MonitorsPublished on Nov 30, 2004
Energy News Monitor I Volume I, Issue 23
India’s ‘Gaspirations’: Think beyond pipelines

Why isn’t gas the fuel of the present?


In the worlds journey towards a low carbon environment gas is the natural next-step in fuels after liquids such as refined petroleum products. Substitution models of the 1980s predicted that natural gas would be the dominant fuel by the 1990s and that gas would supply 50 per cent of all commercial primary energy by 2000. The same models predicted the share of gas in meeting energy needs to grow to 70 per cent by 2030.  Current figures for natural gas are half of what was predicted. 


The switch from solid fuels such as wood and coal to liquid fuels such as refined petroleum products was faster and easier because of superior energy content of liquid fuels.  The energy density of refined petroleum products is about 1.5 times that of the best bituminous coals.  They were cleaner fuels and were easier to transport and store than coal and wood.  The move from liquid to gaseous fuels has not been as swift as the relative merits of natural gas over oil are not as dramatic as it was in the case of oil over coal and wood.  Natural gas has a lower energy density than crude oil (about a 1000 fold difference with 34 MJ/M3 compared to 34 GJ/M3 for oil). This limits its use as transportation fuel.  Though gas is a much cleaner fuel than liquid petroleum fuels, it is expensive to transport and store. 


But gas scores over oil in many aspects.  To begin with it is a cleaner fuel. Oil availability is geographically concentrated in politically sensitive areas adding a substantial risk premium to its price.  Gas resources are fairly evenly distributed around the world.  One third of the worlds gas reserves are estimated to be in Russia and another third in the Middle East.  Yet gas has not succeeded in displacing oils dominance partly because of oils grip over the transportation segment and partly because of the distances that separate gas resources from markets. The two largest resources of natural gas, Russia and the Middle East are far away from the largest and the fastest growing markets.   


Source: Institute of Gas Technology quoted in Introduction to LNG, University of Houston.

Pipelines have been a part of the solution but not all have been free from political strife. Many of the troubled pipeline proposals start with political risk at the supply and end with regulatory risk at the demand end.  This is in addition to the ever present volume and market risk. Supplying countries and consuming countries are often not comfortable with the co-dependence pipelines create - suppliers worry about demand security and consumers worry about supply security.  Transit countries remain uncommitted.  Nothing illustrates this better than the Iran-India pipeline which has been in the ‘pipeline’ for the last 20 years.   Can India afford to continue discussions on pipelines for the next 20 years without a decision?


Why are India’s ‘gaspirations’ uncertain?


Within conventional forms of primary energy, gas is the fastest growing with growth rates in the range of 2.5-3 per cent.  Growth in demand for power which is again the fastest growing final form of energy drives this demand.  Gas is now the preferred fuel for power generation because of its relative merits, primarily environmental, over its rival coal. By 2010 gas demand is expected to grow by more than 50 per cent in Asia. This trend is generally true in India with demand for gas growing at an annual rate of about 4.8 per cent. This however is a substantial downward revision from previous forecasts which predicted consumption of about 75.6 billion cubic meters (bcm) by 2010.  Why his downgrade?


As of 2001 proven reserves for natural gas stood at 749.65 bcm. Natural gas currently meets about 7 per cent of India’s energy needs.  60 percent of the Natural Gas in India is produced along with crude oil as associated gas and the rest is produced as free gas.  Current production stands at about 86 million cubic meters per day (mmscmd) and availability is about 67 mmscmd (after captive use and LPG shrinkage) against a demand of about 152 mmscmd.   Projected supply short falls of about 260 million cubic meters per day are estimated to require investments in infrastructure of about $ 10 billion in the next 25 years. 



Import dependence for gas was projected to be about 41 per cent in 2007 but the discovery of about 200 billion cubic meters of gas reserves in the South Eastern coast of India in 2002 by the private sector has however changed the gas deficit outlook.  The new reserve is estimated to have initial production capacity of 40 mmscmd yielding two thirds of the country’s current gas supply within the next 2-3 years.  Production capacity is expected to go up to 100 million cubic meters per day in about 10 years.  While the share of natural gas in India's energy mix has increased more than three times since the early 1980s there is potential for substantial increase in demand.  But this demand is potential demand.  It will materialise only with necessary supply push and demand pull.    





So far India’s attention has been centred on grand gas supply projects - Pipeline or LNG.  There was great enthusiasm for LNG in the late 1990s but many of the approved twelve LNG projects face an uncertain future. In 2001 the government suspended approvals for new LNG projects fearing that the combined capacity of the approved projects would exceed even the most optimistic demand projections.   Thus LNG went out of favour only to be replaced by a revival of spectacular billion dollar pipeline projects. What has not been given adequate attention over time is the fact that while the politics or economics of pipelines have hardly changed the cost of LNG has come down substantially since the 1980s.  Liquefaction, the most expensive part of the LNG value chain has seen the greatest reduction in cost.  Most of the risk associated with LNG projects is shifting upstream towards the host country.  For a consuming country like India the financial risk is now relatively small. Shipping costs have come down because of competition between ship yards.  Tanker costs have actually reduced by half while pipeline costs have hardly changed. With continued improvement in LNG technology the price differential between pipeline gas and LNG will only narrow.  


Will gas remain India’s ‘fuel of the future’?


Despite these advances in LNG technology, India remains a relatively unattractive market for the suppliers.  India’s is a still a small market going through liberalisation. It is a highly price sensitive market. The government is seen to favour domestic gas and there is continued uncertainty over jurisdiction for regulation. Financial and regulatory risks associated with the power sector, the main consumer of natural gas is also a problem.


Development of spot trade, cargo swaps, re-sale possibilities, new contractual and pricing models for LNG can absorb some of the market and volume risks associated with the Indian market; But if India is to gain fully from these technology and cost benefits of gas trade and transportation, India’s focus needs to shift from debating grand supply plans to development of internal demand. Uncertainty and risk on the price and volume front have to be reduced.   Reduction of volume risk requires a national pipeline grid along with a clean and clear regulatory policy. Price risk mitigation requires completing reform and regulation not just of the gas industry but also that of the key consuming industries such as power. 


Without these reforms on the demand side India’s ‘gaspirations’, will remain just that and gas will remain, for a long time, India’s ‘fuel of the future’.   


Team Energy ORF

[email protected]

(Views are those of the authors)

Free Power to Farmers in Maharashtra- A Politico-economic perspective


Excerpts from the observations of Prof. Ajit Karnik of the Universirty of Mumbai, and Dr.B.Venkatesh Kumar of the University of Mumbai, 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 phrase “political economy perspective” is included in the title because this perspective offers a good framework for analysing most issues related to government policy. It has been long accepted in economics and politics that incumbent political parties seek to manipulate the economy to enhance their re-election prospects. An insecure ruling party will aggressively use the public finances to push its own agenda. These are called political business cycles or political budget cycles and are very well established areas in political economy. One way to look at the graph (fig. 1) given below is to look from the point of view of the rising trend indicating increasing election awareness. As the society or the polity goes closer to the elections, the urge to dispense subsidies increases, as is seen in this graph. If one looks at the initial two points which we have called elec1 and elec2 these are far away from the next elections. So subsidy levels are at much lower levels. But as one starts to approach elections with elec3 and elec4 and the last point right on top which is just called elec is the actual year of election, which is the year in which maximum amount of subsidies are dolled out.


                                      Fig. 1


So, the promise of distributing free power has to be seen in the political economic context and in the context of this critical state of the public finances. It is quite certain that the estimated cost of providing free power will certainly worsen the fiscal scenario.


This is an indicator of the gross fiscal deficit (GFD) to the state domestic product (SDP) ratio in the State of Maharashtra. That’s the only  correct way to look at gross fiscal deficit in relation to the size of the economy, not its absolute size.  Interpretation of graph (fig. 2) shows that there is virtually no trend. It’s going up and down but remaining more or less between 4 and 5 per cent, which is fairly high. But even worse is the revenue deficit to SDP ratio, which again is between 2 and 3 per cent. Please note that ideally there should be no deficit on the revenue account. So, it has to be zero for really prudent fiscal scenario. So what one expects is that the free supply of power will cost almost Rs 1600 crores (Rs 16 billion) in the current fiscal. And this is over and above subsidies given and as mentioned earlier will create incentives for those who have pending arrears to start reneging on their promises to pay because they will also claim a share of this freebie.


                                            Fig. 2


It also assumes that the rate of consumption will stay unchanged after the reduction in the prices of electricity. Elementary economics tells us that   whenever the price of any good falls its consumption inevitably rises. So, it is likely that Rs 1600 crores (Rs 16 billion) might turn out to be an underestimate.  All of this is of course being done in the name of the poor. It is very difficult for any political party to say, “We want to dole out subsidies to favour the strongest and richest lobbies”. It has to be a camouflage as subsidies to the poor otherwise it doesn’t sell. 


Maharashtra has been no different in this game of make believe.  It has been shown in various studies that the poor will rarely benefit from such largess and the intended beneficiaries are always members of strong lobbies. Excessive use of pump sets also has an adverse environmental consequence. In Punjab ground water levels plummeted very dramatically when they had their episode of free distribution of power a few years ago.  Availability of power in Maharashtra will possibly do two things apart from impacting the public finances. It will deplete even more quickly its ground water and possibly encourage even more water intensive crops. Environmental degradation hurts the poor much more than the rich.


Therefore, free power cannot be the solution to rural indebtedness.  A genuine solution to this cannot be in the nature of a quick fix. It is a complicated difficult solution but it requires that the rural poor should have access to micro finance, micro credits so that they are free from the clutches of informal usurious lending. That is the real challenge that this state government like many others has to tackle.


A study of a similar episode was carried out in Karnataka, which didn’t have a free power program, but were looking at the targeting of subsidies. It was found that over 80 per cent of the benefits of subsidized electricity had gone to farmers who owned more than 2 hectares of land. Of the subsidized electricity power only 9 per cent directly benefited the poor. 47 per cent of large farmers (owning more than 2 hectares of land) who owned more than one pump benefited more from any subsidization process. Only 3 per cent of marginal farmers owned multiple pumps.


Thus, it is bad economics, but bad economics can be good politics. So, the question arises, is if that is truly the case? To a short-sighted myopic politician profligacy is clearly extremely good strategy, but there is a distinction between a political party, which is likely to have a much longer life and a politician who is only at temporary functionary in any political party. So can one even hope that is it possible to expect that the political party as distinct from the politician can have a slightly longer vision?  Again research in political economy tells us that the political functionaries or incumbents who are certain of defeat find it rational to virtually destroy the fiscal status completely so that the incoming government has very little scope to play around. But what happens if the ruling party gets re-elected? Then they will face the same dysfunctional fiscal deficit. May be that is something that the government in Maharashtra should have wondered before announcing these freebies.


It might be in the interest of the party itself to curb irresponsible politicians.  The political party, if it is a responsible one, should be concerned with the long-term viability of the state as a whole. Maharashtra is rapidly plummeting in its ranking among the better performing states. Many others like Gujarat, Tamil Nadu and Karnataka are improving while Maharashtra is lagging behind substantially. So, any responsible political party should be concerned about where Maharashtra is headed. Regulation and institutional safeguards can control freebie behaviour. In the Indian context we have this model code of conduct, which is automatically triggered as soon as elections are announced and this is supposed to act as a curb on political freebies.  But, has this code of conduct been successful in its stated objectives? Partly it has.  The partial success lies in that at least 40 or 45 days prior to elections freebies are eliminated, but then everybody learns from the constraints that are imposed. So the political parties start advancing their freebie distribution. Researchers have shown that voters are usually myopic and revert to politicians only when freebies are announced very close to the elections.  Freebies announced in the distant past are quickly forgotten. This is a fact established in numerous other country experiences as well.


