Future oil supply: Increasing role for Saudi Arabia

ccording to the World Energy Outlook 2004 (WEO 2004), OPEC crude oil supply, which is assumed to meet the portion of global oil demand not met by non-OPEC producers, will need to increase from 28 mb/d in 2002 to 33 mb/d in 2010 and to 65 mb/d in 2030.  These projections assume that there are no major disruptions in supply and that current high oil prices will not be sustained. The strong projected growth in OPEC production – particularly in the second half of the projection period – is expected to boost OPEC’s market share significantly. In the near term, OPEC’s share, which currently stands at 36 per cent, is expected to remain roughly stable owing to rapid production increases in several non-OPEC regions, notably Russia and other transition economies. As prices return to a level closer to the average of the last two decades, incentives to raise output in non-OPEC regions are expected to diminish, increasing the call on oil from OPEC producers. The second and third decades of the projection period are expected to see more rapid growth in OPEC’s market share.  By 2030, OPEC production is expected to reach 65 mb/d, or 53 per cent of world oil supply. The WEO 2004 also expects Middle Eastern countries within OPEC to account for most of the production increase.  Of the projected 31-mb/d rise in world oil demand between 2010 and 2030, 29 mb/d is expected to come from OPEC Middle East.  This region holds about 60 per cent of the world’s proven oil reserves. Production costs there are among the lowest anywhere in the world, averaging less than $2 per barrel in the Arab Gulf countries.  Investment costs are also very low, at less than $5 000 per barrel/day of capacity.  Saudi Arabia, Iraq and Iran are expected to contribute most of the increase in Middle East production.  Among these three countries, Saudi Arabia is expected to play a vital role in the global oil-market balance.  However the WEO 2004 says that ‘its willingness and ability to make timely investments in oil-production capacity will be a major determinant of future price trends’.  Saudi Arabia has produced 9.5 mb/d in August 2004.  There are some 15 fields in production, including a large number of super-giant fields.  Seven of these have 7.25 mb/d of capacity: Ghawar, Abquiq, Shaybah, Safaniyah, Zuluf, Berri, and Marjan.  Approximately 80 per cent of Saudi capacity, are in Arab Light and Extra Light oil.  The Ghawar field – the world’s largest, contributes 5 mb/d all by itself. Almost half Ghawar’s 115 bilion barrels of reserves have already been extracted.  As the field matures, costs will undoubtedly increase and sustaining production will become more difficult. Despite the problems of ageing, however, recent work at Ghawar has reduced the water cut there from 36.5 per cent to 33 per cent and added oil and gas reserves.  Saudi Aramco, the national oil company, has estimated that the natural rate of decline at existing fields will be of the order of 6 per cent over the next five years, so that some 600 kb/d of capacity will have to be replaced each year just to maintain overall capacity over that period.  This will be achieved mostly through enhanced development of existing fields, which have been managed very conservatively over several decades in order to extend their plateau production for as long as possible.  But as these are mature fields, their production will decline slowly, and new fields will have to contribute an increasing share of production.  There has been little exploration effort in recent years and much of the country is unexplored, including the region close to the border with Iraq, the Red Sea and the Empty Quarter in the south-east.

 

At present, 70 fields, with 50 per cent of the country’s proven reserves, await development. Saudi Aramco estimates that it could raise production capacity to 12 mb/d and maintain it at that level until 2033 without finding any additional reserves. The company believes that future investments can be financed solely out of its own cash flow. Saudi Arabia plays a central role in OPEC and in balancing the world market, not only because of the size of its production but also because of its spare capacity.  In mid-2004, it was the only country in the world with an appreciable amount of sustainable capacity in reserve.  Much of this capacity is in three offshore fields – Safaniyah (with a capacity of 1 mb/d), Zuluf (200 kb/d) and Marjan (300kb/d) all of which produce medium or heavy crude oil.  Saudi Arabia is expected to remain the primary source of spare capacity.  The country’s official policy is to maintain from 1.5 to 2 mb/d of spare capacity for the foreseeable future.  Recently Saudi Aramco’s President and Chief Executive Officer Abdallah S. Jum’ah has said that Saudi Arabia could double its crude production capacity to meet growing world demand. Citing the Kingdom’s 260 billion barrels of reserves — a quarter of the world’s total — and the prospect of adding another 200 billion barrels through an aggressive exploration program, Jum’ah said that Saudi Aramco was expanding its production, processing and transport infrastructure to accommodate a 12 million b/d capacity, in the near future.

“30 yrs from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the Oil Age will come to and end not because we have a lack of oil…[Fuel cell technology] is coming before the end of the decade and will cut gasoline consumption by almost 100 per cent…On the supply side it is easy to find oil and produce it, and on the demand side there are so many new technologies, especially when it comes to automobiles.” – Sheikh Zaki Yamani, Former Oil Minister of Saudi Arabia, June 2000.

Impact of Electricity Act 2003 on Renewable Energy

 

enewable energy program in India which began in early eighties has evolved into a full fledged Industry with more than 4200 MW of installed capacity. With regard to modern wind turbines the program began with small grid connected wind turbines (55 kW) in 1985. Today India ranks 5^th in the world in terms of wind power installed capacity (3000 MW) and is the 4^th largest market. In the case of wind energy, the program has evolved under different policy frameworks. From 1985 till 1990, the projects were mostly government sponsored. However, since 1990, when the sector was opened up for private sector by allowing wheeling and banking of electricity at the state level and accelerated depreciation at the center, more than Rs 10,000 crore have been invested in this industry. On the other hand, in the mainstream power sector, since 1998, when the Central Electricity Regulatory Commission was set up in many states, many structural, legislative and institutional changes have been taking place. The Monolithic State Electricity Boards (SEB) are being unbundled into separate corporatized entities, independently responsible for generation, transmission and distribution. These entities are now being privatized. More recently, after the enactment of the Electricity Act 2003, the reforms process has picked up and these structural and legislative changes are taking place very rapidly. A new scenario is emerging. As far as wind energy is concerned, the market players are experiencing transformation. In many states, the SEBs with whom the investors used to enter into grid connect agreements and PPA, exist no more. Many of the functions of setting tariffs and formulating policies that were previously performed by the state governments have now been transferred to the SERCs. As recently as this year, the CERC declared the terms and conditions for electricity trading. Now the electricity sector is moving towards open access when perhaps instead of captive and IPPs, we will have merchant power plants. The entire scenario is changing and it will have far reaching implications for wind industry. In the emerging market, business in the power sector will be conducted in a different manner. All the stakeholders will have to gain greater insights into the new realities. For, wind energy, while the market will still be there, the models that have worked so far may not remain relevant. At the same time, new opportunities that have not existed earlier may emerge. The paper summarizes the new policy and institutional structure, the roles of different players and the change that the sector is undergoing. Broadly the changes can be categorized under institutional and operational.

 

Institutional

 

After the Electricity Act 2003, the government have been distanced from the working of the electricity sector though they do have the main say on several policy matters. While earlier the main institution used to be the SEB that under the policy direction of the state government dealt with renewable energy developers, now the main institution is the state electricity regulatory commission (SERC) that has a say on many matters that were earlier managed by the state governments. As a result the relationship of the renewable energy developer with the state government has been altered. As per the Act, the other institutions, organizations and agencies that can influence renewable energy development or operation of renewable energy projects are:

 

1. The concerned ministries of the government of India i.e., the Ministry of Power and the Ministry of Non-conventional Energy Sources. These are defined as “Appropriate Government” in the Act.

 

2. Relevant ministries of the state governments.  These are again defined as “Appropriate Government” in the Act.

 

3.   State Nodal Agencies are not specifically defined in the Act but as a wing of the State government would fall under “Appropriate Government”.

4. Central Electricity Regulatory Commission (CERC).  Deemed as Central Commission in the Act, CERC was established under section 3 of the Electricity Regulatory Commission Act., 1998.

 

5. National Load Dispatch Center has the main function of optimal scheduling and dispatch of electricity among the Regional Load Dispatch Centers. There relevance directly to renewable energy is limited at the moment but as the penetration of renewable energy connected to grid increases, issues of scheduling and grid code will become important.

 

6. Regional Load Dispatch Centers are the apex bodies at the regional level to ensure integrated operation of the power system in the concerned region. RLDC are relevant to renewable energy players where ever possibilities of interstate transmission arise.

 

7. Regional Power Committee means a committee established by resolution by the Central Government for a specified region for facilitating the integrated operation of the power systems in that region.  Again as far as renewables are concerned, in matters of interstate transmission, the committee may have a role at the regional level.

 

8. Central Electricity Authority is an apex body with the main function of advising the Central Government on the matters relating to the national electricity policy, formulation of short-term and perspective plans for development of the electricity system and co-ordination of the activities of the planning agencies for the optimal utilization of resources to subserve the interests of the national economy and to provide reliable and affordable electricity for all consumers.  Its role in policy and planning makes the CEA an immensely important and relevant organization for renewable energy players.  Part IX of the Act is dedicated to CEA and its role and functions.

 

9. Central Transmission Utility(CTU) with the primary responsibility of interstate transmission also discharges functions with regard to planning and coordination with state transmission utilities, central government, state governments, generating companies, regional power committees, CEA, licensees etc. This role is being carried out by Power Grid Corporation of India Limited. CTU like NLDC and RLDC may have relevance in aspects related to grid code and interstate transmission.

 

10. State Load Dispatch Center is an apex body at state level to ensure integrated operation of the power system in a State. It is responsible for optimum scheduling and dispatch of electricity within a State, in accordance with the contracts entered into with the licensees or the generating companies operating in that State. This was a function that was being largely discharged by the SEBs and in many states they still continue to discharge that role.

 

11. State Transmission Utility is to ensure development of an efficient, coordinated and economical system of intra-State transmission lines for smooth flow of electricity from generating stations to the load centers.

 

12. Distribution Licensee is an entity having the licence to supply electricity in a geographical area.

 

13. State Electricity Regulatory Commissions (SERC) have been in existence even before the ERC Act of 1998. Orissa Electricity Regulatory Commission is one of the examples. SERCs have central role to play in the development of electricity sector at the state level. With regard to renewable energy in grid connected mode, the SERC is the most important agency playing a pivotal role in their development through setting of tariffs, wheeling charges and transmission charges etc.

 

Operational

Renewable Energy in the Electricity Act

 

Part II Sec. 3 (1) National Electricity Policy and plan

Comment:

The primary responsibility of developing this policy rests with the Ministry of Power with inputs from the ministry of Non-conventional Energy Sources.  The plan has to be developed by the Central Electricity Authority. A draft policy has already been developed.

 

Part II Sec. 4 National policy on stand alone systems for rural areas and non-conventional energy systems

Comment:

The primary responsibility again rests with the Ministry of Power and the ministry of Non-conventional Energy Sources with inputs from State Government.

