MonitorsPublished on May 01, 2005
Energy News Monitor I Volume I, Issue 46
‘Super Spikes’ in Oil Price?

According to Goldman Sachs analysts, oil prices have entered the early stages of trading that could lead to a 'super spike' with the potential to move prices to $105 per barrel, enough to meaningfully reduce energy consumption.  In its report, Goldman Sachs said the possibility of political turmoil in major oil producers such as Saudi Arabia could lead to a significant rise in prices over the long-term.  This would result in "a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower prices return".  The Bank also expects earnings for oil and gas companies to grow by 21 percent and 35 percent, respectively in 2005 and 2006, and expects those stocks to outperform the broader market. The call, which would mean a possible doubling of oil prices from their current level, sent crude prices above $55 per barrel. 

Goldman Sachs argued that super spikes are possible because of the sustained strength in oil demand and economic growth especially in the United States and China, following a year of $40-$50 per barrel WTI oil. The Report has sharply divided analysts view on future oil prices.  Some agree with the Goldman Sachs report which assumes a major supply disruption in Saudi Arabia or a Venezuelan embargo on shipments to the U.S.  While they agree that $105 oil is technically possible they say that it is not likely for at least 3 years and would occur only if a major supply disruption, such as a halt to imports from Saudi Arabia, occurred. 

Some analysts say that the report is more reflective of the psychology of the energy market which expects tremendous demand growth in the late third and the fourth quarter of this year that was expected to put producers of crude oil in an extremely challenging position in terms of meeting that demand. 

Other analysts are however very critical of the report.  The report is labeled ‘irresponsible’ and “clearly an attempt by an ‘investment bank’ with ‘huge speculative energy positions’ to talk up the market”.  Incidentally, Goldman's previous 'spike' high for oil was $80 a barrel.

Even the skeptics agree that oil could conceivably soar well over $100 a barrel triggered by energy trader panic if news were to break indicating the Saudi oil fields were ablaze.  All out pandemonium sweeping the energy markets could even result in crude oil temporarily rocketing to $150 or $200 a barrel, if the situation in the oil exporting Gulf were to become dangerously chaotic. This may not seem very far fetched if we remind ourselves that the price of oil dropped below $ 11 per barrel in 1999.

All this is mere speculation with low probability of occurrence but what are ground realities[1]?

The first is that volatility in the oil market has increased.   Prior to the Arab Oil Embargo of late 1973 daily oil prices hardly ever moved more then a few pennies per barrel a day. Currently daily $1 to $2+ price jumps (up or down) are common place. Second, China & India have emerged as major market participants. 

Source of growth in world consumption 1990-2003 (mb/d)






Rate (%)

China & India




Total world




World, less China & India





Source: Verleger, P. K. Energy: A Gathering Storm. 

Third, key players in the global energy industry – OPEC nations & large multinationals, failed to anticipate demand growth and did not expand capacity.  Investment slowed with the price collapse of 1999 and companies have been reluctant to invest ever since.  Fourth, volatile political environment in key oil exporting countries have made future supplies from these nations uncertain. Fifth, energy processing and transportation capacity, particularly at refineries, has lagged growth in demand. 

World refineries cannot produce types of petroleum products in demand. Sixth, environmental regulations adopted by many countries including the EU & the USA have adversely affected the refiner capacity to manufacture key transportation fuels like gasoline, diesel & jet fuel.  Supply implications have led to large product price increases which have in turn pulled up crude prices.  Seventh, consumers have heard confusing messages from the government & industry.  Energy companies warn of shortage while the auto industry encourages consumption by promoting large fuel inefficient vehicles.  These conflicting signs have discouraged conservation and led to increase in oil use.  Finally Saudi Arabia and other OPEC countries continue with their policy of restraining supply. 

Overall fundamentals are definitely not as bad as it is presumed to be.  Most of the factors pointed out above can be corrected.   However markets factor in perceptions and not facts and there is nothing we can do about it. 

Team Energy ORF (Views are personal)



India's First Tool To Analyse Economy-Energy-Environment Policies


Observer Research Foundation, in collaboration with the Brookings Institution US, will develop India's first computational tool to analyse the country's economic, energy, and environment policies. Titled 'i-Cubed simulation model', the $400,000 (Rs1.74 crore) research project will be completed in the next 18 months. Based on the well-known 'G-cubed model', the tool will provide future energy and environment profiles, technology penetrations, implications of alternative future scenarios, and a variety of policy assessments like ideal fuel mix and energy security, technology policies, implications of emission constraints, and energy taxation.


Vivek P Karandikar, head of the project, says, "Accelerated economic growth in India will lead to a sharp increase in the demand for energy in the coming years. Careful planning is essential to ensure that reliable and affordable supplies are available and the energy mix is compatible with the environment objectives. Economic policies outside the energy sector, such as taxation and fiscal incentives will also influence the energy sector development path. Therefore, an integrated analysis of all these issues is required in sound policy making." Karandikar added that the i-Cubed simulation model project would fill key research gaps in India's economy-energy-environment framework.


According to RK Mishra, founding chairman, Observer Research Foundation, "Today in the knowledge age, India plays a leading role and the expectations of the global community from the country are immense. As India's premier think tank to influence public policy formulation, ORF aims to provide informed and valuable inputs to the government, the civil society, and to the business community through in-depth research. We seek active cooperation from those who share this vision so that we can build partnerships for a global India." The 18-month long project will be implemented in three phases of which the first 10 months would be devoted to the development of the i-cubed simulation model. The model will have two geographic regions — India and the rest of the world. These will be connected by international trade and financial flows. The economies of both regions will be divided into four broad segments — businesses, households, the financial sector, and the government. Businesses will be further sub-divided into 15-20 sectors; five of which will be energy industries, and the remainder will represent agriculture, manufacturing, and services. ORF and Brookings researchers will collaborate on tuning the model to represent the economy of India as closely as possible. The next five months will focus on analysis of several major policy issues. Each analysis will include quantitative assessment of the effects of the policy on a variety of variables including energy consumption and production, exchange rates, international trade flows, international capital flows, and a range of macroeconomic variables such as employment, savings, investment and GDP. The last three months will involve outreach activities designed to disseminate the project's results and engage decision-makers in India and US on energy and environment policy.

The project will produce two major reports- one for the technical and academic audiences and one for policy-makers, business leaders, and the general public.


Says professor Warwick J McKibbin, head of the research team at the Brookings Institution, and developer of the G-cubed, "India has embarked on an accelerated economic growth path and the implication of GDP growth on infrastructure needs in general and energy sector in particular are enormous. The energy sector has to be able to support this high economic growth."


Three key policies:


1.      Energy sector implications of growth policies


Alternate economic growth strategies, for instance, manufacturing-led growth versus services-led growth, have vastly different implications for energy sector like changes in energy supplies, import dependency of various fuels, change in patterns of emissions and overall impacts on environment quality. Through the application of i-Cubed Simulation Model these will be systematically quantified.


2.     Impacts of alternative energy taxes and subsidies


The second study will focus on the impacts of alternate energy tax and subsidy policies including changing tax rates on fossil fuels, providing incentives for renewable energy sources, and implementing a carbon tax or climate levy. A key aspect of this analysis will be to determine the effects of energy taxes and subsidies on government revenue.


3.     Effects of alternative fuels for electricity generation


The project will study the economic, environmental, and energy security implications of increased government emphasis on the use of natural gas for electric power generation. In addition, study of alternate energy sources like hydro and other renewables, nuclear, coal bed methane, and underground coal gasification will also be taken up.


India’s Reforms in the Hydrocarbon Sector

What Has Been Accomplished?

What Remains to be done?- III


Continued from Issue 45


Optimism in India’s upstream potential was probably behind the strategy for expansion of the dieselisation programme.  The Fourth Plan (1969-1974) spelt out that optimism in recommending that exploration for oil and refining capacity be increased ‘in line with projected growth’. Refinery capacity did increase as planned.  In the Third Plan, three inland refineries were set up at Gauhati, Barauni and Koyali in the public sector raising the crude throughput capacity to 10.2 million tonnes per annum (mtpa).


In the Fourth Plan, with the expansion of existing refineries and establishment of two coastal refineries at Cochin and Madras, the total refining capacity reached 24 mtpa. Under the Fifth Plan (1974-79), another refinery in the public sector was set up at Haldia and some marginal expansions were effected at Barauni and Koyali taking the total refining capacity to 27.8 mtpa by 1977-78. A 3.0 mtpa expansion at Koyali was completed in October, 1978, but the Bongaigaon refinery which was also to be completed during this Plan, got delayed.



The Crude Distillation Unit of this refinery was later completed and commissioned in February, 1979. Although this raised the nominal installed capacity to 31.8 mtpa, the refinery could run at full capacity only when the coker unit was completed. The Mathura Refinery with 6 million tonnes of installed refinery capacity, which was to be completed by the end of 1979, slipped due to power shortage and other problems.  The effective refining capacity at end of the year 1979-80 was 27.5 million tonnes in terms of crude throughput and 25.8 million tonnes in terms of product yield. During 1979-80, due to agitation in Assam, the Bongaigaon Refinery closed down in December, 1979 and the Barauni Refinery had also to be shut down in January, 1980. Refineries at Digboi and Gauhati worked only intermittently.  All the newer refineries were dependent on imported crude as indigenous production did not increase as planned.  In the decade that followed the Fourth Plan (1969-74), consumption of petroleum products grew substantially but with it the amount of imported crude at the expense of India’s meagre foreign exchange reserves. 


In the light of increasing gap between demand and production and more importantly the oil price crisis of the late 70s, the Sixth Plan (1980-1986) made strong recommendations to limit the use of oil. The Plan document lamented that 60 per cent of the requirements of crude oil and petroleum products were being met through imports and that over two thirds of the country's earnings of foreign exchange through merchandise exports have to be utilised for oil import’. 


It went on to say that unless India was able to strike new oilfields, there was little prospect of decreasing the country's dependence on imports. The Document also argued for demand management of petroleum products to minimise consumption of oil without hindering the growth of various sectors of the economy.  It recommended two-pronged action, first ensuring adequate availability of alternate sources of energy - coal and power - and second advocating more economic use of petroleum products in sectors where use of it was unavoidable. 


The Sixth Plan also drew attention to the steady increase in the share of road transport, which it pointed out as being less efficient than railways from the point of view of energy use.  It recommended that the long term transport policy provide for optimal use of scarce fuels, i.e., oil.  Within the railway system, it recommended that electrification of high density traffic trunk routes be accelerated, as that, according to the document, ‘would be beneficial from the point of view of both energy efficiency and conservation of oil’.


Despite these recommendations to curb oil use and increase efficiency of its use, oil use continued to grow especially in the road transport segment and efficiency of oil use did not increase significantly.  The ‘dieselisation’ strategy was quickly replaced with an ‘electrification’ strategy for the Railways.  However the real driver of oil consumption was not the railways but the road transport segment.  Rail tariff was skewed in favour of passenger traffic thus systematically drove freight traffic towards road.  


Source: Indian Petroleum & Natural Gas Statistics, 2002-2003


Since independence road traffic both passenger and freight has consistently eroded the share of rail which is known to be more energy efficient. 