One could even ask for an extension of the moratorium on undertaking unplanned expenditures about six months prior to the elections. This now starts to get absurd. We might then say why not make it four years or five years but then you will have just nothing happening in between elections. But extended to at least a year in which elections are expected with additional checks and place may be appropriate. The additional checks can also come in the form of a Fiscal Responsibility Act that might penalize deviations from announced programs. None of these programs were announced in the budget. So, they are clearly unannounced and unplanned programs and if the Fiscal Responsibility Act can penalize such deviations or deviant behaviour it might go a long way towards inducing responsible behaviour among politicians. The unfortunate part is that the Central Fiscal Responsibility Act that has been promulgated now, is completely toothless. It has to be an act, which cannot be amended, once passed. That is the only way in which one can tie the hands of the government and may be help guide it towards responsible behaviour.


(Views expressed are personal)


IAEA has no cause to refer Iran file to Security Council


Moscow believes that a November 25 meeting of the IAEA (International Atomic Energy Agency) board of governors will not refer Iran's nuclear file to the UN Security Council, as requested by the US, which is threatening to introduce sanctions against Iran. The board will decide to continue Iran-European Union dialogue. Iran, the Russian Foreign Ministry told RIA Novosti, has suspended uranium enrichment work, thereby honoring the commitments it assumed in talks with the European Troika (France, Germany and Britain) and sealed in the agreement between them. This means there is a good chance that the issue's examination at the board's meeting will move from "negative to positive" and it will later be treated as a routine IAEA matter.   "At the coming board meeting, we will help the Iranian issue to be considered calmly," the ministry stated, "We do not believe that advocates of a hard line on Iran have grounds for insisting on referring the so-called nuclear file to the UN Security Council." Gennady Yevstafyev, a Russian expert on WMD non-proliferation, also thinks that the IAEA board of governors is not in favor of pursuing Washington's tough line. The talks between Tehran and the European troika, and particularly the agreement they reached, also pointed to this.   Despite its makeshift nature, the agreement is "very promising." Iran has not only agreed to suspend the manufacture and import of gas centrifuges and their components, as well as the production of plutonium and conversion of uranium into nuclear fuel, but has also, finally, accepted IAEA inspections and even installation of the Agency's surveillance cameras at facilities earlier off limits to it.   This undoubtedly is a very important step towards creating an atmosphere of trust around the Iranian nuclear programs, and the US is unlikely, in this situation, to insist on immediately transferring the nuclear file to the UN Security Council. Referring it to the Council is a serious political decision, Mr. Yevstafyev stresses, and so the board of governors will most likely endorse a report by IAEA Director-General Mohamed El Baradei, which, as he promised, is couched in positive tones about the Iranian nuclear programs. But Moscow believes it would be premature to draw a line under the Iranian nuclear file saga. On the one hand, Washington will not be satisfied with the "interim" agreement. It was no coincidence that Colin Powell expressed concern over Iran's capability of matching the nuclear weapons it is developing to delivery vehicles. This parting shot from the outgoing secretary indicates that the US is certain to take a tougher stand on Iran when Condoleezza Rice takes over the State Department. Washington will try its best to ultimately commit the European Union on the Iranian nuclear file: either Tehran abandons the development of the complete nuclear cycle, or the file is transferred to the Security Council.  On the other hand, Iran is not going to give up its right to develop nuclear technologies, including uranium enrichment. Iranian Vice-President Gholam Reza Aghazadeh, chief of the Iranian Atomic Energy Organization, has said that talks with the European Union will be very difficult for Iran. The main European demand will be to "create a climate of confidence" on Iran's part, which presupposes the renunciation of its uranium enrichment program, whereas Tehran "intends to continue mastering these atomic technologies."   For now, the sides have set up working groups which, beginning on December 15, will spend the next three months elaborating final accords on Iran's nuclear programs and guarantees for its commitments. So far, within the framework of creating an atmosphere of trust and transparency for its nuclear programs, the Iranian side has met all requests of the additional protocol to the nuclear non-proliferation treaty. It has accepted the installation of surveillance cameras at its nuclear facilities and specialist IAEA inspections. At uranium-conversion centers in Isfahan and Nataz, the entire process will be monitored - from centrifuge loading to obtaining and further utilizing radioactive materials. Will this degree of transparency be enough for the IAEA to ultimately close down the nuclear file? Or will the sides continue to maintain a precarious balance, with the Agency unable to prove Iran has a military nuclear program, and Tehran powerless to convince it otherwise?

Pyotr Goncharov  

RIA Novosti commentator

(Courtesy RIA Novosti)

Sakhalin Energy charters ships for gas transportation


November 16, 2004.  Sakhalin Energy Investment Company Ltd. signed contracts in London with two Russian-Japanese shipping consortiums on long-term charter of three new ships to ship liquefied natural gas, reads the company's press release received by RIA Novosti. One of the contracts envisages charter of two ships from the consortium of Nippon Yusen Kabushiki Kaisha and Sovkomflot. The third ship will be chartered from another Russian-Japanese consortium, which comprises Mitsui O.S.K. Lines Ltd., Kawasaki Kisen Kaisha Ltd. and the Primorye Ocean Company. In compliance with the contracts, all three ships will have ice strengthening and will be designed to be exploited in low temperatures. This will allow carrying out year-round shipments from Sakhalin Energy's LNG plant in the south of Sakhalin. The company's CEO, Ian Craig, who signed the contracts, said, "We are very glad to sign contracts on charter of three new ships to ship LNG with two Russian-Japanese consortiums, whose participants uniquely combine a 20-year experience of accident-free LNG shipment and skills of safe navigation in hard ice conditions of Russian seas." Sakhalin Energy's commercial director Andy Calitz believes that "signing of the documents is yet another example of large-scale involvement of Russian enterprises in fulfilling the Sakhalin 2 project. Russian companies for the first time will participate in LNG shipment. It was an international tender with a high level of competition. It became, in our opinion, a large success for Russian shipping companies." 12 large international shipping companies had taken part in the tender as regular LNG shipments from Sakhalin to Japan start at the end of 2007. Ivan Malakhov, Sakhalin governor, who is on a visit in London, said that "the contracts for construction and charter of LNG tankers has become yet another significant step forward both for Sakhalin and Russia on the whole. Marketing and export of Sakhalin LNG today enters a new quality level. Not only do we succeed in carrying out an LNG project in Russia, but also we now have resources to deliver gas to consumers. Due to the contracts Russia has become one of the countries who have fleet for LNG shipments, and it is yet another landmark in our country's glorious naval history."


Petr Tsyrendorzhiyev

RIA Novosti

(Courtesy RIA Novosti)


China to accommodate larger oil supplies from Russia 


November 24, 2004. China will develop its transportation infrastructure to accommodate growing oil supplies from Russia, Gennady Fadeyev, President of RZhD, Russia's rail monopoly, has told a press conference in the Chinese capital of Beijing. He appeared before reporters after talks with top officials of China's Railways Ministry. "China is looking forward to our oil supplies, and is willing to invest heavily in the development of its transportation infrastructure in the Manchuria-Zabaikalsk cross-border area," Mr Fadeyev said.   According to the RZhD President, the Chinese side also intends to increase the capacity of pumping facilities and to build new overpasses for freight trains.   According to Mr Fadeyev, the Chinese side reiterated its need for 10 million tons of Russian crude and refined products in 2005 and for another 16 million in 2006 while the Russian side pledged to bring up its oil supplies to China to at least 30 million tons by the year 2007.   Russian railways should be prepared to carry 30 million tons of oil across the border with China, 25 million via Zabaikalsk-Manchuria and the remaining 5 million, via Naushki, Mr Fadeyev said. The supplies should not be confined to crude oil and refined products, he pointed out. The two sides will need to provide adequate transportation facilities to be able to meet their 2010 bilateral trade target of $60 billion, a triple of the current turnover.   Today's talks between top railway officials of Russia and China culminated in the signing of a protocol and a framework agreement on cooperation between RZhD and the Chinese Railways Ministry, as well as an agreement on tank shipments.   As part of work to implement this latter agreement, the sides will be exploring the possibility of setting up a joint venture, a source on the Russian delegation revealed.   Summing up the Beijing meeting, Fadeyev said that "the sides are pleased with the results of their talks and consider the tasks they have set themselves to be realistic." 


(Courtesy RIA Novosti)


Lukoil & Uzbekneftegaz to share gas deposit in Uzbekistan    


November 24, 2004. Russian oil giant Lukoil, Uzbekneftegaz and the Uzbek government signed a protocol on implementation of the agreement on sharing the production output of the Kandymskaya group of gas deposits, in Khauzak, Shady and Kungradsky sectors, Lukoil press release announced.   The agreement was signed on June 16, 2004 in Tashkent.   A consortium of investors, including Lukoil Overseas - Lukoil's operator of international upstream projects (90%) - and Uzbekneftegaz (10%), will implement the project.   The consortium's share of the profits will constitute 50%. The agreement envisions the increase of the Uzbek government's share up to 80% if the overall profitability of the project for LUKOIL Overseas increases.   The length of the agreement is 35 years. The volume of confirmed gas reserves on the territory outlined in the document is estimated at 283 billion cubic meters. The planned amount of the capital investment in the project is about $1 billion.   The start of industrial production is expected in 2007. The maximum yearly volume of gas production will constitute 9 billion cubic meters, and the overall consolidated volume of gas production in the framework of the project might reach 207 billion cubic meters. 

(Courtesy RIA Novosti)


Rosneft and Chechnya government ink cooperation agreement


November 26, 2004.  The oil company Rosneft and the government of the Chechen republic have concluded a cooperation agreement, the company says in the press release.   Rosneft president Sergei Bogdanchikov and Chechen government chairman Sergei Abramov have inked the document. Under the agreement, Rosneft undertakes further development of oil and gas fields in Chechnya. Particularly, it will ensure an increment in the production of oil from 1.96 million tonnes this year to 2.2 million tonnes in 2005, gas from 510 million to 530 million cubic metres.   Next year Rosneft will invest 640 million roubles (1 dollar equals 28.27 roubles) in the oil production. The money will go into drilling operations, building of drilling facilities and the purchase of equipment.   In a bid to cut expenses, proposals have been made to set up and introduce a programme for cutting the cost of oil and gas production, effecting the saving of at least 5 percent of the funds, the communique says. Rosneft will allocate another 300 million roubles on the overhaul of production facilities and structures. About 50 million roubles will go to ensure security for the personnel and improve industrial security.   In turn, the government of Chechnya pledges to monitor and coordinate the activities of the law-enforcement bodies at the oil and gas facility. Together with Rosneft the government will undertake to transfer the ownership of leased property to Rosneft's subsidiary OAO Grozneftegaz in the determinate procedure. Rosneft has been operating in Chechnya since 2000 through its subsidiary Grozneftegaz.

(Courtesy RIA Novosti)


Rosneft to lose strategic status


November 25, 2004. Rosneft is to be excluded from the list of strategic enterprises.   According to a source in the presidential administration, the Ministry of Economic Development and Trade has drafted a project but has not submitted it to the presidential administration yet.   "I don't know whether it has been submitted to the government, but I know for sure that it has not been handed over to the presidential administration," the source said.   He did not specify the timeframe of the Gazprom-Rosneft merger and recalled that the merger assets were being evaluated by independent experts due to finish in December.   The source also said that companies had been selected for implementing the deal.

(Courtesy RIA Novosti)










Environmental approval for Reliance drilling


November 29, 2004. Reliance Industries has been given the environmental clearance for exploratory drilling in its KG-III-6 offshore block in the Krishna-Godavari basin by the Minister for Environment and Forests. The Rs. 800-crore (Rs 8 billion) project envisages drilling of eight wells. This was the second block for which RIL had obtained environmental clearance and where a rig was placed. RIL had already begun drilling operations in the first block in the KG basin. According to a recent notification of the Ministry of Environment and Forests, the project did not require a public hearing, but it would be subject to strict compliance of a host of specific and general conditions. Reliance has been asked to communicate the schedule for the start of drilling operations, at least, one month in advance to the Wildlife Warden having jurisdiction over the nearest coastal area for monitoring any impact on wild life and to obtain prior approval of the DG Shipping under the Merchant Shipping Act. According to the notification, the company has to provide for adequate infrastructure facilities near the offshore installations to facilitate deployment of booms and skimmers/chemical dispersants in case of oil leakage.


