MonitorsPublished on Jan 18, 2004
Energy News Monitor I Volume I, Issue 30
Global quest for oil assets: change in the competitive landscape

Interdependence of countries is one key trend that will shape the energy future of the world.  Countries with ever growing demand for energy are also countries with falling domestic supplies of energy.  This is particularly true in the case of oil whose consumption is growing at above average rates in large developing countries such as China and India, primarily due to growth in consumption in the transportation segment.    Domestic supplies are stagnant or falling. 


Another critical trend is that the centres of supply and the centres of demand for oil are converging towards what has been labelled the developing world.  


Source: World Resources Institute


Supplying countries in the developing world are looking for security of demand as well as investment in infrastructure for sustaining supply while consuming countries are looking for security of supply.  This interdependence and the consequent political and economic alliances will have a significant impact on the global oil asset markets of the world, especially when key players in the field are viewed as ‘ethically challenged’ by the western world. State owned Asian firms are accused by western oil companies as having 'no qualms about making deals with oil rich dictators however corrupt or nasty.  It is however true that Asian firms do not suffer boycotts at home and find it easier to get around sanctions against these countries. 


Quest for oil assets


Unlike many other sources of energy oil is a commodity that has a global market but it is susceptible to extreme price volatility and volume uncertainty.  Developing countries that import most of their oil, seek to hedge their price and volume risk by making equity investments in oil and gas assets. West Asia (Middle East) which holds the largest reserves of oil is not fully open for foreign investment.  That leaves Russia, which has the largest oil reserves outside OPEC along with Central Asia, and Africa as coveted areas for equity investment. Aggressive pursuit of oil assets in these countries by Chinese as well as Indian oil companies continues to make headline news and have more recently been the subject of criticism on ‘ethical compromises’ that often go with these investments. 


With China overtaking Japan to become the world’s second largest oil consumer after the United States, Beijing is aggressively building a network of energy-related ties throughout the world - in the Middle East, Central Asia, Southeast Asia and Russia. China used 5.46 million b/d, compared with Japan’s 5.43 million, according to the International Energy Agency. Beijing relies on overseas producers for one third of supplies and accounts for about 7 per cent of world oil demand. In contrast, India - Asia’s fourth largest economy - imports nearly 70 per cent of its oil needs and last year consumed a little more than 2 million b/d.  A government paper predicts that by 2025, India will consume 7.4 million b/d.  Following the Chinese the Indians too are aggressively pursuing oil assets around the globe, often competing with China for the same asset. India’s ONGC Videsh, the overseas arm of ONGC, has operations in ten countries including Vietnam, Russia, Sudan, Iran, Iraq, Libya, Myanmar and Australia, and has the backing of the oil ministry, which wants the company to spend at least $1 billion a year to acquire foreign operations. 



Source: World Resources Institute


Investments by Asian state companies


While the Russian government’s assault on Yukos and the subsequent auction of the assets of Yuganskneftegas sent a negative message on the investment climate in Russia, it appears to have meant something different to Chinese and Indian firms - India's Oil & Natural Gas Corporation (ONGC) and China’s China National Petroleum Corporation (CNPC) are among companies in the race for assets Yuganskneftegas!  Increased role for the government in Russia too inhibits giant western oil companies while that just becomes an advantage for state owned Asian companies which can leverage historical ties or political influence to secure oil assets.     


Higher taxes mandated by Russia are also a dampening factor for western oil companies which have a clear focus on profits. The interest of Asian firms is more in security of supply and less on profit. With these companies in the market, the price for an asset may be bid up which many western oil companies will find hard to justify to their shareholders. 


Recently, Unocol an American oil company with a stake in a gas pipeline in Myanmar agreed, in principle, to settle several law suits related to the investment. The settlement involved compensation for the plaintiffs and extra funds for the development in the pipeline area. Though Unocol is said to be committed to its investment, western oil companies may avoid Myanmar in future to limit their financial liability and to avoid loss of reputation. Boycott campaigns to press investors to pull out of Myanmar can also not be ruled out. This development has not stopped a consortium of Indian public sector companies from vying for more assets in the region.  An Indian consortium  of public sector oil companies (ONGC Videsh & GAIL) already owns  30 per cent in a gas block in Myanmar.  India’s larger plan is to tie up the two gas blocks so that shipping gas in the form of LNG will become attractive. 


A Sino-Singaporean consortium has also signed a major oil exploration contract in Myanmar and three more are in the offing. 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 sharing contract of Block A4 and Block M10 offshore exploration with the Myanmar Oil and Gas Corporation under the Ministry of Energy in Yangon.  The total areas for exploration in Myanmar which have been given to Chinese companies surpasses that of Bohai Oil Field in China.  In 2002 Premier a British oil firm that was the target against privatisation in the country, decided to sell its stake in another pipeline project in Myanmar.  Petronas Malaysia's main state owned firm snapped up Premiers Pipeline deal. 


In Africa, the Chinese have made significant oil investments in prospects that western firms have abandoned because of sanctions and bad publicity.  CNPC has recently bought a large project in Sudan when bad publicity forced Talisman, a Canadian oil firm to pull out from Sudan. When human rights controversy forced Canada's Talisman to sell 25 per cent stake in the Greater Nile Petroleum Operating Company, which accounts for the bulk of Sudan's oil production, for 1.2 billion Canadian dollars (£491m; US$766m) India's Oil & Natural Gas Corporation (ONGC), through its overseas arm ONGC Videsh (OVL) took up the offer.  This was India's second biggest overseas investment after that in Shakhalin oil field in Russia which involved, at that time, an investment of about $1.8 billion[1].


Human rights groups have claimed Sudan's Islamic government has been using revenues from the project to fund a two-decade-old civil war against rebels. The new owner India was also criticized but India's argument was that it had struck the deal at a fairly good price as other bidders, especially in the West have shied away as they have high security concerns. Some political overtones were acknowledged but it was argued that there was no reason why India should not be present along with China National Petroleum and Malaysia state oil company Petronas which were partners in the project. India also maintained that it had the manpower and tolerance level to work in tough conditions. India was reassured with the investment having been insured by the World Bank's Multilateral Investment Guarantee Agency. 


India’s Fortune 500 downstream company Indian Oil Corporation (IOC) is also moving into global upstream action. IOC has taken up interests in South Pars fields in Iran, which is the largest offshore field in the world, located on the Iran-Qatar border in the Persian Gulf.  The gas block in South Pars field is situated beside the Yadevaran oilfield, in which Tehran has offered a 20 per cent stake to India in lieu of India buying 5 mtpa of LNG.  The Yadevaran oilfield, recently renamed from Kush-Hossainieh, is said to have the potential to produce 300,000 b/d.  IOC is to partner Iran's Petropars in bringing to production one of the 30 phases planned to develop the 500 sq mile South Pars field that is estimated to hold 436 trillion cubic feet of gas reserves. The Indian company will have 40 per cent stake in the upstream development with the remaining being with Petropars. In the liquefaction plant, IOC would have 60 per cent stake and the marketing rights to sell the entire 9 million tons of LNG.  The two will also put up a liquefaction plant in south Iran which is designed to make available nine million tones per annum of LNG to be exported to India and other countries.


Tehran also offered 100 per cent development rights on the Juffair oilfield, which could produce 30,000-40,000 b/d. In both Yadavaran and Juffair oil fields, ONGC Videsh will get a fixed rate of return on the capital it invests in bringing the fields to production.  As per Iranian law, no equity oil (ownership of oil) by foreign firms is allowed and only a fixed rate of return is given to companies investing in oil exploration and production. With that money, the investing company may choose to buy oil.  The 20 per cent equity was equivalent to 60,000 b/d of oil. 


China has also signed a number of memorandums of understanding (MOU) with Iran. Under one MOU, Sinopec has agreed, in return for Yadavaran project, to purchase an annual of 10 million tons of Iranian liquefied natural gas (LNG) over a period of 25 years. Also, the National Iranian Oil Company (NIOC) has agreed to sell 150,000 b/d of crude oil to China at market prices over a period of 25 years once Yadavaran becomes fully operational. According to another MOU, NIOC and CNPC have agreed to expand cooperation in the oil and gas upstream sectors and exchange technical oil services. CNPC is already operating at the project to increase the production of Iran's Masjed Soleiman oilfield. The company has also bid for the development of Khorramabad and Kuhdasht oil blocks which Iran put on international tenders last February.


In the global quest for oil assets, Asian giants and economic rivals India and China are often locked in battle to secure stakes in oil fields and blocks in the new energy haven of West Africa.  Angola’s state-owned Sonangol reportedly blocked an Indian move to buy Anglo-Dutch energy giant Shell’s 50 per cent share in Block 18 for about 620 million dollars.  India’s OVL had almost closed with Shell, but the Chinese evidently cut a deal with the Angolan government at the last minute, resulting in Sonangol exercising its pre-emption rights. This stymied Shell’s move to sell its stake to OVL, a deal that would have yielded about 5 million tonnes of crude oil daily for New Delhi from 2008-2009. 


China managed to swing the deal by offering soft loans to the tune of $ 2 billion for a variety of projects to Angola, compared to India’s offer of $ 200 million for developing railways.  Aid-for-oil is part of a deliberate strategy adopted by the Chinese across West Africa, whose oil potential came into focus after the September 11 terror attacks. The amount of oil in the region is yet to be mapped, but US studies say that the US can rely on Gulf of Guinea reserves to cut its dependence on crude from the volatile Middle East by 25 per cent in the next decade. Top Chinese leaders including President Hu Jintao have visited Africa, signing deals with Algeria, Gabon and other states, besides promising millions of dollars in aid free of good governance and human rights ties. Indian officials admit India does not have the resources to compete barrel for barrel with China in West Africa.


Leveraging ‘ethical discount’


Western oil companies which were generally confident of their ability to compete for hydrocarbon assets on the basis of their technical and financial strengths now fear that a new political component is being added by Asian state oil & gas companies. Even if western oil companies get operatorship of a field owing to the complexity of the field they fear that the concerned government will insist on the participation of these firms.  


It is argued that Asian state oil & gas companies neither have to comply with stringent transparency norms nor face domestic boycott over their overseas conduct.  Most of the available oil assets are in fact in regions considered to be politically unattractive. Regimes in these areas often make it necessary that the buyer tolerates an assortment of risks - governance, reputational and legal. Some analysts have called this an ‘ethical advantage’ for Asian oil firms. Whether it is called an ‘ethical advantage’ or an ‘ethical discount’ offered by the buyer to the seller the fact remains that large developing countries desperate to secure oil for their future have a larger appetite for risk in the quest for oil assets, probably stemming from the mercantile traditions of these countries.  


Team energy ORF


The promise of solar energy: where are we now?


Solar energy has dominated the renewable energy debate for the last five decades. This is not surprising as direct conversion of solar radiation into useful energy is, by far, the largest renewable energy resource.  Yet some concerns have kept it from making a commercial breakthrough like that made by wind in the 1990.  One major concern is the cost of solar power. Solar panels are not cheap; and because they are constructed from fragile materials, they must constantly be maintained and often replaced. Since each photovoltaic panel has only about 40 per cent efficiency, single solar panels are not sufficient power producers.  India however has made an early start and has made substantial progress in developing capacity in the area. 


Renewable energy is thrust area


In the past twenty years India’s renewable energy programme has evolved through three distinct phases.  The first phase between 1970 and 1980 the focus was on Research & Development in renewable energy.  This was followed by thrust on investing in improving efficiency of renewable energy use in rural areas.  From the beginning of 2000 the focus is more on technologically advanced use of renewable energy such as wind power generation and the harnessing of solar energy.  While the first two phases saw renewable energy as primarily poor mans energy which had to be subsidised the current outlook is more market based.  Another feature of India’s thrust on renewable energy is that the financial allocation for renewable energy has been increasing in the successive Five Year Plan periods.  From an allocation of Rs 1.33 billion in the sixth plan period (1985-90) it has been increased to 71.67 billion in the tenth plan period (2002-2007).  The allocation in the 10th plan is an increase of 85.6 per cent over that in the 9th plan.   


