MonitorsPublished on Nov 16, 2004
Energy News Monitor I Volume I, Issue 21
Heavy Oil: Should it be a part of the Indian oil asset portfolio?

If we agree that oil companies are better judges of the future of oil than are countries, then it appears that there is a future not just for oil but also for heavy oil.  Heavy oil is taking a larger share of the oil asset portfolio of oil companies. ExxonMobil for example plans to double the share of non-conventional oil in its portfolio by 2010.  Should heavy oil also form a part of the Indian oil asset portfolio? As a late entrant to the market, much of the conventional oil properties available around the globe are those that involve risks - political, geological, technical or financial.  Heavy oil assets will balance India’s portfolio with lower political and geological risks. 


Why heavy oil?


Energy yield is far lower for heavy oil.  Electrical power needed for enhanced oil recovery, heating prior to transportation, water treatment, sulphur, nitrogen heavy metal removal environmental problems associated with heavy oil are much higher than that for conventional oil.  CO2 emissions are 4-6 times higher than those for conventional crude exploitation.  Then why should heavy oil figure in our oil asset portfolio?



Most of the heavy oil and bitumen resources are not as geologically concentrated as light oil which immediately translate into lower political and social cost.  85 per cent of conventional oil is in the eastern hemisphere but 69 per cent of the world’s technically recoverable heavy oil and 82 per cent of the technically recoverable natural bitumen are in the western hemisphere. The largest extra heavy oil accumulation (91 per cent measured on an in place basis) is in the Venezuelan Orinoco belt.  81 per cent of the recoverable bitumen is in Alberta, Canada.  Together these two deposits contain about 3600 billion barrels of oil in place[1].   In addition to the Orinoco oil, South America has about 40 billion barrels of technically recoverable heavy oil.  


Heavy oil is typically found in geologically young formations which are shallow and have less effective seals exposing them to conditions conducive to forming heavy oil.  The bacterial oxidation of conventional oils inside a reservoir induces changes in their physical and chemical properties that make them less valuable economically and environmentally.  The shallow nature of heavy oil resources means that most of the oil resources have been found already.  Thus the finding cost of heavy oil is zero compared to the cost of finding conventional oil which is in the range of $ 3-4.  


Heavy oil and bitumen


While it is true that definitions of heavy oil vary generally it is asphaltic, dense and viscous[2] compared to light oils.   The US Geological Survey (USGS) sets 22° API gravity[3] and a viscosity of 100 cP as the upper limit for Heavy Oil.  Oil with API gravity less than 10° is called Extra Heavy Oil. Above this comes Natural Bitumen also called tar sands or oil sands. Though it has some characteristics similar to heavy oil its density and viscosity are greater than that of Extra Heavy Oil.  More than half the recoverable heavy oil is ‘heavy’ with API less than 15° API but currently about 66 per cent of heavy oil produced annually is of API less than 15°.



Heavy oil

Light oil

Gravity (°°API) 

< 20


Viscosity (cst@100°C)



Sulphur (W%)


< 1

Nitrogen (W%)


< 0.05

Ni (ppm)



V (ppm)



Source: Claude Mandil, IEA conference on non-conventional energy, 2002


Higher density and viscosity of heavy oils means lower mobility or ability to flow through porous media.  Therefore primary production of these oils is very difficult and expensive and the recovery ratio is generally low. Transportation through pipelines after extraction is also a technological challenge as the oils do not flow easily and also corrode pipelines.     Higher content of heavy metals, sulphur and nitrogen in these oils impose a much higher environmental burden during the refining process compared to conventional oils. 


From wellhead to synthetic crude


Before heavy oil or bitumen can be used as refinery feedstock, it has to be put through a number of processes that enhance its mobility and remove unwanted content. 


Reservoir pressure from gas and water associated with oil is generally sufficient to cause conventional (light) oils to flow to a production well.  Heavy oils however require the introduction of additional energy into a reservoir in the form of heat.  Super heated steam is injected into a reservoir to reduce oil viscosity and to increase reservoir pressure through displacement and partial distillation of oil. Steam is injected continuously in the form of a flood or it is injected in cycles so wells are used alternately for injection and production. Natural bitumen is immobile in the reservoir because of its high viscosity. Bitumen within 225 feet depth is recovered by mining the sands. The bitumen is separated from reservoir rock by processing it with hot water.  About 2 tonnes of oil sand have to be mined to produce 1 barrel of crude oil[4].   Oil sands are highly abrasive and wear away steel machinery very rapidly.  More than 90 per cent of the bitumen is generally recovered from the sand. 


Horizontal wells with lateral branches that are optimally positioned along with electrical submersible or progressive cavity pumps have made it possible to extract heavy oil economically.  A process known as Steam Assisted Gravity Drainage (SAGD) is used to extract oil from the oil sands. Two horizontal wells are drilled and steam injected through the upper well mobilizes bitumen and gravity causes the mobilised fluid to move toward a lower well.  Natural bitumen is pumped to the surface from here[5].   There are variations in this technique of extracting heavy oil using steam.  In deeper deposits steam is injected into the wells to increase viscosity for recovery from production wells.  The recovered bitumen is either upgraded on site or transported to an upgrading facility. 




Moving bitumen and heavy oil by pipeline is a challenge due to their high viscosity.  Larger diameter pipes assisted with pumps are sometimes used.  Producers also use diluents such as gas condensate, natural gas liquids or light crude to enable the oil to be transported by pipeline.  Some heavy oils may only need 5 per cent dilution to move through a pipeline but some bitumen must be diluted 40 per cent before they can be sent through a pipeline. In the Venuzualen Orinoco belt one barrel of diluents are required for ever 3-4 barrels of extra heavy oil. 


Processing bitumen and heavy oil


Heavy oil and bitumen typically contain more sulphur and a higher proportion of large, carbon rich hydrocarbon molecules.  Heavy oil must therefore be chemically upgraded to reduce density and remove contaminants before it can be used as refinery feedstock.  Upgrading converts bitumen and heavy oil into a product with a density and viscosity similar to conventional oil.  The product of ‘upgrading’ is generally known as synthetic crude (“syncrude”) which is sent to a refinery for further processing. 


Economics of heavy oil production


The price spread between light and heavy oil is called the ‘differential’. Though there is a long term narrowing trend in the differential it wildly fluctuates in response to the price of light oil.  The price of heavy oil depends on the cost of producing and transporting heavy oil as well as the price buyers are willing to pay for it.  Operating cost also depends on factors such as the price of electricity, natural gas used to produce electricity, steam and hydrogen which are required to increase the mobility of heavy oil.  The price buyers are willing to pay depends on the price and availability of light crude and refinery capability. 


By the late 1990s the operating cost of producing upgraded crude oil was less than $ 10-11.    In 2003 it was down to about $ 8-9 in the Canadian oil sands.  At that cost heavy oil is competitive with conventional oil.   The lower quality and higher transportation cost of heavy oil and bitumen can result in selling prices (wellhead prices) which are $ 8-10 lower than that of light oil. 

Team Energy ORF

[email protected]

(Views expressed are personal)

Options for providing power to the poor farmer


Excerpts from the observations of Mr Jayant Dev, Former Member, Maharashtra Electricity Regulatory Commission (MERC) in a Panel Discussion on “Implications of free power to farmers in Maharashtra’ organized by the Observer Research Foundation, Mumbai Chapter on September 28, 2004.


‘The government of Maharstra is aware as to what are the implications of the proposal to give free power.  In fact, Maharashtra Electricity Board made a Board Resolution No. 181 on July 29 saying that Government may be apprised of the risk and dangers inherent in giving free power to farmers and listed certain points. The Board had further resolved that in spite of clear opposition from mseb, if government still decides to take the step of providing free power to farmers, it should be done on certain conditions. Despite all this, the decision has been taken.  That means that we need not dwell on as to whether the power corridors were aware of the implications of free power before taking the decision.


I must share an experience about freebies. About 30 ears ago when I was working in a coalfield area, I realized that the supervisors and engineers who got the coal for free along with a servant ran their chula[6] throughout the day and night.  When asked the reason, they said that the matchboxes weren’t free. This is the psychology about freebies.              


Moving on, a point was raised as to the estimation method for agriculture consumption, which is relevant from the point of view of computing T & D losses. The sampling is done on the transformers and wherever the sample results are consistent, numbers are taken for the purpose of working out figures. These figures may be different from what is expected.  You will find that there are large variations.


In 2002, the commission instructed mseb to charge a reliability charge of Rs 0.25 per kilowatt hour. This meant that if mseb supplied power reliably, to an area, consumer or as per any pre-decided parameter for an entire month, they could collect the charge. At the ground level even if it is able to supply reliably only to half the consumers (which is mostly industrial consumers HTP-1 and HTP-2) they can collect about Rs. 500 crores (Rs 5 billion) extra per annum. But since 2002 to October 2004 they have not given one kilowatt hour of reliable power to any one segment of consumers nor are they prepared to do anything about it.  This is despite the fact that most consumers are prepared to pay.


Coming directly to agriculture, despite considering all the aspects that contribute towards power consumption – the major crop, which in Maharashtra is sugarcane; the depth of water; mechanical energy and efficiency of pumps and motors, not more than 500 hours of pumping per annum, with reasonable efficiencies is required. Presently the usage is between 1100 hours and 3000 hours of pumping as has been declared by mseb based on this sampling. One of the reasons behind this could be the reports of an American consultant who was asked in 1996 to estimate agricultural consumption.


Based on his figures the consumption of agricultural requirement has been increased substantially. Perhaps this was done in order to justify the requirement of power in Maharashtra. Similarly the central government undertook a sampling in three districts and found that the consumption could be reduced by almost 40-45 per cent. Considering the inefficiency in addition to the inflation the commission passed an order in 2002 to develop a conservation fund, which would be 2 per cent of agricultural irrigation bill.


I had gone a step ahead and roped in the Industrial Training Institutes in Maharashtra to involve them in conservation of energy. The idea being that their mechanics and electricians could collect the energy at transformer point and ensure that at the bottom it is utilized efficiently and thereby increasing local employment. Nothing has been done about it so far.  During the last three years roughly 100 crores (Rs 1 billion) must have been collected but not a penny has been spent on conservation efforts. Now the buck is being passed to merc.  Although the act was passed subsequently, the commission had created the fund much before any work was done by mseb.


The other option available is to subsidize capital rather than revenue and go for power generation through renewable resources like bagasse based co-generation.  This can be offered to the farmers.  It is an agricultural input they are throwing it out or using it only to generate steam.  High pressure steam can be used to produce power.  In place of 2000 or 3000 crores (Rs 20-30 billion) subsidy per annum we can have 1000 MW of renewable power.  That will satisfy at least a major portion of agricultural requirement in Maharashtra. However that is also not done. 


The next point on which I would like to focus is the scope for improving technical losses. Routinely losses were declared at around 16-17 per cent. But suddenly in early 90s the losses started increasing, but were shown as agricultural consumption and not as losses. In Maharashtra like in Tamil Nadu and Andhra Pradesh, T & D losses are about 17-18 per cent. As for the remaining losses, the board is unwilling to give a proper account. When the commission suggested the metering system be implemented in three years’ time, the advice was overlooked.  Similarly the audit reports were not shown despite being ordered to. Even for supply of coal the situation is very similar.  


There are several cases where the Vigilance Commissioner has shown that the employees are indulging in energy theft, but no action is taken.  Thus real losses are much lower and are inflated perhaps for the purpose of showing the need for additional power”. 