ONGC to partner with Norway's Statoil


November 30, 2004. Oil and Natural Gas Corporation is likely to forge an alliance with Statoil of Norway in its hunt for oil and gas in deep sea, where the exploration giant has so far been unsuccessful despite spending millions of dollars. Norway, a leader in deep sea exploration technology, is willing to share technology with us. ONGC has drilled 11 wells so far, employing Transoceans Discoverer Seven Seas and Dolphin Drillings Belford Dolphin and its own rig Sagar Vijay, without any success other than one small gas find by Sagar Vijay.


ONGC wants stake in Vankor oilfield


November 28, 2004. Oil and Natural Gas Corporation is eyeing stake in Russia's Vankor oil and gas field and is looking at two other exploration blocks of Russian oil firm Rosneft. Vankorskoe field comprises Vankor field and Northern Vankor field, which have 125 million tonnes of oil reserves and 75 billion cubic metres of gas reserves. By 2005, Rosneft intends to boost oil output in the Vankor field from the initial 500,000 tonnes to 1.5 million tonnes. It is planned to reach six million tonnes by 2008. OVL was also looking at partnering Rosneft in Sakhalin-3 oil and gas fields in Far East Russia and one more exploration block in Siberia. The Kirinsky sector of Sakhalin-3 project can produce 24 million tonnes of oil and 18 billion cubic metres of gas from 2014 and has ExxonMobil, Rosneft and Chevron Texaco as 33.33 per cent partner. V Odoptinskiy and Ayashsky sectors of the Sakhalin-3 project has ExxonMobil as operator with 66.67 per cent stake and Rosneft with 33.33 per cent and can produce 16.7 million tonnes of oil and 67 billion cubic metres of gas. Sakhalin-3's Veninsky sector has 51 million tonnes of oil reserves. 


ONGC to bid for Yukos assets


November 25, 2004. State-run Oil and Natural Gas Corporation (ONGC) is likely to bid for acquiring assets of embattled Russian oil major Yukos. Russia is putting up on auction Yukos's main oil producing unit, Yuganskneftegaz, and has set $8.65 billion as the starting price for the auction. ONGC may look at tying up with foreign firms like Gazprom of Russia due to the huge cash involved in the deal.  Yugansk produces one million barrels of oil per day or over 60 per cent of Yukos output.  In Russia, OVL is looking at bidding for three exploration blocks of Roseneft and Sakhalin-III project. OVL already has 20 per cent stake in Sakhalin-I project, where the Government recently gave approval for investing an additional $1.07 billion over and above the previously budgeted $1.7 billion. With this our overseas exposure has gone up to $5 billion, 98 per cent of which is in producing or discovered fields (in Sudan, Russia, Vietnam and Myanmar) and only 2 per cent was in exploration acreages. OVL is also looking at properties in Nigeria, Ivory Coast, Ghana and Congo along with other African countries.


OVL to invest more in Russian field


November 24, 2004. The Government approved an additional investment of $1.07 billion by ONGC Videsh Limited (OVL) in the giant Sakhalin-I oil and gas field in Russia. This will be over and above the $1.7 billion already cleared for investment in this major offshore oil project. The other partners of OVL in Sakhalin-I include the oil major, ExxonMobil, the Russian national companies, Rosneft and SMNG-S, and a consortium of Japanese companies, Sodeco. OVL will raise the additional money from its own resources. OVL acquired 20 per cent participating interest in the Sakhalin-I project from two subsidiaries of the Russian government oil companies, Rosneft-SMNG-S and Rosneft-S in July 2001. ExxonMobil has 30 per cent equity stake in the project, while Rosneft and SMNG-S have 20 per cent sake and Sodeco holds 30 per cent. ExxonMobil is the project operator. Natural gas production from Sakhalin-I is expected to begin from the third quarter of 2005 while crude oil production from the offshore fields will commence from January 2006.


Essar eyes Petronet LNG order


November 24, 2004. Seven shipping companies, including Essar and GE Shipping have evinced interest in shipping Liquefied Natural Gas (LNG) for the Rs 2,000 crore (Rs 20 billion) Petronet LNG Ltd (PLL) terminal at Kochi. Other shipping companies that have bid for the project include Varun Shipping, Malaysia Petronas and Qatar Shipping. The terminal, which had been pending for around five years was approved by the Petronet board in October. The company has already tied up an annual supply of 2.5 million tonne (mt) of LNG with the national company of Qatar, Ras Laffan LNG Company Ltd (RasGas) for a period of 25 years. According to the guidelines issued by the Directorate General of Shipping it is mandatory for the firm shipping LNG to have a 26 per cent Indian participation. 


The shipping arrangement of the existing PLL terminal at Dahej in Gujarat was tied up with a consortium of four companies in March 2001 for 25 years with public sector Shipping Corporation of India (SCI) being the only Indian company with a 34 per cent stake. The other three are Japanese companies including, Mitsui O S K Lines Ltd, Nippon Yusen Kabushiki Kaisha Line and Kawasaki Kisen Kaisha Ltd. The company has compeleted all the pre-project work invovling Rs 32-crore (Rs 320 million) investment and requisite environmental clearances. Rasgas supplies 5 million tonnes of LNG a year to the Dahej terminal, and it received its first LNG cargo in January this year. The company has already signed an agreement with Gail, Indian Oil Corporation and Bharat Petroelum Corporation Ltd for selling 5 mt per annum of regassified LNG from both terminnals at Kochi and Dahej.


Gail, Gazprom to bid jointly under NELP-V 


November 29, 2004. Gail (India) and Russian gas major Gazprom have decided to jointly bid for gas exploration blocks to be offered under the NELP-V bidding round. Besides deep water blocks, a number of blocks are being offered inland. The two companies would pursue various opportunities under NELP-V to develop a ‘robust portfolio of acreages’ in India. Alongside, the two companies have also agreed to examine various options for pipeline gas imports to Indian markets. Earlier, Gazprom and Gail participated in NELP-I and NELP-IV bidding rounds and the Gazprom-Gail consortium was awarded Block-26 in Bengal basin under NELP-I. Block-26 has been rated highly prospective. The consortium is at an advanced stage for starting the commencement of drilling the first exploratory well.


ONGC to set up own pumps 


November 24, 2004. ONGC has entered into an understanding with BPCL and Hindustan Petroleum Corporation Ltd (HPCL) for using their infrastructure facilities such as storage depots and logistics. ONGC does not want to duplicate the facilities by setting up its own infrastructure. The sharing is only for the marketing infrastructure facilities. However, this does not include petrol pumps. ONGC would set up its first petrol pumps by the end of the current financial year. When HPCL and BPCL approached ONGC for partnering them for the fourth round of new exploration licensing policy (NELP), ONGC decided to use their marketing facilities of the two companies in lieu.


HPCL already has a joint venture Prize Petroleum Company Ltd in association with financial institutions. This company extends technical assistance for HPCL’s E&P initiatives. The consortium was recently awarded service contract to develop three marginal onshore fields of ONGC in Gujarat. HPCL has entered into an MoU with ONGC for cooperation in the sector and obtained contracts for deepwater offshore blocks in the Kerala-Konkan coast and one onshore block in the Cauvery Basin under NELP - IV. BPCL has also been successful in acquiring one on-land block in the Cauvery basin along with ONGC. Work on this block has been initiated and it is estimated that the total expenditure for BPCL would be approximately Rs 158 crore (Rs 1.58 billion).




IOC for large investments in Iran


November 26, 2004. The Indian Oil Corporation may invest over $ 1 billion in LNG and petrochemical projects in Iran. The IOC, along with Petropars of Iran, will develop a gas block in the gigantic South Pars offshore field and produce LNG at an estimated three billion dollars. National Petrochemical Co, Iran, has offered IOC participation in its 12th Olefin Complex at Bandar Assaluyah, which is under planning and scheduled to be on stream by 2007-08. The petrochemical complex may cost about two billion dollars.


IOC approves Haldia investment


November 30, 2004. Indian Oil Corporation has approved investment of Rs 150 crore (Rs 1.5 billion) in Haldia Petrochemical Ltd (HPL). The investment will give IOC a 7.5 per cent stake in HPL which is the second largest producer of polymer in the country. IOC’s entry into HPL is also been seen as a step in the forward integration process for IOC. IOC may help HPL if it plans any expansion of manufacturing capacity. The state of West Bengal may gain from the marriage as IOC may put up more downstream units at Haldia, a port town which already has a IOC refinery. 


Transportation / Trade


Gail for stake in China Gas Holding Company 


November 26, 2004. Gas marketer GAIL (India) Ltd is planning a foray into the Chinese natural gas market by picking up a stake in China Gas Holding Company. China Gas Holding Limited is a natural gas distribution company in China. At present, it is mainly focusing on gas supplies to residential, industrial and commercial users. The company has formed joint ventures for various cities for expanding natural gas use. It shall provide an opportunity for GAIL to enter into China’s growing natural gas market. China also has plans to shore up its pipleline infrastrucutre by 12,000 kmns in the next few years. GAIL India already has experience in distributing piped natural gas in India through its joint venture Indraprashtha in Delhi Gas and Mahanagar Gas in Mumbai. GAIL’s China move comes even as it has intitiated an overseas push. India’s largest gas distribution company is also in talks for acquiring a part of Japanese conglomerate Mitsubishi’s petrochemical assets in Japan.


Gail to set up JV plant in Iran


November 29, 2004. Gail India and National Petrochemical Company (NPC) of Iran have decided to set up a gas cracker unit in Iran. The gas cracker would require an investment of Rs 8,000–10,000 crore (Rs 80-100 billion). GAIL may make an investment of about Rs 1,500 crore (Rs 15 billion) in the gas cracker if the participation is on a 50 per cent basis. A memorandum of understanding on the proposed project was signed. The $2.5-billion NPC is one of the largest producers in the world of a variety of petrochemical products with a current capacity of 18.5 million tonnes per annum (mtpa). It is targeting a capacity of 40 mtpa and a turnover of $20 billion by 2015. Gail may bring in the products for sale in the domestic market, subject to overall market requirements. 


The two companies have also agreed to consider and evaluate other opportunities, like a methanol plant in the South Pars zone and its extension to an olefin plant. The two sides would undertake an upfront study on this project. The petrochemical projects will be predominantly gas-based. The two companies will undertake feasibility study for a gas cracker based on ethane and propane recovered from the South Pars field. Based on the preliminary conceptualisation, the gas cracker unit would have a capacity of 800,000 to 10,00,000 tonnes per annum of ethylene. 


IOC seeks cut in kerosene quota


November 27, 2004. The mounting under-recoveries in kerosene and cooking gas have forced the Indian Oil Corporation (IOC) to seek a reduction in its allocation for kerosene quota and complete exemption for the IBP Co Ltd from selling kerosene and cooking gas.  The company has argued that its share of kerosene and cooking gas sales was more than its total share in the petroleum product business. The IOC-owned IBP is unable to absorb the losses since it is a purely marketing company with no refinery margins to fall back on. The IBP recorded a loss of Rs 69 crore (Rs 690 million) during the first half of the current year mainly due to the non-revision of retail prices of petroleum products. The IOC, on its own, claims to sell about 5.5 million tonnes of kerosene a year, which is roughly 60 per cent of the total sales though the public distribution system in the country. Added to this are the IBP sales of 0.5 million tonnes.   Both the companies together hold about 65 per cent share in kerosene sales though the total market share of the IOC along with its subsidiaries in the petroleum product business is 56 per cent. The under recovery on kerosene at the current level is estimated at Rs 11.20 a litre, while that on cooking gas is Rs 190 a cylinder. The price of kerosene was last revised in June 2003. 