Returning to the question of increasing indigenous production, in line with the recommendations in the Sixth Plan, emphasis was on ‘the imperative need to develop indigenous resources of oil and gas in the context of the rising domestic demand for petroleum products and the escalating price of oil in the international market and depleting global supplies’. The document recommended that ‘efforts for both exploration and development will have to be greatly intensified and for this the capabilities of ONGC and Oil India will have to be stretched to the full’.  On-shore, a concerted effort was to be made in the Assam-Arakan basin by increasing the numbers of seismic parties and drilling rigs. The exploratory drilling of 97 wells comprising 300,000 metres by ONGC and 34 wells comprising 113,500 metres by Oil India were envisaged during the Plan period. The pace of exploration in the Cambay basin was to be maintained.  The document also identified some ‘promising areas which could not be taken up hitherto due to logistic problems be explored by engaging, where necessary, specialised contracting agencies equipped with facilities to do so’. Exploratory activities in the Krishna-Godavari and Cauvery basins, where the presence of hydro-carbons in significant quantities had been established, was also to be enhanced to assess the extent and commerciability of these deposits. Exploration in West Bengal, Ganga valley, Himalayan foot-hills, Rajasthan, Orissa coast and other areas was also to be suitably stepped up. The total exploratory drilling envisaged by the two organisations in the on-land basins was in the order of 300 wells comprising 882.700 metres.


On-shore, Oil India was to continue with its exploratory programme in the Mahanadi delta area. ONGC was to continue exploring the Bombay off-shore basin, extending the limits beyond 300 metres water depth. ONGC was also to explore structures off-shore of Saurashtra and in the Gulf of Kutch, Andaman and Nicobar shelf, as well as in the east coast basins like Palk Bay and Krishna-Godavari basins. Within this Plan period, all the detailed work required in the Continental shelf and beyond upto 500 metres water depth was to be completed, besides some regional surveys in still deeper waters. ONGC was also to increase its number of off-shore rigs deployed so as to drill about 95 wells in different off-shore areas during this period.


In order to supplement the efforts of ONGC and OIL, selected blocks were proposed to be leased out to reputed foreign oil companies in participation contracts or joint ventures. In line with these recommendations, the Government made an effort, between 1980 and 1986, to offer foreign and private companies geographical blocks in India for exploration, but this did not draw a favourable response in three rounds of bidding.

Team Energy ORF

…..To be continued

Caspian Region & Russia’s Position

Pyotr Goncharov

RIA Novosti commentator


Iran has offered support for a Russian initiative on the Caspian Sea states alone establishing a joint rapid reaction force in the region. “These Caspian states should come to terms on the establishment of a rapid reaction force,” said Iranian Foreign Ministry spokesman Hamid Reza Asefi.


Russia’s initiative initially envisaged more than efforts to combat international terrorist attacks against the region and to avert other common threats. It was also designed to prevent countries from outside the region, above all the U.S., from becoming involved in the affairs of the region, which the U.S. has included in the zone of its interests. This fully met Iran’s interests. Will Russia and Iran be able to prevent an American presence in the Caspian region?


The idea of forming a rapid reaction coalition force in the Caspian region is not new. In August 2002, the Russian Caspian flotilla conducted naval exercises in the Caspian to practice rapid reactions not only to terrorist attacks on oil pipelines but also to emergency situations in Caspian countries. A high-ranking representative of Iran’s navy who was present at the exercises praised Russia’s naval strength there and recalled with delicate irony that both Moscow and Tehran were in favor of “preventing the militarization of the Caspian region.” His irony was to the point because Tehran’s call for the other Caspian states to join Russia’s initiative may seem belated.


These apprehensions have come on the back of a recent lightning visit to the capital of Azerbaijan, Baku, by U.S. Defense Secretary Donald Rumsfeld. The visit was made in great secrecy, which immediately reminded one of a statement by General James Jones, NATO Supreme Allied Commander, Europe, in which he said that the U.S. planned to establish military bases in the Caspian area and was drafting the Caspian Guard program for the coming decade. Under this project, the U.S. attaches particular importance to Azerbaijan, seeing it as a prime location for deploying mobile rapid reaction forces and for solving its foreign policy problems in the region, mainly those concerning Iran.


Significantly, the U.S. program also includes setting up special task forces, whose mission will be similar to those Russia has proposed for its regional plans: “a rapid reaction not only to terrorist attacks at oil pipelines, but also to any emergency situations in the Caspian countries.” A command center equipped with most up-to-date radars will be established in Baku and the entire Caspian zone will become its responsibility.

Some analysts say the Azerbaijani authorities have already agreed in principle to the proposal. The implementation of the Caspian Guard program will pose a threat primarily to the defense interests of Russia and Iran, as it includes observation systems for the air and sea, and will place a vast territory under U.S. control. As they try to consolidate the naval forces of the Caspian states in their common interests, Moscow and Tehran are in favor of preventing the Caspian’s militarization.


However, Kazakhstan, Azerbaijan and Turkmenistan are not concealing their desire to modernize their naval forces, in which the U.S., in contrast to Iran and Russia, is helping them. Kazakhstan’s navy will soon receive a ship displacing more than 1,000 tons free of charge. The republic will establish military infrastructure along its coast using American money. The U.S. is offering the same to Turkmenistan and Azerbaijan.


Furthermore, Washington is said to be considering a plan of forming a tripartite union of the U.S., Azerbaijan and Kazakhstan in the region. Turkmenistan, Uzbekistan and even Turkey may eventually join it. Meanwhile, Russia’s initiative is only being discussed in the media. All five Caspian states are unlikely to reach a mutually acceptable solution to the “demilitarization, non-militarization or limited militarization” of the Caspian area.


The continuing wrangling over the Caspian Sea’s legal status only serves to prove this, as Iran and Turkmenistan have chosen to reject the understandings reached by Azerbaijan, Russia and Kazakhstan on dividing the Caspian seabed. But one thing is certain. The arrival of the U.S. in the Caspian region will certainly upset the policies Moscow and Tehran pursue in a region that is important for both countries.


Yukos Saga: Culmination Postponed

Yury Filippov

RIA Novosti political commentator


Many people in Russia had waited for this day. Hundreds of papers, television companies and radio stations were waiting for the verdict in the trial of ex-Yukos head Mikhail Khodorkovsky. Businessmen and politicians had prepared several commentaries they could choose from, depending on which turn the events would take. But their preparations were in vain. It was announced at the last possible moment that the verdict for Khodorkovsky and his business associate Platon Lebedev had been postponed from April 27 to May 16, officially because the judge had fallen ill. Few people in Russia believed the explanation, given that the Yukos case is too big to be postponed because someone has a running nose.


Two years ago, Yukos, one of the largest oil companies in Russia, found itself in the center of an investigation, as law enforcers came to the conclusion that the central figures in what became known as the "Yukos case" had inflicted $1 billion in damages on the state. Yukos had been viewed as the most open and transparent Russian company, a showcase of Russian business in the West. And its leading shareholder, Mikhail Khodorkovsky, was not only the richest man in Russia but also a sponsor of all of the main opposition parties, right and left. The prosecutors charged him with creating a criminal group that used fraudulent schemes to take control of state enterprises at the beginning of the privatization drive, later concealed its earnings and failed to pay billions of dollars in taxes.


According to the investigators, another major shareholder, Leonid Nevzlin (who is now in Israel), was responsible for organizing contract killings and attempts on people's lives. Khodorkovsky did not admit his guilt, saying that Yukos acted strictly in accordance with the law and his company was not to blame if the law allowed it to use tax optimization schemes. The Yukos case is seen as indicative in many ways in Russia. Khodorkovsky was the typical product of a period of chaos and vast possibilities, someone who found his bearings in that situation. Many other groups - nearly the entire business elite and other people - acted in the same way in the 1990s. But, unlike Khodorkovsky and Lebedev, they are not the accused in a trial that has drawn a symbolic line under the "uncivilized" period of privatization and business in Russia. At the same time, time seems to favor Khodorkovsky.


The statute of limitations on void deals, according to which a considerable part of state enterprises was privatized, recently expired. As a result, charges against the two men regarding the privatization of a company, Apatit, in the 1990s were dropped. Some time later, President Vladimir Putin suggested reducing the limitations to three years, which means that all the privatization-related charges in the Yukos case will be dropped.


Putin made several more statements in his April address to the Federal Assembly, which observers linked to the Yukos saga. The president said the state should find ways for back taxes to be repaid that would ensure its interests without "undermining the economy and driving business into a corner." He also said, "The tax agencies do not have the right to 'terrorize' business by returning to the same problems again and again." Since charges of tax evasion was the second major component of the Yukos case, some observers concluded that the showcase verdict against the major tax evaders, Khodorkovsky and Lebedev, may be not as harsh as the ten year sin prison that the state prosecutor initially sought. Alexander Shokhin, chairman of the coordinating council of the business unions of Russia, thinks that the verdict should be acceptable to both the state and the liberals.


Is such a compromise possible? After Khodorkovsky lost the main assets of Yukos, which were sold to repay debts, he has become a symbolic figure for Russia. He no longer owns a major oil company but he still has an image that does not leave millions of people in Russia indifferent. Some see him as a hero, a creator of modern Russia, and an upright man of great culture and ethics. Others say that he is simply a lucky thief who was made a scapegoat for the sins of business in the 1990s before those who did not gain from the first stage of liberal reforms. On May 16, the judge of the Meshchansky court of Moscow will have to make a difficult decision. Let us hope she feels better by that time.


Pyongyang to Contribute to Eastern Oil Pipeline


May 3, 2005. North Korea's contribution to the construction and operation of an oil pipeline from eastern Siberia to the Pacific Ocean (Eastern Pipeline) will be discussed this week when a State Duma delegation visits Pyongyang, said Konstantin Kosachyev, head of the delegation and chairman of the international affairs committee, on Tuesday. "Our two countries have several promising projects, including the involvement of North Korea, and the eventual involvement of South Korea, in the Eastern Pipeline," Kosachyev said He intends to discuss the reunification of the Trans-Siberian Railroad with the North and South Korean railroads. "The implementation of this project will result in a single transport chain connecting Western Europe with the southern tip of the Korean Peninsula giving access to the international port of Pusan," Kosachyev said.


Last year trade between Russia and North Korea reached just over $140 million; $133 million came from Russian exports and only $7 million from imports from North Korea. In comparison, last year's trade turnover between Russia and South Korea increased by 30% to reach over $4 billion. At the start of the trip to North Korea, which will last three days, the State Duma delegation will meet with Kim Yong Nam, chairman of the Supreme People's Assembly Presidium, who is considered to be the second most senior official in the country.


(Courtesy: RIA Novosti)





Oil, gas finds on west coast


May 5, 2005. ONGC has reported three oil and gas finds — one in shallow-waters on the West Coast and two in the deep-waters in Krishna Godavari (KG) basin on the East Coast. ONGC is the 100 per cent operator of this block since it was with it prior to the New Exploration and Licensing Policy (NELP) regime. In the western offshore region, the company had made a significant oil and gas find at a location 60 km south-south west of the Mumbai High Field. The deeper object has flowed 490,376 cubic m of gas per day and 2,491 bbl of oil per day through ½" choke. The shallower object has flowed 4,51,838 cubic m of gas per day and 2,045 bbl of oil per day through ½" choke. The oil and gas are of high quality, and the find had opened up a new exploration opportunity in sands within the Panna Formation off Mumbai High field. On the East Coast, ONGC made two more gas strikes in its on-going ‘Sagar Samriddhi' Deepwater Exploration campaign. On successful completion, the well, 35 km off Amalapuram, flowed 3,26,545 cubic m of gas per day through 24/64" choke.


