MonitorsPublished on Nov 09, 2004
Energy News Monitor I Volume I, Issue 20
Oil Price Subsidies: Lesson from Iran

Diversify sources of supply, secure sufficient capital to increase domestic production capacity, curb rate of oil consumption growth, introduce new taxes on petrol in favour of public transport and environmental factors, introduce energy efficiency programmes and promote energy efficient industries..’


These are not recommendations directed towards an oil deficient country like India which imports most of its oil supplies, but towards Iran, a country whose oil resources are abundant compared to those of India!


Iran has the world’s second largest oil reserves estimated at 130 billion barrels as well as the worlds second largest gas reserves estimated at 29.62 trillion cubic meters.  Yet Iran has not been able to appropriate value from its abundant natural wealth in a manner that would have brought enormous long term benefits for the country’s economy and its people.  Key among reasons is misguided idea of subsidising oil use. 


Energy price in Iran as a percentage of international prices


Jet Fuel




Gas oil

Fuel oil


















































































Source: Groenendaal, W & Moghaddam, M. R. 2003. ‘Iran’s domestic fuel policy revisited’


Current oil product prices in Iran are in fact among the lowest in the world.  The rationale for low prices is that Iranian people should benefit from Iran’s oil and gas resources. While the illusion of Iranian people benefiting from low oil prices persists in the country with most people possessing the ability to own and use inefficient private transport vehicles, Iran’s growing domestic oil consumption is eating into her export capacity and reducing its GDP. The primary effect of low oil prices is its wasteful use.  Wasteful use leads to lower income for the nation and thus for the people.  The difference between domestic energy prices and international energy prices results in loss of GDP that is not compensated by the benefits of using extra oil domestically. 


Iran’s current production stands at 3.852 million b/d.  Iran is one of the founding members of OPEC and a good one at that in terms of adherence to quota restrictions.   OPEC quota for each country covers both domestic demand and export.  The graph illustrates the sharp decline in production and the steady increase in consumption of oil in Iran since the early 80s.


Source: BP Statistical Review of World Energy


With production almost stagnant increasing consumption is eating into export capacity.  Despite some efforts made Iran’s oil production facilities are in a state of decline.  Of the total 59 fields 57 require technical support in order to keep up with the current production rate. The 1996 Iran-Libya sanctions aggravate the situation by limiting Iran’s ability to obtain technology to boost production.  In fact there has been no major investment in Iran’s oil industry since 1979.  This is disastrous because in reality what actually counts for countries such as Iran is the export capacity of oil rather than production potential.


Source: Groenendaal, W & Moghaddam, M. R. 2003. ‘Iran’s domestic fuel policy revisited’


There are analysts who have gone as far as suggesting that Iran may turn into a net importer of oil as early as 2015[1].  It is feared that Iran will face serious economic and social consequences if that remote possibility becomes reality. 


Though Iran has implemented gas for oil substitution policy, the amount of oil available for export has not increased significantly primarily because of increasing domestic demand.  Analysts predict that if domestic demand for petroleum products keeps increasing as it is now, revenues will decrease and in 15-20 years Iran’s potential to raise foreign revenue will be more than halved if nothing is done about the current status of  limited production capacity. At that point the government will not be able to maintain low oil prices and this will have unmanageable social consequences. 


The relatively low oil revenue has resulted in relatively low income for the government.  This has meant that the government has insufficient funds to meet its financial requirements.  Generally this shortage of funds has been met by a strong growth in liquidity on average about 22.4 per cent per year between 1990 and 1999.  This strong growth in liquidity has resulted in strong inflation of about 22.0 per cent over the same period. Since wages are not keeping up with inflation, this has meant a reduction of real income for most Iranians.   Since an increase in energy prices will lead to an additional increase in inflation the government has been reluctant to increase oil prices even though it has long term advantages. 


Due to low energy prices the power and refining sectors have not had sufficient profit margins to invest in maintenance or efficiency.  These sectors are now economically unviable and technically obsolete.  While abolishing subsidies is a difficult subject in Iran just as in India maintaining them is also unsustainable. 


What has been recommended[2] for Iran is a gradual increase in energy prices over a period of about 5 years. The price increase is to be sustained until it reaches world market prices but without the taxes that are common in most countries.  In effect domestic energy prices will still be lowest in the world.  The 5 year period is mainly to ease the pain for lower income groups.  The proposal admits that this will definitely result in increasing the prices for other goods and services.  However it recommends that if part of the additional income is used to reduce annual increase in liquidity, the long term inflationary effect of financing government spending by printing money will reduce.  It argues that the government will also have sufficient financial resources to compensate lower income groups. 


Lesson for India


Subsidies for energy consumption primarily power and hydrocarbons are entrenched in India.  Estimates of the value of energy subsidies vary depending on whether the reference price is international price, cost of production, cost plus basis, efficient cost of production, Long Range Marginal Cost or opportunity cost. 


Subsidies for energy consumption is meant for the poor but is often appropriated by the not so poor, either  because the very poor do not possess appliance or infrastructure for use of subsidised fuels or because they do not have access to these fuels.  Despite this unintended beneficiaries of subsidies, lobbies and vested interests protest against even small increase in the price of petroleum products as demonstrated during last weeks price increase on transportation and household (cooking) fuels.   


The latest price revision has passed on the impact of high oil prices fully to consumers only in the case of petrol. Retail diesel prices are still below their import parity prices. The recent price revisions will partly compensate the public sector oil companies, which have been bearing the brunt of global oil prices over the recent weeks. Together oil companies have lost Rs.10,000 crore (Rs 100 billion) in revenue during their first six months because they cannot pass on the burden of higher crude oil prices fully to their consumers.


What the governments is doing now is only redistribution of high oil price burden between consumers (higher retails prices), oil marketing companies (higher financial burden towards subsidy) and itself (lower tax revenue).  This mechanism of dealing with higher energy prices cannot continue for ever.  India needs to learn from the experience of Iran.  


The concluding sections of the recommendations given by the above quoted report that ‘adjustment of the domestic policy should be part of a larger set of policy changes. Using the extra government income to reduce the growth in liquidity, refineries (and marketing companies) being made accountable for their performance, decision making powers returned to where it should be - those who run the companies, with the government taking care of regulation only’ are as relevant for India as they are for Iran.  In the long term the people of Iran and India will benefit more from higher domestic energy prices than they do from low energy prices. 


Team Energy ORF

[email protected]

(Views are those of the authors)


In partnership with ONGC Videsh, the Observer Research Foundation proposes to organise a seminar on ‘India-Russia Hydrocarbon Cooperation: Opportunities & Challenges in January 2005.  The ORF Energy News Letter will carry exclusive news and articles on the Russian Hydrocarbon Sector in the run up to the event. 


Russian Oil Industry Prospects


Recent news about the situation in the Russian oil sector has been largely confined to reports about two or three major oil companies. The Yukos saga has dominated, but there are other trends in the Russian oil sector that influence the country's economy.   It is Russia's most profitable sector and is developing intensively. Oil production is expected to exceed 450 million metric tons this year. Traditionally, Russian businessmen are more optimistic in their forecasts for oil production growth rates than government officials and the scientific community. Andrei Gaidamaka, head of the Investment Analysis and Investor Relations Division at LUKoil, predicts steady production growth of 4-5% a year. The president of the Energy Policy Institute, Vladimir Milov, believes a figure of 1-2% a year is more realistic.   Any potential growth of Russia's oil production and exports depends on investment, the introduction of new technologies, major systemic solutions concerning the construction of new pipelines and the development of deposits in Eastern Siberia.


According to Andrei Klepach, the director of the macroeconomic forecasting department at the Russian Ministry of Economic Development and Trade, a maximum of 500 million metric tons of oil will be produced by 2010 if infrastructure and new deposits are not developed. If the government focuses on infrastructure problems by launching the construction of new pipelines, particularly to Nakhodka and Murmansk, and increasing the capacity of the Baltic transportation system, Russia will be able to produce 530-550 million metric tons of oil a year.   Two problems are to blame for these modest forecasts. First, many oil companies are in no hurry to invest in oil production because of low transport capacities. Large volumes of exported oil are transported by rail and ship, which is two or three times more expensive than pumping it through a pipeline. Transportation is the second largest expense item after taxes on the balance of LUKoil. According to Mr. Gaidamaka, the Russian pipeline system does not completely meet Russian oil companies' export demand.   Mr. Klepach says proposals on pipeline construction are included in a medium-term program drawn up by the Ministry of Industry and Energy, which has been presented to the Ministry of Economic Development and Trade and will be submitted to the cabinet. At the same time, a corresponding resource base, i.e. existing cost-effective oil reserves, must cover the creation of new transportation capacities. It is doubtful that this base exists, as production is increasing slower than exports. In the future, it will become increasingly difficult to guarantee growth in production and exports from reserves in Western Siberia.   The second problem is the instability of the taxation system and differences in the government on how to improve oil sector taxation. Under the current system, if the price of oil is higher than $25 per barrel, oil companies lose up to 90% of additional revenue to pay taxes. Even representatives of the Ministry of Economic Development and Trade doubt that new deposits can be developed and capital-intensive projects implemented in such conditions.   While giving credit to the government for its successes in collecting taxes, businessmen, however, point out that the burden on the oil sector is so great that it affects investment decisions. Over the last three years, LUKoil's tax payments have gone up more than twice against the backdrop of a 100% increase in oil prices. Consequently, Mr. Gaidamaka sums up that, with the growth in world oil prices, companies' surplus revenues are transferred to the budget. After new taxation rules are introduced in 2005, oil companies will lose more funds than they may yield from oil trade to pay taxes, says Galina Antonova, the head of the Yukos analytical department.   Representatives of oil companies and government officials are unanimous that the tax burden on the oil sector is approaching a critical point, which means that taxation policy in this sphere needs to be revised. The problem is how to alleviate the burden.


At present, the export duty and the tax on natural resources production, which is pegged to the world oil prices, account for the lion's share of tax payments. One of this system's great disadvantages is that a slide in world oil prices may hit domestic production hard. Besides, the tax on natural resources production hinders the development of new deposits. According to Arkady Dvorkovich, who heads the Presidential Expert Department, dependence of the tax on natural resources production on world prices makes domestic prices for oil products higher. The majority of experts believe companies' profits and not natural resources production should be taxed.   Whether it is possible to reform the taxes has been widely discussed lately. The Ministry of Economic Development and Trade is in favor of keeping and differentiating the tax on production. For example, one proposal is that the tax should be lower on new deposits and ones close to depletion, but it should be independent from the world prices. However, these measures must be seriously thought through, otherwise the move may favor one party over another. There are also proposals to abolish the export duty and introduce additional profit taxes to make up for falling budget revenues.   Stable legislation is the most important factor. Only in this case will companies be able to make plans for the years to come. Developing the oil sector and making it more attractive for investment are highly important for the state, because revenues from oil sector taxation account for a large part of the federal budget and the country's stabilization fund.


Nina Kulikova

RIA Novosti economic commentator

Courtesy RIA Novosti

(Views are those of the author)

Gas Hydrates


Gas Hydrates consist of naturally occurring solids composed of water molecules forming a rigid lattice of cages, each containing a molecule of natural gas. The conditions necessary for the formation of hydrates are:

-                      Adequate gas molecules to stabilize most of the hydrate cavities.

-                      Sufficient water molecules to form cavities.

-                      Temperature and pressure within the hydrate equilibrium region.


The main factors which determine the formation of Gas Hydrate Deposits (GHD) in the porous media are the presence of water and gas, appropriate temperature and pressure & the structure and composition of porous medium. Unlike the formation of conventional gas deposits, no litho-logical roof is required during GHD formation, and there is no necessity for porous media to contain free-gas the thermodynamically preferred mechanism for the formation of GHD is the dissolved gas route.