‘Real cost for fixing pipeline’: AP govt


November 24, 2004. The Andhra Pradesh government appears to have convinced the natural gas suppliers ONGC and GAIL that they have to charge only the ‘real cost’ towards fixing the pipeline for transmitting the gas. APTransco had already paid about Rs 500 crore (Rs 5 billion) in the last four years to the independent power producers (IPPs) who in turn pay to the gas suppliers as per the invoice.  APTransco is willing to pay cost-to-cost and also for the maintenance of pipeline. However, the gas suppliers, instead, are charging fixed amount from IPPs, who collect it from APTransco as part of the power purchase agreement (PPA). This has in turn added to the cost of power purchased by APTransco.  The government wants to reduce cost of power in the forthcoming price revision and in the process it wants to do a tough bargain with the power producers. This would also benefit the government, which is currently paying APTransco towards ‘free power’ to the farmers. Further, gas suppliers have been asked to increase production of natural gas and prepone the supply schedule by seven to eight months by June 2006, as against the earlier target of 2007. Fresh demand for gas is estimated to be 6.7 mcmd (million cubic metres per day) by June 2006.

Policy / Performance


Petrol may be cheaper


November 30, 2004. The price of petrol may come down by Rs 0.40 per litre from December 1 in step with the fall in international oil prices. If diesel prices, too, are aligned with international rates, the price of the fuel may be cut by Rs 0.05 to 0.10 per litre. 


Govt to offer 20 oil, gas blocks


November 26, 2004. The Government will shortly offer 20 oil and gas exploration blocks in the fifth round of bidding in January under the New Exploration Licensing Policy (NELP-V) to bring more areas under exploration and production of oil and gas expeditiously. This will include on land, shallow offshore and deepwater blocks. The Government has, so far, awarded 90 oil and gas blocks under the previous four rounds of NELP bidding. India is eying oil properties in Saudi Arabia, Vietnam, Australia, Myanmar, Bangladesh, Iran, Iraq, Qatar, Kazakhstan, Syria, Egypt, Libya, Algeria, Senegal, Nigeria, Sudan and West Africa. To mobilise diplomatic experience and expertise to synchronise with investments abroad, the Government has formed an 11-member Standing Advisory Committee on Oil Diplomacy for Energy Security headed by economist Mr Arjun Sengupta. The committee has been entrusted with the task of facilitating security of oil and gas properties in oil-rich countries, particularly West Asia.


India fails to reach LNG deal with Iran


November 26, 2004. India failed to reach an agreement with Iran on a liquefied natural gas for oil field deal. Iranians offer price was unacceptable. The price was much higher than $42.53 per million British thermal unit (mbtu) price at which Petronet LNG Ltd currently buys from Qatar. Iran, which holds the world’s second largest gas reserves, wants to sell 5 mt per annum of LNG to India and offered developmental rights on an oil field. The difference in price was about $1 to 2 per mbtu.  Iran is offering two oil fields to India. It is offering ONGC Videsh, a 20 per cent stake on nomination basis in the Yadevaran oilfield with a potential of 300,000 b/d. In the event of India wanting 7.5 mt of LNG, it will be accompanied by more than 50 per cent stake with operatorship rights in Juffair oilfield which has a potential of about 30,000-40,000 b/d.   


LPG price raise dropped


November 25, 2004. The government dropped a plan to hike prices of liquefied petroleum gas (LPG) by Rs 5 per cylinder, even as international prices rule at a 14-year high. The Arabian Gulf price of LPG for November is $483 a tonne, 20% up from the October price of $404/tonne. The huge jump in price will imply that subsidy per cylinder will increase to around Rs 220. A 14.5 kilo LPG cylinder is sold for Rs 250. The price, in the absence of subsidies, will be around Rs 470 per cylinder. Prices are likely to firm up further in December and may cross the $500 per tonne mark.  The benchmark Arabian Gulf (AG) price of propane and butane, which constitute LPG, is fixed every month and is taken as the standard import-parity price for India. Earlier this month, the government had raised prices of cooking gas by Rs 20 a cylinder and said it would increase it by Rs 5 every month. The government currently contributes Rs 22 per cylinder to LPG subsidy and the rest around Rs 200 is borne by oil companies. The subsidy bill was originally estimated to be Rs 3,500 crore (Rs 35 billion) this year, but is now likely to increase further. 


Bangladesh assures gas supply to Tata Group


November 25, 2004. Bangladesh assured natural gas supply to giant conglomerate Tata for setting up three natural gas plants worth $2 billion in the country amid shortages of fuel. Tatas have proposed to set up a $700 million in basic steel industry and an equal amount in a 1000 megawatt power generation, while another $600 million for a fertiliser factory. The three plants would initially need 200 mmcft natural gas daily and it was likely to go upto 350 mmcft when in full operation. The Bangladesh Government has sought funding from the international donors for pipeline project to provide natural gas and electricity in the country's western region for the Tatas plan.


Decontrol may increase gas price


November 24, 2004. Industrial consumers of natural gas, cutting across all sectors from steel to automobile and glass to electronics, may have to pay more for gas with the government planning to introduce differential, market-driven gas pricing. It is estimated that gas prices for these consumers may go up to a minimum of Rs 5 per unit scm from the existing price of Rs 2.85 per unit scm. This would be the first step towards decontrolling gas prices, which have remained under an administered pricing scheme, even though the sector was deregulated. The Cabinet is slated to take up a proposal to revise gas prices, which have remained unchanged since April ’02. While gas prices are proposed to be increased to Rs 3.2 per unit scm for fertiliser companies, power companies are likely to pay Rs 3.6 per unit scm. All other gas consumers will have to pay market prices for the gas.  Thus, gas prices will be regulated and controlled only for the power and fertiliser sectors.


The transport sector, which consumes gas for CNG, is also likely to get the subsidised gas. Electricity consumers, on the other hand, would have to pay higher tariffs as the higher fuel costs would be directly passed onto the power bills. The part decontrol of gas prices will also come as a major boost to the PSU gas producers ONGC and OIL. Almost 20% of the total gas pumped by PSU oil companies today is sold to industrial and commercial consumers. Selling gas at market rates to these consumers would increase earnings for the gas producers. Almost six mmscmd of gas is sold to industrial consumers.






Tarapur  Nuclear unit ready by December


November 29, 2004. The fourth nuclear power unit in Tarapur, Maharashtra will start functioning by the end of December. Tarapur-4's twin-reactor is Tarapur-3. The two have a capacity of 540 MW each and are Pressurised Heavy Water Reactors (PHWR). They will use natural uranium as fuel and heavy water as both moderator and coolant. Tarapur-4 is being built ahead of Tarapur-3.  The electricity generated from the two reactors would be sold to state electricity boards between Rs. 2.70 and Rs. 2.80 a unit. The States to benefit are Maharashtra, Gujarat, Madhya Pradesh and Goat, and the Union Territories of Daman, Dui and Nagger Hovel. While Maharashtra will receive 50 per cent of the total electricity generated by Tarapur-3 and 4, Gujarat and Madhya Pradesh will receive 18 per cent each, and Goat, Daman, Dui and Nagger Hovel together one per cent.


The Central Electricity Authority will allocate the remaining 13 per cent to power-deficient states. The emergency core cooling was successfully done on November 26 to demonstrate that, in case of any accident, there is a system which will immediately cool the reactor by inducting the cooling water. This is the first time we have built a 540 MW reactor. The safety requirements are laid down by the Atomic Energy Regulatory Board (AERB), responsible for ensuring safety in nuclear power stations in the country.  Tarapur-4 has been built nine months ahead of schedule. Tarapur-3 will start generating electricity by the end of 2005. General Electric of the United States built the first two reactors in Tarapur. Messrs. Bechtel was the Architect-Engineers. The first two units in Tarapur began their commercial operations from October 1969. The NPCIL plans to build nuclear reactors of 700 MW capacities, the design for which is complete.


South Eastern Coal eyes more blocks


November 27, 2004. South Eastern Coalfields Ltd (SECL) has asked for 26 new coal blocks from the coal ministry to raise production by 20 million tonnes in the 11th Plan period. At present, Seal’s capacity stands at 111 million tones (mt). Following allotment of 26 blocks, production can be raised by 20 mt. SECL has 28 projects under development to enhance production by 12 mt. SECL will be investing close to Rs 2,000 crore (Rs 20 billion) in expansion projects in the next few years. 


CCEA clears investment in Arunachal project


November 24, 2004. Government approved a massive Rs 2,497 crore (Rs 24.97 billion) investment for a hydro-power plant in Arunachal Pradesh to be implemented by North Eastern Electrical Power Corporation Ltd. The CCEA approved the proposal of Ministry of Power for execution of the Kaman Hydro Power project. The project would be implemented by NEEPCO in Arunachal Pradesh. 


ONGC to invest in generation venture in Tripura 


November 25, 2004. Oil and Natural Gas Corporation Ltd (ONGC) is incorporating a Rs 1 crore (Rs 10 million) company to kick off its power generation business in Tripura. ONGC will have a 26% stake in the company which will be christened ONGC Tripura Power Ltd. IL&FS would hold a 50% stake. The rest would be offered to financial institutions. The new company would use natural gas from Dong’s marginal offshore fields for power generation. The company is working on a detailed feasibility report and hopes to start work in the next six months. The 500 MW project is expected to cost about Rs 3,500 crore (Rs 35 billion). ONGC has entered into a memorandum of understanding (MoU) with Power Trading Corporation (PTC) which will be in charge of supplying power to other states. The Centre has allowed ONGC to price the gas from the marginal fields at the market price. The petroleum ministry has laid down that gas sold in the northeast region should be at a 60% discount on the market price. The cost of power at which it would be offered to the customers has not been finalized.


Transmission / Distribution / Trade


New 33 KV substations at Malappuram


November 28, 2004. Two new 33-KV electricity substations set up by the Kerala State Electricity Board in Malappuram district will go on stream soon.  These were two projects identified under the Chief Minister's 100-day fast-track implementation programme. They are the sixth and seventh substations identified as part of the 100-day programme. On its part, the KSEB has launched a programme setting up 150 substations and drawing of associated lines envisaging an expenditure of Rs 1000 crore (Rs 10 billion). This has the twin objective of reducing transmission losses and ensuring ‘quality power' to customers.


Policy / Performance


Chhattisgarh to increase power output


November 26, 2004. To steal a march over Madhya Pradesh, Chhattisgarh has decided to step up its generating capacity by 2,000 MW in four years. This is in comparison with Madhya Radish’s barely 1,000 MW in eight years. Chhattisgarh will upgrade its CORBA thermal power station by another 1,000 MW by 2007. The CORBA East plant has a 440 MW capacity while the CORBA West plant 840 MW. Both the plants will be upgraded in two yeas. The plant load factors of the CORBA East and West plants have also attained 80 percent and 88 percent, respectively. Barring the 1,000 MW India Sagar project, which will be completed by 2005, the MP state electricity board will be able to add only 520 Mw hydel power through the Omkareshwar power project in 2007.  The board is banking on power from the central sector, which will add 311 MW in 2007, 647 MW in 2008, 112 MW in 2009 and 199 MW in 2010.The other capacity generation of 1.000 MW in Chhattisgarh will be done through setting up a therma, power station at Bhaiyathan in the Surguja district. This will be coal based Greenfield power plant. This will be implemented by adding 500 MW by October 2006 and another 500 MW by March 2007.


Power assets of bifurcated states divided


November 27, 2004. The power ministry has notified the division of assets and liabilities between the state electricity boards (SEBs) of Bihar and Jharkhand on one hand and Madhya Pradesh and Chhattisgarh on the other. The Centre’s intervention was required as there were differences between the pair of states on the issue.  As a result of the division, the Bihar State Electricity Board (BSEB) will have to take a hit of Rs 200 crore (Rs 2 billion), while the Jharkhand State Electricity Board (JSEB) will face a net liability of Rs 241 crore (Rs 2.41 billion). The Madhya Pradesh State Electricity Board (MPSEB) will end up with a net gain of Rs 406 crore (Rs 4.06 billion), while the Chhattisgarh SEB will have a net liability of Rs 56 crore (Rs 560 million).  In the case of Bihar and Jharkhand, the division of fixed assets is based on geographical area.