Oil companies to invest in gas fields


May 5, 2005. Public and private sector firms will invest over Rs 12,000 crore (Rs 120 billion) in producing natural gas found in the Krishna Godavari basin, off the East Coast. State-owned Oil and Natural Gas Corporation will invest Rs 1,262.93 crore (Rs 12.63 billion) in developing G1 and GS-15 fields in the basin. Completion is scheduled for April 2006. Reliance Industries Ltd had submitted a development plan for two discoveries, Dhirubhai-1 and 3, with an investment of Rs 10,710 crore (Rs 107.10 billion) that has also been approved by the directorate general of hydrocarbons. Out of 14 discoveries made by private firms in KG basin, two have been approved and declared to be commercial. The remaining are under appraisal.


Govt to build crude oil storage tanks


May 4, 2005. The Government has approved building of strategic crude oil reserves of 5 million metric tonnes per annum (MMTPA) at Mangalore (1.5 MMTPA), Visakhapatnam (1 MMTPA), and Mangalore or nearby location (2.5 MMTPA). It is estimated that the capital investment for building strategic storage reserves at Mangalore (1.5 MMTPA) and Visakhapatnam (1 MMTPA) will be approximately Rs 1,360 crore (Rs 13.60 billion) at June 2004 prices. Additionally, the cost of filling up the strategic crude oil storage would be based on the then prevailing international prices of crude. The construction time is expected to be 48 months from the date of award of work. In order to implement the project, a special purpose vehicle named Indian Strategic Petroleum Reserves Ltd (ISPRL) was incorporated in June 2004 as a wholly owned subsidiary of ICO with an initial investment of Rs 1 crore (Rs 10 million).


Refineries to share burden


May 9, 2005. The petroleum ministry is all set to distribute the under-recovery burden of oil marketing companies (OMCs) on cooking gas and kerosene in a 1:1:1 proportion among upstream companies, OMCs and both public and private refineries. At present, the burden is shared only between the upstream companies and the OMCs. The ministry has zeroed in on this option since the alternative option of immediately increasing the retail selling price of kerosene by Rs 3 a litre and LPG by Rs 20 a cylinder is politically unpalatable. The new mechanism, likely to be implemented from the current quarter, would result in Reliance’s Jamnagar refinery and ONGC’s Mangalore Refinery footing part of the Rs 5,000 crore (Rs 50 billion) under-recoveries that OMCs are expected to suffer in the first 45 days of the current fiscal. Significantly, pending the announcement of the new scheme, the OMCs have already frozen the refinery transfer price (RTP), which is the price at which they lift products from the refineries. OMCs are no more paying refiners a price governed by the import-parity principles. The RTP for LPG and kerosene have been frozen since March 1 and for petrol and diesel from March 15. Freezing the RTP is, however, now leading to a reduction in the desired volume of products that OMCs lift from MRPL and Reliance Industries. It is feared that the product shortfall from RIL and MRPL may lead to dryouts, especially that of kerosene and diesel in the country. No shortages are, however, expected in case of LPG as refiners like Reliance are already facing the problem of LPG containment.


MP lures Bharat Oman


May 9, 2005.The Madhya Pradesh government has granted fiscal concessions to enable the setting up of the Bharat Oman Refineries at Bina in the Sagar district of the state. The state government has also agreed to raise money from the market as bonds or loans through its nominated entity to bridge shortfall on account of any concessions given to set up the refinery. The six million tonne per annum refinery is jointly promoted by Bharat Petroleum Corporation Ltd (BPCL) with Oman Oil Corporation, Sultanate of Oman. The expected investment in this grass-root refinery is approximately Rs 7,500 crore (Rs 75 billion) and it is expected to go on-stream by 2009-10.


ONGC for retail business


May 8, 2005. Oil and Natural Gas Corporation (ONGC) has forged a strategic alliance with HMT for its fuel retail business. ONGC and HMT, signed a memorandum of understanding for retail collaboration recently. ONGC, which opened its maiden petrol station at Mangalore in March, is talking to several companies, especially public sector undertakings (PSUs) with spare land, for setting up its chain of 1,600 outlets. OVaL or ONGC Values, is ONGC's retail brand, and had previously inked a deal with Ashok Leyland for retailing.


Gail hub to monitor Agra gas supply


May 6, 2005. Gas Authority of India Ltd (Gail) has established its regional control centre in Agra to monitor the supply of natural gas to over 300 foundries and glass-manufacturing units in Agra and Firozabad. The centre is among the first regional control centres established by Gail in the country. It will serve both as a modern office complex for the company and a monitoring station for the volume, pressure, temperature and other physical characteristics of the natural gas being supplied to about 300 industrial units of both Agra and Firozabad. The company has made complete arrangements for setting up CNG stations for automobiles in Agra and as soon as the Agra Development Authority allots the marked land for the CNG stations, the company shall move in to install the hardware. There was no shortage of CNG supply for the industrial units of Agra and Firozabad and the company shall ensure that the CNG pump setup for automobiles does not face any bottlenecks and comes into action in the year 2005. 

Transportation / Trade

OVL eyes Canadian acquisition


May 9, 2005. ONGC Videsh Ltd, the international arm of ONGC has made a preliminary bid for Canadian exploration company First Calgary Petroleum (FCP). The Canadian company has a market capitalisation of Rs 108.55 billion (US$2.5 billion). Other global companies in the fray include Norway’s Statoil, France’s Total and Gaz de France. Gaz de France was one of the most likely buyers for the firm or its assets. FCP has already received a number of complex proposals for the company as a whole or its assets. After its initial bid for acquiring FCP as a whole, OVL is now considering submitting a separate bid for the Canadian company’s participating interest in two large oil and gas properties in Algeria worth US$1 billion. FCP holds 49 per cent stake in the two blocks with the remaining 51 per cent held by Algerian national oil firm Sonatrach. While one of the blocks has reserves estimated at 12.5 trillion cubic feet (tcf) of gas, the resource potential and mean reserves of second block are around 350-400 bcf of natural gas and 100 million barrels of oil and liquids. The two exploration blocks are: Ledjmet and Yacoub in Algeria’s Berkine basin.


Essar Oil signs deals with Myanmar 


May 9, 2005. Essar Oil Ltd (EOL) has forayed into Myanmar by signing two production sharing agreements with the government of that country for oil exploration. The company has signed a deal in two blocks, one each for onshore and offshore blocks. The contracts were signed by Myanmar Oil & Gas Enterprise, on behalf of the government of Myanmar with Essar Oil Limited. Essar is the first Indian private sector company to sign an agreement in this area in Myanmar. The blocks are located between proven gas blocks and aligned along the regional corridor of gas discoveries south of Bangladesh, including the highly-productive Sangu Gas field. The Rakhine coast along the eastern side of these blocks, provides favourable logistic support.  EOL is a fully-integrated oil company with operations covering the entire value chain of oil exploration to retailing of petroleum products. It is setting up a 10.5 mmtpa refinery at Vadinar, Gujarat on the West Coast of India. It plans to set up 2,500 retail outlets by mid 2006, which will further be increased to 5000 retail outlets by 2008. The company has commissioned over 500 retail outlets across the country. EOL is a part of the Essar Group, one of India’s largest corporate houses, with interests spanning the manufacturing and service sectors - steel, shipping, power, oil and gas, telecom and construction. The group has an asset base of over Rs 20,000 crore (Rs 200 billion).


Energy highway in Assam


May 8, 2005. India's northeast is soon likely to have its first energy highway with a 700-km stretch in Assam to be connected by natural gas pipelines. As part of a mega plan to supply piped natural gas to domestic consumers, industrial and power units in the state, the state-owned Assam Gas Company Limited (AGCL) has already completed nearly 200 km of the proposed energy highway. By May-end, state govt. is going to commission piped gas to domestic consumers in two more cities in eastern Assam, and by 2007, they hope to reach Guwahati and then go beyond covering the entire state. The AGCL was established in 1962 and entered the gas transmission business three years later. At least a dozen towns and cities in Assam are already connected by piped natural gas. The northeast has a proved gas reserve of 47.787 billion cubic metres out of India's total 79.610 billion cubic metres of natural gas. Assam currently produces about five million cubic metres of natural gas annually. In India, oil and gas were first discovered in 1867 from a non-commercial well in Assam. But it was only in 1889 that the well was proved commercially viable, going on stream in 1901.


LNG for Dabhol plant


May 6, 2005. India may source liquefied natural gas (LNG) from Indonesia and Qatar for restarting the US$2.9 billion Dabhol power plant. Gail, which has been mandated to source LNG for the plant, is tapping Indonesian state firm BPMIGAS' Bontang plant, which has spare liquefaction capacity of 2.3 million tonne per annum. Qatar, too, has agreed to consider the supply of 0.5-1 million tonne of LNG, beginning next year, to meet the needs of the 2,184 MW plant in Maharashtra. Preliminary indications are that the 740 MW Phase-1 (which requires 0.5 million tonne per annum LNG) may be re-commissioned in 2006, and the plant will be fully operational by 2007 (with a requirement of 2.1 million tonne per annum LNG). Gail has also received 'in-principle' approval from Oman and Abu Dhabi, the plant's original LNG suppliers, for supply of feedstock. The LNG contract signed by Enron (the plant's original promoter) with Oman LNG is still legally valid. Enron had contracted 1.6 million tonne LNG from Oman and 0.5 million tonne from Abu Dhabi, but it could not import it as the plant was shut down following a payment dispute with its sole customer Maharashtra State Electricity Board.


Iran-Pakistan-India pipeline by 2010


May 6, 2005. The proposed multi-billion Iran-Pakistan-India gas pipeline project will become a reality by 2010. The three nations were serious that the project should take off. India’s internal estimates are that it will take another three years to visualise the project by involving the representatives of Iran, Pakistan and India. One year will be spent on hard negotiations and another year will be required to obtain financial closures for the project. The Petroleum and Natural Gas Ministry was working closely with the Ministry of External Affairs (MEA) to vigorously follow the developments with the partner countries. On security grounds, Iran would get higher price for its gas through the execution of this project while Pakistan and India would be supplied gas at a much lower price than that paid by them now.

GAIL ready to buy, market entire supplies of PMT fields


May 4, 2005. GAIL (India) Ltd is willing to buy and market the 11 million metric standard cubic metres per day (mmscmd) of natural gas produced in the Panna-Mukta and Tapti gas fields, which are operated by a joint venture of ONGC, Reliance Industries Ltd, and British Gas. Since the purchase price from these fields has now been fixed, GAIL has already expressed its intent to buy and market entire supplies as the Government nominee. This mechanism would prove beneficial for all, as duplication of infrastructure could be avoided. In view of the peak summer requirement for power sector, GAIL is keeping 2.1 mmscmd of supply for NTPC. However, GAIL would offer this quantity of gas to other customers in case NTPC does not take it. One of the consortium members was offering significantly lower price to NTPC in Gujarat for supply of gas from its KG Basin field against the price quoted for gas from the Panna-Mukta and Tapti fields. On reviewing the situation, the Ministry of Petroleum and Natural Gas directed that six mmscmd would continue to be supplied to core sector customers at the revised price of US$3.86 per mmBtu and that the principals of the joint venture fields could directly market the remaining five mmscmd using GAIL infrastructure.

Policy / Performance

Nelp – V attracts 30 firms


May 9, 2005. India’s latest offering of 20 oil and gas blocks under NELP-5 has attracted 30 companies, including global oil majors like Petronas of Malaysia, Total of France, Statoil of Norway, ENI SPA, Total, BP, Petrobras of Brazil, Merlin Energy, BG group of UK and Talisman of Canada. ONGC, Reliance, Cairn Energy, Nikko Resources, GSPC, OIL, GAIL, NTPC would also invest in the blocks on offer.