An illustration phase equilibrium diagram for the occurrence of Oceanic Hydrates is given in the figure:


Deep-sea methane hydrates are found a few hundred meters beneath the continental slopes of a number of areas in the world (more so in the subduction areas). The ice-like clathrate structure is stable up to a temperature of 10 to 30 °C beneath the sea-floor at the pressure generated by water depth of 800 meters. According to Makogon, hydrates may be dispersed in porous rock where the size of the hydrate inclusions does not exceed the pore size of the carrier rock: granular dispersed where the size of the inclusion may exceed the size of the pores without destroying them; nodular – where the size of the hydrate inclusion ranges from several millimetres to several centimetres. In this case formation of hydrate nodules is accompanied by the destruction of matrix structure of carrying rock, and hydrate is the cementing material. The further growth of nodules can result in the formation of lense like hydrate accumulation with the size of up to several tens of meters in length and tens of centimetres in thickness. Under favourable conditions the hydrate lenses can produce thick hydrate deposits up to several meters in thickness and tens and hundred of kilometres in length. Under the conditions prevailing in the Indian legal continental shelf, we may expect hydrates to occur at water depths exceeding 600 meters and extend up to a depth of more than 400 meters below the sea bottom depending upon the hydrothermal and geothermal gradients. Gas hydrates also occur in the perma-frost regions of the world at much shallower depth. However, due to their irrelevance in the Indian context, they are not discussed in this report, in any great detail.


The world wide estimated hydrate based resource is given in the table below:


Estimates of oceanic hydrates


(Cubic Meters)

Makogon, Tolkachev (1977)

5.25 x 1015

Mclver (1981)

3.10 x 1015

Dobrynin et al. (1981)

7.60 x 1018

Kvenvolden (1988)

1.80 x 1016

Makogon (1984)

1.50 x 1016


The primary indicator of deep sea hydrate is a Bottom Simulating Reflector (BSR) that parallels the sea floor. These naturally occurring hydrate layers are estimated to contain a large amount of methane – a potentially ‘clean’ fuel source.


Detection of Gas Hydrates


Gas hydrate is manifested by a Bottom Simulating Reflector (BSR) in reflection seismic data.


i.                     A ‘BSR’ is indicated by a sharp strong reflection from a layer whose depth approximates the boundary of stability zone in terms of pressure and temperature (P-T).


ii.                   The BSR is usually parallel to sea floor, cutting across stratal boundaries.


iii.                 The polarity of the reflected seismic signal is reversed indicating negative acoustic impedance (velocity x density) as compared to the sea floor reflection.


iv.                  Amplitude blanking has also been proposed as a parameter for positive identification of a ‘BSR’. However, the process controlling amplitude blanking is not yet understood. Moreover, similar high resolution velocity analysis of wide angle date from hydrated layers at Blake ridge, where strong amplitude blanking is displayed, and the adjacent Carolina rise where no significant blanking was observed, yielded similar velocity structures. Assuming that this indicates a similar concentration of hydrates, the assumption that blanking is caused by hydrate concentration is not consistent with these results. Thus, where occurring, amplitude blanking might only be an appropriate parameter for hydrate quantification after proper calibration, or in conjunction with other parameters such as velocities, and has been used as such by USGS in estimated of U.S Hydrate based “Gas Resource”.


The presence of a strong ‘BSR’ confirms:


i       Presence of a large quantity of methane in the form of hydrate (25-50% of the pore space must be filled with hydrate).


ii      A comparatively smaller content of hydrate, underlain by free gas saturation.


iii     A combination, of the above two.


Massive Hydrate


A massive hydrate is a mass of ice-like material with a small quantity of rock matrix or its total absence. A massive hydrate normally is not manifested in the form of ‘BSR’. This is due to the fact that there is no change in the impedance at the lower boundary of a massive hydrate, as the effect of increase in velocity due to the presence of hydrate is balanced by the decrease in density due to lower density of the hydrate. Area indicating BSRs contain quantities of methane at least an order of magnitude greater than that can be generated within the sediments containing them which proves that methane has migrated into this zone from underlying strata thus giving a strong indication that sediments above and below the ‘BSRs’ have reasonable permeability (either matrix or fracture) and hence porosity – in other words the presence of ‘BSR’ also be an indication of good “reservoir characteristics”. So far there has been no report of sharp reflections being observed from the top of the hydrate zone-indicating that the top is rather ragged in nature. However, for a meaningful exploration and exploitation programme of gas hydrates, it would be imperative to locate the top of the hydrate zone also, through appropriate high resolution seismic data acquisition techniques, such as Shallow Towed Profiler (STP) or Sub Bottom Profiler (SBP).


Production of Gas from Gas Hydrates

Till date there has no production from Oceanic hydrates. However, gas from gas hydrate reservoir of permafrost type has been produced for two decades. Messoyakha gas hydrate field, located in the North-East of Western Siberia has been producing gas from gas hydrates for over 20 years, basically by the processes of depressurization aided by the injection of chemical inhibitors. Several methods have been proposed for producing gas from hydrates. These are:


1                        De pressurization


2                       Heat Injection

-       In-situ combustion.

-       Steam soak / continuous injection.

-      Hot water flooding.


3                       Injection of hydrate inhibitor

-      Methanol

-      Glycol / other chemicals.


A brief review of production methods and their limitations is given below:


Production Method


Challenges & Considerations


1. Depressurization

Hydrate dissociates with Reduction in pressure. Process is endothermic, absorbing energy and reducing temperature of the reservoir. Process requires heat flow into the reservoir from the surrounding rock.

Applicable to offshore areas.


Has high potential for economic recovery of gas when hydrates form reservoirs cap / seal on a conventional free gas reservoir. May work better in conjunction with thermal recovery. Recent advances in horizontal well drilling might improve economics appreciably.


2. Heat Injection

(in-situ combustion, steam, hot water)

Hydrate dissociates with increase in temperature. Net energy balance is very favorable. Heat energy required for dissociation is only 6.2% of the energy contained in liberated gas.


Heat losses to reservoir & surrounding rock strata. Need high permeability flow path between well for steam/water flood injection.

3. Inhibitor Injections

Chemical inhibitors lower hydrate formation temperature and dissociate hydrates on contacted surface.

The method is currently in use in Messoyaka field in Western Siberia.


Large research effort underway for finding more economical inhibitors, with major recent break through.


Excepts from the expert committee of GAIL, ONGC and DGH appointed by Dr. V.L. Kelkar, secretary - MOPNG









Three times more gas from KG basin 


November 04, 2004. The gas reserves from RIL’s Krishna-Godavari basin, off Andhra Pradesh coast, could be thrice what was anticipated. While the company has established in-place gas reserves of 14 trillion cubic feet (TCF), it expects that the combined gas reserves from the KG blocks could be up to 42 TCF. The 14 TCF in-place reserves are estimated on initial eight wells drilled in the first exploratory drilling campaign. The company has commenced the exploratory drilling campaign in the KG-DWN-98/3 in the basin. Last year, the company drilled two wells and the company said that both the wells have struck gas. The company said that the extent of the discovery is being ascertained. RIL has also taken up exploration in the remaining area of the block to assess its full potential.  The increased estimated reserves will have significant impact with natural gas being projected as the fuel of the 21st century. The company said that RIL, on its own as well as along with consortium partners, had 30 production sharing contracts (PSC) for exploration blocks. These include four PSC’s for pre-NELP blocks and 26 PSC’s under the four rounds of NELP. The company said that it had relinquished three blocks after completing the minimum work programme (MWP).


IOC may pick up South Pars stake


November 03, 2004. IOC is planning to take up interests in South Pars fields in Iran.  South Pars, the largest offshore field in the world, is located on the Iran-Qatar border in the Persian Gulf and is shared by the two countries. Qatar refers to this field as North Dome.   The gas block in South Pars field is situated beside the Yadevaran oilfield, in which Tehran has offered a 20% stake to New Delhi in lieu of India buying 5 mtpa of LNG.  IOC has drawn a plan to become a $50 billion company by 2010 by diversifying into upstream oil and gas exploration and production and gas business.


RIL plans buyouts in middle east, Africa


November 6, 2004. RIL said it was looking at acquiring oil and gas fields in the middle east and west Africa. There is a huge opportunity for India in emerging oil and gas fields in the Middle East and West Africa. The Mumbai-based giant has unveiled an ambitious plan to grow aggressively overseas in the coming years by acquiring small to medium-sized oil exploration and production companies and taking part in oil and gas exploration and production projects. It is focusing on the Middle East and Africa. Reliance has already bid for a deep sea gas block in Oman.




Essar Oil stops discount on branded petrol


November 04, 2004. Essar Oil has withdrawn its introductory discount on its branded petrol Punch. In less than five months, the company has priced its fuel on a par with the ordinary petrol marketed by public sector oil companies in the country. Essar Oil is also launching its branded diesel ‘DDX’ having 56 C-tane specifications across all its outlets in the country. Recently, the company decided against selling ordinary fuel and moved towards offering the premium petrol such as Punch. Industry sources claim that Essar Oil has established its brand and has now decided to withdraw discounts to dealers and customers. They point out that the company, which was offering discount to select dealers depending upon locations, has also been forced to change the pricing owing to high volatility in crude oil and petroleum products prices. 


The four oil marketing PSUs, IOC, HPCL, BPCL and IBP, collectively have over 23,000 retail outlets across the country. Essar was selling branded fuel at Rs 1.33 a litre lower than those branded petrol offered by PSU oil companies.   Meanwhile, Essar has commissioned 154 retail outlets over 85 in the western region, over 40 in the northern region and over 9 petrol bunks in the south. 


IOC to enter CNG retail market in Gujarat


October 05, 2004. Indian Oil Corporation Ltd eyes to enter the Compressed Natural Gas retail market in major cities in Gujarat. However, the move has created a flutter among the existing players as it is seen as an infringement of the existing state government guidelines.   It may be said here that the Ahmedabad-based multi-diversified Adani Group has been given the rights to sell CNG and PNG in two major cities of Gujarat, Ahmedabad and Vadodara and at present Gujarat Adani Energy Ltd (GAEL), the Group’s new entity is working on setting up its CNG and PNG distribution network in both the cities and there is all possibility that entry of a second player in this segment, would irk Adanis. Even other players such as Gail India Ltd and Bharat Petroleum Corporation Ltd (BPCL), which are already licenced by Gujarat State Petroleum Corporation Ltd (GSPCL), nodal agency for petroleum sector for the state government, for the CNG and PNG distribution in other cities, may also put an objection on IOCL’s plan to foray into CNG retail sales. 


IBP, BPCL to gain most from fuel price revision


November 6, 2004. Oil marketing companies who have been taking a hit on their sales margins over the past few months were a happy lot on the UPA government’s decision to allow oil companies to revise retail prices of petrol, diesel and cooking gas as it will reduce their subsidy burden and improve their profitability. The biggest gainers of this delayed move are IBP and BPCL who have seen the highest drop in sales earnings in the past few months. While IBP, an exclusive marketing company, has gone into the red with the government keeping retail prices unchanged, BPCL’s profits dipped as a result of a low refinery base.  Integrated refining and marketing companies IOC, HPCL and BPCL are better off than the exclusive marketing companies like IBP as high refinery margins have offset some of the losses incurred on the marketing front. The price revision of over 5% in petrol and almost 9% in diesel will now lead to improved marketing margins on both petrol and diesel.


Adani, IGL in race for Noida gas project


November 07, 2004. Adani Group and Indraprastha Gas are in race for supplying piped Pressurised Natural Gas (PNG) to Noida.  IGL had already conducted a survey and projected a cost of Rs 45 crore (Rs 450 million) for the first phase of the project. In the first phase, the gas utility will target transportation sector, industries and the last phase would be domestic. About eight booster stations and eight gas stations have been proposed by IGL, they said.