Solar energy potential


Total potential in India for solar energy is estimated to be 20 MW per square kilometres. Most parts of India have about 300 sunny days per year which, in terms of energy, is about 5 quadrillion units of electricity per year.  This is more than the total energy consumed in India.  India is currently the 3rd largest producer of solar cells and solar modules worldwide. India also has a few successful solar projects like the Sagar Island in West Bengal which has become a solar Island capable of meeting all energy needs from solar energy.


To utilise solar energy there are two basic technologies: solar thermal and solar photovoltaic. A solar thermal system collects sunlight in a solar collector and converts in into heat.  This technique is utilized for water and space heating, cooking, drying, water desalination, industrial process heat, refrigeration etc.  As per government estimates 487,000 box type solar cookers have been sold so far.  Under the solar thermal power programme a 140 MW integrated solar combined cycle power plant and a 35 MW solar steam power generating system with a 105 MW conventional power system has been approved.   Over 500,000 square metres of collector area has so far been installed ranging from domestic water heaters pf 50-100 litre capacity in about 50,000 homes to industrial and commercial systems of up to 240,000 litres of hot water per day.  


Solar photovoltaic systems (SPV) use singly crystal cells of silicon to convert sunlight into electricity.  This technique is utilized in solar lanterns, solar pumps, aerogenerators, solar water pumps, railway signals.  A scheme is in place to install SPV power projects of capacity 25 to 100 MW having applications in roof top systems on public buildings and distributed grid T&D support systems in remote rural areas.   Over 700,000 solar PV systems of total capacity 57 MW are operational in the country which makes it the largest such deployment in the world.  



An SPV power pack of 1kWp can produce 1.1-1.4 thousand units of electricity per year.  Cost of SPV systems {Low power band (<70 Watts)} varies from Rs 125-130 per Watt peak (Wp). In international markets the prices for high power band SPV systems has dropped from around $27/Wp (appximately Rs 1200/Wp) in 1982 to around $4/Wp (appx. Rs 200 per Wp) today.


Aerogenerators & Hybrid Generators







Andhra Pradesh
























Tamil Nadu






West Bengal







In the international market, in year 2003 a residential solar system cost about $8,000-12,000 (Rs 3.6 – 5.4 lakhs) per kWp installed. India has installed a number of SPV water pumping systems of 900 Watt-1800 Watt capacity. A 1800 watt such system can discharge 140,000 litres per day from a depth of 6 to 7 meters.  Solar lighting systems are used in 380,000 homes and about 190,000 rural radio telephones are also being powered by solar energy. About 3,07,763 solar home systems, 52,102 solar street lights, 6,414 SPV water pumping systems, standalone power plants (aggregating 1,791.31 kWp), million individual PV systems and Power plants have been installed.  While most of the solar potential is yet to be exploited it can be safely said that India is not behind the rest of the world. 

Team Energy ORF









RIL to delay gas production in KG field


January 18, 2005.  Reliance Industries Ltd will begin natural gas production from its Krishna Godavari deep sea gas field in the Bay of Bengal from March 2008 as against the earlier schedule of 2006-07. There has been delay in getting the Government approval for laying of the 1400-km Kakinada-Ahmedabad pipeline to evacuate the gas. This has delayed RIL’s production plans. Reliance, which received the right of use (RoU) for the pipeline in May 2001, was to begin gas supplies from May 2007. Its principal customer, state-run National Thermal Power Corp, had scheduled sourcing of 12 million standard cubic meters per day of gas from it in 2007 for its Kawas and Gandhar power plants. But RIL could not develop the pipeline since the draft gas policy permitting private sector pipelines was initiated only in September 2003 and is yet to be finalized. The Petroleum Ministry has cleared only 700-km of the pipeline and approval for the balance was still pending.


ONGC likely to get back royalty


January 17, 2005. The petroleum ministry has decided to move a Cabinet note, proposing reimbursement of the amount paid by ONGC to the government as additional cess and royalty under the pre-NELP exploration projects. A policy that had prevailed before the launch of the New Exploration and Licensing Policy in 1997 mandated ONGC to pay 100per cent royalty and cess to the government as licence-holder for the exploration projects. This is even as it had claim on only 40per cent share of the production from these projects. Now, if the Cabinet approved the proposal, then ONGC might immediately get Rs 260 crore (Rs 2.6 bilion) towards reimbursement of royalty paid on Lakshmi fields, sources said. Higher amounts would later be repaid in case of PY 3 offshore and Mangla fields.


RasGas likely to offer stake to ONGC  


January 18, 2005. RasGas is likely to offer 5 per cent equity to ONGC Ltd in liquifaction facility in train-3 in Qatar. ONGC has held advanced due diligence for picking up the stake. One of the key objectives of RasGas is to build upon the existing relationship with India, and continue to be India’s supplier of choice for clean, environmental friendly, efficient and affordable LNG. ONGC had expressed interest in picking up equity in train-3 which produced liquified natural gas (LNG) for Petronet LNG’s Dahej terminal. This train is one of the largest LNG train with a production capacity of 4.7 million tonne per annum (mtpa). It has been built to supply the first phase LNG quantities of 5 mtpa contracted with Petronet. The first LNG delivery to India from RasGas will take place later this month. Qatar’s unmatched gas reserves would ideally meet India’s growing petrochemical demands. However, the company would not be able to supply LNG to any company other than Petronet since it has tied up supply till 2010.


ONGC likely to get back royalty


January 17, 2005. The petroleum ministry has decided to move a Cabinet note, proposing reimbursement of the amount paid by ONGC to the government as additional cess and royalty under the pre-NELP exploration projects. A policy that had prevailed before the launch of the New Exploration and Licensing Policy in 1997 mandated ONGC to pay 100per cent royalty and cess to the government as licence-holder for the exploration projects. This is even as it had claim on only 40per cent share of the production from these projects. Now, if the Cabinet approved the proposal, then ONGC might immediately get Rs 260 crore (Rs 2.6 bilion) towards reimbursement of royalty paid on Lakshmi fields, sources said. Higher amounts would later be repaid in case of PY 3 offshore and Mangla fields.


Cairn not to share cess with ONGC


January 17, 2005. British company Cairn Energy has ruled out paying a cess on the crude oil produced at its discoveries in Rajasthan. Cairn said the Rs 900 per tonne production cess should be borne by the public sector Oil and Natural Gas Corporation since it was the licensee of the Rajasthan block. The block was given to Cairn outside the new exploration licensing policy and, therefore, production from it invites a cess to be paid to the state government. Exploration blocks under NELP do not invite the levy. The production sharing contract for the block does not say anything on cess though it makes ONGC liable to pay royalty on behalf of Cairn. 


ONGC to grow by 7 per cent


January 17, 2005. It is expected that the production of India's Oil and Natural Gas Corp. to grow 7 per cent in its next financial year, boosted by a 20 per cent rise in its overseas output. That increased volume, plus a hike in domestic gas prices, should offset the impact of likely lower international oil prices on the state-run oil giant in the fiscal year ending Mar. 31, 2006. The company's overseas output would come from fields in Sudan and Vietnam and the Russian Sakhalin fields - in which ONGC has a stake - should start production by March 2006. ONGC's domestic production would just grow "modestly" in its next financial year as its $2.4 billion "re-development capital expenditure enters the final stage.


BG, ONGC, Reliance sign new PSC deal


January 12, 2005. The Indian unit of the British energy firm BG group, ONGC and Reliance Industries signed an amended contract for the Panna/Mukta oil and gas and Tapti gas field with the government for joint management of the fields. British Gas Exploration and Production India (BGEPIL), ONGC and Reliance will jointly operate the fields. An amendment to the production sharing contract (PSC) became necessary after BGEPIL acquired the 30 per cent stake in the field held by Enron Oil and Gas India (EOGIL). EOGIL was the sole operator of the fields in which ONGC has a 40 per cent stake and Reliance holding the remaining 30 per cent. Each of the partners has been assigned a lead role: ONGC is in-charge of contracts, procurement and projects, Reliance has been assigned financial and commercial responsibilities, and BGEPIL would look after the technical and operational aspects.


KG deepwater blocks for Australian company


January 12, 2005. ONGC has awarded turnkey contract for the `integrated development of deepwater blocks in Krishna-Godavari offshore' to Clough Engineering Ltd of Australia. The fields are expected to produce one million tonne of low sulphur crude oil and six billion cubic metre of natural gas over an expected life cycle of 15 years. The Rs 1,004-crore (Rs 10.04 billion) contract is the first of its kind awarded by ONGC for development of G1-block deepwater field. It will create India's first `digital oil and gas fields' with remotely monitored and controlled ‘smart wells’. As per the contract, Clough Engineering will drill five production wells in G-1 block and will lay dual sub-sea pipeline from 429-metre water depth for transporting the well fluid to the processing facilities on-shore. G-15 is a shallow water field located 5 km offshore and is integrated with the project.


ONGC invests in Pramoda oil


January 13, 2005. State-run Oil and Natural Gas Corp has picked up 30 per cent stake in Hindustan Oil Exploration firm’s Pramoda oil discovery in Block CB-ON/7 in onshore Cambay basin in Gujarat. The block had HOEC and Gujarat State Petroleum Corp Ltd as equal partners with 50 per cent stake each. With ONGC farming in, HOEC and GSPC would hold 35 per cent apiece. The Management Committee of Block CB-ON/7 (Onshore Cambay) has approved the Plan of Development for Pramoda oil discovery. The development activities comprise drilling development well and setting up production facilities to put the existing and new wells into production. Well Pramoda-1 near Palej town, 50 kms from Vadodara, had in January 2003 encountered oil and associated gas-bearing sands. So far, 10 wells have been drilled on the block, of which two have been put into production.




Six shipping majors bid for LNG tanker contract


January 18, 2005. Six shipping majors including Qatar Shipping, Essar Shipping, Mitsui and Shipping Corp of India have bid for supply of three liquefied natural gas (LNG) tankers to Petronet LNG Ltd's Dahej expansion project and greenfield Kochi project. Great Eastern Shipping Co Ltd bid for the tender for three LNG tankers with Malaysian International Shipping Corp while Qatar Shipping has tied up with Isle of Man-based Dorchester Maritime and Shipping Corp of India. Others in fray include Essar Shipping, consortium of TK Shipping and Great Eastern Shipping, consortium of Mitusi OSK Lines-NYK Line-K Line of Japan and SCI and Exmar-Varun-IOC combine. PLL, which already has one 138,000-cubic metre capacity ship ferrying LNG from Qatar to its Dahej terminal and a second similar tanker scheduled to start operating from April, needs two more LNG tankers of similar capacity for hauling additional five million tonnes gas to Dahej. For the 2.5 million tonnes-per-annum Kochi terminal, PLL wants a 152,000-to-165,000-cubic metres capacity ship.


RasGas in talks to hike gas supply to Petronet


January 17, 2005. Qatar's Ras Laffan Liquefied Natural Gas Company (RasGas), which has signed a contract to supply 7.5 million tonnes of liquefied natural gas to Petronet LNG, is in talks to increase gas supplies beyond the contracted amount. RasGas will double LNG exports to Petronet to 5 million tonnes from April and an additional 2.5 million tonnes is scheduled for supply in 2008. Petronet is doubling its Dahej terminal capacity to 10 million tonnes and putting up a new 2.5-million-tonne capacity import terminal at Kochi.


BPCL, Kochi Refineries approve swap


January 17, 2005. The boards of directors of Bharat Petroleum Corporation Ltd and Kochi Refineries Ltd  approved a 4:9 swap ratio. KRL shareholders would get four BPCL shares for every nine shares held by them. BPCL holds 54.68 per cent stake in KRL. The ratio was arrived at by taking into account not only the performance of both the stocks on the bourses, but also historical earnings of both companies and earnings expected from future projects. 