Gail asks IPPs to look for alternate fuel


May 9, 2005. GAIL (India) Ltd has requested the IPPs to look for alternative arrangement to supplement the gas supplies in case of any possible shortage of gas availability. GAIL in its agreement with IPPs had a clear provision requiring the IPPs to make arrangements for alternative fuel to supplement their gas supplies. In line with the decision taken by the ministry of petroleum and natural gas in December 2004, the current availability of 7 mmscmd will be supplied on a pro-rata basis among all the consumers having firm allocations in the KG basin area including the new IPPs such as GVK Industries, Konaseema Power, Gauthami Power and Vemagiri Power. To defuse the crisis further, the gas major is also holding talks with the ministry of petroleum and natural gas, ONGC as well as the joint venture operators in Ravva Satellite fields to step up their production till such time the major discoveries in the Krishna-Godavari (KG) basin area materialise. GAIL also said that the availability of natural gas in the KG basin from ONGC has come down by 17 per cent between 2002-03 and 2004-05. Similarly, the gas supply by the joint venture operators of Ravva Satellite fields have also come down by 5 per cent during the same period. Anticipating the shortage of natural gas in the KG basin area, GAIL as early as in 1999-00 had proposed an LNG terminal at Kakinada. Further, November 2002, the ministry of petroleum decided that the terminal would be constructed by the Indian Oil Corporation. The proposed LNG terminal at Kakinada has not progressed as expected, hence the crisis. Meanwhile, the company is also going ahead with the creation of new pipeline infrastructure to meet the schedule of commencement of gas supply to the new IPPs even though as a pro-rata share of the existing availability of natural gas.


Govt to ban kerosene exports by pvt. refiners


May 8, 2005. The ministry of petroleum and natural gas may enforce a ban on kerosene exports by private refiners, as the country faces a shortage of the product. Kerosene exports have become more lucrative compared to their sale in India, specially since the freeze on refinery transfer prices. So, in a rather contradictory situation, PSU refiners, led by IndianOil, have had to import kerosene even as Reliance Industries and Mangalore Refineries (MRPL) export it. All Indian refiners were earlier forced to produce kerosene in such quantities that it was 7 per cent of the total production. But this directive was lifted last December and the refineries have since been free to change their product slate. Kerosene and aviation turbine fuel are similar products that can be produced interchangeably.  While Reliance exports about 250,000 tonnes of the products per month, MRPL exports around 75,000 tonnes.  Imports began in March and Indian Oil has imported about 100,000 tonnes per month and has currently tendered for more deliveries.


Left wants low retail prices


May 7, 2005. Stating that it is unfair to burden the consumer with an increase in road cess, CPI-M asked the UPA government to review the duty structure on petroleum products to ensure it did not affect the retail prices. The party has also made some proposals to mitigate the hike in international oil prices without undertaking a hike in retail prices or levying a road cess. As part of the proposals to balance the hike in international crude prices, CPI-M said the government should create a price stabilisation fund to balance the price fluctuations. It said that the fund (Rs 54 billion per annum) collected through cess on indigenous crude at Rs 1,800 per tonne under the Oil Industry development Act 1974 could be used for the purpose.  It said that refining margins, especially to stand alone private refineries should be reviewed along with the duty drawback to petroleum product exporters. Finally, following the lowering of subsidy on kerosene and LPG, the contribution to the central exchequer by oil PSUs have gone up from Rs 46,603 core (Rs 466.03 billion) in 2001-02 to Rs 69, 195 crore (Rs 691.95 billion) in 2003-04. Hence the finance ministry should also share some of the burden imposed by the global crisis instead of leaving the same to the oil firms and consumers.


Diesel becomes cheaper


May 4, 2005. Diesel will become cheaper in Delhi with the Delhi Government having issued the notification for reducing Value Added Tax (VAT) on diesel from 20 per cent to 12.5 per cent, bringing it at par with the neighbouring states. The Delhi Cabinet had approved of this move on April 27. The decision to reduce tax rate had been taken after approval came for the same from the Empowered Committee on VAT. With the notification being issued, the new rates for diesel would come into effect. Incidentally, after the introduction of VAT on diesel on April 1, the prices of diesel had shot up by Rs. 1.80 from Rs. 26.40 to Rs. 28.20. But now though the Delhi Government would lose around Rs. 150 crores (Rs 1.5 billion) in revenue, the diesel users would get much relief. The decision has also come at a time, when diesel sales from outlets in Delhi have dropped by between 30 and 40 per cent resulting in a Rs. 2 crore (Rs 20 million) daily revenue loss.



TN-AP-Karnataka venture


May 9, 2005. The power utilities of Tamil Nadu, Andhra Pradesh and Karnataka are planning to forge a joint venture to set up a mega 3,000-MW gas-based power project on a cost-sharing formula in one of the States. It will be for the first time that States are getting together to jointly promote and execute a project of this scale, which could cost about Rs 12,000 crore (Rs 120 billion). A high-level steering group, comprising Secretary-level officials from the three States and representatives from the Central Electricity Authority, PTC India Ltd and the Ministry of Power, has started groundwork on the project. The States are likely to form a special purpose vehicle to execute the project. The project is likely to come up either in Andhra Pradesh or in coastal Tamil Nadu, depending on the fuel source. Although the proposal is in the initial stages, two sites have been proposed. The power station could be set up either in the Kakinada region in Andhra Pradesh, if gas is to be sourced from the Krishna-Godavari basin, or in north of Chennai, if the project is to be run on imported fuel, which will be brought in using the Ennore Port facility. 


Jegurupadu power project phase-II


May 6, 2005. The works relating to the second phase of the 250 MW gas-based GVK power project at Jegurupadu in Andhra Pradesh are progressing at a fast pace. The phase-II, being constructed by France-based Alstom at a cost of Rs 720 crore (Rs 7.2 billion), is likely to be commissioned by the end of December 2005. Once the second phase is commissioned, the total power production will go up to 460 MW. The total project cost works out to nearly Rs 1,500 crore (Rs 15 billion). In the first phase, a 235 MW plant was commissioned at a cost of Rs 750 crore (Rs 7.5 billion). As per the agreement entered into with the Gas Authority of India (Gail) for the first phase of power generation, Gail is supplying 9 lakh cubic metres of gas per day to the plant. For the phase-II of the project, 1.1 million cubic metres of gas will be supplied. GVK power plant is earning a revenue of Rs 300 crore (Rs 3 billion) per year on its power sale to APTransco. The price of power is Rs 2.12 per unit. Three gas turbines with a rating of 46 MW each and one steam turbine of 77 MW together form the combined cycle of Jegurupadu project. 


Work on 500 MWe FBR cleared


May 6, 2005. Atomic Energy Regulatory board (AERB) of the Indira Gandhi Centre for Atomic Research in Kalpakkam has given clearance for the construction work on 500 MWe Fast Breeder Reactor (FBR). Around 3.5 cubic metre of sea water, sluge and muck had entered 500 MWe FBR pit during tsunami which was removed. The area has been cleaned and washed.


CEA chalks out thermal capacity


May 6, 2005. Central Electricity Authority has identified potential of 75,000 MW thermal capacity addition in the country as part of measures to meet growing power requirements. This is in addition to the thermal capacity of 23,000 MW to be added during the 10th Plan and 35,000 MW during the 11th plan. CEA has also framed strategy for increasing output from existing capacities through renovation and modernisation of under-performing power plants and speeding up the rate of capacity addition by going in for larger capacity units of 500 MW and above. Faster capacity addition during 10 th and 11 th Five-Year Plans is vital to sustain high economic growth. For this, power equipment design would have to be standardised and it would also result in substantial cost savings and project cycle time reduction.


Power projects in Kerala


May 5, 2005. The Centre has approved various power development projects worth a total of Rs 1,350 crore (Rs 13.50 billion) in Kerala. Under the "Rajiv Gandhi Grama Vidyut Yojana" scheme, the Centre has sanctioned Rs 343 crore (Rs 3.43 billion). Priority would be given to electrification of hilly and coastal areas in the State under the scheme. Besides, the Centre has sanctioned Rs 95 crore (Rs 950 million) to the State under the "Rural Electrification District Backbone" project. Various projects costing a total of Rs 905 crore (Rs 9.05 billion) were being implemented in the State under the Accelerated Power Development and Reforms Programme (APDRP). The expenditure under the programme would be financed by way of 25 per cent grant and 25 per cent soft loan. The remaining 50 per cent would be in the form of loans from various financial institutions.  All these projects would be taken up for implementation by the Kerala State Electricity Board (KSEB) in a "mission mode" and completed within two years. The Centre has also approved a Rs 139-crore (Rs 1.39 billion) scheme for providing uninterrupted power supply to the Capital city.


MoU driven power plan for Maharashtra


May 4, 2005. The Centre has spiked the power-starved Maharashtra government’s ambitious 12,500 MW capacity addition plan being undertaken through the memorandum of understanding (MoU) route. It has, instead, insisted that the state adopt a competitive bidding process to expedite financial closure by the project developers. The state was advised to enter into a power purchase agreement after a developer was selected through the bidding process. Eight project developers — Tata Power (1,500 MW), Reliance Energy (4,000 MW), Essar (1,500 MW), GMR (1,000 MW), Spectrum Technologies (500 MW), Cipco (2,000 MW), Ispat (1,000 MW) and Jindal (1,000 MW) — had signed MoUs with the state after it had assured a host of concessions. The capacity addition had been planned over next five years.  In its MoU with the private developers, the state had said it would provide payment security cover for drawal of 2,000 MW of the total 12,500 MW on a first-come-first-served basis. For the balance capacity, the developers would have to arrange for the sale and evacuation of power either in or outside Maharashtra.


NTPC invited to set up hydel project


May 4, 2005. The state government offered the National Thermal Power Corporation to set up a hydel power project on Pranahita, an important tributary of river Godavari in Andhra Pradesh. This was part of the corporation’s target of 3,000 MW capacity addition, particularly in hydel sector during the next six-seven year period.  Though a proposal to set up a 400 MW hydel power project on Pranahita was originally conceived in 1970s, the government did not follow it up due to problems involving huge submergence of forest land, including the submergence of 60 villages in Andhra Pradesh and over 30 villages in Maharashtra. A latest study is underway to determine the hydel generation potential with lesser submergence problem. At present, the state government has proposed a series of hydel power projects totaling 2,050 MW capacity across river Godavari at various locations. The size of power projects at Yellampally and on Pranahita is yet to be determined.


TPC suggests water recycling 


May 4, 2005. The Maharashtra State Electricity Board may be able to ramp up its power generation by an additional 150 MW by next year if a cost effective method (read cheap power) becomes available to it for recycling the water used for its hydro-project. Tata Power Company (TPC) already utilises this method for additional power generation. The whole process would become economically viable only if the electricity grid is able to access cheap power at near Rs 2 per unit rates for pumping the water from the bottom of the reservoir into the main reservoir. 

Transmission/ Distribution / Trade

US$74 million power programme in Himachal


May 6, 2005. A Rs 323 crore (Rs 3.23 billion) accelerated power development programme was being implemented in Himachal Pradesh to strengthen the distribution and transmission network. Of the entire 21,000 MW identified hydro-power potential in the state, so far 6,000 MW had been harnessed in the state, while projects worth 8,000 MW were under implementation. 