Transportation / Trade


Petronet to hire 3 more LNG ships


November 07, 2004. Petronet LNG will hire three more tankers for hauling additional 5 million tonnes of LNG from Qatar/ Iran to its expanded Dahej terminal in Gujarat and a new project at Kochi in Kerala. For the 2.5 million tonnes per annum Kochi terminal, PLL wants a 152,000-165,000 cubic meter-capacity ship.  The company is expanding the capacity of Dahej LNG terminal from 5 million tonnes to 10 million tonnes per annum and is setting up another LNG receiving terminal at Kochi with an initial capacity of 2.5 million tonnes, which can be scaled upto 5 million tonnes per annum later. The successful bidder for the LNG ship tender would have to, as per the new guidelines for transporting LNG, give 26 % to the Indian firm.


Policy / Performance


Oil PSUs merger to be long-drawn affair 


November 4, 2004. The government has ruled out a mega merger of public sector undertakings in the state-owned oil sector to create a monolith. It has also not taken any final decision on merging IOC with Oil India Ltd or HPCL and BPCL with ONGC.  The ministry is seriously studying the pros and cons of the consolidation plan.  The government has plans to set up a committee under former SAIL chairman S Krishnamurthy, who heads the National Manufacturing Competitiveness Council with Vijay Kelkar as one of its members. The committee itself has not yet been given a formal shape. A nod from the Prime Minister’s Office was still awaited. Further, there are divergent views of the companies themselves, which need to be addressed. As a first step, the government has restricted the PSUs from working at cross purposes by restricting their holdings in diversifications to 26%. 


Govt may help oil companies to reduce subsidy burden


November 04, 2004. The government is considering options like issuing oil bonds to oil companies to reduce the subsidy burden. Oil companies have taken a hit of over Rs 10,000 crore (Rs 100 billion) in H1 of this financial year towards subsidies on cooking gas and kerosene.  The move to issue bonds seeks to address the past arrears on subsidies. Oil bonds were issued by the government earlier to reduce the oil pool deficit, which reflected the amount owed to oil companies by the government. The petroleum minister, Mani Shankar Aiyar, said that this could be one of the possible options to reduce the impact of the ballooning subsidy bill. The petroleum ministry is pushing for a duty cut on the two subsidised products that customs and excise duties on LPG and kerosene be removed, as this adds to the subsidy burden. The impact of removing the duties on these products would be in the region of Rs 1,000 crore (Rs 10 billion) this fiscal.


Gail retendering of Dahej-Uran pipeline


November 03, 2004. The Union petroleum minister Mani Shankar Aiyar’s recent direction to Gail India Ltd for retendering the Dahej-Uran pipeline project will benefit the HSAW pipe manufacturers in the country. Earlier, Gail invited bids for supply of pipes for its Rs 1,416 crore (Rs 14.16 billion) Dahej-Uran Pipeline (DUPL) project under international competitive bidding and Tractebel Engineering of Belgium has been appointed as the project management consultant. However, Gail is expected to invite fresh bids soon, where leading HSAW pipe manufacturers in the country such as Saw Pipes, Welspun Gujarat Stahl Rohren, Man Industries, PSL Ltd and SAIL are expected to participate. 


Hike in petrol, LPG diesel prices 


 November 4, 2004.  The government has decided to hike prices of petrol, diesel and LPG. However, there will be no hike in kerosene price. While price of petrol has been increased by Rs 2.20 per litre, diesel will be dearer by Rs 2.30 per litre and LPG by Rs 20 per cylinder. Besides increase of Rs 20 in price of LPG per cylinder, there would be an additional hike of Rs 5 per cylinder every month. At present, the subsidy per cylinder is Rs 158. However, Mr Aiyar neither denied nor confirmed whether the government has started slowly phasing out the subsidy on LPG.


Crude duty collection low despite price increase


November 08, 2004. A 25% increase in crude prices coupled with 11.3% increase in import volume should lead to a corresponding jump in crude import duty collections.  However, customs duty collections on crude is claimed to have gone up by a meagre Rs 300 crore (Rs 3 billion), or 6% in the first half.  The oil import bill for the H1 in 2004-05 is estimated to be around Rs 60,000 crore (Rs 600 billion) for a total import of around 49.7 million tonnes of crude at a price of $ 35 a barrel. This should lead to a customs duty collection of Rs 6,000 crore (Rs 60 billion), given that crude oil attracts a duty of 10%. Last year, India’s oil import bill in the first half stood at Rs 42,000 crore (Rs 420 billion) for a total import of 43.9 million tonne. This would have resulted in a customs duty mop up of Rs 4,200 crore (Rs 42 billion) in H1, 2003-04. The additional duty collected this year should have been Rs 1,800 crore (Rs 18 billion). Officially, the low revenue growth on crude imports is being attributed to duty free import of crude under the advance license scheme for exporters of refined products.  However, export figures given by the petroleum ministry show that exports of petroleum products have grown by a mere 1%. The petroleum industry has exported 7.4 million tonnes of petroleum products as against 7.3 million in the first half of 2003-04. Oil companies exporting petroleum products enjoy a duty drawback on their crude imports.


Natural gas to cost more


November 8, 2004. The Petroleum Ministry has proposed to raise natural gas price by 12 % for fertiliser units and 26 % for power units in the period prior to complete deregulation of the natural gas sector. The Ministry has moved a Cabinet note to raise the price of natural gas from Rs 2,850 per thousand cubic metres to a fixed price of Rs 3,200 per thousand cubic metres and Rs 3,600 per thousand cubic metres to the fertilizer and power sectors respectively on a provisional basis. All gas produced by private firms would be sold at market determined price, which is almost double of the current administered price. Transporation tariff on the trunk HBJ pipeline is also proposed to be increased by Rs 10 per thousand cubic meters.  It wants the regulation of gas supplies by state run ONGC and Oil India be transferred from the Petroleum Ministry to sector regulator, Petroleum and Natural Gas Regulatory Board, once it is formed, until full deregulation of gas prices is achieved.






NLC hopes to get CCEA approval


November 03, 2004. Neyveli Lignite Corporation (NLC) hopes to receive clearance from the Cabinet Committee on Economic Affairs by this month for its proposal to set up a Rs 1,350 crore (Rs 13.5 billion) 250 MW thermal power plant and lignite mining project in Rajasthan. NLC will go it alone and not invite a joint venture partner. It has also entered into a power purchase agreement with Rajasthan Vidyut Prasaran Nigam. The project, approved by Public Investment Board, is slated to come in Bikaner district of Rajasthan. It proposes to develop and mine 2 mt lignite.


Nuclear power generation to get big push


October 05, 2004. Nuclear power generation in the country is going to get a big push with the government planning to raise the target for 2020 at 20,000 MW. For this, it is looking at using recycled fuel and involving the private sector. The installed capacity for nuclear power is 2,720 MW at present, and is expected to increase to 6,780 MW by 2008. The government has a target of enhancing capacity to 10,000 MW by 2012 and 20,000 MW by 2020. The maximum potential generation at the first-stage nuclear plant with pressurised heavy water reactors using natural uranium is 10,000 MW. The first-stage programme, currently in progress at Kalpakkam, has reached maturity. The Kalpakkam fast breeder reactor, which is expected to come up in another four years, will be a second-stage reactor, with a potential power generation capacity of 350,000 MW.  The second-stage programme will use recycled fuel from the first stage, along with breeding in the fast breeder reactor cycle. The Nuclear Power Corporation of India Ltd (NPCIL) is looking at replicating the Kalpakkam model. In the third stage, the corporation plans to use thorium, which is available in abundant quantities in the country.  The draft National Electricity Policy (NEP) is expected to moot private sector participation to raise nuclear power capacity. Though the NEP would not lay out an investment route for the private sector, it could suggest joint ventures with NPCIL or setting up of privately-owned companies on the lines of independent power producers (IPPs). However, there is a need to evolve an economically efficient and acceptable cost-tariff structure for nuclear power.


NTPC to add 9,610 MW in 10th Plan


November 05, 2004. NTPC would add about 9,610 MW power capacity by the 10 th Plan and 11,500 MW in the 11th Plan. Company said there was no proposal yet for NTPC to take over the defunct Dabhol power project. The company has chalked out a plan to substantially increase its capacity.


Rail Bijlee on the anvil


November 8, 2004. The Indian Railways and the National Thermal Power Corporation have started the process of setting up a joint venture company named `Rail Bijlee Company' at Nabinagar in Bihar. The company will generate 1,000 MW power for traction requirement of the Indian Railways at a reasonable cost. The thermal plant is estimated to cost Rs 4,300 crores (Rs 43 billion). According to a Railway Ministry release, the joint venture will have equity partnership of 51 % by the Railways and 49 % by the NTPC.


KPCL on track to add 4,000 MW capacity


November 09, 2004. The Karnataka government has announced that it will add 4,000 MW of power generation capacity to the state grid over the next four years through the state-owned Karnataka Power Corporation Limited.  KPCL currently has an installed capacity of 4,420 MW through a mix of hydel and thermal and this addition of 4,000 MW will basically be from its proposed projects at Bellary (thermal), Almatti (hydel), Bidadi (gas-based), Varahi and Gundiya (both hydel) in addition to the ongoing unit additions at Raichur power plant.  This will see it generating a total of 180 million units at its peak capacity. KPCL has gone in for a debt of Rs 48 crore (Rs 480 million) for the project from the Power Finance Corporation. The renovation and modernisation works were carried out by VA Tech and ABB India. With this revamp, KPCL has a total hydel installed capacity of 2,930 MW which will generate close to 9,000 million units this year and it is backed by good monsoon. 


Transmission / Distribution / Trade


PTC to invest in power projects


November 3, 2004. The concept of power trading was ahead of its time with the pioneering efforts made by PTC India Ltd. After three and a half years of demonstration of sustained success, critics and sceptics remain as do a number of domestic corporate houses queuing up for trading licenses. To maintain its leadership role, the company has drawn out a long term business strategy. The company aims to of become a multi-dimensional vital intermediary, adding value to various aspects of the power business. The strategy for growth includes not just seeing the concept of the a vibrant power trading market to fruition, in the long run, but also to becoming a service provider of choice that will provide power on demand to state electricity boards (and their successor entities), and industrial buyers. Besides this investors in Mega power project investors have also approached PTC to invest in equity in their projects.


A second building block of the future is to enter into agreements with overseas power producers that are setting up power projects in India and neighbouring countries. As a first step in this direction, PTC has already initiated a draft power purchase agreement (PPA) with an Australian power producer Snowy Mountain Engineering Company(SMEC). This is for its 750 MW hydro electric power project which is coming up in Nepal. The company will soon be signing the PPA and be the sole buyer of the SMEC's power output.  PTC is in discussions with several other power ventures developers that are investing in India. The copany has recently got a proposal for buying power produced by China Light and Power, a Hong Kong based developer which plans to set up a power project in Gujarat Western India. The company has also received enquiries to act as intermediary from Russian, American and European power companies that are planning to come to India and in neighbouring countries. PTC is also looking at acting as a fuel intermediary. The company will arrange to provide fuel to gas based power projects and in return buy all the power that is being produced by them. This future approach is all about of acting as a multi-dimensional intermediary for addressing problems of the power projects.


Many suitors for Uttar Pradesh discoms 


November 04, 2004. State-run National Thermal Power Corporation , CESC, Ahmedabad Electric Company, Essar Power, Reliance Energy Limited, Tata Power Company, Larsen & Toubro and GVK Group have purchased bid documents for acquiring majority equity stake in the five electricity distribution companies (discoms) in Uttar Pradesh (UP). Bids have been floated by the UP Power Corporation Limited (UPPCL) as per the UP power policy 2003 which envisages disinvesting majority stake in power distribution.  The disinvestment programme was part of an extensive reform programme launched by the UP government and supported by the World Bank. According to sources, the bidder should have a net worth greater than Rs 500 crore (Rs 5 billion) and should have experience in owning and operating generation plant of 500 MW or more or managing an electricity distribution network with 0.5 million consumers or more.  UP government has roped in PricewaterhouseCoopers as its privatisation consultant for the power sector. According to the UP Power Policy 2003, the UP government would pursue privatisation of the distribution business on a priority basis. Private sector participation in the distribution business would be through a transparent and open process of competitive bidding.

