MonitorsPublished on Dec 15, 2004
Energy News Monitor I Volume I, Issue 26
IOCs downstream investments in Sri Lanka: Terrorist target?

In 2002, the Indian and the Sri Lankan governments signed an MoU that paved the way for the Indian Oil Corporation (IOC) to emerge as Lanka IOC, a wholly owned subsidiary. It acquired 100 filling stations and a one-third stake in the oil storage facilities for $75 million to become a complete player in the island's downstream petroleum segment. [1] Interestingly, Sri Lankan petroleum market is much smaller than that of the Tamil Nadu's. The island's total demand is 3.5 million tonne per annum (tpa) while the country's refining capacity is 2.2 million tpa. The deficit is provided through imports. Lanka IOC now has a market share of about 30 per cent in the petrol, 23 per cent in the diesel and 38 per cent in the lubricant markets and aims to own about 50 per cent market share by 2006. At the same time, it aims to make Trincomalee a bunkering hub by 2005 at a cost of about $4 million.

The China Bay Tank Farm comprising of 99 tanks spread over 850 acres of land at Trincomalee has been taken on a 35-year lease. The takeover cost the IOC US $ 100,000 as the lease payment for the first year. Currently, 17 of the tanks are operational and each tank has a capacity of 12,250 kl. The tank farm renovation cost Lanka IOC about $10 million and included construction of two floating roof tanks of 6,000 kilolitres capacity, 12 new bay tank lorry filling sheds, new pump house, new fire hydrant system and safety system. The throughput of Trincomalee has now gone up from 5,000kl per month to 22,000kl. Besides, the farm has the road network, and is also connected by rail and sea. In December 2004, the Indian government extended a US$150 million five-year loan to Sri Lanka to import petroleum products from any of the government-run Indian oil firms. [2] The loan comes even when the country owes $30 million to the IOC. Reportedly, the loan is not linked with the money owed to IOC but advises Colombo that the payment to IOC should be expedited. Meanwhile,  Lanka IOC’s initial public share offering was $34.2 million and was 8.7 times over subscribed.[3] It is now seeking Colombo Stock Exchange approval to list the shares.

Given the sensitive nature of Indian investment, Colombo is conscious of the vulnerability of this strategic infrastructure. “I am seeking to sensitise India to the looming danger (from the LTTE) particularly to the port of Trincomalee. The port of Trincomalee is today ringed by the LTTE”, were the words of Lakshman Kadirgamar, the former Sri Lankan Foreign Minister[4]. Reportedly, the LTTE has 11 strongholds around the southern rim of the port. The oil farm is well within the reach of the LTTE artillery. 

Besides the Sea Tigers, the naval wing of the LTTE also has a good naval capability that includes high-speed boats fitted with outboard engines as powerful as 750 hp. The LTTE has developed a sophisticated strategy of attacking maritime targets like Sri Lankan navy ships and other commercial vessels. Sri Lanka has lost at least a dozen naval vessels, both in harbor and at sea, as a result of LTTE attacks. The LTTE has engaged in wolf pack tactics, used high-speed boats filled with explosives that rammed into naval vessels. Sea Tigers have emerged as one of the most ruthless and dangerous maritime capable terrorist groups in the world. The LTTE was reported to have developed   human suicide torpedo. It has expertise in using underwater explosives such as mines. Off the shelf communication equipment and water sport/diving equipment are part of its inventory. In the absence of technological superiority over the Sri Lankan navy, it has adopted asymmetric strategies and options to challenge naval forces and inflict unacceptable costs.

The LTTE are known to use stealth speedboats for attacks. For instance, Jane's Intelligence Review analysed a video of a LTTE “ wolf pack” attack that sank a Sri Lanka navy operated passenger vessel in Trincomalee harbour. The speedboats are powered by Johnson 200/ Yamaha, engines that are able to generate a top speed of over 35 knots and manned by two Black Tiger suicide crew. Besides the 122mm artillery shells that are stuck to the gunwale of the boat, other explosives are also carried. Another feature of these boats is that the front of the boat is fitted with spikes that fasten the boat to its target once they have collided. It is believed that these boats are armour plated and the design and construction is indigenous to the LTTE. Tamil population is by tradition expert boat builders and the LTTE have utilised speedboats as suicide weapons in the past. The Sri Lankan navy has lost more than a dozen ships on account of these attacks.

The Indian navy participated in Operation Pawan in pursuance of a request made by the Sri Lankan government to counter the LTTE. [5] The Indian navy was required to undertake maritime operations in the waters around Sri Lanka and particularly Trincomalee. Trincomalee has seen naval clashes between the Sri Lankan navy and the LTTE. Several Sri Lankan naval ships have been attacked and destroyed.

In recent times, the LTTE have been critical of the Defence Cooperation Agreement (DCA) and have noted that it will "undermine" the fragile ceasefire between Sri Lanka and the LTTE. According to Anton Balasingham, LTTE's chief peace negotiator “such an agreement is irrelevant during the time of a peace process, suspended though, but altogether not given up and therefore would tilt the military equilibrium, the underlying principle of the ceasefire agreement”. It appears that the LTTE have conveyed their views on the defence agreement to India, arguing that it would affect the balance of forces. The Tamil National Alliance (TNA), a party seen as a surrogate of LTTE rebels has urged India not to go ahead with the DCA , as it would be harmful to the ongoing peace process.[6]

Although the DCA is yet to be brought into force, the two sides have begun joint naval exercises. In December 2004, the Indian Coast Guard and the Sri Lanka Navy held a joint maritime exercise code-named 'Operation Ek Sath' (‘together’) that involved anti-piracy, search & rescue and anti-pollution exercise.  Offshore Patrol Vessels (OPVs), Fast Attack Craft (FACs), maritime surveillance aircraft and helicopter from both sides participated in these manoeuvres.[7]  The exercises gained more significance with the visit of Vice Admiral A. K. Singh, the Director General Indian Coast Guard to Colombo during the exercises. The joint exercises precede refitting of SLNS Sayura. [8]

Meanwhile, Colonel Soosai, the head of the LTTE's navy i.e. Sea Tigers, has criticised the joint India-Sri Lanka 'naval' exercise. He has noted that "Unable to face the Sea Tigers, the Sri Lankan Navy is doing joint training with the Indian Navy," Similar sentiments have been expressed in Virakesari, a Tamil newspapers editorial, that the naval exercise is a covert Indian attempt to give military training to the Sri Lankan Navy since the plan to sign a Defence Cooperation Agreement (DCA) had run into political difficulties in New Delhi.

Given that the Norway led peace process is running into rough waters, and the LTTE has bargained time to build its capabilities, the security and safety of the oil farms at Trincomalee and Lanka IOC retail outlets remain a possible target for the LTTE.  The important question before New Delhi is how it intends to safeguard its economic interests in the war torn Sri Lanka. Would it once again enact the 1988 Operation Pawan and would Sri Lanka invite India to undertake such an operation?

Dr Vijay Sakhuja,

Research Fellow

Observer Research Foundation, New Delhi.


LNG and Northern European pipeline: cooperation not competition


Russia has the world's largest known natural gas reserves and one-eighth of the world's oil reserves. Russia's expanding energy exports are the main reason for its impressive economic growth in the past few years. According to Economic Development and Trade Minister German Gref, this year Russia's natural gas sales will reach a record of 198 billion cubic meters (189.4 billion cubic meters in 2003).


In 2007, according to the minister, exports may reach between 243,000 billion cubic meters and 252 billion cubic meters.   State-controlled Gazprom earned $16.5 billion from exports last year and its net profits exceeded $7 billion. This year, Russian analysts forecast Gazprom will earn $18 billion from gas exports. Gazprom exports natural gas to nine European countries (including Turkey). In 2003, it sold 90 billion cubic meters of gas to Western Europe, 43.3 billion cubic meters of gas to Eastern Europe and 42.6 billion cubic meters of gas to CIS and Baltic countries.  


New gas pipeline projects  


Europe will remain Gazprom's main trading partner in the foreseeable future. It has been reported that under contracts already signed, Gazprom's exports to Europe will reach 180 billion cubic meters by 2010. The Yamal-Europe gas pipeline being constructed through Belarus and Poland has the expected capacity of 35 billion cubic meters. Russia is also considering other projects, including the Northern European gas pipeline.  This highly ambitious transportation project envisions directly supplying Siberian gas to clients, bypassing foreign territories. An almost 1,200-kilometer long underwater section of the pipeline, which will pass through international waters, will link Vyborg (the Gulf of Finland) with Germany. Later, gas could be transported to Britain through existing transportation arteries.   A single line of the pipeline (1,067mm in diameter and a working pressure of 200 atmospheres) is planned to have a 19 billion cubic meter capacity. If two lines are used, the expected capacity increases to 30 billion cubic meters. Clearly, Gazprom's experience building the Blue Stream pipeline, which passes through the Black Sea, to Turkey will be useful in the construction of a pipeline in the Baltic Sea. Although the proposed pipeline will cost about $6 billion, it has a number of advantages. Its main advantage is that Russia will no longer have to negotiate transit fees with nearly half a dozen countries or pay them in gas. Moscow will retain control.   Naturally, the pipeline route through the Baltic Sea was not a pleasant surprise for Russia's neighbors, who are comfortable in their positions as transit intermediaries.


Russian gas projects and Britain  


A distinctive feature of the Northern European pipeline will be underwater branches to the Kaliningrad region, Finland, Sweden, and Denmark. Britain, which consumes more than 100 billion cubic meters of gas a year, is the ultimate destination of the planned pipeline, as it is one of the largest gas consumers in Europe.   Why does Britain need Russian gas? There is not a gas shortage in Britain. Moreover, natural gas produced on the British shelf not only meets the requirements of the national economy, but there is a surplus which is exported to continental Europe. Interconnectore, a reserve gas pipeline from Europe with a capacity of 20 billion cubic meters a year, is now operating in the reverse direction, supplying 5 billion cubic meters of British gas to Europe.   However, the near-term outlook is less optimistic. British analysts forecasted a gradual, 2% a year, decrease in British gas production. This drop will occur as the economy's needs increase. A gas shortage of 85 billion cubic meters is expected in 2010. However, if the Northern European pipeline is built, Siberian gas could start being exported to Britain after 2007. The pipeline is expected to reach its design capacity in 2010.   The European Union thinks this pipeline will add a major new dimension to the future European energy playing field.


As a result, the project, which the EU included as a TEN (Trans-European Energy Network) project, was the EU's top priority three years ago.   Russia, which will produce about 640 million cubic meters of gas in 2004, and Norway, which will produce about 80 billion cubic meters, are the two main gas producers on the European continent. While several other countries produce gas in relatively small volumes, Moscow and Oslo are the main players in the European gas market and account for 25% and 15% of the market, respectively. It has already been forecasted that Russia would increase its market share to over 50% in the next 20 years. Moscow and Oslo both have the potential to increase their output and export of the "blue fuel." However, while Russia's section of the Barents Sea shelf (Shtokman deposit) and gas deposits in the Urals and Siberia have not been properly developed yet, the giant Troll field will, according to the most optimistic forecasts, remain nearly the only one left on Norway's shelf by 2030.   Therefore, many people in Europe think, paradoxically, that in the distant future Russian liquefied natural gas (LNG) and in the remote future, Russian electricity are likely to compete with Russian gas in Europe.  


Russian LNG  


Given the present rate of production, natural gas from Siberia and the North may last 81 years. Russia is therefore considering the production and export of LNG. In 2003, LNG consumption in the world was just under 140 million metric tons, the US consumed 11 million metric tons. However, as early as 2010, the US will import 46 million metric tons of LNG.   Currently, Russia has 17 relatively small LNG plants with an aggregate capacity of about 7 million tons (2001). Petrochemical companies consume half of the output. The remainder is exported or used for housing or for transportation. In 2002, for example, Russia exported just a little bit more than 1 million metric tons of LNG, mainly to CIS and Baltic countries. Among the projects to build modern LNG plants, the Prigorodnoye plant, a project in southern Sakhalin with an expected capacity of 9.6 million metric tons a year that will be put into operation in 2007, should be mentioned. Japanese and Korean power companies will receive the LNG. The Americans are also interested in Sakhalin LNG and have concluded a multi-year contract for the delivery of 37 million metric tons. American tankers will transport the LNG to the Energia Costa Azul terminal being constructed in Baja California, Mexico. In anticipation of Russian LNG (among other options), the US will construct 20-34 LNG terminals on the East Coast.


