in race for distribution licence


October 29, 2004. Private power distribution majors and public sector undertakings, have recently filed expression of interest (EoI) with Gujarat Electricity Board (GEB), for the power distribution rights in cities except in Ahmedabad and Surat.  GEB holds the generation, distribution and transmission rights in the state except in Ahmedabad and Surat where power distribution is in the hands of two companies under Torrent Group. Heavyweights such as Reliance Energy, Tata Power, Iffco, National Thermal Power Corporation (NTPC) have filed their EoIs wih GEB. The Board will invite tenders from these companies soon. 


Policy / Performance


No central aid for Maharashtra power sector 


November 1, 2004. The Centre has hardened its stand against the Maharashtra government’s decision to provide free power supply to farmers. The state government may not be entitled to get various incentives and financial assistance under the Accelerated Power Development and Reform Programme (APDRP) and loans from Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) if it sticks to its freebies to farmers.  The Centre has reminded that Maharashtra will need a capacity addition of at least 1,000 mw every year till 2011-12. The state is already facing a peak shortfall of 2,000 to 2,500 mw which is slated to rise to about 9,000 mw by 2011-12.  Maharashtra will need an investment of Rs 4,000 crore (Rs 40 billion) every year in generation and an equal amount in transmission and distribution.  The Centre has pointed out that the free power supply will also affect the “quality and reliability” of power to other sectors and consumers.

Power watchdog seeks states’ open access plans


October 28, 2004. The Central Electricity Regulatory Commission (CERC) has asked all state Electricity Regulatory Commissions to finalise a time frame for open access in distribution by December-end.  Open access in distribution would allow a consumer to choose his electricity supplier. He would be able to decide if he wants power from an agency other than the distribution licensee of his area of supply.  As per the law, all plants with a load of over 1 mega watt are to be allowed to freely provide power to consumers.  Currently, only 11 states have come out with a final or draft regulation for the purpose. These include Assam, Andhra Pradesh, Delhi, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Uttaranchal and West Bengal. The law provides for open access in distribution within a five-year time period. 


GE, Bechtel to cooperate on sale of Dabhol assets 


October 28, 2004. GE and Bechtel — which control 86% of Dabhol Power Company’s (DPC) equity — have agreed to cooperate with the US government-promoted Overseas Private Investment Corporation (Opic) and the Indian lenders in implementing the process of selling the company’s assets.  Now GE and Bechtel have conveyed to Opic that they are prepared to work with GoI and the Indian lenders and any new buyer to re-start the plant. This re-start process can be negotiated with the new buyer on a commercial basis, independent of past problems. So far, Tata Power Company and Reliance Energy Limited have expressed desire to bid for the Dabhol project.


Energy conservation programmes under way 


October 29, 2004. The Union power ministry expects power generation capacity to go up by one lakh (100,000) MW by 2012. It is also introducing a slew of demand side management schemes to conserve power. The capacity addition during the 10th Plan would be 40,000 MW and in the 11th Plan ending 2012, 60,000 MW.  The potential for energy conservation across various sectors is estimated to be 23% of the power consumed now. Mr Shahi said several schemes were being introduced to achieve this goal. They include, steps to institutionalise energy audits, fixing power use norms for gadgets and industry, developing building codes for energy efficiency, including energy conservation in the syllabus of universities and technical institutions, and empowering the energy service providers. There was shortage of energy service providers in the country, though many have come up.


Centre to meet power capacity addition target


October 29, 2004. The Centre is confident of adding slightly more than 40,000 MW during the Tenth Plan, which will be close to the target of 41,000 MW for the Plan period. This is something of a record for the country's capacity addition programme, according to the Union Power Secretary, Mr R.V. Shahi. This was against a total of 35,000 MW added during the previous two plan periods.  Apart from accelerating the capacity addition programme, the Centre's reform initiatives in the power sector were also bearing fruit, Mr Shahi said.  The average plant load factor of the power stations had also increased to about 73 per cent now against 56 per cent about 10-12 years ago. This growth in electricity generation had given a boost to the manufacturing sector in the country, Mr Shahi said inaugurating Energy Summit 2004, a two-day meet on energy conservation and renewable energy technology, organised by the Confederation of Indian Industry.


Karnataka offers free power


October 29, 2004. The State Government decided "in principle" to give free power to all Bhagya Jyothi connections and to regularise 1.35 lakh (135,000) unauthorised irrigation pumpsets (IPsets). It was also decided to ensure eight hours of three-phase power in all villages in the State. These decisions were announced after the Chief Minister, N. Dharam Singh, the Deputy Chief Minister, Siddaramaiah, the Janata Dal (Secular) President and the former Prime Minister, H.D. Deve Gowda, the Energy Minister, H. D. Revanna, and the Minister for Large-and Medium-scale Industries, P.G.R. Sindhia, met here to review the performance of Karnataka Power Transmission Corporation Ltd.  Mr. Siddaramaiah had stressed that the Government could not afford to subsidise the power sector. Losses for 2003-04 were close to Rs. 3,000 crores (Rs 30 billion) and this could not continue, he had said.


Single window clearance for new coal projects


October 30, 2004. The Centre was planning single window clearance system for sanctioning new coal projects and increasing coal production in the country, the Union Minister of State for Coal and Mines, Dasari Narayana Rao, said. The proposal had already been for Cabinet approval.  He said there was a shortage of 55 million tonnes of coal in the country during the current 10th Five-Year Plan period. With an indigenous production of 360 MTs per annum the country was importing another 22 MTs from overseas. The supply-demand gap might go up to 95 MTs during the 11th Plan period, he said. The Coal Ministry proposed single window clearance of coalmines for speeding up the process of licensing to increase coal production.


Govt warns of massive coal shortage


October 31, 2004. The Power Ministry has warned of a massive 50 million tonne coal shortage in the next two-three years that could trigger a major crisis in the crucial infrastructure sector even if new capacity addition target of 41,000 MW during the 10th Plan is met.  "There will be a crisis at the end of 10th Plan when full capacity target is achieved as the gap between demand and supply could be of over 50 million tonnes," the Ministry said in a presentation to the Planning Commission. The Ministry said that many new power plants may not get coal supply and it estimated that on an average 11 million tonnes of coal would have to be imported by power utilities every year during the remaining period of the 10th Plan.


Coal consumption during the last three years has exceeded the supply to power stations leading to a depletion of coal stocks from being sufficient for 22 days in 2001-02 to 11 in the last fiscal.  The Ministry is also concerned about gas shortage for various existing and new plants. Fuel linkage by central power projects is available for only 12.99 mmscmd as against a demand of 16 mmscmd. The average supply is still short at 10 mmscmd, the Ministry said.  The total loss of generation due to shortage of gas was estimated to be about 2843 million units during 2003-04. Apart from a number of gas-based plants working sub-optimally, the 360 MW Kayamkulam and 174 MW Cochin plants in Kerala have been closed, the Ministry said.