Policy / Performance


Power Ministry seeks captive coal reserve


November 2, 2004. The Union Power Ministry has asked the Ministry of Mines and Minerals to allocate 150 million tonnes captive coal reserve in three mining blocks to Damodar Valley Corporation. The Power Ministry feels that the corporation's capacity expansion plan is being affected by a shortage of coal. While the reserves at Bermo are getting exhausted, the corporation's coal requirement will increase by roughly four million tonnes once it adds 1210 MW additional capacity during the residual years of Tenth Plan. According to sources, the corporation's biggest thermal power plant at Mejia, which has undergone a 210 MW capacity expansion this year, and the Durgapur Thermal Power Station are facing an acute raw material crisis with stocks barely enough to cover operations for a week. During the last monsoon, a coal crisis had forced DVC partially to shut down the Mejia plant. The sources said that the captive linkage was intended to support the newly set up 210 MW unit IV at Mejia Thermal Power Station (MTPS) and the proposed capacity addition programme of 2 X 210 MW at MTPS as also the proposed greenfield venture of 2 X 500 MW at Durgapur during the Eleventh Plan period


Kerala’s electrification programme 


November 03, 2004. The Kerala government has decided to light up households by spending Rs 717 crore (Rs 7.17 billion). This will be drawn from the Accelerated Power Development and Reform Programme (APDRP's) 60:40 subsidy and loan programme of the Union Power Ministry. Kerala, which tops the country in Human Development Indices, is down at 18th rank in household electrification, according to Census 2001. This makes widening the electrical network a top priority.  The Rs 717 crore (Rs 7.17 billion) electrification programme targets high ranges, coastal Kerala and scheduled caste households. Around Rs 163 crore (Rs 1.63 billion) is allotted for the Capital city. Another Rs 200 crore (Rs 2 billion) for Kochi has been set aside in the context of Petronet LPG project and subsequent power requirements. Thus Coastal belt is allotted Rs 36.5 crore (Rs 365 million) and high ranges Rs 116.5 crore (Rs 1.165 billion). Electrification for households of Scheduled Castes and Scheduled Tribes are earmarked Rs 33 crore (Rs 330 million) each.


Another priority is improving the revenue of electricity board and bring down the ratio of high-tension to low-tension power users. The State has set aside Rs 135 crore (Rs 1.35 billion) for realignment to improve transmission and distribution losses. From 31% in 2001, T&D losses have been brought down to 26% in 2004. The Centre had recently allocated over Rs 1,400 crore (Rs 14 billion)to States as part of efforts to encourage to curb T&D losses.


Action plan for import of 10m tonne of coal 


November 04, 2004. The power ministry has swung into action to tackle growing coal shortages for power projects. The ministry has prepared an action plan for 2004-05 and 2005-06 to meet the gap of 10 million tonne per annum largely through import. The ministry has asked power utilities to import coal under a timebound programme.The ministry has fixed milestones for various activities for coal imports. About 27 projects of Coal India Ltd and its subsidiaries were held up in the absence of various clearances including environment clearance. The ministry expects the problem to be further accentuated by 2006-07. With most of the generation capacity addition materialising in 2006-07, coal demand would also go up.  Tamil Nadu Electricity Board has already initiated steps to make long term arrangement for import of 1.3 lakh (130,000) tonnes of coal per month. For the interim period, commencing December 2004 till receipt of the first consignment, TNEB would tie up with MMTC for supply of imported coal.


Mega project guideline to be revised


November 04, 2004. The power ministry is considering a proposal to relax the guidelines for granting mega power project status to thermal and hydroelectric projects. According to the present power ministry guidelines, only 1,000 MW thermal power projects and 500 MW hydroelectric power projects are permitted this tag. Thus allowing these to avail of tax exemptions.  A draft Cabinet note, circulated by the power ministry, has proposed to reduce the threshold to 300 MW for both types of power projects. A final draft is expected to be referred to the Cabinet in the near future.  Gas-based plants, like hydroelectric ones, are environment-friendly and have the benefit of starting production instantaneously, which makes them useful to meet peak-level demand. Coal-based plants, which take time to start generating electricity, are better for meeting base load demand. New power plants, which are coming up, are not coal based. They are either gas based or combined cycle plants, which use both coal and gas as fuel. This has been forwarded as another reason to extend benefits to these new plants, which will be relatively smaller in size. The power ministry had moved a similar proposal earlier. The proposal to change the definition of mega power projects to those with generating capacity of over 250 mega watts, was, however turned down by both the Planning Commission and the finance ministry. 


Subsidy for free power released


November 3, 2004. The AP Government has kept its promise on free power to the agriculture sector by releasing Rs. 255 crores (Rs 2.55 billion) for seven months so far (from May) against the total annual commitment of Rs. 436 crores (Rs 4.36 billion) on this count. The APTransco is pleased with the disbursement and is expecting that the amount for the rest of the year will be released without any problem.


Putin visit to boost ties in coal sector 


November 04, 2004. Indo-Russian co-operation in the coal sector is poised for a major boost during the visit of Russian president Vladmir Putin to India next month. According to industry sources, both the countries are likely to take a final decision on the Russian proposal to supply complete set of equipment to Coal India Ltd (CIL) for its new mines at Magadh and Amrapali by setting up a consortium. The financial aspect of the Russian proposal to supply Longwall equipment for R-VI seam of Jhanjra Mine may be signed, sources added. Recently Russia had submitted a proposal for rock loosening of poorly caving roof in underground mines. It had also offered mining of thick steeply inclined Indian coal seams via a separate agreement.


Norms for coal, power companies to be eased


November 09, 2004. The power ministry is working on a Cabinet note to allow it to clear power projects up to Rs 1,500 crore (Rs 15 billion). The move will expedite clearance of projects whose viability has been assessed by financing agencies and 65 per cent of the project cost has been worked out.  The Committee of Secretaries had, in an in-principle approval, recently allowed an empowered group of secretaries to clear large capital projects. In the coal sector, projects up to Rs 1,000 crore (Rs 10 billion) will be allowed to be cleared by the administrative ministry. At present, all projects have to get a techno-economic clearance, after which they are recommended to the Public Investment Board (PIB) and then the Cabinet. The whole process takes more than a year, with the executing agency starting the bidding process only after receiving all clearances.  The proposal includes the setting up of a committee in the power ministry that will scrutinise all such proposals and approve them. The committee will have include representatives from the Planning Commission and the expenditure department in the finance ministry. Once approved, the new system would help avoid time overruns in the crucial infrastructure sector.


State generating cos to enter into PPAs with DisCos


November 5, 2004. State power generating companies (GenCos) have initiated steps to enter into direct power purchase agreements (PPA) with the electricity distribution companies (DisCos). Power generating companies were created by separating integrated State electricity boards.  Among the States that have taken the lead in pushing for such PPAs include Karnataka and Andhra Pradesh. These States have taken the measure, since transmission companies are barred from power trading from June 2005.  Alternatively, some States instead of direct PPA with the DisCos are also planning to set up separate power trading companies. GenCos would be allowed to enter into PPAs with the trading companies. These trading companies in turn would sell power to the distribution companies. The new Electricity Act also allowed DisCos to trade. The move to enter into direct PPAs ahead of the June 2005 deadline would help most of the GenCos improve their cash flows and cut their outstandings. 


Presently, in almost all the States, transmission and distribution companies have large overdues to the GenCos.  After June 2005, the outstandings would be considerably curtailed.  This would be done by entering into payment security mechanisms with each of the distribution companies. In fact, companies like the Karnataka Power Corporation were already working out the mechanisms for tying up directly with the DisCos and reduce their outstandings. Such arrangements would also help the State Governments. Presently, none of the State-owned generating entities were in a position to obtain the same valuation of either their Centrally-owned peers or the private sector entities. High realisation of dues would allow for better valuation of State Government holdings in GenCos as they prepare for diluting their stakes. Karnataka and Andhra Pradesh have plans to eventually divest their stakes in the State-owned power utilities and retaining only the transmission companies.


No funds to supply power to the poor?


November 6, 2004. The Government is "pro-poor" but its power companies have no money to provide electricity to houses in rural areas. The problem, according to power companies, is linked to the change of guard at the State and the Centre. State governments generally do not give much money for rural electrification, while the Union Ministry of Power does through grants or loans because it wants "electricity for all by 2012." This includes rural or BPL (below-poverty-line) households as well.  The State claims to have provided electricity to 76 per cent of its villages. But now the power companies are facing a dilemma. They have project reports for schemes such as the Rajiv Gandhi Housing Scheme for Electrification of Dalit Bastis but no money to carry them out. The Rs. 206 crore (Rs 2.06 billion) Dalit Basti project in the Gulbarga Electricity Supply Company was sanctioned last year. The money partly loan and partly in grant was to come from agencies such as the Rural Electrification Corporation. But now the companies say funding modalities have changed. 


The Bangalore Electricity Supply Company (BESCOM) finds itself in trouble especially because it has identified 1,800 BPL colonies for electrification. This is apart from the five lakh (500,000) Bhagya Jyothi consumers. Under Bhagya Jyothi, only one light source is officially sanctioned. Over the years, this has been grossly misused. A survey the company conducted sometime ago revealed that up to 40 per cent of consumers in this category misused the facility. Schemes for "green" energy appear to be have made progress. Karnataka Renewable Energy Development Ltd., for instance, has drawn up plans to provide solar energy in 500 hamlets by March-April next.

Captive coal blocks to NTPC 


November 9, 2004. The Central government, in a serious bid to tackle the mounting coal shortages, has allotted captive coal mine block to the state-run National Thermal Power Corporation in north Karanpura, Jharkhand. NTPC would be able to produce about 20 to 25 million tonne of coal annually from the allotted captive mine block. The power ministry has asked the NTPC to float expression of interest for a joint venture partner for the proposed exploitation of captive coal mine. NTPC proposes to use the coal from the above given block for its Simhadri, (Andhra Pradesh), Tanda, Unchahar and Dadri (all in Uttar Pradesh) projects. These projects are not pit head based and thus have to reply on coal allotted under the coal linkages agreements.  NTPC at present procures coal from subsidiaries of Coal India Limited and Singareni Collieries Company Limited. Coal supply is allocated by the Standing Linkage Committee which a government committed led by a representative of the coal ministry alongwith members from the ministries of railway, shipping and surface transport.









Japan may lose out to China in Sakhalin


November 3, 2004. ExxonMobil is in talks with a Chinese oil firm to sell the entire natural gas output from an oil project on Russia's Sakhalin Island, despite an earlier plan to export to it Japan. ExxonMobil, leading the Sakhalin-1 project on Russia's Pacific Ocean coast, has been talking to China National Petroleum Corp, one of the top three Chinese oil companies.  It hopes to seal an agreement by early next year that would entail building a pipeline linking the Island and northeastern China with shipments beginning in 2008. Such a deal could have a huge impact on Japan as the Sakhalin-1 project had initially planned to sell all of its natural gas output to Japan via a direct 1,500-kilometer (930-mile) pipeline.


Shell starts oil production from North Sea field


November 2, 2004. Royal Dutch/Shell has launched oil production at the Howe field in the central North Sea, some 160 km from Aberdeen, the Anglo-Dutch oil group said. Shell expects production to be around 13,000 b/d, it said in a statement. The Howe field is 60 percent owned by Shell and 20 percent each by Austrian oil and gas group OMV and Petro Summit Investment UK Ltd. Shell bought the field as part of its acquisition of Enterprise Oil Plc in 2002. The Nelson platform, around 175 km east of Aberdeen, exports oil to Forties Unity riser platform and gas via the Fulmar gas line to St Fergus terminal in north Scotland. This is the second North Sea project that Shell has brought onstream in a month after the Goldeneye gas field launched production in October.