 

Part II Sec. 5 National policy on electrification and local distribution in rural areas.

Comment:

The primary responsibility again rests with the Ministry of Power and the ministry of Non-conventional Energy Sources with inputs from State Government. Though this clause is not specifically meant for Renewable energy, there are immense possibilities for renewable energy utilization.

 

Part III, Sec 9 (1) Captive Generation & Part III, Sec 9 (2)

Comment:

Most of the windfarm or grid-connected renewable energy projects in the country have been set up as captive power projects. In past the State Electricity Boards are known to have discouraged setting up of captive power projects, however, by this clause, every person will have open access for captive power projects. Moreover captive power projects are allowed to be set up not only by industry but by any person defined in the Act as– shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person.

 

Part IV, Sec 12 & Part IV, Sec 13

Comment:

In the past wind or grid-connected renewable energy project developers used to enter into an agreement with SEB for wheeling of electricity generated or for sale of electricity to the Board.  However, now either the board has been unbundled or has the status of a deemed licensee under the Act. Therefore, now the developers have to enter into an agreement with the distribution licensee or bulk consumer. In accordance with second- last clause of section 14, in certain rural areas notified by the state government, generation and supply of electricity can be exempt from the requirement of obtaining a license subject to meeting the requirements set out in Sec. 53 by CEA with regard to provisions safety in electricity supply. Many stand alone, hybrid, biomass, village hydro and even grid-connected wind and other renewable energy projects will be a possibility for such areas.

Part V, Sec 28-3(a) and 4

Comment:

These clauses and to some extent the role of CERC may assume importance in case of inter-state transmission of electricity generated by renewable energy projects.

 

Part V, Sec 32. –1, 2, 2(a)

Comment:

The role of State Load Despatch Centre in scheduling generation in accordance with the guidelines of SERC and the State grid code will assume importance as the penetration of renewable energy generation in the State grid increases.  Keeping technological developments that are taking place with regard to some of the technologies like wind turbines, perhaps certain modification in grid code would be required.

 

Part V, Sec 38. –2(c), (d)-iii

Comment:

This clause sets out the provision for non-discriminatory open access at the inter state level.  The last clause is significant for renewable energy- based captive power plants. No transmission surcharge is required to be paid by such projects.

 

Part V, Sec 39- 2

Comment:

This clause sets out the provision for non-discriminatory open access at the intra state level.  The last clause is significant for renewable energy- based captive power plants. No transmission surcharge is required to be paid by such projects.

 

Part V, Sec 40

Comment:

Same as in the case of CTU and STU

 

Part VI, Sec 42-2, 3, 4

Comment:

i) Transmission surcharge condition set out in section 42.

ii) Provision for supply through another distribution licensee and charges thereof.

 

Part VI, Sec 49 & Part VII, Sec 61,62

Comment:

On tariff determination including that for wheeling.

Sec 86 (1) The State Commission shall discharge the following functions, namely:-

 

(a) Determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State: Providing that where open access has been permitted to a category of consumers under section 42, the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers;

 

(b) Regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State;

 

(c) Facilitate intra-state transmission and wheeling of electricity;

 

(d) Issue licences to persons seeking to act as transmission licensees, distribution licensees and electricity traders with respect to their operations within the State;

               

(e) Promote congenration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence;

 

(f) Adjudicate upon the disputes between the licensees, and generating companies and to refer any dispute for arbitration;

 

(g) Levy fee for the purposes of this Act;

 

(h) Specify State Grid Code consistent with the Grid Code specified under clause (h) of sub-section (1) of section 79;

 

(i) Specify or enforce standards with respect to quality, continuity and reliability of service by licensees;

 

(j) Fix the trading margin in the intra-State trading of electricity, if considered necessary; and

 

(k) Discharge such other functions as may be assigned to it under this Act.

       (2) The State Commission shall advise the State Government on all or any of the following matters, namely:-

(i) Promotion of competition, efficiency and economy in activities of the electricity industry;

 

(ii)   Promotion of investment in electricity industry;

 

(iii) Reorganization and restructuring of electricity industry in the State;

 

(iv) Matters concerning generation, transmission, distribution and trading of electricity or any other matter referred to the State Commission by that Government.

 

   (3) The State Commission shall ensure transparency while exercising its powers and discharging its functions.

 

   (4) In discharge of its functions the State Commission shall be guided by the National Electricity Policy, National Electricity Plan and tariff policy published under section 3.

 

Comment: Central role of SERC that it drives from Sec 86

 

Conclusions

 

It is obvious now that the role of the State Government is diminished. The State government can no longer set the tariff. Similarly it can no longer allow banking of electricity and neither can it set the wheeling charges. These areas are now addressed by the SERCs. It is important for renewable energy players to realize the change that has taken place in the institutional structures, in operational matters and in the policy environment.

 

Some of the key issues that have concerned renewable energy developers are:

 

National Electricity Policy and tariff policy: The primary responsibility of coming up with these policies is that of the Ministry of Power.  For inputs on renewable energy, it would depend on the Ministry of Non-Conventional Energy Sources. The policies will be modified from time to time.  At the time of policy formulation, the renewable industry should work with the government to come up with a policy that addresses many of their concerns.

 

National Electricity Plan: The primary responsibility of coming up with the National Electricity Plan is that of Central Electricity Authority. The Plan will be developed keeping in view the National Electricity Policy. The Draft Plan will be published by CEA and will be finally notified.  The renewable energy industry should provide its inputs in the exercise of development of the plan by CEA.

 

State Electricity Board: State Electricity Board if it still exists in the state is a deemed distribution or transmission licensee and has to operate in accordance with the provisions of the Electricity Act 2003 or the orders and notification of the SERC.

 

Distribution licensee: Increasingly, renewable energy project developers will have to do business with distribution licensees for wheeling or sale of electricity in accordance with SERC orders, notification and guidelines.

 

Bulk Consumer: With the progress in open access, the renewable energy project developers will also have to directly deal with Bulk Consumers, franchisees, cooperatives, associations, industrial parks etc.

 

Setting of Tariffs: Tariffs are to be set by State Electricity Regulatory Commissions keeping in view the policy and the directions in the Electricity Act 2003. All the SERCs follow a consultative process, therefore, the renewable energy industry should provide its inputs to SERCs while they are in the process of ascertaining various facts and setting the tariffs.

 

Wheeling Charges: Wheeling charges also have to be set by SERCs and again the renewable project developers should be interacting with SERC or if necessary CERC (in case of interstate transmission).

 

Banking Charges: With open access, banking of electricity as a provision in policy becomes irrelevant as the project developers including captive project developers can directly negotiate agreements with distribution licensees or bulk consumers issues related to banking of electricity or surplus electricity in case of captive power plants.

 

Renewable Energy Portfolio Standard: The SERCs can come up with a provision for the licensees to source at least a certain percentage of their electricity consumption from renewable energy sources.

 

Long term PPA: Though all developers would like to have the comfort of long term tariff policy or a long term PPA, however, it would be difficult for a regulator to have a tariff policy for more than 5 years due to the very dynamic nature of the sector. On the other hand, possibility of open access always provides many windows to the developer to firm up agreements.

 

 

India’s Reforms in the Hydrocarbon Sector

What Has Been Accomplished?

What Remains to be Done?-V

 

……continued from issue 47

 

he growing consumption of middle distillates and its increasing share in the petroleum product consumption profile were behind this early policy recommendation of making a ‘dash for gas’. During the Sixth Plan, consumption of petroleum products grew at the rate of 5.3 per cent. In the Seventh Plan, it was expected to grow at the rate of 6.4 per cent, reaching about 53 million tonnes in 1989-90. The consumption of middle distillates was growing at the rate of 6.6 per cent in the Sixth Plan and this was expected to increase to 6.8 per cent in the Seventh Plan. 

 

In that light the Seventh Plan document drew attention to the fact that skewed growth – in favour of middle distillates – was not compatible with the refining capabilities. The document recommended that efficient use of petroleum products in transport trucks could save 10 per cent to 25 per cent oil, and the use of efficient kerosene lamps would save about 15 - 40 per cent oil. It also recommended that regular and stable supply of electricity would check the increase in use of diesel-operated irrigation pump sets and captive power generation units in the long run.  However the early and timely recommendations of increasing the use of gas or improving efficiency in transportation, lighting and irrigation to reduce the use of oil were not implemented seriously. 

 

During the Fifth ad the Sixth plan periods, refining capacity did not grow with increase in product demand.  Refining capacity at the end of the Sixth Plan was about 45.55 million tonnes whereas the demand for petroleum products by the end of the Seventh Plan will be 52.67 million tonnes. In order to bridge the gap between the demand and supply of petroleum products, a number of de-bottle-necking and refinery expansion projects were taken up during the Plan period which were to add refining capacity of 8.50 million tonnes.  The refining capacity at the end of the seventh pan period was expected to be 54.05 million tonnes.  From a negligible amount in 1970s, product imports grew to around 12 million tonnes per annum in the early 1990s. 

 

This development was not completely unanticipated by the planners.  The Seventh Plan Document noted that if rate of growth of consumption of middle distillates were to continue at the prevailing rate, India would require three to four new refineries in every five year plan period in order to be self-sufficient in refining capacity.

 

The consumption of LPG during 1984-85 was 0.95 million tonnes. The total availability of LPG was to increase to 2.54 million tonnes by the end of the Seventh Plan with the commissioning of Barauni Coker, Hazira LPG, Uran Phase-ll, refinery expansions at CRL, BPCL, HPCL Visakh and MRL, Ankleshwar project, Hazira gas sweetening plant and fractionation plants in Madhya Pradesh, Rajasthan and Uttar Pradesh along H-B-J pipeline. The plan proposed to cover extensively the sub-urban and rural areas in the Seventh Plan. Use of surplus LPG in urban transport was also recommended.

 

1947-1990: What was achieved?

1947-1969: State Consolidation with Soviet Assistance

 

"The oil industry of India is your (Russia’s) child- you created it,…the British had been telling India for 150 years that it had no oil, but then you (Russia) helped India find oil and build its production from zero to 33 million tonnes a year….yesterday we were your baby and you were our Mom. Now we have grown up and become your sister and partner,"

 

The quoted words of Mani Shankar Aiyer, India’s Petroleum Minister at a road show of Indian upstream prospects in Moscow early this year summarise the role of the former Soviet Union in building India’s oil & gas industry.  In 1947, the newly independent India was eager to consolidate its hold over the oil & gas industry which, until then, was dominated by a few Anglo-American companies. The industry policy resolution of 1948 and 1956 clearly stated the government’s aspiration and future plans for core industries like petroleum with all future development reserved for public sector undertakings. But foreign assistance was necessary, at least in the early stage. As collaboration with Anglo-American oil majors were ruled out, other alternatives were explored. The government considered a few options such as seeking assistance from Soviet Union - a super power in those days; collaborating with a small country like Rumania; government to government co-operation with other small but neutral countries like Austria which had developed sufficient technical expertise in petroleum industry by that time as well as trying to develop the industry through its own technicians with only technology brought from outside. Though co-operation with a small but neutral power like Austria was thought the best option, it was the Soviet alternative that succeeded probably because it was Soviet collaboration that led to major oil discoveries in India or because the role of the former Soviet Union was significant even in other segments in India.  Even in the downstream segment the Soviet role was significant.  However, their influence diminished over the years. 

