MonitorsPublished on Jul 14, 2004
Energy News Monitor I Volume I, Issue 3

Edited text of Roundtable held on ‘Pipeline for Peace’ at the Observer Research Foundation on 3 July 2004.  Ambassador S K Lambah was Chairman and Mr Usman Aminuddin, former Minister for Oil & Natural Resources, Pakistan was key participant. 


Chairman Ambassador S K Lambah


India imports nearly 70 per cent of its crude needs.  This dependency is projected to increase to 90 per cent by 2020.  ONGC Videsh has envisaged bringing into India 60 million tonnes of oil equivalent per year by 2025.  How are we going to achieve that? There are several things that have been done and one of them is very familiar to me as it happened when I was Ambassador in Moscow.  In February 2001, India made its largest investment ever abroad $ 1.7 billion in Shakilin-I and we will be seeing the results of that next year onwards when we will get about 5 million mmtpa (million metric tonnes per annum) starting from 2005-06. In addition, some investments have been made in Vietnam, more recently in Sudan and possibly, in coming days, in Angola to get us crude oil.  Yesterday Mr Kapoor mentioned that domestic discoveries were not significant.  All these put together don't take care of our requirements and that is where other countries like Iran come into the picture. Iran, next to Russia has the largest gas reserves in the world, 812 trillion cubic feet. Pakistan and Iran signed an agreement in 1995. Later there have been suggestions about India's joining. You know about the three possibilities of transporting gas and onshore pipeline has come to be considered as one of the possibilities. The article circulated here today asks if it is going to be a “Pipedream” or "Pipelines for Peace". We have to see which of the two succeeds.   I would just mention what I think are four minuses and four pluses to start off the discussions.


I don't really like using the word minus, but we could call them India's concerns.




§   Security: This was briefly discussed yesterday.

§   $ 400 million per annum transit fee to Pakistan: The exact fee has to be worked out 

§   US position on Iran: Yesterday Mr Aminuddin mentioned that US would be negative on a project that benefits Iran. But here we are looking something that benefits all of us.  But in a world, which is not really multilateral, you have to keep everything in mind.

§   Pakistan's co-operation: Is the cooperation only going to be restricted to energy.  In that regard I would just quote what a Pakistani academician had to say: “For Pakistan, the pipeline is not a partnership with India but rather "a bilateral Iran-Pakistan project, which through Iran does involve India".  There are many others who have written on these lines.


Against this, let me give you to the positives and there I start with a letter, which Mr Usman Aminuddin wrote as a Minister to his Iranian counterpart. I hope it is correct because I am quoting from an article, which in turn quoted the letter. I mentioned this to him yesterday, he will tell us if it is right or wrong.




§   "Pakistan was prepared to address all concerns of the Indian government in this regard and extends all guarantees they required": This was in an article written a few years ago by Mr Subramaniam Swamy, which some of you may have read.

§   Regional security

§   Economic co-operation

§   Change in trading pattern


Some of these were mentioned yesterday.  With these thoughts I hand over the floor to Mr Usman Aminuddin and then we hope that we have a discussion from which we all will benefit.


Mr Usman Aminuddin


I think today's discussion has to be focused on what is the way forward.  We could probably look at various options leading to more focused discussion on the way forward.  Security of course, is of concern not only of pipelines but also of supply. Supply security is of concern to any consuming country of the world. I mentioned that security of supply and security of price are two issues, which are affecting any consuming country. There is not only security of pipeline that is so important; but also security of any imported product into any country; we will look at it as such.  When fluctuating oil prices hit the market - something which we have seen in the last four or five years - you saw oil prices go from US$9.90 per barrel to US$ 42 a barrel.  In 1999, the price of the crude was under US $10 and now recently shot up to US $ 42 and then stabilised at about US$38.  My forecast has been that since this source is declining, fields are ageing and therefore increasing the cost of production of a barrel of oil, more gas has to be injected into the wells to produce the same barrel of oil, between say 2009-2010 price of oil will hit $ 50 per barrel and the impact of that on developing economies is going to be staggering.  For Pakistan, at $ 50/bbl and at a growth rate of 5%, this would mean that almost 80% of foreign exchange earned would go in for import of oil. So, developing economies will be the worst hit by high oil prices.  Also, of course what the countries can pay for energy is important.  We have the low price of 21 cents/gallon in Iran and almost $16/gallon in the US.  These are various hard facts that have to be taken into consideration.  


I was involved in the pipeline issue for the Government of Pakistan.  As you may be aware this project was initiated in the 1990s. At that time there were two willing actors who were prepared to see this project going ahead, India on one side as the willing buyer and the Iran as the supplier. Pakistan took a stand that it will not allow its territory to use for transit of hydrocarbons into different areas. With this problem of transit the project could not go forward. Had Pakistan taken a pragmatic view, this project would be on the ground. This is one of the concerns of the Iranian government. Now, we have another willing actor. Pakistan and Iran as willing actors could take the project forward…but there has been no concrete discussion. 


We went through this charade for fourteen years and we will go to see charade for the next fourteen years because all you have seen is talk - primarily press statements.  Pakistani ministers saying that they will give guarantees and Indian ministers saying that they want guarantees or that they do not want security at that price - this has gone on for fourteen years. I invited them to come here because security is of issue to India.  I tried to think as to what could be the possible way forward as this is a concern for the future. These articles circulated talk about fundamentalism here and fundamentalism there.  But the reality of life is that there is fundamentalism in all parts of the world. There are also groups that encourage fundamentalism.  This leads to the concern that Pakistan will turn off the gas but I do not want to talk about that now. 


I came up with this idea of South Asian Infrastructure Fund. This aspect has never been posed before. When there are stakeholders from all sides, India, Pakistan, Iran, they, the stakeholders will guarantee security for investments.   You cannot get more security then involvement of people who invest in the project.  The government provides the political support and the critical guidelines. The stakeholders will sort out all other problems. I will not want to overstate its case.  Once we get political clearance from all sides, I sincerely believe that whether it is through an infrastructure fund or any other vehicle or accepted entity, the project will begin to move. 


What are going to be the issues? What is the going to be the price that Pakistan and Iran want? What is going to be transit fee? What is going to be the price at the Pakistani border? All these aspects, along with security concerns, maintenance issues, and all other issues are going to be settled and sorted out by the stakeholders themselves. We do not require the government interference because when you get government interference it will lead to complexities.  


So, one of the biggest issues that this project will have is the geo-political situation and the viewpoint that the Americans will take on Iran. My viewpoint is that there is a plus aspect to it because today any peace initiative India and Pakistan is being supported by the global community. The second is the bureaucratic hurdles.  To get the bureaucracy moving, whether on the Iranian side, Indian side or Pakistani side is a challenge.  They are the people who deal with this issue. 


I took major reform initiatives in the petroleum sector of Pakistan.  I removed the government from every segment. In three years and twenty-one days, we downsized the government.  I said ‘you are into policy, dictate policy’ and the rest of the functions were taken over by regulators, independent regulators or by market forces.  Everything that is happening today in Pakistan petroleum sector, the government is just out of it - government sets policy, decides on taxation and the rest of the aspects are taken over by market forces. My experience has always been that a move into democracy for any decision making, is the strong way forward I am sure, is the safe system.  I find, certainly, that bureaucracy cannot replace it.   


So, the factors that will inhibit this project today are not the Indo-Pakistan relationship.  I am again certain that the peoples of India and Pakistan have overtaken the government. This is the example of how people feel today in most of Pakistan and India and political forces cannot downgrade this project any further.


If you get private sector involvement, stake holder’s involvement in all issues- security, price, and transit fees concerns can be sorted out. These are defined factors. Here I want to clarify that I have never, as a minister, issued a statement of what the transit fees is going to be. This figure of $ 600-700 million is probably coming out of Iran.  We never said that. We know what transit fees are and you also know what transit fees are. These are set by world standards.


As I said yesterday, the only feasible project is the Iranian project because


§   A lot of work has gone into it already.

§   We don't have the political and technical aspects that the Qatari project and the TAP projects involve. These involve the movement of gas to Afghanistan and the TAP project involves deep water routes. 


In case of the Iranian project, the work on the overland route has been completed and from the reports that I have seen about 32 months from financial closure. The shallow water survey has not been done.  When I was in Osaka in July of 2002 for the World's Foreign Ministers Conference, of course, there was no direct discussion between Pakistan and India although we tried very hard. I was talking to the Iranian and Afgani foreign minister. At that time, the feedback that I got was that India would be happy on the security aspect if we allowed the lines to come through shallow waters of Pakistan. Shallow waters mean depth of 100 meters. I pick up this idea. Of course, there are problems on the Pakistani side with respect to the coastal defence of the waters. We looked at all the aspects and we gave the go ahead through the Russians and consequently a MOU was signed with Gazprom of Russia that a Shallow Water study be done.  But that was never done because people in all stakeholder countries got into problems. But that permission was given, which showed, when you talk about security that the line coming overland of borders and then going shallow waters across the Pakistan coast, to Ahmedabad and Bombay would also be considered. So, that comfort was also given.