There are currently four terminals.   In the European part of Russia, Gazprom and Petro-Canada have a joint project to build a large LNG plant near St Petersburg. It has also been reported that ChevronTexaco is considering building an LNG plant with Gazprom in the European part of Russia.   ConocoPhillips, Norsk Hydro, Total and Royal Dutch/Shell have each submitted proposals for developing the Shtokman deposit and constructing an LNG plant. Cooperation with Norway is also promising for Russia. Since 2002, the Norwegians have operated Europe's first LNG project at the Snovit (Snow White) deposit in the Norwegian part of the Barents Sea. It is estimated that the deposit has 190 billion cubic meters of recoverable reserves and more than 20 million metric tons of condensate. Although Snovit is one-fifteenth the size of the Shtokman deposit, which has reserves of 3.2 trillion cubic meters of gas and 31 million metric tons of condensate, the deposits have identical conditions. Both are on a polar shelf, in both projects LNG plants are planned to be built on shore (in Hammerfest and Murmansk) and the fields and plants will be linked by 143km (Norway) and 300km (Russia) pipelines running on the bottom of the sea. The capacity of the first line from the Norwegian plant is 4 million metric tons of LNG, and the expected capacity of the Murmansk plant is more than 10 million metric tons. Therefore, Gazprom is interested in Norway's experience.  


Transporting gas to Europe: By sea or via pipelines?  


It is likely that both methods will be used. Feasibility studies and engineering documentation for the Northern European pipeline are now at the final stages of preparation. An international financial consortium is being put together to build the pipeline. At the same time, gas fields on the polar shelf are beginning to be developed, which will clarify the costs involved in building LNG plants in Murmansk, Arkhangelsk and on the Baltic Sea (the port of Ust Luga). Plans are also being worked out to build an LNG plant in Arkhangelsk for Siberian gas.   In regard to Ust Luga, however, there are some concerns. The Baltic Sea is already crowded with tankers carrying Russian oil, and the shallow Danish straits are nearly full to capacity. The more northerly cities with access to the North Atlantic have some advantages for LNG tankers: non-freezing ports and, as a result, year-round navigation and a direct route to terminals on the United States' eastern seaboard terminals.


Vasily Zubkov

RIA Novosti economic commentator (Courtesy RIA Novosti)


Russian government includes Rosneft in 2004 privatization plan  


December 14 - A relevant statement has been signed by Prime Minister Mikhail Fradkov, reports the government press-service. Under this statement, the Russian state property management committee has been authorized to privatize state-owned shares in the Rosneft oil joint-stock company by making them a Russian Federation contribution to the statutory capital of the Rosneftegaz joint-stock company.   The statement was signed in accordance with the president's decree of December 7, 2004, No.1502, "On introducing amendments to the list of strategic enterprises and strategic joint-stock companies, endorsed by Decree of the President of the Russian Federation N.1009 on August 4, 2004." The statement says that the 2004 program for the privatization of federal property and guidelines for federal property privatization for the period until 2006, endorsed by Russian government resolution No.1165-r of August 15, 2003 is to be amended. The Oil-And-Gas Sector with the list of state-owned open-end joint-stock companies, whose shares are to be privatized in 2004, shall be supplemented with the following position: oil company Rosneft, the city of Moscow.   On December 10, Vladimir Putin signed a decree whereby the Rosneft company shall be withdrawn from the list of strategic enterprises and strategic joint-stock companies, to be supplemented with the company Rosneftegaz. Section 2 of the list of strategic enterprises and strategic joint-stock companies, endorsed by the presidential decree of August 4, 2004, shall be amended as follows: position 305 (oil company Rosneft, the city of Moscow) shall be cleared and position 400 (Rosneftegaz, the city of Moscow) shall be added, said the presidential decree.   The decree also contains the presidential approval of the Russian Federation's 100 percent Rosneft shares contribution to the Rosneftegaz statutory capital. Two independent appraisers are now busy appraising the assets in the deal on theGazprom and Rosneft merger, according to earlier information from a source in the presidential staff. The source denied answer to the inquiry about the term required for the completion of the deal on Gazprom and Rosneft assets merger.   Asked by RIA Novosti about which appraisal would be crucial for decision-making, the source said: " There will be a concerted appraisal as a result. Appraisal is always a kind of coordination." He also added that companies to clinch this kind of deal had been already selected-Technoexport and Gazpromneft. The latter has been set up to consolidate the Gazprom oil assets, said the source. 

(Courtesy RIA Novosti)  


Shell's Russian unit starts oil extraction in western Siberia one year ahead of schedule    


December 15, 2004. Salym Petroleum Development (SPD) NV, a Russian unit of Royal Dutch/Shell, has begun the extraction of oil from the Western Salym field, in Siberia, one year ahead of the time envisaged in the licensing agreement, Chief Executive Dale Rollins said Wednesday at a press conference on the RIA Novosti premises. According to Mr. Rollins, the company plans to surpass the annual production targets provided for in the agreement (100,000 to 150,000 tons, or 700,000 to 1 million barrels). The ambition is to top the output of 1 million barrels by the end of next year, he said. The earlier-than-planned launch of producing wells will make it possible for the SPD company to ensure the achievement of production levels set in the technological development scheme and to better prepare itself for the Western Salym field's full-scale industrial development, its CEO said. Salym Petroleum Development N.V. has been co-founded by Shell Salym Development B.V. and Evikhon Co., controlled by Britain's Sibir Energy.   SPD has been licensed to recover oil from all the three fields of the Salym deposit, located 190 kilometers away from Nefteyugansk (it is here that Yuganskneftegaz, the main production unit of the embattled Russian oil giant Yukos, is registered). These include the Western Salym deposit, the Upper Salym deposit, and the Vadelyp deposit.   


(Courtesy RIA Novosti)









OVL denies bidding for Yukos asset


December 21, 2004. ONGC Videsh has categorically denied its involvement in the auction of the core assets of the embattled oil major Yukos. Gazpromneft, the oil unit of Gazprom, and Baikal lodged bids at the starting minimum price of $8.8 billion. However, the minimum price was confirmed only by Baikal, which later offered the only higher bid of $9.4 billion.  The Baikal Group could be an alternative vehicle for Gazprom with sources of funding that are different from those initially prepared.


ONGC unwilling to pay royalty for Cairn crude


December 21, 2004. Oil and Natural Gas Corp will not acquire 30% stake in Cairn Energy’s recent Rajasthan oil find if the government did not exempt it from paying royalty on the British firm’s share of crude oil. ONGC, which has the right to take 30% equity in any oil and gas find in Rajasthan block, is liable to pay 20% royalty not only for its own share of production, but also of Cairn Energy. Over the life of the field, ONGC will pay over $1 billion in royalty, much more than what a 30% stake. Prior to the New Exploration Licensing Policy, India signed 24 production sharing contracts for exploration blocks (including Cairn’s Rajasthan block), and ONGC is the licensee in all of them. As per the PSCs, licensee ONGC is liable to pay cess, royalty, PEL fees, rentals etc on behalf of companies who signed the PSCs.


OVL loses overseas bids


December 19, 2004. ONGC Videsh (OVL) has lost a coveted gas block in Myanmar to a Chinese oil firm and has made a losing bid for an oil block in Nigeria.  China National Offshore Oil Corporation (CNOOC) and its partners, China Hanoi Contracting & Engineering Corp and Singapore's Golden Aaron, have bagged two A-4 and M-10 blocks off Myanmar. Block A-1 contains at least 10 trillion cubic feet of gas and there are similar expectations for the adjacent A-3 where exploration will soon begin. OVL has 20% in A-1 and A-3 blocks and Gail 10%.  Separately, OVL has made a losing bid for an oil block in the Gulf of Guinea. OVL bid for Joint Development Zone (JDZ) Block 2 with Equator Exploration. However their bid of $65 million was way short of the highest bid of $135 million from Vintage Oil and Gas. It also fell short of Concoil's bid worth $120 million, A & Hatman's $80 million and Foby Engineer's $73 million.  The Joint Development Authority, set up by Nigeria and Sao Tome, manages the allocation of acreage in the Joint Development Zone (JDZ) in the Gulf of Guinea; it had invited bids for five exploration blocks in the second licensing round.


L&T to buy stake in Ramaiah’s oil business


December 18, 2004. Larsen & Toubro has signed an agreement to acquire a 50 per cent stake in the Bangalore-based privately held MS Ramaiah group's upstream oil and gas project related engineering business for an undisclosed sum.  A new legal entity, in which L&T and Valdel Corporation (the Ramaiah group’s holding company) will be equal partners, is being formed and is likely to be named L&T-Valdel. The necessary approvals from various authorities are in the process of being obtained. L&T was in the process of bagging major oil and gas projects in India.  


OVL scouting for assets in Gulf region


December 15, 2004. ONGC Videsh Ltd, the foreign arm of Oil and Natural Gas Corp, is scouting for oil and gas assets in Kazakhastan, Kuwait, Yemen, Qatar, Angola, Cuba, Sierra Leone, Bangladesh and Ecuador. An outlay of Rs 13,550 crore (Rs 135.5 billion) has been approved in the 10th Five Year Plan for OVLs oil and gas exploration and production activities abroad. The international oil and gas acquisition arena is very competitive where oil companies from oil and gas deficit nations like China as also from developed countries pose a tough challenge to OVL. To enhance the country's energy security, OVL as well as other national oil companies have been pursuing the acquisition of equity oil abroad, as well as the acquisition abroad of oil and gas exploration acreages and producing properties. So far, public sector oil firms have invested $2.5 billion in oil and gas projects abroad. These projects are in Vietnam, Sudan, Russia, Iraq, Iran, Myanmar, Libya, Syria, Australia and Ivory Coast.


IOC’s Iran gas project


December 15, 2004. Indian Oil Corporation will invest $1bn or more in a project to develop gas in Iran’s South Pars field, convert it into liquefied natural gas and ship it to India. IOC will lay its hands on 9m tonnes of LNG annually. Ennore, off Chennai, is a possible location for a new LNG terminal to receive these imports. This would be IOC’s first upstream venture abroad. IOC will take an upstream company along as a partner for their E&P and LNG projects in Iran. The two projects — gas exploration and LNG — are estimated to involve a total investment of $5.7bn. IOC will have a 40% stake in the exploration block while the balance will be held by Petropars. In the second project, the LNG liquefaction facility, IOC plans to have a 60% stake. Since Iran does not have provisions for oil equity, IOC will sign a service contract, which will give it an assured rate of return.



Reliance plans more retail outlets


December 20, 2004. Reliance has planned to set up at least 450 retail outlets for transportation of fuels, diesel and gasoline in Gujarat by the end of the next year as part of its nation-wide network of over 5,000 such outlets. The outlets would also provide amenities for travelling passengers including food stalls, rest rooms and parking areas.


IOC may buy stake in OIL


December 21, 2004.  Indian Oil Corporation may buy government's 26 per cent stake in oil and gas exploration firm Oil India Ltd (OIL) for about Rs 2000 crore (Rs 20 billion). Post IOC acquisition, government will hold 72 per cent stake in OIL, which will retain its present character as a public sector unit under Petroleum Ministry. Government had offered IOC its 47 per cent stake in OIL but since the offer was sans management control, IOC was keen only on 26 per cent equity. IOC wanted OIL to merge with it to have a greater say in company operations. But if the objective is to synergise operations of a pure oil and gas exploration firm with the dominant downstream oil refining and marketing company, a 26 per cent stake would do. IOC would raise the resources for buying government's equity in OIL, by selling its 9 per cent holding in Oil and Natural Gas Corp.  The Government, which currently holds 98 per cent stake in the company whose operations are confined largely to North-East, wanted to retain majority 51 per cent stake in OIL and thus its present character.


IOC to increase market share in Mauritius


December 20, 2004. Indian Oil Corporation has commissioned its second retail outlet in Mauritius and is eyeing a 7 per cent share in all fuel products in that country. The company would set up a total of 25 outlets in Mauritius. The company has achieved a 25 per cent share of the 900,000 tonne market of aviation turbine fuel in Mauritius and was targeting a seven per cent share in all fuel products. The company had achieved sales of 1.5 mmt in all fuel categories in the first half and would complete the year at 4.7 mmt.


IOC imports steady


December 20, 2004. Indian Oil Corporation is planning to import just over 31 million tonne of crude oil in 2005-06 - almost the same quantity it is expected to import in the current fiscal. IOC will import 14.47 million tonne of low sulphur (sweet) crude oil and 16.59 million tonne of high sulphur (sour) crude. The company will get 9.04 million tonne of crude oil from the domestic fields with the Gujarat-based Koyali refinery expected to get 6.8 million tonne of domestic crude in the next fiscal. While the Guwahati and Digboi refineries will get 80,000 tonne and 600,000 tonne of Assam crude, the Mathura refinery in Uttar Pradesh will get 8,40,000 tonne of domestic crude. IOC is also planning to import 3.2 million tonne of lube, bituminous crude, 5.09 million tonne of non-lube, non-bituminous crude and 2.9 million tonne of non-lube, bituminous crude oil in the next fiscal.