(Views expressed are personal)


The Era of Fusion Nears


Hopefully, by the end of the year an agreement will be reached on the location of the ITER fusion reactor. The reactor will be the first reactor capable of generating energy through fusion.   Decisive talks on the issue will be held in Vienna in mid-November between Japan, the EU, Russia, the US, China and South Korea (the countries involved in the project).   The United States and South Korea support constructing the reactor in Japan, while Russia and China support building it in the EU. Some European representatives think that it would be possible to begin construction of the reactor in France independently if the Vienna talks do not produce any results.   The protracted argument about the location prevents humanity from entering a new age in energy.   The fusion of light nuclei (hydrogen or its isotopes, deuterium and tritium) is an inexhaustible and completely safe source of energy. Uncontrollable fusion reactions are prevalent in nature; they are the source of a star's energy. Fusion reactions are used for military purposes. Although the thermonuclear bomb, or hydrogen bomb, was easily developed a long time ago, it has only recently become possible to come close to solving the problem of a controllable thermonuclear reaction.   In the early 1950s, Soviet scientists led by Academician Lev Artsimovich designed and built a thermonuclear facility that consisted of magnetic coils surrounding a toroidal vacuum chamber. At the time, it seemed that the goal of obtaining plasma would be reached quickly and that the first experimental reactors would be built in the late 1950s.   However, it took over 40 years for scientists to understand and describe the complex processes occurring in the plasma. Engineers had to learn how to create large high vacuums and produce large superconducting magnetic coils, powerful lasers and many other things.   In the early 1970s researchers began to understand that broad international cooperation was the only way to build a fusion reactor. In September 1985 the Soviet Union proposed jointly developing an ITER reactor to a number of countries. By the beginning of the 1990s, a proposal for the project was drawn up. In July 1992 an international group of physicists and engineers, under the IAEA, began work on the project and today we see the results of the project.   While commenting on the possibility of construction the reactor, Dmitry Ovsyannikov, head of the ITER group at the St. Petersburg Research Institute of Computational Mathematics and Control Processes, said: "for the first time in human history it has become possible to design a quasi-stationary thermonuclear device with a capacity of about 500 million watts." An ITER reactor will make it possible to perform the first real studies into the physics of fusion, when the level of released energy is considerably more than used energy.   However, the most important thing is that the reactor will be safe. "Under no circumstances can an accident like Chernobyl ever happen to it," said Georgy Yeliseyev, chief fusion expert at the Kurchatov Institute. "The physical properties of the reactor are safe. Terrorists cannot damage it because a fusion reactor cannot explode. As part of the ITER project, the possibility of an emergency has been thoroughly analyzed and the maximum amount of radiation that can be released has been studied in detail. In any emergency a radiation level in a radius of 1km is many times lower than the acceptable level for the population."   Over 200 Russian research centers, educational institutions and industrial facilities are involved in the project because a large amount of the high-tech equipment is manufactured in Russia.   Yeliseyev and Ovsyannikov said it would take about 8 years to build an ITER reactor and another 20 years for research and testing. The next step should be DEMO, a demonstration electricity generating power plant. "It will only be possible to say with certainty that the era of fusion energy has begun after that," Ovsyannikov said.   If the fast pace of work and appropriate financing are maintained fusion power generation will become common in the second half of the century.

Andrei Kislyakov

RIA Novosti political commentator

Courtesy RIA Novosti


New Pipeline within Sakhalin 1


November 9, 2004.  The first pipes of a new trunk pipeline linking the island with mainland, to be built within the Sakhalin 1 international oil and gas project, were laid on the northeast coast of Sakhalin.   The new pipeline begins at the shoreline part of the Chaivo shelf deposit, with the construction contract granted to the Russian LUKoilneftegazStroi and the Japanese Nippon Steel Corporation. The daily throughput of the Chaivo pipe will be 250,000 barrels. Oil will be pumped to De-Kastri, a port in the Khabarovsk Territory across from Sakhalin, where another member of the consortium, Rosneft-Sakhalinmorneftetgaz, has a powerful oil terminal, which is used to loan oil tankers the year round. The terminal will have oil tanks and loading equipment for servicing oil tankers with the capacity of 110,000 tons. Oil will be delivered by tankers of the Maritime Marine Shipping Line accompanied by icebreaker-class tow ships.  

Pyotr Tsyrendorzhiyev

RIA Novosti


Energy Conference:

Gas in India

4th Annual Conference

November 23-24, 2004

at The Oberoi, New Delhi

Phone: 011-5168 8611, Mobile. 98106 17991

Email- [email protected]









ONGC, Cairn Energy to tie up for oil exploration & production 


November 15, 2004.  Oil and Natural Gas Corporation and Scottish oil firm Cairn Energy Ltd have decided to team up for oil exploration and production (E&P) in the domestic as well as international markets. Two companies are planning to bid together for blocks under the fifth round of New Exploration Licensing Policy (NELP). The agreement follows close co-operation between the two sides in the domestic market where both companies hold stakes in various oil blocks.  The Scottish energy company has identified India as a major market for exploration and production. It has substantial stake in various blocks especially in Rajasthan. ONGC recently bought Cairn Energy’s stake in two gas fields on the east and west coasts at an estimated cost of $135 million. ONGC will pay to Cairn Energy a cash consideration of $135 million for the farm-out interests. It will pay $85 million for buying Cairn Energy’s interest in KG basin block and another $50 million for farming-in in the Cambay basin block.


India, Russia plan big oil gas deals


November 13, 2004. India and Russia are poised to sign an agreement during the December 3-4 visit of the Russian President, Vladimir Putin, which will transform relations. A massive $3-billion Indian investment in two oil and gas fields  $1.5 billion in Sakhalin-III and another $1.5 billion investment in the joint Russian-Kazakh Kurmangazy oil field in the Caspian is envisaged in the MoU to be signed during the visit.  ONGC Videsh Ltd. (OVL) already has an investment of $1.7 billion in the Sakhalin-I oil field. With the new investment, India and Russia could truly speak in terms of a real partnership in the energy sector. The Kurmangazy oil field in the Caspian Sea has the Russian State oil company, Rosneft, and the Kazakh national oil company, KazMunaiGaz, as major stakeholders, with the field estimated to have a potential of 900 million to 1 billion tonnes of oil.


ONGC rated best oil & Gas Company in Asia


November 16, 2004.The 'Global Finance' magazine of New York has rated Oil and Natural Gas Corporation Ltd. the best 'Oil and Gas Company in Asia'. In its seventh annual survey of Regional Players and Global Leaders, Exxon-Mobil has been rated as the best 'Global Oil and Gas Company'. The 'Global Finance Award' winners were chosen using several criteria including revenue & profit growth, market capitalization & share price growth, corporate responsibility, product innovation, global expansion and corporate accountability.


Current crude stocks enough: Shell


November 15, 2004. The world has sufficient oil stocks despite current high crude prices, chief executive and president of Royal Dutch/Shell said. Oil prices have retreated from an all-time high hit last month but are still up nearly 50% from the start of ’04, fuelled by the fastest growth in demand in a generation and supply disruptions in major producing countries.




Petronet LNG floats tender for Dahej  


November 10, 2004. Petronet LNG Limited has floated global tender for engineering, procurement and construction (EPC) contracts for the proposed expansion of its Dahej terminal at Bharuch district in Gujarat. The company has also floated tender for pre-qualification of bidders for long time chartering of LNG ships of 1,38,000-1,65,000 cubic meter capacity for shipping of LNG to Dahej.  By 2008, the second phase of the expansion of Dahej LNG terminal will be completed which will include augmenting the capacity of regassified LNG from 5 MMTPA to 10 MMTPA. The EPC contract for the first phase of Dahej terminal was awarded to the consortium led by M/s Ishikawajima Harima Heavy Industries Ltd, Japan. The other members of the consortium were M/s Ballast Nedam International BV-Netherlands, M/s Toyo Engineering India Limited, M/s Itochu Corporation, M/s Mitsui Company Limited, Japan and M/s Toyo Engineering Corporation. PLL has also taken responsibility for developing solid cargo port at Dahej for which Gujarat Maritime Board, government of Gujarat, has issued Letter of Intent (LoI) to the company.


IOC to hike Paradip capacity 


November 11, 2004. Indian Oil Corp. has decided to increase the capacity of its proposed oil refinery project in Orissa to 15 mt from 9 mt. It has also decided to set up a petrochemical complex near the refinery. As the company’s plan to set up a petrochemical complex at Haldia in West Bengal could not materialise, it has decided to locate the complex at Paradip in Orissa. The oil PUS will invest about Rs 19,000 crore (Rs 190 billion) in the complex.



IOC cancels Saudi VLCC


November 11, 2004. The Indian Oil Corporation said it had cancelled one Very Large Crude Carrier (VLCC) from Saudi Arabia due to a blast at a unit of its 274,000 b/d refinery in Koyali.  IOC has also deferred the arrival of one VLCC of Nigerian crude and one from Kuwait. IOC was expected to resume normal imports by January.


IOC to put up 1,000 retail outlets


November 11, 2004. Indian Oil Corporation is going full steam ahead with its plans to add 1,000 new retail outlets across the country, the hike in crude oil prices, notwithstanding. IOC is going ahead with its plans to open new retail outlets. So far, IOC have already added 450 new outlets this year. IOC has, in fact, drawn up a joint marketing strategy to add nearly 1,500 outlets this year, alongwith oil retailing major, IBP Ltd, which is slated to be merged with IOC. Of this, 500 new outlets are proposed to be added by IBP Ltd. Compared to this, IOC had added 1,122 new outlets all over the country last year. Also, on course is IOC's plans to add more outlets for distribution of auto LPG.  As part of an overall plan by oil marketing companies - IOC, BPCL, HPCL, 17 auto LNG outlets are slated to be added this year in West Bengal alone. At present, there are seven auto LPG outlets, of which IOC's runs three.


Transportation / Trade


‘Safe petroleum gas’ from Suhita Fuels


November 13, 2004. Suhita Fuels, based in Hyderabad, is coming out with an alternative fuel, which could cost 40 per cent lesser than even subsidised liquefied petroleum gas (LPG). The search for alternative, cheap and sustainable fuel took Suhita to what it calls "SPG-Safe Petroleum Gas', derived from petroleum wash with some additives. Simple to use, it comes with a small 2 kg cylinder (5 kg also planned) which could cost as little as Rs. 50 per refill, when it hits the market in nine months.   Petroleum wash is refined by distillation and converted to SPG, using additives to give a flammable liquid which is lighter than kerosene. This liquid is put into ‘non-pressurised gas cylinders' as against pressurised cylinders of LPG.


When air is pumped through an electronic device into the cylinder, the liquid gets converted into gas. This is done at the consumer end and by the consumer.  The consumer kit, likely to be priced around Rs. 1,200 each, comprises a cylinder, UPS with 0.5V battery capacity, and a small motor pump (within UPS box) which pumps in air and serves as the ‘trigger' for conversion to gas.  The company claims experiments showed it to be more efficient than LPG in terms of fuel consumption and time taken to cook or heat. It seems a comparable fuel is in use in the U.S., but in pressurised cylinders. The SPG requires a trigger, instead of pressurised cylinders.

IOC to take 7.5% Haldia stake


November 11, 2004. Indian Oil Corp will invest Rs 150 crore (Rs 1.5 billion) in Haldia Petrochemicals (HPL) to take 7.5% stake in the loss-making firm. IOC, which will get one position on the board of directors of HPL, will not immediately press for management control, but would look at selling 70,000-80,000 tonne of naphtha from its Haldia and Chennai refineries to the Kolkata-based firm. The company at a later stage would buy out Tata group's stake now held by West Bengal government. It would also look at acquiring a substantial stake of the state government and then claim management control of the petrochemical company.


HPL has West Bengal government and the Chatterjee group as equal partners with 43% stake each and the Tatas hold the remaining stake. Tatas have since transfered 11% of their stake to West Bengal government. However, IOC's attempt to garner more stake in HPL may be hampered by the Chatterjee group having pre-emption rights (known as right of first refusal - ROFR) whereby Tatas or West Bengal government wanting to exit HPL would necessarily have to first offer the stake to Chatterjee group and on its refusal to any other outside party.


Iffco to turn to local firms for gas supply 


November 11, 2004. Indian Farmers Fertiliser Cooperative Ltd (Iffco) has failed to secure long-term gas supplies with global energy majors and may buy from domestic firms.  Iffco, the country’s top fertiliser firm, needs 32.5 million cubic metres (1.2 billion cubic feet) of gas a day, or about 9 million tonne a year, to feed four 1,170 MW power plants it plans to build between 2007 and 2013. The gas is also needed to replace costly naphtha as soon as available for fertiliser production.  After a global tender in September received poor response, especially from global majors, the firm held direct negotiations with Royal Dutch/Shell, BG Group Plc, and Malaysia’s Petronas for the long-term supplies. But even this effort fell through.