KPTCL's power pacts to be reassigned


May 5, 2005. Power purchase agreements (PPA) of the State-owned utility Karnataka Power Transmission Corporation Ltd are expected to be reassigned to the distribution companies (DisCom). KPTCL would become a full transmission company from next month. This arrangement had necessitated that the PPAs signed by KPTCL with the generating companies, that include the Karnataka Power Corporation Ltd (KPCL), Central generating stations and a clutch of independent power projects be transferred to the four distribution companies - the Bangalore Electricity Supply Company Ltd (BESCom), Mangalore Electricity Supply Company Ltd (MESCom), Hubli Electricity Supply Company Ltd (HESCom) and the Gulbarga Electricity Supply Company Ltd (GESCom). However, the original payment terms of the PPAs would remain intact, including the payment security mechanisms, involving letter of credit, the escrow covers and the State Government guarantees. The PPAs would be reassigned on the basis of the load pattern of each of the distribution companies. This would mean that distribution companies with the largest number of consumers/connected load would end up having the highest proportion of the PPA.


CPDCL to improve power supply


May 5, 2005. The Central Power Distribution Company of Andhra Pradesh (CPDCL) plans to invest Rs 301 crore (Rs 3.01 billion) during the current financial year for augmenting support facilities to provide quality and reliable power in the State. The focus of these works would be in the districts of Anantapur, Kurnool, Mahbubnagar, Medak, Nalgonda, Rangareddy and Hyderabad. Out of the Rs 301 crore (Rs 3.01 billion), Rs 122.60 crore (Rs 1.23 billion) would be devoted for the power supply improvements in the twin cities of Hyderabad and Secunderabad. In terms of system network improvement, CPDCL has recently introduced mounting the meters located in residential areas to eliminate problems of disturbance while taking monthly readings. Spot billing system has also been introduced. The Company has made strides in bringing down transmission and distribution losses by Rs 324 crore (Rs 3.24 billion) during the last five years, besides affecting systems improvement and customer friendly measures to its consumers.


BHEL bidding for Albania power plant


May 4, 2005. Four international companies, including India's BHEL, are bidding to build a new power plant in Albania. BHEL, Consortium Iberdrola Spain and General Electric Co., Germany's Siemens AG and Italy's Maire Engineering have expressed interest in building a 85-135 MW power plant in Vlora, 140 kilometres southwest of the capital, Tirana. The project is estimated to cost between euro 91 million and euro132 million (US$117 million-$170 million). The international tender, held with the assistance of the World Bank and the European Bank for Reconstruction and Development, will be concluded in July and construction may begin in September.


Power shortage haunts many states


May 3, 2005. The energy shortage and peak time power deficit of a number of states have increased considerably during 2000-01 to February 2005 period. However, some states have managed to bring down the energy deficit substantially during the period. Gujarat is the worst hit among the states with both energy deficit and peak time power shortage worsening year after year. For instance, in 2000-01, the state was short of 9.7 per cent of its total energy demand. However, by 2005, this has increased to almost 12 per cent of the total energy demand. Similarly, Gujarat has the highest peaking shortage of 27 per cent of the total peak load demand in 2005, which has leapfrogged from 11.5 per cent in 2001. Punjab, another prosperous state in terms of agriculture and industrial investment comes close to Gujarat with its energy shortage going up to 9.4 per cent in 2005 from 4.2 per cent in 2000-01. The peak time energy shortage has peaked to 22 per cent of its total peak demand in 2005, from 9 per cent by the turn of the decade. The unbridled use of the power by the farming community to irrigate their agricultural land has been cited as one major reason for the widening energy deficit in the state. Also, the state government’s effort to ride a populist wave by supplying free power to agriculture earlier has also exacerbated the situation.  Uttar Pradesh and Maharashtra are the next two in line with UP has an energy shortage of 20.4 per cent and Maharashtra 11.6 per cent. The peak deficit for both the states have gone up to 21 per cent and 20 per cent respectively. Maharashtra is currently facing severe power shortage with the state electricity board is leaving no stones unturned to ensure smooth supply of power to households and business establishment. However, there are some states who have done well in ensuring energy security by completely eliminating peak deficit. Incidentally, Bihar along with Orissa and Goa figures in the list of such no deficit states.

Policy / Performance

Dabhol plant to cost US$2.31 bn


May 9, 2005. Restarting the beleaguered 2,184 MW Dabhol power project will cost at least Rs 10,000 crore (Rs 100 billion). The cost is to be shared among the government, the Indian lenders, National Thermal Power Corporation and Gail (India) Ltd. The restructured project is estimated to cost between Rs 9,793 crore (Rs 97.93 billion) and Rs 9,977 crore (Rs 99.77 billion), depending on the final settlement with GE-Bechtel. The settlement amount would range between Rs 1,276 crore (Rs 12.76 billion) and Rs 14.52 billion (US$290-330 million). The asset preservation expenses of Rs 160.2 crore (Rs 1.6 billion) and the cost for completing the project, estimated at Rs 880 crore (Rs 8.8 billion), are subject to revision since NTPC and Gail — which have been assigned the task of restarting the facility and completing the second phase are looking into the details. The estimates submitted to the EGoM do not include the cost of the LNG terminal. Lenders put the cost of completing the project and the LNG facility at around Rs 2,000 crore (Rs 20 billion), raising the total restructuring cost, excluding the setting off of accrued interest of Indian lenders (Rs 25 billion), at around Rs 12,000 crore (Rs 120 billion). As against this, the cost of setting up a new 2,184 MW plant is around Rs 7,500 crore (Rs 75 billion). The fixed cost of Dabhol power is estimated at 93 paise per kilowatt hour, a fairly competitive rate compared to the 95 paise per unit for NTPC's Kayamkulam project and around 88 paise per kWh for its older Kawas and Gandhar plants. Fuel costs are variable, and in the current context, they could range between Rs 1.50 per unit and Rs 1.60 per unit, which will push up the total cost to about Rs 2.40 to Rs 2.50 per unit. The power ministry is seeking to restrict variable costs at under Rs 1.37 per unit so that the cost of power does not exceed Rs 2.30 per unit. The Maharashtra government has expressed its willingness to purchase power from the Dabhol project at Rs 2.20 per unit. The cost of power was calculated on the assumption that the project will operate at 80 per cent plant load factor. The all-India average PLF for thermal plants during April was 75 per cent while for nuclear it was 61 per cent. Gail, which has been given the task of sourcing gas for the project, is looking at Indonesia and Qatar as possible sources for fuel. The project cost had gone down from the earlier estimate of Rs 9,992 crore (Rs 99.92 billion) in November 2004, on account of an improvement in the exchange rate and because the net present value of settlement of the political risk insurance claims of the OPIC was US$20 million lower than had been anticipated. However, the buyout of the offshore bank and OPIC’s debt at 80 per cent of the outstanding principal amount as against the level of 70 per cent assumed earlier pushed up the project costs. 


Kalpataru Power net soars 103 per cent


May 9, 2005. Kalpataru Power Transmission Ltd has reported a 56 per cent increase in its gross turnover for the financial year 2004-05 as compared to the previous year and has registered a 103 per cent rise in its net profit for the year. The gross turnover of the company for the year 2004-05 stood at Rs 567 crore (Rs 5.67 billion).


Power producers face winds of change


May 7, 2005. The momentum seen in profit growth of power producers in 2003-04 has slackened. Changes such as the revamp of the legal framework, securitisation of dues and progress towards open access in distribution had contributed to the momentum leading to even an increase in investment interest in the sector. For the financial year 2005, however, major power producers such as NTPC, Nuclear Power Corporation, Tata Power and Neyveli Lignite are set to report either a marginal rise, or a drop, in profits.  In the first nine months of the financial year, the larger producers have reported sluggish profit growth numbers. The sluggish trend follows strong growth of about 40 per cent reported by power producers in the year ended March 2004. Again, the year prior to March 2004 did not turn out to be encouraging with profit growth settling at less than 5 per cent. Reliance Energy and some smaller companies such as CESC, Gujarat Industries Power and Torrent Power have, however, reported growth in profits. The volatility in profit growth in the case of the larger companies comes even as the sector is set to undergo further convulsions. Post-June 2005, consumers may be given the freedom to choose the utility they would like to draw their electricity from. Changes in tariff regulation are set to follow too. These changes follow the scheme of settlement, unveiled in 2003-04, for securitisation of dues from State electricity boards. The scheme imparted financial flexibility to public sector power producers, improving their financial health and profitability. Central public sector units have since been able to collect almost 100 per cent of their dues from power producers, a momentous change. Notwithstanding the volatility in profit growth, power producers are however placed in a far superior position. In aggregate terms, power producers earned a return on net worth of nearly 14 per cent in the year ended March 2004 and may end up FY 2005 with a return on net worth of about 12 per cent.


Power to cost more


May 5, 2005.  NTPC is taking measures to pump additional power into the system to tackle shortages. To do so, it will have to pay more for fuel. And this higher cost, it says, will be passed on to the consumers. So far, NTPC had resisted buying gas at higher prices. However, it has now decided to buy additional gas at US$3.11 per mmbtu (unit of heat content). This increase in generation cost will be passed on to consumers. On an average, cities across the northern and western regions have been suffering four to six hours of power cuts a day. Some of the worst-hit towns have even had nine hours of blackouts. Fortunately, consumers in Mumbai, Delhi and Ahmedabad have been spared these blackouts.


MNES suggests ways to combat power shortage


May 5, 2005. The Ministry of Non-Conventional Energy Sources (MNES) suggested that the lightening systems of billboards erected in metropolis and other big townships all over the country should necessarily be switched off between 12 in the night to 6 in the morning to put a stop to such a massive misuse of electricity on the lines the way the Government of Maharashtra has proposed for Mumbai and the cities of its size and population in the State.  As a result thousands of mega watt of electricity could be saved and transmitted to those areas which remain power starved. Ministry of Non- Conventional Sources of Energy has mooted a fresh proposal for consideration of all local governments that such billboards lightening system in metros and other big cities should be converted with solar energy system so that the thermal energy is saved on those huge large boards which display advertisements in case it is absolutely necessary to keep their lightening systems alive during nights. 


DVC to relocate thermal plant


May 5, 2005. Having been denied environmental clearance by the Union Ministry of Environment and Forests, Damodar Valley Corporation (DVC) has decided to relocate its proposed 1000 MW (2 X 500 MW) thermal power plant in Durgapur. The relocated project, however, will be set up in Durgapur region only.


Guidelines to choose power distributors


May 4, 2005. Consumers may soon be able to choose the utility they would like to draw their electricity from. The power regulatory establishment across the country has set itself a deadline of June 2005 for finalising the distribution open access norms for retail consumers, starting with bulk users of power. The guidelines would form the basis for consumers drawing up to 1 MW of electricity to select the power distribution utility of their choice, amongst service providers in a State or a particular distribution zone. The move is expected to break the monopoly of the State Electricity Boards (SEB) as the sole supplier of power to retail consumers in most States and provide a boost to more number of power players applying for distribution licences in various states. With the exception of Delhi, Chhattisgarh and Assam, all other States have already finalised either the draft or final guidelines for allowing open access in distribution.