ONGC’s rural kerosene marketing plan


December 20, 2004.  ONGC is drawing up innovative rural marketing strategies to sell kerosene to the target consumers through the Panchayat route. The marketing plan includes setting up depots at the local level and selling the fuel through kerosene pumps and mobile dispensing systems. This follows the petroleum ministry’s move to allow Gail India and ONGC to sell non-PDS kerosene and LPG. While ONGC is planning to market LPG through bulk sales, kerosene would be targeted at rural consumers. Since companies like ONGC and GAIL will not be given any government support or subsidy to sell the fuel at lower prices, the success of selling the product will be in pricing it effectively. Although the government doles out a subsidy of a little over Rs 2 a litre, oil marketing companies claim that the product is being sold with a subsidy of over Rs 10 per litre. In total, ONGC is estimated to have a total of about 1.30 million tonnes of kerosene at its disposal.


IOC to build Xtra Care, Swagat outlets


December 18, 2004. Indian Oil Corporation has embarked upon a massive rebranding exercise of its retail outlets by replacing two of its existing retail formats in a bid to stave off competition from private and other public sector oil marketers. The company is phasing out two of its retail formats - Q&Q and Jubilee — and introducing Xtra Care and Swagat. The ‘Xtra Care’ format has been identified for the urban and semi urban areas. Swagat would be for highways. The company is planning to introduce 1,080 Xtra Care ROs by this fiscal while about 111 Swagat ROs would come up on highways. In the second phase another 1,800 ROs will be awarded Xrta Care status. IOC has close to 10,000 ROs in the country. Investments of Rs 17-18 lakh (1.7-1.8 million) will be needed for Xtra Care outlets and about Rs 1 crore (10 million) for Swagat pumps.


IOC may sell ONGC stake on Wall Street


December 18, 2004. Oil and Natural Gas Corporation and Indian Oil Corporation are expected to hit the market to sell their cross-holdings. The move will help them fund their expansion and acquisition plans and also kick off consolidation in the petroleum sector. According to a plan drawn up by the government, IOC will sell half its 13.7 million ONGC shares in the domestic market and the rest to international investors so that ONGC is listed on the New York Stock Exchange. IOC holds a 9.6 per cent stake in ONGC. Similarly, ONGC would sell its 9.1 per cent holding in IOC in the domestic market.  ONGC is expected to realise Rs 4,000-5,000 crore (Rs 40-50 billion) through the sale of IOC shares. The proceeds are to be used for acquiring a part of the government’s stake in either Hindustan Petroleum Corporation Ltd (HPCL) or Bharat Petroleum Corporation Ltd (BPCL). The Centre holds 51 per cent equity in HPCL and 66 per cent in BPCL. The Rs 10,000 crore (Rs 100 billion) that IOC is expected to garner through the sale of its ONGC holdings is proposed to be used for acquiring 26 per cent of Oil India Ltd (OIL).


Reliance in race for stake in Pakistan refinery


December 18, 2004. Reliance Industries is among the 29 firms short listed by Pakistan's privatisation and investment ministry for a 51 per cent stake in the National Refinery Ltd, which has a capacity of 2.7 million tonnes. National Refinery had set up a lubricant plant in 1966, and since then has upgraded its operations to include a fuel refinery, a second lubricant refinery and a petrochemicals plant. Located at the Korangi industrial zone in Karachi, it has an 80 per cent share in the lubes and asphalt market in Pakistan. 


ONGC to raise funds for Sudan project


December 17, 2004. Oil and Natural Gas Corporation has approached Indian and foreign bankers to raise $600 million for financing a refinery expansion project in Sudan, which was awarded to its subsidiary, ONGC Videsh Ltd. The company has asked banks to help raise a "non-recourse" debt to revamp and expand a 3 million-tonne refinery in Sudan and lay a 740 km pipeline. A non-recourse debt would mean that in case of default, lenders would have to recover money from the asset itself and OVL would be directly responsible. This is one the first major borrowings for ONGC, which had become a debt-free company since 2002-03. The total value of the expansion and pipeline project is $1.2 billion. Of this, OVL will bring in $600 million while a consortium of lenders will bring in the other half. The Cabinet had approved a budget of $1 billion for ONGC investments in Sudan. OVL's first project in Sudan was the Greater Nile Oil Project, joint venture with China National Petroleum, Malaysian company Petronas Carigali and Sudan National Oil Company, located at the Muglad basin. It is estimated to have a reserve of more than one billion barrels spread over 10 fields.  The Port Sudan refinery expansion and pipeline project is the second project that it won late last year. The pipeline, from Khartoum refinery to the Port of Sudan, was estimated to cost $200-300 million. The refinery revamp and expansion from 34,000 barrel a day to 71,000 barrels a day was valued at $400-500 million.


Kochi Refineries project may be delayed 


December 15, 2004. The high price quoted by bidders, an Australian and an Indian company, in response to the global tender floated by Kochi Refineries Ltd for setting up the Rs 623-crore (Rs 6.23 billion) crude oil receipt facilities has forced the company to go for alternate methods to implement the project. This, in turn, is likely to delay the project.


Shell’s LNG project delayed


December 15, 2004. Shell India’ liquiefied natural gas project at Hazira (near Surat) which was to be commissioned in December, will now have to settle for the same sometime in February -March following a delay by its project managerial contractors.  Estimated at $600 million, Shell’s Hazira project is among the largest greenfield foreign direct investments in the energy sector in India. Anglo-Dutch oil major Shell, which re-entered India after over two decades, established two project companies Hazira Port Private Limited for private multi-cargo port and Hazira LNG Private Ltd for regassification terminal in Gujarat. It also set up Shell Hazira Gas private Limtied to market gas across India. Though the project is being delayed, Shell has already embarked on expansion plan to raise its LNG capacity to five million tonne per annum and eventually scale it up to 10 mtpa.  Shell is planning to import gas at its Hazira terminal in the first quarter of 2005 is looking at Malaysia, Australia, Brunei and Oman “where all the Shell’s LNG units are undergoing expansion”. The port with an estimated investment of 4 200 million will be operational in the first quarter of 2005.


Transportation / Trade


GAIL may get stake in Iran Indian Oil plant


December 21, 2004. The petroleum ministry is likely to allow GAIL India a stake in the gas liquefaction plant to be set up by Indian Oil Corporation (IOC) and Petropars in the South Pars region of Iran. This follows a protest letter from GAIL that IOC should not be allowed to go alone in the South Pars gas project in Iran since under a decision taken by the joint working committe with that country a consortium approach had to be adopted. 


GAIL may tie up with Chinese company


December 17, 2004. The public sector gas transmission and distribution company, GAIL (India) may enter into a tie-up with a Chinese company to set up city gas distribution projects in China. There was a possibility of acquiring 10 per cent stake in China Gas Holdings which has exclusive rights to set up city gas distribution projects in 42 cities in China. The Chinese company planned to set up a city gas distribution grid in Beijing and other Chinese cities. It was keen to replicate the success in Delhi of using natural gas as an auto and domestic fuel in its own cities especially Beijing before the 2008 Olympics. The company also planned to bid jointly with Egypt's Natgas for operating and maintaining a natural gas pipeline in Lebanon. The pipeline, which is under construction, stretches from Syria and will be used to provide gas to a power plant in Lebanon.


One mega transmission company: GAIL


December 16, 2004. Public sector gas major GAIL (India) Ltd has mooted a proposal for creating a single national hydrocarbon transmission company which will have unified ownership of the entire network of crude, petroleum products and gas pipelines in the country. At present, Indian Oil, BPCL, HPCL, OIL and GAIL are owners of different segments of oil (crude as well as refined products) and gas pipelines. If implemented, this proposal would bring 17,900 km of existing overland pipelines in the hydrocarbon sector and another 16,700 km proposed oil and gas pipelines, under the ambit of one mega utility.  At present, GAIL owns and operates about 5,400 km of natural gas pipelines to carry more than 100 million standard cubic meters a day of gas and about 1,900 km of exclusive LPG pipelines to carry about 40% of the national consumption. Furthermore, IOC, BPCL, HPCL and Petronet India together operate about 6,600 km of product pipelines to carry about 50 mmtpa of petroleum products.


GIAL monopoly over pipelines to go: Aiyar


December 16, 2004. Government will end Gail India Ltd's monopoly over laying natural gas pipelines by allowing private sector firms in the gas transportation business. The Government has already allowed Reliance Industries to lay natural gas pipelines from Kakinada in Andhra Pradesh to Ahmedabad in Gujarat via Hyderabad and Uran. Government has under consideration a draft pipeline policy which envisages development of a natural gas pipeline infrastructure in a competitive environment involving both the public and private sectors. This will encourage competition, efficiency and greater investment in this sector, all of which will ultimately benefit the consumer and the economy in general.


ONGC, Gail to market LPG 


December 15, 2004. The government will allow exploration firm ONGC and gas utility Gail to market domestic lequefied petroleum gas (LPG) to increase penetration of the clean cooking fuel to 75% of the population. ONGC and Gail would be allowed to market subsidised LPG but only in unsaturated semi-urban and rural markets. Indian Oil Corp, Hindustan Petroleum Corp, Bharat Petroleum Corp and IBP have already withdrawn about 5,000 locations in the country for LPG dealerships. ONGC and Gail, besides the four marketing companies, will appoint one LPG dealer for a cluster of 4-5 villages. Though the cooking gas sold in these areas will be subsidised (as is being currently sold to urban markets) the rural consumers would have to pay a small transportation cost. Every block (in a district) will have one LPG dealer.

Policy / Performance


Higher oil profit share for states


December 20, 2004. The Twelfth Finance Commission has recommended that state governments be given half the Centre’s share in profit petroleum and gas available from blocks under the New Exploration and Licensing Policy (NELP).  Profit petroleum is the government’s share from the sale of crude oil or natural gas recovered from fields once exploration and development costs have been recovered. The states will be given the share due to the rising importance of non-tax revenues. States with oil and gas blocks under NELP get 12.5 per cent royalty for onland areas, 10 per cent for offshore and 5 per cent for deepwater. They were given 20 per cent in the pre-NELP blocks. The government, under the four rounds of NELP, signed production sharing contracts (PSCs) for 90 exploration blocks. In addition, 26 exploration blocks were signed prior to NELP.  About 19 discoveries have so far been made in the Cambay onland, north East Coast and Krishna-Godvari deepwater areas under NELP. But none of them had so far started generating profits.


Railways to take on petroleum pipelines


December 18, 2004. The Railways is exploring the option of reducing freight rates for transporting diesel and other petroleum products by over 30 per cent. This could deal a blow to pipeline traffic, where the rates are benchmarked against freight rates. The Railways wants to regain its market share in the transportation of petroleum oil and lubricants (POL) by offering more competitive rates. Over the past few years, pipelines have emerged as a cheaper, and hence preferred, option for carrying petroleum products. 


India, Iran differ on pricing of gas


December 16, 2004. Iran and India have said differences have cropped up over issues like price, security and supply during discussions on the gas pipeline between the two countries. The proposed $4.16-billion gas pipeline was closer to becoming a reality following recent peace moves between India and Pakistan. But price was still a contentious issue. Also, Security of gas supplies to India through the 2,775-km pipeline, 760-km of which will pass through Pakistan, remained a key issue.  Iran has been pursuing the pipeline proposal, which will save India millions of dollars in energy costs, with New Delhi and Islamabad since 1996, but tensions between the two sub-continental neighbours had blocked any progress. An international consortium of bankers and oil firms could build and operate the project. The world over pipelines that were damaged by sabotage were repaired within 48 hours.  


Term contracts for oil purchase limited: Aiyar


December 15, 2004. Affirming that the scope for entering into term contracts for purchase of oil and oil products is limited, the government said oil PSUs have signed term contracts for supply of 42.5 million metric tonnes (mmt) of crude during ’04-05. Oil PSUs have also signed term contracts for supply of 2,143 mmt of LPG from the national oil companies of Saudi Arabia, UAE and Malaysia.  There are enough oil stocks in the country to meet domestic demand and large forex reserves to deal with any contingency. The government is trying to enhance the gas availability through import of LNG and transnational pipeline. The government has either firmed up or is seeking contracts for gas procurement from 30 countries. A development plan in respect of three discoveries made by the consortium of Reliance Industries (RIL), Niko resources in the Krishna-Godavari basin has been approved by the management committee constituted under the production-sharing contracts, as part of the new exploration licensing policy.