I think with these few words, which is the background, I would request Mr Chairman for the interaction begin to find a way forward. How do we go ahead? The issues involved are known to you. Security is an issue but what I see is that the security aspect can only be overcome when agreements can guarantee stakeholder interest.  But again when we talk about security especially of a pipeline of this type - I did a study on this - the three countries would be bound to sign approximately eighteen agreements - these are very difficult to turn against.  Consequently, the fear that Pakistan will turn off the gas, is not possible.  Not withstanding that again as I said, my perception or my viewpoint is that if a forum or a platform is provided where the stakeholders are involved that would be a better arrangement. 


Chairman: Well, focused discussion is what we want and I would like you to join and while speaking please do introduce yourself.


Air Commodore Jasjit Singh: I think it's refreshing to get back to the subject I have dealt with for fourteen years but with a different perspective - not from the high position that you have occupied.  But right from the beginning of 1990 it was very clear that India will run into serious difficulties about energy security in the future and as the head of the Institute of Defence Studies & Analysis I thought it is my duty to initiate a project on this particular thing - not trying to do what others are doing, like TERI taking on economic and technological issues but essentially the geopolitical issues, where you pointed out very rightly that security is a central issue here, perceptions of security is probably a central issue here. 


We did a lot of work and we thought we had convinced a wide range of political leaders, bureaucracies but we found that that was not enough.  Pardon me if my perception is slightly different. I don’t think it is just a problem the bureaucracy is posing or even the political leaders are posing.  I don’t think there is any doubt in the economics part of it, technology part of it or the need for it.  Even considering all the sources that we are trying to diversify to, I think the question of transit of hydrocarbons from Western Asia into India will remain a good option.  


But on the question of security, I think the issues are really that should we then keep on getting our sources, offshore or onshore. There were always three options- deep-sea pipeline, shallow water pipeline and surface pipeline. My comparison of security challenges includes all the mentioned scenarios. Of course, it will be irrational to imagine that one fine morning the head of state of Pakistan will decide that enough is enough let’s turn off the gas to India.  Perhaps under certain conditions this could be a possibility. We were very close to war, in 2002 and probably that’s why these concerns arise. These are genuine concerns of security high risk.


I think that there are mixed perceptions of security. Let me therefore cover that. I think one of the more important ones is that if we look at things very carefully from 1999 to perhaps now, lot of Indian thinking has been conditioned by Kargil, attack on the Indian parliament and mobilization of forces besides other things. I mean that is not the only issue. But when we look at this rationally, I think pre this or post this period, things are very clear. We have no doubts whatsoever that each of the routes of supply transportation are vulnerable. I think when we tend to discuss this question of security the tendency is to focus on vulnerability of these sources in terms of transportation and I am glad Sir that you have talked about that and also beyond that. It is not just a question of vulnerability; it is a question of looking at what I might call the “recovery process” from that point onwards. When things start to go wrong what is it that can be done about to reverse the process?


Therefore, let me give my final conclusion first and that is that the overland pipeline is the most secured option among the four possible options. Compared to even the surface tanker movement this is more secure, largely because the recovery process.  The measures that you can take to reverse the effects are far better than in any other option. Lets not go into the details of that but what I am saying is that there are a whole lot of counter measures available.


I think there is a very clear precedence available which we don’t tend to look at. When we look at it, I think we make the mistake of imagining that something can be done and I want to talk about the Indus Water Treaty. My discussion with two of your foreign secretaries in the early 1990s - both Mr Ismail Khan and Mr Shariya Khan - concluded that conceptually gas and oil flowing through Pakistan is no different then water flowing from India into Pakistan. Your economy will be deeply affected and our economy will be deeply affected. We understand that there is this little vulnerability and hopefully the same vulnerability will bring us together at least up to a point.  It is very clear evidence that despite of whatever else has gone on, the Indus Water Treaty has been honoured for the last 44 years.  My friends in Pakistan and the government will agree with the statement that there has never been any violation.  May be a minor one when there is one foot here or three feet there, but not a serious risk of security.  


I don’t think it is a serious concern of security, at least for somebody like me who has spent all his life dealing and understanding the security in my country, I think the  issue of politics. Politics that is using or being misguided by an understanding or misunderstanding of security - problems & challenges.  I think that is what we need to look at. 


You put something on the table on stakeholders.  This is not a bilateral agreement. It cannot be a bilateral agreement. There is, at the minimum, a third country. Though it is unlikely that between India and Pakistan and possibly Iran we can find all the  money and the management systems, structures, but you have we could opt for the South Asia Infrastructure Fund, some new thing like the Bakranangal Board semiautonomous, autonomous multinational group that will manage it, which makes it far more difficult then anyone to get out and I don’t see why anybody should get out of this.


The other is the risk of a terrorist threat.  In India people believe very strongly that the ISI is everywhere.  Pipelines are blown up in Iraq.  I think the facts are different but yes pipelines can blow up. We have something like 9000 kms of pipeline. I drive to this place 600 km south in the state of Madhya Pradesh every month. At least for 20 kms I am driving through ravines or jungles through which the gas pipeline runs. These pipelines can be blown up by home grown terrorists.  Don’t tell me that terrorists from Pakistan have to come. There is therefore a very real situation that it can be blown up but it can be repaired.  


What sort of things would be needed to repair? I have been tracking how long it took to repair the pipeline in Iraq.  Two days for one pipeline, five days for another one. No country’s economy is going to be completely put into danger in two-five days. Even for a month as long as there is a mechanism for immediate urgent repair and inspection. I would even go the extent, which many Pakistani friends of mine accept on the surface, that Pakistan will have to give access to this international system or Indian system to keep on inspecting their pipeline and when it breaks up to move in recovery position. In a way it is far more intrusive than a chemical weapon factory.


I could go on and on but I would like to finish it here.  Basically I want to say that we need to talk about security and the facts that are involved, possible scenarios that we need to think of, put them on the table and discuss amongst people who know these things but perhaps have not had enough time to pay attention to the details and then we have to broadcast. Toufiq and I worked on this UNDP programme in the 90s. I for one can’t find the reason, that security can be a reason or lack of insecurity for that matter, because security is nothing absolute. You have means to deal with the security and there are more means to deal with the insecurity.  If the pipeline gets blown up in shallow waters I think we will find it very difficult to send a person few kilometers below sea.  Therefore, I think the long-term benefits far outweigh the risks.  We need to discuss the core hard issues, put them on the table for a dialogue, as President Musharraf would say, see what is possible, what is not possible and I think very soon we will find that both countries will see that this is in their own interest.  Once we get do down this, I think many more things can be happen.                                                                            


Mr Aminuddin: I think one of the important things is discussion.  I was trying very hard for this. In fact, I met the Indian foreign minister in Riyadh in 2000 where we had discussions with the Afgani and Iranian ministers and both of them agreed that the issues are not difficult to tackle and ideas or viewpoints can be exchanged.  As you have said, security of the pipeline overland is much less troublesome. One of the points that you said is that if the pipeline is damaged it could be repaired very quickly. Under sea pipelines are very difficult to repair. You have to get special ships. You have to get special equipment. You are talking about two weeks to nearly one month.  We have recently some problems with the tribal areas in Iraq. The heavy 42” transmission lines have been damaged. Those were really the hard days that security was tight.  But pipelines are not blown up, sections of it are.  Line size is about 6 feet. In yesterday’s presentation I provided possible storage sites that could be used even for 1.5 days, 2 days or 3 days in case of damage. Then you have flexibility in the whole system to store gas.  Security is only one angle that we have thrown up but there are many-many other angles. You mentioned the Indus Basin Water Treaty as the most outstanding example of any agreement between India and Pakistan.  There has been an odd hiccup now and then but for almost 50 years and that’s all we have had and it’s been an outstanding agreement. If we can live with that treaty why can’t we live with another?  There are many-many options. I have only given (a) the hard-core facts and then (b) my own suggestions but there are many other options and would be delighted to hear them. 


“Over the last ten years technology has reduced the cost of LNG.  This reduction has not been passed on to the consumer yet.  The question to ask is whether piped gas has better economics”…. more in next weeks issue


Ambassador Hamid Ansari. I have two questions. The Indus Water Treaty has worked because the dependence of the ‘Sukhat’ on it is pretty clearly demonstrated. Would the gas pipeline acquire the same kind of dependency? In other words, would India’s dependence on the imported gas, in quantity terms, be greater then that of Pakistan? That’s my first question. The second question is that there is an International Treaty of 1994 on ‘Security of Transnational Pipelines’ a formal document deposited with the UN. Now has this particular project looked at whether that treaty would suffice, whether it requires amplifications, special adjustments, which might meet the concerns that may arise in the South Asian context. I don’t know the answer but in all the discussions that I have heard on the pipeline question, this treaty has never been mentioned and since it is an existing document to which great many countries in Europe are parties to, one way might be to use this accepted instrumentality and then necessary amplify it, fortify it and the case might be ready?


Mr Aminuddin:  I think in the paper that I have presented, I have given the deficit scenarios both for India and Pakistan.  For Pakistan, if there are no new discoveries, deficits will build up in the next seven-eight years. So there would be a situation where Pakistan would also be utilizing the gas.  Say India 60-70% and the remaining being used by Pakistan. Our major reservoir Sui which constitutes 40% of the total supply into our system is on decline and if we don’t have discoveries to supplement Sui, Pakistan will definitely require imported gas. So, the question is yes, there would be dependence of imported gas both for India and Pakistan, but not of the same order because the Indian demand is much more.  The Indian demand is almost four times that of Pakistan.  If Pakistan takes about a billion cubic feet, India would take about 4 billion cubic feet, which is four times of the Pakistani demand. The ratio can’t be the same because you are a much larger economy, much stronger growth rates and consequently the demand will be much more by India. So, the ratios will never be the same.