PFC to refinance Petronet loans


January 17, 2005. Power Finance Corporation (PFC) is likely to refinance Petronet LNG Ltd’s (PLL) outstanding high cost borrowings. The two companies are in discussions to determine the interest rate and quantum of debt. PLL has project finance of Rs 1,260 crore (Rs 12.60 billion) taken at 9 per cent interest rate. Of this, the company has a loan of Rs 450-500 crore (Rs 4.5-5 billion) for its Dahej terminal. PLL also plans to come out with two bond programmes amounting to about Rs 1,100 crore (Rs 11 billion) for funding the expansion of Dahej LNG terminal and prepaying its existing debt. The company would be signing agreements with the Asian Development Bank (ADB) and the Kreditanstalt fur Wiederaufbau (KFW) of Germany for partial guarantee for the bond programmes. PLL is finalising a $67-million credit enhancement guarantee from the ADB for a Rs 400-crore (Rs 4 billion) bond programme. The money raised through bonds will be at 1 per cent lower interest rate and will be used to prepay partially, the existing long-term debt of Rs 1,804 crore (Rs 18.04 billion). ADB also holds 5 per cent equity in PLL.  Money from the bonds will be utilised to fund Rs 1,000-crore (Rs 10 billion) expansion programme for the Dahej terminal. The expansion of Dahej terminal from a capacity of 5 to 10 million tonne per annum (mtpa) will begin next year and is expected to be completed by 2008. Along side, the company would be setting up another LNG terminal at a cost of Rs 2,000 crore (Rs 20 billion) in Kochi in Kerala. The Kochi terminal has a capacity of 2.5 million tonne.


Indian Oil set for strategic pact with Saudi Aramco 


January 17, 2005. Indian Oil Corporation is planning to enter into a strategic alliance with the world’s largest oil company - Saudi Aramco - which meets 11 per cent of world’s oil demand and has reserves of 260 billion barrels. Saudi Aramco is keen to store its crude in India’s strategic petroleum reserves (SPR). Saudi Aramco and IOC, is setting up a 5 million tonne crude oil storage facility in India. Another area of interest for Saudi Aramco is India’s refining and marketing sector. The possibility of investment in grassroot refinery projects such as Paradeep (Orissa), Bhatinda (Punjab) and Bina (Madhya Pradesh) or picking up equity in an existing refinery-cum-petrochemical project is being explored. On its part, IOC is keen on equity participation in small- and mid-sized gas projects, setting up a liquefaction facility and bringing equity LNG to India from Saudi Arabia. It is also looking at equity participation in some of the developed mid-sized oil and gas properties in Saudi Arabia besides joint participation with Saudi Aramco in undertaking projects in third countries like the Philippines. Saudi Aramco is also planning to put up a very large refinery, in excess of 400,000 b/d, in Saudi Arabia mainly for processing domestic crude oil and exporting products. Participation of Indian companies is under discussion. Saudi Arabia is India’s single-largest crude oil supplier. India imported 23.6 million tonne of crude oil from Saudi Arabia in 2003-04 as against 18.8 mt in the previous year.


Haldia Petro to sell motor spirit to PSU


January 15, 2005. Production of motor spirit is fast emerging as a leveraging tool for Haldia Petrochemicals Ltd (HPL), which is seeking to export it to China and a few other countries. The company is also in talks with a public-sector oil company for selling the product. HPL, which is firming up plans for its IPO, is further charting an investment plan - requiring an investment of a few millions of rupees - for scaling up capacity. The idea is to secure a bigger size, courtesy an expansion project that should be wrapped up by October next year.


IOC to take stake in GSPC's KG block


January 13, 2005. Indian Oil Corporation may take up to 50 per cent stake in the gas bearing block in the Krishna-Godavari block KG-OSN-2001/3 controlled by Gujarat State Petroleum Corporation. The agreement was  signed between these two. GSPC, in return, will get a stake in IOC's block in South Pars field of Iran or one of the three gas bearing blocks the company has in India. GSPC has, till date, drilled two dry wells in the KG basin block. It is moving the drilling rig to the next location to drill the third of the 14 well drilling programme.


Transportation / Trade


Gail loses hold over Panna-Mukta gas


January 18, 2005. The Panna-Mukta-Tapti (PMT) consortium - British Gas, Reliance and ONGC - can now retail their entire gas production, including additional gas from the fields to customers of their choice. The production sharing contract (PSC) will be modified so that the consortium no longer has to hand over the gas to Gas Authority of India (Gail). Gujarat State Petronet Corporation is one of the customers that the consortium is hopeful of selling to. The selling will commence from April 1, ‘05. BG, ONGC and Reliance, the joint operators of the Panna/Mukta and Tapti oil and gas fields, had in June, raised the ceiling price of Tapti gas to $5.6 per mmbtu from $3.1 per mmbtu. Gail had refused to pay the revised price of natural gas produced from Tapti field. The operators produce around 190 million metric standard cubic metres per day (MMSCMD) of gas, which is allocated to Gail. The partners are planning an investment of $750m to increase production to 450 MMSCMD by ‘06. The investment includes $190m in increasing crude oil production from Panna/Mukta field by 10,000 b/d to 40,000 b/d and gas production by 0.5 MMSCMD to 4.5 MMSCMD by the second half of ‘06.


Gujarat Petronet keen on joint gas trading platform


January 13, 2005. Gujarat State Petronet Limited, a subsidiary of the Gujarat State Petroleum Corporation (GSPC) has approached commodity bourses Multi Commodity Exchange (MCX), the National Multi Commodity Exchange (NMCE) and the National Board of Trade (NBOT) for the joint development of a platform for streamlined trading in natural gas. National Commodities and Derivatives Exchange of India (NCDEX) and GSPL already have a memorandum of understanding signed in May 2004 in this regard. The project was expected to go on stream by September 2004 but has been stalled by some last minute glitches.  Under the arrangement, GSPL and other gas pipelines would act as neutral warehouses of gas in the trading scheme. Major activities like trading, clearing and risk management services would be undertaken separately by the various exchanges. GSPL was evaluating the exchanges to help it prioritise, upgrade and realign its pipeline’s automation systems to facilitate trade. GSPC, the parent company, would be one among the 25-odd gas traders in the Gujarat region.


GSPL supplied gas worth a minimum of Rs 2 crore (Rs 20 million) daily to customers like Essar, Gujarat Narmada Valley Fertiliser Company, Indian Petrochemicals Corporation Limited, Narmada Chemataur Petrochemicals, Videocon Narmada, Kribhco, Gujarat Industrial Power Company Limited and Gujarat State Fertiliser and Chemical Company. GSPL was currently developing about 2500km of transmission pipeline at a cost of about Rs 5000 crore (Rs 50 billion), which would be completed by 2007. About 430km of the pipeline was already operational and another 400km would become operational this year. 


GAIL moots ‘industry gas plan'


January 12, 2005. Gas Authority of India Ltd. (India) has proposed developing an `Industry Gas Plan' for closer interaction between the suppliers and the shippers to ensure timely supplies to the customers. The Industry Gas Plan meetings may be held on a monthly basis. During the monthly meetings, each supplier of natural gas will table next month's firm availability of gas from each source of supply. The indication for any planned shutdown during the next three months would also be provided and source-wise linkages for the distribution of available gas would be finalised. GAIL believes this would help in handling the supply and distribution of regassified LNG and natural gas in an organised manner. Currently, gas is being supplied from different points for the transportation by GAIL through its Hazira-Bijapur-Jagdishpur (HBJ) pipeline and eight regional pipelines. The current gas consumption in the country is around 73 million standard cubic metres per day (mmscmd), including 64 mmscmd of APM and 9 mmscmd of R-LNG. With the introduction of R-LNG, the day-to-day operating issues regarding the availability of gas and its distribution are requiring more co-ordination for ensuring uninterrupted supplies of natural gas.


GAIL to supply gas to RCF


January 12, 2005. GAIL India Ltd has signed a five-year agreement with Rashtriya Chemicals and Fertilizers Ltd (RCF) for supplying close to two million cubic metres a day of natural gas through its proposed Dahej-Uran pipeline. This makes RCF among the first customers to buy gas that will flow through GAIL's 475-km pipeline project. The Rs 1,830-crore (Rs 18.30 billion) Dahej-Uran pipeline was delayed after the Union Government directed Gail to re-tender its purchase of steel pipes. The two companies have agreed on a price of a little more than $4 per million British thermal unit (mBtu) for the gas that is expected to flow from December 2006. This is against the earlier benchmark of $3-3.5 per mBtu of gas as agreed by fertiliser companies. As per the deal, if the high-powered Group of Ministers (GoM) finalises a cheaper price for natural gas, GAIL will either have to cut its price or exit from the agreement. The companies will soon sign a final gas sales agreement. The GoM reportedly plans to allocate lower natural gas prices for the fertiliser industry. The Petroleum Ministry had proposed raising the price of natural gas from Rs 2,850 per thousand cubic metres to a fixed price of Rs 3,200 per thousand cubic metres for fertiliser units and Rs 3,600 per thousand cubic metres for power companies.


Policy / Performance


India to explore Angolan reserves


January 18, 2005. India will make a fresh attempt at entering Angola for oil exploration. Union Petroleum Minister Mani Shankar Aiyar’s man for pursuing oil diplomacy, Talmiz Ahmed, would head for Angola on February 1 for discussions with the Angolan government. Ahmed would be accompanied by officials from the Oil and Natural Gas Corporation (ONGC), who would examine the possibility of taking up new blocks there. Angolan government has offered new blocks to India. Shell had earlier agreed to sell its 50 per cent share in Block 18 to ONGC but the deal could not materialise since the state-owned Sonagol exercised it pre-emption right. The Angolan block would start production of about 200,000 b/d of oil per day from 2007. 

NELP V generates international interest


January 18, 2005. Foreign oil companies appear to be bullish on oil exploration prospects in India even as they expect to sort out some outstanding issues with the government. Cairn Energy—which has made the biggest onshore discovery in India but found itself locked in a battle with ONGC over payment of cess— expressed interest in taking part in the fifth round of bidding under NELP and also plans to invest $200 million in Mangala and Aishwarya oil fields in Rajasthan. The BG Group, which bought out Enron in the Panna, Mukta and Tapti oil and gas fields a few years ago but got caught in negotiations over operatorship rights with other partners, plans to make fresh investment of $250 million. Along with ONGC and Reliance Industries Ltd, it would invest $750 million to target new reserves and expand current production. It would take its investment in India to $750 million. 


Oil firms urged to make parallel market for LPG 


January 18, 2005. The government rapped oil marketing companies for abdicating their responsibility of distributing liquefied petroleum gas (LPG) and kerosene. It called for developing a parallel market that would reduce price differential between the open market and subsidised product prices to make diversion of these items unattractive to the non-needy. Ministry of petroleum and natural gas secretary SC Tripathi underlined the need for correcting this policy aberration, which had resulted in the transfer of the responsibility of distribution of LPG and kerosene to state governments. He said as LPG had emerged as an environment-friendly cooking fuel, it was only to be expected that our oil companies displayed corporate responsibility in trying to expand their reach particularly in rural areas. Also, kerosene dealership is suffering as petrol pumps are proliferating. He pointed out, “Half of the blocks still do not have a kerosene storage facility or a dealership.” The government, he said, proposed to hold oil companies accountable for the quality of their product dispensed through its dealer network as quality and quantity were the bare minimum that the customer would demand.