Long-term liabilities have been divided in the ratio of their fixed assets, that is, 67 per cent for Bihar electricity board and 33 per cent for JSEB. Current assets and liabilities have been divided in the ratio of power consumption, that is, 49.73 per cent for Bihar and 50.27 per cent for Jharkhand.  The ministry has divided the long-term liabilities between Madhya Pradesh and Chattisgarh in the ratio of 90:10, the same as the fixed asset ratio, while other current assets and current liabilities have been divided in the ratio of 77.03:22.97.


Rural electrification project in Kerala


November 26, 2004. Though Kerala is far ahead in the fields of education, health, sanitation and population control, the State could not achieve the same standard in respect of rural electrification. The Census Report 2001 showed that the percentage of household electrification in Kerala is only about 71 per cent and the State occupied the 18th position in the country in this respect. This was mainly because large number of houses of scheduled castes, scheduled tribes, fishermen communities and agricultural labourers in hilly areas remain without access to electricity. There are many villages especially in hill areas and coastal areas where rural electrification has to be intensified. The Kerala Government submitted a Rs 700-crore (Rs 7 billion) project for electrification of such households and for improving distribution system to reduce T&D losses. The Union Minister for Power has approved of this scheme.


The Power Finance Corporation is mostly extending term loans for long durations exceeding 10 years. This is meant to cater to finance requirements of the power sector. However, the corporation does not seem to have any scheme for the medium term loans, spanning 2 to 5 years. In view of the prevailing fluctuating interest rate regime , some electricity boards may not like to take a long-term commitment but at the same time would require funds for computerisation and other programmes which will have a average life span of five years.

KSEB bid to improve distribution system


November 25, 2004. In a bid to improve the efficiency of power distribution system across the State, the Kerala State Electricity Board (KSEB) has initiated steps to minimise the power loss as well as to strengthen the existing lines. The third phase of the Accelerated Power Development and Reforms Programme (APDRP) being implemented by KSEB with Central aid is being extended to 26 towns across the State. The town scheme of the APDRP will be implemented at a cost of Rs 124 crore (Rs 1.24 billion). In Thripunithura circle alone, Rs 4 crore (Rs 40 million) will be disbursed to improve the system. Apart from renovating and standardising the existing lines, additional transformers and high-tension lines will be erected. To improve the power transmission system, a 60 km length of 11 KV line will be drawn in the circle and also 30 new transformers will be set up. This will increase the total length of the high-tension line in Thripunithura to 105 km. The scheme would reduce the energy loss by five per cent, besides increasing revenue of the KSEB. Perumbavoor, Angamaly, Muvattupuzha, Kothamangalam, Aluva, Kalamassery and North Paravur will also be covered in the scheme in Ernakulam district. The other towns being covered in the APDRP are Neyyattinkara, Nedumangad, Punalur, Kottayam, Thodupuzha, Chengannur, Chertala, Chalakudy, Irinjalakuda, Kodungallur, Thrissur, Kunnamkulam, Guruvayur, Chavakkad, Palakkad, Shoranur, Ottappalam and Payyannur.


81 coal blocks to be awarded by January 2005


November 26, 2004. The central ministry of coal and mines will award the 81 remaining coal blocks to prospective bidders within two months. The ministry has formed a screening committee that would take stock of the situation every week for allotment. The government has already allotted 49 coal blocks to private players out of a total of 130. The government has decided to take back mines from companies which had not utilised these for more than five years. The enhanced target during the 10th Plan would require fresh investment of Rs 20,000 crore (Rs 200 billion). The ministry has asked Geological Survey of India (GSI) to explore the 8000km shoreline for possible mineral resources. The government has set a deadline of 2012 to complete the search for mineral deposits. GSI has purchased equipment worth Rs 800 crore (Rs 8 billion) for the purpose. This was in line of the Offshore Mining Regulation and Development Act, 2002. 


CIL subsidiaries likely to be given more powers 


November 25, 2004. The Union coal and mines ministry is planning to redefine the organisational structure of Coal India Ltd (CIL) in order to give more power to its subsidiaries. CIL has seven coal-producing subsidiaries: Eastern Coalfields Ltd, Bharat Coking Coal Ltd, Central Coalfields Ltd, Mahanadi Coalfields Ltd, Northern Coalfields Ltd, Western Coalfields Ltd and South Eastern Coalfields Ltd. CIL’s other subsidiary, the Ranchi-based Central Mines Planning & Design Institute (CMPDI), will be made a centre of excellence. The government would provide Rs 100 crore (Rs 1 billion) for the development of certain underground mines of ECL to nurse it back to health in a couple of years. The government has also given the green signal to expand the capacity of Rajmahal coal mines area of ECL from the present 10 million tonne (mt) to 17mt.


Govt drops move to privatise coal mining


November 24, 2004. The Union Government has decided not to privatise domestic coal mining sector. The Government would offer virgin coal blocks on tender basis to private companies for developing the same only for captive consumption purposes. Otherwise, production and distribution of domestic coal would remain under the domain of State-owned coal companies. A high-powered committee was recently constituted by the Ministry assigned the task of finding out ways to bridge the gap between demand and supply of coal. The committee would submit its report within three months. The Ministry has recommended the setting up of separate State-level committees headed the Chief Secretary to look into problems faced by coal companies while taking up new projects.


Maharashtra clears unbundling of MSEB


November 25, 2004. Maharashtra’s cabinet of ministers cleared the decks for the unbundling (read privatisation) of certain segments of the Maharashtra State Electricity Board (MSEB), even as chief minister Vilasrao Deshmukh admitted that the free power sop for farmers had resulted in a 21 per cent increase in power consumption in the state. However the state government which is facing stiff opposition from the workers’ unions, is likely to postpone the move by three months. The power requirement and availability mismatch would touch up to 7000 MW by 2010, if further generation capacities are not raised. The restructuring of the MSEB did not mean the state power utility was being sold off to private entities. In fact the roadmap for MSEB is to unbundle into distinct regional profit centres as against it current mammoth disposition. The state was looking at capacity building options at the Uran power plant of the MSEB as the fastest option.


No coal for small power plants


November 24, 2004. The ministry of coal and mines has rejected the suggestion for exempting captive power projects of up to 25 MW capacity from going through the circuitous route of ministry approval for tying up coal supply. The decision was taken by the standing linkage committee (long-term) in view of the current coal shortage.  The ministry has also decided that captive power plants of 5 MW and below would not be considered for linkage till the coal availability improved. Besides, captive plants of 10 MW and below will be accorded low priority while granting linkage. The coal availability in the country, both from domestic and imported sources, is likely to fall short by 10.6 million tonnes (mt) in the current year and is expected to further widen to 35.02 mt by 2006-07 despite increase in domestic production.   A monitoring group has also been set up under the chairmanship of joint secretary (coal). It consists of representatives from the ministry of power and Central Electricity Authority, department of industrial policy and promotion, CIL, Singareni Collieries Company Ltd (SCCL) and the Planning Commission. The committee will meet every quarter to review the progress of various projects which have been granted long-term linkage. The CIL and SCCL have been asked to issue notice to 18 captive power plants, which have not drawn coal for the past three years asking them why their linkage should not be terminated. The ministry of coal and mines would now be looking at cancelling the linkages wherever the thermal power plants had not come up and the linkages were merely pre-emptive. 








Pemex makes deep-water oil discovery


November 24, 2004. Mexican state oil monopoly Petroleos Mexicanos, or Pemex, said it made its first deep-water oil discovery this month, uncovering a deposit that could contain more than 200 million barrels of crude oil equivalent. The Nab deposit in the Campeche Sound, Pemex's main oil-producing zone, contains very heavy crude with an API gravity of 9, according to a Pemex document. Pemex contracted Diamond Offshore Drilling (DO) to drill the well at a depth of 681 meters (2,230 feet), which produced an initial flow of 1,200 b/d.  Pemex estimated that original volume in the deposit could exceed 200 million barrels of crude equivalent, and it said proven, probable and possible reserves are in the process of being evaluated.


Exxon commits Azeri oil to Batumi


November 24, 2004. ExxonMobil will not ship its Azeri oil output via a huge new pipeline to Turkey's Ceyhan until at least 2010 as it has committed its production to the Georgian port of Batumi. Exxon had signed a deal with Azeri firm Azpetrol to supply up to 10 million tonnes of oil to Batumi by rail in 2005-2010.  The million-barrel-per-day link bypasses the crowded Turkish straits and is due to begin first shipments in mid-2005. Its main source of crude will be the giant offshore Azeri-Chirag-Guneshli (ACG) field, which currently produces 130,000 b/d and ships output to the Georgian port of Supsa. ACG's peak production will be around 1.1-1.2 million b/d, entitling Exxon to 100,000 b/d. Traders and analysts have predicted ACG investors will pump as much output as possible via the $3.6-billion Baku-Ceyhan pipeline to avoid the Bosphorus and bring the project to profit sooner, thus reducing chances for Supsa and Batumi.


AOC to invest in oil, gas development


November 25, 2004.  AOC Holdings Inc. said it plans to invest 12 billion yen in oil and gas exploration and development over three years from fiscal 2005, which starts next April. AOC Holdings, the owner of Arabian Oil Co. and Fuji Oil Co., said the investment will center on development of discovered oil and gas fields and expansion of production capacity. Investment in transportation and marketing operations is planned at 4 billion yen for the three years, it said. For the whole of fiscal 2004, AOC Holdings expects to earn 12 billion yen in group net profit, against 4.4 billion yen in the previous year, on 450 billion yen in sales, against 447.46 billion yen.


Uzbekistan, Lukoil launch Kandym gas project


November 25, 2004. Uzbekistan and Russia's Lukoil officially launched the Kandym-Khauzak-Shady gas project in southwest Uzbekistan. Lukoil and Uzbekneftegaz signed a 35-year PSA in June. Investment is planned at $1 billion. The proven geological gas reserves in the contract zone total 283 billion cubic meters. Kandym is the largest field with more than 150 billion cubic meters of gas. Annual gas production will peak at about 9 billion cubic meters and total production will reach 207 billion cubic meters of natural gas. Commercial production will begin in 2007. The project also includes the construction of a modern gas chemical complex with capacity for 6 billion cubic meters of gas a year. The first phase will be opened in 2010. It also includes the drilling of 240 production wells and construction of 1,500 kilometers of pipeline. Two compressor stations, collectors, villages for workers, high voltage power lines, and a 40-kilometer railroad will be built as well. The product will be transported through the Gazprom system.


Danish firm buying into BP gas field


November 25, 2004. State-owned Danish oil company DONG has agreed to pay BP US$1.2bil for a 10.34% stake in Norway's largest gas field, Ormen Lange, an asset that has become an exemplar of questionable reserve booking practices in the industry. DONG said the deal, which includes a 10.2% stake in the associated Langeled pipeline, was aimed at increasing its interests in gas production in advance of an expected decline in Danish gas sources.  BP had expected to get between US$600mil and US$800mil for the stakes


Saudi Aramco discovers new gas reserves


November 24, 2004. National oil giant Saudi Aramco discovered new reserves of gas in the Eastern Province of the Kingdom, Minister of Oil and Mineral Resources Ali Al-Naimi announced. Gas surfaced at the wellhead named Madraka one at a rate of 38 million cubic feet a day, accompanied by 1,650 barrels of condensates a day. The well is located 300 kilometers (180 miles) southwest of the oil city of Dhahran, and just 30 kilometers (18 miles) south of Al-Ghawar gas field, Naimi said. Saudi Arabia in March signed contracts with Russian energy giant Lukoil, Sinopec of China and a consortium grouping Eni of Italy and Repsol of Spain to explore for and produce non-associated gas in the northern part of the Rub Al-Khali, or Empty Quarter, desert.