The second issue that you raised: I am aware of the treaty. This has been looked at in general but again I will quote that ‘where there is the will there is the way’. Look at the flow of Russian gas into the Europe.  These lines were built at the height of acrimony between Russia and America. You had serious American opposition but this line was built.  It passes not only through one country but it will passes through many-many countries. There are other examples of course. This line would pass through one country and there are only three countries involved. Now, if you broad base the stakeholders’ platform money is not going to be the issue in this project. It is a viable project. It is good project and money will not be the issue. What is required is the political will, and again as a policy if the government decides that they will provide the overall framework within which the project should go forward,  in my perception that is the right way forward.   The TAP project was part of the study by the Asian Bank but the TAP project is not a viable project.


To be continued next week


As far as possible, text is reproduced word for word in order to avoid misinterpretation. 


Disclaimer: All views expressed above are those of the speakers.






·    Oil & Gas including issue of subsidies for petroleum products marginalised in the budget. 

·    There is no indication of how the under recovery of subsidies is going to be distributed between upstream & downstream companies.  The budgetary allocation for LPG and SKO subsidies has been reduced from the 2003-04 level.  Under recovery of subsidies is likely to be higher between April and July because of high oil prices. 



·    Electricity to all is identified as a thrust area but specific allocation for rural electrification is missing in the budget.  Rural Infrastructure Development Fund of Rs 80 billion (Rs 8000 crore) may be utilised for the purpose.

·    Inter Institutional Group (IIG) formed by IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank to ensure speedy conclusion of loan agreements and implementation of infrastructure projects will benefit power projects.  Six power projects have achieved closure through this mode while another 10 are  close to it.

·    Request for reduction in the threshold of thermal power projects from 1000 MW to 250 MW to avail customs and excise duty benefits not considered.

·    Measures such as duty exemption on fuels and equipment for power plants and reduction of customs duty on power plant spares down to the level capital goods that may have reduced cost of power have been overlooked.

·    Removal of duty exemptions on naphtha for 12 specific power plants is to be withdrawn from 2005-2006 and this may expand the domestic market for natural gas.  These plants will have to pay 10 % customs duty on naphtha and 16 % excise duty on fuel.  This will increase the cost of naphtha by about Rs 1000 per tonne which would result in a tariff increase of about Rs 0.20 per unit. 

·    Extension of tax benefits to Transmission & Distribution projects under section 8-IA from 1 April 2004 to 31 March 2006 will encourage investment improve cash flows and ultimately increase reliability and affordability of power.   

·    Concessions available to mega power projects not extended to units up to 500 MW as expected.










ONGC to invest Rs 300 billion in power, petrochemicals 


July 7, 2004. Oil and Natural Gas Corporation (ONGC) has announced an investment of Rs 300 billion for its new business ventures - power and petrochemicals. The investments would be carried out over the next three to four years. The company also proposes to enter shipping business. For its two petrochemical projects, the company has decided to invest Rs 90 billion - one at Dahej, which would be completed in 30 months, and the other at Mangalore. ONGC will extract ethane and propane from LNG at Dahej with an investment of about Rs 10 billion. The production is expected to commence in 2006. The company plans to set up a 1,445-mw power plant at Mangalore and a 1,100-mw plant in Ennore.


Rajasthan asks Cairn to pay royalty on sale of pit oil


July 10, 2004. Rajasthan government has demanded that British firm Cairn Energy PLC pay it 20 per cent royalty on the sale of pit oil recovered from wells during test drilling in Barmer-Sanchore basin.  Cairn mined 111,400 barrel of pit oil, which it sold for Rs 135 million, giving the state sales tax revenue of Rs 4.972 million. The state government is also demanding that the Centre should allow it to have 50 per cent of the profit on the petroleum extracted from its area.  Chief minister Vasundhara Raje has asked the mines and petroleum secretary Lalit K Panwar to discuss the issue with central government officials. Cairn Energy has drilled 24 wells in Barmer-Sanchore basin in western Rajasthan, of which 20 yielded high quality oil reserves. The company is drilling five more wells and has presented a plan to drill 59 wells by May 2005. 


Reliance may jointly explore for oil with ONGC


July 13, 2004.  Oil and Natural Gas Corporation (ONGC) is in talks with Reliance Industries to jointly participate in exploration and development projects abroad, particularly in the US and Africa.  The companies stand to gain if the alliance works since they have similar objectives - to be in the global league in oil and gas exploration.  They are either planning to take equity in oil and gas blocks or to pick up equity in exploration and production companies.  ONGC Videsh has envisaged bringing into India 60 million tonnes of oil equivalent per year by 2025. It is close to reaching its strategic objective of sourcing 20 million tonnes of equity oil abroad a year.  So far, ONGC Videsh has acquired 11 properties in 10 countries, including Vietnam, Russia, Sudan, Iraq, Iran, Libya, Syria and Myanmar. 




ONGC plans to set up refinery at Ankleshwar


July 7, 2004. Oil and Natural Gas Corporation (ONGC) plans to set up a refinery at Ankleshwar in Bharuch district. It also proposes to expand capacity at its refinery at Tatipaka in Andhra Pradesh, close to its crude production wells in Gandhar. Though a decision on the capacity of the proposed refinery has not yet been taken, looking at the demand for refining crude, the set-up is expected to be larger than the refinery at Tatipaka.  With the Ankleshwar refinery expected to be commissioned by the first half of 2005-06, ONGC will have five refineries, including MRPL, Tatipaka, Uran and Hazira.  ONGC has been working out a strategy to use its idle gas lying close to Mangalore. ONGC will require an investment of around Rs 10 billion for the Ankleshwar refinery.  With this, the company's investment commitment in Gujarat will mount to over Rs 40 billion this year. 


IOC to set up outlets for truckers


July 08, 2004. Indian Oil Corporation Ltd (IOC) is to set up exclusive fuel outlets for truckers that will also have the ubiquitous dhaba, from August this year. The oil major plans to set up 445 such outlets as part of its aggressive thrust into the retail segment.  These outlets will also cater to the needs of others, apart from the truckers. Apart from the dhaba, it will have wash facilities for vehicles and drivers, a place to take rest during the night hours and lot more. Of the 445 such outlets being set up, IOC will own 95 while the rest will be run by franchisees. The company will also introduce mobile petrol and diesel dispensing units to cater to the rural market. The moves come at a time when the petroleum retail segment is witnessing increasing competition with private players such as Reliance Industries Ltd and Essar Oil Ltd setting up their own outlets.  Global major Royal Dutch/Shell is also expected to set up its network during the early part of next year. In June, IOC had launched its 'Extra' branded retail outlets targeted at the urban population.


Oil firms put price hike on the back burner for now


July 12, 2004.  The state-owned oil companies have decided to postpone passing on the 2 per cent education cess on excise duty on transportation fuels, motor spirit and high speed diesel (HSD), by a week, till July 16, when the next round of price revision becomes due.   Oil companies have ruled out any price revision of superior kerosene oil and liquefied petroleum gas in near future.  On account of the education cess on the excise duty on petrol, the fuel price is likely to go up by Rs 0.30 a litre and HSD by at least Rs 0.80 a litre.   However, the oil companies have earlier passed on the increase in price on products such as naphtha, light diesel oil, furnace oil and bitumen to customers with immediate effect.  Besides, compressed natural gas (CNG) will also be costlier. 


Oil companies seek hike in fuel prices


July 10, 2004. Within a month of raising petrol and diesel prices, the public sector oil companies have again sought to hike prices of the two auto fuel marginally to pass on the levy of 2 per cent education cess on taxes. Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd have approached Ministry of Petroleum and Natural Gas for raising petrol and diesel prices by Rs 0.50 per litre on July 15, the next due date for fuel price revision, industry sources said.  Hardening crude oil and product prices in the last one month will also necessitate the hike.


Transport / Trade


GAIL for taking over Ennore LNG project


July 7, 2004. State-run GAIL has pitched for taking over the Ennore LNG import terminal project in Tamil Nadu after its current promoters led by Grasim industries failed to start construction. The Dakshin Bharat Energy consortium (DBEC), comprising Grasim industries, CMS energy, Unocal, Woodside Petroleum and Siemens Project Ventures, had been awarded the letter of intent for the project after a global bidding. But the project has not yet taken off.  Against the current allocation of 6 million standard cubic metre per day (mmscmd) of gas, only 1.4 mmscmd was being supplied in Tamil Nadu. The current deficit of 4.6 mmscmd is besides the 25-30 mmscmd potential customers in industry, power and desalination plants.   LNG could be sourced from multiple countries like Malaysia, Indonesia and Australia.


IOC plans pipeline to Nepal


July 6, 2004.  State-run Indian Oil has proposed to lay a Rs 350 million pipeline to Nepal for export of petroleum products, Rajya Sabha was informed on Tuesday. "IOC has a proposal to lay a product export pipeline from Raxaul (India) to Amlekhganj (Nepal). Estimated capital cost of about 35 km long pipeline will be Rs 330 million (Phase-I) and additional Rs 23 million (Phase-II)," Petroleum Minister Mani Shankar Aiyar said in a written reply to the Upper House of Parliament. The throughput will be 0.7 million tones per annum and 1.1 million tonnes per annum for Phase-I and Phase-II respectively of the pipeline. Aiyar said no agreement has been signed by India and Nepal in this regard. He also did not give any timeframe for the implementation of the project.