Upstream opportunities to be made more attractive


January 18, 2005. The minister of Petroleum and Natural Gas, Mr. Mani Shankar Aiyar had decided to reduce the time taken to award the contracts under the NELP-V to four months from six months taken under the NELP-IV. The timetable drawn up by his ministry says the roadshows will be over in February and the awards will be made by July.  He said that a two-month time reduction may look small change in isolation but it is a huge gain for oil exploration companies, considering the billions of dollars involved. The ministry, would also ensure that the contracts were signed in another two months—by September—and the successful bidders should be able to start operations by next January. Considering the time taken in the past to obtain approvals, Aiyar said all the 20 blocks had already got defence and environment clearances in principle.  The ministry is also setting up a single window for the clearances needed following the award of the contracts. To take state governments on board, the petroleum secretary has written to chief secretaries of all the states concerned to designate a nodal officer to negotiate with the bidders.  On the other highlights of the NELP-V, Aiyar said the process would be more transparent than the last four rounds. All geo-scientific data will be available online and digital data rooms will be set up in London, Houston, Calgary and Dubai. The software will enable companies to review and analyse data and provide clarifications on the spot. Six deep-sea blocks, two shallow water and 12 on-land blocks involving an investment of $1 billion have been offered to public and private sector firms as part of the NELP-V.


Russia’s oldest oil firm seeks to revive ties with India 


January 17, 2005. Russia’s oldest oil and gas major Zarubezhneft has sought to revive co-operation with India and other countries where it had worked during USSR era. The company has already initiated talks with ONGC and Oil India Limited in this regard. Currently several projects are being negotiated for co-operation with Oil India Ltd on providing technical services for cutting of bores and drilling of new directional and horizontal wells. The co-operation of Zarubezhneft with ONGC and other Indian oil companies have acquired a progressive character and deep long-term perspectives. In fact, supplies of equipment, materials and spare parts also feature prominently in collaboration between Zarubezhneft and Indian companies.


Risk valuation is key to good oil business


January 17, 2005.  Routing of a pipeline through Bangladesh to reach gas from Myanmar to India is definitely creditable, especially in our gas-deficit economy. The geopolitical gains are not insignificant, despite the fact that it is a second-best solution. After all, Bangladesh is not keen on selling its gas to India. As for the economics of the deal, supply of ‘foreign land’ gas through a pipeline over land is cheaper than the alternative technology of liquification, transport over the high seas and regassification. This equation holds so long as the deal is bereft of significant political and terrorist risks. As in the attempt to source piped gas from Iran through Pakistan. The recent terrorist attack on a gas pipeline plant in Baluchistan is a reminder that the risk is real. Risk and money are two sides of the same coin. For instance, recently in Angola, where ONGC Videsh Ltd (OVL) bid for a producing oil and gas property, the risk cover sharply brought down the economics of the deal. It is another matter that the Chinese pipped the Indians to the post.  Risk cuts both ways. As much as it pushes up the transaction cost, it can be an ally in business. OVL was able to buy into a discovered block in Sudan, since the American perception of political risk was higher than ours! In another year’s time, OVL stands a good chance of recouping its investments towards acquiring the block, riding on the back of high global crude prices. The larger debate, hence, is twofold. One is the ability to assess and valorise political risk.


Move on kerosene quota may backfire on Govt.


January 16, 2005. The Delhi Government's recent decision to scale down the kerosene quota for ration card holders belonging to poor sections of society might be aimed at "rationalising" the whole process, but political observers feel that it would hurt the interest of the party as well as the Government. What is even more surprising is that while the quota for the poor has been scaled down, the allocation to depot holders and contractors has for some strange reason not been curtailed. This new order has badly hit the poor people living in slums clusters and unauthorised colonies who traditionally vote for the Congress party in the elections. Even the elected representatives have been taken by surprise as there has been no cut in Delhi's quota from the Union Government. The Government could undo the damage by undertaking a review of the decision and ensuring that the poorest among the poor remain unaffected and are not exploited by unscrupulous traders. The ration card holders in the poor category got a maximum of 22 litres of kerosene oil till recently, a fact stated by the Government in its answer to a question in the Delhi Assembly last year. The Government had even issued newspaper advertisements in this respect in all the leading dailies asking people to file a complaint against those who do not release the full quota of kerosene oil. However, despite this, it has decided to scale down the quota drastically to 10 litres for all categories, stating that the exercise was aimed at rationalising the whole distribution process that was being misused at several ends. The Commissioner Food and Civil Supplies issued an order to this effect last month that led to strong resentment among the people and has earned the Government a bad name.


Coal India to sign pact with ONGC


January 16, 2005. Coal India Ltd has agreed to join hands with ONGC to establish " in situ" coal gasification projects. An MoU for this is under formulation under which, both organisations will have equal participation both in terms of investment and benefits. The coal gasification technology will be established in an area where coal mining may not be cost-effective due to geo-mining difficulties. The gas, which will be extracted, will be used by CIL for generating power. In other words, CIL has plans to enter the power generation business, and the generated power will be sold to the power grid. It has been decided that the share of CIL in this venture will be in the form of land used and the coal resources utilised.


PM approves reorganisation of the petroleum sector


January 17, 2005. Restructuring of the petroleum industry came back on the government agenda with a bang as the Prime Minister Manmohan Singh cleared the setting up of the high level ‘synergy for energy’ committee to examine the issue. The committee will look at eight specific options of changing the shape of the oil and gas industry in the country for increased efficiencies. Referring to how synergies can come from the size and volumes, Mr Aiyar, Petroleum and Natural gas Minister, said India needs corporations of a size that can make global companies sit up and take notice. Among the possibilities that can be tried for more capital is the entry of venture capital firms into the oil exploration and production business, he said. The VCs have brought about a complete change in the IT industry they can also be tapped for the oil business. The government will now encourage oil PSUs to get into relationships with foreign oil companies as well as private Indian players for better results.


Lahiri committee report negative for PSUs 


January 14, 2005. The Lahiri committee report’s recommendations on the petro-tax structure will adversely affect the profitability of oil PSUs like Indian Oil Corporation and Bharat Petroleum Corporation Ltd. Private refiner Reliance Industries Limited will gain significantly since refining margins on kerosene and LPG, the two main products sold domestically, will increase. Reliance produces a third of the LPG consumed in the country and 10per cent of the kerosene consumption. The consumer will gain little from the alterations suggested by the committee since it is intended to be revenue neutral. The PSU refiners will lose significantly since about 25per cent of their produce comprises industrial products, where margins are to be reduced. Refinery margin is a function of the differential in the customs duty between products and crude. In the case of LPG and kerosene produced by public sector units, the refinery gains will be lost at the marketing end.


Oil consumption rising in Kerala


January 14, 2005. Petroleum products consumption in Kerala will increase 5-6 per cent in the current year.

The total consumption during the last financial year was 3.8 million metric tonne while the total consumption of petroleum products in the country was 107.51 million tonnes. In Kerala diesel consumption is the highest with 1,347,000 tonne followed by petrol with 430,000 tonne. During 2003-04 LPG consumption in Kerala had risen 15 per cent to 412,000 tonne.  Furnace oil consumption has increased to 420,000 tonne while that of naptha fell considerably last year. This was mainly due to the increase in the price of naptha and the consumption of other energy fuels. The domestic production of petroleum products during last fiscal was 33.37 million tonne and this constituted 29 per cent of the total consumption. Indigenous production was at 30 per cent during previous three years and the trend in the current year is also below 30 per cent. 


Iran's LNG to be costlier than Petronas


January 14, 2005. India's $40 billion deal with Iran for import of 7.5 million tonnes of LNG for 25 years beginning 2009 is more expensive than liquefied natural gas Petronas of Malaysia had offered to sell to New Delhi last year. The delivered cost of Iran LNG would not be less than $3.40 per million British thermal unit (mBtu) as compared to Petronas' offer to state-run National Thermal Power Corp to sell three million tonnes per annum of LNG at a delivered price of 3.27 dollars per mBtu. India will pay Iran 0.065 of Brent price at the time of loading of each consignment plus the fixed price of $1.2 per mBtu. Price according to this formula would be capped at $3.10 per mBtu at $31 a barrel Brent price. To this $0.30 per mBtu would be added for transporting the gas in its liquefied form in specialised tankers from Phase 12 of the South Pars gas field to India. In comparison, Petronas had offered lesser volumes at a lower price. Petronas had quoted a delivered price of $3.63 per mBtu on net heating value basis. In gross heating value terms, the criteria for Iran LNG, the price came to $3.27 per mBtu.


Russia’s Asian overtures may hit western oil firms 


January 13, 2005. Kremlin invitations to Chinese and Indian state oil companies to boost their presence in Russia have prompted fears among some Western oil companies that they will find it harder to seal Russian oil deals in future. The Kremlin campaign against domestic oil firm Yukos has made the country a riskier place to do business. If Russia shifts its focus away from the Western international oil companies (IOCs) as favoured partners, it will become an even tougher place for them to operate. At best, increased involvement from the energy-hungry Asian nations will mean IOCs like Exxon Mobil and Royal Dutch/Shell Group will face more competition. At worst, it could lead to IOCs’ participation in projects being limited or even blocked as Russia seeks to build political bridges with the increasingly important Eastern economies. In the past month or so alone, Russia has signed non-binding agreements which it said should boost energy cooperation with China and India, and dangled oil assets in front of China National Petroleum Corporation (CNPC) and India’s Oil and Natural Gas Corporation (ONGC). Russia has the second-largest oil reserves in the world outside the Middle East. As the Gulf states are effectively closed to IOCs, Russia is one of the few opportunities for Western firms to gain access to big reserves. Increased Kremlin control over the oil sector in the past year has restricted opportunities, with bankers saying foreign investors are now effectively limited to minority interests in companies and fields, while higher taxes have also hit profits. Nonetheless, the country remains a key focus for most IOCs, so any eastward tilt that puts Chinese and Indian companies ahead of them in the queue for new projects would be a big blow for the Western oil industry.


Rise in oil imports in April-December


January 12, 2005. Even as the export growth rate virtually doubled to 23.42 per cent in the first nine months of 2004-05 from 12.72 per cent in the same period in 2003-04, the trade deficit during the corresponding period widened to $20.152 billion from $11.764 billion in the same period previously. The increase in the deficit has largely been attributed to rise in crude oil prices and spurt in capital goods imports. Exports during April-December 2004-05 was estimated at $53.498 billion, a growth of 23.42 per cent over $43.346 billion during April-December 2003-04. Imports stood at $73.651 billion ($55.111 billion), recording a 33.46 per cent growth. Oil imports during this period were higher by 46.17 per cent at $21.515 billion ($14.719 billion). On the non-oil front, imports were estimated at $52.135 billion ($40.391 billion), a rise of 29.07 per cent.






Tata Steel inks pact for Haldia coke plant 


January 13, 2005. Tata Iron & Steel Co and West Bengal Industrial Development Corp (WBIDC) have signed a formal shareholders’ agreement to set up a joint venture company for making coke and power. The name of the company will be Hooghly Met Coke & Power Co Ltd (HMCPCL) which will be formed and registered shortly. Tata Steel will have 98 per cent stake in HMCPCL, while WBIDC 2 per cent. The new JV Company will set up a Rs 700-crore (Rs 7 billion) plant in the first phase at the port city of Haldia in East Midnapore district of West Bengal to make 800,000 tonne of metallurgical coke a year and generate 60mw of power utilising the sensible heat of the hot flue gas from coke ovens. The debt-equity ratio for the project will be 1:1. The order for the equipment is expected to be placed soon and the first phase is expected to be commissioned within 24 months. The project is intended for supplying high quality met coke to the international and domestic customers, including Tata Steel, while the power would be sold to West Bengal State Electricity Board (WBSEB). Considering the necessity of producing world class low ash metallurgical coke, the entire coking coal requirement will be imported from countries like Australia, Canada, CIS countries, New Zealand, USA, Poland and Indonesia.


Essar Power to hike Hazira plant capacity


January 12, 2005. Essar Power Ltd is setting up a 1,500-MW plant at Hazira that already has a 515-MW plant. This will take EPL's aggregate capacity at Hazira to 2,015 MW. The plant, which qualifies as a megapower project, is expected to cost some Rs 4,000 crore (Rs 40 billion), at Rs 2.67 crore (Rs 26.7 billion) per MW. Essar Power is understood to have approached Power Finance Corporation (PFC) for financing the project. The project will have gas as fuel and the company is eyeing gas from either Dahej (Petronet LNG) or Hazira (Shell).