India in talks for buying LNG from Yemen 


December 15, 2004. India, which has been trying to break new ground for its energy requirements, either through acquiring oil equity or getting into bilateral deals, is now in talks with French energy major Total to buy LNG from Yemen. A large part of the exploration activities in Yemen are carried out by a consortium of energy majors led by Total. Talks had been initiated with Total for supply of, at least, 2.5 mt of LNG on a long-term basis. Since Yemen is opening up and emerging as gas and petroleum source, India will have discussions on crucial issues like price, and collect data on Yemen’s reserves.  Yemen has been negotiating with India and China for over three years for the marketing of Yemeni LNG. Apart from the Indian and Chinese market, they have been looking out for other buyers too. From Yemen the supply was abundant, but the demand was very low. Yemen had offered two bids — one to India and the other to China. The quantity expected to be annually exported to India and China is 3 mt each.



New system of petro price revision 


December 15, 2004. The Government has hinted that the existing fortnightly revision of petrol and diesel prices may be replaced by a new system that involves monthly or quarterly revisions. Petrol and diesel prices, in keeping with the current practice of fixing prices on 1st and 16th of every month, are due for revision but may not be lowered in sync with the fall in international prices. In 1997 and 2002 the steep fall in international prices and the spurt like that witnessed in 2004 was not taken into account. The Government will therefore have to consider all these volatilities for evolving a stable pricing policy. According to estimates, diesel prices will have to be cut by over a rupee per litre and petrol price by Rs 0.40 if domestic prices are to move in tandem with international markets.






Country’s first IGCC power plant 


December 21, 2004. Bharat Heavy Electricals Ltd is teaming up with National Thermal Power Corporation to set up the country’s first 100 mw thermal power plant based on coal-based integrated gasification combined cycle (IGCC) technology. Since 1988 it has been running a 6.2 mw IGCC demonstration plant which uses coal gas for power generation. It was the first coal-based IGCC plant in Asia and the second in the world. Other central agencies like Bhaba Atomic Research Centre (BARC), National Chemical Laboratories (NCL) are supporting them in this venture.


NTPC plans Lanka plant 


December 20, 2004. The state-run National Thermal Power Corporation, which has moved ahead of Reliance Industries in the market cap stakes, has proposed to set up a 300 mw, Rs 1,500 crore (Rs 15 billion) coal-based power plant in neighbouring Sri Lanka. This is the first global initiative from NTPC. The plant would be put up in joint venture with Bharat Heavy Electricals Ltd and the Ceylon Electricity Board. The project would be developed on a debt-equity ratio of 70:30. Of the 30% equity worth Rs 450 crore (Rs 4.5 billion), CEB would hold not more than 10% and the balance Rs 405 crore (Rs 4.05 billion) would be shared by NTPC and Bhel. The debt of Rs 1,150 crore (Rs 11.5 billion) would be raised from various sources. Coal is to be sourced from Indonesia, Australia or Philippines. NTPC, with an installed capacity of 20,935 mw, proposes to become a 40,000 mw plus company by adding another 20,928 mw in India by the end of 2012.


Orissa Power on expansion mode 


December 16, 2004. The US utility giant AES Corp-managed Orissa Power Generation Corp (OPGC) has appointed German firm, Lah Mayer International, as consultant for its Rs 1,800-crore (Rs 18 billion) expansion project. AES Corp and the Orissa government have 51:41 stake in the power company. There is move to expand capacity of its 2X 210 MW Ib Valley thermal power station (ITPS) at Banharpal in Jharsuguda district by adding two more units of 250 MW each.  The company has built up infrastructure for setting up of four more units as part of the expansion. While OPGC will locate two units on site III and IV of the ITPS, AES Corp will put up two units of 250 MW each at site V and VI. The American company has already signed an agreement with the state government and also a PPA with the state transmission company, Gridco, for sale of power from its own power station on sites V and VI.


Dabhol power plant may restart in '06


December 17, 2004. Lenders to the mothballed $2.9 billion Dabhol power plant, set up by bankrupt US energy trader Enron, aim to restart the plant in 2006. The plant was shut down in May 2001 after a dispute with the Maharashtra state utility. GE and Bechtel hold an 86 per cent stake in the project, while the Maharashtra State Electricity Board owns the rest. The government is keen on restarting the project, once showcased as an example of the country’s ability to attract foreign investment. Further, state-run banks have lent heavily to the project, and the government faces legal claims of $5.2 billion from various stakeholders in the project. The restart would depend on the success of negotiations that lenders were having with the government and said NTPC had agreed to start and operate the plant.


Kudankulam plant to be ready by 2007


December 16, 2004. The Kudankulam Nuclear Power Project for two units 1000 Mwe each will be ready for operation much before the scheduled date of completion. The first unit would be ready by March 2007 and the second by September 2007. The responsibility of entire plant design and the manufacturing and supply of all equipments, training of manpower for operation etc lies with the Russian side and the construction of infrastructure, contract management, erection, commissioning of equipments etc lies with the Indian side, undertaken by the Nuclear Power Corporation of India Ltd.


BHEL bags power plant order


December 15, 2004. Engineering giant Bharat Heavy Electricals Ltd has bagged a Rs 1,198 crore (Rs 11.98 billion) contract from West Bengal Power Development Corp. to set up two units of 210 MW each at Bakreshwar Thermal Power plant on turnkey basis. While Unit 4 of the plant is likely to be commissioned in 32 months, within the 10th five-year plan, the project is scheduled for completion in 35 months. The state-run major had earlier installed the first three units of 210 MW each of the project which is being funded by Japan Bank of International Cooperation.


Bhel kits to extend life of thermal plants 


December 15, 2004. Thermal power plants in the country will live for longer periods than they were intended to thanks to the initiatives of the Central Electricity Authority (CEA) and the new equipment and control systems developed by Bharat Heavy Electricals Ltd, Trichy. Worldwide life extension programme and rehabilitation of ageing boilers through renovation and modernisation programmes with upgraded technology is accepted as one of the most cost-effective methods to augment the present power generating capacity. During the 10th Plan period 57 units in 13 power plants with a capacity of 14,000 mw would be renovated under the life extension programme. The plant load factor would go up to 75% from about 49%. By eliminating the major causes of forced outages like frequent pressure part failures, breakdown of rotating auxiliaries, the unit availability can be increased to a great extent.


DVC to seek new home for plant


December 15, 2004. With Damodar Valley Corporation’s proposal for a 1000MW thermal power plant at Durgapur being turned down by Central Pollution Control Board, the company has decided to apply afresh for setting up the project at another location. DVC had proposed to set up a Rs 4,000 crore  (Rs 40 billion), 2 X 500-MW thermal power plant near Andal in Durgapur in addition to its existing generation facility located at neighbouring Waria. The proposed project is part of DVC’s capacity expansion plan in the 11th Plan period and has been finalised. MoEF reported heavy pollution generated by existing industries in areas adjoining Andal. The fear was that the pollution could climb to unbearable levels if a thermal power plant was set up there. The proximity of the proposed thermal power plant to the already polluted Damodar river was another concern. 


NTPC to open Gandhar unit bidding


December 15, 2004. The National Thermal Power Corporation will open the bidding for the engineering procurement and construction contract of its Gandhar plant in Gujarat. The company is setting the 1300 MW plant for an investment of about Rs 5,200 crore (Rs 52 billion). The plant is part of the 10th plan of the company. The targeted capacity of the plan is 9370 MW. NTPC has just completed the bidding of the Badh (Bihar) and Kawas (Gujarat) plants, which has a capacity of 1980 MW and 1300, respectively.  Out of planned 9370 MW capacity, 2500 MW has already been commissioned; 1500 MW is in its advanced stages of implementation and 4200 MW is expected to be commissioned in the next four months. Included as part of this 4200 MW capacity are plants in, Kelgam in Bihar (capacity-1500MW), Vindhyachal in UP (1000 MW) and Sipat in Chattisgarhgh (980MW).  NTPC will start implementation of the plants at Talchar in Orrisa and Rechind in UP with a total capacity of 500 MW.


Transmission/ Distribution / Trade


MSEB proposes capacity addition  


December 20, 2004. The crisis-ridden Maharashtra State Electricity Board has planned a capacity addition of more than 8,000 mw during 10th and 11th Plan periods to tackle the power shortfall. However, MSEB has made it clear that its proposed capacity addition would be dependent on the availability of necessary finances, coal, gas, water and land, clearances from statutory authorities, including Maharashtra Electricity Regulatory Commission (MERC). MSEB has been forced to prepare an action plan, especially as the peaking shortfall has touched over 3,000 mw due to increase in demand and free supply to farmers. Maharashtra’s peaking shortfall is expected to rise to over 7,000 mw in next five years. TPC has already submitted the proposal to set up a 1,000 mw coal-based project in coastal Raigad district. Similarly, REL has desired to make investment in the setting up of a 3,000 mw gas-based project in Raigad district. MSEB is banking on the revival of the now closed Dabhol phase-I (658 mw) and the completion of phase-II (1,444 mw). Besides, it is optimistic that the 250 mw coal-based Parali project would be commissioned by July 2006. It has launched a drive to complete the 250 mw Paras project by November 2006. 


CERC to revise power transmission norms 


December 15, 2004. Central Electricity Regulatory Commission (CERC) is going to revise its regulations on open access in inter-state power transmission. CERC has circulated a staff paper on amending open access regulations in inter-state power transmission, as part of the consultation process with various stakeholders, who have been asked to give their comments by December 31st. This would be followed by a public hearing in January. The paper has opened up three major issues for debate namely, whether the existing transmission should continue for power trading within a region or it should be replaced by a new scheme, in which no transmission charges are levied within the region, but incremental transmission losses are applied to the traded power.  Secondly, devising a methodology for levying transmission charges for the use of inter-regional links, so that charges are equitably shared among the actual users and those obliged to pay full charges of inter-regional links. The third issue it has raised is related to whether the available transmission capacity should be rationed or should it be reserved through electronic bidding on a monthly basis.


Policy / Performance


Centre plans sale of Dabhol assets 


December 21, 2004. The government is planning to transfer the assets of Dabhol Power Company to the Debt Recovery Tribunal and then sell them to prospective bidders. The option of Indian lenders, NTPC and GAIL, chipping in with Rs 500 crore (Rs 5 billion) each has now been dropped following their strong reservations.


Power reforms plan to be evaluated


December 20, 2004. The power ministry and Planning Commission are looking to separately evaluate the Accelerated Power Development Reform Programme (APDRP). The APDRP, the first incentive-based reform programme in the power sector aimed at accelerating distribution reforms, is widely perceived to be a failure. The Planning Commission is of the view that the programme, launched by the government in 2003, has not had the desired impact and should be reformulated as a purely incentive-based scheme. The programme was not meeting its objectives and focussed too much on expenditure instead of the outcome. The plan body is, therefore, considering a proposal to review the programme. The Programme Evaluation Office is expected to outsource the job to an independent agency.   The power ministry, on the other hand, is contracting the appraisal to five independent agencies, including The Energy and Resources Institute (Teri), Indian Institute of Management, Ahmedabad, and the Administrative Staff College of India. None of these agencies were involved in the formulation of the APDRP. The power ministry is also strengthening the APDRP and increasing the number of parameters on which states are monitored from 15 to 29. These are proposed to be raised further to 40 by the end of next month. 


Power to cost more in Rajasthan


December 18, 2004. Electricity rates are to go up in Rajasthan from this coming January for almost all categories of consumers except the big industries. The increased rates, which range from Rs 0.25 - Rs 0.75 per unit, will not however affect the agriculture and domestic customers for the next three months.  The new tariff order envisages an additional annual income of Rs 522 crores (Rs 5.22 billion) The increase would amount to an income of Rs 130.54 crores (Rs 1.3 billion) for three distribution companies (Discoms) based at Jaipur, Ajmer and Jodhpur in the current financial year. The net deficit of the three companies is estimated at Rs 248 crores (Rs 2.48 billion). With the new regime, the power rates have gone up in the case of domestic consumers from Rs 1.70 per unit to Rs 1.95 per unit (up to 50 units) and from Rs 2.75 per unit to Rs 3.50 per unit thereafter. In the case of domestic connections with fixed rates up to 50 units, the new tariff is Rs 80 a month against the previous Rs 50.