Govt for overseas coal equity


May 4, 2005. The coal ministry has prepared a draft Coal Vision 2025 document that calls for a massive Rs 2,85,000 crore (Rs 2.85 trillion) investment during the next 20 years to meet rising demand. According to the draft, the government must push Coal India Ltd to pursue overseas opportunities. It has, in fact, called for setting up a subsidiary Coal Videsh for focussed overseas ventures into greenfield projects and coal block acquisitions with a US$1.55-billion or Rs 7,000 crore (Rs 70 billion) war chest.


The investment estimate was made assuming the government’s stated objective to achieve a GDP growth rate of 7-8 per cent on a sustained basis during the next two decades. The investment would see the country’s coal output rise from about 360 million tonnes now to 1,061 mt by 2024-25. Power utilities account for 63 per cent of the estimated demand for coal in 2025. Even with such massive investment and almost trebling of output, the demand would outstrip supply. In 2024-25, the demand is expected to touch 1,147 mt given a 7 per cent GDP growth rate and 1,267 mt if the economy grows by 8 per cent a year. It has also called for setting up a Indian Coal Regulatory Authority to formulate, implement and monitor pricing mechanism of coal and coal products. The regulator would identify and allot coal blocks, approve mining plans and adjudicate disputes, dispose of appeals and protect the interests of consumers.


Lead in setting up power regulators


May 3, 2005.  The formation of state electricity regulatory commissions (SERCs) in India has led to timely issuance of tariff orders, acceptable tariff philosophies and implementation of tariff orders within a reasonable time period. However, there are certain states such as Haryana wherein issuing of tariff orders by SERC is less than timely. According to the power ministry, the performance of SERCs in Andhra Pradesh, Delhi, Uttar Pradesh, Karnataka and Tamil Nadu has been encouraging. However, north-eastern states have yet been lagging behind as most of them have yet to set up SERCs. Andhra Pradesh SERC, which was established in 1999, has issued five tariff orders till date and they have been implemented. The commission has issued orders for setting up of consumer grievance forum and appointment of Ombudsman.


In case of Gujarat, SERC has issued only its second tariff order on June 25, 2004 on the additional revenue requirement petitions for fiscal 2001-02, 2002-03 and 2003-04. The GERC has finalised five regulations and codes and has prepared 20 draft concept papers and regulations for inviting comments from stakeholders, including concept paper on multi-year tariff principles. Delhi SERC has been one of the first commissions to come out with a multi-year tariff policy way back in 2001. Karnataka SERC, which has issued three tariff orders so far, has allowed tariff hike of 16.85 per cent and 16.20 per cent in first two orders. The commission has proposed to reduce the number of slab, reduce the cross subsidy burden on high tension consumers and charge tariffs for consumers that are more reflective of the cost of supply. West Bengal SERC is yet to spell out multi-year tariff philosophy and further rationalise the tariff slabs. After getting involved in various litigation relations to tariff, which delayed the timely issuance of tariff orders, the commission has released the tariff orders for 2004-05 and the previous years.


Fuel shortage results in 2 b units loss


May 3, 2005. The ongoing power shortage across a number of States is expected to worsen till the monsoon sets in. While the coal and gas shortage has already resulted in a loss of over 2 billion units of electricity till April 2005, the situation in Maharashtra and West Bengal appears grim on account of unprecedented peak demands. The Power Ministry has asked utilities that are facing fuel shortages to import coal, and directed power-trading companies, including PTC India Ltd and NTPC Vidyut Vyapar Nigam Ltd (NVVNL) to prioritise supply to worst-hit states. The coal shortage has already taken its toll on the power sector, especially affecting players such as NTPC. Now, the shortages in gas supply to stations along the Hazira-Vijapur-Jagdishpur (HVJ) pipeline has come as a second blow. It is only post-monsoon that can expect more hydel power to come into the grid, especially to meet peaking demand.





Saipem deal to develop oil field


May 5, 2005. Italian oil services company Saipem SpA has won an US$850 million (euro 655 million) contract to develop an undersea oil field off the coast of Nigeria. Saipem, a unit of Italian oil and gas company ENI SpA, said it was awarded the contract by Total Upstream Nigeria, a part of France's Total SA. Work on the oil field, located 200 kilometers (125 miles) south of the Nigerian town of Port Harcourt, will be completed by two Saipem ships between 2007 and the first half of 2008. Saipem will use local Nigerian companies to provide services and will do most of the manufacturing at its construction yard in Port Harcourt.


Delphi Energy increases Production


May 5, 2005. Delphi Energy Corp. announced increased production 170 per cent to 3,685 barrels of oil equivalent per day (boe/d) in the first quarter of 2005 from 1,364 boed in the first quarter of 2004. This is an increase of 80 per cent from 2,045 boed in the fourth quarter of 2004. Delphi is currently producing 4,400 boe/d weighted 85 per cent to natural gas and natural gas liquids. It also participated in drilling 21 (4.2 net) wells with a success rate of 81 per cent.


Sawtooth’s second oil pool discovery  


May 5, 2005. Sawtooth International Resources Inc. reports the new discovery of a second new oil pool at Redwater and the financial and operating results for 2004. Sawtooth has recently completed a well at Redwater, which is producing Ellerslie gas and light oil (100 boed). Sawtooth has identified eight prospective oil drilling locations near the recently discovered oil pools. Drilling is expected to commence within the next four weeks. Producing wells, in Sawtooth's Ellerslie "C" light oil pool, have a remaining life index of approximately 15 years. Gas production will commence from one well by mid May. This well, which also tested gas and oil from five zones, is expected to initially produce at 750,000 cubic feet to 1.5 million cubic feet per day. Total company production is projected to reach 1000 boed by June 30, 2005 once tie-ins of recently drilled wells are completed. Sawtooth is forecasting an exit rate of 1500 boed for 2005 with a drilling program of ten (10) wells.


Petrobras output over 1.7 mn bpd


May 5, 2005. Brazil's state oil company Petrobras said its domestic crude output in April exceeded 1.7 million barrels per day for the first time, meaning it is on track to meet Brazil's oil needs next year. Crude output in Latin America's largest country, where Petrobras accounts for nearly all production and refining, jumped 6.7 per cent in April from March to total 1.704 million bpd. It was 14.2 per cent higher than last year's average and 16.6 per cent above the level registered for the same month of 2004. Petrobras expects domestic crude output to rise by a about 14 per cent this year following a 3 per cent drop in 2004.


Exxon Mobil, Apache to expand


May 5, 2005. U.S. oil and gas producer Apache Corp. said it struck a deal with Exxon Mobil Corp. to expand exploration and development of oil and gas fields in Western Canada. Under the deal, Exxon's Canadian unit will farm out its interest in about 650,000 acres of additional undeveloped property interests to Apache Canada Ltd.


TRAE production from 2 addl. wells


May 4, 2005. Triton American Energy Corp. of Houston is now producing approximately 850,000 cubic feet of gas per day from 2 wells within the Dyersdale North Field. These wells have a life expectancy of 10 years. Currently, Triton American Energy owns 8 wells within these fields. These wells hold estimated reserves of 3 billion cubic feet of gas and 345,000 barrels of oil. Triton American Energy also owns wells within Zapata County which have proven reserves and are pulling in 1.2 billion cubic feet of gas per day. This current production and strong forecast comes on the heels of the Energy Information Administration (EIA) projecting gas prices to remain at record levels through 2006.


Gazprom and BASF for gas field


May 4, 2005. OAO Gazprom, Europe’s largest natural-gas supplier, said drilling at a new exploration well at its Yuzhno-Russkoye field in western Siberia indicated the deposit holds about two thirds more gas than previously thought. The field may hold about 1.2 trillion cubic meters of gas, up from 715 billion cubic meters of recoverable reserves discovered earlier. The company may find another 1.5 trillion cubic meters of gas with additional exploration of nearby areas. Gazprom and BASF, the world’s largest chemicals company, agreed last month to develop the field, which may need 1 billion euros in investment. The Russian company said that E.ON, the biggest German utility, may also join the project, which will ship gas through a pipeline under the Baltic Sea to Germany and the UK. The link will need a US$10 billion investment by 2010. Gazprom may build a larger pipeline from the field to boost shipments by as much as 60 per cent. The company is looking for partners in the project to secure access to retail gas pipelines in Germany and the UK to boost profits from sales.


Statoil to invest NOK 800 mn in Norne field


May 4, 2005. Norway's energy group Statoil will invest 800 million crowns (US$127.6 million) at its Norne field in the Norwegian Sea to improve oil recovery. Two new wells would be drilled at Norne to improve recovery by over 10 million barrels of oil. The wells would be completed in time for production to start as early as the autumn of 2006.


Scottish Power in US$120 mn U.S. gas storage deal

May 12, 2005. British utility Scottish Power Plc (US unit PPM) had bought a New Mexico gas storage facility and expanded a U.S. gas storage project for a total investment cost of US$120 million. PPM is also expanding its gas storage facility in west Texas to 9.5 billion cubic feet from 7.2 billion. The combined investment is expected to be approximately US$120 million and to achieve returns of at least 300 basis points above PPM's weighted average cost of capital.

 Oneok buys Koch assets

May 11, 2005. Tulsa, Okla., natural gas company Oneok Inc. agreed to buy the natural gas liquids assets of privately held Wichita, Kan., energy giant Koch Industries Inc. for US$1.35 billion in cash. The price works out to about 9.5 times Ebitda, which is expected to be US$135 million to US$145 million next year.  The package includes Koch Hydrocarbon LP's entire midcontinent NGL business, which provides NGL gathering, fractionation, storage and marketing services for processors in Oklahoma, Kansas and Texas. The assets include fractionators in Medford, Okla., and Hutchinson, Kan., with combined capacity of 240,000 barrels per day and a 10 per cent stake in a 110,000-barrel-per-day fractionator, two underground NGL storage facilities and a 9,000-barrel-per-day isomerization facility at Conway, Kan. Also included are Koch Pipeline Co. LP's NGL pipeline distribution systems, 1,800 miles of interstate NGL distribution pipelines that connect Conway and Mont Belvieu, Texas, market centers. There are also 2,600 miles of NGL gathering lines owned either by Koch Hydrocarbon or Koch Pipeline Co.

Transportation / Trade

Supply deal for occidental in Middle East


May 9, 2005. A contract signed between the Dubai Supply Authority and Dolphin Energy set in motion a US$4 billion natural gas supply project. A key player in that project is Los Angeles-based Occidental Petroleum Corp. The deal is one of several ambitious projects under way across the Middle East for Occidental, a top U.S. petroleum exploration and production firm. Occidental is a 25 per cent partner in Dolphin Energy. The primary owner is the government of Abu Dhabi. Petroleum industry heavyweight Total SA of France is also a key Dolphin Energy stakeholder. The project calls for a 260-mile pipeline between offshore fields in Qatar and distribution points in Dubai and Abu Dhabi. The supply line will join the seven emirates in a supply grid able to feed the country's rapidly growing needs for electric power and water desalinization. Scheduled to come on line late next year, the Dolphin project targets a preliminary flow of 2 billion cubic feet of gas per day. For the collective of oil-rich emirates, the system would clear a path to rapid economic development. For Occidental, it would mean a 40 per cent jump in 2006 Middle East production and a long-term piece of what many believe to be the largest gas field in the world.