GAIL plans to invest Rs 104 billion in Kerala


July 12, 2004. The Gas Authority of India Limited (GAIL) announced an investment plan of Rs.104.5 billion in Kerala over the next four or five years after signing a Gas Cooperation Agreement (GCA) with the State Government's industrial promotion agency, the Kerala State Industries Development Corporation (KSIDC).  The planned investments were on a petrochemical complex in Kasaragod district (Rs.70 billion), an LNG terminal in Kochi or Kayamkulam (Rs.14.50 billion) and a pipeline network to distribute gas to industrial and domestic consumers across the State (Rs.20 billion). GAIL would commission these projects within four to five years.


Policy / Performance


LPG subsidy may stay till 2007


July 7, 2004.  LPG and kerosene subsidies, estimated at Rs 35 billion for the current financial year, were to be eliminated from the next financial year.  The United Progressive Alliance (UPA) government is learnt to have taken the decision to extend the benefit of the subsidy scheme by another two years at least.  Finance Minister P Chidambaram may also increase the Rs 22.58 per cylinder subsidy on cooking gas budgeted in the interim budget for 2004-05 to about Rs 40 in the forthcoming budget and that on kerosene to Rs 1.10 per litre from Rs 0.81 per litre budgeted.  Despite Rs 20 per cylinder hike announced on June 15, excise duty cut and government subsidy of Rs 22.50, cooking gas selling price of Rs 261 in Delhi was short of cost by about Rs 80 per cylinder.  Prices of kerosene have not been raised despite the need for a Rs 4.43 per litre hike in view of the spurt in international prices. 


Oil import bill up by 15% 


 July 08, 2004.  Increase in volume coupled with firm international oil prices led to a 15 per cent jump in India's oil import bill in 2003-04. Crude oil and petroleum product import bill grew to Rs 931.59 billion ($20.3 billion) in 2003-04 over Rs 850.42 billion ($17.6 billion) in the previous year as refiners resorted to heavy exports of refined petroleum products.  According to the Economic Survey, spurt in oil imports by 26 per cent in 2002-03 was contributed more by increase in international crude oil prices (around 20 per cent) than by enhanced volume of imports (3.2 per cent). In 2003-04, the volume impact (11.3 per cent) dominated with already-high international crude oil prices rising on an annual average basis by 5.4 per cent. 


ONGC, Reliance hit hard by 10% service tax


July 10, 2004. The Budget's service tax proposal hits petro-majors ONGC and Reliance hard. The two exploration and production companies will now have to account for a significant jump in their tax bills with the government bringing in a 10% service tax on survey and explorations apart from the 2% cess imposed on all central direct and indirect taxes. For a company like ONGC, which contracts out almost 80% of its offshore survey work, the hit on account of the service tax on surveys alone is estimated to be about Rs 3 billion. While onshore surveys can be done in-house, the expertise for offshore work has to be outsourced, inviting service tax.  Although, the service tax has been imposed on all surveys and exploration work, ONGC and Reliance are expected to take the highest hit as most of the offshore survey and exploration work is contracted out.  Both companies have employed services of major multinational companies to assist them in their survey and exploration works. 


No compensation to oil companies for irrecoverable taxes


July 10, 2004. Budget 2004-05 has carried forward the policy of the interim budget of not providing for compensation to oil companies for irrecoverable taxes. The budgetary provision to compensate oil PSUs for levies such as the turnover tax and the CST payable on products lifted from Reliance's Jamnagar refinery had been done away with in the interim budget.  In the absence of this compensation, oil PSUs buying products from Reliance have stopped making CST payments to the company since 2003-04. In 2003-04, although there was a budget provision for irrecoverable taxes, there was no scheme for compensating oil marketing companies for CST on their purchases from Reliance. Reliance, on its part, has been billing consumer oil companies for CST payable by them and trying to convince government of the need to make a budgetary provision on this account.  Reliance faces the prospect of having to reduce their income shown in the accounts for 2003-04 by Rs 7.7 billion if they do not get the money from the government. Further, the forthcoming Q1 results would also contain accruals on this score, which may well not be realised.


Flexible duty set-up to lessen consumers' burden


July 12, 2004. The government has decided to put in place a flexible duty adjustment mechanism, which will allow levies to be changed from time to time to reduce the impact of the spiralling crude prices. This is the first time such a commitment has been put down in writing and transmitted to the public. This was the strategy adopted by the government during the last price revision on June 15. While the consumers took some part of the burden through a moderate hike in prices, the government absorbed some by cutting excise duties and taking a hit on the revenue front. On their part, the oil companies paid up by not passing on the entire hike and absorbing some losses. With global prices of petroleum products remaining on the higher side, the government and the oil industry are trying to put in place such a mechanism which will automatically work to keep a check on the domestic retail prices. Such a duty adjustment mechanism is in vogue in countries like Malaysia where the government intervenes to insulate consumers as prices sky rocket.  This more transparent mechanism is expected to bring in stability into the system. Although, the option of institutionalising such a mechanism has been discussed since the late nineties, it is for the first time that the government has put on record its intentions of putting this framework in place. This also falls in line with the thinking of allowing oil companies more flexibility and autonomy in fixing retail prices within a given band. If prices are to go beyond the set band, the government's duty mechanism could be employed to reduce the impact for consumers. 






BHEL bags 120 MW HEP in J&K


July 5, 2004.The Bharat Heavy Electricals Limited (BHEL) has won the contract to set up a 120 MW Hydro Electric Project, HEP in Jammu and Kashmir. The stage II of the Sewa HEP will consist of a 3*40 MW station and is estimated to cost around Rs 142 Crores. Located on the J&K and Himachal Pradesh border the NHPC owned station will be set up by BHEL in 38 months.


ONGC unveils power plans


July 07, 2004. Oil and Natural Gas Corporation (ONGC), chairman and managing director Subir Raha has said that the company is going to set up a 1,455 MW power plant at Mangalore and a 1,100 MW station at Ennore in addition to a 250 MW station in Tripura and 300 MW from its western offshore gas finds. The company is already a partner in Petronet LNG with facilities at Dahej and the 2 big power stations are likely to be fuelled by the LNG receiving terminal the ONGC is planning to set near Mangalore.


NTPC to renovate Bihar thermal units


July 08, 2004. The Bihar State Electricity Board (BSEB), has asked the NTPC, National Thermal Power Corporation, for proposals for R&M works at its Barauni and Muzaffarpur thermal power generating units. The state SEB is seeking a residual life assessment study and details pertaining to finalisation of bids and technical supervision of the execution works. The units on the block include Units 1 and 2 of the Muzaffarpur thermal power station (MTPS), and Units 4, 5, 6 and 7 of the Barauni thermal power station, BTPS. MTPS has been non-functional for a year and NTPC believes that BTPS is also headed the same way unless the government takes proactive action soon.


Naphtha power plants loose duty exemptions


July 10, 2004. Beginning April 1, 2005 the 12 naphtha based power generating stations in the country will loose the 10% duty exemptions on Naphtha which is likely to result in power tariffs going by around 20 paisa per unit. Of the 12 naphtha based power stations in the country belonging to Reliance, NTPC and Essar that currently enjoy the duty exemptions the drawback will come into effect from April 1 and be fully implemented by July 1, 2005.The move is a clear government signal for preference to natural gas a generating fuel over naphtha and comes after the January 2004 guidelines for fertilizer units to switch from naphtha to natural gas.

Transmission / Trade


TPC to buy ONGC's offshore power 


July 07, 2004.The Tata Power Company, TPC, is in talks with state owned ONGC, Oil and Natural Gas Corporation, to buy the latter's surplus power from offshore gas fields. ONGC is planning to monetise its isolated gas finds by converting it power and has initiated a 'gas to wire' concept to generate power at the well-head. The company's are reportedly negotiating the price for the sale-purchase of power. ONGC officials claim to have the capacity to connect 15 gas complexes and supply power within 90 days .The company is reportedly seeking Rs 4/unit of power while is TCP is interested at a price of around Rs 3/unit.


Policy / Performance


Budget 2004: The Power Sector


July 09, 2004. Budget 2004 has insured that the outlook for the power sector in the country remains upbeat. The government has set up a Rs 400 billion fund for infrastructure projects, provided Rs 142 billion in equity support for central PSU's ,an additional Rs 21 billion as loans for PSU's and extended the tax benefits under Section 80 1A to investments in T&D business. The budget allocations clearly set to rest nagging doubts on the proposed review of the Electricity Act 2003 as mentioned in the government's Common Minimum Programme, earlier. However, the finance minister has overlooked the industry demand for reducing the threshold for mega power status from the existing 1000 MW to 500MW or increasing the sectoral exposure limits of FI's and banks to power sector projects. The minister has also overlooked the demand to do away with custom duty on fuel and equipments for the power sector which could significantly lower the per unit cost of power in the country.