Power sops for farming ‘harm ground water’


December 17, 2004. Lower power tariff structure for agriculture is harming ground water level. Researchers have expressed their concern over low power tariff for agriculture and the resulting harm it does to water level in many states.  According to estimates, about 48 per cent of all irrigation water is sourced from ground water in the country. Until the early ‘70s well water was 1-5 metre deep, by the mid ‘80s it has receded to 10 metre, and today the water table has sunk to an average of 50-150 metre deep. Consumption of energy and water are closely tied to productivity of the land and the livelihood of farmers. Highly subsidised power supply policies for agriculture and non-commercial operating practices of utilities have major implications for the overall condition of power sector and associated water resources issues. Agriculture accounts for about 27 per cent of the total electricity consumption in India. In India, water and energy tariffs are lowest for farm consumers, free or nearly free, owing to higher subsidies. Agriculture accounts for nearly 30 per cent of the total electricity sales but only five per cent of the total sales revenue in the country in recent time, which illustrates the gravity of the problem. According to Planning Commission report published in 2002, the share of agriculture in electricity sales in 2001 -02 in Haryana was 47.2 per cent, in Gujarat 46 per cent and in Andhra Pradesh, Karnataka, Madhya Pradesh, and Rajasthan about 40 per cent.


Towards energy conservation and rational pricing


December 16, 2004. The Prime Minister, Dr Manmohan Singh, launched a multi-sectoral National Campaign on Energy Conservation with the twin objectives of fostering public awareness of the importance of energy conservation and to make people part of the energy conservation drive by optimising the use of energy. India with inadequate financial resources and reliant on imported crude for three-quarters of its fossil fuel demand can ill-afford to fritter away its precious energy through lack of a cohesive strategy. Without an economic pricing policy, albeit the one that is sensitive to social inequities and income disparities, it will not be possible for Government to sincerely address the challenge of energy conservation. Dr Singh pertinently urged the industry and trade to make their research agenda to be sensitive to the imperative necessity of promoting maximum possible conservation of energy that provides the built-in incentive for consumers to voluntarily try and conserve energy through its optimal and rational utilisation.


More power to villages


December 16, 2004. The Cabinet Committee on Economic Affairs (CCEA) approved in-principle a new rural electrification scheme with enhanced Central subsidy. It also cleared the construction of a transmission system at an estimated cost of Rs 464 crore (Rs 4.64 billion) for evacuating power from the National Thermal Power Corporation’s Kahalgaon power project in Bihar. The committee also approved the first revised cost estimate of Rs 322.55 crore (Rs 3.23 billion) for the 84 megawatt Agartala Gas Turbine Power Project to be executed by the North Eastern Electric Power Corporation in Tripura. The estimate includes interest cost during construction of Rs 10.57 crore (Rs 105.7 million) and working capital margin of Rs 4.95 crore (Rs 49.5 million). The cost of the 4x21 MW project had been originally estimated at Rs 294.05 crore (Rs 2.94 billion).  The power ministry proposed to raise the grant component to 90 per cent from 40 per cent at present. The remaining 10 per cent is to be funded through debt. The scheme will entail an additional Central outlay of Rs 3,000 crore (Rs 30 billion) during the remaining period.  It is estimated to cost Rs 17,000 crore (Rs 170 billion) to provide electricity to all 7.8 crore (Rs 78 million) rural households by 2009. The government will need to spend Rs 10,000 crore during the Tenth Plan period, while Rs 7,000 crore (Rs 70 billion) is to be spent over the first two years of the Eleventh Five Year Plan.


Power, oil ministries disagree over Neepco project


December 16, 2004. The snapping of gas supplies to the North Eastern Electric Power Corporation’s (Neepco’s) power plant in Tripura has become a source of contention between the petroleum and power ministries. The power ministry wants gas supplies to be restored to the project, which is coming up in western Tripura. The petroleum ministry is the nodal agency for allocating natural gas to various consumers in the country. The ministry had asked GAIL India Ltd to write to Neepco asking why its linkage should not be cancelled. The reason cited was the slow progress of the project.  Initially, Neepco’s Monarchak gas-based project was to have a capacity of 500 mw. But this was scaled down to 280 mega watts owing to the limited quantity of gas. Though Neepco had demanded 2 million standard cubic metre per day (mmscmd) of gas, GAIL had agreed to supply 1 mmscmd of gas under the deal signed in September 2004.  Neepco has completed pre-project activities and the plant is estimated to cost Rs 977 crore (Rs 9.77 billion).  Oil and Natural Gas Corporation (ONGC) has meanwhile gone ahead with its announcement of a gas-based power plant in Tripura. It has tied-up with Infrastructure Leasing and Financial Services (IL&FS) and the Tripura Power Development Corporation for the project.


Government not to divest equity in power PSUs


December 15, 2004. Government said it had no proposal to divest its equity in some of the public sector power firms. In the past few months, financial closure of 11 private power projects with an aggregate installed capacity of about 4001.8 MW has been achieved. The projects include Jindal Power Ltd's 550 MW Raigarh thermal project and 500 MW Torangallu expansion project, Everest Power's 100 MW Malana-II plant and Torrent Power Generation Ltd's 1050 MW Akhakhol gas-based plant. Other projects achieving financial closure are Vemagiri Generation Power Ltd's 370 MW Vemagiri gas-based plant, Gautami Power Pvt Ltd's 464 Peddapuram gas-based plant, GVK Industries' 230 MW Jegurupadu Expansion, Konaseema EPS Oakwell Power Ltd's 445 MW Konaseema gas-based plant, Jamshedpur Power Co's 120 MW Jojobera expansion plant, Arkay Energy Ltd's 52.8 MW Valantharavai gas plant and Aban Power Co Ltd's 120 MW Karuppur gas plant. In Non Conventional Energy Sector Rs 50,000 crore (Rs 500 billion) investment was required to add 10 per cent additional power generation capacity through renewable sources of energy by 2012. 


Bengal government drafts plan for power reforms


December 15, 2004. The Bengal government has lined up plans to add some 3000 mw through a combo of expansion-cum-greenfield thermal projects to be promoted by state-owned WBPDCL and DPL during the 11th Plan (2007-2012). Total investment in these West Bengal government-promoted thermal projects is envisaged in excess of Rs 12,000 crore (Rs 120 billion). Among the biggies are 1000 mw greenfield thermal plant at Katwah or Balagarh, commissioning two 500 mw unit each at Bakreswar and Durgapur, besides implementing the 1000 mw Sagardighi Phase-II. While WBPDCL will implement the Bakreswar-VI, Sagardighi-Stage II and the 1000 mw greenfield thermal venture, state-owned Durgapur Projects Ltd (DPL) will commission a brand new 500 mw unit within its existing power complex.


Japanese power company keen on investing in AP


December 14, 2004. Japanese company Marubeni has expressed interest in investing in power sector in Andhra Pradesh. Japanese government and Japanese Bank for International Cooperation (JBIC) would continue to help Andhra Pradesh in the power sector and other areas.








Husky to invest in 2005


December 14, 2004. Husky Energy Inc. set a C$2.5 billion ($2 billion) capital spending budget for next year and said it is eyeing a production rate in 2005 of between 325,000 and 350,000 boe/d. Calgary, Alberta-based Husky, which is controlled by Hong Kong tycoon Li Ka-shing, said it plans about C$1.3 billion in capital spending in Western Canada, C$460 million for its White Rose offshore oil project on the east coast and C$40 million in its interests in the South China Sea, East China Sea and Indonesia. The C$2.5 billion in capital spending for 2005 is up from the C$2.3 billion it now expects to spend this year which is itself above the C$2 billion it had provided as guidance for 2004 before the year began.  Husky expects light oil and natural gas liquids production in 2005 of between 64,000 and 71,000 boe/d, while medium oil will between 32,000 and 36,000 boe/d and heavy oil production will be between 112,000 and 120,000 b/d. Natural gas production is expected to be between 700 million and 740 million cubic feet per day, the company said.


ChevronTexaco to expand spending


December 14, 2004. ChevronTexaco said that it would increase capital spending in 2005 to $10 billion, and focus on exploration and production projects in the Gulf of Mexico and West Africa. The company raised its oil price range for planning to $20 to $30 a barrel up from $15 to $25 a barrel.  The company can achieve the goal through strong anticipated increases in production from 2006 through 2008.  ChevronTexaco said 2005 spending will rise from the estimated $8.5 billion it will spend on capital and exploratory uses in 2004. The oil giant added that it would continue to focus on high-return upstream growth projects, as well as commercialise its large natural-gas resource base and enhance the returns of its refining and marketing business. Approximately 74 percent of total capital spending, or $7.4 billion, is targeted for investment in exploration, production and global gas-related projects, with $2.5 billion in the United States, according to the company. Of the $10 billion, $1.8 billion of the spending will be done by affiliates of ChevronTexaco.


Swift to buy fields in Luisiana


December 14, 2004. Oil and gas Production Company Swift Energy Co. reported that it agreed to pay $27.3 million in cash for interest in two Louisiana gas and oil fields with the intention of investing in and developing their reserves. The company said it plans to purchase interests in the Cote Blanche Island Field and Bay de Chene Field from Enervest Management Partners Ltd. and, in a separate transaction, purchase the remaining 50 percent interest in certain areas of the Bay de Chene Field from another unnamed company. The first transaction had an effective date of Nov. 1 and was expected to close 45 days thereafter, and the second transaction is effective Dec. 31, the company said.  The company plans to spend an additional $15 million to $20 million in 2005 to develop the fields, which currently produce less than 1,000 barrels of oil equivalent, or Boe/d. Swift said the fields have proven reserves of 5.6 million boe and 9.8 billion cubic feet of natural gas, or a total of 7.3 million boe.


Gazprom and Norsk Hydro in gas study deal  


 December 14, 2004. The chairman of the Board of OAO Gazprom, Alexey Miller, and Hydro president and CEO Eivind Reiten have signed a Memorandum of Understanding in order to conduct a series of joint studies about gas projects. Based on this agreement Gazprom and Hydro will continue to cooperate in developing the Shtokman gas field from reservoir to market. In particular, the parties will study the possibility of the Shtokman development based on Hydro's Ormen Lange sub-sea technology, the LNG value chain as well as aspects of commercial cooperation, marketing aspects and financial analysis.  The companies will also study the possibility of Gazprom' participation in oil- and gas field developments owned by Hydro, including Ormen Lange.


Unocal to spend more in Thailand


December 15, 2004. U.S. energy firm Unocal Corp. will spend $580 million to boost oil and gas exploration and production in Thailand next year, a 26 percent increase from its 2004 investment, its Thai unit said. The investment will primarily be spent to double our crude production to 40,000 b/d next year.  About 60 percent of its current 20,000 b/d crude production was sold domestically. Unocal, which has 16 trillion cubic feet of gas reserves in Thailand, would raise its daily gas sales by 20 million cubic feet (mcf) to 1.2 billion cubic feet (bcf) in 2005 from now, and to 1.5 bcf in 2006. Unocal Thailand, a concessionaire of offshore oil and gas fields in the Gulf of Thailand and a stake holder in three power plants, is one of three top revenue contributors to Unocal's balance sheet, after the United State and Indonesia. Unocal planned to pull out of domestic electricity business after the government shelved plans to liberalise the electricity market. It would soon sign a preliminary agreement to sell its 30 percent stake in 700-megawatt (MW) Independent Power (Thailand) Ltd. to Thai Oil, and was looking for buyers for 30 percent stake each in three other plants with a combined capacity of 285 MW.


Myanmar, Sino-S'pore group ink exploration deal


December 15, 2004. State-owned Myanmar Oil and Gas Enterprise and a China-Singapore consortium have signed two production sharing contracts to explore for oil and gas in two offshore blocks, an energy ministry official said. The consortium comprises China's dominant offshore oil producer, China National Offshore Oil Co. Myanmar Ltd. of China, China Huanqiu Contracting and Engineering Corp. as well as Singapore's Golden Aaron Pte. Ltd. Under these contracts, the signatories will cooperate in the exploration of oil and gas at Block A-4 off the Rakhine coast and Block M-10 in the Gulf of Moattama. In October, the same partners signed a production-sharing contract to explore Block-M, a 7,760 square km (2,996 sq mile) onshore block in Kyaukphyu Region in Rakhine State. Myanmar has a total of 87 trillion cubic feet (2.46 trillion cubic metre) of gas reserves and 3.2 billion barrels of recoverable crude oil reserve in its 19 onshore and three major offshore oil and gas fields, official data shows. A total of 349,845.75 million cubic feet (mcf) of gas and 7.165 million barrels of crude oil were produced in the fiscal year 2003-2004 (April/March). During that period, Myanmar earned $673 million from the export of 200,155.6 mcf of gas.