Oil exports to China hit 


May 7, 2005. Russian oil companies’ plans to export record levels of oil to China may have to be seriously rethought, as terminals in western Siberia will struggle to cope with the Russian-Chinese contracts. Indeed, plans to increase the capacity of oil loading terminals are still being only discussed, so it seems the situation is likely to remain up in the air for some time to come. Under the agreements signed between Russia and China, China should receive from Russia at least 10 million tonnes of oil by rail this year. Russian Railways (RZD) has already announced that in 2005, 1.4 billion rubles (US$50 million) will be invested in modernising the Trans-Siberian Railroad, the only mainline running in the eastern direction. The total cost of the project is estimated at 5.8 billion rubles (US$209 million), but, unlike RZD, experts say this will be not enough to solve a “congestion” problem on the tracks that will arise with deliveries to China. The problem is that oil terminals, which are not under RZD jurisdiction, present a far greater problem than modernising branch lines. The terminal owners admit that the present facilities are not enough for loading the required 10 million tonnes of oil for China. Unfortunately, the figure should rise to 15 million tonnes next year. The oil companies are in no hurry to spend money on new equipment, and RZD says it is not going to invest in a project which formally it does not have to finance. It would seem natural that oil producers should build and service their oil loading terminals themselves. But the contracts with China have been signed for many years to come, and it is in Russia’s interests to honour them in full.


Though oil exports to Europe and the U.S. may seem more attractive to many in terms of political influence, the same is true about Russia’s relations with its south-eastern neighbour, whose oil demand has been growing with every passing day. China already accounts for 8 per cent of global oil consumption. Moreover, oil deliveries to China from both eastern and western Siberia are more convenient for Russia at least because transit distances are cut. It would be strange for Russian oil companies and the government to lose the contacts with China. However, indecision in building the new oil-loading capacities may frustrate oil supplies and incur the dissatisfaction of the Chinese contractors. In general, an unwillingness to invest long-term is typical of Russian oil companies. The construction of the oil-loading terminals falls into the same category of long-term investment. Today, the oil companies seem to think that investing in construction means excessive spending, particularly considering that the Russian authorities plan to build an oil pipeline going east, which will make oil-loading terminals unnecessary. However, the construction of that pipe-line might take too long and then large terminals may be needed urgently.


Investors targeting Russian markets


May 6, 2005. Foreign investors have increasingly begun to target Russian oil and gas market. Foreign buyers are making a major impact on the Russian business scene, with every indication that they will continue to be aggressive purchasers. The West sees no ways to survive without Russian hydrocarbon supply. That explains an existing high interest to participate in oil and gas fields' developments in Russia. Even those companies from the South-Eastern Asia are actively looking for opportunities to expand their presence in this country. They are welcomed but not by everybody. On the one hand some domestic companies want to sell foreigners their controlling packet of shares. On the other hand a number of powerful political players are trying to put spokes in investors' wheels.


Egypt-Israel pipeline deal


May 6, 2005. Egypt and Israel are scheduled to sign an agreement that would permit a gas pipeline between the two countries. The pipeline would provide Israel Electric Corp. with a 15-year supply of Egyptian natural gas. If signed, the US$2.5 billion agreement would give Jerusalem much needed fuel for power generation --without the cost of long-distance transport. It also would give Egypt a boost in its effort to lead the rise of northern African gas exporters. Houston-based Apache Corp. is rapidly expanding its production in Egypt to play a key role in that effort.


Kazakh state firm to invest in Kashagan


May 4, 2005. Kazakhstan's state oil and gas firm Kaz Munai Gas expected to invest about US$1 billion in developing the giant Kashagan oilfield in the Caspian Sea until it comes on stream in 2008. The company bought 8.33 per cent in the Eni-led international consortium developing the field as part of long negotiations for Britain's BG to sell its 16.67 per cent stake to other consortium members.


Devon sells U.S., Canada assets


May 4, 2005. Devon Energy Corp., the largest U.S. independent oil and gas producer, had reached agreements to sell all the U.S. and Canadian properties it had put up for sale, raising over US$2 billion, which was more than it had expected. The proceeds from the sales represented an average price of about US$14 per equivalent barrel of proved reserves, based upon year-end 2004 reserve estimates. The combined divestitures produced about 6.9 million equivalent barrels of oil in the first quarter of 2005. The Canadian sales were expected to result in early settlement of oil hedges covering 3,000 barrels per day. Based on current oil prices, Devon said it expects the loss to be about US$16 million and would report the loss in its second quarter 2005 results. Devon said its divestiture of U.S. properties will result in early settlement of oil hedges covering 5,000 barrels a day and result in a loss of about US$39 million, which was reported in its first quarter results.

Policy / Performance

Venezuela to Investigate Oil Companies


May 8, 2005. Venezuelan said that foreign oil companies working in the country must pay taxes or else leave the country. Many private companies producing oil in the country have been evading taxes for years. Many declare losses to avoid paying income tax. The government said it will charge "everything they owe retroactively, along with the interests of what they didn't pay. According to Venezuelan law, oil companies must pay 30 per cent royalty, but companies producing heavy crude -- which is expensive to produce -- were allowed to pay 1 per cent royalty until last year, when the government raised it to 16 per cent. Venezuela opened its oil industry to foreign oil companies in the 1990s. During that time, 32 operating agreements were signed with companies like ChevronTexaco, British Petroleum, Total, Petrobras, Repsol YPF, Royal Dutch Shell and the China National Petroleum Corp. Last month many of these companies have evaded taxes for an estimated total of US$2 billion. Venezuela is the world's fifth oil exporter and government said it produces over 3 million barrels a day. But analysts and international agencies say the amount is closer to 2.6 million. Government said Venezuelan lawmakers should work to approve a law the government to use money from the country's international reserves for government projects.


Libya launches EPSA-4 oil bidding


May 6, 2005. Libya has invited international oil companies to the second bidding round of its EPSA-4 exploration programme, offering dozens of onshore and offshore blocs. The tender issued comes two months after the North African country awarded exploration acreage for the first time since U.S. sanctions were lifted. Winners for the 15 blocs offered in that first round included Occidental, ChevronTexaco, Amerada Hess and Oil India. Termed EPSA-4 or Exploration and Production Sharing Agreement, it was seen as more flexible and therefore more attractive than previous Libyan upstream concessions. The majority of the blocs on offer are onshore in the Cyrenaica, Ghadames, Sirt, Murzuq and Kufra basins though the invitation also includes substantial offshore acreage.


High oil prices, risk to growth 


May 4, 2005. Finance ministers from China, Japan and South Korea said high oil prices may curb Asian economic growth this year and called on energy producers to boost output. They said that prospects of the three countries’ economic growth for 2005 are positive although the continuous high price of oil may pose a risk to the regional economy. The three nations are world’s biggest oil importers after the US and are Asia’s three biggest economies. The World Bank said recently it expects economic growth in East Asia, excluding Japan and the Indian subcontinent, to slow to 6 per cent this year from 7.2 per cent in 2004, partly because of high oil prices. The International Monetary Fund on April 13 forecast global growth would slow to 4.3 per cent this year from 5.1 per cent in 2004.



Calpine’s new plant to California power grid


May 5, 2005. Calpine Corp’s Pastoria power plant in southern California started operations, putting 250 MW of electricity on the regional power grid. The natural gas-fired plant, near Bakersfield, will begin producing another 500 MW in June, adding a total of 750 MW, or power for about 600,000 homes. The new plant is coming on line as "spark spreads" -- electricity profit margins -- rise in California. Spreads for on-peak power in southern California rose by 17.5 per cent in the first quarter, to US$11.22 a MW hour. Demand for electricity in California is growing by almost 4 per cent a year. The company also expects to open the 602 MW Metcalf power plant in San Jose in the Silicon Valley in June. The new plants will increase Calpine's California plants to 41 and more than 5,250 MW.

Transmission / Distribution / Trade

Praxair  & Proton Energy sign agreements


May 5, 2005. Praxair, Inc. signed an agreement with Proton Energy Systems, Inc. to become the exclusive distributor in Canada and a U.S. distributor for Proton's advanced on-site hydrogen generation systems for the electric utilities industry and other applications. Proton's hydrogen generators produce hydrogen from electricity and water without harmful by-products. In the electric utility application the hydrogen generator provides a continuous flow of high purity hydrogen to cool the electric generator casing. Using a patent pending process, these turnkey hydrogen generation systems can increase the efficiency of a utility's electric generators by reducing windage loss, increasing output capacity and helping extend generator maintenance intervals, all of which can result in significant savings to the utility. Praxair's expertise in specialty gases and equipment for emissions testing needed by the electric utility industry complements Proton's line of advanced hydrogen generators.


Top bidder for Korea power plant


May 4, 2005. Australia's Macquarie Bank Ltd. has been chosen as a preferred bidder for the whole of South Korea's largest independent power plant. Macquarie, whose private equity arm has been actively investing in power and infrastructure assets globally, is a front-runner for a 50 per cent stake in Korea Independent Energy Corp. (KIECO), owned by Hanwha Group and Deutsche Bank. Macquarie is also bidding for the other 50 per cent stake in 1,800 MW gas-fired KIECO, owned by U.S. energy firm El Paso Corp. which is selling its holdings via a separate auction process along with its other power assets in Asia. Macquarie is bidding with UK-based CDC Globeleq, a British government-owned private equity vehicle for investing in the private sector in developing economies, in a consortium for the entire portfolio. Globeleq is targetting El Paso's Asian assets outside of South Korea.

Policy / Performance

Best Performing Fossil Power Plants


May 9, 2005. EUCG, a global association of energy professionals that does benchmarking surveys and seeks to identify best practices in the electric utility industry, announced the winners of its "Best Performer" power plant award. Progress Energy swept this spring's awards, taking honours in both the small and large plant categories. The utility's Asheville Plant was named the best performing small power plant. For this award, "small" plants are defined as having an average unit size of 210 MW or less. In addition, Progress Energy's Roxboro Plant was tapped for the large plant award for plants with an average unit size in excess of 210 MW.


World’s third largest producer of Uranium


May 9, 2005. According to UX Weekly, the Republic of Kazakhstan became the third uranium producer in the World (9.4 per cent) in 2004, following Canada (29.2 per cent) and Australia (22.6 per cent). Kazakhstan has produced 3,719 metric tons of uranium last year including Kazatomprom (3636mtu) own output and minor quantities of its joint ventures and Stepnogorsk Mill. It's a 45 per cent increase compared to 2003 production.


The National Company is planning to produce more than 4 thousand tons of uranium in 2005 and to increase annual production up to 15 000 tons by 2010 - which will put Kazakhstan in first place among uranium producers. The country reserves are said to be of 1.5 million tons, which means nearly 20 per cent of the world's total supply of uranium. Kazakhstan plans to develop seven uranium mines by 2010. The seven new sites should be developed on the fields of Budenovskoe and Mynkuduk in southern Kazakhstan. The company has assessed that the uranium mining project would recover its expenses by 2013. By then, uranium profits would reach US$830 million. The IAEA said the market supply would decrease and reach a deficit of 16,000 tons by 2015.


Voluntary scheme to reduce GHG emissions


May 6, 2005. Exelon Corporation has established a voluntary goal to reduce its greenhouse gas (GHG) emissions by eight per cent from 2001 levels by the end of 2008. Exelon has also committed to work with, and encourage, its suppliers to reduce their GHG emissions. The company will incorporate recognition of GHG emissions and their potential cost into its business analyses as a means to promote internal investment in climate-reducing activities. Exelon made this pledge under the U.S. Environmental Protection Agency's (EPA) Climate Leaders program. The Pew Center on Global Climate Change, a nationally recognized leader in the effort to address global climate change, assisted Exelon in developing its goal, strategy and program. Compared to other utilities of equal size, Exelon's total GHG emissions are relatively low. Nuclear generation constitutes the majority of the company's generating capacity and is the main reason for its low carbon emission rates. The Coalition for Environmentally Responsible Economies (CERES) ranked Exelon 93rd on a list of 100 utilities in terms of CO2 emissions intensity from all generating sources (on a scale with one being the most emissions and 100 the least emissions) and 47th in terms of total tons of CO2 emissions based on 2002 data. Despite its low GHG intensity, Exelon is committed to an eight-per cent reduction from 2001 levels, which represents a decrease of an estimated 1.3 million metric tons of GHG emissions.