Free power could zoom deficit to 3000 MW


October 31, 2004. Free power policy announced by the state government could lead to an increase in power deficit beyond 3,000 MW in Maharashtra even as the state electricity board (MSEB) was planning to schedule load-shedding for six hours in rural areas and three hours in the urban areas from November one. "The deficit could go beyond 3,000 MW due to increase in demand in the rural areas on account of free power policy to farmers announced by the state," MSEB sources said.  The state is currently facing a power deficit of 1,600 to 2,200 MW and the present demand at 11,500 MW to 12,000 MW was higher by about 1,500-2000 MW in the same period last year, they added. 


Central agency to fund Bhupalapalli project


October 27, 2004. Decks have been cleared for the much-awaited 500 MW thermal power project proposed at Bhupalpalli in the district with the Coal Linkage Committee of the Central Government clearing the project in New Delhi.  The project which was conceived way back in 1984 had been pending for clearance for the coal linkage. According to sources, the Rural Electrification Corporation (REC), a Central Government agency, has agreed to fund the project which is estimated at Rs 2,000 crores (Rs 20 billion). Now, the ball is in the court of the AP Genco. The REC is understood to have agreed to sanction the amount as loan to the AP Genco. The project envisages supplying power to the Godavari Lift Irrigation Project coming in Eturunagaram mandal and also to the Ichampalli project besides addressing the power shortage problem in the region. 


Infrastructure fund to help hydro projects 


October 26,2004. The Reserve Bank of India’s (RBI) move to set up a rural infrastructure development fund (RIDF) of Rs 8,000 crore (Rs 80 billion), would promote the state governments to undertake hydro projects, medium irrigation, drinking water projects and establishments of primary health centres and primary education schools. The National Bank for Agric-ulture and Rural Development (Nabard) would be able to provide assistance under RIDF to these projects, in addition to rural roads and bridges, soil conservation, minor and micro irrigation, flood protection etc.  Nabard will fund hydro and medium irrigation projects, primary health centres, primary education schools and drinking water schemes too. 








Aspen announces recent gas discoveries


October 26, 2004. Aspen Exploration Corporation with offices in Bakersfield, California, and Denver, Colorado, announced two additional gas discoveries. Aspen has drilled nine successful gas wells out of nine attempts thus far this year and is currently drilling one additional well in the Sacramento Valley gas province of northern California. This prolific formation has produced nearly 7 billion cubic feet (7 BCF) of gas from a well located approximately two miles away. This was the fourth consecutive successful well drilled on a recently acquired farmout package consisting of six quality drilling prospects which are leased and defined by 3-D seismic data and well control. Aspen has a 28.75% operated working interest in these wells.


Norway's Frigg gas field shuts down


October 26, 2004. The depleted Frigg natural gas field in the North Sea was shut down for good after 27 years of natural gas production for the British market. The field's operator, France's Total SA group, awarded a 3 billion kroner (US$466.6 million, euro364.4 million) contract to Norway's Aker Kvaerner AS for the removal of platforms and other infrastructure from the depleted field. Frigg, 230 kilometers (140 miles) northwest of the western port city of Stavanger, was one of the first discoveries on the Norwegian Continental Shelf. It straddles the median line between the British and Norwegian sectors of the North Sea.


Since it went online in September 1977, the field produced 192 billion cubic meters (6.8 trillion cubic feet) of natural gas, worth an estimated 200 billion kroner ($31.1 billion, E24.3 billion.) Total said it had repeatedly postponed plans to close the field because "good methods for draining the reservoir, combined with cost-effectiveness and efficient organizational solutions, have contributed to extending the production." Now that the field is shut down, company plans to remove its five platforms will be finalized, and are expected to include the salvage of 85,000 tons of steel, Aker Kvaerner said.

Libya Oil & Gas back in business


October 26, 2004. Energy Intelligence Research announced the release of ‘Libya Oil & Gas: Back in Business’ a new special report on the current state and future prospects of the Libyan economy and its petroleum sector. After years of living on the fringes of the international oil market, Libya is poised for a surge in foreign investment in oil and gas development and the competition will be fierce. With the recent removal of international sanctions, this energy-rich country  estimates put Libya's oil reserve base at around 36 billion bbl and natural gas reserves at 46.4 Tcf has been re-established as a hotspot for energy investment.

Iran capable of exporting gas to major markets


October 27, 2004. Iran will increase its natural gas production capacity from 130 billion cu.m. per year to 300 billion cu.m. within next 10 years and the figure is expected to hit 400 billion cu.m. in 20 years. Hadi Nejad Hosseinian, deputy oil minister for international affairs, told the conference on 'energy transfer in Asia, Europe; challenges and prospect' in Brussels, Belgium that Iran is also planning to boost its crude output from the current figure of 4.2 million b/d to 6 million b/d within next 10 years. He said during past seven years more than 46 billion dollars have been invested in Iran's oil and gas industry, 65 percent of which came through foreign investment, adding, "We are planning to invest about 100 billion dollars in oil and gas industries by 2015."


Cairn oil flow from Rajasthan in 2007 


October 26, 2004. Cairn Energy PLC, Edinburgh, received formal government approval of its declaration of commerciality of several discoveries on 5,000-acre Block RJ-ON-90/1 in Rajasthan, India, near the border with Pakistan. The approval secures Cairn a development area that totals 1,858 sq km in the Thar desert and includes all development, appraisal, and exploration rights. The area takes in the Mangala, N-A, Saraswati, and Raageshwari discoveries and the unappraised GR-F, Kameshwari, and N-R discoveries.  Mangala and N-A fields are to start producing in the last quarter of 2007, eventually reaching 100,000 b/d. Cairn said India produces 650,000 b/d, of which 50,000 b/d comes from Cairn-operated Ravva field in the Krisha-Godavari basin off eastern India.


The country also imports 2 million b/d. Mangala has an estimated 1 billion bbl of oil in place, as assessed by DeGolyer & MacNaughton, Dallas consulting engineers. Cairn expects to submit a Mangala development plan to the government in first half 2005. Cairn is running five rigs and acquiring seismic surveys "to ascertain the scale and size of the overall oil and gas fields on the Rajasthan acreage.  Front-end engineering design is under way to determine how best to develop the fields and deliver the crude to buyers, with decisions likely in early 2005. India's state Oil & Natural Gas Corp. has 90 days in which to acquire a 30% interest in the overall development.