Second unit of South Pars goes on stream 


November 3, 2004.  The second unit of a gas processing plant for Phases 4 and 5 of the South Pars natural gas expansion project off Iran has become operational. When both units operate at full capacity, the plant will process 1 bcfd, a rate that will reach 2 bcfd when all four planned processing units go on stream, the Pars Oil and Gas Co. South Pars field is an extension into Iranian waters of supergiant North gas field off Qatar. Iran is developing it with international partners in 25 stages, 10 of which so far are active.


Libya is 'exploration buzz' among IOCs


November 3, 2004. Libya is "the central exploration and production buzz for 2005" among international oil companies looking for access to potentially giant oil and gas fields.  With the lifting of US trade sanctions, Libya is coming into the market just as a number of international oil companies face an otherwise "limited rage of alternative opportunities," particularly in Iraq, where many were hoping to expand prior to the escalation of violence. Companies already working in Libya are eager to consolidate and build on current holdings. State-owned National Oil Co. is capitalizing on this interest by extending its first open-bid license round to 15 areas from an expected 8. That move has been widely interpreted by observers as a possible test run for the new, fourth-generation exploration and production-sharing agreement. The reaction of oil companies to this first tender will largely determine whether Libya continues offering two, 15-block rounds/year after 2005 or returns to one-on-one negotiations for acreage, as it has done in the past. 


Beach acquires stake offshore Australia 


November 3, 2004. Beach Petroleum has further increased the tempo of its move into offshore oil and gas exploration in Australia announcing the acquisition of a second exploration asset in Western Australia's Carnarvon Basin. The acquisition is a 10% farm-in with, Santos Limited, on offshore Carnarvon Basin exploration tenement, WA-208-P, 100 kilometres northwest of Dampier. The farm-in paves the way for Beach Petroleum to participate in the drilling of oil wildcat, Hurricane-1, in the first quarter of 2005, in waters 56 metres deep and 11 kilometres to the west of the producing Legendre oilfield. Beach will also be a 16.7% participant in the drilling in February next year of another Carnarvon Basin well, Corowa East-1, located in WA-264-P, some 260 kilometres to the south of WA-208-P and in which Beach is in joint venture with Santos and Kufpec Australia Pty Ltd.


Premcor set to get SPR oil


November 5, 2004. The U.S. Energy Department said that 700,000 barrels of emergency oil the government previously agreed last month to loan to Premcor Inc. will be delivered to the company over the Nov. 3-7 period. The light, sweet crude oil will be sent to the company's refinery in Memphis, Tennessee, which can process 190,000 barrels of crude a day. Premcor has already received 500,000 barrels of crude from the U.S. Strategic Petroleum Reserve to help make up for oil supplies disrupted by Hurricane Ivan. So far, five refiners have signed deals to borrow 5.4 million barrels of oil from the emergency stockpile.


China's CNPC talks with Yukos on exports


November 4, 2004. China National Petroleum Corp. is in talks with Russia's beleaguered oil company OAO Yukos on restarting rail-borne crude oil exports to China that were suspended at the end of September, the state-owned Chinese oil giant said. Beijing-based CNPC, parent company of Hong Kong and New York-listed PetroChina Co. Ltd., "expresses regret" that Yukos hasn't yet resumed the crude oil exports.  Yukos, Russia's largest oil producer, has been struggling to pay billions of dollars in back taxes and has had its bank accounts frozen by Russian authorities.


CNPC and Sinopec have dominated China's land and shallow water oil exploitation, while China National Offshore Oil Corp., the nation's third-largest producer, generally controls offshore oil production. But the government wants to further promote offshore development to help meet soaring demand. Currently, offshore production accounts for less than 1 percent of CNPC's total output. The company intends to quadruple its offshore production to 4 million tons from the current 1 million tons by 2010. Meanwhile, China National Offshore Oil is stepping up its development of onshore oil and gas production and oil refining and products.


Feni gas field on stream in Bangladesh


November 4, 2004. Niko Resources Ltd. is announced first production from its Feni discovery at a start up rate exceeding 20 million cubic feet per day. A second gas plant has left Canada today, which will allow the Company to double capacity. The plant is expected to be operational in January 2005. Niko has drilled and is currently logging its third well in Feni and results are expected prior to months end. Niko has reached an agreement with the Government of Bangladesh to purchase up to 50 million cubic feet per day from Feni. Niko is currently finalizing the gas sales price. Niko is the operator of the field and holds an 80 percent working interest. Niko's current net production is 70 million cubic feet per day, a record high for the Company.


Exxon wants to stop Azeri Caspian drilling


November 4, 2004. U.S. oil major ExxonMobil sees no point in drilling further wells on two Caspian fields after a flagship well failed to find commercial deposits last month, the head of Exxon's Azeri partner said. The head of Azeri state oil firm SOCAR said Exxon wanted to halt exploration on both the Nakhichevan and Zafar fields but would have to pay SOCAR compensation under the field's development deals.


ChevronTexaco plugs dry Norway well


November 4, 2004. ChevronTexaco has plugged a dry oil and gas exploration well in the Sahara prospect in the Norwegian Sea. The exploration well was drilled in production licence 261 BS about 240 kilometres (149 miles) west of Sandnessjoen on the west coast of northern Norway.  The well was drilled in 397 metres (1,302 feet) of water to a total depth of 3,720 metres. Exploration findings off Norway have been mostly disappointing in the past few years, with a string of dry wells in 2002-2003.


OPEC daily output rises to 30.61m


November 5, 2004. Crude oil production by the Organization of Petroleum Exporting Countries (OPEC) rose for a sixth consecutive month in October as members tried to stem a rally that caused record prices. Production by all 11 OPEC members rose 0.5 per cent from September to 30.61 million b/d, according to the survey of oil companies, producers and analysts. It was the most oil OPEC has pumped since November 1979, U.S. Energy Department figures show. Oil production by OPEC has been at or close to a 25-year high since June.  Saudi Arabia, the world's top exporter, boosted daily production by 50,000 barrels to 9.78 million barrels, the biggest increase among OPEC members. It was the highest for the Saudis since August 1981, according to Energy Department figures. Saudi production has risen 15 per cent this year.  Iraq boosted production by 20,000 barrels to 2.25 million b/d, the highest since April. Iraq pumped 2.48 million b/d in February 2003, before the U.S.-led invasion. Iraqi production and exports have been limited because of sabotage to pipelines and other oil facilities. The only member to show lower output was Venezuela, OPEC's only member in the Western Hemisphere. Venezuelan production fell 40,000 b/d to an average 2.58 million b/d.


Patch oil and gas opportunities in North Africa


November 8, 2004. Patch International Inc. announced that it has signed a formal agreement with a company operating internationally to develop oil and gas opportunities in North Africa. The partnership with First Petroleum Inc., a private corporation, will lead to the establishment of a partnership operation specializing in the oil and gas exploration and production activities within this highly lucrative North African markets, particularly Algeria and Libya.


Jakarta awards Unocal oil exploration area


November 8, 2004. Indonesia has awarded U.S energy company Unocal Corp. the disputed East Ambalat block, off East Kalimantan, to explore for oil and gas, a mines and energy. Malaysia's Petronas had said in September its plans to develop two new deepwater blocks in the Sulawesi Sea might be disrupted by overlapping claims by Indonesia to the same area.  Indonesia, OPEC's only member in the Asia Pacific, became a net importer of oil this year because of production problems, but officials have insisted the country should be able to restore its net exporter status on a longer-term basis. Indonesia has a quota of 1.399 million b/d under OPEC's current production ceiling of 27 million b/d.


Unocal to invest $230 million in Bangaldesh gas field


November 8, 2004. U.S. energy company Unocal Corp.will invest $230 million to develop a gas field in northeastern Bangladesh that will help ease a domestic shortfall. Unocal signed the deal with state-run Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) to develop the Bibiana gas field, which has proven gas reserves of more than 2.4 trillion cubic feet, Petrobangla Chairman S.R. Osmani said.  The company will also set up a processing plant for 600 million cubic feet of gas per day and will construct a 40 km pipeline to connect with the national grid." The company would produce up to 300 million cubic feet (mcf) of gas per day from October 2006, and this would be increased by 100 mcf annually until 2008, Osmani said. The production period is 25 years.



Total buys 100 service stations in Puerto Rico


November 2, 2004. French oil major Total SA has acquired 100 services stations in Puerto Rico, equivalanent to 6 percent of the Caribbean island's retail market.  It said the purchase reinforced its development strategy in the Caribbean, an area of rapidly-growing consumption.


BP, Sinopec in $265 retail venture in east China


November 4, 2004. Oil giant BP Plc. and Chinese oil major Sinopec Corp. has launched a 2.2 billion yuan ($265 million) joint-venture to sell oil products in east China. This is BP's second retail joint-venture in China. The world's No. 2 oil company operates 360 retail outlets in a tie-up with another Chinese oil major PetroChina in the booming southern province of Guangdong. Sinopec would hold a 60 percent stake in the joint venture, based in the eastern province of Zhejiang, while BP would have the remaining 40 percent, they said. The joint venture would build, operate and manage 500 service stations in the Zhejiang cities of Hangzhou, Ningbo and Shaoxing over three years. Sinopec, which operates about 30,000 stations in China, would be the sole supplier of petroleum to the service stations.


Exxon seeks approval for US refinery expansion


Nov 4, 2004. Exxon Mobil Corp. is seeking approval to expand the crude oil processing capacity of the largest U.S. refinery by 18,000 b/d, according to the Port of Houston Authority. Exxon Mobil asked Port of Houston officials to seek approval for the expansion at the 557,000 b/d Baytown, Texas refinery from the U.S. Commerce Department's Foreign-Trade Zones Board, Port spokeswoman Felicia Griffin said. The Port of Houston Authority filed the request in early October, Griffin said. Approval is expected some time between late November and late December. If Exxon goes forward with the expansion, crude oil processing capacity at the plant would increase to 575,000 b/d. The Baytown refinery has the largest crude oil processing capacity in the United States.


New refinery in South Pars


November 5, 2004. A vast area was leveled on South Pars gas field and now everything is prepared to start building a refinery for 9th and 10th phases of the project. The huge project, which includes excavation and leveling of the land, construction operations, concreting the land, building the metal framework, laying down the pipelines and cables, installation of equipment and mechanical parts, and other preliminary operations, is being implemented by a 5-party consortium. The refinery is estimated to come on stream in 29 months.


In addition, the first phase of the development plan of the two phases, which is a joint venture (58% on the Iranian side and the rest on a foreign consortium), will be completed in the next two years. The process includes both onshore and offshore operations. The project is estimated to be fully on stream in 52 months. It would be the first gas project in Iran implemented on finance basis. The National Iranian Oil Company, the LG consortium, the Oil Industries Engineering and Construction Company (OIEC), and the Iranian Offshore Engineering Company (IOEC) have been announced as the project contractors. The work is managed by Pars Oil and Gas Company (POGC). Upon completion, the two phases (9 and 10) will bring about a daily gas liquids output of 80,000 barrels, one million tons of ethane and 1.05 million tons of LNG each year. The project is also expected to produce 400 tons of sulfur each day.

Pak Govt pays 3b to oil marketing firms


November 7, 2004. The federal government has paid Rs 3 billion to oil marketing firms to compensate for the losses incurred due to high international oil prices.  This was stated by Farooq Rehmatullah, managing director of Shell Pakistan in a function here. "Estimated total losses of oil marketing firms are around Rs 4 billion during the last one month, which the federal government has to pay to oil companies," said Mr Rehmatullah. "Another Rs 1 billion in the pipeline, while Rs 2 billion is expected to be received soon."