Xerox pledges to trim GHG emissions


May 6, 2005. Xerox Corporation has pledged to cut greenhouse gas emissions from its worldwide operations by 10 per cent from the baseline year 2002 to the end of 2012. This aggressive voluntary reduction target is aligned with the U.S. Environmental Protection Agency's Climate Leaders program and The Business Roundtable's Climate RESOLVE program, which Xerox joined in 2003. And it complements the company's ongoing environmental programs, which include products designed for energy efficiency and innovative remanufacturing and recycling practices. Xerox's greenhouse gas emissions - gaseous compounds in the atmosphere that trigger global climate change - result from use of fossil fuels and purchased electricity for power. About three-quarters of Xerox's total comes from its U.S. operations. The company projects it could save or avoid spending millions of dollars annually by cutting its use of fossil fuel and electricity. The 10-per cent-reduction goal requires Xerox to cut annual emissions from these sources below its 2002 baseline, even as the company grows. In effect, by 2012 Xerox will have to reduce annual emissions by an estimated 100,000 metric tons - or about 30 per cent - to achieve the 10 per cent target. This reduction will position Xerox to meet future greenhouse gas reduction mandates, including those in countries that have ratified the Kyoto protocol, the international treaty that calls for emission reductions in signatory nations.


U.S. billionaire to invest in Bangladesh


May 6, 2005. The billionaire co-founder of Microsoft plans to spend US$1.6 billion building Bangladesh power and fertilizer plants, marking the second-biggest investment into the poor but fast-growing nation. Paul Allen, the world's seventh-richest person according to Forbes magazine, will make the investment through Global Vulcan Energy International. Vulcan will spend US$900 million of Allen's US$21 billion fortune building a number of gas-run power plants with a total 1,800 MW of capacity -- equivalent to almost half of existing national capacity. The new plants will help meet new demand that is set to double to 7,000 MW by 2007, and make up a power shortfall that already stands at between 500 MW and 700 MW. Vulcan will also set up a US$500 million project to capture methane gas for power production from coal mines.

Advanced designs for nuclear plants in US


May 6, 2005. NuStart Energy Development LLC, the consortium of nine nuclear power companies operating 58 per cent of the nation's nuclear power plants and two reactor vendors, has signed a Cooperative Agreement with the U.S. Department of Energy to demonstrate the Nuclear Regulatory Commission (NRC) licensing process and to complete the designs for the first advanced nuclear power reactors in the U.S. in 30 years. The agreement authorizes the NuStart consortium to participate in a 50-50 cost sharing program with the government to complete the detailed engineering work for two advanced reactor technologies -- the Westinghouse Advanced Passive 1000 Reactor and the General Electric Economic Simplified Boiling Water Reactor. NuStart will select two potential nuclear plant sites by October of this year, one for each design.


Renewable Energy Trends


Focus on renewable energy to tackle power crisis


May 5, 2005. The Ministry of Non-Conventional Energy has opined that states facing power shortages need to focus on renewable sources of generation to tide over the situation. The Ministry said states such as Maharashtra could wipe out electricity deficit in the next three to four years by increasing the use of renewable energy. Maharashtra has the potential to generate about 5,000 MW from wind energy and another 1,500 MW from bagasse cogeneration from 160-odd sugar factories. This could help meet the requirements of the state which is facing shortages of nearly 4,000 MW. At present, the state generates only 280 MW from wind energy. With more efficient use of electricity, energy conservation measures and generation from conventional fuels such as coal and gas, Maharashtra has the potential to become power surplus in the future. Also decentralised grids using small hydro, wind, biomass, solar and diesel hybrid systems offered a cost-effective solution to meet growing energy needs.


Bio-diesel mission to shift to Agri ministry 


May 4, 2005. The government is contemplating shifting bio-diesel mission from rural development ministry to agriculture ministry. The shift is being contemplated to give a boost to the project which can reduce India’s dependence on imported oil to as much as 20 per cent in case of diesel. Although the project was launched as a national mission on bio-fuels as per the recommendations of a committee on development of bio-fuels with rural development ministry as the nodal ministry, not much progress has been made. During 2004-05 a small amount of Rs 9 crore (Rs 90 million) was earmarked for the project. The rural development ministry, however, managed to spend only Rs 20 lakh as per the revised estimates for the fiscal. The allocation for current year has been scaled up to Rs 45 crore (Rs 450 million).  India consumes about 110 million tonne of petroleum products in a year. Domestic production takes care of only 30 per cent of the country’s demand. The remaining 70 per cent of the demand is met through imports. As far as diesel is concerned, India consumes about 40.6 million tonne in a year. It is possible to mix up to 20 per cent of non-edible oil from jatropha curcas with diesel. Under instructions of the petroleum ministry, Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation are experimenting with various mixes of bio-diesel with diesel in state transport buses in Haryana, Gujarat and Mumbai, and are in continuous discussion with the automobile industry, sharing results of the experimentation. The IOC has also signed a memorandum of understanding with the Indian Railways for plantation of Jatropha curcus on railway land.


Wind energy to power India Inc.


May 4, 2005. Faced with a huge power crisis, big corporations such as the Tata group, Aditya Birla group, RPG Enterprises, Godrej group and the Bajaj group have started setting up wind power generation units, the most popular source of non-conventional energy. The objective is to reduce dependence on conventional power. The initiative of shifting to non-conventional energy is creating resources without stretching the companies’ balance sheets as investments in non-conventional energy is totally tax free. Suzlon Energy has created windmill power generation facilities for many companies. The list includes Bajaj Auto, Tata Power, Aditya Birla group, Godrej, RE Agro, Ajanta group, RPG Enterprises and a host of textiles companies at Tirupur. Suzlon is the market leader in wind power generation. The wind power industry is pegged at 3,100 MW and growing at a 30 per cent rate. India is the fifth largest wind power generation industry in the globe after Germany, the US, Spain and Denmark. It is expected that by end of June quarter, India will emerge as the fourth player piping to Denmark. Denmark’s capacity is 400 MW more than India’s. In 2004, India has added 875 MW of wind power generation. 


GE to boost investment in green technology


May 9, 2005.  General Electric Co. unveiled a plan to boost investment and increase sales from environmentally friendly technologies in a bid to cash in on higher energy costs and more stringent regulations. The media, financial and industrial conglomerate said it plans to double its annual research and development investment for the new technologies to US$1.5 billion by 2010 from US$700 million in 2004. GE products such as wind turbines capitalize on the increased demand for renewable sources of energy, while recent acquisitions have made the company a player in the growing market for clean-water technologies. The plan also calls for GE in 2010 to double its revenue from products and services that offer environmental advantages to customers to US$20 billion -- or about 13 per cent of total revenue in 2004. GE has already seen orders swell for more energy-efficient engines for locomotives and jets, cleaner coal-fired power plants and water purification technology.


Risk with variable wind power supply


May 2005. Markets for trade of electricity are traditionally structured without taking account of generation technologies that cannot meet pre-determined schedules for delivery of their output. That policy failure makes trading wind generation unacceptably risky, as proved during America's electricity crisis when steep market price spikes landed wind plant owners with huge unexpected bills. California is now bringing this risk barrier down by amending its market structure. Not only are both regulators and players pleased with the new rules, other markets are looking to follow California's lead.


Light to energy conversion for army


May 4, 2005. Konarka Technologies, Inc., an innovator in developing and commercializing power plastics that convert light to energy, announced the Company has signed a US$1.6 million contract with the United States Army. As part of this new program, Konarka's light-activated power plastic will provide critical power supply to soldier systems and Army support infrastructure. Electric power requirements are going up for both soldiers and facilities in war situations, as the military is using sophisticated electronic technologies for sensing, surveillance, communications, search and destroy, and survival on the battlefield. Today's soldiers are being weighed down, though, by the batteries that drive these devices. They are required to carry a daily supply of primary batteries, but limited power capacity and the continual need for re-supply can limit the mobility, range and mission length required for effective field operations. Since rechargeable batteries can alleviate the soldiers' burden and the extensive logistics support to maintain the battery supply, the Army now favors their use wherever possible, and recharging those batteries in the field is a priority. To ensure soldiers can become less dependent on supply logistics and locally available power sources to charge batteries, Konarka will deliver its renewable energy generation capabilities to the Army in the devices, systems and structures that are normally deployed for remote operations.



(RIA Novosti commentator Tatyana Sinitsina)

A “Kyoto working group” has been set up by the Forestry Agency under the Ministry of Natural Resources. The working group has been tasked with drafting an action plan to develop the system to monitor sinks, emissions and the absorption of greenhouse gases in the forests. It is also to provide the regulatory-legal framework for these activities. The working group is made up of Forestry Agency employees, scientists, and representatives of non-governmental organizations. People who work in the forest management sector, from scientists to ordinary forest rangers, will carry out the bulk of the work to implement the Kyoto Protocol. Forests cover 70% of the territory of Russia, i.e. 882 million hectares (a quarter of the world’s forests). Georgy Korovin, director of the Center for Ecological Problems and Forest Capacity, firmly believes that, “The forestry sector can and must make a significant contribution to efforts to mitigate climate change. It must assist the Russian Federation meet its obligations under the Kyoto Protocol. Forests are the only part of the biosphere that is capable of reducing the concentration of greenhouse gases in the atmosphere through carbon absorption and long-term carbon storage in tree vegetation and dead organic matter.” However, if the carbon potential of Russian forests is to be realized, then a huge amount of work lies ahead. This includes reforestation and afforestation, improvement of the systems to protect forests from fire, pests and diseases, and the creation of a national system to monitor carbon sinks and sources. For instance, the roots of all the trees in the forests must be “counted”. Korovin explains that, “The roots account for about 20-25% of the tree. They participate in the processes of photosynthesis and respiration, and when they die they release carbon into the atmosphere. The problem is that traditionally in Russia only the above-ground biomass has been taken into account, while underground biomass also contributes to carbon pools.” Of course, the word “count” is not to be taken literally. The work will be carried out using a special scientific methodology. Is it realistic to carry out such an inventory? At present, a forest inventory is carried out in Russia every five years. However, it has always been concerned exclusively with timber use, and therefore the main indicators have been the numbers of growing trees and the species composition. No one has attempted to find out how many dead trees there are in the forests. Yet dead wood affects the carbon balance. Dead wood refers to both trees that have died but remain standing, and trees that have fallen over and are in various stages of decomposition. Tropical forests contain almost no dead wood, because wood decomposes very quickly in tropical conditions. But in Russia’s northern-latitude forests there is an abundance of dead wood (about 20% of the world’s total). Roots, dead trees, wind fallen trees, and decomposing wood and leaves are all organic matter, or carbon, and they should also be included in inventories. The carbon in the soil, which includes swamps and peat bogs, is also important. This is especially the case in Russia where swamps cover vast areas and can be up to several meters deep.


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[1] Based on Energy: A Gathering Storm by Philip K Verleger Jr.

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