Hydro-Quebec signs agreement with Gastem


October 27, 2004. Hydro-Quebec Petrole et gaz, announced the conclusion of a farm-in and earning agreement with Gastem Inc.  This agreement will permit Gastem Inc. to participate in the Miguasha No. 1 well currently being drilled by Hydro-Quebec Petrole et gaz on the Gaspe peninsula. The estimated total cost of this well is approximately $1.6 million. Gastem's contribution is $500,000 and could reach $800,000, that is 50% of the estimated drilling costs for this well. By paying 50% of these costs, Gastem will earn a 33.3% interest in the prospect, or a cost/earning ratio of 3 to 2. This participation also grants Gastem an option that allows it to participate on the same basis in the Miguasha West well, also being drilled by Hydro-Quebec, as soon as drilling operations resume.


OPEC urges US to use oil reserves


October 28, 2004. OPEC has taken the unprecedented step of urging the United States to use its strategic petroleum reserve (SPR) to bring down world oil prices. Purnomo Yusgiantoro, the president of the Organisation of the Petroleum Exporting Countries, said he had approached Washington to suggest the move to help prices down from $55 a barrel. The Bush administration has consistently rebuffed calls to use its emergency reserves, set up after the 1973 Arab oil embargo, to bring down prices. Washington says the stocks are held in case of a severe supply disruption, in line with the policy of the International Energy Agency (IEA), the organisation that coordinates policy on emergency reserves for 26 industrialised nations. Oil’s 70 per cent price rise this year has been fired by rapid demand growth, particularly from China, that has eaten up most of the spare capacity held by OPEC producers. A shortage of refining capacity worldwide also has helped drive up prices. Purnomo’s request to Washington is unusual as in the past OPEC has regarded government stockpiles as a threat to its own market influence.


Before the US-led invasion of Iraq last year, leading producer Saudi Arabia raised output to prevent a supply shock and convinced the United States and other consumer countries that there was no need for a release of their strategic stocks. But now the cartel, which controls around half of the world oil exports worries that sustained higher prices could blunt demand growth by hurting the world economy and spurring investment in alternative fuels.  The last major release of the US SPR, which holds 670 million barrels of crude, was in 2000 and helped bring an end to a rally that saw prices jump from $10 to nearly $38 in just 20 months.


Shell to decide on Gazprom in Sakhalin by year end


October 28, 2004. Oil major Royal Dutch Shell will take a decision on the involvement of Russian gas monopoly Gazprom in its giant Sakhalin-2 project before the year-end.  Shell has invested heavily in Russia, where it leads a $10 billion project to build the world's largest liquefied natural gas plant on the far-eastern island of Sakhalin by 2006. It also plans to invest $1 billion in the Salym Siberian oil project. Shell and Gazprom have repeatedly pledged to team up to bid for Russian oil assets or to develop oil and gas condensate from Gazprom's huge Zapolyarnoye Siberian gas field, but talks stalled several years ago. The most recent development was a request from Gazprom, the world's largest gas firm, for a stake in Shell's Sakhalin project two years ago. Gazprom is looking to learn more about the LNG business before launching its own LNG projects.


Petrovietnam signs up Japanese oil explorers


October 28, 2004. State oil monopoly Petrovietnam signed a production-sharing contract with a group of Japanese oil firms allowing them to explore oil in Vietnam's offshore Nam Con Son Basin. The oil consortium including Nippon Oil Exploration and Idemitsu Oil & Gas Co. Ltd. would invest $11.5 million in exploration activities.  The agreement would allow the Japanese firms to explore and exploit oil in offshore Nam Con Son Basin's block 05-1b and 05-1c, adjacent to the Dai Hung (Big Bear) oilfield, for 30 years. Nippon Oil Exploration, an affiliate of Nippon Oil Corp and Idemitsu Oil & Gas Co. Ltd each invests 35 percent in the project. Teikoku Oil Co Ltd funds the remaining 30 percent.


Venezuela to offer small oil fields to local firms


October 29, 2004.  Venezuela plans to offer domestic companies the opportunity to invest in 20 marginal oil fields early next year as part of a bid to ramp up the OPEC nation's output, Deputy Oil Minister Luis Vierma said. The fields, which each currently produce between 1,500 and 2,000 b/d of oil, are expected to require investment of $10 million to $15 million each to double production.  Investment by domestic companies in marginal fields would help PDVSA raise output in areas where it lacked resources to do so alone. Venezuela is seeking private investment as part of a scheme to ramp up total production to 5 million b/d by 2009. Foreign oil majors have pumped billions of dollars into projects in the world's No. 5 oil exporter since the 1990s.


Norsk Hydro plans Oseberg upgrade


October 29, 2004. Norway's Norsk Hydro and its partners in the Oseberg field will invest 1.9 billion crowns ($297.2 million) to upgrade a platform, extend its life and boost the oil recovery rate.  The partners in the North Sea field also plan to drill seven more wells, which would raise Oseberg's recoverable reserves by 40 million barrels of oil, Norsk Hydro said. At the end of 2003 the entire Oseberg area, which also has huge gas reserves, was estimated to contain about 374 million barrels of proven oil, according to Hydro's annual report.  The goal was to boost the lifetime of the field by five to 10 years. The upgrading work on the Oseberg East platform will start at the beginning of 2005 and continue to autumn 2006, and the drilling campaign will begin as soon as that work is completed, Norsk Hydro said.


Iran oil production to increase by year-end


October 31, 2004. Based on current plans, oil production from Iran’s offshore regions will increase by the end of the current Iranian calendar year (started March 20, 2004). Oil production from Bahregan, Kharg and Lavan regions has increased during the current year. During the current year, crude production from Bahregan and Kharg fields has increased 14 percent apiece while output from Lavan field has increased 40,000 b/d compared to the corresponding period of the preceding year. At the same time, production from Sirri oil field has reduced 11 percent. The field comprises Sirri A and E fields whose development operations ended a while ago. Development projects for Doroud 1 and 2, Salman, Abuzar, Forouzan, and Sirri fields have been implemented in the Persian Gulf to bolster upstream oil industry and when all projects become operational, the country’s crude production capacity from the said regions will increase from the current figure of 675,000 b/d to 1.1 million b/d. Doroud, Salman, Abuzar, as well as Sirri A and E fields are among the most important offshore oil fields producing 130,000 b/d 130,000 b/d, 125,000 b/d and 95,000 b/d crude respectively. Soroush and Norouz fields, which yield 60,000 b/d are other important offshore fields of Iran. Total crude production from offshore Iranian oil fields has been announced at 540,000 b/d.