Foreign firms were wary of entering into long-term deals on concerns over rising prices of liquefied natural gas (LNG) as regional demand increases and because they lack logistics such as import terminals and pipelines in India. Iffco, a state-run cooperative, had floated a tender in June for natural gas or LNG from Indian and foreign firms. It received bids only from state-run refiners Indian Oil Corp and Bharat Petroleum Corp Ltd, gas transporter GAIL (India) Ltd, Gujarat State Petronet Ltd, a pipeline firm, and Gujarat State Petroleum Corp, an oil explorer.


India to buy gas from Yemen


November 10, 2004. Yemen, which has large deposits of associated gas oil and gas reserves, has been exploiting its oil reserves. It is now in the process of building its first liquefication plant and is set to emerge as a key LNG player in this region. India, which has been trying to break new ground for its energy requirements, either through acquiring oil equity or getting into bilateral deals, is now in talks with French energy major Total to buy LNG from Yemen. A large part of the exploration activities in Yemen are carried out by a consortium of energy majors led by Total of France.  According to the Petroleum Ministry talks have been initiated with Total for supply of at least 2.5 m tonnes of LNG on a long-term basis. Although discussions on crucial issues like price is yet to be taken up, initial rounds of talks have been held on the supply deal. It has been proposed that while Gail will have marketing rights over 40% of the LNG sourced from Iran, IOC will get to market 35% of it. The balance 25% will be marketed by ONGC.

Policy / Performance


Petrol price cut; diesel unchanged


November 15, 2004. Public sector oil companies have reduced the price of petrol by up to Rs 1.26 per litre while maintaining diesel prices at the existing level. The decrease in price comes close on the heels of a Rs 2.20 per litre increase announced on November 4. The prices have been decreased due to the falling international prices. While petrol was at import parity, diesel, which is linked to half the import parity, was short of about Rs 1.24 per litre than the international price. Therefore, the fall in international prices is only being transferred in case of petrol, while in diesel, the decline is being used to cover for losses. Following the reduction, petrol will now cost Rs 37.84 per litre in Delhi, a decrease of Rs 1.16 per litre from the earlier level of Rs 39 per litre.


Govt reviews ethanol policy 


November 17, 2004.  A new notification by the Petroleum Ministry doesn’t make it mandatory for oil companies to blend ethanol and petrol. Ethanol should be procured only if it is economical and doesn’t impact the fuel price, the circular says. This makes ethanol-mixing optional, and the oil industry which has been uncomfortable about sourcing ethanol at high prices in the past six months, has dumped the exercise in most parts of the country. Ethanol was in vogue with the previous petroleum minister Ram Naik. He had announced ambitious plans to introduce 5% ethanol-doped fuel in nine states. The rest of the country was to take up the practice in the second phase. The percentage of ethanol would also go up to 10%, 15% and 20% respectively in phases and plans were made to extend it to diesel.  Prices have increased 100% over the past year. Oil companies are still tendering for ethanol requirements, but few procurements are being made because prices are ruling at Rs 19-20 per litre. Another disincentive is the withdrawal of the Rs 350 per kilo litre excise duty exemption for oil companies for ethanol-doped fuel.


Interestingly, running vehicles on alcohol is not a new trend. Henry Ford designed the famed Model T Ford to run on alcohol and had then called it the “the fuel of the future”.  Oil companies globally have thought otherwise, though US uses over 15bn gallons of ethanol-blended petrol a year, totalling 12% of fuel sales. Most of it is a 10% blend. Brazil, the world leader, produces 4bn gallons a year: Brazilian fuel contains 24% ethanol. Ethanol is a very high octane fuel, replacing lead as an octane enhancer in gasoline. In India, sugar producing states were vying for ethanol business. But sugar (and ethanol) shortages have stalled the entire process. The 5% mandatory blending of ethanol with petrol would have created demand for 360,000,000 litres.


India to seek oil security from Russia


November 16, 2004. India will lend a new dimension to its oil diplomacy by inking an agreement with the second largest oil exporter, Russia. New Delhi’s strategic relationship with Moscow is all set to get infused with new energy the two countries are expected to sign a strategic oil co-operation deal during the visit of Russian premier Vladimir Putin next month. India’s alliance with Russia on the oil and gas front should open up a new chapter as Russia has the largest natural gas reserves and is the second largest oil exporter in the world. India is hoping to cash in with strategic ties with this oil rich country by taking up exploration blocks. India expect Russia to play a strategic role in guaranteeing India’s energy security in the second half century of India’s independence. An agreement for bilateral cooperation which could include fresh investments in the energy sector in Russia is likely to be firmed up in the coming months.  In yet another bid to take forward oil diplomacy, Aiyar in collaboration with minister for external affairs Natwar Singh has instituted a Standing Committee on Oil Diplomacy for Energy Security. The committee will use the services of its former diplomats in its pursuit of energy security through acquisition of oil and gas properties abroad particularly in West Asia, Africa and Central Asia. India’s  self-reliance in oil (production) has declined from 50 per cent in the 1980s to 30% currently and is likely to furher go down to 15 per cent in next 15-20 years. It is very necessary to mobilise all diplomatic experience to synchronise with our investments abroad.


Govt may hike cess on petro-products


November 15, 2004. The government plans to restructure the cess on petroleum products and explore the possibilities of hiking it. The objective is to raise more resources for developmental work in the infrastructure sector. The government has initiated discussions with various infrastructure ministries, which have been making competing demands for a share of the cess levied on auto fuels, petrol and diesel. The higher cess, if agreed upon, is expected to be levied only in the next budget. The petroleum ministry has its own plans to impose cess to mop up required funds to build strategic reserves in the country.  Though a final estimate will be firmed up in the next 2-3 months, it may even be doubled from the current Rs 1.50 per litre of petrol and diesel to Rs 3. 


This will do away with the current ad hoc system of levying a new cess every time a user department or a national level project crops up. It will, therefore, allow for more clarity in the pricing of petro-products. The imposition of a new cess every time is difficult to decide upon, as user ministries tend to inflate needs to justify the new imposition, officials said. Instead, an annual pool will make it easier to harmonise the needs of competing projects, which need government support in a fiscal year. This will also keep the cess unchanged.


States asked to reduce sales tax on petro-products


November 13, 2004. Union Petroleum Minister Mani Shankar Aiyar asked the state governments to reduce the sales tax on petrol, diesel and other petroleum products to enable people to cope with the recent petroleum price hike. He said the oil companies had incurred a loss of Rs 10,000 crore (Rs 100 billion) between April and October 2004. If this trend continued, the oil companies would not be able to contribute Rs 25,000 crore (Rs 250 billion) for the Central Plan outlay for taking up development works in the country, and the future generation would suffer.


Govt to introduce Bill for oil sector regulator


November 11, 2004. A Bill to put in place a regulator for the oil sector will be put before the Cabinet for approval this month, and presented to the Parliament during the winter session, petroleum minister Mani Shankar Aiyar said.  The board will oversee downstream oil refining, marketing of petroleum products, natural gas sales, transportation and setting up of a gas pipeline. Upstream oil and gas exploration and production business will be out of the purview of the proposed regulator.  The common carrier principle is being introduced in the draft legislation. The board will have powers to impose a penalty of up to Rs 25 crore (Rs 250 million) and Rs 10 lakh (1 million) per day, in case of continuing default. In case of profiteering, the penalty is proposed to be up to five times the unfair gains made by the entity or Rs 10 crore (Rs 100 million), whichever is higher.  


Refining  more promising than marketing


November 12, 2004. The supposedly low-value, low-margin refining business has for the time become more profitable than the high-value, high-margin marketing business in the country.  As a matter of fact, industry observers expect stand-alone refining companies such as Reliance, MRPL, Numaligarh Refineries and others which have obtained licences for setting up retail outlets to go slow with their marketing operations.  Most refineries in India are now clocking all time high refinery margins of about $6 to $7 per barrel on an average. Reliance’s Jamnagar refinery had even touched the $ 10 mark when product prices were zooming. This is primarily because the increase in petro-product prices has outstripped the increase in crude (raw material) prices. Also, refienries in India have an edge over their global counterparts thanks to the high tariff protection provided by the prevailing duty rates. 


While crude prices (Indian basket) has moved up by an average $ 7 per barrel to $ 35 per barrel from last year’s average of $ 28 a barrel, global petro-product prices have increased by more than 43% in the case of diesel, petrol has also moved up by a little more than 25%. Prices of high margin products like Aviation Turbine Fuel and lubes have increased even further. Thus refineries across the world have raked in huge profits as margins have gone up over the past few months.  The case is no different in India. IOC’s refining margins in the first half of the current fiscal have shot up to $7.15 per barrel from $3.63 in the corresponding period of the previous year. BPCL’s refining margins, too, have shot up from $3.39 to $5.11. But while refineries have earned high profits, marketing outfits have taken big hits on their margins as the government has not allowed them to revise retail prices in sync with international prices. The inability of marketing companies to sell petro-products at market determined prices even though they have to buy the products at import parity prices from refineries have squeezed their margins. With the exception of IBP, all Indian oil companies retailing petro-products are integrated refining and marketing companies.


LPG in India cheapest in S Asia


November 09, 2004. Despite the steep Rs 20 per cylinder hike in LPG price announced last week, domestic cooking gas in India is still the cheapest in the subcontinent. A 14.5-kg LPG cylinder in Delhi at the new price of Rs 281.60 is cheaper than cooking gas sold in Pakistan, Nepal, Bangaldesh and Sri Lanka. A similar quantity of cooking gas in Karachi (Pakistan) is sold for Rs 411.99, at Rs 283.05 in Dhaka (Bangladesh), Rs 372.62 in Colombo (Sri Lanka) and Rs 462.25 in landlocked Kathmandu (Nepal). A litre of kerosene in Delhi, priced at Rs 9.01, is cheaper than Karachi (Rs 18.68), Dhaka (Rs 15.44), Colombo (Rs 11.30) and Kathmandu (Rs 15.30). While international LPG prices have risen to $467 per tonne currently from $194 per tonne in March 2002, an increase of 140 per cent, domestic LPG retail prices have been raised to Rs 281.60 per cylinder from Rs 240.45 (in two tranches – one in June and the other last week), an increase of 17 per cent. As against the required increase of Rs 158.15 per cylinder in domestic LPG in Delhi, only an increase of Rs 20 per cylinder has been permitted.


Prices of Petro-products






Sri Lanka


LPG (14.5 Kg cylinder) in INR






Keorsene (per liter) in INR










Wartsila to set up two power plants in MP


November 15, 2004. Wartsila India Ltd has proposed setting up two power plants in Madhya Pradesh. The firm is planning to set them up in Malanpur and Pithampur (Indore special economic zone). The plant in Pithampur will be of 120 MW, while that of Malanpur 60 MW. The Gas Authority of India Ltd would supply gas to both the plants.  Wartsila India, the Indian arm of the Finland multinational, is a leader in medium-speed diesel engines and gas engines for captive and marine applications. It is looking at a host of new thrust areas to revive its India operations.  Cash-strapped Madhya Pradesh State Electricity Board is also finding it difficult to negotiate with power companies, the thorny issue being rates. The gap between the average cost of supply, which is Rs 3.50 per unit, and the average realisation, which is Rs 2.50–2.60 per unit in the state, is the main hurdle for new power plants.


Coal linkage for 5 power firms spiked


November 15, 2004. In a move that could affect five coal-based independent power producers, the government, citing shortage, has refused coal linkage to these projects. The companies affected are Sterlite Optical Technology, which is setting up a 5x500 MW thermal power station, Cipco's 500 MW Bhadravati Thermal Power, the two phases of 2x300 MW each of the Aditya Power Project, Ind Bharat Energy's 250 MW thermal power plant and KVK Neelanchal Power's 250 MW thermal power station. The committee allotted long-term linkage of 16.26 million tonnes a year for power plants while serving notices to 16 thermal power plants for inadequate progress in project execution. The plants sanctioned long-term linkage are National Thermal Power Corporation's power station in Nagpur and its super thermal power station (stage III) in Farakka, the Andhra Pradesh Generation Company's Bhupalapally plant, and the Maharashtra State Electricity Board's Parli (stage II) and Paras plants. Besides, there are 25 captive power plants, accounting for a total capacity of 647.56 MW, which have long-term linkage. 


