Energy News Monitor I Volume I, Issue 49

Caspian Oil Set for Fast Flow to the West

As growing concerns about dwindling global reserves help maintain oil prices close to the $50 a barrel mark, a major supply route linking newly developed oil and gas fields in the Caspian Sea with western markets has opened.  Within the next few weeks, oil from the Caspian will start flowing into a 1,762 kilometres long pipeline.  The pipeline will run from Baku, the capital of Azerbaijan, via Tbilisi, the capital of Georgia, and across eastern Turkey to the port of Ceyhan, on Turkey's Mediterranean coast. The Baku-Tbilisi-Ceyhan (BTC) pipeline is being built by a consortium of companies led by energy giant BP.  The major stakeholders in the project are BP with 32.6 per cent, Azeri state oil company SOCAR 25 per cent, US company UNOCAL 8.9 per cent, and Norway’s Statoil 8.7 per cent. 

 
The project, costing an estimated $3.6bn, is described by BP as the world's biggest energy scheme.  Just to fill a pipeline of such length with oil will take up to five months. Governments involved have welcomed the project. "The whole region needs this pipeline," said Ilham Aliyev, Azerbaijan's president.  However, from long before work started on the pipeline in early 2003, concerns were raised about running it through such a volatile political region. In Azerbaijan, the pipeline goes close to the ceasefire line separating the forces of Azerbaijan and Armenia, its neighbour and bitter enemy to the west. 
Energy experts and Caspian-watchers have always questioned the viability of the project. Many consider BTC a political project rather than an economically viable one. Analysts say that there is not enough oil to make the BTC project a successful economic venture. BP itself was initially very cautious about the plan, but it now says it has found enough oil on its three huge Azeri oil fields viz. Azeri, Chirag and Guneshli which, according to BP, together contain 730 million tonnes (5.35 billion barrels) of oil. 
Azerbaijan and Armenia are locked in a bloody territorial dispute and, despite the ceasefire, clashes often occur. Elsewhere en-route, concern has been raised about the pipeline's vulnerability to attack from anti government groups. Georgia battles various separatist conflicts, while in Turkey the pipeline skirts the heartlands of Kurdish areas. Non-governmental organisations have complained: some about human rights being abused, others about the pipeline's environmental impact. Green groups question the presence of such a project in what is a highly active seismic zone, saying any rupture of the pipeline would cause widespread damage. In Georgia in particular there have been strong protests about the pipeline's route through the Borjomi Valley, one of the country's most scenic areas and a centre of tourism. 
Western governments and financial institutions have given strong backing to the project. The United States has given significant political support, seeing the pipeline as a way of transporting vital energy supplies out of the Caspian, avoiding alternative routes to the south through Iran, or to the north through Russia. But Russia has been unhappy with the project, seeing it as further evidence of the West seeking to exert power and influence in an area Moscow has traditionally seen as its own backyard. The Caspian Sea's oil and gas riches have long been known, but difficulties in transporting energy reserves to markets outside the landlocked area have been a handicap to further exploration work. 
BP says the pipeline is the solution to the problem, but critics say the future is uncertain, insisting that the pipeline is a big gamble in an unstable region. If the last century’s Great Game in Central Asia was between imperial Britain and the Tsarist Russia, the New Great Game has multiple players like the USA, Russia and Iran in it.  In the New Great Game United States aims to contain both Iran and Russia albeit through different strategies. 
The post-Cold War scenario with its power vacuum and concomitant strategic confusions has made the Caspian region an arena of raw geopolitical games and strategic alliances. Behind all the rhetoric about democracy and development that the US raises, economic viability and commercial commonsense that Iran puts forth, and the arguments from natural alliance and cooperative security the Russian federation brings in, Baku-Ceyhan is all about the control of one of world’s most strategic resources – oil. 
Negotiations for the Baku-Tbilisi-Ceyhan (BTC) went on for more than eight years in which the US administration spent considerable amount of money and manpower. In 1999, after long and intense negotiations and lobbying in different regional capitals by the US, Turkey, Azerbaijan and Georgia agreed on the Baku-Ceyhan pipeline route. The US had managed the October 1998 Ankara Declaration of Support for the BTC project by the parties to be involved in the deal. In November 1999, Istanbul protocols were signed by Turkey and other countries tipped to be in the project in the presence of the former US president Bill Clinton. In fact, Clinton was very clear and enthusiastic about the US interests in the Caspian and Central Asia. 