Pak to use reserves for oil import 


October 30, 2004. All payments of oil import bill will be met from the foreign exchange reserves while machinery and other imports will continue to be financed from the inter-bank resources, the Governor of State Bank, Dr Ishrat Hussain said. Dr Ishrat Hussain's  said that in face of negative impact of the rising oil prices, the rupee will remain stable and strong, currency speculators will not be allowed to play their games as the Central Bank is determined to keep speculators out of the market and to support all the genuine importers.


Talisman gas find in Canada


November 1, 2004.  Talisman Energy Inc. drilled a prolific exploration well in northeastern British Columbia that may have unlocked more than 200 billion cubic feet of natural gas, the company said. Talisman, Canada's No. 3 oil explorer by market value, said its Brazion b-60-E/93-P-5 flowed at 40 million cubic feet a day. The well is in the company's Monkman operating region and is expected to start producing by January. The company also said it recently bought deep mineral rights for 3,800 acres (1,538 hectares) of land adjacent to the discovery for C$7.9 million ($6.5 million). Six deep exploration wells at Monkman have been successful and the company plans to drill another four in the region next year, it said.


Russia increases oil export duty


November 1, 2004.  The duty on crude oil being exported from Russia will amount to a new record of $101 per tonne from December 1, Alexander Sakovich, head of the customs payments department at the Russian Finance Ministry, told. The oil export duty is reviewed once every two months based on monitoring of prices for Russian crude on world markets. The duty was increased to a record $87.9 per tonne from October 1, from $69.9 per tonne earlier.  The duty that will be in place from December 1 is based on monitoring of the average price for Russian oil in September-October. Sakovich said that based on monitoring of prices for Russian crude on world markets in September-October, the average price was $40.13666 per barrel.


CNOOC in 340b yuan gas push


November 2, 2004. Facing mounting competition from larger rivals, China National Offshore Oil Corp (CNOOC) plans to invest in a series of liquefied natural gas (LNG) terminals along China's coast that may cost up to 340 billion yuan (HK$319.7 billion). For now, CNOOC is the frontrunner in China's LNG market and the plan to build a series of facilities along the wealthy east coast from Guangdong to Tianjin is designed to ensure its continued dominance in what promises to be a rapidly growing market. CNOOC, though, has the early lead. Four of its projects - in Guangdong, Fujian, Shanghai and Zhejiang - have already received official approval from Beijing, according to a CNOOC source.


It hopes to build four more terminals, in Hebei, Shantou, Jiangsu and Tianjin. Each will supply three million tons of LNG a year. CNOOC says that the average cost of construction for a terminal is at least 42 billion yuan. That would put a total price tag on its projects of about 336 billion yuan. CNOOC also plans to build an LNG terminal in east China's Zhejiang province, but has yet to unveil any sales contracts. The company is teaming up with the Zhejiang provincial government to construct the project, which includes an LNG terminal, a gas pipeline and a gas-fired power plant. The terminal will convert three million tons of imported LNG back to natural gas annually, most of which will feed into a planned 2,800-megawatt gas-fired power plant.




Nigeria's first private refinery 


October 26, 2004. After over two years the Federal Government issued licenses to 18 indigenous entrepreneurs to construct private refineries.  One of the licensees, Obat Oil and Petroleum Limited says it is set to begin construction of its refinery even as the oil and gas apex regulatory body, the Department of Petroleum Resources (DPR) has agreed to give the company maximum support to achieve its goal.  The company wants to apply for an approval to construct which is one of the primary regulatory requirements for construction of an oil and gas facility.  The refinery will have the capacity to refine 50,000 barrels of crude oil per day and will be sited at Ondo State where it has common boundaries with Lagos and Delta States. The construction of the refinery which is estimated to cost between $500 million and $1 billion while arrangements have been concluded with its technical partners.


$850m needed for Tehran refinery’s upgrade


October 30, 2004. Managing director of Tehran refinery noted that 850 million dollars are needed to implement a major development plan (MDP) for the refinery. Abbas Kazemi said that the plan will include CROS Plus project including building a plant to removing sulfur from kerosene as well as diesel, light naphtha and isomerization plants. Managing director of the refinery also noted that it will take 36 months before contractor constructs needed buildings and plant installations. The major development plan includes optimization of capacity, improving refining model, reducing production of fuel oil, increased gasoline output, boosting quality of oil products to the level of European standard for 2005, reducing energy consumption as well as improving control systems.


IOC clinches $3b gas deal in Iran


November 1, 2004. In its biggest ever investment abroad, Indian Oil Corporation (IOC) has clinched a $3 billion deal to develop a gas block in the gigantic South Pars gas field of Iran and sell LNG from it. IOC will partner Iran's Petropars in bringing to production one of the 30 phases planned to develop the 500 sq mile South Pars field that is estimated to hold 436 trillion cubic feet of gas reserves. The two will also put up a liquefaction plant in south Iran which is designed to make available nine million tones per annum of LNG to be exported to India and other countries. The Indian company will have 40 per cent stake in the upstream development with the remaining being with Petropars. In the liquefaction plant, IOC would have 60 per cent stake and the marketing rights to sell the entire nine million tons of LNG.  Petropars is a subsidiary of National Iranian Oil Co. The NIOC has 60 per cent stake in Petropars while Iran's IDRO (Industrial Development and Renovation Organization) Pension Fund has the remainder. The South Pars gas block is near the Yadavaran oilfield, in which Tehran has offered 20 per cent stake to New Delhi in lieu of India buying five million tons per annum of LNG. Yadavaran oilfield is said to have a potential to produce 300,000 b/d.

Transportation / Trade


Alaska gas pipeline by 2013


October 26, 2004. BP was optimistic that a greatly anticipated natural gas pipeline from Alaska to the continental United States could be operating by 2013. Brian Frank, chief executive of BP Canada Energy Co., said 2013 also is the earliest possible date such a line could begin transporting at least 4 billion cubic feet of gas per day, but the U.S. Congress moved along the process earlier this month with $18 billion in loan guarantees.  Major hurdles remain, he cautioned, before BP, along with partners ConocoPhillips and Exxon Mobil, can move forward. The companies must still negotiate fiscal details with the state of Alaska, come to regulatory terms with Canada and employ technology to reduce the $20 billion price tag before the line can be built.