Reliance to invest Rs 20 billion in MP


November 15, 2004.  Reliance group of industries would invest Rs 2000 crore (Rs 20 billion) in Madhya Pradesh and also set up a methane gas-based power plant in Shahdol district of the state. Methane has been found in abundance in Budhar area of Shahdol district and Reliance group would set up a gas-based power plant shortly.


KPTCL draws more from hydel reservoirs


Nov 14, 2004. Faced with a bountiful inflow into the hydel reservoirs, the bulk power buyer Karnataka Power Transmission Corporation Ltd has backed down all the liquid fuel generating stations. Instead the State has stepped up drawals from hydro power stations. Hydel generating stations in the State were currently contributing about 50 million units into the grid. Of this Sharavathy Valley with a capacity of 1035 MW alone was generating close to about 11 million units (MU) per day.  Sharavathy Valley is the largest hydel station in the southern region. Total inflows into the Sharavathy reservoir is estimated at 1,42,837 million cubic feet (Mcft) since the beginning of June this year, as opposed to 1,12,324 Mcft during the corresponding period of last year. The current storage in the reservoir as a result of the inflows as on November 13 was 1,02,885 McFt, which translated into an energy equivalent of 3087 MU as against the previous year's equivalent of 2300 MU.


Inflows into Supa dam, where the 840-MW Nagjhari Power is located, since the beginning of June this year till November 13 were 80,342 mcft as against 67,017 mcft during the corresponding period of the last year. The storage level currently translated into an energy equivalent of 1447 MUs as against 1127 MUs for the corresponding period of last year. Similarly other minor reservoirs in the State have also had large inflows, making the power situation relatively comfortable.  The hydel inflows have resulted in backing down all the liquid fuelled generating stations in the State. The backing down would imply that payments to the independent producer promoted stations would be restricted only to the capacity charges. The backing down was significant considering that the feed stock prices for the power stations are entirely passed on to the bulk buyer. Naphtha prices are on an import parity basis.  Currently international naphtha prices in the region of about $455 a tonne, at least 60 per cent above the previous year's level. This increase in turn would have put pressure on the bulk buyer's revenues unless passed on to the customers. The reservoir inflows and the backing down of the stations have considerably helped the KPTCL's revenues. On the other hand it has saved the fuel escalation charges by drawing on the hydel stations' tariffs.


Soma bags hydel project deal


November 15, 2004. Hyderabad-based Soma Enterprise Limited, an infrastructure development company, has bagged one of the largest civil construction contracts in the hydel sector worth Rs 1,100 crore (Rs 11 billion). The Subansiri Lower Hydro Electric Project, located on the border of Assam and Arunachal Pradesh border, will be the country’s largest hydel power plant generating 2,000 MW of power when it is completed in 2010. The company is also exploring the possibility of projects in Qatar, Sudan, Vietnam and Myanmar in the roads and pipeline-laying segment.


Mahanadi Coal output up


 November 15, 2004. Mahanadi Coalfields Ltd (MCL), the second largest subsidiary of Coal India Ltd (CIL), has produced 30.5 million tone of coal in the first half of the current fiscal, recording a 15 per cent growth in production over the corresponding period last year. The achievement came despite a severe land constraint affecting some of its major mines in Talcher and Ib valley Coalfields.  The company is faced with a hefty demand of 72 million tonnes this year, which is 10 million tonne more than the demand of last year. However, with the land constraints coming in the way of opening new mines, it is targeting a production of 66 million tonne. The demand surges to new buyers including Kahalogaon thermal power plant in Bihar and some power plants in West Bengal. 


Boost for ONGC power programme 


November 15, 2004. The Oil & Natural Gas Corporation’s plan to foray into power generation have received a fillip after the recent report submitted by international consultant Tractebel. The consultants have said in their report submitted recently that the marginal gas fields off the Mumbai coast could sustain ONGC’s captive power generation project for 10 years. Tractebel had been mandated by ONGC to conduct a feasibility study on captive power generation.  ONGC already has a blueprint for power generation from the offshore marginal fields. According to the company, it is possible to generate power for captive consumption at the rate of Rs 3 per unit.


The ONGC plan to foray into power generation must be seen in the context of the passage of the Electricity Act 2003 which is expected to facilitate investment in the sector by laying down clear and transparent guidelines.  Apart from the Mumbai fields, the company is also planning to start power generation at Tripura. Since, the government has already cleared a proposal, ONGC will start its power foray with a 700 MW plant in the north-eastern state at Sonamura. Infrastructure Finance and Leasing Services Ltd (IL&FS) will facilitate the development of the project and Power Trading Corporation (PTC) will provide payment security for generation. The project will be financed and managed by ONGC.  The corporation believes that instead of selling gas it would be more economical to convert the gas into power and transport it to the state grids after taking care of its own requirements.


Bellary generator concretised


November 15, 2004. The Karnataka Power Corporation Ltd achieved a milestone in the construction of the 500 MW Bellary thermal station by concreting the turbine generator shaft in 36 hours. The release said that the work was completed and was two months ahead of the best effort schedule.


NTPC, Gail asked to invest in Dhabol SPV 


 November 15, 2004.  The government has asked NTPC, Gail and the IDBI-led consortium of Indian lenders to Dabhol Power Company to invest Rs 500 crore (Rs 5 billion) each in a special purpose vehicle proposed to kickstart the ailing power project and associated LNG regasification terminal. The Maharashtra State Electricity Board would be asked to evacuate the entire power generated from the Dabhol plant. The price at which the state would buy power was still being discussed. Meanwhile, Rothschild and SBI Caps are scheduled to make a presentation before the group of ministers on the legal framework for taking over the assets of Dabhol Power Company. The SPV would ensure that the plant is operational at the earliest since asset transfer would take at least 12-18 months.


Cheap electricity through mini stations


November 14, 2004. Mini-power stations can now be set up to cater to a cluster of villages. A new technology has been developed to harness wind pressure for tapping billions of idle kilowatts of power through a ‘hybrid energy wheel’.  The unit cost of power generation is cheap. It costs only one rupee and the fly wheel has the capacity of 700 to 800 HP. The mini-power stations can work on 100% efficiency as compared to 80% efficiency in case of large conventional power plants. The average power generated by large conventional plants is 77,000 MW at a loss of 30%. In contrast, the mini-power stations if set up across the country can generate 1.36 lakh (136,000) MW. This can fulfill the government’s objective of rural electrification. The cost of setting up of a mini-power station is only Rs 50 lakh (Rs 5 million). 

The low capital investment and eco-friendly nature of the technology are the main advantages, besides the direct benefit of jobs for millions of unemployed rural youth. The rural electrification through this project will help to reduce the thick acrid smokes generated through burning firewood and coal in rural kitchens. The rural folk will use cheap power for cooking replacing the traditional mode. The new project designed by Revlite Energy Solution is a better option and has multi-purpose utility.


Tata Power targets setting up Dholpur plant


November 10, 2004. Tata Power has expressed a desire to set up a power plant in Rajasthan. Tata Power is likely to step into the space already vacated by the RPG group at Dholpur.  Considering the energy demands of the state, the government is eager to accommodate Tata Power.  The nature of fuel to be used at Dholpur’s proposed plant is yet to be decided. The RPG group was at an advanced stage when it called off its gas-based project after nearly seven years of protracted negotiations between the Centre and the state government.


Tata Steel set to develop NTPC mines


November 11, 2004. Tata Iron and Steel Company Ltd has offered to develop captive coal blocks for National Thermal Power Corporation Ltd in Jharkhand. The move from India’s largest private steel maker comes from its decision to commercially exploit the expertise in coal mining by offering the services to third parties. Tata Steel has been operating iron and captive coal mines in the eastern belt for several decades.  State-owned National Thermal Power Corporation has recently bagged a maiden captive coal block in North Karanpura area of Bihar. The coal ministry has allotted the Pakri-Barwadih block to the power major, with geological reserves of 1400 million tonnes.  NTPC is likely to use the coal blocks to supply fuel to its plants in Barh and Kehalgaon in Bihar. The power major has been repeatedly seeking captive coal mines to fuel its power stations and contain costs. 


Transmission / Distribution / Trade


JSPL gets power trading licence


November 10, 2004. Jindal Steel & Power Ltd has been issued a category A electricity trading licence by the Central Electricity Regulatory Commission (CERC). The company expects to generate income to the tune of Rs 2,000 crore (Rs 20 billion) by 2008-09 from this new line of business. A group company, Jindal Power Ltd (JPL) is currently setting up a 1,000 MW power plant in Chhattisgarh at a cost of Rs 4,200 crore (Rs 42 billion) which is expected to attain financial closure in 2007-08. JPL and JSPL have entered into an agreement that will allow the latter to trade in power produced by the former. The licence entails JSPL to trade in power in the whole of India except in Jammu & Kashmir. The company for now has fixed the price of power at Rs 2 per unit. Around 350 MW electricity from the new unit will be used by JSPL and the balance is expected to be sold to state electricity boards and industrial units in that locality. 


Kerala first to put power delivery straight 


November 10, 2004. Three or four years late in the power reforms lane and still dilly-dallying over unbundling its utility, Kerala power may steal a march or two over its peers in service delivery within months. Its draft Power Supply Code has been ready for weeks and is in public domain for refining through further suggestion.  According to the draft supply code, Kerala consumer will get 6% interest on his security deposit on power connection. This is now non-yielding. The amount will be adjusted against the bill every financial year, according to the draft supply code. The present system of paying extra for an ‘Own Your Electricity Connection’ (OYEC) will go. Instead, getting a connection will be easier on the pocket.


Policy / Performance


Power norms being tightened for states


November 16, 2004. The Centre is strengthening the Accelerated Power Development and Reform Programme (APDRP) and increasing the number of parameters on which states are monitored from 15 to 29. The number of parameters are proposed to be raised further to 40 by the end of next month.  The parameters included are setting up of computerised billing centres, outsourcing activities like meter-reading, energy accounting, energy audits, turnkey contracting and establishment of customer care centres. State Electricity Boards will be rated according to the new APDRP criteria and the Crisil rating of State Electricity Boards will be matched to the APDRP rating. States have to plan to meet at least two-thirds of their power supply. The balance can be provided by Central utilities like National Thermal Power Corporation. States also need to plan transmission capacities. This requires transmission networks approved by regulators with multi-year tariffs to be in place, said officials in the power ministry. 


The APDRP was introduced in 2003 with the aim of accelerating distribution sector reforms. It aims to bring about commercial viability in the power sector, reduce outages and interruptions and increase consumer satisfaction. The scheme has two components  the investment component and the incentive component. Under the former, additional central assistance of 50 per cent of the project cost is provided for strengthening and upgradation of sub-transmission and distribution networks. The balance has to be provided by SEBs and utilities from the Power Finance Corporation, Rural Electrification Corporation, other financial institutions or from their own resources as counter-part funds. Release of funds is linked to measurable targets.  The performance criteria includes putting in place a regulatory framework, restructuring of SEBs, reduction in transmission and distribution losses, curtailing revenue arrears, plant load factor, manpower reduction and reduction of cash losses. Under the incentive component, an incentive equivalent to 50 per cent of the actual cash loss reduction by SEBs/Utilities is provided as grant. 2000-01 is the base year for calculation of loss reduction in the subsequent years. 


Centre can’t take burden of free power  


November 15, 2004.  The Union government has said it is unable to bear the entire burden of providing free power to farmers. It said “if the state governments cannot provide free power on its own, then it should not expect any assistance from the Centre”. Union minister of state in the PMO, Prithviraj Chauhan, said that if state governments were unable to take some responsibility, it would increase the strain on the Centre and jeopardise financial restructuring programme of backward states.


Coal linkage for power plants 


November 11, 2004.  The department of coal has allotted long term coal linkage of 16.26 million tonne per year for various power plants in the country. The standing linkage committee (SLC) met after more than one year to consider demand for coal linkage from power and cement sectors. SLC took various decisions to streamline the quantum of linkages and to ensure that only genuine projects get the coal linkage. A monitoring committee has been constituted with the representatives of department of coal, ministry of power, central electricity authority, department of industrial policy and promotion, planning commission and Coal India Ltd.