 

In the upstream sector the key achievement was that of investing in upstream exploration and succeeding in making discoveries at a time when the prevailing view was that India was an unattractive hydrocarbon prospect. On the downstream segment, there was substantial capacity addition that the quantum of imports of petroleum products declined steadily over the twenty year period from 1952 to 1971.  In 1952 out of a total consumption of 3.89 million tonnes of products 3.51 million tonnes were imported.  In 1961 product imports declined to 30 per cent of consumption of 8.4 million tonnes.  In 1972, product imports of 3.2 million tonnes constituted 14.4 per cent of total consumption.  The quantity of imported crude also declined from 90.7 per cent in 1955 to 70 per cent in 1965 and remained at around 62 per cent during the period 1966-72.   On the other hand, the recommendation for increasing the role of gas was not implemented whole heartedly – at least not in the commercial sense.  Subsidising the use of gas in the fertilizer and power industries both of which were closed and protected limited the commercial ability of gas to compete in the mainstream.  The ‘dash for gas’ in the UK and other developed countries succeeded because they were based on building domestic infrastructure for gas distribution first.  If Indian policy for increasing the use of gas was similar, today India may have been in a better bargaining position to take advantage of the gas supply options that are emerging. 

 

1970-1990: Era of Regulation & Control

 

In his book on the evolution of economic policy in India, noted economist P N Dhar comments that ‘policies in India are revised and changed only when the country is overtaken by a crisis’.  With oil price throwing up the crisis situation, change in policy on the oil & gas industry was inevitable in the 1970s.   Nationalization of the refining and marketing sector was India’s policy response to the oil crisis in 1976.  India also introduced regulatory controls on production, imports, distribution and pricing of crude oil and petroleum products. The Oil Coordination Committee was formed to act as a regulatory body in this regard. In 1976 (end of the Fifth Plan period), Oil Pricing Committee (OPC) recommended the discontinuance of import parity principle as it did not expect a major shortfall ‘with about 90 per cent of the total demand of POL products being met by indigenous production’.  In addition it argued that prices of finished products and crude oil did not necessarily move in tandem and import parity did not take into account inter refinery differences in terms of product pattern, type of crude used, location and scale differences.  The OPC therefore suggested that the domestic cost of production should be the determining factor for pricing of petroleum products.  The Administered Price Mechanism (APM) which was implemented in 1977 followed these recommendations.  By 1977 all foreign oil companies in the downstream sector were acquired by the Government of India, so that APM could be implemented smoothly. The Ministry of Petroleum & Natural Gas, through Oil Coordination Committee administered the Scheme. APM’s stated objectives were anything but commercial as can be in the Table below. 

 

               

Another restrictive measure adopted in the late 1980s was the plan to ‘promote orderly growth in the oil Industries’ by controlling the market share of oil companies through sales plan entitlement (SPE). The market share of each company was predetermined by the Government as per the SPE formula & if the share exceeded the given limit, a penalty that required surrendering of margins was imposed. Product wise SPE was worked out on the basis of the SPE of the previous year.  The Administered Pricing Mechanism ensured fixed 12 per cent post-tax return on net worth deployed for refining, distribution and marketing of petroleum products. Also, petroleum product prices were maintained at an even level throughout the country by balancing various subsidies through a number of pool accounts.

 

With the key objective of providing basic necessities to the economically weaker sections of the society at affordable rates, the Administered Pricing Mechanism subsidized prices for products like kerosene and LPG by correspondingly charging higher prices for other products like gasoline and aviation fuel. Diesel prices were kept neutral. 

 

Team Energy ORF

 

 

NEWS BRIEF

OIL & GAS

Cairn Energy to invest in oil drilling

 

May 21, 2005. The UK-based Cairn Energy, with a 100 per cent success ratio in drilling for oil in India, would invest US$1.3 billion in its Mangala and Ashwariya fields to produce 1,25,000 barrels of oil per day from 2007. Last year, however, the state-owned Oil and Natural Gas Corporation (ONGC) found that nine of the 10 blocks dug were dry. Cairn plans to drill over 300 wells over the next two years to start production from mid-August, 2007. The days of light crude oil were over and heavier crude was being discovered in the world except for these regions, which were largely unexplored. So far, 71 wells have been drilled in exploration blocks since 2000 when the first tranche of blocks were offered under the new exploration and licensing policy. Out of these, 37 wells have been successful in terms of striking hydrocarbons translating into a 50 per cent success ratio. Twenty three discoveries have been notified by companies like Cairn Energy, Niko Resources, Gujarat State Petroleum Corporation and Reliance Industries. The government has awarded 90 blocks under four rounds of NELP of which 79 blocks are active. Exploration activities are in full swing in all the blocks barring the six blocks where drilling activities have come to standstill as environmental clearances in these blocks for drilling is awaited. Companies were likely to line up US$8 billion investment for carrying out exploration works in blocks awarded during the four rounds. Another 20 blocks have been put on offer under the fifth round of bidding, which closes on May 31, 2005. The government would be going in for opening more acreages for exploration, which means companies would be allowed to chose the blocks they would want to bid for.

 

Reliance to hasten Krishna-Godavari gas

 

May 20, 2005. The directorate-general of hydrocarbons has asked Reliance Industries to advance the date of production of gas from the Krishna-Godavari basin to August 2007 instead of 2008 as indicated by the company. Reliance has submitted that its fourth discovery in Krishna-Godavari basin off Andhra Pradesh coast be declared commercial. It had earlier declared three gas finds in the basin and had now submitted to the government that the Dhirubhai-6 field be declared commercial. The company estimates 46 billion cubic metres or 1.2 trillion cubic feet of gas reserves in the Dhirubhai-6 field. The company also plans to produce 40 million standard cubic metres per day of gas from the Dhirubhai-1 and 3 fields. Reliance would invest US$2.47 billion in developing Dhirubhai-1 and 3 fields. Reliance's Dhirubhai 2 discovery has been declared commercial. The development plan for two deep-water discoveries of Reliance Dhirubhai 1 and Dhirubhai 3 has already been approved and production is expected to begin in mid-2008. Reliance holds two deep-water blocks in the Krishna-Godavari basin off the Andhra Pradesh coast of which Block KG-DWN 98/3 has reported discoveries. 

 

ONGC's marginal fields in demand

 

May 19, 2005. ONGC’s marginal fields which have been put on the block have evoked a new stir in the oil industry. Reliance, BPCL, Prize Petroleum to foreign firms like Quad Energy from Canada are in the race for the blocks. The bids are slated to close by May end. Interestingly, Reliance Industries which struck gas in the KG basin in 2002 has shown interest in these blocks and has bought bid documents for all the nine blocks. Similar interest has been shown by Quad Energy, which is set to make a debut if it manages to win the bid. Prize Petroleum, the joint venture exploration company of HPCL and Prize Petroleum is close on the heels having bought documents for eight blocks. The decision to put the marginal fields on the block is part of the open acreage system being mooted by the government. According to this, India would, from time to time, put some of its existing fields on the block to draw investments from global players into the exploration business. At least 16 oil companies have bought 66 bid documents. Companies from countries, including Malaysia, Canada,the UK, the USA have evinced interest. ONGC has offered stakes in five deepsea blocks, three in Krishna Godavari basin, one in Kerala Konkan offshore and one in Gujarat Kutch offshore, at the roadshows being organised to promote NELP blocks. The terms of the lease contracts for these fields have it that the successful bidders would get into a service contract with ONGC for development and production activities in these fields. But none of these operating companies would, however, get the marketing rights for the crude or gas. The gas would have to be given to ONGC which would buy it at mutually contracted prices. 

 

OVL bids for Encana’s oilfields

 

May 18, 2005. ONGC Videsh has bid US$1.4 billion for acquiring Canadian firm Encana’s stake in a cluster of oilfields in Ecuador. OVL made the revised bid for Encana’s stake in the Amazon blocks 14, 17 and Tarapoa, with combined output of 66,891 barrels of oil per day. The Indian firm is pitted against Chinese majors for buying out the Canadian firm’s interest in Ecuador. In the first round of bidding, OVL had bid a little lower than the Chinese bid of 1.2 billion dollars. OVL has operations in 12 countries, including Vietnam, Russia, Sudan, Iran, Iraq, Libya, Myanmar, Australia, Ivory Coast, Egypt, Syria and Qatar, and has the backing of the oil ministry, which wants the company to spend at least US$1 billion a year to acquire foreign operations. If successful, Encana would be OVL’s second biggest acquisition ever after the coup of sorts few years ago when it got 20 per cent stake in the Sakhalin-I oil and gas fields in Russia for US$1.7 billion. Encana’s interest in Ecuador comprise of five discovered fields and two fields under exploration. Since shipping of crude from Ecuador to India may not be economically viable, OVL would swap it for locations nearer to it. Encana also owns a 36.26 per cent stake in a new 4,50,000 bpd heavy crude pipeline from the Amazon oil blocks to the Pacific coast. OVL has shown a long-term interest in the South American country and has offered to buy a stake directly or with others in oil concessions controlled by the government there. ONGC is seeking overseas petroleum assets as its domestic output has declined and no large fields have been discovered recently in India, which imports 70 per cent of its crude oil requirements. Encana also owns a 40 per cent stake in oil block 15, operated by Occidental Petroleum Corp.

 

Venezuela steps into Indian oil sector

 

May 18, 2005. The agreement that was signed between Oil India Limited and Petroleos de Venezuela (PDVSA), Intevep, Venezuela for pilot exploitation of extra heavy/heavy oil in Baghewala in Bikaner district of Rajasthan will lead to the first exploration project from mid-August, 2005. The technology developed by Intevep is used to reduce the viscosity of the extracted crude.

ONGC eyes stake in Tide Water Oil

 

May 24, 2005. The public sector major, ONGC, is eyeing a controlling 42 per cent stake in Tide Water Oil (TWOC). TWOC, which markets lubricants under “Veedol” and “Nippon Mitsubishi” brands, commands a 10 per cent market share in the bazaar segment. Its overall market share, including industrial segment, is around 4 per cent. ONGC's interest in TWOC conforms to its strategy of entering the lube oil business and thereby, complete its vision in the overall hydrocarbon value chain. ONGC marked its foray in oil retailing by opening its first retail outlet in Mangalore a few months back.