L&T to set up power plant


January 13, 2005. Engineering major Larsen & Toubro Ltd (L&T) is entering the power generation business by setting up a 400 mw plant at Uttaran near Surat in Gujarat. The investment is expected to be Rs 1,200 crore (Rs 12 billion). The company would also enter into the power transmission and distribution business once the Uttaran plant achieves financial closure by January 2006. Work for the power plant would begin shortly. L&T’s ECC division will handle most of the construction activities required for setting up the power plant. The company could also launch a special purpose vehicle (SPV) to handle its new business activities. L&T has also signed a memorandum of understanding (MoU) with the Gujarat government to set up an engineering campus in Vadodara for training more than 1,000 persons. 


Transmission/ Distribution / Trade


PowerGrid objects to transmission licence for Reliance Energy


January 17, 2005. Power Grid Corporation of India Ltd (PGCIL) has objected to Reliance Energy's applications for setting up power transmission lines in the western region. PGCIL has filed petitions with the Central Electricity Regulatory Commission (CERC) on this issue. Reliance Energy had earlier filed applications before the CERC seeking licences for setting up transmission lines and substations in the western region. According to the Electricity Act, CERC has to hear Power Grid's views on any transmission licence application that comes up before it. Power Grid said any move to grant permission to Reliance Energy for setting up transmission lines in the same corridors would only jeopardise the process of its selection of joint venture partners.


APTransco to launch high voltage distribution system


 January 14, 2005. In an effort to contain pilferage and technical losses, APTransco has decided to replace the existing power distribution network with a high voltage distribution system (HVDS) at a cost of over Rs 3,000 crore (Rs 30 billion). To be implemented over a three-year duration, with an expenditure of Rs 1,000 crore (Rs 10 billion) each year, the HVDS project will involve upgradation of the existing low voltage distribution to high voltage lines. The scheme was initially implemented in the temple town of Tirupathi very recently and has proved to be a tremendous success and a great boon to the consumers in that area. To implement the HVDS scheme, the power utilities are contemplating the investment of a massive sum of Rs 2,130 crore (Rs 21.30 billion) during the next financial year. 


Policy / Performance


India finds itself trailing in fight for global energy deals 


January 17, 2005. China has moved ahead of India in securing oil and natural gas supplies worldwide, the Indian prime minister warned, in the bluntest expression yet of energy worries among Indian leaders, who have spent the past two weeks pursuing a series of deals that are squeezing a market already struggling to meet demand. Prime Minister Manmohan Singh said that China was ahead of India in planning for the future in the field of energy security. India can no longer be complacent and must learn to think strategically, to think ahead and to act swiftly and decisively. Like China, India has a fast-growing economy but stagnant oil production. The result has been a rapid rise in energy imports, at a cost that has soared with high oil prices in the past year. India has become even more dependent than China on volatile countries in the Middle East, buying nearly three-quarters of its oil from them now, compared with less than half a decade ago. State-owned Chinese oil companies have been busy in the past two years buying large stakes in gas fields in Indonesia and Australia and exploring possible investments in U.S. and Canadian energy companies. After staying relatively quiet until very recently, government-controlled Indian companies have completed their own series of deals in recent days. Three government-controlled Indian energy companies concluded a $40 billion deal to buy liquefied natural gas from Iran over the next 25 years and invest in gas fields there. Oil & Natural Gas Corp., the biggest of the three companies, emerged as a rival to China in bidding for a stake in oil operations taken from Yukos by the Russian government in a tax dispute. India banned 100 percent foreign ownership of its oil and gas fields until the mid-1990s, and has been widely viewed as unenthusiastic about such investments even though they are now legal. Only one foreign company, Niko Resources, initially won a block in the last auction, two years ago, and it was subsequently disqualified when Indian officials declared that it did not meet their standards for financial strength.


India, China vie for energy, influence


January 16, 2005. The Korean company, along with ONGC Videsh Ltd and GAIL, owns the concession to exploit the energy-rich offshore block known to oilmen simply as A-1 in Myanmar. If the geologists are right, a permanent rig will eventually replace the ‘Frontier Duchess’, a drill ship. And four years from now, a network of undersea pipelines from A-1 and other offshore blocks will carry the gas produced all the way up to the coast and then onwards to Bangladesh and eventually West Bengal. Myanmar could supply as much as 10 to 15 per cent of India's gas consumption by 2025. In turn, OVL and GAIL have been asked aggressively to bid for fresh exploratory offshore and deep-sea blocks in Myanmar. Rakhine, on Myanmar's Bay of Bengal littoral, was once one of Myanmar's most prosperous provinces and Sittwe, formerly Akyab, a rich port with connections to Bengal. India's independence and partition in 1947 broke these links and Rakhine slowly withered. Gas is one way to revive the old geographical synergies. As Indo-Myanmar ties grow, however, one of the concerns Indian officials have is the aggressive presence of China in Myanmar's growing energy sector. Apart from several onshore blocks, Chinese companies have picked up offshore blocks A-4, D, M and M-10 and are likely to get C-1, C-2 and M-2 as well. But more than the gas prospecting, it is the Chinese proposal to run a 1,200 km pipeline from Sittwe all the way northwards up to Kunming in Yunnan that provides some indication of Myanmar's strategic significance for both Beijing and New Delhi. The Chinese pipeline proposal is still at the idea stage but its utility both for gas and oil is self-evident. Apart from being the cheapest way to get hydrocarbons in to southern China, the Sittwe route would also reduce China's dependence on the Straits of Molucca, through which more than 80 per cent of its oil imports currently pass. While Myanmar is open for business with literally any country - Korea's Daewoo and Malaysia's Petronas are also aggressive players - the Chinese have successfully leveraged their proximity to the country's military rulers to build strong economic links. The sudden removal of military intelligence chief Khin Nyunt as Prime Minister last year was a setback for Beijing as it had developed a close relationship with him. But China has moved quickly to build bridges with the new incumbent, Soe Win, a man with whom India also has a good relationship.  Acknowledging that there is an element of strategic competition between China and India on the energy front, Mr. Mani Shankar Aiyar, Petroleum and Natural Gas Minister, feels the two Asian powers could enhance their energy security by working together.


Coal India likely to go public 


January 18, 2005. Coal India Ltd, the coal monolith fully owned by the government, is likely to make an initial public offer (IPO) to part-finance its Rs 21,000-crore (Rs 210 billion) investment plan. The ministry and CIL are considering an IPO following the huge success of the float by National Thermal Power Corp (NTPC), another government-owned company. CIL aims to ramp up annual production to 373 million tonne (mt), mainly of thermal grades, by 2006-07 against the earlier target of 350mt. CIL, in which the government holds the entire equity of Rs 6,316 crore, has reported a sharp increase in profitability. The Rs 26,000-crore (Rs 260 billion) company reported a provisional profit of Rs 4,434 crore  (Rs 44.34 billion) for the first nine months of 2004-05 fiscal against Rs 2,755 crore (Rs 27.55 billion) for the corresponding period of the preceding fiscal, a growth of 61 per cent. In 2003-04, it reported a gross profit of Rs 5,955 crore (Rs 59.55 billion) and a net profit of Rs 3,030 crore (Rs 30.30 billion). Rising demand from the power sector and the new payments system have boosted the company’s sales realisation. The power sector consumes around 78per cent of the coal produced by CIL. Moreover, captive blocks had not added to production adequately. Of the 136 blocks identified, 46 were allotted to power, cement and steel industries. Only four blocks could be brought under production with only 8 mt in 2003-04. CIL has made big plans to meet the revised production targets.


A total of 99 projects have been planned to be approved by 2006-07 with a total capital investment of about Rs 20,988 crore (Rs 209.88 billion), to create an additional production capacity of about 251 mt per annum. Altogether 64 projects will contribute to production of about 87 mt in 2006-07, while the balance will begin contributing in the Eleventh Plan. CIL is now the cheapest coal producer in the world and it has been constantly reducing its production cost despite growing input and labour costs. Thus, while the ministry had given CIL a target of producing coal at Rs 564 per tonne in the current fiscal, CIL did so at Rs 560. CIL has seven producing subsidiaries — Bharat Coking Coal Ltd, Central Coalfields , Eastern Coalfields, Mahanadi Coalfields, Northern Coalfields, South Eastern Coalfields Ltd and Western Coalfields Ltd.

States told to invest in power transmission


January 18, 2005. With an eye to improving electricity transmission capacity, the government has asked the states to step up investment in intra-state transmission systems. The transmission sector needs an investment of Rs 31,000 crore (Rs 310 billion) in 10th plan and Rs 65,000 crore (Rs 650 billion) in the 11th plan, of this, Rs 45,000 crore (Rs 450 billion) was needed to augment regional, inter-regional and national grids. The central transmission utility, Power Grid Corporation, PGCIL, will invest Rs 21,000 crore (Rs 210 billion) and Rs 30,000 crore  (Rs 300 billion) during the 10th and 11th Plans to augment transmission network. The gap will have to be filled in through joint ventures and private projects.


US-UK-type power reforms in Tamil Nadu 


January 17, 2005. The State Development Report, prepared by the state division of the (Union) Planning Commission in association with the Madras School of Economics, has suggested a slew of measures to reform the power sector in Tamil Nadu. The state government is currently considering some of these proposals. According to the report, to salvage Tamil Nadu Electricity Board from its current financial mess, the government should try to arrest its losses by offering ‘right incentives.’ ‘However, the institutional structure in its present form is unlikely to provide the necessary incentives needed for a dramatic improvement in the financial performance. An institutional restructuring is certainly called for,’ the study said adding “the question is whether the current unbundling-corporatisation-privatisation approach is the most appropriate one, or whether we can look at some alternatives. We do not yet have good estimates and clear examples in the Indian context as to which would be a better option on balance. Given that, it may be prudent to avoid institutional changes that would become very costly to reverse, in case they prove to be problematic.” Therefore, the study has suggested an alternative approach to provide the ‘right incentives’ for efficient operation, even as the utility operates as an integrated entity. “The model suggested is, more or less, on the lines of the regulated investor-owned utilities that dominated the power sector arrangement in the US for many years.


These utilities operated as integrated entities with jurisdiction over specified geographic regions and subject to regulatory control by independent regulatory commissions. While the essential benefits of the US model can be retained, the drawbacks can be avoided and the model can be suitably adapted for the Indian context,” the study said. The first step for setting up such a utility is to transform the TNEB from a statutory board into a profit-oriented corporate organisation that would be vested with the responsibility for supply of electricity in the state.


Coal India ready to buy from captive mine owners


January 16, 2005. As a part of its emergency action plan to improve availability of domestic coal, the Union Ministry of Coal is preparing a mechanism under which owners of virgin coal blocks will be allowed to sell coal to Coal India Ltd (CIL) at a price to be determined by an empowered authority of the Ministry. A total of 46 virgin blocks, with a total reserve of 5 billion tonnes of coal, have so far been allocated for development for captive consumption purposes. Incidentally, all the blocks, except four, have remained untapped. As non-development of such blocks means loss of additional production, the Ministry feels that a mechanism has to be in place for encouraging the block owners to develop captive coal mines.


The total demand of coal as envisaged by the Planning Commission at the beginning of the Tenth Plan was about 460 million tonnes in 2006-07 and 620 mt in 2011-12, while the demand-supply gap was estimated at 55 mt in 2006-07 and 95 mt in 2011-12. CIL was making all-out efforts to augment its production so as to minimise the gap between indigenous availability and demand. The country might not need to import coal, other than coking and low ash non-cocking coal, by 2025.