This committee will monitor progress of various projects granted long term linkage in terms of major milestones, commissioning schedule promoters, background etc. If the progress of the project is not satisfactory, linkage will be cancelled.  SLC also approved new coal consumption norms for capitve power plants to encourage efficiency of power generation. The committee also desired the ministry of power and department of industrial policy and promotion to recommend coal linkage only after proper scrutiny keeping in view the promoters’ track record, seriousness and preparedness.


Maharashtra power scheme may hit roadblock


November 11, 2004. R V Shahi, energy secretary, Government of India, said that the free power scheme in Maharashtra could run into big trouble unlike Andhra Pradesh where the supply-demand gap is well within manageable limits, beside the availability of cheaper power to sustain the programme. Shahi said that about 700-800 MW additional requirement has been reported in Maharashtra after the announcement of the free power scheme in that state.  He also pointed out the fact that the non-availability of cheaper power such as hydel generation as in the case of Andhra is also a cause for concern in sustaining the scheme. He said that the average dependence of states on central power generation for their energy requirement is about 32 per cent.


Bharat Coking, Eastern Coalfields to be revived


November 12, 2004. The government has decided to revive Bharat Coking Coal Ltd (BCCL) and Eastern Coalfields Ltd in view of the problems being faced in the coal sector. The revival packages for the two companies would cost the government about Rs 9,000 crore (Rs 90 billion) over a period of eight years. The package for BCCL is estimated at around Rs 4,905 crore (Rs 49.05 billion) while that of ECL is about Rs 3,800 crore (Rs 38 billion).  The revival packages envisage raising production of the two public sector undertakings to 38 million tonne per annum each. The production level of Sanctoria (West Bengal) based ECL is 29 mt while that of Dhanbad (Jharkhand) based BCCL is 24 mt. 


The previous government had also worked out a Rs 5,000 crore (Rs 50 billion) package for BCCL last year. Under that package, 15 loss-making mines were to be shut down along with redeployment of manpower. Out of the total revival money, the parent Coal India Ltd (CIL) was to put in Rs 2,500 crore (Rs 25 billion), the government of Jharkhand Rs 15 crore (Rs 150 million) and the remaining was to come from the Coal Conservation & Development Fund. BCCL with a Rs 2,500 crore (Rs 25 billion) authorised share capital is a major producer of prime (raw and washed) and medium coking coal. 


Rothschild, SBI Caps for Dabhol route map


November 13, 2004. The government is believed to have asked two investment bankers, N M Rothschild and SBI Caps, to work out a detailed proposal to revive the Dabhol power plant, which has been lying idle for over three years, for the consideration of empowered group of ministers. While NTPC has been mandated to operate the plant in the period prior to its selloff, Petronet LNG would operate the LNG terminal and GAIL India Ltd would scout for gas for the power plant. The government wants to restart the plant and sell it off as a running unit to get a better price.  Rothschild had estimated a cost of about Rs 1,800 crore (Rs 18 billion) to restart the Dabhol power plant. This is required to complete the liquefied natural gas plant, completion of phase-II and payment of contractual charges to GE and Bechtel, as per the estimates. Besides the financial assessment, Rothschild had estimated a time period of 18 months to complete all the three facilities before regenerating power from the troubled plant. 


Russian technology for ONGC coal gassification


November 15, 2004. Integrated oil major Oil and Natural Gas Corporation Ltd (ONGC) which had signed a memorandum of understanding (MoU) with an state government enterprise Gujarat State Petroleum Corporation Ltd (GSPCL) last September for a coal gassification project, has now started looking for appropriate technology from Russia for the project. ONGC has been looking for technology transfer to kick off the project through a joint venture company. The joint venture is yet to take shape but the activities for the project at present is being undertaken by a non-incorporated entity.  The project may attract Rs 5,000 crore (Rs 50 billion) in the next four years from ONGC apart from investment by the state government through GSPCL.


The huge coal reserves in Gujarat in the Tharad-Patan stretch has been lying at a very low level and is difficult to mine until ONGC comes across appropriate technology for coal gassification. Meanwhile, in another development, Gujarat State Petronet Ltd (GSPL), a subsidiary of GSPCL and responsible for laying gas pipeline across Gujarat through its gas grid plan, has initiated talks with Indian Oil Corporation (IOCL) for initiating a joint-venture project for laying 80 km long gas pipeline as part of Dahej-Uran gas pipeline. IOCL has shown keen interest for participating in the project.  GAIL India has been working on executing the Dahej-Uran gas pipeline and a re-tender process has been initiated only this week with controversies on the earlier tender for HSAW pipes. 








Staatsolie, Maersk sign exploration deal


November 9, 2004. Suriname's state oil company Staatsolie Ltd. signed an agreement with Denmark-based Maersk Oil for seismic exploration off this South American country's shores.  Maersk will begin exploring an area called Block 31, some 30 kilometers (18 miles) off the coast.  It has a total surface area of 13,800 square kilometers (5,328 square miles), Jharap said. Maersk will pay for the US$3.4 million project that will last through February.


‘No reason to sell YUKOS asset’: Putin


November 11, 2004. Andrey Illarionov, Economic Advisor to President Putin, said that he did not see any real reason to sell Yuganskneftegaz, YUKOS’s key production asset. Mr. Illarionov stressed that the sale would not help increase the country’s GDP nor curb inflation. He also noted that the Russian budget did not need large amounts of money. Earlier, YUKOS CEO Steven Theede said the sale of Yuganskneftegaz would be illegal. According to him, the Russian law “On enforcement proceedings” rules out the sale of the debtor’s core production assets to pay off tax claims if there are alternative options to settle the debt. For YUKOS, Yuganskneftegaz was undoubtedly a core business asset. The sale would also affect YUKOS’s production.


Yuganskneftegaz is YUKOS’s largest oil production subsidiary, accounting for about 60 percent of its oil output. The Justice Ministry plans to sell Yuganskneftegaz through the Russian Property Fund. According to unofficial reports, a 76.8 percent stake in Yuganskneftegaz could be sold for $3bn to $4bn, including a 60 percent discount. Yuganskneftegaz was expected to be sold in late November 2004.


New Pool oil discovery in Canada


November 10, 2004. Dynamic Oil & Gas, Inc. announced a new oil discovery in Southwest Saskatchewan. In the early half of October, we made a new-pool oil discovery in the Bailey area of S.W. Saskatchewan. The 4-21 well tested heavy-gravity crude from the Basal Mannville formation and has been in production for over three weeks. Daily production rates have averaged approximately 240 b/d with a solids and water measurement (BS&W) of 1.5% and a gravity/density measurement (API) of 130. Although future rates cannot be predicted at this time, the well is equipped for sustained daily production in the range of 75-100 b/d.


Anadarko sells Canadian properties


November 10, 2004. Anadarko Petroleum Corp. agreed to sell some of its Canadian properties to two undisclosed buyers for about $715 million (C$853 million). The sales include various assets in Alberta and Northeast British Columbia, representing an estimated 55 million barrels of oil equivalent (BOE) of proved reserves as of Sept. 1. The average production in September for the properties was 22,200 BOE per day.


Gazprom plans to increase gas production


November 11, 2004. Gazprom plans to raise the volume of gas production by 0.9 percent in 2005, compared to the 2004 level, to 547bn cubic meters. This figure is given in Russia's gas balance for 2005, approved by Gazprom Executive Board Chairman Alexey Miller.  The total volume of gas production is expected to reach 633.7bn cubic meters in Russia in 2005. Gas supplies to consumers in Russia are to amount to about 391bn cubic meters next year (including natural gas supplied by independent producers and oil companies), exceeding the estimated level of 2004 by over 5bn cubic meters.


In accordance with the gas balance, gas supplies to Ukraine will exceed the 2004 level of 60bn cubic meters and will total 60.08bn cubic meters. Specifically, Gazprom will supply 23bn cubic meters of gas to Ukraine to offset the cost of gas transit via Ukraine. The volume of exports to non-CIS countries will be increased to 145bn cubic meters, exceeding the estimated level of 2004 by 5bn cubic meters. Additionally, Russia plans to supply 18.6bn cubic meters of gas to Belarus in 2005, this gas would be provided by Gazprom.


Canadian Natural still pumping Ivory Coast oil


November 12, 2004. Canadian Natural Resources Ltd. has evacuated a handful of employees from its office in strife-torn Ivory Coast, but the company is still producing oil offshore. Canada's No. 2 independent oil explorer has flown as many as eight of its Abidjan administrative staff out of the West African country that has been rocked by anti-foreigner violence. In the third quarter, Canadian Natural pumped an average of 11,400 b/d at its Espoir field, located about 50 km (30 miles) offshore.  The company is developing another offshore field called Baobab, which is slated to start producing by mid-2005, reaching 35,000 net b/d by the end of the year.


U S approves commercial drilling in Alaska


November 12, 2004. The U.S. Interior Department gave final approval to a plan by ConocoPhillips and partner Anadarko Petroleum Corp. to develop five tracts around the oil-rich Alpine field on Alaska's North Slope. The department's Bureau of Land Management authorized the first commercial development of the National Petroleum Reserve in Alaska, allowing the companies to go forward with developing the tracts, which are located in the northeastern corner of the reserve. Production from these fields, which together hold more than 330 million barrels of oil, will start by 2006, according to the BLM. They will supplement production from the Alpine fields, which hold 429 million barrels and have a daily oil output of about 100,000 barrels. The Bush administration believes the new Congress next year will approve oil drilling in the separate Arctic National Wildlife Refuge, which may hold up to 16 billion barrels of crude.


BHP Billiton to sell oil fields


November 15, 2004. BHP Billiton announced it has agreed to sell its interests in the Laminaria and Corallina oil fields to Paladin Oil & Gas (Australia) Pty Ltd, a fully owned subsidiary of Paladin Resources, an independent oil and gas company listed on the London Stock Exchange. The purchase price is $150 million effective as at Jul. 1, 2004, and is subject to adjustments for working capital and cash flow movements between Jul. 1, 2004 and completion. The sale of BHP Billiton's interests in the Laminaria and Corallina oil fields is part of the Company's active portfolio management strategy.


Following a review, BHP Billiton's interests in the fields were identified as being non-core to BHP Billiton's future petroleum strategy. The Laminaria and neighbouring Corallina oil fields were discovered in 1994 and 1995 respectively, and are located in the Timor Sea, about 550km west-north-west of Darwin, in offshore production licences AC/L5 and WA-18-L. The fields were developed with a Floating Production Storage and Offloading facility, the Northern Endeavour, which is moored between the two oil fields in 385 metres of water. The sale to Paladin is subject to the pre-emptive rights of joint venture participants, and formal government approvals. The transaction is expected to be completed in early 2005.


Venezuela agrees to supply to Costa Rica 


November 12, 2004. Venezuela has signed separate agreements to supply Costa Rica and the Dominican Republic with oil and refined products as part of regional cooperation and integration between Latin America and the Caribbean. The Costa Rica supply agreement followed renewal of the San Jose Oil Accord, which initially was signed in August 1980. In late October, Venezuelan President Hugo Chavez and Mexican President Vicente Fox agreed that Venezuela and Mexico each would supply 80,000 b/d of oil and products to Costa Rica.  Separately, Venezuela signed a supply agreement to provide the Dominican Republic with up to 50,000 b/d of oil and products.  The Dominican Republic and Venezuela had suspended their cooperative Caracas Energy Agreement in 2003 because of political differences. Venezuelan Energy and Mines Minister Rafael Ramirez said relations between the two countries have improved.


Canadian Natural to spend more


November 15, 2004. Canadian Natural Resources Ltd. plans to spend C$3.1 billion ($2.6 billion) on oil and gas operations next year, a figure that will rise to C$4.5 billion if it Okays its proposed oil sands project, the country's No. 2 oil explorer said. Canadian Natural said it expects 2004 spending to hit C$4.1 billion after making four big asset acquisitions amid surging oil prices. The company said it would spend C$220 million on its Horizon oil sands project in northern Alberta in 2005, unless it gives the go-ahead for the project. Then spending on the mining and synthetic crude venture will hit C$1.4 billion.  Early this month, Canadian Natural said the cost of the three-phase development had jumped to as much as C$10.5 billion from the previous estimate of C$8.4 billion due to high steel and fuel prices as well as tight labor markets. The first phase, which would produce about 110,000 barrels of refinery-ready oil a day starting in 2008, is now expected to cost C$6.1 billion-C$6.6 billion, it said.