Hydro projects on fast track


July 06, 2004. The Union government is planning to put the setting up of hydro power stations in the country on the fast track by doing away with the present 3 stage clearance required to set up such projects. The government now plans to mandate the entire approval responsibility to the Central Electricity Authority (CEA), which has representation form all quarters including the power ministry and the Planning Commission. India's total hydro power potential is estimated at 84,000 MW at 60% PLF on an installed capacity of 150,000 MW. The country currently has an installed hydro capacity of 29,000 MW and is planning to add another 14,000 MW during the 10th pan period which ends in 2007.


DERC scales down power raids


July 6, 2004.The Delhi Electricity Regulatory Commission (DERC), has scaled down the scope of the sweeping powers given to Discoms earlier this year to curb the menace of electricity theft. The Discoms under Section 135 of the Electricity Act 2003 had been empowered with wide-ranging search and seizure powers on March 31, 2004, the first of its kind in the country. The government's decision had sparked off a wave of protest from consumer and concerned action groups. The DERC now has modified the powers with Discoms officials now required to produce business and I-cards to prove their identity and limiting inspection only to the place where the meter is installed for testing. The new modifications take away the Discoms right to seize customer's appliances the utility feels are being used/likely to be used for stealing power.


Global coal firms eye Indian market


July 6, 2004.Global coal companies including Australia's companies Rio Tinto, Anglo Coal, BHP Ltd, Shell South Africa and Indonesia's Enviro Coal are planning to enter the Indian market in a big way through long term coal supply contracts with Indian power generating firms.  The interest in India is fuelled by the falling demand in western economies for Coal due to tighter environmental norms and the shift towards natural gas, the large power generation requirements of India and the requirement of Coal for the steel industry. The government is reportedly interested in allowing long term supply contracts for private and State-owned power utilities especially after the 17% price hike by public sector Coal India Ltd, CIL, the current monopoly supplier.


Alstom to increase India presence


July 08, 2004.Power Equipment giant Alstom is keen to enhance its presence in India and is in the process of setting up a R&D centre and increased manpower presence for management and engineering of power plants.  The company is reported to be in talks with Reliance Industries for equipment supply to the proposed Dadri generating station, the world's largest gas based generating station. Recently, the company had won the contract for GVK-promoted Gautami power project in Andhra Pradesh. Besides thermal, the company is eying the hydel and nuclear generation business in the country in a bug way.


WB energy PSU's post Rs 9.99 billion loss


July 11, 2004. The 3 state owned energy PSU's of West Bengal have posted an annual loss of Rs 9.99 billion during FY 2002-03 according to the official state statistics released earlier this week. Only one the West Bengal Power Development Corporation, WBPDC, posted a marginal profit during the said period. The other two include the loss making WBSEB, the West Bengal State Electricity Board, which posted a loss of Rs 9.15 billion and Durgapur Projects limited which was in the red by Rs 743 million. With almost all off the state owned PSU's posting huge losses the government has appointed PricewaterhouseCoopers, to assist the process of restructuring the state enterprises.


Power Minister for cut in AT&C losses 


July 10, 2004.Union minister for power, P M Sayeed, has called upon state and private owned power utilities to cut aggregate technical and commercial losses especially at the distribution end.  The minister assured the power utility businesses of continued support through the Accelerated Power Development and Reforms Programme (APDRP). The union power ministry has so far released Rs 41.12 billion under the APDRP of which Rs 34.54 billion have been utilised. AT&C looses in the country are currently estimated at 50-60% and a 1% reduction in such losses entails a saving of Rs 7-8 billion or 1000-1200 MW in power terms.








BP wins tender to supply Portugal's oil reserve


July 6, 2004. Portugal's state oil stockpiling agency EGREP has bought a third cargo of Urals crude as part of its plan to build up strategic reserves of 1.3 million tonnes. BP had won the tender, held by Petrogal on behalf of the Entidade Gestora de Reserves Estrategicas de Produtos Petroliferos (EGREP), but could not disclose the level of the deal. Traders pegged the market for Urals in Northwest Europe at anywhere between Dated minus $2.20 and Dated minus $2.60.  EGREP was seeking 100,000 tonnes of Urals, to be delivered into Wilhemshaven in northern Germany between July 25 and August 3. Last week, EGREP bought 80,000-100,000 tonnes of Urals for July loading and earlier this month it bought another 100,000-tonne cargo of the grade.


Iran’s buy-back projects update


July 6, 2004. Companies from India, Malaysia, Spain, and Russia are bidding to develop Iran's North Azadegan, Kushk, and Hosseinieh oil fields under a buy-back scheme.  Petroenergy Information Network (PIN) quoted Ali Akbar Vahidi Al-e Aqa, deputy head of Oil Engineering & Development Co. as saying foreign companies must bid by the end of September, when Tehran will select operators. India's international firm ONGC Videsh Ltd. (OVL), New Delhi, likely will receive a 20% stake in Kushk and Hosseinieh fields on a nomination basis, PIN reported. Iran would offer that share in these fields (about 60,000 b/d of crude oil) in exchange for India's purchase of 5 million tonnes of LNG from Tehran.


Spanish company gambles on search for oil in Cuban waters 


July 7, 2004.  Recent announcements from Repsol, the Spanish oil and natural gas company, reveal an ambitious expansion program, with projects scheduled for places like Libya and Equatorial Guinea that are not for the risk-averse. But none have attracted as much attention as its gamble on Cuba.  Last month, Repsol hired a Norwegian drilling platform called the Eirik Raude at a cost of about $200,000 a day to search for oil in Cuban waters, in a narrow sector of the Gulf of Mexico off the island's north-western coast.


Oil to hold near $40


July 7, 2004. Crude oil prices are likely to remain near current levels near $40 a barrel through 2005, the U.S. Energy Department said in its monthly short-term energy outlook.  Inventory levels remain low, particularly in the context of stronger demand and "low world oil surplus capacity levels provide an extremely limited cushion in the event of unexpected world oil market disruptions," the agency said.  Petroleum demand will likely increase by 380,000 barrels per day this year and by another 300,000 barrels per day in 2005, it said, with motor gasoline demand growth still seen as averaging around 2 percent a year through 2005.


Oil drops as Nigeria returns, OPEC hike seen


July 7, 2004.  Oil prices fell after top producer Saudi Arabia confirmed the OPEC oil cartel would go ahead with plans to increase output and as a Nigerian union agreed to resume oil production after a five-day halt. French oil major Total's 225,000 b/d of Nigerian oil production will resume immediately, after the company agreed to the union's key demand of more senior jobs for Nigerians. OPEC's decision to raise output was "not up for review," the Middle East Economic Survey quoted Naimi as saying. The cartel had agreed to raise supplies by 2 million b/d from July and an additional 500,000 bpd from August to a total 26 million b/d. But some ministers have said the second stage of the increase would need to be confirmed at the group's next meeting in Vienna on July 21.  OPEC has been pumping near capacity this year -- members boosted production by 830,000 bpd in June from May,  and exceeded even its higher official limits for July and August.


Total agrees to resume Nigeria oil output


July 7, 2004. French oil company Total reached agreement with a Nigerian union to resume 225,000 barrels per day oil output immediately after a five-day halt. The company, which had shut its oil wells as a security precaution due to fears of attacks on its expatriate staff, also agreed to the union's key demand of more senior jobs for Nigerians.  The PENGASSAN union had accused the Paris-based company of a "racist" staffing policy, which reserved "technical" jobs for expatriates. It had advised the company not to allow its expatriate staff onto its installations for fear of attacks due to the rising tension over staffing. Total agreed to nominate five Nigerians to the position of superintendent within the next 12 months, the union source said. The unionist said PENGASSAN still had other grievances against the company over a planned restructuring, and had delivered a 21-day ultimatum to management demanding "appropriate participation" by Nigerians in the new company structure under threat of a strike. The PENGASSAN union is also in a pay dispute with the local subsidiary of ExxonMobil and has opposed planned job cuts in Royal Dutch/Shell.


Norway reduces stake in Statoil


July 7, 2004. Norway's government announced a further reduction of its stake in the state-controlled oil company Statoil ASA, saying it sold a 4.6-percent stake in line with its three-year-old policy of partial privatisation. A block of 100 million shares was sold after markets closed Tuesday, reducing the state's ownership in Statoil to 77.1 percent. Statoil was founded by the government in 1972 to oversee Norway's oil interests and was partly privatized in 2001, when the state sold 17.5 percent of its shares to investors.  The share sale reflected the long-term goal of reducing state ownership to as low as 66 percent. The transaction is being underwritten by Lehman Brothers, which will place the shares with institutional investors in Norway and abroad. A separate sale to private investors was also planned. The shares are being valued at a range of 84 kronor to 85 kronor, giving the sale an estimated value of as much as 8.5 billion kronor (US$1.25 billion).


Big deepwater world oil reserves to be found: Study


July 8, 2004. The world's untapped deepwater oil reserves could more than triple existing deep offshore discoveries over the next 20-30 years at attractive profit margins, according to a study released recently. Oil consultants Wood Mackenzie and Fugro Robertson said new finds could swell deepwater reserves by 114 billion barrels from 50 billion now. Reserves on that scale match remaining proven reserves onshore in Iraq, the world's second largest oil province after Saudi Arabia. In addition, deepwater natural gas reserves could also jump more than threefold from 28 billion barrels to 96 billion, the report said. Deepwater exploration has grown in importance for oil majors amid worries on the world oil market about tight spare output capacity and instability in Middle East producer countries. The concerns have helped lift U.S. oil prices at times this year to $40 a barrel.