Libya-to-Italy gas pipeline inaugurated 


October 26, 2004. Italy's ENI SPA and Libya's National Oil Co. have inaugurated a trans-Mediterranean pipeline central to the Western Libya Gas Project (WLGP). The 520-km, 32-in. pipeline, called Greenstream, connects Mellitah, Libya, with Gala, Sicily, extending under water as deep as 1,127 m. The 7-billion-euro WLGP will move gas and condensate from Wafa field in the desert near the Algerian border and Bahr Essalam field 110 km offshore to a new processing plant at Mellitah. The Bahr Essalam platform is called Sabratha.  At full capacity, Wafa will be able to produce 4 billion cu m/year of gas. Two 530-km pipelines, with diameters of 16 in. and 32 in., extend from the field to Mellitah. Bahr Essalam will be able to produce as much as 6 billion cu m/year. The subsea pipelines serving it have diameters of 10 in. and 36 in. Libya will use 2 billion cu m/year of WLGP gas. The rest will move to Italy.


North Sumatra pipeline 5 months early 


October 26, 2004. Indonesia's state-owned gas company Perusahaan Gas Negara (PGN) plans to build a 493 km natural gas pipeline from Duri field in Riau Province to cities in North Sumatra by July 2007, some 5 months ahead of schedule, reported OPEC News Agency. PGN will buy 120 MMcfd of gas from Kondur Petroleum SA and transport 100 MMcfd to Asahan Power Corp.'s 600 Mw power plant in North Sumatra. The pipeline initially will transport 80 MMcfd, increasing to 120 MMcfd over 20 years. The $300 million Duri-Dumai-Medan transmission line also will transport gas from other fields along its route through South Sumatra, Riau, Jambi, and North Sumatra provinces.


Woodside to develop LNG terminal in U.S.


October 27, 2004. Australia's biggest listed oil and gas firm, Woodside Petroleum Ltd. said it has agreed to jointly develop a liquefied natural gas (LNG) import terminal proposed off the coast of California. Under a heads of agreement, Woodside will provide technical expertise and has agreed in principle to operate Clearwater Port in exchange for preferential access rights to the terminal.  Woodside, 34 percent owned by Royal Dutch/Shell will develop the terminal with privately-owned, Houston-based Crystal Energy LLC which was formed to permit and operate the Clearwater Port. Woodside operates the A$14 billion ($10 billion) North West Shelf LNG venture off the coast of Western Australia, which is underpinned by long-term contracts to the world's biggest LNG importers Japan and Korea. It also operates the A$6.6 billion Greater Sunrise development in the Timor Sea and is pitching that gas to the U.S. West Coast with the aim of first commercial LNG production by 2010. Woodside also operates the Browse LNG development off the coast of Western Australia which, together with the Greater Sunrise development, holds nearly 30 trillion cubic feet of gas.


Petrobras raises pipeline investment


October 27, 2004. Brazil's federal energy company Petrobras has raised to US$4bn from US$3.2bn the amount of investment in the country's natural gas pipeline networks through 2010. Total investment in the gas and energy sector under the company's 2004-2010 strategic plan is pegged at US$6.1bn. The project plans to add about 4,700km to the country's existing 5,600km gas transport network, mainly by linking different regions and guaranteeing the gas flow from gas-producing regions to urbanized regions.  The main project is the 1,200km Gasene pipeline that links the gas-producing southeast to the energy-deficient northeast. The pipeline would have capacity to transport 20 million cubic meters a day (mcm/d) that would allow gas-fired plants to start producing power.


Venezuela, Colombia mull gas pipeline


October 28, 2004. The world's oil producers don't have much capacity to increase output, which should keep prices high throughout 2005, Venezuela's oil minister Ramirez said.  He was referring to limited output capacity within the Organization of Petroleum Exporting Countries and independent oil-producing nations. Ramirez said oil prices would likely remain lofty throughout most of 2005 due to current limits on worldwide production. Venezuela, the world's No. 5 oil exporter, is one of OPEC's leading price hawks and consistently argues in favor of controlling world petroleum supplies to support oil prices. Oil provides a third of Venezuela's gross domestic product, roughly 80 percent of export earnings and about 40 percent of all government income.


Shell gains £968m from sale of gas stake


November 1, 2004. The Dutch Government has for £1.93 billion bought total control of a pipeline being built to tackle the gas shortages which have sent UK energy prices soaring, after Shell and Esso.  Shell and Esso will gain £968 million each from the disposal of their 25 per cent stakes in the Gasunie gas transport business, the Dutch national gas pipeline operator. The business also controls a joint venture building a pipeline to supply some 770 million cubic feet of gas a day to Britain under a ten-year deal. The sale comes amid soaring gas prices which have prompted increases in customers' bills and an inquiry by Ofgem, the UK energy regulator. Ofgem last month urged a European Commission investigation into whether gas companies had withheld supplies to Britain, exacerbating a supply squeeze caused by declining North Sea production. Shell said that the deal would help further a restructuring aimed at streamlining operations and regaining investor confidence after a year in which the Anglo-Dutch oil giant has suffered a series of setbacks.


Japan may be shut out of gas deal


November 1, 2004. ExxonMobil Corp. has begun negotiating a deal with a major Chinese oil company to send it the entire natural gas output from the Sakhalin 1 energy development project, meaning Japan could be shut out, according to a published report.  Exxon Mobil has been talking to China National Petroleum Corp., one of the top three Chinese oil firms, in the hope of sealing by spring an agreement that entails building a pipeline linking Sakhalin island and northeastern China via Russia's Pacific coast. Shipments are slated to begin in 2008. The Sakhalin 1 project is expected to produce roughly 17 trillion cubic feet of natural gas, enough to satisfy Japan's entire natural gas usage for six years, Nikkei said. The multinational project had initially planned to sell all of its natural gas output to Japan by building a direct 930-mile pipeline. The total cost of the Sakhalin 1 project is estimated at 1 trillion yen ($9.4 billion) to 1.5 trillion yen. Construction of the pipeline to Japan has been delayed because talks on compensating the fishing industry have not progressed.


TransCanada buys $1.7B in gas assets


November 1, 2004. TransCanada Corp. said that it has completed its acquisition of Gas Transmission Northwest Corp. from National Energy & Gas Transmission Inc. for $1.7 billion. The purchase price includes the assumption of $500 million in debt, TransCanada Corp. said. Gas Transmission's principal assets are Gas Transmission Northwest and North Baja pipelines. TransCanada, which closed the purchase using cash on hand and the issuance of notes payable, said it expects the move to add to earnings and cash flow "immediately."