 

BPCL launches eco-friendly diesel

 

May 23, 2005. BPCL is marketing ‘Hi-Speed Diesel' in an effort towards providing value-added service to customers in Madurai. The diesel has already been introduced in Mumbai, Delhi, Chennai, Kolkata, Bangalore, and Hyderabad. It works on the patented greenburn combustion technology and contains special cleansing additives sourced from Afton Chemical Corporation, US. The diesel would clean the engine as the vehicle is driven, by cleaning the fuel injectors blocked with harmful deposits, and prevent the formation of new deposits.

 

Essar Oil to set up 5,000 fuel outlets by 2008

 

May 18, 2005. Essar Oil Ltd is targeting to open 5,000 petrol pumps by 2008. This is in addition to the 502 outlets already commissioned by Essar Oil across the country. Essar Oil has also decided to give emphasis on the franchisee model in setting up retail outlets rather than the company-owned-company-operated. Essar is the first private sector company in India to set up retail outlets in over 100 years.

ONGC may raise US$3 bn to fund global buys

 

May 24, 2005. ONGC, the US$10 bn petroleum major is in talks with leading foreign banks to raise debt worth around US$3bn (around Rs 13,000 crore) to part-fund its overseas acquisitions. This could easily be the single-largest commercial borrowing by any corporate entity in recent times. ONGC's overseas investment arm OVL, which has already committed investments of around US$4bn, is hoping to pick up oil equity stakes in a few blocks in Latin America, Africa, Russia, Kazakhstan among others. ONGC had conducted initial talks with banks like Citigroup, Deutsche Bank and Mizohu Bank of Japan. The company is looking at a total fund requirement of around US$6 bn, at the high end, in the near-term. While a part of this would be raised through debts, the balance US$3-4 bn would be generated internally. Borrowing in dollars for overseas ventures makes sense as the income from such projects will also be in foreign exchange. This is encouraged by the Reserve Bank of India’s foreign commercial borrowing policy too.

 

Pay more for extra gas: Iran 

 

May 18, 2005. Iran is seeking a higher price from India for liquefied natural gas (LNG) supplies over and above the 5 million tonnes per annum (mtpa) that it will supply. Government said India’s proposal to source an additional 2.5 mtpa LNG from Iran at the contracted price of US$3.22 per million btu was turned down by the Iranian authorities during the recent visit of the Indian task force to Tehran. This is despite an assurance given by the Iranian oil minister, during his visit to India in January, on giving additional quantities (beyond 5 mtpa) at the agreed price (F.O.B price). However, the two sides have finalised the term sheet for the supply of 5 mtpa of LNG to India, starting 2009. LNG supplies to India will be from Block 12 of South Pars field, without extraction of C2 (ethane) content. It has been agreed that in case of delay or interruptions, LNG supplies would be between 5-6 per cent in terms of C2 content.

Oil Ministry for hike in petrol and diesel

 

May 23, 2005. The Petroleum Ministry has sought an increase of Rs 2.50 per litre in petrol and Rs 1.30 per litre in diesel prices in line with hike in tax rates announced in Budget and asked oil firms bear the impact of surge in global oil prices. The Ministry has demanded that the increased incidence of excise duty on petrol and diesel, the hike in road cess and the marginal cost of supplying cleaner fuel be passed on to consumers while the oil companies will bear the rise in cost due to spike in international prices. The hike in excise duty and road cess warrant a Rs 2.20 per litre increase in petrol and Rs 1.06 a litre rise in diesel prices. Additionally, the cost of supplying cleaner fuel from April 1 came to Rs 0.30 per litre for petrol and Rs 0.24 a litre for diesel. The oil companies will have to take on themselves the Rs 0.37 per litre increase necessitated in petrol prices due to the surge in international oil prices and Rs 2.43 a litre on diesel. Separately, the ministry has sought Rs 20 per cylinder hike in LPG and Rs 3 per litre increase in kerosene prices to cut the Rs 81.93 per cylinder loss on LPG and Rs 10.31 a litre loss on kerosene sale. Petrol and diesel prices have remained unchanged since November 2004 despite a US$10 a barrel increase in crude oil prices. Kerosene prices have remained unchanged for over three years now while LPG prices were last revised in mid-2004.

 

CNG prices set to rise

 

May 23, 2005. The government is planning to increase the price of natural gas supplied for city transportation and to small industry. While the price of compressed natural gas (CNG) is planned to be linked to diesel prices, the price of gas for the small-scale sector would be progressively increased to reflect market prices. CNG prices in Delhi are about 48 per cent less than diesel prices and about 31 per cent of petrol prices. According to a proposal drawn by the petroleum and natural gas ministry, CNG prices should be linked to diesel prices and pegged at about 15-20 per cent less than diesel prices. The ministry has proposed that CNG prices may be increased in a phased manner over a period of three to five years. After meeting the requirement of gas for the transport sector in Delhi and other air-polluted cities in India, the balance gas was to be supplied to industries, with preference given to public sector undertakings and power projects. 

 

ONGC subsidy for private gas may stop

 

May 23, 2005. In what could put an end to Oil and Natural Gas Corporation bearing the brunt of cross-subsidisation, the group of ministers on gas pricing has decided that the public sector oil giant should not be made to subsidise the higher cost of gas produced from private fields. The cost of natural gas produced from private sector fields has increased by 30 per cent. Gas from joint venture and private parties as well as regasified LNG imported from Qatar is being supplied at market-determined prices to users. ONGC, on the other side, bears a under recovery of about Rs 3,000 crore (Rs 30 billion) annually due to the difference in the present producer price and its cost of production. ONGC and OIL get one-third of the price private operators get for their gas. The public sector companies sell gas produced by them from nominated blocks operators at US$1.37 per million British thermal unit (Rs 2,372 per million standard cubic metre) as against private fields which are paid in the range of US$3.30 MBTU (Rs 5,723/mscm) to US$3.86 mmbtu (Rs 6,694/mscm). The total availability of gas from nominated fields is about 55 mmscmd though the total allocation to power and fertiliser sectors is 84 mmscmd. This shortfall is made up by public sector Gail by supplying gas from the private fields.

 

 

Pak army to man Iran-India gas pipeline 

 

May 23, 2005. Pakistani armed forces may be given a contract for the security of the 760-km stretch of the Iran-India gas pipeline transiting through Pakistan for an annual fee of US$100 million. The fee would be in addition to the transit fee Islamabad would earn for allowing the US$4.16 billion pipeline to pass through its territory.

 

Oil products may attract VAT 

 

May 23, 2005. Petroleum products may attract value added tax (Vat) from next fiscal as is implicitly recommended by mid-term appraisal(MTA) of the 10th Plan. MTA, approved by the Cabinet on May 19, pointed out that many goods have been kept out of Vat, including petroleum products, which are basic to manufacturing and transport. The report will now be put before the National Development Council (NCD) for approval.

 

Oil prices may fall in 2006-07 

 

May 22, 2005. Oil prices will trade in a range between US$30 and 40 per barrel in the medium- term, during 2006-07, the European Bank for Reconstruction and Development (EBRD) forecast. It is due to significant new supplies coming on stream, resulting in a rebalancing of supply and demand levels across the oil sector.

 

Reliance ends rebate to PSUs

 

May 20, 2005. Reliance Industries Ltd has stopped the discount it offered on diesel and petrol sold to oil firms. The country's only private sector refiner was offering a 40 per cent discount on the difference between import and export parity prices to oil marketing companies like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum. The discount worked out to around Rs 700 a kilolitre. Effective April 1, the discount has been withdrawn. IndianOil will buy 500,000 tonnes of diesel and 11,000 tonnes of petrol from Reliance during the first quarter of the current financial year for which it would be paying Rs 1,537 a kilolitre more than the export price. IndianOil had entered into a five-year marketing arrangement with Reliance last year to source petrol and diesel for its retail outlets.

 

The oil marketing companies pay to refineries the import parity price, which is also termed as the refinery gate price. The import parity price is higher than the export parity price since international petroleum product prices are on the rise. Since the retail prices have not been revised since November, companies are selling at a lower price. The oil marketing companies last year bought four million tonnes of fuel from the 33-million-tonne Reliance refinery in Jamnagar, Gujarat. In the case of integrated oil companies, the loss on selling at a lower price from retail outlets is made up by the high refinery gate price.

 

Govt mulls linking petro prices to export parity 

 

May 20, 2005. In order to check the existing price distortions, the petroleum ministry is exploring options to shift away from the import-parity pricing of petroleum products. With exports of petroleum products growing by almost 1,400 per cent in the last four years, a potential pricing option being explored is to shift to a policy, which encourages exports. Although import-parity principle is beneficial to the refiners as it provides them international prices, the same is not the case with the oil marketing companies since retail selling prices of major products are not market determined, resulting in huge under-recoveries. Moreover, import-parity coupled with duty protection makes export of products unattractive compared to domestic sales. Ideally, exports will be encouraged, if the price prevalent in the domestic market is export parity price. However, as part of a gradual movement to this mechanism, pricing based on the average of the import and export parity prices can be considered for a suitable period. Even the Planning Commission in its mid-term appraisal of the sector has criticised the current pricing methodology based on import parity, which provides higher margins to the refiners thereby resulting in large profits. It, too, has proposed shifting to a mechanism based on trade parity. The ministry has, however, said for the new policy to be effective, a revival of the price band mechanism is required. Such a mechanism permits the oil companies to undertake autonomous adjustments in prices of products within a band of plus-minus 10 per cent of the mean rolling average C&F prices of the last 12 months and the last quarter.

 

Decision on Iran-India gas pipeline by year-end: Aziz

 

May 20, 2005. Pakistan Prime Minister Shaukat Aziz has said that a final decision will be taken by Dec 31 on the gas pipeline project from Iran to India passing through Pakistan. He said Pakistan was weighing three options to import gas from Iran, Turkmenistan or Qatar. Aziz further said that Indian Petroleum Minister Mani Shankar Aiyar would be arriving in Pakistan in June for holding talks on the gas pipeline project. The general feeling in Pakistan is that the gas pipeline project should be okayed, since it would help in generating employment opportunities in Pakistan, besides offering other inherent benefits.

 

Oil hunt: India, China to join hands 

 

May 19, 2005. The ministry of petroleum and natural gas is giving final touches to a strategy paper on India-China cooperation in the hydrocarbon sector. The essence of this paper is to encourage cooperation in place of competition between the two sides. With India and China being principal importing countries, both are pursuing similar policies and strategies at home and abroad to enhance their energy security over the next 20-30 years. However, competition between the two for acquiring same oil and gas fields abroad is leading to higher prices being demanded by owners of these properties. Therefore, in order to maximise returns from the efforts being made by them separately at home and abroad, the two countries should pool their resources to ensure assured supplies at reasonable prices. It is proposed that Indian and Chinese companies could pre-determine between them the oil and gas blocks in which they are interested in a specific country to avoid competing with each other to the extent possible. Co-operation in this area would also include sharing of information and assessments relating to specific blocks on offer. As both the countries are pursuing transnational pipeline projects, the possibilities of pipelines linking them should be explored. While India is looking at pipelines from Iran, Central Asia and Myanmar, China too has been examining the possibility of pipelines reaching its industrial centres from Russia and Central Asia.