On the other hand, the Kazakhstan Prime Minister Damangali Qasmagambetov has in no uncertain terms criticized the pipeline as being politically driven and threw his support behind an alternative route through Iran. In fact, Iran has signed oil swap agreements with Kazakhstan, whereby Tehran imports Kazakh oil in northern Iran and gives in return the same quantity of Iranian oil exported through the Gulf. 
While the viability of BTC is yet to be established, oil company officials and analysts admit that the most logical route for a pipeline is through Iran. But the US’ Iran-Libya Sanctions Act has forbidden not only US companies but others as well from trading with Iran. 
Even Turkey, the most trusted ally of the US in the region, would like to do business with Iran given its economic benefits. Why then is the US so hostile to Iran despite its efforts to befriend the West? Is it because the US knows of the dangers is it allows Iran to have its natural posture in the region. Or is it that the US is well aware of the fact that Iran has natural influence in the region due to its geographic, cultural, religious and other factors. The current US strategic thinking seems to that of isolating Iran as it seems to be easier than engaging it. 
The second most practical route for the Caspian energy resources is through Russia. Here too, the US is vehemently against not only in building any more pipelines through Russia, but also in using the existing Russian pipelines to pipe energy out of the land-locked region. The stage in the Caspian is all set for yet another spell of high-profile oil games. 
The Russians are unlikely to be the winners despite its location and historical bonding with the region. There are apprehensions about the Russian behaviour in the minds of the Central Asian states. Though the Iranians are by and large trusted by the countries in the region, they are in no position to make rewarding contacts with Iran thanks to the US policies. The United States is best poised to be the eventual winner. 

Team Energy ORF
Prototype Technologies for Application in Power Networks & Industry
(Ms Shruti Bhatia, Deputy Director (Energy), CII)
Background
The Confederation of Indian Industry (CII) and Technology Information Forecasting and Assessment Council (TIFAC) initiative under “Technology Mission 2020 Follow Up – Action team on Electric Power” led to the development of Prototype technologies under Flexible AC Transmission Systems (FACTS) for application in power networks and industry.  The Action Team constituted for the purpose prioritised development of the following technologies by BHEL Corporate Research and Development Group based at Hyderabad. The details on state-of-the-art Prototype technologies thus developed are summarized below. 
Development of 1 MVAR STATCOM (STATic synchronous COM pensator) - Phase-1 of the project envisaged development, testing and standardisation of 1MVAR prototype STATCOM at an estimated cost of Rs.10 million and Phase-2 envisaged commercialization of 30MVAR STATCOM to be undertaken after successful completion of Phase-I.
Development of 2 MVA, 2 kV Phase Shifting Transformer (PST) for 33 kV systems - Phase-1 of project envisaged design and development of prototype PST; along with design and development of static regulator. These prototypes would be installed at the utility user sub-station and tested for efficacy during the project duration of 18 months at an estimated cost of Rs.15 million. Phase-2 envisaged commercialization of Final PST to be undertaken after completing Phase-1 successfully. 
The Stage 1 of the projects has been successfully completed after 43 months of hard work and persuasion from all involved in the efforts. Both the prototype technologies have been commissioned and the test trials have already been conducted first in R&D laboratory and then in a real time situation to demonstrate that the technologies thus developed have achieved the goals set out in the beginning.  The challenge ahead now is to begin work on the stage 2 involving development and application of the technologies on a commercial scale as per needs of the user industry or the chosen network requirements.
STATCOM - Features, Benefits over Conventional SVC (Static VAR Compensator) & Applications
The STATCOM is the most ideally suited device for the Indian Power Supply System in distribution network and also in HV system. It can be applied very effectively to address the problems viz poor power quality, high line losses, poor voltage profile, large system voltage variations causing large swells and sags plaguing the power system. Depending on the nature of application, the objective function would vary from case to case, varying with installation, system conditions and customer requirements. With the advent of STATCOM, better performance can be achieved in power system network and industries, such as,
•    Dynamic Voltage Control in transmission & distribution systems
•    Power Oscillation damping in power transmission systems
•    Transient stability improvement
•    Ability to control not only the reactive power but also the active power (using a DC energy source)
•    Harmonics compensation
•    Power factor compensation
•    Voltage flicker control
The remarkable benefit of STATCOM over Static VAR Compensator (SVC) (its conventional counterpart) is that it has thyristor-controlled capacitors and reactors, which provide some dynamic compensation for the power network and the industry. STATCOM is particularly useful in the situations where there is need to support the system voltage during and after faults, where the voltage collapse would otherwise be a limiting factor. 