Sinopec signs LNG, oilfield deal with Iran


October 30, 2004.  Chinese oil giant Sinopec Group has signed a $70bn oilfield development and liquefied natural gas agreement with Iran, China's biggest energy deal with the number two Opec producer, an Iranian official said. Under a memorandum of understanding signed. China’s second-largest oil firm Sinopec Group will buy 250m tonnes of LNG over 30 years from Iran and develop the giant Yadavaran oilfield, said Seyed Mehdi Hosseini, deputy general manager of the National Iranian Oil Company (NIOC).  “We’ve committed to sell to Sinopec 150,000 b/d of crude for 25 years at market prices,” Mr Hosseini said. Sinopec officials were not immediately available for comment.  But LNG deliveries will not begin for at least five years as Iran struggles to catch up with industry front-runners such as Qatar and Algeria, while the estimated 3bn-barrel Yadavaran field in the south-west will take at least four years to develop. No timeframe has been set for finalising the investment and negotiations over Iranian oil deals often drag on for years.

Policy / Performance


Iran, China to boost energy cooperation


October 28, 2004. Iran's Ambassador to Beijing Fereydoun Verdinejad said here that Iran and China enjoy great potentials to boost long-term cooperation in various oil, gas and petrochemistry fields.  The two sides are to explore avenues for long-term cooperation regarding Iran's rich energy resources and China's increasing demand for energy. Several countries have made great investments in oil and gas fields in Iran during recent years, he said, adding Iran and China will also sign an agreement on boosting cooperation in the fields of oil, gas and petrochemistry.  He noted that a contract on long-term purchase of Iran's liquefied natural gas (LNG) by China will be finalized during Zanganeh's stay here. Joint ventures in Iran's oil-rich regions and China's oil industry are among other issues to be discussed.


Husky seals deal to seek gas off Java


October 28, 2004. Husky Energy, a Canada-based oil producer 34.7 per cent owned by Hutchison Whampoa, has gained control of a gas exploration block of 2,794 square kilometres off the coast of Indonesia in a US$50 million (HK$390 million) deal. Under the agreement, Husky will acquire 68.7 per cent in a production-sharing contract from its partner in the Madura Strait.  Mobil Madura Strait and Husky produce gas in the area under contract. Nine wells have been drilled in the exploration block since 1984, which has resulted in the discovery of two natural gas fields, Madura BD and MDA.  The Madura production-sharing contract strategically enhances our investments in Southeast Asia and has the potential to meet an increasing demand for natural gas in East Java. Madura BD has estimated reserves of 212 billion cubic feet of natural gas and 12.2 million barrels of oil. Husky said an extension to the terms will reclassify another 303 billion cubic feet and 10.8 million barrels of oil in the field as probable reserves.


Kazakhstan plans downstream  expansion 


October 27, 2004. Kazakhstan plans to invest $3.88 billion in its oil refining, gas processing, and petrochemical businesses during 2004-07 as part of an accelerated development program to bring processing capacity in line with oil and gas production by 2010. Existing refineries and gas processing plants will be modernized, and a gas processing plant will be built at Aksai by 2007.  Other work will include a new petrochemical complex near Kashagan oil field, plastics manufacturing plants in Aktau and Atyrau, and a plant at Jem to process gas from Zhanajol and Kenkyak oil and gas fields.


Shell to merge British, Dutch arms


October 29, 2004. Royal Dutch/Shell announced plans to merge its separate holding companies and to overhaul its corporate governance structures to restore investor confidence following its oil reserves scandal. The announcement came as Shell said it planned a further cut in reserves and as it unveiled a 70% rise in third quarter earnings, helped by surging oil prices and strong refining margins.  The Anglo-Dutch group said it would move to a more traditional single-board structure with a single chairman and a single chief executive, scrapping its current dual-board arrangements based in Britain and the Netherlands. "The boards have unanimously agreed to propose to their shareholders the unification of the Royal Dutch/Shell Group of Companies under a single parent company, Royal Dutch Shell plc," a statement issued by the group said.


Venezuela, Brazil sign energy cooperation deal


October 29, 2004. Venezuela and Brazil signed an energy accord to share technical expertise and explore possible joint ventures and investment between the two South American neighbors. Under the cooperation agreement, the oil ministries of the two countries will form a commission to meet every six months to study proposals and deals between Venezuelan state oil firm PDVSA and Brazil's Petrobras and others. Venezuela is pushing for energy and economic integration between Latin American countries as an alternative to the U.S.-backed regional free trade initiatives. Chavez has already signed several energy accords, including a recent deal with Argentina for increased oil and fuel cooperation.


AOC to sell Gulf of Mexico gas interests


October 29, 2004. AOC Holdings Inc. Japanese oil and gas project developer, said it would sell its interests in seven natural gas blocks in the U.S. Gulf of Mexico to Japanese trading house Sojitz Holdings Corp. The sale includes the No. 487 block at the No. 1 offshore mining field in Mississippi Canyon and two other gas producing blocks. The four other blocks are not yet producing gas. The three blocks had combined natural gas production of 12 million cubic feet per day in January-June 2004. Gas produced from the blocks is piped and sold to the United States. The sale will be completed by the end of this year and the impact on AOC Holdings' earnings will be released in late-November, when the company announces its first-half financial results for the business year to March 2005.


Lukoil considers investment in Venezuela


October 29, 2004. Russian oil giant Lukoil Holdings is planning a $1 billion joint investment with Venezuela's state-run oil company and Lukoil is considering investing in oil exploration, among other projects in Venezuela, Lukoil said. Kuzyaev said Lukoil plans to sign an agreement with Petroleos de Venezuela S.A., or PDVSA, in the coming months. Carlos Mendoza, Venezuela's ambassador to Russia, said Lukoil is contemplating investments in heavy crude refining projects, exploration and the upgrade of less productive oil fields. A possible new refinery to process heavy crude is another possibility, Mendoza said. Venezuelan President Hugo Chavez has sought to attract new investments in the energy sector from countries such as Russia and Iran. Venezuela is the world's No. 5 oil exporter, a major fuel supplier to the United States and has the largest oil reserves outside the Middle East. 


Sinopec to buy downstream assets


November 1, 2004. Asia's largest refiner, Sinopec Corp. said it would buy petrochemical plants and other assets from its parent for 4.58 billion yuan (US$553 million), as it runs existing plants flat out to meet China's voracious demand. At the same time, Sinopec said it would also sell assets of four oil and gas companies and other operations to its parent for 1.75 billion yuan. Sinopec would have to pay its parent Sinopec Group Company a balance of 2.83 billion yuan in cash after offsetting the two transactions. Sinopec is also buying 1,023 gas stations and catalyst assets from its parent, including those owned by the Changling plant and Qilu Catalyst. It is expected to boost its production capacities of various types of oil refinery and petrochemical catalysts to 80,730 tonnes from 2,800 tonnes, representing over 60 percent of the total catalyst production capacity of catalysts in China.