OPEC unlikely to change oil output quotas


November 28, 2004. OPEC oil producers are unlikely to change output quotas at their Dec. 10 ministerial meeting and have no need yet to rein in a supply surge that has begun to ease record prices, Nigeria’s top oil official said.  OPEC has been producing at nearly full capacity in recent months as rising demand strains international supplies. The group’s production surge has eased prices slightly this month, but not enough to warrant trimming back supply yet, Edmund Daukoru, Nigeria’s presidential adviser on petroleum affairs told. “Cutting is psychologically difficult. As for raising, there is a structural problem,” Daukoru said.  The value of OPEC’s reference crude basket has fallen further, reflecting poor demand for its lower-quality crudes, and spurring discussion on whether the organization should rein in some 900,000 b/d of production over existing quotas. The basket was last valued at $39.06 a barrel.  Nigeria wants prices to ease further to protect global economic growth, he added. Low stocks of heating oil in all main consuming centers has fed traders’ concern the prices could spike again if the northern winter is severe. The Dec. 10 meeting was likely to defer a decision on changing OPEC’s price target as divergence in views was too wide over what price to aim for, Daukoru said.


Lukoil plans to take part in gas projects in Venezuela


November 27, 2004. Russian Oil Company Lukoil plans to study the possibility of participating in gas projects in Venezuela, Andrei Kuzyaev, president of the company's foreign production operator Lukoil Overseas, said. He said the initial stage of cooperation with Venezuelan companies will be to concentrate on oil projects. Venezuela plans to increase oil production 1.5 to 2 times and Lukoil plans to take part in this process.  Among the projects that Venezuela is ready to work with foreign companies in the oil and gas sphere are offshore geological exploration of oil and gas, the development of heavy oil fields and rehabilitating existing fields.


Niko makes big gas find in Bangladesh


November 29, 2004. Niko Resources Ltd. stock surged 8 percent after the Canadian oil and gas explorer said a well it drilled in Bangladesh flowed at a hefty 120 million cubic feet a day. Niko, known for its stake in the huge D-6 deep-sea gas field off India, said its Bangora-1 exploration well encountered 87 metres (285 feet) of gross pay, consisting of three different producing sands. The well was drilled to 3,636 metres (11,930 feet). Individual sands tested at 24.5 million cubic feet, 41 million cubic feet and 56 million cubic feet a day, the company said. Including an earlier find at Lalmai, the company has had gas discoveries at each end of a 40 km (25 mile) geological structure with its block, said Niko.


Amerada Hess finds oil in Equatorial Guinea


November 29, 2004. Amerada Hess Corporation announced that the G-19 exploration well drilled offshore Equatorial Guinea on Block G in the Rio Muni Basin has made a new oil discovery. The G-19 well was drilled to a total depth of 7,483 feet in 1,263 feet of water and encountered 113 feet of net oil pay in the Campanian. The G-19 well is located one mile northeast of the Northern Block G fields area and offers the potential, longer term, for a satellite tie-back to the Northern Block G development.


Chesapeake energy to buy gas property


November 30, 2004.  Chesapeake Energy Corp. said it will buy a natural gas property from privately held Hallwood Energy Corp. for $277 million and predicted that the acquisition will significantly boost production in 2005 and 2006. The oil and gas company said it also agreed to buy associated gas gathering, compression and water disposal assets from Hallwood for $15 million. Chesapeake said Hallwood's Barnett Shale Natural Gas property includes 135 billion cubic feet of gas equivalent over 18,000 acres in Johnson County, Texas, just north of another Hallwood property in which Chesapeake owns a 44 percent working interest. The company predicted it will be able to more than double daily gas production on the acquired property by December 2005 and said it expects the acquisition to boost average daily production by 40 million to 70 million cubic feet of gas equivalent in 2005 and 2006.

Cepsa and Total discover gas field in Algeria


November 30, 2004. The consortium made up of Spanish oil firm Cepsa and French-Belgian company TotalFinaElf discovered a natural gas field in Algeria's Timimoun Basin, located 500 kilometers (310 miles) south of the Hassi R'Mel oil rim, Cepsa said. Test drilling of the Iraharen well to a depth of 2,607 meters (8,548 feet) yielded potential production of more than 17.5 million cubic feet of dry natural gas per day, Cepsa said.  The two companies are working to quantify more precisely the potential for both the well and the field. Total, which operates the Timimoun block, owns 63.75 percent, while Algeria-based Sonatrach owns 25 percent and Cepsa the remaining 11.25 percent. According to Cepsa, this bid in Algeria is part of the company's natural gas development strategies and offers synergies with the Medgaz project for construction of an underwater pipeline between Algeria and Spain, which will be extended to other European countries.


Saudi Arabia working to increase capacity


November 30, 2004. Saudi Arabia's oil minister Ali Naimi said his country is working toward lifting its sustainable oil production capacity to 12.5 million b/d, and added that the "fear factor" over supply has increased the oil price by $10-$15 a barrel. In a speech in London, Naimi said Saudi Arabia had already reached a production capacity of 11 million b/d. Saudi Arabia has said it holds some 260 billion barrels of proven crude oil reserves, accounting for a quarter of the world's total. Naimi said the country's Qatif and Abu Safah projects had increased capacity by 800,000 b/d ahead of schedule. Naimi restated Saudi Arabia's commitment to keeping spare capacity of 1.5 million b/d, adding that there were also "studies to raise capacity to 15 million per day."


Gazprom to increase gas production


November 30, 2004. Given the increased consumption of natural gas in the world, Gazprom will continue to increase gas production, vice chairman of Gazprom Alexander Ananenkov said. He said that the development of the gas industry and the increase in gas consumption and production was becoming a dynamic process throughout the world. According to different estimates, gas consumption in China will reach 100-200 billion cubic meters by 2020. Gas consumption is also increasing in Europe, the Asia-Pacific Region, Korea and the United States. Mr. Ananenkov said the US market would have a gas shortage in the future.  He said that in 2002 Gazprom's production stabilized and then Gazprom began to increase its output. In 2001, Gazprom produced about 512 billion cubic meters and by 2003 it produced over 540 billion cubic meters of gas. This year Gazprom plans to produce about 545 billion cubic meters of gas. In 2020, it plans to produce 580-590 billion cubic meters and in 2030 it plans to increase production to 630 billion cubic meters, Mr. Ananenkov said. He also said Gazprom was working on a general development plan for the gas industry which would allow gas industry's development, gas reserves and market demand and a pipeline's development to be forecasted until 2020 - 2030. He said the general plan would be submitted to the government soon and added that he hoped the plan would be considered in the first half of 2005.



Turkish court scraps oil refinery privatisation


November 28, 2004. Turkey’s top administrative court upheld a decision to cancel the sale of TUPRAS, the country’s main oil refiner, in a new setback for the government’s struggling privatisation program. In June, a lower court had ruled for a trade union that had taken legal action to scrap the sale of 65.76 per cent of TUPRAS to a joint venture between the German-based chemicals company Efremov-Kautschuk, an affiliate of the Russian oil producer Tatneft, and Turkey’s Zorlu Holding Company. Anti-privatisation groups and trade unions have accused the government of selling the company below its real value. Ankara is under pressure from the IMF to speed up privatisation, a key element of a $16-billion stand-by deal aimed at putting the crisis-hit Turkish economy back on track. The government’s privatisation program for 2004, hit by a series of legal snags and delays, is behind target.


Storage capacity at Lavan refinery increased


November 27, 2004. Building three new reservoirs at Lavan refinery in Iran will increase its crude storage capacity by 600,000 b/d. Managing director of Lavan branch of the National Iranian Oil Refining and Distribution Company noted that the contractor for building oil reservoirs has been chosen and operations have started. Mohammad Khajehei Jahromi said the reservoirs will be operation in two years. Lavan refinery processes 30,000 b/d to produce 4,500 barrels gasoline, 11,300 barrels diesel and 10,000 barrels fuel oil per day. Major development plan of the refinery is to increase its daily production capacity to 40,000 barrels crude oil and 14,000 barrels gasoline within about four years


Construction of refineries not economical: Iran


November 29, 2004. Deputy oil minister for international affairs noted that construction of refineries inside the country is not economical because price of oil products is subsidized. Mohammad Hadi Nejad Hosseinian told that building refineries in the world is necessary for supplying various oil products and is economical too, but in Iran the subsidized price of fuel has made such projects uneconomical. “Therefore, the private sector is not willing to build refineries in Iran unless the Oil Ministry will guarantee that oil products will be purchased from refineries at international price,” he said. There are currently 9 refineries in Iran producing a daily average of 39 million liters gasoline while domestic consumption stands at about 65 million liters per day.


Transportation / Trade


Egypt to export LNG


November 24, 2004. Egypt will begin, as of next month, to export $ 500 million worth of liquefied natural gas to Spain in annually via the Damietta gas liquefying station, Egyptian Ambassador to Spain Mohamed El-Emire Khalil said. The volume of Spanish investments in Egypt in the liquefied natural gas field stand at $ 1.1 billion in addition to investments in other fields, he said. The volume of bilateral trade exchange has reached from January to October 2004 around $ 700 million, with Egyptian oil exports making up 16 % of the volume, he said. The figures will rise once Egypt begins its liquefied natural gas exports to Spain.


Russia needs a pipeline to bypass Turkish straits


November 24, 2004. Turkey has received another pretext for toughening tanker-traffic regulations in the Bosphorus and Dardanelles through which Russia exports oil from Novorossiisk to the Mediterranean, writes Vremya Novostei. The Genmar Progress tanker caught fire while leaving the Dardanelles.  The tanker, which had 74,000 tons of oil onboard, was flying a Liberian flag, while her consignment had been bought by the Glencore trader from Russneft. The ship was about 15 miles from the Dardanelles when the fire broke out, so traffic continued as usual through the straits. "The construction of an oil pipeline bypassing the Turkish straits is becoming increasingly important for Russia," Mikhail Perfilov, development director with the Argus oil agency, said. "From the geopolitical standpoint, the Burgas-Alexandroupolis route via Bulgaria and Greece, which has been under discussion for years, is the most profitable option." Representatives of the relevant Russian, Bulgarian and Greek ministries initialed a memorandum on building the Burgas-Alexandroupolis oil pipeline this November.


Pakistan approves gas supply to Wapda


November 24, 2004. The Oil and Gas Regulatory Authority (Ogra) granted a licence to Pakistan Petroleum Limited (PPL) to sell natural gas from Kandhkot gas field at Jacobabad Sindh to Wapda's Guddu Thermal power plant. Under the licence the PPL has been allowed to supply 115 mmcfd (million cubic feet of gas per day) to Wapda from Kandhkot field. The Ogra also issued notice to Wapda to seek a formal licence for transmission of gas from Kandhkot to its thermal power station in Guddu. The PPL is already providing gas from Kandhkot field to Wapda's Guddu station for the last 16 years through a dedicated pipeline of Wapda. The two gas utilities - SSGCL and SNGPL - had raised objection to the licence on the ground that transmission and distribution of gas was their sole responsibility.


Dolphin Energy awards contract 


November 28, 2004. Dolphin Energy named a French-UAE consortium as the successful bidder for the engineering, procurement and construction (EPC) of its new gas receiving facility and associated pipelines in a contract worth more than $62 million. France's Technip, based in Abu Dhabi, and Al Jaber Energy Services Consortium will build the onshore receiving facilities at Taweelah in the UAE for Dolphin's natural gas export pipeline from Qatar, a statement said. The facilities will initially comprise three parallel gas receiving trains and associated equipment, metering facilities, control buildings and warehouse, as well as additional interconnecting pipelines to Taweelah power stations and the Maqta-Jebel Ali pipeline, it said. Dolphin is building a multi-billion-dollar regional network to export gas via a submerged pipeline from Qatar, which has the world's third largest gas reserves, to Abu Dhabi, and then on to Dubai, Oman and eventually Pakistan. The project is expected to come on line in 2006.