India to invest $1 billion in Iranian gas field 


December 16, 2004. In its first upstream venture abroad, Indian Oil Corporation (IOC) would invest about US $1 billion for developing gas and converting it to LNG in the South Pars field in Iran.  Total investment for the project is about 5.7bn US dollars and that of IOC would be about 1bn US dollars. After the DFR is received, the company would approach the National Iranian Oil Company for the block.  IOC had sufficient reserves of about Rs 220bn and if the government gives permission funds can be raised by selling IOC's stake in GAIL and ONGC. The company was also planning to rope in OIL India for the venture. 


Gas discovery in Equatorial Guinea 


December 16, 2004. Marathon Oil, through its wholly-owned subsidiary Marathon E.G. Production Limited, announced a natural gas and condensate discovery on the Alba Block (Sub Area B) offshore Equatorial Guinea. The Gardenia discovery well is located approximately 11 miles southwest of the Alba Field in 320 feet of water. The well was drilled to a total measured depth of 15,175 feet and encountered 150 feet of net gas/condensate pay in the Upper Isongo section, which is also productive in the Alba Field. A 60 foot net pay interval was tested at a stabilized rate of 18.6 million cubic feet of gas and 1,300 barrels of condensate per day on a 40/64" choke.


Duke eyes $1 bln for natural gas expansion


December 17, 2004. U.S. power company Duke Energy Corp. said it plans to invest about $1 billion over several years to expand its pipeline and storage capacity to cash in on growing demand for natural gas. Soaring oil and gas prices have fueled interest in the U.S. natural gas and liquefied natural gas (LNG) markets, spurring several acquisitions in recent months. Duke said it expected to spend about $350 million to $400 million in capital expenditures annually to expand in the arena, noting fast growing U.S. demand for LNG, among other things.


Big gas find off Trinidad


December 16, 2004. BP Trinidad and Tobago it had made a major natural gas discovery off the east coast of Trinidad.  The field could reach 2 trillion cubic feet (tcf) adding roughly 10 percent to the Caribbean country's proven gas reserves of 18.18 tcf. In addition, Trinidad and Tobago lists 5.89 tcf of probable gas reserves.  The well, 50 miles (80 km) off the coast, reached its final depth of 15,632 feet sub-sea on Dec. 13, and penetrated 1,400 feet of gas-bearing sands in four main reservoirs.  Located some seven miles (11 km) southeast of bpTT's Mahogany field, the well sits in 330 feet of water. Trinidad and Tobago has become the top oil and gas producer in the Caribbean. It is the single largest supplier of liquefied natural gas to the United States and pumps around 135,000 barrels per day of crude.


Output at 1 mboe/d till 2015


December 16, 2004. Energy group Statoil expects that it may be able to keep oil and gas output from Norwegian fields at a million barrels of oil equivalent per day (boed) until 2015, chief executive Helge Lund said. Lund told analysts at a capital markets day in west Norway that the company had been examining its long-term outlook in recent weeks. Statoil said earlier that it was raising its output target for 2007 to 1.4 million boe/d from 1.35 million. Almost all of Statoil's total is off Norway.


China signs exploration contract with Myanmar 


December 20, 2004. A Sino-Singaporean consortium has just signed a major oil exploration contract in Myanmar and three more are in the offing, signalling a "breakthrough" for the Communist giant's quest for energy resources to power its booming economy. The joint group of China National Offshore Oil Corporation (CNOOC), China HuanQiu Contracting & Engineering Corporation and Singapore Golden Aaron Pte Co. Ltd signed a production share contract of Block A4 and Block M10 offshore exploration with the Myanmar Oil and Gas Corporation under the Ministry of Energy in Yangon. Areas for exploration are offshore of Ramree Island and Cheduba Island. Block M10 locates in Mottama and covers 5320 square miles with the exploration area also on the offshore, it said.  Myanmar's Energy Minister Brig-Gen. Lun Thi said the Investment Committee of Myanmar also ratified another three blocks to CNOOC and the contract would be signed in January next year. "Adding the above-mentioned three blocks, the total areas for exploration will surpass that of Bohai Oil Field in China, which stands for a breakthrough of Chinese oil companies coming to Myanmar for the offshore and onshore oil joint exploration," the report said.


CB&I wins major U.S. LNG expansion project


December 20, 2004. CB&I has been awarded a lump-sum turnkey contract for a liquefied natural gas (LNG) terminal expansion project located near Lusby, Maryland. This import terminal, one of the largest LNG facilities constructed by CB&I in the United States, is owned and operated by Dominion Cove Point LNG, LP, a subsidiary of Dominion one of the largest U.S. energy producers.  CB&I's scope of work for the Cove Point Expansion Project includes the engineering, procurement, construction and commissioning of an additional 800 million standard cubic feet per day (SCFD) of regasification and sendout process equipment; gas turbine generation; two 160,000 cubic meter LNG storage tanks; and new administration, control and maintenance buildings and all ancillary systems. The project will increase the facility's sendout capacity from 1 billion SCFD to 1.8 billion SCFD, and nearly double storage capacity from 7.8 billion cubic feet to 14.6 billion cubic feet of natural gas. Field construction is scheduled to commence upon receipt of required regulatory approvals, with completion expected in late 2008.




Brazil light oil by mid-2006


December 17, 2004. Brazil's state oil company, Petrobras, expects to pump the first light oil from its deepwater Golfinho field by mid-2006, a first step in substituting imported light crude with domestic output. A 100,000-b/d vessel-based floating rig would be installed on the field in the Espirito Santo basin for the first phase of the project. Brazil expects to become a net crude exporter by 2006, but it will have to keep importing light oil for some time after that to blend with heavy crude it produces for refineries to be able to process it. It aims to export 550,000 b/d of crude and products in 2010. Estrella also said that production of natural gas from huge reserves in the Santos basin should start in 2008. The initial plan was to start gas output there in 2009, but an expected rise in gas demand should make Petrobras push the project forward. This year, Petrobras put into operation a 100,000 b/d rig on Marlim Sul field, which is producing about 60,000 b/d, and has connected the much-delayed 150,000 b/d P-43 platform on the Barracuda field, which starts producing this month.  By mid-January, the P-48 with the same capacity should pump its first crude from the neighboring Caratinga field. They will be followed by 180,000 b/d P-50 at Albacora Leste in mid-2005 and 80,000 b/d P-34 rig at Jubarte field. Petrobras expects to reach an output of 1.72 million b/d next year, which compares with the country's current needs of about 1.8 million b/d.


Kuwait to start building new refinery in 2007


December 19, 2004. Oil-rich Kuwait will begin building a $3.5-billion 450,000 b/d refinery in 2007, the head of state-owned Kuwait National Petroleum Co (KNPC) said. The ecologically-friendly plant, which will produce cleaner fuels for Kuwait's power generation plants, should be completed by 2010, KNPC Chief Executive Officer and Managing Director Sami Rushaid said. According to KNPC's plan, the new refinery which will also produce kerosene and diesel is expected to start operations at the same time as the ageing 200,000-b/d Shuaiba refinery will be shut down. The tiny Gulf country which controls one tenth of global oil reserves currently has three refineries with a total crude processing capacity of 930,000 b/d. The new refinery is one of several projects being developed by OPEC-member Kuwait in the energy sector over the next two decades at an estimated total cost of up to $40 billion, including a plan to upgrade its total oil production. Kuwait can now produce crude oil at a maximum rate of about 2.5 million b/d but plans to increase that to 4 million b/d by 2020.


Construction of heavy crude refineries inevitable: Iran


December 20, 2004. Given the fact that Iran has over 20 billion barrels of heavy crude oil, construction of crude oil refineries to meet domestic requirements seems to be inevitable. Regarding the considerable heavy crude reserves in Iran, and the Oil Ministry’s plans for exploitation of them, that is to begin within the next five years, preliminary steps should be taken now to construct heavy crude oil refineries in the country, said director of the Heavy Crude Oil Research Projects of the Oil Ministry Riaz Kharrat. Referring to the cessation of the heavy crude production from Sorush and Noruz oilfields following the recent decline in the price of the commodity, the official commented that “if we had heavy crude oil refineries inside the country, we would be able to make use of these reserves without having to cut production.” He also stated that most of the heavy resources are located in the Mond and Zagheh reservoirs adding, “However, in order to obtain the required information, seven oil rigs have been drilled in the region, so far.”


Transportation / Trade


Kuwait agrees to import Iraqi gas  


December 15, 2004. Kuwait has agreed with Iraq to import up to 5.6 million cubic metres of Iraqi natural gas daily, in a deal eventually worth billions of dollars, a senior official said. A joint economic commission between the two neighbours approved a memorandum of understanding (MoU), which is expected to be signed by the two governments within a week, Kuwaiti energy ministry under-secretary Issa Al Oun said.  Al Oun, who heads the Kuwaiti side in the joint body, said the project, including the building of facilities and rehabilitation of a pipeline that will carry the gas, would cost 240m Kuwaiti dinars (about $810m). In the first phase, Kuwait will import some 1m cubic metres of Iraqi gas daily in a project estimated to cost $27m of which the emirate will pay $20m, the official said. Details for the second phase will be discussed in a meeting three months from now, Al Oun said. It is estimated to cost $786m of which Kuwait will pay $440m and the rest will be paid by Iraq, he said. Kuwait was receiving about $200m cubic feet daily of gas from Iraq between 1986 and August 1990, when Iraqi troops invaded the emirate, through a 100km pipeline which has a capacity of 11m cubic metres daily. Kuwait, which is rich in oil but poor in natural gas resources, also agreed to increase its exports of refined products to Iraq to help the war-ravaged country cope with fuel shortages, Al Oun said. The quantity of petrol will be raised from 2m litres daily now to 3m litres daily from January 1 for six months, he said. Kuwait will also export up to 1.5 million litres (330,000 gallons) of diesel daily in addition to 180,000 tonnes of liquefied petroleum gas (LPG) daily to Iraq until the end of June next year, Oun said.  The two sides however agreed to suspend studies on the possibility of establishing an oil pipeline to export about 250,000 barrels daily of Iraqi crude oil through Kuwaiti ports, Oun added.


Gas exports to go up by 2015-Siberia


December 14, 2004. Tapping the Kovykta (East Siberia) and Shtokman (Barents Sea) fields will boost the production and export of gas by 2015, says the average-term draft program for the social and economic development of Russia. According to the ministry, without these fields' development the production of gas will reach 690 billion cubic meters and with it 765 billion cubic meters by 2015. The export of gas may come up to 266 and 307 billion cubic meters, respectively.  "Realization of these massive projects in the oil and gas complex will require support from the state in the form of production sharing agreements and the creation of a favorable investment climate without taking funds from the federal budget," the ministry reports. The ministry assesses investments to be made in the production of gas in 2005 to 2015 at between 122.5 billion (without the fields' development) and 160 billion dollars (with account for their development).  Tapping Kovykta intends start of its gas production in 2007-2008. The production of gas at Shtokman on the production-sharing terms may begin in 2010. After 2015 gas production may begin on the Yamal peninsula, the ministry said.


U. S Sabine LNG plant approved


December 15, 2004. U.S. regulators approved Cheniere Energy's plans to build what would be the largest LNG receiving terminal in the United States. The new terminal proposed by Cheniere's Sabine Pass LNG unit is slated for southwest Louisiana along the Gulf of Mexico, with capacity to receive 2.6 billion cubic feet of fuel a day. Cheniere additionally received approval from the Federal Energy Regulatory Commission to build a 16-mile pipeline connecting the terminal with a delivery point in Johnson's Bayou, La. ChevronTexaco Corp. which has been seeking an LNG presence on the Gulf Coast, earlier in the week set a 20-year agreement with Cheniere that will reserve 700 million cubic feet a day in regasification capacity at the Sabine Pass terminal. The commission has approved 7 LNG projects in the past two years in the hopes of boosting supplies. A steady climb in prices and demand has made LNG an attractive alternative, and the regulatory commission has said it is committed to acting swiftly on project applications. The United States imported a record 507 billion cubic feet of LNG in 2003 and imports for the first 10 months of 2004 rose by roughly 30 percent over year-earlier levels to 547.2 billion cubic feet, according to the Energy Department. A dozen LNG terminal projects have resulted in talks or applications before the commission. The largest concentration of proposed terminals lies in the Gulf of Mexico. Plants proposed in the Northeast and California have met with local resistance.