Gas stations going out of business in South Korea


November 9, 2004. An increasing number of gas stations are shutting down in South Korea largely attributed to the prolonged economic slump and protracted high oil price trend. According to the Korea Oil Station Association (KOSA) Monday, 88 gas stations closed in Korea between January and September this year. Only 76 gas stations closed during the same period a year earlier. KOSA said of the 11,402 gas stations nationwide, 20 gas stations closed in Kyonggi Province, 14 in South Cholla Province, 10 in Seoul, nine in North Cholla Province, six South Kyongsang Province and a combined five in Pusan, Taegu, Taejon and North Chungchong Province.


The number of gas stations in Seoul reduced sharply from 886 at the end of 1996 to 739 at the end of last year and to 729 at the end of last September.  Meanwhile, KOSA said there are a total of 111 gas stations laying idle across the nation. The number of gas stations that suspended their businesses due to low profitability was the greatest in Kangwon Province with 21, trailed by North Chungchong Province with 20, South Cholla Province with 14, North Kyongsang Province with 14, Kyonggi Province with 11 and South Kyonggi Province with 10.


Indian bank signs deal with Ceylon Petroleum


November 8, 2004.The Export and Import Bank of India has signed a US$150 million contract with Ceylone Petroleum Corporation for export of petroleum products from India. The loan will help facilitate Indian oil major Oil & Natural Gas Corporation Ltd's export of petroleum products to Sri Lanka.

Transportation / Trade


SignalEnergy to acquire two oil and gas companies


November 2, 2004. SignalEnergy Inc. said that it has acquired Predator Exploration Ltd. and a private oil and gas company that it did not name. SignalEnergy, an Alberta-based oil and gas exploration and development company, said it will acquire Predator in an all-share deal worth C$21.9 million, including assumption of debt. Predator's main assets include natural gas properties in British Columbia and west central Alberta. Signal said it also entered into an agreement to buy all outstanding shares of a private company, also based in Alberta. After the completion of the deals, Signal said its production rate will increase by 240 percent. The deals are expected to be completed in the next two months.


Indonesia struggling to meet 2005 LNG contracts


November 3, 2004.Indonesia is struggling to meet its liquefied natural gas (LNG) export commitments next year and has three options to resolve the problem, including buying up to 50 LNG cargoes, oil and gas watchdog BP Migas said. Indonesia is the world's top LNG exporter, but has found it difficult to meet contractual commitments for super-cooled, compressed gas as output has declined and supplies have been diverted to the domestic market, mainly to fertiliser plants. A team from state oil and gas company Pertamina planned to talk with buyers from Taiwan, South Korea and Japan to try to reschedule contracts or to cut cargo volumes in 2005. Indonesia said in August it might need to buy 54 spot cargoes of LNG between 2005 and 2007 to meet overseas sales commitments. Mines and Energy Minister Purnomo Yusgiantoro said then that Indonesia might need nine LNG cargoes in 2005, 16 cargoes in 2006 and 29 in 2007. Indonesia had expected to export 25 million tonnes of LNG this year to its Asian customers.


Itochu-Mitsui LNG carrier contract 


November 3, 2004. Algeria's state-owned oil and gas company Sonatrach has awarded a $160 million contract to Japanese shipyards Itochu Corp. and Mitsui & Co. Ltd. to build a 75,000 cu m capacity Medmax LNG carrier, with an option for a second like vessel. Separately, Sonatrach signed an agreement with French bank Caylon for financing 75% of the carrier's cost.  Sonatrach recently acquired two other LNG carriers, Berge-Arzewa and Lalla Fatma N'Soumer, and plans to increase its gas export capacity to 85 billion cu m in 2010 and to 100 billion cu m by 2015.


Argentina signs pipeline contract with Brazil


November 3, 2004. Argentina's President Néstor Kirchner signed a letter of intent with Brazil's government to finance the US$200mn expansion of local transporter TGS's San Martín pipeline in southern Argentina, the president said. The expansion is designed to add some 3 million cubic meters a day (mcm/d) of capacity to the gas transport system, which is badly in need of new infrastructure to meet higher demand. Brazil's federal energy company Petrobras will carry out the expansion though its TGS unit, and Brazil's national development bank BNDES will finance some US$142mn of the project costs. Construction of the pipeline is expected to start in January and commercial operations in July 2005. The agreement with Brazil comes after Kirchner signed an accord with Bolivia's President Carlos Mesa in October to import some 20mcm/d of gas from 2006.


Hungary's MOL sells gas business to E.ON


November 4, 2004. Hungary's MOL said it had signed a deal with Germany's E.ON Ruhrgas to sell its gas businesses in a move that could generate around $1 billion in cash and boost its shares. The Hungarian oil and gas company said the total enterprise value of the deal, assuming all options to sell were exercised was 2.2 billion euros ($2.8 billion), including debt, and it expected the deal to close in the first half of 2005.


Argentina expects $20 bln in China investment


November 7, 2004. Argentine President Nestor Kirchner will announce an investment accord with China that will bring in $20 billion in capital from the Asian giant for infrastructure and energy projects. If the investments materialize, it would be the first large-scale injection of capital in Argentina since the economy's collapse in late 2001. Clarin and La Nacion said that investment would go mostly go toward offshore oil exploration and infrastructure, especially railroads.


Jamaica, Trinidad and Tobago LNG supply agreement 


November 8, 2004. Trinidad and Tobago has reached an agreement to supply LNG to Trinidad under a special pricing arrangement based on a "competitive, predictable" base price with an agreed escalation cost, said Jamaica Prime Minister P.J. Patterson. The decision followed more than a year of negotiations between the two Caribbean nations over the price Jamaica would pay for the LNG. Patterson said the agreement would encourage Jamaica to establish a 1.1 million-tonne LNG receiving terminal and convert major industries from oil to natural gas usage. These will include bauxite plants, the country's electric power company, the national bus service, and several of Jamaica's larger manufacturers. Trinidad and Tobago said plans were under way for a fifth LNG train, with a minimum capacity of 800 MMcfd, to enable the deliveries to Jamaica because LNG from the three existing LNG trains and from train four is already committed to US and Spanish markets under long-term contracts.


Petronet floats tender for LNG ships


November 8, 2004. Petronet LNG Limited (PLL) will hire three more liquefied natural gas tankers for transporting LNG from Qatar/Iran to its expanded Dahej terminal in Gujarat and a new project at Kochi in Kerala. PLL, which already has a 138,000 cubic meter capacity ship ferrying LNG from Qatar to its Dahej terminal and a second similar tanker scheduled for delivery in December, needs two more LNG tankers of similar capacity for hauling additional five million tonne gas to Dahej, a senior company official said. For the 2.5 million ton per annum Kochi terminal, PLL wants a 152,000-165,000 cubic meter-capacity ship.  The company is expanding the capacity of Dahej LNG terminal from five million ton to 10 million ton per annum and is setting up another LNG receiving terminal at Kochi with an initial capacity of 2.5 million ton, which can be scaled up to five million ton per annum later.


The successful bidder for the LNG ship tender would have to, as per the new guidelines for transporting LNG, give 26 per cent to the Indian firm. PLL's current LNG tankers are being supplied by the consortium of Mitsui OSK Lines, NYK Line, K Line and Shipping Corp of India. They were hired at a charter rate of $68,900 per day for each tanker. The charter hire rate has an escalation factor linked to the United States Consumer Price Index (US-CPI) within an overall cap of three per cent compounded annually. While the first of the two tankers is already in operation, ferrying gas from Qatar's RasGas, the second tanker would be deployed in December.  PLL would source additional 2.5 million tonne LNG from Qatar for the expanded Dahej terminal while the balance 2.5 million tonne for the Gujarat project and a similar quantity for the Kerala terminal may be sourced from Iran. The Rs 2,000 crore (Rs 20 billion) Kochi terminal would be set up in 42 months while the Rs 1,000 crore (RS 10 billion) expansion of Dahej terminal would happen by March 2008.


Jamaica govt, to launch oil & gas tender


November 8, 2004. Jamaica's government and state oil company PCJ plan to launch the island's first ever international oil and gas exploration tender round for 26 offshore and onshore blocks on November 22, PCJ said. Bidding rules will be available from January 1, 2005 and bids must be submitted by July 15.  The tender is for 22 offshore blocks and 4 onshore blocks, which "cover the entire Jamaican region".


EastCoast Energy begins natural gas sales in Tanzania 


November 8, 2004. EastCoast Energy has commenced industrial natural gas sales to customers in Dar es Salaam, Tanzania. An estimated 1.4 mmcf/d of natural gas is now flowing from Tanzania's Songo Songo offshore field to Kioo Limited and Tanzania Breweries Limited through a ring distribution system constructed, owned and operated by EastCoast and its partner, Tanzania Petroleum Development Corporation ("TPDC"). The price for the sale of gas to industrial enterprises is calculated by reference to the Heavy Fuel Oil price in Tanzania and is initially expected to be in the region of US$5.20 - US$5.41 per mcf.

Four other Dar es Salaam area companies have also signed contracts for EastCoast and TPDC to supply 1.3 mmcf/d of interruptible "Additional Gas" once their boilers have been converted to burn natural gas forecast for the end of the first quarter 2005. The gas being marketed by EastCoast is produced from the Songo Songo gas field which came onstream 20 July 2004. Currently connections to three of these additional customers have been completed and a fourth connection will be constructed in the first quarter of 2005.


Policy / Performance


SA to source oil from African states


November 3, 2004. South Africa will explore ways to source its oil from other African countries in an effort to cope with spiralling global prices. The SABC said Energy Minister Phumzile Mlambo-Ngcuka had revealed, during her department's presentation to the parliament's joint budget committee, that her department would join the Association of African Oil Producers. Mlambo-Ngcuka reportedly said that although oil pricing was international she would also explore the possibility of influencing. African countries to supply oil to fellow countries on the continent at reduced prices. He said the IFP had indicated to the government that massive savings could be obtained and that consideration should be given to developing a pipeline from Cabinda in Angola to South Africa.


Bangladesh to raise oil subsidies, rejects IMF plea


November 3, 2004. Bangladesh will increase fuel subsidies to absorb the shocks from strong global markets and recent floods, rejecting proposals by the IMF to raise domestic oil prices, the energy minister said. The International Monetary Fund had urged Bangladesh to raise fuel prices to match high international benchmarks to curb the impact on its foreign exchange reserves, said A K M Mosharraf Hossain, state minister for energy and mineral resources.  Other energy officials said Bangladesh spent $140 million in subsidies on refined oil products such as kerosene and diesel in fiscal 2003-04 and has allocated $234 million for the current fiscal year. The minister said Bangladesh’s fuel import cost in 2004-05 (July-June) could nearly double to $1.3 billion as US oil prices jumped more than 60 per cent this year to above $50 a barrel and if it stayed around that level. Bangladesh spent $800 million on fuel imports in 2003-04. The country’s foreign exchange reserves stood at $3.07 billion at the end of October this year.


Iran to sign gas contracts with Europe, Korea


November 2, 2004. Managing director of National Gas Export Company (NGEC), Roknoddin Javadi announced that Iran has agreed to export its LNG to Europe and Korea. Shifting to the recent contracts between Iran and China, Javadi added that China is the world’s second major consumer of oil adding it is likely to become the first one soon because of their expeditiously growing economy. Pointing to the current energy prices, he said that there appears to be a balance in the global gas market as the major oil and gas consumers enter the market the producers of oil and gas have a greater choice. According to the deal between Iran and China some 10 million tons of LNG will be exported to China annually from 2009. “According to our schedule the NIOC LNG project will reach the production stage by 2009 after which Iran will export 10 million tons of LNG within 10 years to China.” The maximum output of the project is estimated to be about 16 million tons.