Indonesia's PLN puts ConocoPhillips gas deal on hold


July 9, 2004. Indonesia's state power firm, PT Perusahaan Listrik Negara (PLN), has put on hold a deal to buy gas from ConocoPhillips due to unresolved issues, an official with oil and gas regulator BP Migas, said on Friday. U.S. independent oil firm ConocoPhillips and PLN agreed in April on the price of 400 million cubic feet a day of natural gas from a field in South Sumatra to a PLN power plant in West Java. ConocoPhillips and PLN had agreed on an average price of $2.69 per million British Thermal Units, adding that the agreement would be signed in May. The natural gas was to be delivered via a pipeline that would be built by Indonesian gas distribution firm PT Perusahaan Gas Negara (PGN) in 2006. Under the deal, the third-largest U.S. oil firm will supply PGN with 50 million cubic feet (1.42 million cu metres) of natural gas a day at $2.49 for each million British thermal unit (BTU), for a total volume of 225 trillion BTU over the 15-year period.


Statoil to up gas capacity for UK exports


July 9, 2004. Norway's Statoil and its partners will raise the gas export capacity of the Kollsnes gas processing plant by about a fifth from 2006 to meet the need for more volumes of gas to the UK, the company said.  Statoil said the export capacity of the Kollsnes plant, on Norway's west coast north of Bergen, will rise to 143 million standard cubic metres per day from 120 million by installing a new compressor.  Kollsnes is owned by the Norwegian pipeline system Gassled and operated by the state gas company Gassco.  Raising the capacity at Kollsnes is related to the plans to boost the capacity of gas export pipelines from Kollsnes to Sleipner and to lay a new pipeline to carry gas to the UK from the big Ormen Lange field from autumn 2007, Statoil said. 


Opec countries likely to raise output again: Kuwait 


July 11, 2004. The Opec producers' cartel will consider further increases to output and will look for spare capacity among its members at a meeting later this month if oil prices stay high, Kuwait said. Oil Minister Sheikh Ahmad al-Fahd al-Sabah said OPEC would discuss an additional output rise above the 500,000 barrel-a-day (b/d) increase already due to take effect on August 1, which will put the group's official production ceiling at 26 million bpd.  Raising OPEC's price band, which targets $22 to $28 a barrel for OPEC's reference basket of seven crudes, may come up in July or September. The basket price stood at $35.91 a barrel on Thursday and has been above the upper $28 limit since late last year. Some OPEC members have said the target range should be increased to reflect this year's price surge. 


No oil export to China in return for Textiles: Iran


July 11, 2004. Deputy Minister of Commerce Mojtaba Khosrow Taj rejected news reports regarding the export of Iranian oil in return for imports of Chinese textiles, stressing that there has been no agreement with China. Fars News Agency quoted Khosrow Taj here as saying that the export of oil and the import of textiles have their own domestic regulations to be followed. Asked about the import of cars, Khosrow Taj said only Germany's BMW has to date met all the necessary regulations regarding the import of automobiles to Iran.


Indonesia in bid to improve oil output


July 12, 2004. Indonesia, Southeast Asia's biggest oil and gas producer, in an attempt to stem the fall in its current oil output, is actively looking at AGCC states including the UAE for pumping in fresh investments for exploration of its huge oil reserves.  Many of the prospects are said to be located in remote areas. By some estimates, the government would have to spend as much as us $3.5.billion per year in the exploration of new oil and gas deposits. Although Indonesia's Opec oil production quotas had been raised repeatedly in the past, its production had not shown a corresponding increase.


Nigeria’s NNPC targets oil blocs in Africa


July 11, 2004. The Nigerian National Petro-leum Corporation (NNPC) is seeking to bid for offshore oil blocs in three African countries namely Angola, Gabon and Equatorial Guinea, as a key diversification programme. Already, a team of investment experts drawn from the NNPC subsidiaries namely the National Petroleum Investment Manage-ment Services (NAPIMS) and the Nigerian Petroleum Develop-ment Company (NPDC) has been constituted to study the various licensing rounds recently thrown up by these countries.  The Federal Government has lately been shoring up the profile of the NPDC, with the recent transfer of operatorship of six oil fields hitherto held by Shell and ChevronTexaco, to the NNPC subsidiary.


ABB sells oil and gas unit


July 12, 2004. Swiss engineering group ABB sold its upstream oil, gas and petrochemicals business to a consortium of private equity investors for an expected $925 million, the firm said, completing a key step in its divestment programme. The deal for the unit that supports the energy exploration industry was clinched with a consortium made up of Candover Partners, 3i and JP Morgan. It brings the Swiss engineering firm closer to the end of a drastic restructuring. ABB said sale agreement included a potential deferred consideration of up to $50 million, based on 2004 earnings before interest, tax, depreciation and amortisation. The group announced a preliminary sales agreement with the Candover Group in late October. Last week, the firm said it had settled bribery cases which stood in the way of the sale. The sale is one of three key issues ABB wants to resolve this year as it trims its focus to power and automation, selling assets to cut debt and make the sprawling group more manageable. The group also aims to sell its downstream OGP business, which provides services to the refining industry. However, since this operation includes units that are involved in a major court case over asbestos liabilities, this sale is blocked until a $1.2 billion settlement offer by ABB wins court approval. ABB has said the sale of the downstream business, which centres on ABB Lummus Global whose offerings included asbestos-insulated engineering products, is on track for the end of the year.


Norsk Hydro awards contract for Ormen Lange gas terminal 


July 12, 2004. Norsk Hydro ASA and partners awarded a $2 billion kroner contract to Aker Kværner ASA for the engineering, procurement, and construction of a gas reception and export area at Nyhamna on Norway's west coast as part of the Ormen Lange development project. Construction, which is slated to begin in spring 2005, also will include a slug catcher, the flare tower, and emergency shut down valves for the Ormen Lange gas terminal. The natural gas-condensate Ormen Lange field is slated to begin producing 2.5 bcfd in October 2007. The $9.5 billion project is the largest in Norway's history. The field lies on Block 6305/5 more than 100 km northwest of Aukra, Norway, in 3,300 ft of water. Reserves are 14 tcf of gas and 180 million bbl of condensate.


Shell starts gas production from deepwater in Gulf of Mexico 


July 12, 2004. Shell Exploration & Production Co. June 23 began producing natural gas from its Coulomb development on Mississippi Canyon blocks 657 and 613 in the deepwater Gulf of Mexico. The project comprises the two deepest wells in the world in terms of water depth, the company reported.  The Coulomb wells are tied back via a 27-mile flow line to the BP PLC-Shell Na Kika floating development system on MC Block 474. The Coulomb C-2 well is currently producing about 65 MMcfd of gas. Combined, both the C-2 and C-3 wells are capable of producing about 100 MMcfd of gas, Shell said.  Shell holds 100% interest in the C-2 well, and Petrobras America Inc. is one third partner in the C-3 well. The C-2 well May 2 became the world's deepest water depth completion in 7,565 ft of water. The C-3 well was then drilled in 7,570 ft of water May 19.


Total-led consortium finds dry well in Pakistan


July 2,2004. A consortium led by French oil major Total S.A. failed to find any commercially viable hydrocarbons in the first well it drilled in block G offshore Pakistan, one of the consortium partners said Thursday.  The Total-led consortium, which includes Malaysia's Petronas, Austria's OMV AG, Pakistan's OGDC and Mari Gas Co, has invested around $30 million in its first ultra deep well in block G, located some 300 kilometers from the city of Karachi. 


Pakistan signs oil & gas pact with Azerbaijan


July 6, 2004. Pakistan and Azerbaijan have agreed to promote and expand cooperation in the oil and gas sector for the mutual benefit of the two countries.  A memorandum of understanding (MoU) to this effect was signed at the conclusion of a two-day Joint Ministerial Commission (JMC) meeting held in Baku, the capital of Azerbaijan, on July 5-6, says a message received here. Petroleum and Natural Resources Minister Nouraiz Shakoor Khan led the Pakistani delegation at the JMC meeting. Under the MoU, both the countries would cooperate in petroleum exploration in offshore and onshore areas by providing assistance and facilitation to the state companies to evaluate the business opportunities.  They also agreed to cooperate in the gas transmission and distribution sector in all fields, including the cross-border gas pipeline by sharing expertise and transfer of technology. 


Pakistan Provinces asked to review security at oilfields


July 9, 2004. Following intelligence reports on possible terrorist attacks on the country's oil and gas fields, the federal government on Thursday directed provincial governments to review security and asked if they needed help from the centre to protect oil and gas fields from sabotage. Interior Ministry officials, who asked not to be named, told Daily Times that the intelligence reports suggested terrorist groups linked to Al Qaeda were planning attacks on oil and gas fields particularly in Sindh and Balochistan after the Uch Sharif gas pipeline explosion.


Pakistan Gas Company plans gas import from Iran


July 13, 2004. Sui Northern Gas Pipeline Limited (SNGPL) is preparing a comprehensive plan costing $2 billion for importing gas from Iran, said Abdul Rashid Lone, managing director SNGPL.m,Talking to newsmen, he said that work on the project would be started in about two year and would be completed in five years. The Sui Northern Gas Pipeline was making strenuous efforts for providing gas connection to the domestic, commercial and industrial consumers on top priority basis, he added.