ExxonMobil, Qatar land LNG financing


December 15, 2004. ExxonMobil Corp. and Qatar Petroleum they had lined up $7.5 billion toward financing their giant Qatargas II project, which aims to export liquefied natural gas from the Middle East nation to Britain. The companies said they tapped 57 financial institutions to fund the project, which carries an overall price tag of $12 billion. About $6.5 billion of the $7.5 billion raised to date is in the form of debt. The two companies also said they had awarded $4.5 billion in engineering and construction contracts linked to the project, under which LNG shipments would commence during the winter of 2007-08 using eight tankers engaged on 25-year charters.


Companies line up for Brazil tanker order


December 15, 2004. Thirty-eight firms from as far as Europe and Asia have registered interest in the first phase of a $1.9 billion order by Brazilian state oil company Petrobras to build 42 oil tankers. The first phase calling to build 22 vessels is valued at $1.1 billion and the second phase's 20 tankers are estimated to cost $800 million although the final cost may change as the tender progresses. A third tender for 10 supply ships and 1 storage vessel will follow. The fleet expansion involves the construction of 3 million deadweight tonnes of double-hulled vessels. The first vessels are scheduled for delivery in 2006. Machado said Petrobras was spending $700 million a year chartering 63 tankers. Its fleet totals 110 vessels. Under the terms of the tender, at least 65 percent of the contracts will have to use domestic suppliers, in line with all major construction projects carried out for Petrobras.


West Africa breaks ground on pipeline project


December 16, 2004 Ghana's President John Kofi Agyekum Kufuor recently broke ground on the $600-million West African Gas Pipeline. The 693-km pipeline will transport natural gas from the Niger Delta in Nigeria to provide clean, reliable fuel for power generation and industry in Benin, Togo, and Ghana. Availability of power is a key constraint in the development of these countries, and gas from WAGP is expected to have a major impact on economic growth in the region. The pipeline's owners/developers are the Nigerian National Petroleum Corporation, ChevronTexaco, Shell, the Volta River Authority of Ghana, Societe Togolaise de Gaz, and Societe Beninoise de Gaz. The project is also supported by The World Bank, which recently approved $125 million in partial risk guarantees. WAGP is the first pipeline in the world developed through the cooperation of four countries and is the first regional project developed under the New Partnership for Africa's Development (NEPAD).


Gas pipeline project completed in Iran


December 19, 2004. The laying of Sirri-Qeshm gas pipeline has been completed reaching Qeshm after traversing a distance of about 107 kilometers. Announcing this, Director of the Oil and Gas Affairs Department at Qeshm Free Trade Zone Ebrahim Raduafzun said that about $25 million has thus far been spent on the gas pipeline project which would have a delivery capacity of 1.2 to two million cubic meters of gas. Raduafzun said the gas transfer project had been designed and commissioned by the Continental Shelf Oil Company and National Iranian Oil Company after a series of marathon talks to meet the gas shortage of industrial townships in Qeshm Free Trade Zone. He said the project for collection of gas associates in Sirri field and extraction of the liquids would take about three to four years. He added that the enriched gas would be in the free flow form until the LNG unit is put into operation, he added.


Subsea 7 wins Brazil pipeline contract


December 20, 2004. Norwegian subsea contractor Subsea 7, a unit of Siem Offshore said that it had won a $250 million engineering, procurement, installation and construction deal from Brazil's Petrobras "The contract, valued in excess of $250 million, is for pipeline installation in the deeper part of the development programme for the re-distribution of oil and gas transport within the Campos Basin known as PDEG (B)," Subsea 7 said in a statement to the Oslo bourse. It said the work, for Brazil's state oil company Petroleo Brasileiro SA, included engineering, procurement, fabrication, installation and pre-commissioning of six pipelines located in the Campos Basin offshore the state of Rio de Janeiro.


Williams, BC Hydro cancel pipeline plan


December 20, 2004. Williams Cos. and BC Hydro scrapped a plan to build a $209 million natural gas pipeline from Washington State to Vancouver Island saying it was not needed after a related power plant project was scrapped. BC Hydro's plan to build a natural gas-fired plant on Vancouver Island near Nanaimo was shot down by provincial regulators last year as too costly, and the utility has been looking at other ways to meet the island's growing electricity demand. The proposal to build the 84-mile (135 km) pipeline from the mainland across the Strait of Georgia to the island has been on hold since September 2003, although the plan had received approval from both U.S. and Canadian federal energy regulators. Tulsa, Oklahoma-based Williams said that, because of the Canadian regulatory process, BC Hydro will pursue other alternatives to meet short-term energy needs and will move forward with plans to replace aging electric transmission cables from the mainland.


Policy / Performance


Ivanhoe, Ecopetrol sign MOU crude upgrade project


December 16, 2004. Colombia's state oil company Ecopetrol and a subsidiary of Canadian Oil Company Ivanhoe Energy have signed a memorandum of understanding that could lead to heavy crude upgrade projects using oil from the Llanos basin, Ivanhoe said. Ivanhoe owns Ensyn Petroleum International, which has a proprietary heavy-to-light oil conversion technology known as RTP. In the first phase of the agreement, Ivanhoe will study heavy crudes from the Castilla and Chichimene fields to assess the value that could be added to them through the application of the RTP.  RTP upgrades heavy crude in the field into more valuable and easier to transport lighter crude in a process that produces large amounts of surplus energy for on-site steam and power production. US oil company Chevron previously operated Castilla and Chichimene, which are in the Cubarral block and produce 13 and 20-degree API crude, respectively.






SunPower to double manufacturing capacity


December 14, 2004. SunPower Corp., a subsidiary of Cypress Semiconductor Corp. announced it will expand the manufacturing capacity of its solar cell factory in the Philippines to 50 MW by the second half of next year doubling its current capacity. This capacity expansion will allow SunPower to better meet the high levels of demand for its solar cells and modules following their market introduction earlier in 2004.  The new production line will be constructed within the company's existing 225,000 square-foot SunPower Manufacturing Limited (SPML) facility near Manila, which the company opened in March of this year. The building footprint is designed to allow future capacity expansion to more than 100 MW approximately 32 million wafers per year.  Demand for solar electric systems has been growing rapidly. According to Strategies Unlimited, a leading independent market research firm, industry shipments are projected to have increased by 47 percent to more than 990 MW in 2004 and have grown on average by more than 40 percent annually over the past five years.


Peabody, AEP sign multi-year coal contract


December 15, 2004. Coal miner Peabody Energy said it agreed to sell up to 98 million tons of coal to American Electric Power for about $1.2 billion. The agreements include coal supplies from the Powder River Basin, Northern Appalachia, Central Appalachia and Midwest, for contract terms that extend as long as 2014. The coal will be used at AEP generating plants in six states. The companies also said they have resolved outstanding lawsuits regarding coal supplies.


Big Creek hydropower plant potential increased


December 15, 2004.  Southern California Edison (SCE) increased the potential power output of its 1,020-megawatt Big Creek hydropower project in California. SCE curtailed the power output by just 420 MW compared with a curtailment of 550 MW. The Big Creek station is located in Shaver Lake in Fresno County about 240 miles southeast of San Francisco. There are 23 generating units at Big Creek.


Coal-fired power plant in Philippines


December 15, 2004. DMCI Holdings Inc. has inked a memorandum of understanding (MOU) with the local government of Concepcion, Iloilo for the proposed construction of a coal-fired power plant. Under the MOU, DMCI will conduct studies on the feasibility and viability of a power project within the municipality. "It is the objective of both DMCI and the municipality to engage in an exclusive mutual cooperation in order to facilitate the expeditious and orderly conduct of all activities in the municipality that are essential for the implementation of the coal-fired power project," the MOU said.  The MOU also states that the municipality shall refrain from entertaining any other company that may also offer to build a coal-fired power plant in the municipality. The municipality of Concepcion has made known to DMCI its desire to host the coal-fired power plant and identified a potential plant site. DMCI, on the other hand, has undertaken a preliminary inspection of the potential plant site and found it suitable. DMCI is engaged in coal production through subsidiary Semirara Mining Corp., the country’s largest coal producer.  At present, Semirara accounts for 92 percent of local coal production. Moreover, the company accounts for 23 percent of overall Philippine requirements, including imports. Semirara is considering investing in either a power company or cargo vessel company engaged in the transport of coal to further boost its profitability. The company is likewise studying the feasibility of making a minority investment in a coal-powered plant under the National Power Corp.’s power plant privatisation program.


Pak-China sign nuclear plant deal


December 15, 2004. Pakistan recognized China as a market economy and Beijing promised visiting Prime Minister Shaukat Aziz 150 million dollars in aid to build a nuclear power plant. Details of the announcement were not given but the move is expected to help China strengthen its defences against anti-dumping charges. China is actively seeking recognition from its trading partners as an economy that operates on market forces based on supply and demand, rather than on factors determined by the government.  Details were not available and it was unclear whether the two sides agreed to establish a free trade zone. They also exchanged letters on the utilisation of 150 million dollars of the "preferential export credit" provided by China for construction of the second unit of a nuclear power plant at Chashma in Pakistan's central Punjab province. China agreed to build the 700 million dollar, 300 megawatt power plant last year and both sides have insisted it is for civilian use only. The plant is next to an existing nuclear power plant also built with Chinese assistance.


E.ON plans new coal, gas power plants


December 17, 2004. Germany's E.ON is planning to build new power plants in Germany, Britain, Italy and the United States as part of 18.7 billion euros ($25.04 billion) worth of investments in 2005-2007, it said. Some 12.6 billion euros of that money would be spend on fixed assets such as power plants, the utility's Chief Executive Wulf Bernotat said. E.ON planned to construct a new coal-fired and a gas-fired station in Germany, its core country in Central Europe. The locations have yet to be decided, he said. One, however, could be a replacement for the ageing Datteln coal-fired power plant in state of North-Rhine Westphalia. Germany needs to replace nearly half of its power production capacities in the next two decades due to ageing plants and its decision to phase out nuclear energy. In Britain, E.ON plans to build a gas-fired power plant on the Isle of Grain near London after successfully integrating takeovers of British companies such as Midlands Electricity. The UK's National Grid Transco is building a liquefied natural gas (LNG) import terminal at the same location, which is due for completion early next year.


Russia vows to complete Iran nuclear plant 


December 18, 2004. Russia said that it would complete Iran's first nuclear power plant in early 2006 at the latest following talks here with the Islamic state's economics and finance minister. Interfax quoted Russian Atomic Energy Minister Alexander Rumyantsev as saying that Moscow was also in talks over launching the construction of a second Iranian nuclear reactor after the first is completed at the Bushehr plant. "The physical launch of the (first) energy block should happen at the end of 2005 or the start of 2006, with it going on line in 2006," Interfax quoted Rumyantsev as saying. The Iranian economy and finance minister, Sadfar Hosseini, replied that he was interested in Russia also completing a second plant at Bushehr, but he gave no timeframe for when that project could be completed. Moscow insists that it has the right to push ahead with the Bushehr project, now estimated to cost some 800 million dollars (600 million euros), but demands that Iran return all spent fuel back to Russia before the plant can be launched.


Petrobras increases Fafen ownership


December 17, 2004. Brazil's federal energy company Petrobras has agreed to buy the 80% of the 133MW Fafen gas-fired power plant it does not already own from Portugal's state power company EDP for 96mn reais (US$35.4mn), the two companies said in separate statements. Taking a 100% stake in the plant is part of Petrobras' strategy to reduce losses in gas and power from take-or-pay gas supply contracts. Fafen was EDP's only thermo plant in Brazil, and did not fit in with the company's strategy of focusing on distribution and hydroelectric generation. EDP and Petrobras joined forces to build Fafen as part of the government's emergency thermoelectric emergency program in 2001 as the country faced a power shortage. The lack of regulations and a shortage of gas supplies led to losses for both partners.  Fafen is located in the Camaçari petrochemical complex in the northeastern state of Bahia. In early 2005, it will start supplying some 22MW and 42 tonnes/hour of steam to the Fafen fertilizer plant, Petrobras said. The generator has also signed contracts to sell 100MW to EDP power distributor Bandeirante.


New nuclear plant commissioned in Russia


December 17, 2004. Russia's power grid has been given a powerful addition: on December 16, the Kalinin nuclear power plant's third generating unit was commissioned. The station is located in the village of Udomlya in the north of the Tver region, 330 kilometers from Moscow. The unit is a pressurized water reactor with a capacity of 1,000 MW and is estimated to have cost 40 billion rubles to build ($1 equals about 28 rubles).