 

High oil prices may hit GDP growth

 

May 18, 2005. Crude oil price of US$50 a barrel in the global market would pull down India’s GDP growth by 0.4 per cent and push up inflation by 1.5 per cent. The cumulative impact of a double-digit oil price increase in 2005-06, on top of a 14.9 per cent rise in 2004-05, will be felt the most by the manufacturing sector, especially chemicals, transport equipment, textile products, basic metal and non-metallic minerals, reveals a study by FICCI. With 70 per cent of country’s crude oil requirement being met by foreign sources, FICCI estimates that if oil prices go up to US$80 per barrel for a full year, it would pull down GDP by 4.9 per cent and raise the wholesale price index by 7.9 per cent.

 

Even a study by the Asian Development Bank (ADB) last year had pointed out that US$50 a barrel price would reduce India’s GDP growth rate by 1.5 per cent in 2005. International Energy Agency (IEA) had estimated that every US$10 increase in oil prices per barrel would reduce India’s GDP growth by 1 per cent. That is, an increase of global oil prices from US$38 per barrel in 2004 to US$50 a barrel in 2005 would push down India’s GDP growth by around 1.2 per cent. FICCI estimates India and China had the lowest oil intensity across the most major developing and developed countries. The figure is based on GDP calculated on purchasing power parity basis. Oil intensity of the Indian economy has slowed down from 0.05 in 1999 to 0.04 in 2004. This is the same trend as in China, which was identified as another major country with the lowest oil intensity.

POWER

12 States heading for power crisis

 

May 23, 2005. Even as Maharashtra is grappling with an acute power crisis, the situation is in no way better in 11 other States with the temperature soaring to above 42 degrees in various parts of the country this summer. An Assocham (Associated Chambers of Commerce and Industry of India) Eco Pulse Survey has revealed that Apart from Maharashtra, states including Gujarat, Uttar Pradesh, Haryana, Madhya Pradesh, Bihar and Meghalaya are in the grip of power shortages. In particular, the energy deficit in Madhya Pradesh, Gujarat and Haryana ranged from seven per cent to 25 per cent in April 2005, not only adversely impacting industrial production and agriculture but also making life difficult for the common man. As for some of the other states, Madhya Pradesh requires 3,003 million units (MUs) but has only 2,250 MUs, which works out to a deficit of 25 per cent. The situation is no better in Gujarat where the power shortage is 12.7 per cent as the availability is only 4,766 MUs against the need for 5,459 MUs, as per the data for April this year. In Uttar Pradesh, the deficit is much higher at almost 18 per cent with the power shortage being well over 800 MUs.

 

The survey revealed that the highly industrialised western region was the worst hit in terms of energy deficit at 16.7 per cent in April.  In the northern region, the situation is slightly better as the worst-hit State of U.P. faced a deficit of 7.9 per cent with the demand-supply gap of 1,108 MUs. Delhi, Himachal Pradesh and Rajasthan are better off till now while Jammu & Kashmir, Haryana and Punjab are badly hit. In the eastern region, while the overall energy deficit was only 4.4 per cent, Bihar was the worst affected State with a deficit of 19 per cent. For the country as a whole, the southern region was in the best situation with a mere 0.8 per cent deficit, while Andhra Pradesh, Karnataka, Kerala and Tamil Nadu faced shortages of less than one per cent.

 

3 firms in race for UP power project

 

May 18, 2005. Three power companies are left in the race for the 1,000-MW Anpara C thermal power project in Uttar Pradesh. The companies are Reliance Energy Generation Ltd, Essar Power Ltd, and Lanco Kundapalli Power Pvt Ltd. The process of awarding the contract is likely to be finalised by September. To find a private entrepreneur, the UP Power Generation Corporation Ltd had floated global tenders in November 2004. The last date for buying the “request-for-proposal” documents, costing Rs 10 lakh, was May 10, and only three companies turned up. The bidders will now be required to submit the technical bid documents and the process will be through in 150 days. 

AP to restore Circuit towers

 

May 23, 2005. The Transmission Corporation of Andhra Pradesh Ltd (APTransco) has taken up the restoration of seven double circuit towers of 220 KV Kothagudem Thermal Power Station (KTPS). Heavy gales had felled these towers early this month, causing loss of generation in the range of 600 MW to 1,600 MW. The restoration works on the towers were expected to be completed in four days. Another tower of KTPS-Miryalaguda, also collapsed on May 9, had been rectified. It said the demand for power shot up in the State due to increased demand from the agricultural sector. Soaring mercury levels also called for more power. On May 20, Transco supplied 143.5 million units as against 119.7 MU in the previous year, a growth of 20 per cent. To tide over the shortage, Transco tied up with Power Trading Corporation (PTC) for supply of 200 MW from other States.

 

Decks cleared for WBSEB restructuring 

 

May 23, 2005. West Bengal State Electricity Board (WBSEB) has evolved a computerised billing system for its 46 lakh consumers and embarked on a huge rural electrification drive. Yet, the fact remains that the Board sits on an accumulated deficit of over Rs 5,000 crore (Rs 50 billion). The deck is now clear for restructuring of the WBSEB, one of the four state-run power utilities. Strengthening of the WBSEB is high on the government’s agenda. Durgapur Projects Ltd (DPL), another state-owned utility incorporated in 1961, consisting of coke-oven batteries, a by-products plant, a gas-grid project, a thermal power plant and water works, is also in the list of 29 units to be chosen for the second phase of restructuring. The state government recently submitted a concept note seeking Rs 1,700 crore (Rs 17 billion) over two years, starting 2005, to the Centre.

 

Meanwhile, the Board is high on its customer-care plan. All terminals are being linked through a local area network (LAN). This plan covers about 80-100 cash collection centres throughout the state. It has also drawn up a Rs 550 crore (Rs 5.5 billion) plan for rural electrification, in line with the Centre’s aim to reach power to all villages by 2007, and to all households by 2012. The WBSEB’s plan will cover all non-electrified villages and mouzas (sub-blocks). The target is to electrify 6,500 such mouzas by 2006-07.

 

NTPC arm’s taking over Mescom delayed

 

May 19, 2005. The proposal of the NTPC Electricity Supply Company Ltd(NESCL) to assume control over the Mangalore circle in Karnataka has tripped for want of clearance from the State Cabinet. Under the original proposal, the tentative date for NESCL to assume control over the Mangalore Electricity Supply Company (Mescom) was to have taken place in April itself. The proposal is subject to ratification by the State Cabinet. However, the State Cabinet is yet to take up the proposal, although the first deadline has long lapsed.

 

Rajasthan to lower T&D losses

 

May 19, 2005. Rajasthan State Power Corporation has undertaken a plan to reduce transport and distribution losses from 41 to 20 per cent by the feeder renovation programme (FRP) by 2009. The World Bank had okayed the FRP and assured of continuous financial assistance, which was approved at Rs 850 crore (Rs 8.5 billion). Besides, the state government had made a budgetary plan of Rs 600 crore (Rs 6 billion) for the FRP in the current financial year, adding so far 18 feeders were renovated and 1,000 more were planned in the current financial year. For renovating 8,500 feeders, a sum of Rs 4,500 crore (Rs 45 billion) would be required for which World Bank had assured to continue its financial assistance. The renovation of feeders would directly reduce power theft by illegal consumers, provide uninterrupted power supply to farmers near their farms, while minimising distribution losses.

 

Power theft, a big drain on KSEB

 

May 19, 2005. The Kerala State Electricity Board (KSEB) expects an earning of Rs 200 crores (Rs 2 billion) this fiscal by tracking down power thefts by some of the major industries in the State. The Anti-Power Theft Squad conducted 10,287 inspections and detected 366 cases of power theft and 2,417 cases of other irregularities during the last one year and slapped a bill of Rs40.04 crores (Rs 400.4 million) on the offenders. From February to April this year, 3,128 inspections were conducted and 190 theft cases and 778 other cases of irregularities detected. The KSEB sent assessment for theft of power bill to these units for an amount of Rs22.61 crores (Rs 226.1 million) and realised Rs8.11 crores (Rs 81.1 million). In Palakkad district alone 22 industrial units were booked for power theft and their power connections severed. Steel rerolling mills in the Kanjikode industrial belt in Palakkad topped the list followed by industries based in Kozhikode and Kochi. The power connection to all these companies had been disconnected but resumed after they paid one-third of the total assessed amount. The units pilfered power not only to save the electricity bill but also to evade Central and State taxes such as excise tax, sales tax, income tax, etc. The production is assessed on the basis of power consumption. Some units use more than one lakh units of power a day. Now these companies invented new methods of pilferage. This is a new challenge for the KSEB. In some cases they use remote control devices. In others, they open the meter, put the device inside and close it with duplicate seal.

New tariff policy for higher returns to discoms 

 

May 23, 2005. The ministry of power has modified the power tariff policy to incorporate a series of important changes dealing with rate of return (RoR) on investment in distribution, depreciation rates, operating norms and competitive procurement of power. The final draft of the policy was circulated in mid-May to states and electricity regulatory commissions for comments. While investments in transmission and distribution businesses were earlier allowed similar return on equity, the revised policy clarifies that since distribution involves higher risks, a higher return on equity should be allowed there as compared to generation or transmission. The quantum of return will, however, be fixed by the regulator. The ministry’s Cabinet note on the revised policy also clarifies that depreciation rates for distribution companies will not be fixed strictly by the central regulator (CERC). While the state regulators (SERCs) would adopt depreciation rates notified by the central regulator, they can make appropriate modifications “as evolved by the Forum of Regulators.” A number of states had suggested that determining the rate of depreciation is within the jurisdiction of SERCs and that the rate of transmission should not be a benchmark for fixing depreciation rates for distribution. At the same time, the ministry has, however, refused to modify the provision on equity norms for financing projects. For calculating tariffs, the policy recommends a normative debt-equity norm of 70:30 for all capital based projects. It was suggested that this should be applicable only for new capital investment rather than being used as a benchmark for calculating tariff from the existing and ongoing projects. Opposing this, most of the states had stated that the rule of 30 per cent equity would not be possible for existing/older plants, which have higher equity.