Cinergy to study building clean coal power plant


October 26, 2004. Ohio-based Cinergy Corp.signed a letter of intent with General Electric Co. and engineering firm Bechtel Corp. to study the feasibility of constructing a clean coal power plant, the energy company said. Cinergy's PSI Energy subsidiary in Indiana would own and operate the facility. Cinergy is considering several sites, including the 160-megawatt Edwardsport, Indiana coal-fired station. The new plant, known as an integrated gasification combined cycle (IGCC) generating station, would produce 500 to 600 megawatts of electricity to help meet PSI Energy's expected demand growth over the next decade. One megawatt powers about 1,000 homes, according to the North American average.  Clean coal plant of this type costs an estimated $1.5 million per megawatt or $750 million for a 500 MW plant, compared with about $1 million a megawatt for a conventional coal plant.


Huaneng Power to diversify


October 27, 2004. Huaneng Power International, China's largest overseas-listed electricity producer, says it will buy stakes in two power plants on the mainland from its parent for two billion yuan (HK$1.88 billion) after receiving board approval. Huaneng said it will buy 60 per cent of Sichuan Huaneng Hydro Power Development and 65 per cent of Gansu Huaneng Pingliang Power Generation.  Generation capacity will be boosted by 6.1 per cent, or 1,146 megawatts, to 19.978 MW after the purchases and by another 389 MW under construction, it said. Huaneng is hoping to cut fuel costs by diversifying its sources of power generation. Although power generation jumped 22 per cent in the first three quarters on strong demand, net profit fell 2.8 per cent due to high fuel costs.


SA to produce more coal for new power drive


October 28, 2004. Kumba Resources is expecting a big boost to its coal operations after last week's news of the South African Governments plan to invest R165bn in infrastructure, including building new power stations. CE Con Fauconnier said that a R91m expansion plan had just been approved at the Leeuwpan mine in Mpumalanga, to boost output from 1,7million tons a year to 2,7-million tons for supply to Eskom's Majuba power station. Meanwhile, a R320m expansion of the Grootegeluk coal processing plant in Limpopo, which has also just been approved, will boost the supply of coking coal to Ispat Iscor by 700000 tons a year, boosting output from Grootegeluk to 2,5million tons a year. Grootegeluk is already the world's largest coal processing plant, and this will be the sixth expansion of the coal processing facility.


Irving Oil to build power plant


October 27, 2004. Irving Oil Ltd., St. John, NB, reported that it will apply for a permit to build a 500-700-Mw natural-gas fired electric power plant near its Canaport LNG terminal at the entrance to St. John Harbor. The Canaport LNG terminal, in 128 ft of water about 4,100 ft offshore, was the first deepwater terminal in the Western Hemisphere when it started up in 1970. The terminal has a mooring facility to accommodate ultra-large crude carriers. The first shipment of LNG to the terminal is still 3 years away. The plant will provide power to the New Brunswick grid.


China leads in Hydropower


October 27, 2004.China's hydroelectric reserves stand at 700 million kilowatts, 40 percent of the country's total conventional sources of energy, according to a new statistics released by the State Development and Reform Commission (SDRC).  Hydroenergy, equivalent to 60 billion tons of standard coal, is China's second largest energy resource next to coal. In 2004, China's gross installed hydropower generating capacity has exceeded 100 million kw, making up one quarter of gross installed electric power capacity and providing some 20 percent of the country's total electric power. With China's sustained and rapid economic development, the demand for petroleum, coal and electric power remains high in recent years.


China Hydro wants lead role in Bakun dam


October 28, 2004.China Hydro, the Chinese partner for the Bakun hydro-electricity dam project in Sarawak, wants a lead role in the construction of the dam to speed up the multi-billion ringgit job following delays. A source close to the project management said the company is bidding for greater control over the dam’s construction work from its Malaysian partner a consortium led by Sime Darby Bhd. The Bakun dam project, estimated to cost about RM7 billion, will be one of the tallest in Asia and have a capacity to generate up to 2,400 megawatts of electricity. It was supposed to start in January and completed in July this year.


Renewal license for US Nuclear units


October 29, 2004. The U.S. Nuclear Regulatory Commission renewed the operating licenses of Chicago-based energy company Exelon Corp.’s 1,600-megawatt Dresden and 1,752 MW Quad Cities nuclear stations in Illinois for an additional 20 years. With the renewals, the NRC extended the licenses for the 800 MW Dresden units 2 and 3 to Dec. 22, 2029, and Jan. 12, 2031, respectively, and the licenses for both 876 MW Quad Cities units 1 and 2 to Dec. 14, 2032.  The Dresden and Quad Cities license renewals bring the total number of renewals to 30 reactor units. The Dresden station is located in Morris, about 60 miles southeast of Chicago. The Quad Cities station is located in Cordova, about 155 miles west of Chicago.


China to build power plant on Jehlum River


October 30, 2004. A seven-member Chinese delegation led by Dr Guojun Lu, President of China International Water and Electric Corporation (CWE) the Pakistan Federal Minister for Water and Power, Liaquat Ali Jatoi and expressed their interest to construct hydro power plant on Jehlum River. The minister while welcoming their offer said due to its importance the government is taking steps to early finalize the Neelum-Jehlum project and Wapda has been asked to complete its reports in this regard.


Iran, Russia to sign nuclear deal


October 29, 2004. Tehran and Moscow are set to sign a deal on the return of the spent nuclear fuel to Russia in early December during a visit to Tehran by the Russian Atomic Energy Agency Alexander Rumyantsev.  During the meeting the two sides discussed various bilateral issues and Tehran-Moscow ties. Saeedi called for more precise and accurate managerial approaches to expedite the completion of the Bushehr nuclear power plant. Rumyantsev stressed that Russia has not changed its position toward nuclear cooperation with Iran. He said Moscow still insists on preserving and expanding bilateral ties with Iran based on international law. He said that it is Iran’s obvious right to access technology and science and master a nuclear fuel cycle, stressing that according to international regulations no country or organization can ask Tehran to halt its peaceful nuclear program. The Russian official stressed that the range of cooperation between Iran and Russia would double with the establishment of this commission in late November.


Six power project proposals rejected in Pak


November 1, 2004. The federal government has rejected total six proposals of local and foreign investors, including two from the US, for fast track development of power projects in Karachi, owing to non-availability of gas. The decision comes at a time when the Karachi Electric Supply Corporation (KESC) faces a shortfall of about 600mw in the current year, which might rise to about 1,300mw by 2009-10.  A senior government official said that in view of looming gas shortfalls, the government had also decided in a major policy shift to reject investment proposals for gas-fired power plants at raw sites and has put in place a new gas allocation plan. The government authorities suggest that the two gas-based power projects with a total capacity of 900mw- 600mw Hawksbay and 300mw Gadani power stations- had been shelved.