Production and sale of gas in Slovenia


November 15, 2004. Loon Energy Inc. announced that the Pt-123 well, which was drilled during July and August of this year, commenced commercial production on the 9th of November 2004. The gas is being delivered through existing field lines to a power plant owned and operated by a subsidiary of Nafta Lendava, the state-owned company that is one of Loon's partners in Slovenia.  The well is producing at an initial rate of 350 Mcfd. Production will slowly increase to an ultimate target rate of more than 500 Mcfd during the next 3 months. The producing gas zone tested dry gas at a stabilized rate of 600 Mcfd (100 boepd) upon completion.


The well will be produced for a period of 3 months at which time the well will be shut-in for a brief period to conduct a pressure buildup test to enable a more precise determination of reserves. Current estimates of potential gas reserves in the pool tapped by the Pt-123 well, based on mapping, range from 2 Bcf to 4 Bcf for this particular zone.  The company is evaluating the potential of either re-entering old wells elsewhere in the field to develop this zone and/or the drilling of new wells. The Pt-123 is the first well drilled by Loon in Slovenia. Loon paid 40% of the costs of the well and will receive 38% of net revenue prior to payout and 30% thereafter.


CNOOC: Huizhou oil fields produce 6,500 b/d


November 15, 2004. CNOOC, China's dominant offshore oil and gas producer, said its Huizhou oil fields produced first oil of 6,500 barrels per day. Huizhou fields are located 120 km (75 miles) southeast of Hong Kong in Eastern Southern China Sea. More wells will be brought on stream gradually. The development of the fields consisted of 2 platforms, 14 wells and a subsea pipeline. The peak gross production capacity of the fields is estimated at 45,000 barrels of oil per day.


Hydro submits PDO for gas export from Njord


November 15, 2004. Hydro and its partners in the Njord license submit a plan for development and operation (PDO) for gas export from the Njord field to the Ministry of Petroleum and Energy. The Hydro-operated Njord field in the Norwegian Sea will be upgraded for a total of NOK 1.6 billion, NOK 1.15 billion of which is accounted for by the PDO investments. If the plan is approved, the oil-producing field will become a gas exporter, at the same time as new production wells will ensure that oil production can continue for as long as possible. The annual gas volume will be around 2.2 billion Sm3.


BHP finds signs of oil in Shenzi field


Nov 14, 2004. Global resources group BHP Billiton Ltd./Plc. said it had discovered commercial quantities of hydrocarbon at its Shenzi-3 appraisal well, further solidifying the Gulf of Mexico as a core sector for its petroleum division. The offshore deep water discovery was made 14 km (9 miles) northwest of the company's Atlantis field, already in development, after hydrocarbons in reservoirs showed 100 metres (330 feet) of net oil pay in a 125-metre gross hydrocarbon column. The find was located in water depths to 1,327 metres and drilled to total depth approaching 8,512 metres, the company said. BHP Billiton a year ago announced its first appraisal well on the Shenzi field encountered approximately 500 feet of net oil pay in a hydrocarbon column.


US government sells leases for oil, gas


November 9, 2004. The Bush administration pressed ahead with a program of developing energy resources on government land, selling oil and gas leases on nearly 31,000 acres of western Colorado. The lease auction, conducted at Grand Junction, Colo. despite protests from a handful of environmental groups, brought in $3.7 million. Environmentalists said 15 parcels that lie inside six areas that have been proposed for inclusion in the National Wilderness Preservation System were auctioned to oil and gas interests. The auction brought the total amount of proposed wilderness land offered for energy lease auction by the Interior Department in the past 19 months to nearly 165,000 acres, according to Steve Smith of the Wilderness Society.




Tehran refinery development 


November 10, 2004. During the Third Economic Development Plan (from 2000 to 2004), 360 billion Rls. will be spent on Tehran refinery which indicates an increase of 32.7 times compared to the First Economic Development Plan’s figure (11 billion Rls.) and 3.9 times compared to the Second Economic Development Plan’s figure (92 billion Rls.). Head of technical and engineering services of Tehran refinery, said  that increase in costs aimed to maintain capacity for refining crude oil, increasing efficiency index of refining apparatus, removing operational bottlenecks, reducing energy consumption, reducing wastes, increasing production of valuable products, reducing production of less valuable products and other related measures. 


Honeywell wins Algerian refinery deal


November 10, 2004. Algeria's state refiner NAFTEC has awarded a division of Honeywell International Inc a 4.57 billion Algerian dinar ($62.75 million) contract to upgrade parts of a plant at the Arzew oil refinery complex. The National Society of Oil Refining a subsidiary of oil and gas giant Sonatrach, unveiled a $1.2 billion investment plan in June to modernise its refineries, including the 56,000 barrels per day Arzew refinery in western Algeria.


Sinopec takes stake of China Gas 


November 11, 2004.China Petroleum & Chemical Corporation signed a cooperation agreement with China Gas Holdings Limited. According to an agreement, Sinopec subscribes a total of 210 million new shares of China Gas at a price of 0.61 Hong Kong dollars per share. Sinopec said that the proceeds of 128.1 million Hong Kong dollars are expected to be used in some new projects of China Gas in the Chinese mainland.  According to the agreement, the two sides will join hands in natural gas exploration and extraction, transportation and trading, purchases and supplies, investment as well as construction and operation of urban gas pipeline networks.


New plants start up at Brazil's refineries 


November 12, 2004. Brazil's state-run Petróleo Brasileiro SA has begun operation of new plants at two of its refineries. At its largest refinery, Replan in the 350,800 b/cd Paulínia complex at Sao Paulo, it started up a second coking unit with capacity of 31,000 b/d.  Petrobras also started up a 37,500 b/d diesel hydrodesulfurization unit at the 181,000 b/cd Presidente Getúlio Vargas (Repar) refinery at Curitiba in south Paraná state. The unit, with a hydrogen unit able to produce 270,000 cu m/day, reduces the sulfur content of diesel oil to less than 500 ppm.


Transportation / Trade


Floating LNG terminal


November 10, 2004. To feed a tight market for natural gas in the Northeastern U.S., Royal Dutch/Shell Group and TransCanada Corp. hope to build a massive floating terminal for liquefied natural gas in the middle of Long Island Sound. The proposed $700 million terminal would require state and federal approval and is likely to face strong local opposition. If built, however, it could help rein in high home-heating and electricity costs in the Northeast. As the indigenous supply of natural gas in North America declines, energy companies have turned to increased imports of liquefied natural gas, or LNG, from big gas-producing nations as a way to keep American homes heated and industries humming.


TransCanada, the country's biggest pipeline company, and Shell US Gas & Power LLC a unit of the Anglo-Dutch oil major, said the regassification terminal would be capable of shipping one billion cubic feet a day from imported LNG. The project, to be called Broadwater Energy, would include a floating storage and regassification unit about 9 miles (15 km) off the Long Island coast. The venture would supply the New York and Connecticut regions starting in late 2010, pending regulatory approval, TransCanada and Shell said. There are now 33 proposed LNG terminals to serve the U.S. market, which is struggling with declining production from onshore gas fields and rising demand, especially for power generation.


OSG in LNG carrier joint venture


November 9, 2004. New York-based Overseas Shipholding Group has ordered four new large Liquefied Natural Gas (LNG) carriers worth in excess of $900 million, the company said. In its first foray into the natural gas sector, one of the U.S.'s leading oil and commodities transportation firms ordered four 216,000 cubic metre LNG vessels. The ships are to be used on a new project to transport LNG from Qatar to the United Kingdom, OSG said. The ships will be delivered in 2007 and 2008 and will commence 25-year time charters to Qatar Liquefied Gas Company (II).


ChevronTexaco, Total ink LNG pact


November 9, 2004. ChevronTexaco Corp. and Total SA announced separate deals for liquefied natural gas (LNG) regasification capacity at Cheniere Energy Inc.’s Sabine Pass LNG receiving terminal it plans to build in Louisiana. Total SA unit Total LNG USA Inc. said it acquired 1 billion cubic feet per day of LNG regasification capacity at the terminal for 20 years starting no later than April 1, 2009. Chevron signed a 20-year agreement for 700 million cubic feet per day of capacity at the terminal. Chevron's terminal use contract calls for its unit, Chevron USA, to pay Sabine Pass up to $20 million in reservation payments, beginning with an unconditional payment of $5 million within 15 days.


Under the terms of the contract, Chevron will pay 32 cents per million British thermal unit, with a clause for inflation, for the 700 mmcf per day of regasification capacity for a 20-year period beginning no later than July 1, 2009. Chevron USA has the option to reduce its capacity to 500 mmcf per day or increase to 1 billion cubic feet by December 1, 2005 at the same tariff. Cheniere also said it is still negotiating an agreement for ChevronTexaco to make a $200 million equity investment in Sabine Pass LNG L.P., which will own and operate the terminal, for a 20 percent stake. The agreement is subject to corporate approval, including approval by ChevronTexaco's board, by December 20, 2004.


Total to join Qatar LNG project


November 9, 2004. French energy company Total is expected to finalise by early 2005 a deal to join the Qatargas 2 liquefied natural gas (LNG) project. Qatargas 2 is 70 percent owned by state-controlled Qatar Petrolueum, with the balance held by U.S. energy major Exxon Mobil. Total said talks over the deal to join Qatargas 2, which would give the French company five million tonnes a year of LNG, were still in progress.  Total has said joining Qatargas 2 would be more cost effective than setting up a new project. Qatargas 2 has two production trains and is expected to produce 14 million tonnes a year of LNG gas that is super-cooled into liquid form for loading onto tankers. Shipments from the plant are scheduled to start in 2006/7.


Colombia, Venezuela to cooperate 


November 9, 2004.Colombia and Venezuela will set aside border conflicts as their two presidents consider strengthening economic ties, including construction of an oil pipeline that would help Venezuela diversify export markets. Colombian President Alvaro Uribe and his Venezuelan counterpart, Hugo Chavez, will discuss a plan to connect Maracaibo in Venezuela to the province of Choco, about 1,000 kilometers (625 miles) to the west on Colombia's Pacific coast, said Julio Cesar Vera.  The proposal would make it possible for Venezuela to shift exports away from the U.S., the buyer of more than 60 percent of the nation's crude, by offering a route other than the Panama Canal, which can't accommodate the biggest tankers, said Vera, who is in charge of oil policy at the ministry in Bogota.


Endesa may invest in Italian LNG terminal


November 10, 2004. Spanish utility Endesa is looking at investing in a terminal to import liquefied natural gas into Italy to cash in on high gas prices there.  Potential partners include Italian and Spanish companies although discussions on the project are still at an early stage. The Spanish company has substantial investments in the Italian electricity market and is due to open a new 800 megawatt gas-fired power station at Tavazzano on November 15. LNG is gas which has been super-cooled to liquid form for transport by tanker.


Chicago Bridge wins Welsh LNG plant contract


November 10, 2004. Chicago Bridge & Iron Co. NV won a turnkey contract worth between $725 and $750 million to build a liquefied natural gas import terminal in Milford Haven, Wales. The Woodlands, Texas, company said that the plant will process 7.8 million tonnes annually of LNGuified natural gas from an LNG plant being built in Qatar, with feed gas coming from that country's North Field. The Welsh plant, which is expected to be commissioned by the end of 2007, will be owned and operated by South Hook LNG Terminal Co, a joint venture between Qatar Terminal Co. and a unit of Exxon Mobil Corp.


Nippon Steel starts building Exxon Sakhalin pipe


November 10, 2004. Japan's Nippon Steel began laying an oil pipeline for U.S. ExxonMobil from the far eastern island of Sakhalin to mainland Russia to enable oil re-exports to Asia and the United States. Exxon said the 225 km (140 mile) pipeline will start from the fields on Sakhalin's eastern coast, cross the island and the Tatar straight before reaching an export terminal in the port of De-Kastri in the Pacific region of Khabarovsk. The pipeline will have a capacity of 250,000 b/d, matching the output of the Chayvo field, where Exxon and its partners will begin production next year.  The $12 billion Sakhalin-1 project, led by Exxon, also includes Japanese consortium SODECO, Indian state oil firm ONGC and Russian state-owned Rosneft. The consortium said in a statement the pipeline construction would also be conducted by Russian firms, including a unit of Russian oil major LUKOIL while 80 percent of pipes would be supplied by Russian Vyksa plant.