 

India calls for joint power projects

 

May 20, 2005. J & K’s chief minister urged India and Pakistan to cooperate on developing hydroelectric power in the divided Kashmir in a bid to avert further rows over power development in the territory. The two sides are at odds over a 450 MW hydroelectric project on the Chenab River in south Kashmir that Pakistan charges violates a decades-old water treaty between the nations. This Baglihar project does not amount to any violation of the Indus Water Treaty. The way to end this mistrust and apprehension is to have joint ventures in hydroelectric power. The CM’s suggestion follows a decision by the World Bank to name a neutral expert in response to a request by Pakistan which charges that India has violated the Indus Water Treaty in building the Baglihar dam. The World Bank brokered the water treaty 44 years ago. Pakistan fears the one-billion-dollar project could deprive its wheat-bowl state of Punjab of vital irrigation water and says it never approved the project’s design as stipulated under the treaty. The row over the Baglihar dam has been an irritant in the ongoing peace process between the two countries.

 

Power companies to offer prepaid electricity

 

May 19, 2005. The power companies would soon offer prepaid electricity to their subscribers. BSES and NDPL are in discussions with India Prepaid Service Ltd (IPSL), a Delhi-based prepaid telecom provider, for providing prepaid tariff to their subscribers. Its JV partner, The Prepaid Company of South Africa, is a major player in prepaid power distribution in South Africa. Prepaid electricity is hugely successful in South Africa and Ireland, where one can buy prepaid coupons even on weekly basis. Power sector is currently facing problems such as faulty billing, bad debts, faulty meters and pilferage. This results in revenue losses as high as 40 per cent of the total revenue. This has made power companies extremely unprofitable and has been one of the main reasons for lack of investment coming into the power sector. It is a big challenge for power companies to reduce pilferage. The power sector caters to approx. 120 million homes paying an average of US$8 per month, which makes it a US$12 billion market annually. Prepaid Electricity supplies ensure that power companies are able to charge for utilities provided to those sections of society which previously were not paying for the utility services. Consumers also enjoy a greater sense of control on the expenditures incurred.

 

PSUs with coal blocks to get stake in mines

 

May 18, 2005. The government is likely to allow public sector companies, which get coal blocks by being government-owned, to have a minority stake in the joint venture formed for mining. The matter is likely to get a green signal from the Prime Minister's Office (PMO), as it will encourage the development of captive coal mines in the public sector. The existing guidelines for blocks, given through the government company dispensation route, are silent on equity holding. Both the coal and power ministries are in favour of allowing government-owned companies to retain only 26 per cent stake, and privatising the rest 74 per cent, though this will mean losing the public sector character. The other route for allocation of captive blocks is through a screening committee. This is also the route taken by private companies. If coal block was awarded to a company through the screening committee route, the successful operator was allowed to hold 26 per cent, while 74 per cent could be offloaded to some other company.  

 

Chhattisgarh blames Centre for power crisis

 

May 18, 2005. The Chhattisgarh State Electricity Board has blamed the Centre for the power crises in the State after it reduced its Central power quota by 378 MW. According to the Board, the Ministry of Power has withheld its due share of 378 MW from the Central power quota, part of which is being diverted to Maharashtra, making the State power deficit. Some Eastern region power-surplus States had not withdrawn power from the Central power quota following which the Centre distributed this surplus power to other States on a temporary basis. The State will also lay its claim on the power-surplus States' undistributed power quota besides demanding the power that was given to such States, who sold it to other States at a higher cost. Chhattisgarh's share of 60 MW of Central power quota out of a total of 90 MW being supplied to Maharashtra should be returned to the State. Though the State is in the Western Grid, it will continue to demand power from the Eastern Grid, as many Eastern States had surplus power. Power consumption had increased by two-and-half folds since Chhattisgarh became a State. The Centre had slashed almost 25 per cent of the State's production capacity and created an imbalance. He said the State had been demanding 1053 MW of power from the Centre of which 504 MW was its share from the Central pool, 299 MW from hydel-power projects and 250 MW from the undistributed quota. But it was receiving only 235 MW of power. The eight per cent share from the Chhattisgarh-based National Thermal Power Corporation (NTPC) which is 504 MW power is also being denied to the state as we are only receiving 210 MW. 27 per cent of the State's power was being distributed to Bhilai Steel Plant, South-eastern Railways and South-eastern Coal Region, following which there was a load shedding of two-and-half hours to several areas of the State. The CSEB had earned a profit of Rs. 650 crore (Rs 6.5 billion) last year but this year profit margins are likely to dip as the State would be spending Rs 80-85 crore (Rs 800-850 million) for purchasing power as against Rs. 46 crore (Rs 460 million) last year. The State was purchasing 150 MW of power at present but the demand would increase to 350 MW in July.

 

SEBs' unbundling deadline extended 

 

May 18, 2005. The Centre has decided to extend by six months the June 9, 2005 deadline for unbundling of State Electricity Boards (SEBs), as mandated by the Electricity Act 2003. The Left parties had called for a review of several provisions in the Electricity Act 2003, including the deadline for unbundling of all the SEBs and the issue of elimination of cross-subsidy across consumer tariffs in States.

OIL & GAS

Shell finds gas in Norwegian Sea 

 

May 23, 2005. Royal Dutch/Shell Group, Europe’s second-largest oil company, made a “promising” natural-gas discovery in an exploration well in the Norwegian Sea. The Onyx SW discovery may hold almost 60 billion standard cubic meters of gas that can be produced. Shell, based in The Hague and London, which is struggling to rebuild its oil and gas reserves, hasn’t put a size on the Norwegian discovery yet. Onyx was one of 19 global prospects Shell targeted as possible “big cat” discoveries for 2005, in which the company’s share might be at least 100 million barrels of oil equivalent. Shell has a 30 per cent share in the discovery.

 

Occidental acquires Permian basin production

 

May 20, 2005. Occidental Petroleum Corp. has acquired from ExxonMobil Corp. an interest in oil and gas production in the West Texas Permian basin for US$972 million. The production is primarily from Salt Creek, Sharon Ridge, and Dollarhide fields. Occidental expects to sell portions of the assets that do not fit its Permian portfolio. The interests—along with production from another Permian transaction still being negotiated and two smaller Permian acquisitions completed in the first quarter—are expected to increase Occidental's total proved reserves by at least 130 million boe, net of the asset sales.

 

China increases crude oil output

 

May 20, 2005. With the soaring oil price on the world market and a growing demand at the domestic market, China's oil producers have been working hard to increase the output capacity. China reported the crude oil output growth of 180,000 barrels per day in the first quarter of 2005. China saw a crude oil output of 44.731m tons in the first quarter of 2005, increasing by 180,000 barrels daily over the same 2004 period to nearly 3.67m barrels per day, with a growth rate of 5 per cent. China's oil output has kept an annual growth of only tens of thousands of barrels per day in the past decade. PetroChina Company Ltd. of CNPC, in the first quarter of 2005, shows that the company reported an oil and natural gas output of 243.4m barrels per day, or 14.30m barrels more than in the same period of 2004 with a year-on-year growth of 6.2 per cent. Crude oil output of PetroChina in the first quarter of 2005 reached 199m barrels, 7m barrels more than in the same period of last year. Crude oil price rose by 32.9 per cent year-on-year to US$37.63 per barrel. The output growth is the highest since CNPC's listing in Hong Kong. China's oil output growth in the first quarter is mainly from the oil fields in West China and China's offshore regions. Take an example of the Changqing oilfield in West China's Shaanxi Province. Belonging to the CNPC, the oilfield claimed a sharp output rise of 31 per cent based on the growth of 16.77 per cent of last year to 215,000 barrels per day. Compared with land oilfields, China's offshore oilfields boast a double digits growth in the first quarter of 2005.

 

 

Eldorado oil discovery

 

May 18, 2005. Eldorado Exploration, Inc., Irvine’s, production casing has been set on a Canyon Sand oil discovery in McCulloch County Texas. Production is expected to start by the first week of June. Eldorado has a 10 per cent working interest. Eldorado Exploration is an independent Oil & Gas Co. that uses a proprietary process (PIP) that improves the success rate for finding oil & gas. The company's process when used with other geology methods can increase the odds of finding a commercial discovery to better than 50 per cent.

Mexico looks abroad for production

 

May 18, 2005. Barred from inviting foreign companies to help develop its own oil sector, Mexico might go abroad itself to produce oil and gas in places like Peru and Bolivia. Heavily dependent on oil for its economy and struggling to develop new oil and gas fields at home due to limited funds and technology, Mexico could boost its output through partnerships elsewhere in the region. Such a move would mark a sea change for state oil monopoly Pemex which, unlike global oil behemoths in the private sector, has always limited production activities to its home country, due to its tight investment budget. One of the options for Pemex to ensure higher output is, paradoxically, to go to another country, because in other countries it can form alliances in production. Mexico’s Congress has blocked reforms that would allow Pemex to form alliances with foreign companies to exploit its deep-water resources. Exploring for oil in Peru could lead to oil projects onshore or in shallow water, compared to the extremely costly and technologically challenging deep-sea projects needed to unlock most of Mexico’s undiscovered oil sources. In Bolivia, which Mexico named this month as a potential supplier of liquefied natural gas to fill a domestic shortage, another possibility being considered is a partnership so that Pemex could play a part in extracting the gas. Pemex could join forces with a private company, produce the gas there and send it back here. Pemex desperately needs foreign help to explore potentially huge deep-water oil deposits as output from existing oil fields starts to decline. Aside from the technology it lacks, Pemex says deep-water projects would require an additional amount of US$15 billion per year. Single-handed, Pemex is also unable to produce enough natural gas to feed a steadily growing demand. Mexico and Brazil were keen to forge a partnership in Mexico that would bring Pemex the technological know-how of Brazilian oil company Petrobras in deep-water exploration.

 

Indonesia offers bigger share in gas field

 

May 17, 2005. Indonesia has offered U.S. oil firm ConocoPhillips a bigger revenue split to develop a difficult gas field in Aceh province. The Indonesian government has agreed to offer a 52 percent split for the government and 48 percent for the operator. ConocoPhillips wants a 50-50 percent revenue split to develop block A, because gas from the onshore field contains carbon dioxide and is costlier to produce. The standard gas-sharing contract is 30 percent for the contractors and 70 percent for the government. The government wanted ConocoPhillips to develop the block as soon as possible to supply gas to domestic fertiliser factories by 2008. Indonesia is the world's top liquefied natural gas (LNG) exporter but has been struggling to meet export commitments due to declining gas output being diverted to the domestic market.

 

Shell, PetroChina to develop gas field

 

May 17, 2005. PetroChina and Royal Dutch/Shell would go ahead with the development of the China's Changbei natural gas field, with Shell as operator. The production sharing deal is the Anglo-Dutch oil giant's only onshore one in China, where it is keen to beef up its presence but last year pulled out of two massive gas projects. Development costs including the drilling of around 50 wells over 10 years, central processing facilities and inter-field pipelines, are expected to reach around US$600 million over the project's lifecycle. The field, which spreads across the northwestern Inner Mongolia autonomous region and Shaanxi province, has estimated reserves of 50 billion cubic metres. Shell is entitled to around 50 percent of gas volumes over the 20-year project lifetime. The companies expect to start delivering 1.5 bcm per year to markets in Beijing, Shandong, Hebei and Tianjin by 2007, rising to 3 bcm per year by 2008. A second pipeline for transporting the gas to Beijing is already under construction by PetroChina and is scheduled to go into operation by the middle of this year.