Companies, Universities unite to build nuclear reactor 


December 17, 2004. China Huaneng Group, one of the country's largest electric power providers, together with China Nuclear Engineering and Construction Corp. (CNEC) and Tsinghua University, signed an investment agreement in Beijing for the construction of a high-temperature, gas-cooled nuclear reactor for power generation. This marks a critical step toward the commercialisation of this type of reactor, said Li Xiaopeng, Huaneng Group's president and chairman of the board. The 200,000-kilowatt generator is expected to go on line by the end of 2010. The total amount of investment in the reactor is currently unknown, as construction is still in an experimental period, said project sources.


Colorado approves new coal-fired plant


December 17, 2004. State regulators approved Colorado's first coal-fired power plant in 23 years. The $1.35 billion facility is designed to generate 750 megawatts of electricity a day enough for 750,000 customers. Under the agreement for the new unit at the Comanche Generating Station in Pueblo, Xcel Energy must upgrade pollution-control equipment at the two existing units. The Public Utilities Commission approved the agreement 2-1. If an air quality permit is approved next year by state health officials, construction on the plant could begin in 2006.  Under the agreement, Xcel must spend up to $196 million to reduce the demand for power at peak times by 320 megawatts. The reductions would be achieved by offering lower rates to customers who try to save electricity by installing fluorescent bulbs, energy-saving appliances and other cost-saving methods.


Bangladesh PM opens new gas plant


December 18, 2004. Begum Khaleda Zia formally launched the newly-built natural gas-driven Siddhirganj Power Plant which will add 210 megawatt electricity to the national grid. She commissioned the thermal power plant, built with technical assistance of Russia, by pressing the switch on and unveiling the inaugural plaque. The Siddhirganj Power Plant has been set up on 30 acres at a cost of Taka 1,311.58 crore. The cost of per unit power generation by the plant will be Taka 1.33. The power plant will consume 50 million cft natural gas per day.


Russia Gunib hydroelectric power plant commissioned


December 18, 2004.  All three units of the Gunib hydroelectric power plant, on the river Kara Koisu, have been commissioned in Dagestan, autonomous province in the North Caucasus. The plant has been named after Rasul Gamzatov, modern classic of Dagestani poetry, who came from the village Gunib. The plant has a total 15,000 kilowatt capacity to produce 57.6 million kw/hr a year. The units will work even before a 73 meter high concrete dam is ready. There is another power plant on the Kara Koisu, the Gergebil, Dagestan's first, working without a hitch for 65 years now. It came as Europe's maiden high-head dam highland power plant. The Gunib construction efforts cost 450 million rubles, in current prices, roughly $15 million.


KEPCO to build China power plant


December 20, 2004. Korea Electric Power Corp. (KEPCO), South Korea's state-run power company, won an order to build a power plant in central China, greatly boosting its presence in the world's most populous country. The deal, concluded in Beijing with the government of Henan Province, involves KEPCO's investing in and constructing two 600-megawatt coal-fired electricity generators in Jiaozhou city, the company said. KEPCO won the order two months after it was awarded a contract to build two 50-megawatt electricity generators for a co-generation power plant in the city. According to KEPCO, the total construction cost for the coal powered plant is estimated at $620 million, 66.6 percent of which will be financed through loans from a Chinese bank. KEPCO will invest $140 million in the joint venture, with $70 million coming from the provincial government. It will be constructed between 2005 and 2008.


AES increases output of power unit


December 20, 2004. Virginia-based global energy company AES Corp. increased the potential power output of the 480-megawatt unit 5 at its Alamitos gas-fired power station in California. The 2,123 MW Alamitos plant is located in Long Beach in Los Angeles County about 25 miles south of Los Angeles. There are seven units at Alamitos, including two 175 MW units 1 and 2, two 320 MW units 3 and 4, two 480 MW units 5 and 6, and one 133 MW unit 7. AES owns interests in power plants with a generating capacity of about 45,000 MW (primarily fossil-fueled) in the Americas, Europe, Asia, Africa and the Caribbean. The company's distribution subsidiaries also sell power to 11 million customers around the world with most in Latin America.


Three power plant units planned in Iran


December 21, 2004. Three new power plant units with total capacity of 2,000 MW will be built in Assaluyeh region. Official in charge of power distribution projects of Bushehr province noted that a 1,000-MW power plant will be built up to 2006 enjoying two power plant units, each capable of producing 500 MW of electricity.


Thermal power plant by 2005 in Uganda


December 20, 2004. The ongoing power shortage could reduce early next year with the planned installation of a thermal power production plant. The state minister for Energy, Mr Daudi Migereko, told Parliament on Thursday that an independent power producer is being procured and is expected to set the plant by March 2005. Migereko said the development was an immediate measure to reduce the current power shortages. The drop in Lake Victoria levels has subsequently reduced the generation capacity of the two-hydropower dams of Nalubaale and Kiira thus worsening load shedding. The thermal plant is expected to generate about 50 megawatt. Migereko said, the government intends to commission two more generation units of the Kiira power station between April and June next year, which are expected to produce 80 megawatt.


Chechnya's first heat and electricity plant 


December 20, 2004. The President of the Chechen Republic Alu Alkhanov visited the Argun heat and electric power plant. It first turbo-generator of 6 MW was started up not long before. Its becoming part of the system will improve the quality of electric supply and become an independent source of power for the enterprises of the town of Argun the press release says. The town will be able to create over 3,000 jobs additionally and in part resolve the problem of employment for the local population.


Ukraine to buy nuclear fuel in Russia


December 20, 2004. Ukraine is going to buy nuclear fuel for its 15 energy reactors in Russia in 2005, although it has its own reserves, Ukrainian Fuel and Energy Minister Sergey Tulub, who is also the President of Ukraine's energy generating company Energoatom, said. According to him, the two parties are still in talks on the price for fuel supplies. Fuel energy supplies to Ukraine in 2005 may become worth $40m more compared to $360m in 2004. He stressed that the existing 9-percent discount for nuclear fuel supplies from Russia becomes ineffective in 2005.


Transmission / Distribution / Trade


Globeleq purchases Egyptian power station 


December 14, 2004. Globeleq, the emerging markets power company, announced that it has completed the acquisition of the majority interest in the 685 megawatt (MW) natural gas-fired power station at Sidi Krir, Egypt, from InterGen. Robert Hart, CEO of Globeleq said. The plant, which is 30 km (20 miles) west of Alexandria on the Mediterranean coast, uses gas supplied by the Egyptian National Gas Company (GASCO), the government owned gas distribution company and produces power for the Egyptian Electricity Holding Company (EEHC).  Globeleq has purchased InterGen's stake in Sidi Krir joining Edison SpA, which owns the 39% balance of the project. With new investments of more than US$450 million, Globeleq is the fastest growing operating power company solely focused on the emerging markets of Africa, the Americas, and Asia.


Brazilian distributors to expand


December 15, 2004. Brazilian power distributors plan to invest at least 5.99bn reais (US$2.2bn) in 2005 to expand their networks and improve service quality, a 60% increase from projected investment in 2004, the country's association of power distributors Abradee announced.  Of the total, some 4.6bn reais will be invested directly by the companies, and the rest will come from a combination of transfers from the federal and state governments and from federal power sector funds managed by federal holding company Eletrobrás. The program projects some 2 million new connections in poor rural areas by 2008. The 24 companies surveyed by Abradee account for over 90% of the power distribution market. In 2005, these distributors aim to invest some 3.6bn reais in the expansion and modernization of their own operations, while the remaining 2.38bn reais will be for the rural power supply expansion program known as Light for All.

Policy / Performance


Nigeria and Iran sign MOU


December 16, 2004. Nigeria and Iran on 15 December signed a Memorandum of Understanding (MOU) on the rehabilitation of the Kainji hydro power plant. Agreements reached in the MOU include, the award of a contract to rehabilitate the Kainji power plant to Farab Limited, an Iranian energy firm, farab limited is to perform a total overhaul of the plant and return it to its full electricity generation capacity of 120 megawatts and Farab limited is to complete the project within a three-month period.  Other agreements covered in the MOU include the rehabilitation of five transformers located at Ogba, Lagos, Owerri, Ibadan, Gombe and Kaduna.



Renewable Energy Trends



Power from waste heat


December 18, 2004. Predicting huge potential for generating power from waste heat produced in cement plants in India, Kawasaki Heavy Industries Ltd (KHI) has started selling the idea to local cement manufacturers. The Japanese company, a leader in the technology, hopes that the model unit set up at an India Cements unit in Andhra Pradesh recently is a good example to be showcased to others. KHI's knowhow went into the Vishnupuram unit. Power from waste heat was a niche business segment.


Biomass gasifier unit installed


December 21, 2004. A biomass gasifier unit installed at Aayiraperi panchayat in Tirunelveli district has started functioning. The unit, established at the cost of Rs 314,515 requires 1.50 kg of firewood as fuel to generate 1 KW electricity an hour. While 50 per cent of the unit cost is borne by the panchayat, the balance is jointly borne by the Union and State Governments. The power generated would be utilised to operate the motors to pump drinking water to overhead tanks in the panchayat. While consuming 2,100 units of electricity per month, the panchayat has been paying Rs 88,200 towards the electricity bill for a year.




Centrica signs long term renewables supply contract 


December 20, 2004. Centrica plc today announced it has signed a long term power purchase agreement with NM Renewable Energy, a joint venture between Macquarie Bank and Novera, which will deliver approximately 300GWh of green electricity to British Gas customers every year, enough to supply around 60,000 homes. The agreement, commencing in April 2005, will run for more than ten years, meeting approximately 5 per cent of Centrica's rising renewables obligation.


Large hydro dams emit few GHG emissions after first decade


December 15, 2004.   Large hydroelectric facilities emit “very little” greenhouse gas, according to ten years of research by 13 universities, six agencies and research centres, and six companies in North America, Europe and South America. “In the late 1980s, when the issue of the impact of hydroelectric reservoirs on GHG emissions and global warming was relatively new, the scientific community and the energy industry believed that reservoirs produced high levels of GHGs,” explains a monograph published by Hydro-Québec and the Université du Québec à Montréal. At that time, the provincial utility initiated research on GHGs released from reservoirs at the eight dams of the La Grande Riviere complex on James Bay in northern Quebec, which total 16,000 MW in generating capacity.  In 1993, it expanded to include other institutions, and the final publication, ‘Greenhouse Gas Emissions: Fluxes & Processes,’ has 25 chapters to review knowledge of GHGs associated with hydroelectric reservoirs and natural environments in northern, semi-arid and tropical regions. 


Wind turbines planned in Wisconsin


December 16, 2004. The wind project, known as the Forward Energy Centre, is planned for an area in Fond du Lac and Dodge counties along the Niagara Escarpment, a windswept ridge that runs across the state. The project was unveiled last summer by Chicago-based Ivenergy Wind LLC, a power-plant developer that has signed up several Wisconsin utilities to buy electricity from the wind farm. Invenergy currently plans to build 133 wind turbines that would generate 200 megawatts of electricity - enough power for 65,000 homes. The company plans to amend its application with the state Public Service Commission to expand the project to include 33 more turbines.


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


Published on behalf of Observer Research Foundation, 20 Rouse Avenue, New Delhi–110 002 and printed at Times Press, 910 Jatwara Street, Daryaganj, New Delhi–110 002. Publisher: Baljit Kapoor, Editor: Lydia Powell


Disclaimer: Information in this newsletter is for educational purposes only and has been compiled, adapted and edited from reliable sources.  ORF does not accept any liability for errors therein.  News material belongs to respective owners and is provided here for wider dissemination only. 


Annual subscription: Rs 15,000/$ 750

[1] Venkatachari Jagannathan, ‘Lanka IOC Storming  Sri Lanka’, available at <>

[2]Sri Lanka receives US$150 million loan from India’, available at  <>

[3] ‘Lanka IOC May List Shares Dec 22’  Amit Baruah, “Trincomalee  Oil Farms Vulnerable to Aattacks by LTTE, says Kadirgamar” , The Hindu, August 15, 2003available at  <>

[4] Amit Baruah, “Trincomalee  Oil Farms Vulnerable to Aattacks by LTTE, says Kadirgamar” , The Hindu, August 15, 2003

[5]       Ibid.

[6] The TNA has seats in the Sri Lankan parliament.

[7] Sri Lankan naval participation included OPVs Sayura and Jayasagara, and two Dvora fast attack craft and Indian Coast Guard was represented by CGS Sarang and CGS Durgabhai Deshmukh ,  maritime surveillance aircraft and an Indian built Chetak helicopter.

[8] Agreement on the refit of the vessel was signed during President Chandrika Kumaratunga’s visit to New Delhi in November 2004.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.