Power sector account for maximum bad loans of IDBI 


January 14, 2005. After shifting Rs 9000 crore (Rs 90 billion) of bad assets to Stressed Assets Stabilisation Fund(SASF), the newly converted bank, Industrial Development Bank of India Ltd, has received its maximum sticky assets from electricity generation sector. As on September 30, 2004 the sector has Rs 79.18 crore of net non- performing assets for the bank. The bank has also restructured its exposure to many sectors. The top five industries which has got the benefit of restructuring include iron & steel (Rs 11.95 billion), fertilisers (Rs 10.60 billion), telecom services (Rs 10.41 billion), refineries and oil exploration (Rs 10.25 billion), cotton textiles (Rs 8.69 billion).


The industry-wise break up of outstandings in respect of some of the top borrowers as a percentage of total assets as on September 2004 are iron steel (Rs 17.97 billion), electricity generation (Rs 13.71 billion, sub-standard assets), refineries and oil exploration (Rs 11.29 billion), financial services (Rs 5.66 billion) petrochemicals (Rs 6.65 billion). As a prudential measure IDBI has recently revised the exposure limit to individual industry at 10 per cent of its total portfolio or Rs 5000 crore (Rs  50 billion) whichever is lower. The limit has been set at 15 per cent of total portfolio or Rs 7500 crore (Rs 75 billion) in case of assistance for electricity generation.


Punjab to overhaul power sector


January 16, 2005. After languishing in darkness for well over a decade, Punjab is overhauling its power sector with a massive reform initiative that will see the restructuring of the state-owned Punjab State Electricity Board (PSEB) into separate companies and fresh investments in greenfield capacity additions and expansion of existing units. The objective is to have 24x7 power supply in Punjab. Punjab has taken lessons from what went wrong in Orissa and what were the positives with Andhra Pradesh. Ernst & Young are advising the state on how to go about reforming the sector.


Major initiatives include the overhauling of a 38-year-old Bathinda power plant with four units of 110 mw capacity each at a cost of Rs 300 crore (Rs 3 billion). The state government is also planning to set up a 1,260 MW thermal power plant in Ropar, comprising 6 units of 210 MW each. PSEB will shortly float a tender for capacity addition to its Ropar plant. It also plans to add 2 units of 250 MW each at its Lehra Mohabbat power plant of existing 420 MW capacity at an estimated cost of Rs 2,000 crore (Rs 20 billion). The first unit is expected to be operational by the end of 2006 and the project is being set up by BHEL on a turnkey basis.


AP seeks central funds for free power scheme 


January 14, 2005. The Andhra Pradesh government is in search of other means of funding its pet scheme of providing free power to the agriculture sector. The State government has sought Rs 500 crore (Rs 5 billion) from the Centre towards free power. Chief Minister Y S Rajasekhara Reddy is also firm on providing free power only to the poor farmers and that the financially sound farmers must be excluded from the subsidy scheme. The government is expected to submit its views on the free power to the AP electricity regulator shortly.


Power dept spends only two-thirds of Budget


January 12, 2005. The power ministry has reported a steep shortfall in expenditure realisation in the current fiscal year. Against a Budget allocation of Rs 3,600 crore (Rs 36 billion) for the current fiscal year, the ministry has managed to spend only Rs 2,400 crore (Rs 24 billion) and has surrendered the remainder to the finance ministry. The recurring shortfall in expenditure realisation was also an indication of lack of absorptive capacity. Last fiscal year, the budgetary support utilised by the power ministry was Rs 1,850 crore (Rs 18.50 billion) against the budgeted outlay of Rs 3,500 crore (Rs 35 billion).  Major slippages were on account of lower than expected utilisation by the ministry, National Hydroelectric Power Corporation (NHPC) and Power Grid Corporation of India Ltd (PGCIL).







New oil discoveries in Talisman


January 11, 2005. Talisman Energy Inc. said it began production of the Brazion deep natural gas well in the Monkman area of northeastern British Columbia and finds two new Triassic discoveries in the same area. The company said in a release that the Brazion well is currently producing sales gas at rates of up to 66 mmcf/d. The Calgary-based firm also said it has drilled two successful Triassic natural gas wells, which are expected to be on production in the second quarter.


Second oil, gas find in Tal block in Pakistan


January 12, 2005. Hungary’s MOL made a second discovery of oil and gas in the Tal block, located in the North West Frontier Province. MOL said three zones had been tested, with zone 1 between 2888-2925.5 metres producing 473,000 cubic metres of gas and 1,179 barrels a day of condensate. Zone 2 between 3166-3178 metres produced 1,700 barrels a day of crude oil and 65,000 cubic metres of gas and zone 3 between 3129-3152 metres produced 2,979 barrels a day of crude and 150,000 cubic metres of gas.


LG-Caltex finds new oil


January 12, 2005. South Korea's LG-Caltex Oil Corp. said it had found oil in an offshore oil and gas block in Cambodia as part of a group led by U.S. energy giant ChevronTexaco. The refiner, a 50:50 joint venture between South Korea's GS Holdings and ChevronTexaco Corp. said it had found oil in four exploration wells in Block A, 130 km west of Cambodia, after a year of drilling. LG-Caltex, South Korea's second-biggest oil refiner said the group would drill one more well by the end of February to study recoverable reserves and the economics of the block. The group won the rights to explore and produce in the block in the Gulf of Thailand in 2002. The block was estimated to have 400 million barrels of crude and 3 trillion to 5 trillion cubic feet of natural gas, a Cambodian energy official said last year. The oil from Block A, which is 6,278 square km wide and 70-80 metres deep, has a gravity degree of 44 as measured by the American Petroleum Institute (API), making it a light crude oil with high quality.


Gulf of Mexico discovery online in 2006


January 12, 2005. Kerr-McGee Corp.'s road to what soon should become its leading deepwater oil and gas field was fraught with pitfalls along the way. The constitution platform in the Gulf of Mexico is expected to reach daily production of 60,000 to 70,000 b/d of oil and 100 million cubic feet of gas by early 2007 after startup in mid-2006. The outlook was not so rosy in late 2001, after the independent company had beaten five other groups by bidding $18 million for the lease from the U.S. government that June. A test well in the field about 190 miles south of New Orleans found a far smaller pay zone than seismic data analysis had indicated. The area of sandstone where the company expected a huge deposit was bone dry.


BHP starts production in Trinidad & Tobago 


January 13, 2005. BHP Billiton Ltd. said it has produced the first oil from its Angostura field offshore Trinidad and Tobago. Angostura has been commissioned on schedule, 40 months after the discovery of oil at the Kairi-1 exploration well in 2001, BHP said in a statement, adding that initial oil production is expected to be around 60,000 b/d. Oil production began Jan. 9 and was preceded by gas production Dec. 16. This development has opened a new area for petroleum exploration in Trinidad and Tobago. The bulk of the produced gas is being re-injected into the Angostura reservoirs to support oil production from the field and a portion is being used to fuel operations on the processing platform. In the second phase of the project, Angostura's gas resources will be commercialized.


Total takes stake in Statoil Venezuela gas field


January 14, 2005. Norwegian oil firm Statoil said it had signed an agreement with oil major Total giving the French firm a 49 percent stake in the Block 4 natural gas concession in the offshore Deltana region. Statoil will retain a majority stake in the block, which Statoil began exploring in early January. The deal is subject to the approval of Venezuela's Ministry of Energy and Mines. Statoil won the block during a natural gas licensing round in February 2003.  Statoil and Total are already partnered with PDVSA in the Sincor project, which upgrades extra heavy Venezuelan crude into synthetic oil for export. Venezuela, the world's No. 5 crude exporter, is seeking foreign investment to develop its natural gas resources to help broaden its oil-dependent economy. The OPEC nation plans to feed gas produced from the Deltana area into a proposed liquefied natural gas export terminal.


Japan oil firms to drill in East China Sea


January 16, 2005. Two Japanese companies plan to drill for oil and gas in the East China Sea in a bid to catch up with Chinese exploration in the area. Exploration by Japan may heat up a long-running row with China over rights to resources at a time when relations between the two countries are at low ebb over Prime Minister Junichiro Koizumi's visits to a controversial war shrine. Japan Petroleum Exploration Co. Ltd and Teikoku Oil Co. were discussing exploration concessions with the government aimed at starting drilling by the financial year beginning in April. Energy-poor Japan fears that Chinese exploration near what it regards as the border could result in Beijing siphoning gas from what Japan sees as its resources. Talks aimed at resolving the issue have made little progress. Japan Petroleum and Teikoku Oil are likely to receive subsidies from the government for surveys and test drilling.


Russia and Kazakhstan divide gas field


January 18, 2005. Russian President Vladimir Putin and Kazakhstan President Nursultan Nazarbayev signed an agreement delimiting the border between the two states and allowing joint development of the Central Asian republic's second-largest natural gas field. The focus of their meeting was the signature of an agreement finalized just a week ago delimiting the 7,500-kilometer (4,600-mile) Russian-Kazakh border and spelling out terms for both countries to develop a major natural gas reserve along their border. Nazarbayev told Putin at the time the Kazakh ministry for energy and mineral resources was considering three large oil projects and preparing to sign a deal with Russia’s LUKoil, ploughing an estimated $2 billion into the Kazakh energy sector. The agreement signed by the two sides stipulates that the two countries have an equal claim on the once-disputed Imashevsk gas and condensate field in the Pre-Caspian basin near the Caspian Sea and their common border. The field holds some of the largest proven natural gas reserves in the region and its development is key to ensuring growth of Kazakhstan's natural gas exports.




Iran seeks Indian participation in refineries


January 12, 2005. Iran has sought India's participation in its refineries and petrochemical plants, state-owned energy major Indian Oil Corporation (IOC) said. Iranian MP and Head of Energy Commission Kamal Daneshyar said that Indian companies, including IOC was invited to invest and participate in the new refineries and petrochemical plants proposed to be set up in Iran. IOC director (Pipelines) made a specific reference to the bid submitted by IOC with National Iranian Oil and Engineering Construction Company (NIOEC) for the revamp of refineries at Tabriz and Tehran, for which a formal decision is yet to be conveyed by Iran. Focusing on the increasing need of India to source gas and oil, he emphasized the need for Iran to offer LNG at competitive prices so as to ensure a long-term supply arrangement.


LNG plant to be built in Nigeria


January 14, 2005.Energy firms ChevronTexaco Corp. and British Gas will team up with Nigeria's state-owned oil firm to build a $6 billion liquefied natural gas plant. Construction of the plant, in the Atlantic coastal town of Olokola in the southwest, will start in 2006, targeting growing demand for natural gas in Europe and America. The plant will begin production in 2009 with an initial yearly capacity of just over 11 million tons of natural gas, to be expanded later to 33 million tons a year. Chevron will operate the plant, British Gas will market. Oil-rich Nigeria is believed to be even richer in natural gas, with proven reserves exceeding 170 trillion cubic feet, most of it barely exploited. More than 60 percent of the natural gas occurring with oil production in Nigeria is simply burned away for lack of investment in gas-gathering facilities. Nigeria's first major natural gas plant on Bonny Island in the southern Niger Delta is jointly owned by the Royal Dutch-Shell Group of Companies, France's Total, Italy's ENI and the Nigerian state oil company. It has grown from an initial investment of $3.8 billion in 1999 to over $10 billion. Another gas plant due to start production at another coastal town, Brass, in 2009, will be operated by ENI, with ChevronTexaco, Houston-based ConocoPhilips and the Nigerian oil company as partners.

Transportation / Trade


Sempra wins Mexico gas supply contract


January 11, 2005. Sempra Energy won a contract worth an estimated $1.4 billion over its 15-year lifetime to supply imported natural gas to power plants in northwestern Mexico. Mexican state electricity provider CFE said the contract to sell it 235 million cubic feet of gas per day would start in mid-2008 by which time Sempra Energy expects to have built a liquefied natural gas (LNG) import terminal just north of Ensenada, Baja California. The Federal Electricity Commission said it could save $20 million a year as imported LNG should be cheaper than the gas it buys from state energy monopoly Pemex, some of which is piped in from the United States to cover a shortfall in domestic output. Sempra Energy, which was competing against Shell, said it expects to be able to import LNG from overseas to Mexico and the Western United States for around a third less than domestic market prices.