Refining capacity to reach 400m tons

 

May 22, 2005. Iran is predicting to bring its daily gas refining capacity to 400 million cubic meters in the current calendar year to March 2006. Once Phase 5 of South Pars came on stream, the National Iranian Gas Company managed to increase the gas refining capacity. Its gas refining capacity was 128 million cubic meters a day eight years ago. It has seen an 18 percent growth in this period. Iran has also attracted 1.6 billion dollars of investment in the relevant sectors. Iran ranks high internationally in terms of gas production, refining and distribution.

 

Iranian firm to invest in oil sector

 

May 21, 2005. An Iranian oil company - Ghatran Keveh - has planned to invest in Pakistan. Initially the company will market its products and later establish motor oil blending and packaging. It plans to market its products in Pakistan from July this year. It plans to invest in oil blending and packaging in Pakistan after completion of the first phase of six months. Ghatran Keveh was producing 30,000 metric tonnes per annum. However, the company was exporting only 10,000 metric tonnes to more than 40 countries while having representative in 20 countries including Eastern Europe, Middle East, Afghanistan, Pakistan, Iraq and others.

 

Vietnam's first grassroot refinery

 

May 17, 2005. Technip leader in a consortium with JGC and Tecnicas Reunidas, has been awarded by Vietnam Oil & Gas Corporation (Petrovietnam) a lump sum turnkey contract for the engineering, procurement and construction of Vietnam's first crude oil refinery to be located in Dung Quat, south of Da Nang in central Vietnam.  The project includes the refinery and the crude oil import facilities. This refinery is designed to have a processing capacity of 145,000 BPSD, which will serve the domestic market and reduce the country's oil product imports.

Cheniere seeks permits for new Louisiana LNG plant

 

May 23, 2005. Cheniere Energy Inc. had filed applications with the federal government to build and operate a liquefied natural gas terminal on the Calcasieu Channel in Louisiana. The project would be the fourth LNG terminal for Cheniere, which is currently developing receiving terminals near Sabine Pass, Louisiana and Corpus Christi, Texas and is a 30 percent stakeholder in the Freeport, Texas plant under construction. The plant proposed for the Calcasieu Channel, named Creole Trail LNG, LP, would have a regasification capacity of 3.3 billion cubic feet (bcf) per day, two docks capable of handling up to 250,000 cubic meter LNG shipping vessels and storage capacity of 13.5 bcf. About 60 LNG terminals have been proposed for construction in North America to meet the continent's growing need for natural gas, with the majority of the projects located on the U.S. Gulf Coast.

 

Exxon, CNPC in talks on Sakhalin gas

 

May 23, 2005. U.S. ExxonMobil is in talks to sell pipeline natural gas to China's CNPC from Russia's Sakhalin as it has failed to clinch a deal with Japan. Exxon was considering selling up to 8 billion cubic metres of gas a year from its Sakhalin-1 field. Exxon leads Sakhalin-1 with 30 percent, while another 30 percent is with a group of Japanese companies. India's state oil firm ONGC owns 20 percent and Russian state oil firm Rosneft has the remaining 20 percent. Exxon's rival Royal Dutch/Shell will build the world's largest LNG plant on Sakhalin to supply consumers in Japan, South Korea, the United States and other countries from 2007 from its Sakhalin-2 project. Exxon's Sakhalin-1 will produce the first oil in 2006 but has yet to find customers for its gas as it rules out building an LNG plant.

 

Petronas leaves Iran LNG project 

 

May 23, 2005. Malaysia’s Petronas has withdrawn its 20 per cent stake in a US$2 billion liquefied natural gas (LNG) project in Iran. This would lift France’s Total stake to 50 per cent. Total said it had to make its mind up on whether to accept such an offer. It is still under discussion and nothing is yet confirmed. Iran’s LNG projects are closely linked to the upstream development of the giant South Pars gas field in the Gulf.

 

Repsol, Chevron, Sempra, Shell eye Peru LNG source

 

May 20, 2005. U.S. energy group Chevron Corp., Repsol-YPF of Spain, a consortium made up of Sempra Energy  and Royal Dutch/Shell, as well as Mexico's state-run Federal Electricity Commission (CFE), are interested in buying liquefied natural gas (LNG) from Peru. Sempra said the company was already well supplied with LNG from Indonesia and was not looking at Peru. Chevron has authorization from the Mexican government to take gas from Peru. That has been approved. CFE was "very interested" in Peruvian LNG. CFE expects to open a tender in the coming weeks for bids to supply it with LNG via a planned new US$400 million LNG terminal at the Pacific coast port of Manzanillo, in the western state of Colima. Peru LNG Co, which will export gas from Peru's huge Camisea field in the south of the country to Mexico and eventually the United States, has confidentiality contracts with interested parties. Peru LNG is formed by U.S. energy group Hunt Oil and South Korea's SK Corp. and hopes to export an annual US$1.5 billion worth of LNG from 2009. It is planning to build a plant on Peru's Pacific coast to turn the gas into liquid for export. It will then be turned back into gas at a plant on arrival in Mexico.

 

ConocoPhillips, Mitsubishi plan LNG terminal

 

May 17, 2005. ConocoPhillips agreed to join with a unit of Mitsubishi Corp to develop a liquefied natural gas import terminal in California as they seek to tap into growing U.S. demand for natural gas. The proposed terminal would have the capacity to import about 5 million tons of LNG -- super cooled natural gas that is transported by tanker -- per year. ConocoPhillips and Mitsubishi's Sound Energy Solutions unit plan to set up an equally-owned joint venture company, SES Terminal LLC and expect to make a final decision to construct the terminal in the first half of 2006 after obtaining state and federal approvals and permits. The terminal is expected to be completed in 2009. Like most of its peers, ConocoPhillips is eyeing LNG as a growing area of investment, as fast-growing demand for natural gas coupled with limited supplies increase its allure. The company is already in the midst of developing or has proposed LNG regasification facilities in Freeport, Texas, offshore Alabama and Louisiana.

Syria and Pakistan cooperation

 

May 23, 2005. Syria and Pakistan discussed means of enhancing cooperation between the two countries, particularly in the fields of oil and gas. The former briefed its Pakistani counterpart to call international firms to explore new oil regions in Syria. It referred to the important regional project of gas that comes from Egypt crossing Jordan to Syria, then to Europe, saying that the first phase of the project was done and the second will be accomplished soon. It called on the Pakistani firms to participate in the international tenders that the ministry announce to explore for oil in the Syrian lands and execute gas pipelines.

 

OPEC promises to revamp price band

 

May 22, 2005. Opec has vowed that his organisation will respond to new forces in the fast-changing oil market by the end of the year. Opec will change its culture and reformulate its price band of US$22-28 a barrel. The price band has been suspended since January after sharp rises in oil prices to well over US$50 made it a virtual irrelevance. The culture of the market has changed and in the second quarter (where demand normally drops) there is a growth in demand. Opec are waiting until the end of the year to review the experience of the last two years to reformulate their culture and price band.

 

Colombia to help finance exploration

 

May 20, 2005. Colombia plans to help private companies with the costs of exploring for oil in an effort to halt a recent drop in production that may turn this country from an oil exporter to a net importer. Oil-exploration firms that do not have enough capital for the high costs of exploration in Colombia would be able to draw from the US$100 million fund. Drilling for oil in Colombia involves huge costs because exploratory wells often need to go down nearly 20,000 feet in search of oil deposits, compared to places such as the Middle East, where deposits can be found just a couple of hundred feet below the surface. The oil exploration fund, which would be available sometime this year, is backed by institutional investors such as pension funds and insurance companies. Colombia, Latin America's fifth-largest oil producer, currently pumps around 530,000 barrels a day, well off its all-time high of 830,000 barrels a day in 1999.

 

Goldman expects oil futures back past US$50 

 

May 19, 2005. Goldman Sachs Group Inc, the third-biggest securities firm by capital, said New York crude-oil futures may average more than US$50 a barrel for the rest of this year on quickening economic growth in the US, China and India. The firm raised its price forecast for the remainder of 2005 to US$53.50 a barrel, up 9.2 per cent from its previous forecast of US$49.00, Goldman commodity strategists wrote in a research report. Goldman equity analyst Arjun N Murti predicted in a March 30 report that oil may touch US$105 a barrel in coming years as the market goes through a “super spike” period. Speculation that demand will outpace supply helped push oil in New York to a record of US$58.28 a barrel on April 4. Crude prices are up about 13 per cent in the past year. Rising prices may cut profit at international exploration and production companies as governments in oil-rich countries raise the cost of access to oil fields, the Goldman strategists wrote. The strong pricing environment and dearth of reserves accessible to international oil companies have strengthened the bargaining position of governments. This is “motivating the governments to become much more aggressive in demanding better terms for access to the state’s oil.” Oil demand growth in line with the continued economic expansion will outpace supply growth over the next 18 months, lending support to prices.

 

‘Big 3,’ two small firms cut gasoline prices

 

May 18, 2005. The so-called "Big 3" companies and two other small industry players rolled back prices of their gasoline products by 75 centavos (1 peso = 100 centavos) per liter as the cost of crude oil continued to decrease on the world market. The Department of Energy (DOE) said Big 3 members Pilipinas Shell, Petron Corp. and Caltex Philippines and newcomers Total Philippines and Seaoil disclosed the "good news" one after the other. Other oil firms that have reportedly reduced pump prices were PTT Philippines and Unioil Philippines. The price of the socially sensitive liquefied petroleum gas (LPG) also went down by 50 centavos per kilogram.

 

Demand makes Mexico, Chile: LNG centers

 

May 18, 2005. Growing demand for Latin American natural gas and failing production in two of its nations is helping to ensure that Mexico and Chile will become centers for liquefied natural gas ports in the region. International energy companies are trying to build ports in northwest Mexico in part to help meet burgeoning California demand, but also growing consumption internally. Mexico's appetite for gas, while miniature compared to the United State's, grew 6.3 percent in 2003, the last year statistics were available.

 

 Mexico's state oil company Pemex is struggling to meet the nation's gas demand, let alone export to the United States, which it has not done since 2002. But by the beginning of the next decade, the United States could get some of its gas by way of Mexico. An LNG "invasion" is coming to Mexico in the form of four LNG terminals that have a total of 3.8 billion cubic feet per day of capacity and a "probable" chance of becoming a reality. They include California-based Sempra Energy's Costa Azul port on the Pacific Coast and Shell's Altamira port project on the Gulf Coast. In addition, six "possible" terminals could provide an additional 4.2 billion cubic feet per day. In South and Central America, natural gas demand grew at 10.7 percent in 2003, led by Chile, Brazil and Peru. Chile is considering building the first LNG port in South America as supply from Argentina, which used to provide it with 100 percent of its gas, has been halted by the effects of the 2001-2002 financial crisis. Recent political strife also means Bolivia is having major problems with gas exports.