Indian Oil signs MOU with Iran's Petropars 


November 4, 2004. State-run Indian Oil Corp said it has signed a memorandum of understanding (MoU) with Iranian firm Petropars for jointly bidding for a block in the gigantic South Pars gas field. If approved, IOC-Petropars will bring 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 liquefication plant in South Iran which is planned to export 9 million tonnes per annum of LNG to India and other countries. Petropars is a subsidiary of National Iranian Oil Co. NIOC has 60 per cent stake in Petropars while Iran's IDRO (Industrial Development and Renovation Organisation) Pension Fund the remaining 40 per cent.  IOC said total investment will be firmed up after preparation of Detailed Feasibility Report. 


South Pars, the largest offshore field in the world, is planned to be developed in around 30 phases, each of which will require an initial investment of around US $1 billion. The first 12 phases of the development are underway and will have the capacity of 1 billion cufic feet and 40,000 barrels of condensate per day. Phase 13 and 14 are under bid from Shell and Repsol.


Gas demand growth to outpace supply in Pak


November 4, 2004. The natural gas demand growth is likely to outpace the supply in the near future, analysts said. The gas consumption in Pakistan has grown at a 5-year CAGR of 6.6 per cent and all new additions to production are quickly absorbed, said analyst Murad Ansari of KASB and Co Ltd. As a result, Pakistan is looking for alternative sources to beef up its gas supply to meet growing demand. At an annual consumption rate of almost 1.0 TCF per annum, Pakistan’s current gas reserves of 26.1 TCF are expected to last for 20-25 years. Of the total gas consumption in the country, the power sector accounts for almost 38 per cent.


The two state-owned power utilities - Water and Power Development Authority and Karachi Electric Supply Corporation - are demanding more allocation for gas for converting their fuel-based thermal power stations to gas. Currently, 34% of total electricity generation is based on gas, while the majority of the remaining is on fuel oil (36 per cent) and hydropower (26 per cent). The government is mainly targeting replacement of furnace oil used by thermal power plants to be replaced by gas. Furnace Oil accounts for almost 40-50% of the total volume of petroleum products imported in the country.


Kazakhs agree Kashagan oil deal "in principle"


November 5, 2004. Kazakhstan said it had agreed with a group of Western oil companies that it would take a stake in the giant Kashagan oil field, as its Senate approved a law giving the state new rights to buy such stakes. The government wants to buy all or part of the 16.67 percent stake in the field that Britain's BG Plc has agreed to sell to project partners Exxon Mobil Corp., Royal Dutch/Shell, Italy's Eni, ConocoPhillips and France's Total. Kazakhstan has pegged hopes of future prosperity on giant projects like Kashagan, one of the world's largest oil finds in the last three decades. The country wants to triple its crude output to over 3.0 million b/d by 2015.


Oil demand raises Asia’s mid-east stake 


November 4, 2004.  Asian nations, particularly China, have a greater interest in a peaceful Middle East and Africa as their reliance on oil imports surges over the next 25 years, the head of ExxonMobil Corp said.  Lee Raymond, chairman and chief executive of the world’s biggest publicly traded oil company, said it would be “quite challenging” for the region to meet its future energy needs, with emerging Asia oil demand set to more than double by 2030.  “Asian countries, including China, will have an ever-greater stake in the resolution of problems that have arisen in the Middle East and Africa,” Mr Raymond said. “There will be no way around greater reliance on the Middle East and Africa.” Asia imports about two-thirds of its 23 million b/d crude oil requirement, most of that from the Middle East, where the bulk of the world’s oil reserves are.  China last year surpassed Japan as the world’s second-largest oil consumer after the United States. China imports 40% of its crude oil, a figure that is on the rise as domestic production stagnates and a booming economy fuels demand.


Iran wants China to replace Japan as top oil importer


November 6, 2004. Iran wants China to replace Japan as its biggest importer of oil and gas. "Japan is our number one energy importer due to historical reasons, but we would like to give preference to exports to China," Zanganeh said  "From the supply side, we have no difficulties (in making China the top energy oil importer from Iran)," the minister added. Iran and China last week signed a preliminary accord under which China will buy 10 million tonnes a year of liquefied natural gas (LNG) for 25 years in a deal worth 100 billion dollars. The memorandum of understanding also grants to Chinese oil giant Sinopec the right to exploit the Yadavaran oil field on a buy-back basis in cooperation with a major international oil company.


Venezuelan gas deal term shift may scare investors


November 8, 2004.A shift in terms offered by Venezuela to foreign firms to develop its multi-billion dollar Mariscal Sucre gas project could hurt future investment in other deals, experts said. International oil major Royal Dutch/Shell Groupand Japan's Mitsubishi Corp.have been in talks with Venezuela for several years to develop offshore natural gas reserves for the domestic market and export. But terms for Mariscal Sucre deal may change from the original conditions of a preliminary agreement the two firms signed with Venezuela in 2002. State oil firm PDVSA is now considering shipping more Mariscal Sucre natural gas into the subsidized domestic market and leaving less gas for partners to sell into the more lucrative export market. Venezuelan officials originally said in 2002 that the OPEC nation would begin shipping natural gas abroad by 2007, but that date has now been pushed back to at least 2009. The world's No. 5 oil exporter is seeking more foreign investment to help plug a domestic natural gas deficit and as part of a plan to nearly double crude output in the next five years.






Fluor to complete Nevada power plant


November 2, 2004. Fluor Corporation announced it has been selected by Nevada Power Company to complete construction of a partially built 1200-megawatt, natural gas-fired, combined-cycle power generation facility in Clark County, Nevada. Fluor will provide engineering, procurement, construction, commissioning and startup services for the facility. The contract value to Fluor was not disclosed.  The facility is located in the Moapa Valley, 20 miles northeast of Las Vegas, Nevada. Construction work on the facility had been deferred by its previous owner, Duke Energy, in March 2003. Nevada Power acquired the facility earlier this month. It is expected to be fully operational by early 2006.


Date extended for Pakistan coal plant


November 4, 2004. Private Power and Infrastructure Board (PPIB) of Pakistan has extended the opening date of receipt of detailed proposals for setting up 450 megawatt coal mine and power generation plant at Lakhra from October 31 to December 31, 2004.  The decision was taken with a view to attract more foreign companies and investors after taking number of steps to woo investment. Producing electricity from coal would be cheaper than fuel oil and the government realising the importance had decided to extend the date for proposed Lakhra project. The investors were required to submit detailed proposals including pre-qualification details on specific Pre-Qualification Document (PQD). Only the pre-qualified sponsors would be ranked as per a ranking criteria developed by PPIB and the first ranked sponsor would be given the chance to develop the Project as per the provision of Power Policy 2002.


Malaysian company to build Indonesian plant


November 8, 2004. Little-known Malaysian power utility company Asahan Power Corp Ltd will build a US$330 million gas-fired power plant in the regency of Asahan in North Sumatra, Indonesia.  The company received the offer from the Asahan regent to develop the power plant after signing a memorandum of understanding (MOU) with Indonesia’s state-owned gas distributor, PT Perusahaan Gas Negara (PGN) for gas supply last month. A German firm will begin construction of the plant in 2005 and the project is expected to be completed and operational by 2006. With the power capacity of 600 megawatts, the electricity will be sold to Indonesia’s stateowned power utility company PT Perusahaan Listrik Negara (PLN).


French companies to build power plant in Iran


November 7, 2004. Deputy managing director of Tavanir Company noted that French companies are to build a power plant in Iran.  Masoud Hojjat noted that the power plant will be located in Hormozgan Province. The official stated that power plants built by French Alstom are well-known in Iran and indicate the long record of power cooperation between the two countries. He also noted that needed guarantees for building power plants by the private sector have been finalized for Shahroud and Rudshur plants and for developing Tous power plant too.


China to speed up nuclear power construction


November 9, 2004. Chinese Vice-Premier Zeng Peiyan urged to accelerate the construction of nuclear power plants. During his recent inspection of Shanghai Nuclear Engineering Research and Design Institute, Zeng said accelerating nuclear power construction would help to improve China's energy structure, boost the development of related industries and safeguard the national economic and energy security.  After more than 20 years of efforts, Zeng said, China now has the ability to build 300,000 kilowatt-level and 600,000 kilowatt- level nuclear power stations.


Pak directs gas supply to power project


November 9, 2004. Prime Minister Shaukat Aziz directed the Ministry of Petroleum and Natural Resources to ensure immediate supply of purified gas from the Uch gas field to the Uch power project. Presiding over a meeting here to review power generation projects, Shaukat said the new power project of Uch power project, which is in the private sector, has the approval of the government to generate 600 megawatts electricity. He directed the minister for water and power to activate the Private Power Infrastructure Board (PPIB) to encourage private investment in the power sector. The prime minister also asked the ministry to ensure proper maintenance of the power plants of Wapda and private power producers.


Transmission / Distribution / Trade


Exelon to sell power generation assets to Dynegy


November 2, 2004. Exelon Corp.said it would sell some of its Sithe power generation assets to Dynegy Inc. for $135 million in cash. Included in the sale are Sithe Energies and Sithe Independence LP and include a 1,042 megawatt combined cycle power plant in upstate New York, four natural-gas fired merchant facilities in New York, and four hydroelectric generation plants in Pennsylvania. With the Sithe Independence LP purchase, Dynegy will get a 750-megawatt firm capacity sales agreement to supply Consolidated Edison with power through 2014.


PG&E seeks long-term power deals


November 3, 2004. Utility Pacific Gas & Electric said it had put out two Request For Offers (RFOs) seeking about 2,200 megawatts of power. The San Francisco-based unit of PG&E Corp. said it was seeking about 1,200 MW by 2008 and an additional 1,000 MW by 2010. One RFO is for long-term power contracts and the other is for utility-owned generation facilities. The RFO for utility-owned generation seeks bids for newly built, dispatchable "turnkey" generation facilities. The RFO for long-term contracts seeks bids to enter into agreements to provide power during periods of peak demand. Initial offers are due by Jan. 14, 2005 and a shortlist will be compiled by March 2005.


Policy / Performance


Russia, Iran to sign nuclear deal in December


November 3, 2004. Iran will sign an agreement in December to return spent nuclear fuel to Russia for disposal, Russia's Itar. Russia has built an US$800 million ($1185.18 million) reactor at the Iranian port of Bushehr despite pressure from the United States, which says Iran's atomic energy programme is a front for the development of nuclear weapons. Iran says the programme is peaceful, but Russia has insisted on the spent fuel deal to alleviate Washington's concerns.


Hydro-Quebec reduces forecast power supply needs


November 3, 2004. Hydro-Quebec Distribution reduced its projected power supply requirements for 2005-2014 due to a forecast increase in wind power, conservation and weaker growth in industrial demand, primarily in the aluminum sector.  In its Electricity Supply Plan filed for approval with the Regie de l'energie earlier this week, Distribution, a subsidiary of province-owned energy company Hydro-Quebec, forecast average sales growth of 1.2 percent per year, less than an August 2003 forecast of 1.8 percent growth.  In addition, Distribution had forecast in past plans a capacity factor of 25 percent from 1,000-megawatt of wind-generated power. In its current 2005-2014 plan however, Distribution forecast a much higher capacity factor of 36.6 percent from the wind projects. The wind projects will enter service between Dec. 2006 and Dec. 2012.


China’s nuclear power output to triple in 15 years 


November 6, 2004. China's nuclear power generation capacity will triple to account for 4 percent of its total power output by 2020.  China's power shortage makes it necessary to rapidly develop nuclear power plants in the first two decades of this century. The State has already listed the nuclear power industry as a priority in its high technology research and development plan and called for the industry to grow at an annual rate of 15 percent in the coming five years. China now has eight commercial nuclear power stations, either in operation, under construction, or planned. Among its 19 reactors, nine are in operation, two are under construction, and four China-designed ones and as many imported ones will soon be built.  By the end of 2003, nuclear energy accounted for 1.6 percent of the country's total power generation capacity. In 2003, the nuclear power plants generated 43.7 billion kilowatt-hours of electricity, or 2.3 percent of the country's total power output. In the coming 15 years, CNNC will aim to upgrade its research and development capability in nuclear technologies.