Petrobras to build $20 million Cuba lubricants plant


July 6, 2004. Brazil's state oil company Petrobras will invest $20 million to build a lubricants plant in Cuba, a company spokesman said. He said Petroleo Brasileiro SA (Petrobras) was the only investor in the project. Petrobras would likely ship its prefabricated products to Cuba for mixing at the plant, which should be ready in two years, he said. The products will be sold on the Caribbean island and in some Central American countries. Petrobras President Jose Eduardo Dutra is due to travel to Havana on July 26 to sign an agreement on the plant with Cuba Petroleo state oil company. The deal is in line with calls by Brazil's leftist President Luiz Inacio Lula da Silva, who visited Cuba last year, to invest more in the economy of the Communist island which is under a U.S. trade embargo.


Chevron plans restart of El Segundo refinery reformer


July 7, 2004. ChevronTexaco Corp. plans to restart a steam methane reformer that produces hydrogen for use in gasoline and jet fuel at its 273,000-barrel-per-day refinery in El Segundo, California, this week, sources familiar with refinery operations said on Wednesday. A spokesman for the refinery was not immediately available to comment. The reformer's shutdown last week pushed Los Angeles spot gasoline prices up 7 cents. The reformer was shut to make unplanned repairs to the unit, which mixes methane with steam at high temperatures and pressures in the presence of a catalyst to extract hydrogen.


FTC probes Shell plan to close California refinery


July 7, 2004. The U.S. Federal Trade Commission said Wednesday it launched a formal investigation into Royal Dutch/Shell Group's plan to shut a California oil refinery, after some lawmakers said closing it would hurt competition and boost West Coast gasoline prices. The FTC investigation will "examine possible antitrust violations" by Shell in closing the 70,000 barrel per day Bakersfield refinery, said William Kovacic, FTC general counsel.


Petrobras to operate new gas-chemical complex


July 9, 2004. Brazil's state energy company Petroleo Brasileiro will be the operator of a planned $1.3 billion gas-chemical complex on the border with Bolivia, a Petrobras director said on Friday. International operations director Nestor Cervero told Reuters Spain's Resol, Brazil's petrochemical firm Braskem and Bolivia's state hydrocarbons company YPFB would also take part in the project, which he said had full backing of Bolivian and Brazilian governments. The intention was to have the complex, which has a projected gas consumption of 3 million cubic metres (106 million cu ft) per day, working by 2010 when Brazil expects a shortage of polyethylene. The Brazilian government is also studying a proposal to build a privately funded sponge iron plant estimated to cost around $1 billion on the Brazilian side of the border that would use Bolivian natural gas. Brazil hopes to boost consumption of natural gas nearly four times by 2010 from last year's 27 million cubic meters per day to make use of Bolivian imports and recently discovered big domestic reserves.


Biggest CNG fuel station opens in Iran


July 4, 2004. Iran's biggest CNG fuel station with the capacity of accommodating 3,200 cars per day was opened in Shiraz, southern Iran. Iran Fuel Conservation Organization's Bureau for Culture Building and Communications reported that the station enjoyed 12 platforms each having two fuelling hoses and worked around the clock. Head of CNG promotion department, Majid Homayouni, noted that based on Clause T, Note 12 of Budget Law for 2003, automakers have been obliged to manufacture dual-fuel cars operating on gasoline and natural gas in proportion to the capacity of CNG fuelling stations.


Transport / Trade


ConocoPhillips completes Freeport LNG deal


July 6, 2004.  ConocoPhillips has completed a deal to buy a 50 percent stake in Freeport LNG Development LP and provide substantial funding for construction of a liquefied natural gas receiving terminal on Quintana Island near Freeport in Brazoria County. ConocoPhillips said that it has acquired 1 billion cubic feet per day of regasification capacity in the terminal, which will store 6.9 billion cubic feet of gas and be able to produce 1.5 billion cubic feet per day. ConocoPhillips did not disclose terms of the deal. But according to Cheniere Energy Inc., which owns 30 percent of Freeport LNG, ConocoPhillips will spend $400 million to $450 million on construction as well as 5 cents per million cubic feet of gas processed by the facility and an upfront fee of about $10 million. Natural gas will be transported from the Quintana terminal through a 9.4-mile pipeline to Stratton Ridge, a major interconnection point with the Texas intrastate gas pipeline system.


Dubai-based Indian firm wins $230 million pipeline contract


July 6, 2004. A Dubai-based Indian engineering and construction major has secured three contracts worth $230 million in Sudan to cover all engineering, procurement and construction activities for an extensive oil pipeline system in the North African country. The contracts secured by Dodsal are for a 741 km multipurpose pipeline system from the capital Khartoum to Port Sudan for India's Oil and Natural Gas Commission (ONGC), the Adar/Agordeed 31,000 barrels per day Field Production Facilities for Petrodar Operating Company and for a 280 km section of their crude oil export pipeline leading to Port Sudan. The Sudan contract will bring Dodsal's orders this quarter to a total of $500 million and will likely exceed the $1 billion mark early 2005, according to president, Dodsal Group, Rajen Kilachand.


BP sees LNG deals completion by September


July 7, 2004. British oil giant BP Plc expects to sign deals in the next two months to supply Indonesian LNG to South Korea's K-Power and Sempra of the United States a BP Indonesia official said. BP signed a preliminary agreement with South Korea's biggest oil refiner, SK Corp., to supply liquefied natural gas for 20 years from 2006. SK Corp and BP will build a natural gas-fired power project known as K-Power. BP also signed a preliminary agreement with Sempra last year to supply 3.7 million tonnes of LNG per year to the import terminal in Costa Azul, Mexico. The LNG will come from BP's Tangguh gas field in Papua province, 3,000 km (1,880 miles) east of Jakarta, which holds 14.4 trillion cubic feet of certified natural gas reserves.


ConocoPhillips, Mitsubishi in US LNG terminal deal


July 12, 2004. ConocoPhillips said it has entered into a non-binding memorandum of understanding with a unit of Japan's Mitsubishi Corp to jointly develop a liquefied natural gas (LNG) import terminal on the U.S. West Coast. Houston-based ConocoPhillips, the largest oil refiner in the United States, said it would work with Mitsubishi's wholly owned unit Sound Energy Solutions on the project, whose location is proposed for the Port of Long Beach, California. The companies plan to invest between $350 million and $400 million to jointly build the terminal.  The terminal was expected to start operating in 2008 upon permit approval from federal and state regulators and would have a send-out capacity of 700 million cubic feet of gas per day (MMCFD), with a peak capacity of 1,000 MMCFD, ConocoPhillips and Mitsubishi said.

Policy / Performance


Iran to modify oil laws, encourage development by foreign firms 


July 6, 2004. Like Indonesia Iran's parliament (Majlis) is changing its laws in order to entice foreign firms to participate more in its oil and gas development projects, reported OPEC News Agency.  Iran's new 2005-10 economic development plan will enable exploration companies to develop the fields in which they strike oil and will favor companies interested in finding new fields outside the oil-rich southwest. Under the new plan National Iranian Oil Co. (NIOC) will not conduct new exploration work in the southwest. The new legislation also loosens Iran's restrictive "buy-back" agreements, under which field developers are compensated with output before the fields return to NIOC, OPECNA reported. Few buy-backs have been concluded under the discouraging system. Kamal Daneshyar, Head of the Majlis Energy Committee, said an ad hoc committee of Ministry of Petroleum members, industrialists, and university professors will devise methods to encourage more oil deals.


Sri Lanka assures no politics in oil exploration


July 5, 2004. The Lankan Minister of Power and Energy Susil Premjayanth last week assured that ongoing explorations and measures taken to produce commercial quantities of oil and oil equalling resources will not be politicised under any government with strict legislative measures taken. Sri Lanka expects to be in a position to produce 3 million bbls of crude oil and 180,000 boe of natural gas which the India produces currently at the Indian side of the Mannar basin. Two areas with high prospects have been identified. These two areas includes the Gulf of Mannar basin and a part of Cauvery basin which is within the Sri Lankan territorial waters and has been proven to contain geological structures that is required to bear oil and gas reserves.


End of Saudi facility to raise Pakistan’s oil import bill


June 30, 2004. The State Bank of Pakistan (SBP), while commenting on the termination of the Saudi Oil Facility (SOF) and its impact on the external sector of the national economy, said: "It will substantially increase the foreign exchange requirement to pay for oil imports." In 1999, the Saudi government granted the SOF after Pakistan conducted its nuclear tests in May 1998 in response to the nuclear tests conducted by India. From 1999 to April 2004, oil worth Rs 186.9 billion was provided to Pakistan under the Saudi oil facility.  The SBP refrained from estimating the expected expenditure, to be incurred on the imports of POL products, after the termination of the Saudi oil facility. The central bank said: "The termination of this facility will have an adverse impact on both the country's external account as well as government's (budgetary) financing needs".


Pakistan Petroleum Shares to be offered from July 19 to 22


July 5, 2004. The subscription for the Pakistan Petroleum Limited shares will be invited through banks from July 19 to 22, a press release of the Karachi Stock Exchange (KSE) said. Further, it would be under the regulations for futures trading in provisionally listed companies of the exchange and it is proposed that the company will be formally listed on August 30, 2004. The exchange does not allow kerb trading in any security listed on the exchange. The objective of trading under the provisional counter is to avoid the kerb trading and to protect the interest of investors by providing the market price in the security of the company.