POWER

China too faces peak shortage 

 

May 23, 2005. China may be way ahead of India in infrastructure development. However, both the countries have one thing in common, and that is power shortage. Despite an installed capacity of 440 gigawatt (GW), China has been facing peak time power shortfall. The China State Electricity Regulatory Commission, in its paper dated May 12, has projected the maximum shortfall of power supply of 25 GW during the summer peak time. East and south China would remain the hardest hit in terms of electricity shortage. The shortfall would be about 11 GW in east China, and 7 GW in south China. The chronic power shortage has resulted in increased strains on production safety. For the first quarter of this year, the total electricity consumption across China was 555.564 Twh, which increased by 13.38 per cent over the same period of last year. The total generation nationwide was 544.928 Twh with a year-on-year of 13 per cent. An additional generation capacity of about 65 GW would be put into operation in the current year and the total installed generation capacity nationwide would exceed 500 GW. Electricity generation would be around 2,500 Twh and the total electricity consumption would hit 2,422 Twh.

Iran to export electricity to Iraq

 

May 23, 2005. Iran had discussed the issue of exporting electricity to Iraq from three adjoining regions, namely Iran's Kordestan and to Iraq’s Kurdistan in the north, Sarpol–e Zohab to Khaneqin in the center, and Khuzestan to Basra in the south. Given the priority the Iraqi authorities attach to the supply of electricity to the central regions particularly Baghdad, they preferred the establishment of a power transmission line between Sarpol–e Zohab and Khaneqin, a project which was developed in a period of four months. At any rate, the power export from the region has already started. Iran is ready to export its electricity to the other parts of Iraq, but with the Iraqi interim government’s term of office coming to an end, the incumbent officials in that country are not pursuing the matter further.

 

El Paso to sell stake in Korean plant

 

May 20, 2005. El Paso Corp. agreed to sell its 50 percent stake in Korean Independent Energy Corp., or KIECO, for about US$276 million to Korea Power Investments Co. It expects to record a pretax gain of about US$110 million when the sale closes, and the transaction was a part of its plan to reduce debt to about US$15 billion by year-end. Since its long-range plan, the company has reported or closed US$400 million of its targeted US$1.2 billion to US$1.6 billion of asset sales. KIECO owns a 1,800-MW combined-cycle liquefied natural gas-fired power generation facility in the Republic of Korea that provides peak load power to Seoul. El Paso acquired its stake in 2000.

ENDESA reduces CO2 emissions

 

May 20, 2005.  ENDESA specific emissions in Spain stood at 507 grams of CO2 per kWh in 2004, representing a fall of 27.5 per cent compared to 1990. The company achieved this reduction despite increasing output by 120 per cent over the same period and therefore overall total emissions rose from 33.4 million tones to 54.8 million. It is worth recalling that ENDESA's generation mix includes a high level of installed fossil fuel capacity. These thermal plants regularly register high annual utilisation rates, and serve to guarantee a signification portion of the country's electricity needs, especially during periods of sudden drops in rainfall which are not uncommon in Spain. These circumstances demonstrate the significant effort required on the part of the Company to increase energy efficiency to achieve the aforementioned reduction in emissions. The significant reduction in ENDESA's specific CO2 emissions is the result of fulfilling its environmental strategy and coincides with the first year of application of the National Allocation Plan (NAP) for emission rights approved by the Spanish government to meet Kyoto provisions. It is worth recalling that 1990 was adopted as the benchmark year for setting these commitments.

 

A casual summer look to save energy 

 

May 19, 2005. Hiroshi Okuda, chairman of Toyota Motor, Japan’s largest company, is about to promenade before the cameras for a new national campaign to cajole Japanese men to help the nation save energy by shedding their jackets and ties in summer. This blatant appeal to hierarchy comes as Japan -- the world’s second-largest oil importer, after the United States -- charts a sartorial revolution intended to cut summer air-conditioning bills. The dark business suit, the beloved uniform for generations of salarymen, is supposed to stay at home this summer as all public and private offices -- in a bid to save energy and reduce output of global warming gases -- are to set their air-conditioners at 28 degrees Celsius, or a sweltering 82.4 degrees Fahrenheit. Japanese often feel they cannot do this or that if their bosses are not doing it said Yoshihisa Fujita, the environment ministry official in charge of the campaign. With air-conditioners blasting less hot air into streets, the nation’s dominant city also hopes to attack its summer ‘heat island’ syndrome. With few parks, vast swathes of cement and new high-rises blocking sea breezes, Tokyo’s number of ‘tropical nights’ -- when thermometers never drop below 77 degrees Fahrenheit -- jumped to 41 last year from fewer than five a century ago. This summer I will not allow anybody with tie or jacket into my office said Yuriko Koike, Japan’s environment minister. Last month, Prime Minister Junichiro Koizumi’s entire cabinet approved casual business dress guidelines, a first for Japan. The policy calls on government officials during June through the end of September, to work with light clothes with moderation that would not deviate from social norm, except for unavoidable situations brought about by diplomatic protocol. Bureaucrats mortified by informality can wear pins blaming their casual look on the national drive to meet Kyoto targets: 28 degrees/we are in the summer casual dress campaign to achieve minus 6 per cent.

 

Record for mineral-energy projects

 

May 18, 2005. The nation's mining and energy sector was set to be boosted by a record number of advanced development projects, the Australian Bureau of Agricultural and Resource Economics (ABARE) said. In its April report on key development projects, ABARE finds there are US$22.6 billion worth of projects under construction or well advanced. Of 229 major projects, 74 are considered advanced, which means either under construction or committed. This is a record number of advanced projects, and at US$22.6 billion, the total value of these advanced projects is not far below the record of US$24.3 billion established in October 2004. Of the 74 advanced projects, 49 per cent are either focused on petroleum or coal.

 

Australia's energy demand to rise

 

May 18, 2005. Australia, Asia-Pacific's fifth largest economy, will increase energy demand by about 17 percent by 2030, with gas growing the most. The nation will use 2.91 million barrels of oil equivalent a day by 2030, from 2.48 million barrels of oil equivalent this year. Gas demand is expected to more than double from current levels to meet growth in the industrial and power generation sectors. Exxon Mobil, Royal Dutch/Shell Group and ChevronTexaco Corp. plan to tap that expected gain in gas in Australia and globally by raising output. They are planning an A$11 billion (US$8.3 billion) venture for liquefied natural gas in Western Australia. Global liquefied natural gas demand may triple by 2020 because of rising energy use, new technology and the fuel's economic and environmental advantages.

Haryana for higher subsidy for solar pumps

 

May 20, 2005. Haryana has urged the Central Government to continue the implementation of solar photovoltaic water pumping programme with higher level of Central subsidy, and also asked the Government to allocate a target of installing 400 more such pumps during the current financial year so that the farmers get the benefit of this technology in its true perspective. 393 solar pumps had so far been installed in the State during the last three years from 2000-01 as per the guidelines and administrative approval of the state government. The State Government had provided additional matching subsidy of Rs 40,000 per pump so that more small farmers having a land holding of two to three acres might purchase these pumps to meet their irrigation needs. While drawing the attention of the Union Minister towards the reduction in the amount of Central Financial Assistance from Rs 135 per watt to Rs 100 per watt, the state Chief Minister said that it had resulted in the increase in the contribution of the farmers from Rs. 40,500 to Rs. 1,03,500 (Rs 1.04 lakhs) for the purchase of such pumps. As a result of this increase, the farmers were not able to purchase the pumps and the state could not implement this programme during the year 2004-05. The solar photovoltaic water pumping programme was gaining popularity among the farmers. The promotion of this programme would help in saving high cost diesel and help in checking global warming.

Waste-to-energy plant in Mexico

 

May 23, 2005. International Power Group, Ltd. has executed a contract with Naanovo Energy to build US$300 for a twelve module waste to energy plant. Also, a contract has been executed with Providence Financial Services to finance the waste to energy plant in Mexico. With Naanovo's proprietary waste to energy technology, each of the twelve modules are capable of combusting one hundred eighty tons of municipal solid waste per day. The modules reduce the waste to levels that are below 10 per cent of its original volume and 20 per cent of its original weight. The plant will generate a minimum of six MWs of electricity as a byproduct of the process. In addition, the natural byproduct of each Waste To Energy module is distilled water in substantial quantity (145,920 gallons per day). The financing would be collateralized by the waste contracts currently held by International Power Group. Additional collateralization would be provided by the sale of energy and water, which would be generated by production of this facility. Annual sales of electricity are projected to be one hundred thirty five million dollars (US$135,000,000) and water projected to be fifty million (US$50,000,000). Waste contracts that will fuel the Waste to Energy plant are also projected to be three hundred million dollars (US$300,000,000). Under normal circumstances it will take as little as sixteen months from commencement of site engineering to completion of construction. A period of at least one year is usually required after construction to fine tune the plant to its desired level of performance. 

 

Wind power must be 'made to work'

 

 

Oil slick on the horizon?

 

May 21, 2005. There was a storm on the bourses this Wednesday when it dawned on investors that ONGC, the company with the largest market capitalisation in India might face delisting. The exploration major remains under GoI control despite its high-profile disinvestments. It is all set to run foul of a new Sebi listing requirement (Clause 49) that will come into effect from December 2005. At least 50 per cent of the board of directors of a listed company have to be “independent” (that is, not employees of the company or group). In the past month, several senior GoI officials, such as the director-general, hydrocarbons and an additional joint secretary of the petroleum ministry have joined the ONGC board. Under Sebi’s definition, GoI officials don’t count as independent directors here (and indeed, they shouldn’t, since the GoI owns over 50 per cent of the equity). This means that 11 of the 14 ONGC board members are “executive directors” under the Sebi norms. Before the new norms come into effect, ONGC or rather, its parent, the petroleum ministry, has to take hard decisions. Either it sacks several government nominees currently on the board or it inducts a minimum of eight new independent directors and expands the board to 22. It can also arm-twist Sebi into changing norms or find some other loophole. The crisis will undoubtedly be resolved and ONGC will remain a listed company. There is simply too much at stake in terms of credibility for the GoI. And, there’s plenty of time to ponder possible solutions. Similar problems are bound to crop up in other listed PSUs, so this case will set important precedents. But governments being what they are, one will be pleasantly surprised if this crisis is resolved before it goes down to the wire. A few weeks or months of uncertainty might do interesting things to ONGC’s shareprice and thus create a new buying opportunity. 

 

 

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