Tennessee pipeline announces extension  


November 10, 2004. Tennessee Gas Pipeline Company, a subsidiary of El Paso Corporation, announced a natural gas pipeline expansion project that will extend its reach into the ultra-deep Eastern Gulf of Mexico. Louisiana Deepwater Link will provide an additional 850,000 dekatherms per day (Dth/d) of capacity from the tailgate of GulfTerra Field Services L.L.C.'s recently announced Independence Trail Pipeline project. GulfTerra Field Services L.L.C. is an affiliate of Enterprise Products Partners, L.P. Atwater Valley Producer Group, represented by Anadarko Petroleum Corporation, Kerr-McGee Oil & Gas Corporation, Devon Louisiana Corporation, Spinnaker Exploration Company, and Dominion Exploration & Production, Inc., has signed binding agreements with Tennessee providing a long-term supply commitment from recently announced discoveries in the Atwater Valley, Mississippi Canyon, Desoto Canyon, and Lloyd Ridge concession areas.


Kinder Morgan to resume Calif. pipeline operations


November 12, 2004. Kinder Morgan Energy Partners said it expects its refined petroleum products pipeline that ruptured and exploded earlier this week in the San Francisco Bay Area will resume operations. Five workers died as a result of the explosion and fire at the pipeline in Walnut Creek, California, which carries gasoline, jet fuel and diesel. The 10-inch diameter, 60-mile pipeline carries refined products to San Jose, California. Gasoline was being transported through the line at the time of the blast, according to Kinder Morgan.


PetroChina signs LNG terminal deal in Guangxi


November 12, 2004. China's top oil and gas producer PetroChina Co. has agreed to build a LNG terminal in the southwestern province of Guangxi, with total investment of 5.92 billion yuan (US$715 million). China intends to boost gas usage to 8 percent of its energy mix by 2010 from just 3 percent now, hoping to reduce reliance on dirty coal and costly oil. The deal marked PetroChina's first formal agreement on an LNG project. The firm has previously signed preliminary agreements for LNG terminals in Liaoning and Jiangsu province.


Brazil-China pipeline deal 


November 12, 2004. Brazil recognized China as a market economy a move that should make it easier for the two countries to do business. Brazilian oil giant Petrobras and China Petroleum and Chemical Corp. also agreed on a $1 billion deal to construct a natural gas pipeline.  Besides Brazil, China has so far received recognition as a market economy from at least 20 other countries, mostly developing nations. China entered the World Trade Organization in 2001 as a non-market economy.  A $1 billion agreement signed between Brazil's oil giant Petrobras and China Petroleum and Chemical Corp. and China's Export and Import Bank calls for the construction of a natural gas pipeline from the South American nation's northern fields to its industrialized south. No details about the project were given.


Policy / Performance


EU interested in energy cooperation with Caspian countries


November 13, 2004. The European Union is interested in the development of energy cooperation with the Caspian Sea countries, European Commission's Director General for Energy and Transport Francois Lamoureux said. "Geopolitical aspects are developing and, in this connection, we would like to expand energy cooperation with the Caspian Sea countries," he said at the ministerial conference for energy cooperation between the EU, Caspian Sea states and neighboring countries.  According to Mr. Lamoureux, the EU countries invested over $1 billion to the development of the Caspian energy sector and helped create new communication structures in the region. It is highly important to provide energy and food security in the Caspian region. The conferees are to discuss regional cooperation to consolidate security of energy supplies to the Caspian Sea region, in particular, the harmonization and convergence of the energy policy, including the legislative system and technical norms and standards in order to promote further integration of EU and Caspian energy markets.


China energy supply insufficient


November 13, 2004. China said its supplies of coal, electricity and oil remained insufficient despite increases in production and imports. Although there has been a rapid increase in China's coal, electricity, oil and transport supply, it is not adequate to satisfy increased demand. China's crude oil production rose 2.9 percent year-on-year to 145 million tons in the first 10 months and it imported 85.8 million tons, up 36.2 percent year-on-year during the same period.  China Petroleum Corporation and China Petro-Chemical Corp have almost reached their refining capacity. And although electricity generation grew 15 percent year-on-year to 1.74 trillion kilowatt hours in the first 10 months, this is still insufficient to meet growing demand.


The country faced a 30,000 megawatt power shortage during the summer months the worst since the 1980s. Meanwhile, although coal production has been growing rapidly, the capacity of state-owned coal mines has nearly saturated. The gap between supply and demand posed a threat to economic development and the bottleneck would continue in 2005.


Nigerian Govt agrees to reduce fuel price


November 15, 2004. The Nigerian government agreed to reduce gasoline pump prices by 8 percent in the face of union threats to launch an indefinite general strike over fuel prices. Union chief Adams Oshiomhole said the unions in the world's eighth largest oil exporter will hold an emergency meeting to consider the offer and make a decision. They had demanded a 20 percent cut in gasoline prices. Deputy Senate President Ibrahim Mantu, also chairman of a committee set up to resolve the conflict with unions, said the government's Petroleum Products Pricing Regulatory Agency had agreed to cut the gasoline pump price by 4 naira to 49 naira per litre. The price of kerosene, used by millions of poor Nigerians for cooking and lighting, was also cut by 10 naira to 52 naira.


U.S. sees boost in oil, gas production


November 15, 2004. Oil and gas deep under the Gulf of Mexico should boost Gulf production considerably over the next decade, the government says. New deep-water wells poised to start production in the next few years should boost oil production from 1.5 million b/d to 2 million a day by 2006.  It could reach 2.25 million a day - enough to heat 3.5 million new homes all winter - by 2011. Making the agency's first 10-year production forecast peak oil production should rise 43 percent and peak natural gas production 13 percent. Current oil production is down about 200,000 b/d from the usual 1.7 million barrels, and natural gas is down 679 million cubic feet from the usual 12.3 billion, MMS said. Comparing peak to peak, rather than to current production, the increase expected by 2011 would be 32 percent and the natural gas increase would be 9.8 percent. Watson said that by 2011, deep-water oil is expected to supply almost 80 percent of the total extracted from the Gulf of Mexico, where shallow-water fields are empty or playing out.


Pakistan grants exploration licenses to OGDC 


November 15, 2004. Pakistan has granted an exploration license agreement for Block 2367-4 (Indus Delta-A) to Government Holdings (Pvt.) Ltd. and signed a production-sharing agreement with Oil & Gas Development Co. Ltd. (OGDC) for exploration activities offshore.  Block 2367-4, which covers 2,499 sq km, lies in shallow water at the offshore edge of the Thar Platform in the Arabian Sea. The minimum work commitment involves spending estimated at $3.5 million. OGDC currently holds the largest acreage position in Pakistan, operating 16 concessions, of which it holds 100% interest in seven. OGDC also holds nonoperating working interests in seven concessions operated by other companies


Reduce oil dependency: IEA


November 16, 2004. The world needs to be more active in finding energy alternatives including nuclear power to reduce its unsustainable reliance on oil, the head of the International Energy Agency (IEA) said. Claude Mandil, IEA chief stressed the need to stabilize oil prices and to reduce emissions of greenhouse gas. Mandil said dependence on oil was dangerous as supply could easily be disrupted in violence-hit areas. He urged governments to consider an expansion of nuclear energy plants. IEA analyst Fatih Briol said unless governments of the world changed their energy policies, rising oil demand in developing nations, particularly those in Asia, would result in more emission of carbon dioxide. Briol urged governments to tighten monitoring of energy efficiency standards for cars, power generation and supply systems, household electronics and industrial equipment.  Meanwhile, the IEA expects China to start establishing strategic oil stocks in 2005 as part of the country’s long-term energy policy to provide a stable supply of petroleum to the domestic market in the event of serious disruptions.  Mandil emphasized China, not a member of the IEA, has agreed to cooperate with the agency in case of having to use these strategic reserves. Japan and South Korea, two Asian members of the Organization for Economic Cooperation and Development, already have strategic oil reserves, and Mandil said non-OECD Asian countries, particularly China and India, need them as well. The OECD has recommended that its members hold reserves equal to at least 90 days of net imports. He said the IEA has held a series of talks with the Chinese government on strategic oil stockpiling as well as other energy issues, including China’s efforts to liberalize its electric power industry.






Argentine government creating Energy Company 


November 9, 2004. Argentine President Nestor Kirchner on Nov. 2 signed a law creating an energy company called Energia Argentina SA (Enarsa). The Argentine government will own 53%, and the provinces will own 12%. The remaining shares will be traded on the Buenos Aires Stock Exchange. Enarsa was formed in part to help increase Argentina's electricity-generating capacity. In April, the government acknowledged a natural gas shortage and problems generating enough electricity to meet forecast demand.  Enarsa will be involved with exploration and production, transportation, and marketing of oil, gas, and electricity. It will seek alliances with Latin American oil companies to explore exploration and production concessions off Argentina.


Iran's power generation capacity to rise to 36,000 MW


November 10, 2004. Iran's power generation capacity will rise to 36,000 megawatts by end of the current Iranian year on March 20, said Deputy Energy Minister Reza Amrollahi. The 8.6 percent growth on average, the country's power generation capacity will rise to 54,000 megawatts in the fourth five-year economic development plan (2005-10). He said Iran's power consumption would rise 45,000 megawatts in 2009 from 29,500 megawatts this year. In the next five years, the installed capacity of the country's power plants should rise by 18,000 megawatts. The official predicted 10.5 billion kilovolt per hour of hydroelectric energy, rising to 18 billion kilovolt per hour in 2009.


New coal plant in the US 


November 11, 2004. East Kentucky Power Cooperative announced plans to build a $500 million coal-burning power plant in Clark County. The cooperative said the plant would employ as many as 700 people during the peak of construction and 50 to 75 once it is running. Barring snags in obtaining regulatory approval, the plant is expected to be operating by 2009. Construction would take about three years. The announcement comes just a month after the demise of a proposal for a plant that would have burned pelletized garbage from New York and New Jersey. The cooperative had planned to lease the site to Kentucky Pioneer Energy LLC and buy the power the plant produced. At 278 megawatts, this plant will be about half the size of that one, and it is not expected to face as much opposition. The plant would be built on the 3,200-acre site of the J.K. Smith Station, a natural gas plant that produces power at times of peak demand.


Tucson electric buys power plant stake


November 12, 2004. Tucson Electric Power Co., a unit of UniSource Energy Corp., reported that along with two other power companies it acquired an unfinished New Mexico power plant from Duke Energy Corp. for $40 million, with plans to bring the plant online by the summer of 2006. Duke invested $275 million in the 570-megawatt natural gas-fired plant before suspending construction in September 2002. Tucson expects to invest another $110 million in the plant to complete construction. When the plant comes online, Tucson Electric will add another 190 megawatts to its capacity, bringing the company's total capacity to 2,193 megawatts.


Eight gas-fired plants to be shut in the US


November 12, 2004. TXU Corp. said its power-generating subsidiary would shut eight aging units representing a quarter of its natural gas-fired capacity in Texas. The Dallas-based company expects the actions to save about $20 million a year. The savings were included in its previously announced profit forecast of $5.65 to $5.85 a share for 2005.  Competitors have entered the newly deregulated Texas electricity market over the past few years, building new plants that displaced many of the existing older facilities.


Two  new plants in Philippines


November 15, 2004.  GN Power Ltd. is planning to put up two new power plants in Luzon by 2008 and 2009. Energy Secretary Vincent S. Perez said that the new power facilities to be built by GN Power might be included in the new Philippine Energy Plan (PEP) which will be formally unveiled by the Department of Energy (DOE) this week.  Based on the Luzon Power Development Plan of the DOE, GN Power will be putting up a total of 1,200 MW (600 MW in 2008) and (600 MW in 2009).  GN Power’s proposed projects are among the indicative power generation projects of the DOE for the period 2007 to 2013.  Based on the data from the Department of Trade and Industry (DTI), GN Power has remained one of the top foreign investors in the Philippines pouring in a total of P96.53 billion in investments for the period January to July 2004.