Transmission / Trade


Mitsubishi unit to buy 2 U.S. plants


October 26, 2004. A Mitsubishi unit is buying two U.S. electrical power plants from InterGen North America. According to the California Energy Commission, InterGen, a joint venture between a subsidiary of the Royal Dutch/Shell Group and a subsidiary of privately held Bechtel Corp., has agreed to sell its interest in the plants to Diamond Generating Corp., a subsidiary of Mitsubishi Corp. The small plants are near Palm Springs and San Diego. Terms of the deal were not disclosed.


Iraq to be connected to Iran’s power network


November 1, 2004. A connection between power networks of Iran and Iraq will soon be established, managing director of West Azerbaijan Power Distribution Company said. “We have just exported 617 million kilowatts of electricity to Turkey and Nakhichevan”, Atabaki stated. He added that Iran’s barter imports exceed the volume of exports to these two power partners. He said that they will establish a 230-kilowatt power transfer line with Turkey in the near future. “It includes developing Razi transmission line (on Razi border), which is now capable of exchanging 145 kilovolts between Iran and Turkey”.


Policy / Performance


World energy demand to rise 60% by 2030


October 27, 2004.  World energy demand is expected to rise by some 60 per cent by 2030, two-thirds of which will come from developing countries such as China and India, the International Energy Agency said. The energy institution said in its World Energy Outlook 2004 fossil fuels will continue to dominate global energy use, with oil demand expanding 1.6 per cent a year to 121 million barrels a day in 2030 from the current 82 million barrels a day.  Dependence on West Asian oil will grow among Organization for Economic Cooperation and Development members and developing countries in Asia, intensifying the world's vulnerability to an oil-supply disruption, according to the Paris-based IEA. IEA Executive Director Claude Mandil said in presenting the latest outlook in London that the earth contains ''more than enough'' energy resources to meet increasing demand by 2030.


 Mandil said surging oil and gas prices, an increasing vulnerability of energy supply routes and ever-growing carbon dioxide emissions are ''symptoms of a considerable malaise in the world of energy.'' Despite the high levels of oil reserves, a seemingly inexorable increase in global energy demand till 2030 led Mandil to urge policymakers to promote energy efficiency. He called on governments to take the lead in accelerating the development and deployment of new technologies ''that allow us to meet our growing energy needs without compromising our energy security and environment.'' The IEA calls on all parties to work together to devise and implement a universally recognized, transparent, consistent and comprehensive data-reporting system for oil and gas reserves. ''The reliability of reserves data reported by oil companies has been called into severe question,'' it says. ''Doubts about the accuracy of reserve estimates could undermine investor confidence and slow investment.'' 

Calif. regulators order more electricity supplies


October 28, 2004. California energy regulators, worried about a second electricity crisis, ordered utilities to boost their power supplies on a fast-track schedule pushed by Gov. Arnold Schwarzenegger. The decision by the California Public Utilities Commission means three big investor-owned utilities PG&E Corp.'s, Pacific Gas & Electric Co., Edison International’s, Southern California Edison and Sempra Energy's,  San Diego Gas & Electric must meet a power reserve target by June 2006, two years faster than originally planned. It also gives independent power companies like San Jose-based Calpine Corp. an opportunity to sell more megawatts in California. Michael Peevey, president of the regulatory commission, said the state cannot afford to delay adding more power supplies.


Renewable Energy Trends


Renewable Trends: Global


US wind energy projects in 2005


October 28, 2004. A record number of new U.S. wind energy projects is expected next year, spurred by Congress' decision to extend a federal tax credit for wind energy production, an industry trade group said. The projects would add about 2,500 megawatts of generating capacity worth more than $2 billion, breaking the old record of 1,696 megawatts in 2001, said the American Wind Energy Association. Rising prices for natural gas and coal, which fuel most of America's power plants, make wind power more attractive as a way to diversify a utility's supply portfolio, the group said. Helping make wind power more affordable was Congress' move last month to extend, through the end of 2005, the wind energy production tax credit. U.S. wind energy capacity reached 6,374 megawatts at the beginning of this year, which is the amount of electricity used annually by about 1.6 million average American households.


Wind farms to produce 6500 MW  for Iran


October 30, 2004. Primarily, it has been figured that some 6500 megawatts of the country’s power output is produced by wind turbines. Head of Iran Renewable Energies Organization, Yusef Armoodeli said that experts are preparing Iran’s wind atlas through compiling data that is obtained from 17 wind farms in Zanjan, Gilan, Qazvin, West Azerbaijan, East Azerbaijan, and Ardebil.  The first step of the work would be to figure out the wind speed in different areas, he uttered. So far, he said, 26 points have been marked all over the country, which are estimated to bring the highest amount of power out of winds. Presently, the government is building a 30-megawatt wind turbine in Binalud, Khorasan. The Iran Atomic Energy Organization has just started implementing two projects in Manjil and Rudbar, Gilan Province.


AEP proposals for renewable-energy generation


November 1, 2004. American Electric Power issued a Request for Proposals (RFP) for renewable energy to help fulfill energy-supply requirements for its retail customers in Arkansas, Louisiana, Oklahoma and Texas.  The proposals, for up to 250 megawatts of renewable generation within the Southwest Power Pool, are due Dec. 1, 2004. AEP expects to complete agreements with any successful bidders in March 2005.  AEP is seeking bids from renewable-energy providers that could place new generating facilities into service by Dec. 31, 2005. "Extension of the federal Production Tax Credit program for renewable- energy sources that are operational by the end of 2005 provides a potential opportunity to procure cost-effective renewable energy to help meet the needs of customers of Public Service Company of Oklahoma and Southwestern Electric Power Company," said Tom Hagan.


Bagasse plant in the Philippines


October 29, 2004. State-owned Philippine National Oil Co. (PNOC) has signed a development agreement with Bronzeoak Philippines and Talisay Bioenergy Inc. for a $60-million (P3.4-billion) bagasse cogeneration project in Talisay City, Negros Occidental. Based on the agreement, PNOC will commit to fund $6 million or P340 million of the entire project cost. The country’s first large-scale cogeneration project aims to establish a new, wholly-renewable, independently-financed, cogeneration station to export surplus electricity to the local distribution system as well as furnish a medium-size sugar mill/refinery with its steam and power needs.  PNOC president Eduardo Mañalac said the plant will utilize the waste product of sugar cane (bagasse) from a host mill supplemented by cane residues and bagasse purchased from other mills. Of the estimated $60-million project cost, 30 percent or $18 million will come from direct equity infusion while the remaining 70 percent will be financed by banks.


Registered with the Registrar of News Paper for India under No. DELENG / 2004 / 13485


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