Transit oil shipments via Azerbaijan to increase


November 27, 2004. Azerbaijan Company Middle East Petroleum plans to increase oil transit shipments from Kazakhstan and Turkmenistan along the Baku-Batumi route 7% to 3 million tons in 2005, the company's director Tair Gezel told said.  Middle East Petroleum approached a number of companies that produce oil in Kazakhstan with suggestions to transport oil, he said. "We asked Chevron Texaco to pump oil from the Tengiz field through Azerbaijan. They are thinking about our proposal," Gezel said. Middle East Petroleum is part of Azerbaijan's Azersun Holding and specializes in oil transits from Kazakhstan and Turkmenistan. A total of 6 million tons of oil a year is transported through Azerbaijan from Kazakhstan and Turkmenistan.


Houston energy buys pipeline/natural-gas assets


November 30, 2004. Enbridge Energy Partners of Houston has purchased 2,200 miles of pipeline and three small natural-gas processing plants in Jack and Palo Pinto counties from Devon Energy of Oklahoma City. The plants can process 81 million cubic feet of gas per day. Devon acquired the pipelines and plants from Mitchell Energy, which it bought in 2001. Enbridge is active in natural gas gathering in North and East Texas.


Pipeline from Russia's Uvat area 


November 29, 2004. TNK-BP subsidiary OAO Tyumenneftegaz (TNG) has begun construction of a 76.5 km crude oil pipeline to connect Kalchinskoye field in the Uvat region of Russia's Tyumen Oblast with the Demyanskaya system. The 720 mm pipeline will have a throughput capacity of 10-12 million tonnes/year (mty) of oil. The 1 billion ruble pipeline up from 300 million rubles originally is part of TNK-BP's development of Uvat group fields. General contractor ZAO Strymontazh (Yugorsk) began pipeline construction this month, with spreads working near Turtas township, Demyanskoye village, and Demyanka station. The oil pipeline designer is OAO Giprotyumenneftegaz (Tyumen). Work is scheduled for completion in July 2005.


Policy / Performance


Penn Virginia to buy natural gas business


November 23, 2004. Penn Virginia Resource Partners LP, which manages coal properties, said it agreed to buy a natural gas midstream business for $191 million, to diversify the partnership's operations that are now focused on coal and land management businesses. Penn Virginia is buying the business from Cantera Resources Holdings LLC, a portfolio company of Morgan Stanley Capital Partners. It plans to close the deal in the first quarter of 2005. The partnership said it had received a commitment for a combination of debt facilities to finance the deal. It expects the assets to generate about $25 million to $28 million of additional cash flow from operations during the first year after the deal closes.


Seoul increase surcharges on gas, oil imports


November 26, 2004.  The government will sharply raise surcharges on natural gas and oil imported for power generation from 2005 to cope with high oil prices, the Ministry of Commerce, Industry and Energy said. Under a new law-enforcement decree, surcharges on natural gas will jump 117.5 percent to 21,210 won (US$20.1) a ton from the current 9,750 won.


Eucuador & Mexico sign energy agreement


November 24, 2004. The respective governments of Mexico and Ecuador have signed a memorandum of understanding for energy cooperation, according to information from both governments. Terms of the agreement include Mexico's Oil Institute committing to help Ecuador to create a similar organization, and exchanging academic knowledge that will be used to train people that work in Ecuador's energy sectors. Mexico will also help Ecuador to develop and modernize its refining systems. In Mexico and Ecuador we have a lot of a similar product, which is heavy crude.


Russia raises duty export on oil


November 30, 2004. From December 1, the Russian government raises export duties on crude oil and petrochemicals exported outside the Customs Union member states by $13.1 to $101 per ton. Russian Prime Minister Mikhail Fradkov signed the corresponding resolution on November 18. On October 1, the government introduced a rate of $87.9 per ton. The new duty was recommended by the inter-departmental commission on protection measures in foreign trade and customs and tariff policy, which was guided by a two-month monitoring of global prices on Urals oil in September-October 2004.


Oil development contracts in Syria 


November 30, 2004. Tanganyika Oil Company Ltd. announced that a Production Sharing Agreement over the Tishrin and Sheik Mansour fields has been signed with the Syrian Petroleum Company.  These two new projects combined with the Oudeh field bring the Company a major step forward towards becoming one of the largest investors in the country.  The Tishrin and Sheik Mansour Fields are located in the prolific oil producing region of Jbisseh some 120 km southwest of the company's existing Oudeh field project. The Tishrin Field is currently producing approximately 6000 bopd through the central production facility and analysis of data and current well performance indicates production upside potential. The Sheikh Mansour Field productive area has been defined by 5 appraisal wells, but is as yet undeveloped. The two fields may contain in excess of 700 million barrels of oil in place and have upside potential.






Ontario approves 10 power projects


November 24, 2004. The Ontario government approved 10 electricity-generating projects that will power about 100,000 homes and generate C$700 million ($593 million) in new investment in the province. The projects include five wind farms, two hydroelectric stations and two landfill-gas plants, Ontario's Ministry of Energy said. The provincial government is keen to add new electricity generation to stave off anticipated power shortages in the next decade because of plans to phase out by 2007 coal-fired power plants, which produce 25 percent of Ontario's power. Wind farms will generate most of the power from these announced projects, adding 355 megawatts electricity to the province. Superior Wind Energy Inc., Erie Shores Wind Farm LP, Canadian Hydro Developers Inc., and Epcor Utilities Inc. are behind the wind projects. The two hydroelectric plants, both backed by Innergex II Income Fund, together will produce 31 megawatts. The two landfill- gas plants will generate a total 7.5 megawatts.


Super power generator operational in China


November 24, 2004. China's first domestically manufactured 600-megawatt super-critical power generator commenced operations in Huaneng Qinbei Power Plant in central China's Henan Province. Super-critical power generators burn coal under higher pressure at higher temperatures than conventional units and are more efficient. Given China's coal shortage, the central government is promoting the use of super-critical units to save energy. The Qinbei unit uses less than 300 grams of coal to produce every kilowatt-hour of electricity, 20 percent less than the average of 380 grams per kilowatt-hour. About 70 percent of the unit's components were manufactured domestically by companies that include the Sichuan-based Dongfang Boiler Group and the Harbin Steam Turbine Plant in Heilongjiang Province. The Qinbei Power Plant will eventually have a total capacity of 3,600 megawatts. China has imported super-critical generators with a total capacity of 11,200 megawatts over the past 10 years. Domestic suppliers already have received orders to build more than 50 such units.


Gamuda ventures into power sector


November 29, 2004. Main board-listed construction company Gamuda Bhd moves into the power generation and supply business with the signing of a RM2.09 billion power development agreement with the Laos Government for the supply of 450 megawatts (MW) of electricity to Thailand. The power development agreement is a follow-up to a pact signed on May 26 2004, whereby Gamuda was given the exclusive right to conduct a feasibility study on the project. The outcome of the study was favourable and the Laos Government has approved the project. Gamuda will be the lead contractor for the construction of the hydropower plant while the supply of equipment for the project will be shared with a joint-venture partner. Construction of the Nam Theun 1 hydropower plant in the province of Bolikhamsay is expected to start in early 2006 and be completed by 2010. It comprises a dam and an adjacent power station with a generation capacity of 450MW to be constructed on the lower reach of the Nam Theun River, about 30km upstream of the confluence with the Mekong River. A transmission line will be built to supply to a delivery point at the border with Thailand. Under the agreement, the Laotian and Thai governments agreed to support the development of power projects in Laos for the supply of 3,300MW of electricity to Thailand.


Nigeria creates six power generation firms


November 30, 2004. The National Electric Power Authority (NEPA), in Nigeria created six new semi-independent power generation companies. The new six generation companies (GENCOS) are the Niger (Kainji/Jebba) Hydro Power Plant Business Unit and the Shiroro Hydro Business Unit. Others are Egbin, Delta, Afam and Sapele Electric Power Business Units.  The GENCOs, which would generate and sell power to TransysCo (the transmission company) at bulk unit cost, would each be headed by Chief Operating Officers (COOs), who before now were the general managers of their various power stations.


New efficient combined cycle plant


November 30, 2004. Calpine Corporation a North American power company has signed a letter of intent with GE Energy for the joint construction of the world's first power plant based on the 60 hertz version of GE's most advanced gas turbine technology, the H System(TM). The H System is the most efficient, gas turbine combined-cycle design available to the power industry, providing superior fuel economy and environmental performance.  The new facility will be based on two GE 107H combined-cycle systems, which will provide a total plant output of more than 775 megawatts or enough power for nearly 800,000 U.S. homes. The new plant is expected to enter commercial operation in the spring of 2008. The project site has yet to be announced. GE will purchase the project development rights from Calpine and will finance, own and operate the facility. Calpine's Energy Services group will market electricity from the facility under a long-term marketing arrangement with GE. Under the agreement, Calpine will sell the power through a variety of long, intermediate and short-term contracts.


Australia keen to set up coal-fired power plants


November 30, 2004.  Australia has shown interest in putting up 1,000 MW power plants to be operated on Thar coal. Pakistan has only one coal-fired power plant at Lakhra and that too was set up by China.  In Pakistan only one per cent coal is being used for power generation as against 55 per cent in neighbouring India, 58 per cent in Germany, 90 per cent in Poland, 50 per cent in Australia and 38 per cent in Russia. Thar coal area has been divided into four blocks, out of which one block has already been given to China’s Shenhua company while two more Chinese companies, during his recent visit to China when he signed an agreement with Shenhua for Thar coal power plant, have shown interest to set up two power plants of 250 MW each at Lakhra and Sondha coalmine fields.


Guangdong plans fourth nuclear plant


November 29, 2004. Guangdong plans to build a fourth nuclear power plant as pressure for energy from the fast-growing economy surges and to reduce the environmental havoc wrought by its fossil fuel power plants. The government has begun a preliminary feasibility study for potential coastal sites in Huilai county or Lufeng city. The sites under consideration are Wuyu in Huilai county, and Jiadong, Haijia and Tianwei in Lufeng city. All the sites are in Shanwei region. Guangdong has two nuclear plants in operation, both located in Shenzhen's Daya Bay, with a third approved for Yangjiang city, where construction is due to begin in 2006.


Policy / Performance


Siemens seals Chinese power deal 


November 24, 2004. China wants to lessen its reliance on Western power technology German industrial giant Siemens has sealed a deal to supply power generating technology in China. Siemens is to enter a joint venture with Shanghai Electric which will see it invest 55m euros ($71m; £38m) in supplying parts for new gas turbines. China's booming economy has placed severe demands on the country's energy supply, and Beijing is keen to end its dependence on foreign technology. The firms will build turbines worth 210m euros for Chinese power plants.


Sohar power gets $549 million loan


November 24, 2004. Oman’s Sohar Power Company (SPC) said it had signed a 15-year syndicated loan agreement worth $549 million from local and foreign banks for a power plant being built by Tractebel. SPC, which is under construction and owned by Tractebel and local partners, will start supplying electricity to the Sohar industrial area from April 2006. Tractebel, a Belgian unit of French utilities group Suez, was chosen in June to design, build, own and operate the greenfield ‘Sohar Independent Water and Power’ project.  The 585-megawatt plant will fuel Oman’s biggest projects including the Sohar Refinery, an aluminum smelter, polypropylene and fertilizer plants. Meanwhile, Oman’s Alliance Housing Bank said it had signed a three-year $40 million syndicated loan from local, regional and international banks.

 $500m development agreement for Pakistan


November 28, 2004. A Brazilian consortium and a Pakistani-Canadian company signed a $500 million agreement for the development of energy and infrastructure projects in Pakistan.  The agreement is focused on the establishment of wind energy project for 500-MW power generation, and development of infrastructure. The agreement represents very significant investment in Pakistan by foreign private sector companies. The agreement was signed by Frederico Robalinho de Barros and Jesus Ferreira Filho of Brazil Energy Power Corporation and MPE Group, the two companies representing the Brazilian consortium, and Abdullah Hashwani of Hashwani & Son. MPE Group is a company involved in turn-key projects in various sectors, including petroleum, steel, ports and engineering in Brazil and several countries.