Hopewell inks Mongolian power project pact


November 15, 2004. Hopewell Holdings, a Hong Kong-listed property and infrastructure developer controlled by Gordon Wu, has inked preliminary agreements to develop power plant projects in Inner Mongolia's autonomous region. Hopewell is eyeing power plant projects in the capital Hohhot and in Ordos, a city in the west of the province, and will seek opportunities to develop gas and electricity generating facilities by burning coal in the two cities. The Ordos project will involve the Shenzhen Energy Group as a joint venture partner.


US Firm to build $275m power plant in Kwara


November 12, 2004. Electricity generation in the country is set to receive another major boost as a US-based firm is set to partner with an indigenous company and the Kwara State Government to build a gas-fired Independent Power Plant (IPP) worth $275 million (N36.6 billion). The Federal Government has approved the direct sale of electricity from IPPs to industries. The arrangement will exclude the National Electric Power Authority (NEPA) from sales purchase negotiations. US-based Black and Veatch is partnering a Nigerian firm, Alliance Energy Limited (AEL) and the Kwara State government, to build the power plant that will generate 105 mega watts (MW) of electricity. The proposed plant, according to the approval granted the project by the Ministry of Power and Steel will be operated on the Generate, Transmit and Distribute (GTD) scheme. The power plant which is expected to be completed in 2006, will consume some 126 million standard cubic feet of gas per day at 27bar pressure.


Transmission / Distribution / Trade


Duke sells unfinished New Mexico power plant


November 12, 2004. Duke Energy Corp. said it sold a partially completed power plant in New Mexico to copper producer Phelps Dodge Corp. and two electric utilities for $40 million. Charlotte, North Carolina-based Duke said total sale proceeds and tax benefits will be $125 million. The sale is part of Duke's program to sell off partially completed plants and reduce its merchant energy operations. The company has another unfinished plant in Washington State. The 570-megawatt gas-fired plant in Deming, New Mexico, is expected to be running by summer 2006, with one-third of its production going to Phelps Dodge mining operations in New Mexico and Arizona. It will take $110 million to finish construction of the plant, which will be operated by PNM Resources.


Pakistan seeks DOE aid to sell power plant


November 15, 2004. The government of Pakistan has sought the assistance of the Philippine government through the Department of Energy (DOE) in selling one of its power plants. The Embassy of Pakistan to Energy Secretary Vincent S. Perez, it invited local and international business groups to file expression of interest (EOI) for its 1054-megawatt power generating facility, Jamshoro Power Co. (JPC).  The Pakistani government said interested parties may send their EOI directly to the privatization commission of Pakistan. Pakistan’s request came while the Philippine government is also busy privatizing the power generation and transmission assets of the state-owned National Power Corp. (Napocor). So far, the Power Sector Assets and Liabilities Management Corp. (PSALM), an entity created to handle the sale of the Napocor assets, has successfully sold five hydro-power facilities of Napocor.


Policy / Performance


Signs of US nuclear-power revival


November 9, 2004. The nuclear-power industry is laying the groundwork to build new plants in the U.S. for the first time in more than two decades. Buoyed by the re-election of President Bush, whose administration has pushed to expand nuclear power as part of its national energy plan, the industry sees a window of two to three years in which the political environment could make it easier to win approval for new projects. Two separate consortiums consisting of power companies and reactor makers received word that the Department of Energy would share in the cost of obtaining regulatory approval for new nuclear reactors. The two groups expect the cost of winning that approval to be about $500 million apiece, due to the detailed engineering and testing required by regulators for new reactors. "There's lots of enthusiasm for what we're trying to accomplish here," said William D. Magwood IV, director of the Energy Department's office of nuclear energy, science and technology. "If both of these go to fruition, we could see new nuclear plants by 2014."


Foreign investment required to meet domestic energy demands: Iran


November 10, 2004. Reza Amrollahi, the acting deputy to the energy minister said that the country should annually invest Rls.160 trillion ($18.3 billion) in power industry and that domestic resources cannot meet this need; hence foreign investment is required to develop the industry. Concerning that demand for power consumption will increase from the current figure of 29,500 MW in 2004 to the figure of 45,000 MW in 2009, the country’s power capacity should increase by 18,000 MW (a 8.6% growth) within the next five years, he explained. To fulfill the predicted 8.6-percent growth, Rls.160 trillion should be annually invested in construction of power plants, production, transferring and distributing electricity, the acting director explained citing usage of domestic and foreign private investment as a strategy to gain the estimated figures. Amrollahi in conclusion announced that 12,000 MW of power plants have been planned to be set up by the private sector by using methods of BOT (build-transfer-operate) and BOO (build-own-operate) by the end of the Fourth Socio-economic and Cultural Development Plan (2005-2010).


Japan leery of China's nuclear energy plans


November 9, 2004. Japan is worried that China's voracious appetite for energy, its poor record of industrial safety and its plan to build more nuclear reactors could mean major accidents affecting North Asia. Japan, which stands to gain financially from China's desperate need for energy to fuel its high-powered economy, increasingly is worried that Beijing's pledge to rely on nuclear power is potentially dangerous, posing serious safety issues for China and Japan. Japan has had its own safety problems with nuclear power and doesn't want more business at the cost of human life.  More than half of China's economy is driven by manufacturing, 54% according to a report by the Far Eastern Economic Review. Economists such as Andy Xie at JPMorganChase affirmed that more than one-third of Chinese consumption is already responsible for Japan's pulsating yearly growth and its economic recovery. According to British Petroleum (BP) statistics, in response to the country's gross domestic product (GDP) growth of 9.1%, China's total energy demand surged 13.8% in 2003. Increase in electricity demand in China last year accounted for 50 gigawatts of total global growth of 70GW (a gigawatt is 1,000 megawatts, a megawatt is a million watts). 


China’s nuclear plans


November 9, 2004. With oil being so expensive and prices so volatile and the reliance on coal environmentally hazardous, China plans to follow South Korea and Japan by developing its own nuclear industry to generate electricity. Wealthier nations such as Japan and South Korea, which lack their own natural resources, have already developed large nuclear industries to buttress their economies. Some 39% of electricity, in both countries, is generated from 52 reactors in Japan and 19 in South Korea.  Both Japan and South Korea plan to build more nuclear plants, although the outcome in Japan remains unclear as a string of accidents and falsification reports have rattled the confidence of the Japanese public in nuclear energy.  In contrast, China currently has nine nuclear reactors, with two more Russian models under construction, expected to be operational by the end of next year.  According to the latest US government report, Beijing plans to buy 20 more reactors from the United States. Since China is a signatory to the Non-Proliferation Treaty (NPT), such sales, especially from Westinghouse Electric Co LLC, are expected to sail through in the next two months without opposition - on the condition that China does not sell the technology or parts to another country.  China's existing nine reactors have a combined capacity of 6,500 megawatts, supplying just under 2% of the country's electricity. There is therefore a great deal of room for the growth in Chinese nuclear energy. Indeed, before the end of this year, China has already proposed inviting international tenders for four more reactors, each capable of producing about 1,000MW and costing about US$1.5 billion apiece.  In terms of output, this would be similar to the two 1,000MW VVER-type Russian reactors under construction at Tianwan, on China's east coast. (VVER is a Russian designation for a reactor type referred to in the West as PWR, for pressurized-water reactor). The power stations form part of a longer-term plan to raise China's nuclear capacity to just under 40,000MW by 2020, according to Zhang Huazhu, vice minister in charge of the Commission of Science, Technology and Industry for National Defense. 


The $30 billion development program earmarked for 2020 will require the construction of about two reactors a year, says the World Nuclear Association (WNA), "similar in scale to the large French nuclear construction program undertaken in the 1980s". However, at China's current rate of energy consumption and economic growth, even if its 2020 nuclear energy plans all come to fruition, they will by then only account for just over 4% of the country's total installed power-generating capacity, according to WNA analysts.


China's Huaneng seals 6th long-term coal pact


November 14, 2004. Top Chinese electricity producer Huaneng Power has signed its sixth deal to secure a long-term supply of coal, as it steps up efforts to control soaring costs squeezing the industry. State-run Huaneng Power International Inc. battling a 40 percent surge in coal prices so far in 2004, inked a deal to buy 19.63 million tonnes of coal annually from 2005 to 2007.  Huaneng executives announced in October that the power generator would sign three more long-term contracts, after having struck five agreements spanning three to five years each in past months. The deal was signed last week with major domestic miner Shaanxi Coal Group. The executive would not reveal pricing, but added that coal prices should hold steady in 2005 from this year's average. Globally, utility firms from South Korea to Japan are racking their brains for ways to hold down the rising cost of coal, partly due to enormous demand from China, where 70 percent of power capacity is coal-fired.


Endesa to invest Latin America


November 15, 2004. Spanish Power Company Endesa plans to invest 2.5bn euros (US$3.24bn) in Latin America in the next five years, including 500mn euros in new generation capacity, Endesa said. The company's global five-year investment plan is 14.6bn euros, of which Latin America accounts for 17%. Of the Latin American figure, 32% will be invested in Chile, 24% in Argentina, 24% in Brazil, 12% in Peru, and 8% in Colombia. In 2005, the company plans to invest 500mn euros in the region, including 100mn euros in new capacity. Endesa has a 38% share of installed capacity in Chile, 34% in Peru, 21% in Colombia, 19% in Argentina and 4% in Brazil.


Renewable Energy Trends




Bio diesel ventures seek for incentives


November 12, 2004. Upcoming entrepreneurs engaged in the production of bio-diesel from non-edible vegetable oils are seeking incentives from the Government. While a litre of bio-diesel costs Rs 18.50, the prices of non-edible oils range from Rs 25 to Rs 35 per kg and thus affect the entrepreneurs associated with the production of esters. Production of non-edible oils seems to earn better profits, it is alleged.


TN leads in wind power 


November 10, 2004. Tamil Nadu is continuing its lead position in the renewable energy sector, especially in the installation of wind power generation capacity. At the end of September 30, 2004 the total installed capacity of wind power was 1638.6 MW, 57% of the national installed capacity of 2884.75 MW. With 411.15 MW Maharshtra is the second wind power state in the country. Karnataka has an installed wind power capacity of 274.2 MW , Gujarat 218.05 MW, Rajasthan 212 MW and Andhra Pradesh 101.3 MW.  India as a whole retains its fifth position in the world wind power capacity. The four other wind majors are Germany, Spain the US and Denmark. The global capacity of wind power at the end of December 2003 was 42451 MW.




Schneider power begins wind farm construction


November 9, 2004. Canadian Wind Power Developer Schneider Power Inc. announced that it will commence with the construction of the Providence Bay Wind Farm on Manitoulin Island in spring of 2005 with commissioning of the first turbine expected by late September. Providence Bay is being built independent of the Government of Ontario's 300MW RFP and is the first large-scale wind power project to be built in five years. GE Wind Energy has been selected as the exclusive supplier of wind turbines. The electricity generated at the wind farm will be sold under long-term power purchase agreements to provincial utilities.


Equity funding arranged for 20MW wind project in New Brunswick


November 15, 2004. Clean Power Income Fund and Western Wind Energy Corp. announced that they have executed a Joint Venture Agreement to develop, construct, finance and operate a 20 MW wind power generating facility in Grand Manan, New Brunswick. Under the terms of the Agreement, Clean Power will invest $7 million to acquire a 50 percent stake in the power generating facility, subject to due diligence and documentation. Over the 20-year term of the power purchase agreement that has been negotiated with New Brunswick Power, the facility is expected to produce revenue in excess of C$90 million. The $31.2 million facility is scheduled for completion and commissioning by the end of 2005.


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


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[1] USGS fact sheet

[2] Viscosity is a measure of the fluids resistance to flow.  Viscosity matters in production as it determines the ease with which oil can be recovered from the beneath the ground.  Viscosity can be varied with temperature. 

[3] Density is a measure of mass per unit volume.  This is important for refiners because it indicates yield from distillation.  Oil density is expressed in degrees of API gravity a standard of the American Petroleum Institute.  API gravity is computed as (141.5/sp g)-131.5 where sp g is the specific gravity of oil at 60°F. 

[4] Canada’s oil sands and  heavy oil: Petroleum Communication Foundation

[5] USGS fact sheet

[6] stoves

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