Chile accuses Argentina of cutting gas supply


January 11, 2005. Argentina restricted 4.18 million cubic meters of natural gas supplies to Chile, or about 20 percent of the country's daily needs during the Southern Hemisphere summer, the government national energy commission said. Argentina's cuts in natural gas supplies to Chile in recent days, due to high demand on the domestic market, have hammered Chilean energy sector stocks, because many power generators depend on fuel supplies from Argentina. Approximately 30 percent of Chile's electrical power comes from natural-gas fired plants. Argentina acknowledged that it reduced its natural gas supply to Chile last week after a heat wave drove up domestic energy demand but said it did not have a specific program of cuts for coming weeks.


Russia to increase gas exports to Turkey


January 12, 2005. Russia and Turkey have agreed to implement large-scale projects in the energy sector. Agreements have been achieved in the energy sector to increase Russian gas supplies and to allow Russian companies to play a role in distributing gas on the territory of Turkey. They also discussed on cooperation in building gas storage facilities on Turkish territory, shipments of Russian energy sources to third countries and gas projects. Plans to step up Russian electricity deliveries to Turkey and Russian firms’ participation in electricity generating projects in Turkey are on the agenda as well.


FERC to boost U.S. gas supplies


January 13, 2005. Increasing access to domestic natural gas supplies is a matter of keen interest to federal energy regulators this year. To ensure sufficient supplies to meet domestic demand for natural gas, Federal Energy Regulatory Commission Chairman said regulators will do all they can to boost supplies of natural gas from three key areas in 2005 the Rocky Mountain region, Alaska, and foreign imports of LNG. In the broad Rocky Mountain region, which stretches from Montana and down to New Mexico and Utah, the construction of natural gas delivery pipelines will be necessary to move supplies across the continent, especially to customers along the East and West Coasts. FERC has authority over the siting of all interstate natural gas facilities, including pipelines, storage and liquefied natural gas.


CNOOC to develop Shanghai LNG terminal


January 13, 2005. CNOOC Limited announced that CNOOC Gas & Power Limited, a wholly owned subsidiary of China National Offshore Oil Corporation the company's parent company, has signed an agreement with Shenergy Group Limited to plan for the development of a LNG terminal in Shanghai through the establishment of Shanghai LNG Company Limited. Comprising an LNG dock, a receiving terminal and a subsea gas trunk line, the Shanghai LNG project will be equipped with a capacity of receiving six million tons of LNG per annum. Divided into two phases, the project is scheduled to start operation in 2008. The designed capacity of the first phase is approximately three million tons a year. As to date, CNOOC has entered into 4 LNG deals in Guangdong, Fujian, Zhejiang and Shanghai. The signing of Shanghai LNG project is another important advance in materialing CNOOC's natural gas strategy. As a supplemental fuel to other local energy sources, the project will help to improve people's living standard and contribute a lot to local environment protection.


Vinci wins LNG tank deals in Italy, Mexico


January 12, 2005. French construction firm Vinci won two contracts to build LNG tanks in Italy and Mexico. The first contract was to build two tanks with a capacity of 160,000 cubic metres each for Brindisi LNG, a 50/50 joint venture between British Gas and Italy's Enel. The contract represented a 390 million euro ($516 million) investment for Brindisi LNG, with Vinci Construction Grands Projets accounting for 14 percent. The second deal, worth 400 million euros of which Vinci would get 8 percent, was for the construction of two LNG tanks in Mexico, also of 160,000 cubic metres each, for U.S. firm Sempra. The construction of the tanks, to be carried out by a consortium comprising U.S.-based Black and Veatch, Mexico's Techint and Mitsubishi Heavy Industries would start immediately and should be completed at the end of 2007.


Purvin & Gertz announces the World LPG market outlook


January 17, 2005.World demand for LPG has grown significantly over the last few years.  New markets have emerged and LPG consumption is increasing in virtually every region of the world.  LPG as auto fuel is expanding and residential and commercial use is rising particularly fast in developing countries.  The expansion of the petrochemical industry has also increased the need for LPG feedstock.  LPG supplies are very sensitive to the price and level of crude oil production, natural gas production and refinery production as LPG is typically produced as a by-product. Increased demand for LPG is creating investment opportunities in many areas, including terminaling, storage, distribution, and marketing. The World LPG Market Outlook provides an in-depth analysis of the world and regional LPG markets within a framework of world energy/economic activity.  Supply outlook is based on expected production levels of crude oil, natural gas and refining in each major producing country. 


India, Myanmar & Bangladesh to finalize gas pipeline plans


January 16, 2005. India's plans to bring gas via Bangladesh from Myanmar is expected to be finalized by March. Proshanto Banerjee, chairman and managing director of GAIL one of India's leading public sector enterprises and the largest gas transmission and marketing company, said Bangladesh has agreed to allow the pipeline to come through its territory. GAIL is working with EnerSea Transport LLC of the United States to transport CNG to India. State-owned ONGC Videsh Ltd, the overseas arm of India's Oil and Natural Gas Corp (ONGC), and GAIL together hold 30 percent stake in South Korean Daewoo Corp-operated A-1 offshore Myanmar block, which is estimated to hold gas reserves of 12-20 trillion cubic feet. India is also soon expected to finalize around 30 percent stake in another Daewoo operated block A-3, even as Indian companies have been asked to study options in other exploration blocks. Depending on the various options, the length of the pipeline could be anywhere between 600 km and 1,200 km. The three countries have favored setting up a consortium to lay the pipeline infrastructure. It is expected to the gas flow from Myanmar in five years and laying the pipeline would take around three years from the date of the project finalization.


Pipeline consortium seeks Russia's approval on expansion


January 15, 2005. ChevronTexaco Corp., the second-biggest U.S. oil company, and its partners are urging Russia to let their oil-pipeline venture expand capacity, as part of their plan to export more from Kazakhstan and Russia to the Black Sea. The Caspian Pipeline Consortium, or CPC, in which ChevronTexaco owns 15 percent, plans to increase oil exports 42 percent to 640,000 b/d this year from last year, the pipeline venture said in a recent e-mailed statement. The partners, which include Exxon Mobil Corp. and Royal Dutch-Shell Group of Companies, have already spent $2.7 billion to build the link. CPC, which ships oil from fields in Kazakhstan to a Russian terminal near Novorossiisk on the Black Sea, is seeking permission from Russia and Kazakhstan to more than double shipments to 1.34 million barrels a day by 2008, about six years earlier than planned.


PetroChina & Sinopec enter into urban gas sector 


January 14, 2005. China's two biggest oil firms, PetroChina Company Ltd.and Sinopec are branching out into the urban natural gas distribution sector by making use of their monopoly in the upstream industry. PetroChina, which controls more than half of natural gas production in the mainland, set up a specialized pipeline gas company on December 6, 2004, specializing in the development, investment, construction and operation of city natural gas projects. The company has had exclusive rights to launch gas projects in up to 17 cities nationwide and is expected to become a leading player in coming years by virtue of its parent's resource advantage. PetroChina said it reached a total of 43 contracts with 40 downstream city-level distributors to buy natural gas of 12 billion cubic meters from the gigantic west-east gas transportation pipeline. The 4,000-kilometer pipeline runs from the Tarim basin in the northwestern Xinjiang Autonomous Region to some booming provinces in the east, including the finanical hub Shanghai. The pipeline, with an estimated investment of up to CNY 140 billion, has put into production and started commercial operation since December 30. Meanwhile, China's No.1 oil refinery Sinopec managed to acquire a 10.61 percent stake in Hong Kong-listed China Gas Holdings Ltd. and became its second biggest shareholder.  The two sides also entered into a strategic partnership agreement on November 1, seeking comprehensive cooperation and technological exchange in the natural gas market to break the monopoly of PetroChina. By the end of September, China Gas has won approval from regulators to exclusively run pipeline gas networks in 38 cities. It is a relatively substantial figure given China's fragmented city gas sector. Beijing started to deregulate the sector in 2002 aiming to speed up the construction of gas infrastructure to replace the more polluted heating fuel of coal. Previously, it was snapped up by local governments. Conservative statistics show that as much as 250 mainland cities have the capacity to utilize piped natural gas, and that less than 10 percent of China's households have accessed to gas, representing its robust growth potential. China's demand for natural gas will rise to 64.5 billion cubic meters in 2005, 112 billion cubic meters in 2010 and 251 billion cubic meters in 2010, according to the State Development Planning Commission, the top planning agency.


Policy / Performance


Turkmenistan ready to meet gas requirements of Pakistan


January 13, 2004. Turkmenistan is ready to meet all gas requirements of Pakistan as the Central Asia Republic has proven gas reserves up to 300 years. Estimates say that Pakistan will be facing a shortfall of 33 million cubic meters of gas by 2020. The two countries have already signed a Memorandum of Understanding on a multi billion dollars gas pipeline through Afghanistan that could eventually end in India.


Iraqi minister opens door to Italian oil firms


January 14, 2005. Iraq's government is seeking closer cooperation with Italian oil firms, including Eni to meet ambitious targets of doubling its oil production, an Iraqi minister said during a visit to Italy. Iraqi minister said "We are producing very little oil in comparison to our capabilities. It would be easier to work with Italian companies because they know our culture better than others”. Iraq, with 112 billion barrels of known reserves, needs $25 billion to double production to 6 million b/d by the end of the decade, but development is uncertain because oil is being targeted by rebels seeking to oust U.S. coalition forces. Eni, controlled by the Italian state, has already signed a technical support deal with the interim Iraqi government and has said it will look to developments as the country stabilises. Eni, along with Spanish rival Repsol and France's Total, had started talks with the previous Iraqi government to develop oil fields in the southern part of the country. Italy was one of the staunchest supporters of the U.S.-led war in Iraq, and it has some 3,000 troops in the country to help with reconstruction ahead of elections expected this month.


Russia, India deepening energy cooperation


January 15, 2005. One of Russia's biggest oil and gas players said the country offers fuel-hungry India vast potential to meet its energy demands. S.S. Neruchev, vice governor of Russia's giant Sakhalin-I oil and gas field project in the country's far east, said there were plenty of new areas in the region where Indian companies could make fresh investments. Large areas are being explored in a day so scope for expanding cooperation exists. It can be much more. India, which is able to meet only 30 per cent of its crude oil needs from domestic sources, has been exploring new investment opportunities in the oil and gas sector overseas to ensure uninterrupted fuel supplies. India's ambassador to Russia, Kanwal Sibal, said the country's growing oil appetite to feed accelerating economic growth could be met by Russian oil and gas fields to a large extent. Russia is one of the largest exporters of oil and gas in the world, and India one of the fastest-growing importers, Sibal said. The overseas arm of India's state-run ONGC Videsh Ltd. (OVL) was one of the first to buy a stake in Sakhalin-I and is poised to look at more investments in Russia. OVL has a 20 per cent holding in Sakhalin-I. Natural gas production from Sakhalin-I is to begin in the third quarter of 2005 while crude production from offshore fields will start in January 2006. More and more Russian and Indian companies are coming together and we are sure more of them will together now, said India's petroleum and natural gas secretary Sushil Chandra Tripathi. N. Tsukanova of international investment firm J.P. Morgan said India could examine several new investment opportunities in Russia for medium to short-term prospects such as in West Siberia, Timon Pachera and in Russia's Caspian area. She added India's investments in Sakhalin-I had triggered interest from other big foreign investors such as Shell, BP and Conoco Philips. India is regarded as one of the most dynamic economies in the world, but the growth depends on hydrocarbon resources. India will become a significant importer and therefore cooperation with Russia is significant, Tsukanova said. India faces a serious energy crunch. It produces over 100 million tons of petroleum and petroleum products annually but can supply only 30 per cent of its oil needs. It expects to increase domestic oil production by 50 per cent in the next 15 years.