China to slow down power investment


November 28, 2004. A Chinese industrial official has pledged to slow down on investment in the construction of power plants.  Most of the current investment in constructing new power plants is illegal and it is placing the nation's sparse coal supplies under greater stress, warned Xu Dingming, director of the Energy Bureau of the National Development and Reform Commission. Xu said that power plants with a total generating capacity of 120,000 megawatts have started construction without receiving necessary approval.  This accounted for more than 30 percent of the nation's total generating capacity by the end of last year.


Boost for Iran’s power sector


November 29, 2004.  Iranian energy officials have planned to provide power sector with new contracts that are different from the Energy Ministry’s previous contracts. These include both leasing and transfer conditions. The ministry is to first make such contracts under BLT method, build-lend-transfer, for Khorasan Regional Power Company. Iran now sets 8% power consumption growth, so it is necessary to develop the capabilities of this sector as the consumption rate increases. But it would be a long way since the rate of tariffs is not rationally defined. The private sector has recently been regarded as a potential source of attracting foreign investments, and it started to implement power plant construction projects under BOT (build-operate-transfer) contracts. Currently, there are three power transfer lines underway in Khorasan and Semnan Provinces to provide Tous, Shirvan, Neishabur, Sabzevar and Shahrud with more electricity supplies.


India-Pak talks on power plant dispute


November 27, 2004. An Indian delegation began talks with their Pakistani counterparts on the Kishna Ganga Hydro-power Project.  Pakistan had expressed reservations about the diversion plan and design of the project being built on the river Jhelum in Indian-held Kashmir and sought a special meeting to resolve the issue. Indus River Commissioner Syed Jammat Ali Shah is leading the Pakistani side while Commissioner D K Mehta is the head of the four-member Indian delegation.


 ‘No Pak Govt funds for coal-run power plants’


November 27, 2004. Sindh Minister for Mines and Mineral Development, Irfanullah Khan Marwat has said companies showing interest in installation of coal-based power plants are being short-listed. The minister while replying to a question in Sindh Assembly said no finances of the Provincial or Federal Governments were involved in this project, as the power plants would be set up on Build, Operate and Transfer (BOT) basis from which the government would only purchase power. Marwat informed that out of an estimated 185 billion tonnes of coal reserves in Sindh, approximately 176 billion tonnes were in Thar alone. Besides, 7.11 billion tonnes were in Sonda/Jhirk and about 0.161 billion tonnes in Jhumpir. As per government policy, private sector is being encouraged and persuaded for exploration of coal deposits and on an average, the investors have shown interest in plants of 250 MW costing around $700 million, he said. The minister said that in Pakistan there is only 1 per cent of coal-based power generation as against 50 to 90 percent in many other countries.


Coal's global goal


November 27, 2004: The dirty big secret about US energy production is that coal is about to play an even larger role. Already more than 50 percent of US electricity comes from plants burning coal, the fossil fuel that emits the greatest amount of the most common greenhouse gas, carbon dioxide. Coal's share in the power picture is projected to spike upward in coming years as utilities turn to coal as an alternative to increasingly scarce natural gas.  The more than 100 new coal plants that are up for approval nationwide will be expected to meet up-to-date federal requirements on such pollutants as nitrogen oxide and sulfur dioxide. But unless Congress passes the bipartisan bill sponsored by Senators John McCain and Joseph Lieberman that curbs global warming by regulating carbon emissions, there is nothing in federal law to force the power companies to limit the carbon dioxide they will pump into the atmosphere.  Lamentably, the United States is further isolating itself on this issue from the rest of the world. With Russia's recent ratification of the Kyoto Protocol on global warming, the treaty will go into effect in less than three months. Nations will begin taking steps to cut back greenhouse gas emissions and trading credits for doing so while the United States goes on a spree of new coal plant production. In the past year, US companies have planned more new coal plants than they did in the previous 12 years.  One organization that is leading a campaign to rally support for the McCain-Lieberman bill whose limits on carbon emissions are much milder than Kyoto's -- is Environmental Defense. Its director, Peter Goldmark, spoke convincingly to leaders of Boston's business and investment community last Monday on the scientific consensus behind global warming and the role that carbon dioxide is playing in it. Just one of the effects he cited is reduced grain production in three of the world's breadbasket areas, including the North American plains region. Goldmark said that if he were speaking anywhere except the United States he would not have to explain the science behind climate change, so universal is acceptance elsewhere of the role of man-made gases. But there continue to be skeptics in the United States, especially in the Bush administration, who believe that action to curb carbon emissions is either unnecessary or unaffordable.


Renewable Energy Trends




HPCL plans 100 MW wind power project 


November 25, 2004. Hindustan Petroleum Corporation Ltd is making a silent foray into the ‘clean power’ generation business by setting up a 100 MW wind power plant. The company would roll out the 100 MW capacities in a phased manner. HPCL has zeroed in on Andhra Pradesh, Karnataka, Maharashtra and Rajasthan as possible locations to house the project. The project would cost the public sector company anywhere between Rs 400 crore (Rs 4 billion) and Rs 500 crore (Rs 5 billion). It would set up a 100 MW wind power plant to generate grid quality power. The company would supply the power generated to the respective state electricity board on a commercial basis. The company would rope in a reputed wind energy developer to implement the project. The selected bidder would have to provide land, design, engineering, supply, erection and commissioning of the wind power project and ensure its operation and maintenance for a period of 20 years.


US firm to provide biogas project


November 24, 2004. A US based Capstone MicroTurbine energy systems would provide a biogas turbine for a demonstration project in West Bengal. The project, expected to be on line by mid-2005., will be the first installation of this firm. This will introduce microturbines as a clean, climate-friendly, decentralized energy generation technology option for India. The project, at a dairy farm in a village, will encompass two new anaerobic digesters (which create biogas from manure), gas pre-treatment equipment, two Capstone C30 systems and a microgrid to export power. The dairy will use all of the thermal energy and about one-third of the electricity produced by the microturbines. The remaining electricity will be distributed via a microgrid to a nearby village.




New fuel cell technology


November 26, 2004. New Zealand’s Powerco and Australian Ceramic Fuel Cells Limited, CFCL have signed an agreement to conduct trials of ground-breaking new fuel cell energy systems in New Zealand. This is the first in the world of a number of commercial deals with industry being pursued by CFCL. The field trial follows on from 12 years of research and development and $130 million of investment by CFCL.  CFCL’s product for this trial is a fuel cell unit which converts natural gas to electricity delivering both 1kW of electricity and hot water sufficient for the average home. Powerco is attracted to this particular fuel cell technology developed by CFCL, as it has flexibility in using natural gas, biomethane and ethanol as the primary input fuel, rather than being constrained with expensive hydrogen, as is the case with most fuel cells.At this stage Powerco and CFCL have committed to two 12 month New Zealand field trials for 2005, with the option to expand to four. CFCL expects to deliver the first unit to New Zealand in April 2005.


Manitoba builds first wind farm


November 24, 2004. Manitoba's first wind farm took flight when Algonquin Power Income Fund and Greenwing Energy Inc. said they would build a C$187 million ($158 million) project by the end of 2005. The farm, about 150 kilometers (93 miles) southwest of Winnipeg, will consist of 63 turbines generating 99 megawatts of power. The turbines will be supplied by Denmark's Vestas Wind Systems AS the world's largest wind-turbine maker. The project was started by Sequoia Energy Inc. and Global Renewable Energy Partners Inc., who sold it to the new partners last month. The partners have a 25-year agreement to sell the power to provincial utility Manitoba Hydro. The Manitoba government said it wants to develop up to 1,000 MW of wind power in the next 10 years. Canada currently has about 439 MW of wind power capacity, the provincial government said.


Two wind power projects in Ontario


November 25, 2004. Brascan Corporation announced that its subsidiary, Superior Wind Energy Inc., has been selected by the Ontario government to develop two wind power projects totalling approximately 150 megawatts (MW): a 100 MW wind farm in Prince Township near Sault Ste. Marie and a 50 MW wind farm on rural lands near Collingwood. The power generated by these facilities will be sold under 20-year power supply agreements, providing Brascan with a stable and secure revenue stream. These projects represent the first stage of the Ontario government's commitment to the development of 2,700 megawatts of new renewable energy by 2010 and a key part of a long-term strategy that will help the government meet its energy supply and emission reduction objectives.


Geothermal plant in Indonesia 


November 29, 2004. ChevronTexaco Corp., the second largest US energy firm, said it had decided to invest 128 million US dollars in Indonesia to build a new geothermal power generating unit in West Java. ChevronTexaco said that the company's local unit, ChevronTexaco Energy Indonesia Ltd. (CTEI), would expand the Darajat geothermal power plant by building a new 110 megawatt unit in Darajat, Garut, and West Java. CTEI, which was formerly known as Amoseas Indonesia Inc., will have a 95 percent stake in the project, with the remaining 5 percent held by Darajat Geothermal Indonesia. Darajat is linked to the Tahija family. Geothermal resources in Darajat are abundant, clean, renewable and able to easily generate up to 330 megawatts of electrical power. CTEI has built two power units, Dradjat I and II, with a combined capacity of 145 megawatts. CTEI signed a power sales contract with state utility PT Perusahaan Listrik Negara (PLN) and state oil and Gas Company. Construction of the new power unit will be completed within two years and commercial operations are expected to begin by the third quarter of 2006.


Poland’s wind energy project


November 29, 2004. Wysak Petroleum announces an agreement to develop a 46 Mw Wind Farm project near Radzejow, Poland. Leading Wind Energy Company co-developer Projekt GmbH, Germany, anticipates approximately 125 Gwh/year in electricity from the Radzejow Project. It is estimated that this is enough electricity to power over 15,000 homes per year. Wysak President Daniel Moar said: ‘All necessary licenses and permits have been agreed to, and final preparations for the construction permit are in place’.


Solar energy facility in South Florida


November 30, 2004. Florida Power & Light plans to build a small solar energy facility in South Florida next year with the help of customers who pay an additional fee to support clean power. About 9,000 customers have pledged an additional $9.75 on top of their monthly electric bills to support renewable energy through the company's Sunshine Energy program. FPL will build 150 kilowatts of solar power in Florida for every 10,000 customers who sign up, and it expects to pass that threshold in about a month. The facility, consisting of solar panels erected atop existing buildings, will be about one-third the size of a football field and generate enough electricity to serve about 20 households. The company has not selected a site, but said it will likely be in Broward, Miami-Dade or Palm Beach counties. Solar power can cost up to 60 cents per kilowatt-hour, compared to 6 to 8 cents for fossil fuels.


Hydrogen from wind at South Pole


November 24, 2004. The Australian Greenhouse Office will fund Aus$500,000 to demonstrate the use of hydrogen generated by wind in Antarctica.  The demonstration project at the Australian Antarctic Division’s station at Mawson will research the safety and operational aspects of using hydrogen, as well as its viability as an energy carrier. Hydrogen will be produced using electricity from the Mawson wind turbines, and then stored and used in a fuel cell for both space heating and transportation in one of the station vehicles. The test fuel cell and heater will be installed at the field camp on Bechervaise Island, to provide electricity and heat for scientists involved in the penguin monitoring program. By the completion of the project, officials expect to have sufficient information to model the large-scale use of hydrogen to supplement energy requirements. The system will be installed and implemented during the 2005-06 season.


First GHG reduction registered under CDM


November 24, 2004. The Clean Development Mechanism of the Kyoto Protocol has approved its first project: a facility that converts landfill gas to energy.  The NovaGerar project in Rio de Janeiro, Brazil, will sell its certified emission reductions to the Netherlands CDM Facility, which was established by Holland and the World Bank to purchase GHG emission reductions from projects on behalf of the Netherlands. NCDMF will purchase 2.5 megaton of CO2 equivalent from the NovaGerar project at a price of Euro 3.35 a ton, until 2012. The total estimated purchase will be Euro 8.5 million and the expected final capacity will be 12 MW.


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


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