Pak reviews need for new power plants


November 7, 2004.  Prime Minister Shaukat Aziz reviewed the power situation in the country and observed that with the growth of economy, the demand for power was increasing manifold. The prime minister, said to set up new power plants and ensure efficient maintenance and upkeep of existing power generation units to meet the incremental demand of power.  He directed the ministry of petroleum and natural resources to ensure immediate supply of gas from Uchh gas field to Uchh power project. The new power project has already been approved by the government in private sector to generate 600 megawatt of electricity. He said a long-term energy requirement plan was being prepared by the Planning Commission in coordination with the ministry of water and power to meet the future demands of the country.


China the world's No 2 energy consumer


November 7, 2004. China's aggregate consumption of energy now ranks second in the world, accounting for 11% of the world total, according to Wu Guihui, deputy director of the Energy Bureau of the State Development And Reform Commission. China's total consumption of energy reached 1.68 billion standard tons in 2003, of which 67.1% were coal, 22.7% were crude oil, 2.8% were natural gas, and 7.3% were renewable energy, said Wu.  Currently, China is relying too much on coal, which causes serious pollution, and is low in re-utilization of energy. Its per capita resources of coal, petroleum and natural gas is only 60%, 10% and 5% of the world average level, respectively. Its discharge of sulfur dioxide is standing at 90% and 70% of dust in the air is caused by coal use.  The output efficiency per ton of standard coal is only 10.3% of that of Japan and 16.8% of European Union. Wu stressed diversified development of China's future energy policy to form a primary energy structure with coal as the main part and electric power as the core. It will achieve an all-round development of petroleum and gas as well as new energy, and improve secondary energy structure, especially raising the utilization of clean use of coal.


Renewable Energy Trends




Railways plan to use bio-diesel as fuel


November 04, 2004. The Indian Railways, which runs nearly 4,000 diesel locomotives per day and accounts for over 60 % of diesel consumption in the country, is planning to introduce bio-diesel as an alternate engine fuel. The railways use over two billion litres of diesel per annum, costing over Rs 4,400 crore (Rs 44 billion). The Indian Railways has taken the initiative to promote Jatropha cultivation along the railway tracks and to use bio-diesel derived out of it as engine fuel. The railways have even successfully tested running Shatabdi Express between Delhi and Chandigarh and Jan Shatabdi Express between Lucknow and Allahabad by using bio-diesel as fuel. The railways may save over 400 million litres of diesel per annum by using bio-diesel, derived from Jatropha cultivation and it is even environment friendly.


Bio-fuel derived from Jatropha seeds may replace over 20 % of the country’s diesel consumption. First commercial production of bio-diesel as an alternative fuel, derived from Jatropha seeds has started in Gujarat.  As per the recommendations of the committee, the government has identified the states of Tamil Nadu, Chattisgarh, Gujarat and Tripura for the Jatropha cultivation, which is to be organised on forest lands, in agriculture farms through joint forestry management. At present, two Jatropha plantations are located in different climatic regions, one in Orissa and the other in Gujarat. This is for determining the best local conditions for Jatropha cultivation. Plantation of over 10 hectares is to be established in Gujarat. Besides the railways, auto industry is also enthusiastic about the use of bio-diesel. Its usage at the village level for operating oil engines for pumping water, operating small machinery and generating electricity is another good opportunity, which will be advantageous in many ways to our farmers. Recently, Ankaleshwar-based Gujarat Oleo Chemicals Ltd (GOCL) has shipped the first commercial consignment of bio-diesel derived from Jatropha seeds to Indian Oil Corporation (IOCL), which is using the bio-diesel in test trials for the railways. 


Government raises subsidy on biogas plants


November 07, 2004. With the view to providing energy security to villages through renewable sources, the government has raised the subsidy on biogas plants and is considering modifications in other schemes to provide more central assistance. The schemes of renewable power projects are proposed to be modified to provide central subsidy instead of interest subsidy. The subsidy on biogas plants has been raised to 50 % from the current 30 %. However, for certain categories the subsidy was already 90 % of the cost and has not been raised. The total outgo on subsidy on this account during the last fiscal was about Rs 40 crore (Rs 400 million) and with the increase it is likely to touch about Rs 55-60 crore (Rs 550-600 million). While for general category the existing subsidy was Rs 1800, it was Rs 2300 for Scheduled Caste, Scheduled Tribe, desert districts, small farmers, terai region of Uttaranchal, Western Ghats and other notified hilly areas. For Jammu and Kashmir, Himachal Pradesh, Uttaranchal, Sunderbans, Nilgiris, Darjeeling region and Andaman and Nicobar region the existing subsidy was Rs 3500.


The subsidy for all the three categories has been raised. However, for North-eastern states and Sikkim the subsidy is Rs 11,700 while for plain areas of Assam it is Rs 9000 per plant. Subsidy for these two categories is already about 90 % and has not been raised.  Over 36 lakh (3,600,000) rural households were currently meeting their cooking fuel requirements through biogas produced from cattle dung. The country stands at the second position in the world in respect of installation of biogas plants. The country has an installed capacity of 5,000 MW through renewable energy. During the 10th and 11th five-year plans about 10,000 MW generation capacity is to be added through clean sources. The Ministry, which has schemes to promote solar energy, biomass, small hydro projects and wind power as well, plans to modify some of the schemes to provide direct assistance in terms of central subsidy instead of the current provision of giving interest subsidy.


Renewable energy research centre for bio-fuels


November 4, 2004. The huge potential for bio-fuels for automobiles in the country owing to widely-cultivated high ethanol yielding crops such as sugarcane, corn and wheat, suggested setting up of an All-India Renewable Energy Research Centre to effectively exploit the potential in the area of bio-fuels.  Exploiting the bio-fuels potential would not only lower the country's dependence on imported oil but also enable it to address issues of trade balance and supply of electric energy to the public grid. On the social front, bio-fuels production would have the potential to create large number of jobs covering nearly 10 per cent of the country's population, especially in rural areas with low investment per job and also promote local farming and is environmentally friendly. The annual petrol consumption in the country currently stands at 6.5 billion litres at a cost of Rs 4,00,000 crore (Rs 4,000 billion) with an annual growth rate of five per cent the country requires 650 million litres of fuel-grade alcohol at 10 per cent blending. However, the country is currently producing only around 300 million litres of fuel grade alcohol, of a total of 1.5 billion litres of alcohol production. It requires an additional 400 million litres of fuel grade alcohol and one million tonne of grain.  India is one of the largest producers of sugarcane in the world and has more than 400 distilleries producing alcohol by using molasses. It has surplus capacity for alcohol production and was also blessed


Cost effective wind power tech


November 6, 2004. A private firm has claimed to have developed a simple, cheap and effective technology to generate high-speed wind to propel power generators, promising a boost to the village economy. A giant flywheel called hybrid energy wheel could artificially create wind at a speed of up to 150 km to enable wind generators produce 0.25 to 0.5 MW with a small investment of Rs 25 lakh (Rs 2,500,000). The technology would enable windmill generators to be put anywhere in the country using the Hybrid Energy Flywheel as attachment to produce wind at a speed up to 150 km needed for generating power. The technology is expected to eliminate all handicaps associated with tapping energy from natural wind. Once commercially tapped, the technology could make villages self-sufficient in power which can be put to various uses like providing drinking water and setting up cold storage plants. The self-sufficiency in power generation would create industry, jobs and result in huge savings in subsidy provided on kerosene. A country wide network can be created to promote the giant flywheel with the help of Non-Conventional Energy Resources Department to generate power in villages.


India among toppers in biomass energy 


November 5, 2004. At present, India stands at the second position in installing biomass plants in the world. It also stands at the third and the fourth position in solar photovoltaic production and wind power installations respectively.  Over the past two decades, the Ministry of Non-Conventional Energy Sources has been implementing a variety of programmes encompassing solar energy, bio-energy, wind energy and also new and frontier technologies such as fuel cells run on hydrogen.  Ministery of Non-Conventional Energy had been looking into solving the energy deficit in India, particularly in the rural areas. Through renewable power projects based on wind, biomass and small hydropower, it has already reached a level of about 5000 MW installed capacity. Over 3.6 million rural households are meeting their cooking fuel requirements through biogas produced from cattle dung. Similarly, 10 lakh (100,000) solar lighting systems, 8 lakh (800,000) square metres of collector area of solar water heating systems and 6452 solar water pumping systems have been installed in the country.


Gujarat paves way for more wind power


November 09, 2004. To encourage wind power generation and lure investors into the sector, the state government has recently passed a General Resolution (GR) allowing sub-lease of lands to be used for setting up wind farms. The new resolution also offers grazing lands for setting up wind farms. The state finance department also have decided to frame a Land Policy to pave the way for more investment in the sector. The Pune-based Suzlon Energy Ltd and the Chennai-based NEG Micon India Pvt Ltd have already committed investment of over Rs 3,000 crore (Rs 30 billion) in the state. 


The state government had signed MoUs with various corporates for setting up wind mills to produce 1100 MW of wind power. To implement these projects, ‘a Land Policy is now has to be chalked up.’ According to the GR, for each one MW capacity of Wind Turbine Generator (WTG), one hector of land is required. 


Plans for 10,000 MW capacity through renewable sources


November 4, 2004. The Government is planning to install around 10,000 MW of power generating capacity through renewable energy sources during the Tenth and Eleventh Five Year Plan periods.  In addition, electrification of all remote villages and all households in these villages by 2012 has been planned. The government wish to provide complete energy security to remote villages through renewable sources. A comprehensive village energy security programme has been prepared.




Wind energy project planned in China 


November 3, 2004. Cathay Merchant Group Inc., an affiliate of MFC Bancorp Ltd., is developing its first wind energy project in China. The Twin Dragon Wind Farm is planned as a 160 Mw project in Hebei Province, a site chose by Cathay Merchant Group for its "world-class wind resources" in a large gap facing the Inner Mongolia Autonomous Region. The first phase of development will have capacity of 100 Mw (50-70 wind turbines) at an expected cost of $125 million. The projected annual output from this phase is 400,000 Mw-hr, and Cathay expects the project also will be eligible to sell emission credits for the reduction of 300,000 tons/year of carbon dioxide.


E.ON plans Ayrshire wind farm in Britain


November 4, 2004. Powergen owner E.ON UK said it was planning to build what could be its most powerful onshore wind farm in Britain. The German group said it had applied for planning permission from the Scottish executive to set up a £60m farm on land next to the existing Windy Standard farm in East Ayrshire, Scotland. The 74 megawatt, 27-turbine farm could produce enough electricity each year to power at least 36,000 households, or 70% of East Ayrshire's homes.


US firm to invest in Pak wind power


November 8, 2004. A US-based energy firm plans to invest $1.2 billion in Pakistan's wind power generation sector in Sindh province. Chief Executive Officer of Access Energy Group International (AGI) of the United States, Shahid Naeem met with Minister of State for Finance Omar Ayub Khan here and informed him that his company was planning to invest $1.2 billion in Pakistan's energy sector over the next five years.  The company will develop a 100mw wind farm, extendable to 1,000mw, in the province. The initial investment for the first phase would be over $109 million to be brought entirely from abroad.  In the next five years, depending on the success of the first phase, AGI has made commitments to install 900mw generating capacity in the region.


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


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[1] Taghizadeh, R. 2003. “Iran: Energy Investment Outlook & Diversification of the supply sources at home”.

[2] Groenendaal, W & Moghaddam, M. R. 2003. ‘Iran’s domestic fuel policy revisited’

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