Saudi Arabia favours cheaper crude oil


January 14, 2005. Saudi Arabia, the largest producer of crude oil in the world, is in favour of working out a strategy to cool the overheated global crude oil prices. The country which supplies almost 23 per cent of India’s crude oil import says the global price of crude should be in the region of $ 22-28 a barrel compared to the current prices of $ 40-50 a barrel. Saudi Arabia is in talks to other OPEC members how to devise a strategy to bring down the prices of crude oil. However, he remained non-committal on whether Saudi Arabia would raise its output or would push the agenda of pumping more oil in the next OPEC meet. 






Brazil to build 15 new hydroelectric power plants


January 11, 2005. Latin America's largest country will start building 15 new hydroelectric power plants this year. And expected to add that close to $1 billion US will be invested in the new power plants to be built in several parts of the country. The first phase of the Monte Claro hydroelectric power plant inaugurated in the southern state of Rio Grande do Sul. The 65-megawatt plant, located on the Antas river, began commercial operations Dec. 29. The second phase of the project, with another 65 megawatts, is scheduled to start operations in February.


Brazil’s generation to grow


January 11, 2005. Brazil is expected to increase its power generation capacity by 3,000MW in 2005 as 12 new power projects will start commercial operations. There are 11 hydroelectric projects and one thermoelectric project expected to come on line throughout the year. Additionally, construction of 15 projects with total installed capacity of 4,742MW, requiring combined investment of 2.5bn reais, will continue in 2005 and that the government will auction this year licenses for at least 17 new power generation projects with overall capacity of 2,800MW.  The government is totally committed to expanding investment in power generation at the opening of the 130MW Monte Claro hydroelectric plant in the southernmost state of Rio Grande do Sul. Data from power regulator Aneel pegs new generation projects coming on line in 2005 at 3,900MW. These projects will guarantee the power that Brazil needs to grow. The announcement comes as Brazil is enjoying an economic recovery, with 5 per cent GDP growth in 2004, for which the country needs to add at least 3,000MW of power a year to its 87,000MW installed capacity, according to estimates from the government and consultants. Brazil is expected to grow at least 5per cent in 2005. Investors are concerned that environmental and legal hurdles could block the conclusion of some of the projects, raising the risk of power shortages as early as 2008.


117 MW gas power plant in Toronto


January 13, 2005. SNC-Lavalin Engineers & Constructors Inc. announced that it has signed a CAN $122 million contract with the Greater Toronto Airports Authority (GTAA) to design and build a 117 MW cogeneration power plant at Pearson International Airport in Toronto.The new plant will be constructed adjacent to the Toronto Airport Central Utilities Plant, where it will provide power and steam to the Airport. It will also be able to provide power to Ontario's electrical grid. The plant will use two LM 6000 natural gas turbines, and a steam turbine. It will be the first combined cycle power cogeneration plant built in Ontario since the August 2003 power outage. Construction is underway, and the plant is scheduled for commercial operation by September 2005. Once commissioned, the power plant will be operated and maintained under a separate contract by SNC-Lavalin ProFac Inc., SNC-Lavalin's facilities and operations management subsidiary.


Iran’s hydro plant to become operational by March


January 16, 2005. Head of the Board of Directors and Managing Director of Iran's Water and Energy Development Company, declared that two 250-MW units of Karun-3 Dam and Power Plant will be put into operation before the end of the current fiscal year. The two units become operational, a 36 percent boost will take place in the nationwide generation of the hydroelectric energy. Karun-3 Dam is considered as one of the three major national hydroelectric power plants, whose annual revenue is estimated at 200 million dollars. The expenditure of Karun-3 Dam which had been estimated by European enterprises to be 750 million dollars. The dam comprises eight 250-MW power generation units and its construction has been underway for the past nine years. The project is expected to be finalized before March 21, 2006. Karun-3 Dam and Power Plant are being constructed over Karun river near the city of Izeh in northern part of Khuzestan Province.


New turbine at UK power plant


January 15, 2005. SEMBCORP Utilities UK has started up a new, more efficient 42 MW gas turbine and boiler at its Wilton Power Station in the United Kingdom, bringing its electricity generating capacity up to 197 MW. The new 20 million (S$61.5 million) gas-fired plant is the first large-scale investment in new equipment at the Wilton Station since SembCorp Industries acquired it in April 2003. Replacing an existing oil-fired boiler, the new plant will also maintain the station's steam producing capacity at above 600 tonnes per hour.

Transmission / Distribution / Trade


El Paso announces new contracts for Brazilian power plants 


January 17, 2005. El Paso Corporation announced that it has executed new power purchase agreements for its Rio Negro and Manaus power plants. The agreements have a term of three years and are effective January 16, 2005. The rates are essentially the same as those under the current contracts with Manaus Energia. In connection with these new agreements, El Paso has agreed to withdraw a lawsuit that includes the recovery of a $32-million receivable on its Rio Negro plant. In addition, in January 2008 El Paso will transfer ownership of both plants to Manaus Energia. El Paso Corporation provides natural gas and related energy products in a safe, efficient, dependable manner. The company owns North America's largest natural gas pipeline system and one of North America's largest independent natural gas producers.


Policy / Performance


Moldova to privatize major power plants


January 13, 2005. The Moldovan government will privatize the Chisinau Thermoelectric Power Plant-1 in 2005. The tender would be announced soon to chose a strategic investor for the power plant. The energy ministry said that the aging power plant was bringing huge losses and needed serious modernization, which was impossible without private investments. In July 2004, the Moldovan parliament passed amendments to the privatization concept for the energy industry, stipulating that thermoelectric and heating plants could be privatized separately instead of being offered to investors as a united enterprise in accordance with earlier plans.


The Energy Ministry considers simultaneous privatization of thermoelectric power plants inexpedient, as the technical condition of these power plants is not the same. All thermoelectric power plants are unprofitable and have big debts. Their main creditor is the Russian-Moldovan joint venture "Moldova-gaz". The Moldovan Energy Ministry is in favor of privatizing thermoelectric power plants as soon as possible, as the ministry expects private investors to modernize these power stations.

Illinois issues permit for new coal plant


January 15, 2005. Illinois Environmental Protection Agency issued a permit for a proposed $2 billion coal-fired power plant in Washington County, about 50 miles southeast of St. Louis. Environmental groups were outraged that the permit for Peabody Energy Co.'s Prairie State plant came out on the eve of the three-day Martin Luther King day weekend. State officials have described the proposed plant near Marissa, Ill., as the largest coal-fired power plant built in the United States with permits issued in the last 20 years. Peabody officials say the 1,500-megawatt plant would be the cleanest coal-fired plant in Illinois.


IDB approves loan for Venezuela power project


January 14, 2005. The board of the Inter-American Development Bank (IDB) has approved a US$750mn loan for Venezuelan state power company Edelca's US$3bn Tocoma hydroelectric project. IDB's board is expected to approve the disbursements of the loan by the end of this year providing Edelca meets certain environmental requirements, and disbursements could begin in 2006. Tocoma is located in Bolivar state in southern Venezuela, which is a region where the confluence of several of Latin America's largest rivers makes it relatively easy to generate vast amounts of hydropower. The 2,100 MW facility, 5 per cent of which has already been built, will generate 12,000GWh a year.


Australia & Mexico discuss energy trade


January 17, 2005. The Australian and Mexican energy ministers signed a 10-year agreement on energy cooperation, the Mexican energy ministry said, building on a coal deal reached last year. Australian Energy Minister Ian Macfarlane discussed increasing energy sector trade and investment with his Mexican counterpart Fernando Elizondo. They discussed opportunities in coal, gas and renewable energy and signed the memorandum of understanding on energy cooperation that builds on the coal deal and involves exchanging technology and personnel.


Brazilian firm keen to set up power plant in Pak


January 17, 2005. A Brazilian company, Brazilian Energy Power Cooperation, has offered $500 million investment in establishment of 500MW power generation plant and development of infrastructure in Pakistan. The company is also interested to set up wind generating plant in Sindh. The company's offer and underlined the fact that foreign investors were being greatly encouraged by the government to invest in the country's power sector to meet the future growing demands of cheaper energy and to speed up the pace of industrialization in the country.  The company was also interested in setting up such projects in Balochistan. The company has a vast experience in establishing power generation plants including smaller size power generation plants on fast track basis i.e. within a period of six to eight months. During their visit to Pakistan, the delegation would sign MoUs for construction of 500MW power generation facility besides investing in field of dairy.


Renewable Energy Trends




Maharashtra to impose green cess for non-conventional energy projects 


January 15, 2005.  In a step that will, undoubtedly, send the right message to all, the Maharashtra government has decided to impose a green cess on industrial and commercial consumers of public and private utilities. The cess will mean that for each unit consumed, industrial and commercial consumers will have to pay four paise extra. A small amount, which will go a long way in carrying forth the objective with which it is being levied. The Maharashtra government plans to use the money thus collected, between Rs 85 crore (Rs 850 million) and Rs 100 crore (Rs 1 billion) annually, to promote non-conventional energy projects. Other than this, the Maharashtra Energy Development Agency, which will be given the money, will also be providing infrastructure, like roads. The Maharashtra government’s decision certainly deserves kudos, as it is a significant step towards not only encouraging use of non-conventional energy, but, in the longer run, protecting the environment. Non-conventional energy sources like solar power, wind energy, biogas and biomass power, mark the country’s movement towards a sustainable energy base. According to the ministry of non-conventional energy sources at the Centre, the estimated aggregated potential of renewable energy sources in the country is around 1,30,000 mw. Other than its energy potential, non-fossil fuels also have the advantage of being economically viable as compared to fossil fuels, if the environmental costs of the latter are taken into consideration. Though very little of this potential has been realised so far, measures such as the one taken by the Maharashtra government will, hopefully, encourage other state governments to follow suit. The state government plans to tap the potential 6,341 mw of non-conventional energy.




US energy firm plans biodiesel plant in S'pore


January 17, 2005. New Jersey-based Pure Energy Corp has developed a technology that can produce low-cost biodegradable diesel and is eyeing Singapore for its first commercial plant in Asia. Probably the biggest concentration of palm oil in the world is in Malaysia. So their idea is to build a biodiesel plant in Singapore and have the feedstock come in from Malaysia. Biodiesel refers to a type of fuel manufactured from vegetable oils, recycled cooking grease, or animal fats. It is a cleaner-burning alternative fuel produced from renewable resources. The company already has a similar plant in California with a production capacity of 10 million gallons per year. The goal is for the Singapore plant to add on another 30 million gallons of annual production. The new biodiesel plant of that capacity would cost about US$22-25 million to build in the US, but hoping that it would be 20-30 per cent cheaper in Singapore. The plant could be operational by mid-2006. It may potentially be Asia's first large-scale biodiesel plant manufacturing for a global market.


AES to buy SeaWest, wind project


January 11, 2005. AES Corp. said that it will acquire SeaWest Holdings Inc. for $60 million and SeaWest's Buffalo Gap wind generation project in Texas for $165 million. The deal to buy privately-held, San Diego-based SeaWest Holdings is expected to close by the end of the first quarter, pending regulatory approval, according to AES an Arlington, Va.-based global power company. Construction on the Abilene, Texas, project is scheduled to begin early this year and will likely to become operational by the fourth-quarter.


Expansion of polish wind farm


January 14, 2005. Wysak Petroleum previously announced 46Mw Polish Wind Farm development with Projekt Gmbh has been increased in size to 70Mw. A 500 hectare extension of the land lease agreement has allowed for project expansion to take place. This will increase nearly 190 GWhrs/year. A project of this scale is estimated to provide power to nearly 25,000 local homes. This expansion allows Wysak the opportunity to maximize on its investment returns. Wysak's goal is to develop large scale energy projects in Eastern Europe. A project such as this helps move Wysak forward in its vision of Polish renewable energy development. This is another example of how the Company's management can substantially increase shareholder.


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[1] Today India’s investment in Sakhalin I totals about $ 2.7 billion

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