Pakistan Petroleum minister leaves for Baku


July 5, 2004. Federal Minister for Petroleum and Natural Resources Ch. Nouraiz Shakoor Khan said that Pakistan attaches importance to its relations with the Central Asian states and it has keen desire to expand and enlarge the existing volume of interaction in all walks of life for the mutual benefits. The minister is going to Azerbaijan to attend the 2-day Joint Ministerial Commission (JMC) meeting being held in Baku from July 5. The minister said that this visit would also provide an opportunity to meet his Azeri counterpart to explore the investment opportunities for the two countries to cooperate in the oil and gas sector in order to bring them closer. He said that there existed a lot of potential and opportunities for enhancing the Pak-Azerbaijan cooperation in diverse fields particularly in the oil and gas sector and both the countries could benefit from each other's experiences in this vital field of economy. The minister is heading a delegation comprising senior officials of the ministry of Petroleum, Finance, Foreign and economic affairs. The Joint Ministerial Commission (JMC) is set up to provide two countries to interact and learn each other's experiences in Oil and gas sector.


Gas, Petroleum prices go up in Pakistan


July 8, 2004.  Minister for petroleum and natural resources Wednesday informed the Senate that prices of gas and petroleum products shot up by 7.50% and 20% from July 2003 to May 2004. In a written reply, the minister admitted that prices of petroleum products were enhanced 22 times. Giving details of skyrocketing trends of the price hike, the House was informed that price of petrol shot up from Rs 31.19 to Rs 36.92 per litre.  Price of HOBC was raised from Rs 34.87 to Rs 40.87, kerosene oil from Rs 18.76 to Rs 24 per liter and HS diesel from Rs 20.31 to Rs 23.37 per liter during eleven months period.


Pakistan saved $208m on lower oil import bill


July 10, 2004. Pakistan saved $208 million on account of reduced oil import bill during the fiscal year 2003-04 despite high international prices.  A senior official in the Petroleum Ministry told Online that the total oil import bill during the first 10 months of the fiscal year 2003-04 declined by 7.7 per cent to $2.48bn as compared to $2.69bn during the same period last year, mainly because of a drastic 42.2 per cent fall in the quantity of petroleum products.






TransCanada gets go ahead for Quebec power plant


July 5, 2004. TransCanada Corp. has won the approval of the Quebec government to construct a 500 MW co-generation facility at Becancour, near Trois-Rivieres. The $375 million natural gas fired facility will supply steam to two industrial facilities and the entire power has been contracted for 20 years to government-owned utility Hydro-Quebec. The plant is expected to be operational in 2006.


KPMG to sell UK power plant


July 5, 2004. KPMG, Administrators of the Fifoots Point power station in South Wales, UK, is said to be closing a deal to sell off the 363 MW generating station to Carron Energy Ventures. The Fifoots Point station , one of the UK's newest power plants commissioned in 2000, went into administration following the slump in wholesale power prices in UK with the power market reforms of 2001.The plant has been lying idle after the expiry of the contract between KPMG and RWE, which operated the plant last winter.


Namibia undertakes 800 MW power project 


July 5, 2004.The long-awaited 800 MW gas fired Oranjemund power project has finally taken off. The agreement between Energy Africa,ENR, Namcor, the National Petroleum Corporation of Namibia, and NamPower, the Namibian power utility to jointly develop the project will see the project go online by 2009. The $400 million project would be fed natural gas from the nearby Kudu gas fields which have 3.4 tcf of proved gas reserves, enough to feed the 800 MW plant for the next 20 years. All the power will be sold to NamPower for onward sale in Namibia and the surplus available will be sold to Eskom, the South African power utility company, for the South African market.


Singapore may broaden energy sources after outage


July 9, 2004. Wealthy Singapore may broaden its energy sources following a series of power failures that damaged the island's reputation for first-class infrastructure. Following the worst power outage in a decade late last month, the Energy Market Authority said it was building two new natural gas feeds connected to pipelines from Indonesia's Sumatra island and accelerating studies for a liquefied natural gas (LNG) plant. About a third of Singapore lost power late on June 29 during the blackout that extended for two hours in some areas, forcing factories to suspend production and sparking fears among some residents that militants had attacked the island of four million. It was the third outage in three months and the fifth in two years.


Pakistan plans to generate 480mw power from canals   


July 3, 2004. Punjab Irrigation and Power Department has identified as much as 48 potential points on Punjab canals from where hydel power can be generated. This was decided in a high-level meeting with Chief Secretary Punjab, Kamran Rasool in the chair, here Friday. Secretary Irrigation and Power and other high-ranking officials also participated in the meeting.  During the meeting, 40 points were identified that have a capacity of producing 380 MW electricity while 8 other identified points had a potential of 100 MW power generation. All aforementioned points had a total capacity. The matters relating to formulation of policy for launching projects on priority basis on most suitable places had also been discussed. The Chief Secretary directed to chalk-out viable policy for attracting investors so work on powers projects could be started within the shortest possible time.  


Transmission / Trade


Global firms to invest in Chinese power sector


July 9, 2004. The Chinese province of Jiangxi is targeting foreign investment of $700 million to double its power output for sale of power to starved province of Guangdong. Global energy companies including those from the United States, France, Japan and Taiwan have pledged to invest $ 691 million in the province to expand the existing generating facilities or undertake the construction of new ones. The province is targeting to increase its installed capacity to 13,000 MW by 2010.




Pipeline damage hits power plants in Pakistan


July 10, 2004.Damage to underground gas pipelines in Pakistan has severely affected the power production in the country which is already facing a power shortage on account of  water shortages at two of its biggest dams - Mangla and Tarbela. Two underground gas pipelines had reportedly caught fire a few days back near Uch Sharif forcing generating stations to switch to the more expensive fuel oil. Although the Sui Northern Gas Pipelines Limited (SNGPL), was quick to repair the pipelines the Water and Power Development Authority (Wapda), was forced to carry out load shedding due to a shortfall of around 450 MW. The current peak demand on the Wapda system is of the order of 11,555 MW.


Policy / Performance


IPO to raise funds for Chinese power


July 7, 2004: China Power International is expected to delay is much awaited $1 billion IPO, originally slated for June end July 2004, to the 4th quarter. The company's hearing for listing approval is scheduled for mid-July but its gambling that the delay in listing CPI’s proposed IPO managed by Merrill Lynch is expected to sell off 90% of the company's shares to institutional investors. The company is headed by Li Xiaolin, the daughter of former Chinese premier Li Peng. The company is expected to use a major part of the IPO proceeds to acquire and fund new generation stations on the mainland. Guangxi Fangyuan Electric Power of China is planning to raise HK$940 million through the IPO route to double its installed generation capacity to 2340 MW. The company is planning to undertake construction of 2*300 MW coal fired units and 8*60 MW hydro units. The plants are expected to be operational by 2006 and will almost double the current installed generating capacity of 1,170 MW.


Scotland opts for Nuclear power


July 11, 2004. In a surprise move on its energy policy, Scotland has decided to build nuclear power generating facilities to ensure that Britain is able to meet its greenhouse emission reduction targets. The move comes with Tony Blair admitting to MPs that Britain will require new nuclear power facilities if it is to honour its stated emission targets. The move is major turn around on last years Energy White Paper which supported energy efficiency and renewable and had put nuclear on hold for the next 5 years. The likely location for the new nuclear station is a toss up between Hunterston in Ayrshire and Chapelcross, at Annan.


Former Enron chairman Ken Lay indicted


July 9, 2004. Former Enron Corp. chairman Ken Lay turned himself in to authorities here Thursday, after a federal grand jury indicted him in connection with the fraud that led to the collapse of the energy giant. Lay, a former adviser and fundraiser for President George W Bush and his father, joins Enron lieutenants Jeffrey Skilling and Andrew Fastow in facing criminal charges over the spectacular meltdown of what was the seventh-largest US corporation. He arrived at the FBI Building here about 1125 GMT, appearing relaxed and shaking a few hands on his way in to be fingerprinted, photographed and booked. He was due to be handed a copy of the indictment to inform him of the charges to be lodged. The indictment against Lay, the culmination of a painstaking official probe into the biggest scandal to rock corporate America, remains under seal, with details expected later.


Global partnership backs renewable energy


July 7, 2004. A global partnership hopes to lever Euro 20 million into Euro 500 million of support for renewable energies around the world. The Renewable Energy & Energy Efficiency Partnership was launched in 2002 to promote market growth for renewables, and has released a draft of its three-year program of work for comment by countries which support the initiative.  “A transformation of unprecedented scale and urgency is required to harness the potential of REES (renewable and energy efficiency systems) on poverty, security and climate,” it notes. It will be impossible to meet national and international climate goals without much faster REES market growth than will result from the UN climate process or from any existing combination of national and international programmes.” “Many developing countries are making energy investments now that will, if continued on a business as usual basis, lock them onto a fossil energy pathway for a generation,” it adds. “The critical obstacle, identified in many assessments including the G8 Renewable Energy Task Force, is a widespread lack of human and institutional capacity necessary to create receptive markets with a commercially attractive balance of risk and reward for private capital.”


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