The prototype 1 MVAR STATCOM has successfully achieved power factor compensation and achieved transient voltage control at the Titanium Workshop at Midhani Steels based near Vikasnagar at Hyderabad. 
Possible areas of application of STATCOM
•    Distribution Utilities (BSES, APTRANSCO, Railways and other distribution utilities in the country)
•    Metallurgical industries using Arc Furnace
•    Industries for power-factor improvement, harmonics compensation and voltage support
Taking a step forward, BHEL has already manufactured 150kVAR STATCOM for installation in the Wind Farm of M/S VESTAS RRB at their Muppandal site and the units are undergoing tests at Corp.R&D. BHEL has also taken up the development of 2.5 MVAR STATCOM for installation in foundry shop of Bhilai Steel Plant. 
Once the STATCOM technology is perfected larger projects for applications in 220 kV and 400 kV networks could be undertaken. The future of STATCOM in India is extremely bright as we have 50,000 KM of 400 kV network and extremely large 200 kV and 132 kV network with acute shortage of passive and dynamic compensation in the system. 
State-of-The Art Prototype Phase Shifting Transformer for application in Power Networks 
What Is Phase Shifting Transformer (PST) & how does it function
A phase shifting transformer (PST) provides a predefined phase shift between the primary and the secondary terminals of the transformer. The purpose of phase shifting transformer is mainly to control the power flow in a complex network of parallel lines and loop flows The magnitude of this phase shift can be varied with the use of an on load tap changer having desired steps.  Direction of the phase shift can also be varied if the tap changer has advance/retard options. Phase shifting transformer, which is a powerful and economical tool, has not been developed and used in India so far, although it has been widely used in European network, USA, Japan and Russia.
In the CII – TIFAC initiative of development of prototype PST, a static tap changer has been developed for tap changing operations on the secondary of the shunt transformer. The voltage tapped from the Shunt unit undergoes a phase shift due to the transformer connections from shunt to series unit, thereby affecting a change in the power transfer in the transmission line.
Results Of the Prototype PST at BHEL Corp R&D 33 Kv Network
Today after 43 months of hard work and persuasion from all involved in the projects, the first phase aimed at developing a 2MVA, 2kV Phase shifting transformer for 33kV systems has been successfully completed. The introduction of phase shift through indigenously developed thyristor- controlled static tap changer has achieved both the objectives completely. The complete equipment was erected in a 33kV substation with the necessary auxiliary equipment, and the working of the integrated scheme has been demonstrated. As the size of the equipment and the intended phase shift was too large for the 33kV substation of Corp. R&D, BHEL developed set of new  15kVA PST transformers for effective demonstration of  the scheme. The steady state power control through the operation of static tap changer was effectively demonstrated. The developed equipment can increase or decrease power flow at the rate of approximately 2.5 MW per tap. Effectively 8 to 10 MW power can be suitably controlled for optimizing the power flows in a system. 
Application of PST in the Power Network
With the new Electricity Act 2003 already enacted and continuous focus on power sector reforms, the indigenous development of PST will be of tremendous importance in the HV and EHV power transmission network. The utilities and operators could adopt this state of art technology towards meeting the full demands of power modulation and redirecting the power flow in case of changed scenario of systems loads and demands. With the involvement of power electronics, PST embedded in the power network could provide dynamic changes in the Indian power system. A versatile PST that should provide the dynamic response in the system operation during and after system faults in the meshed network, for example, a paralleled 220 kV and 400 kV systems or 400 kV and 800 kV systems.
Important consideration in application of PST 
The fact that tap changing transformer type phase shifter cannot generate or absorb reactive power and the reactive power exchanged as a result of quadrature injection  has to be transmitted through the line. This can introduce large voltage drops across the line and can adversely effect the power transmission. For this reason, locating the phase shifting transformer nearer to a generator becomes an important consideration. Also, some times it may be necessary to complement the system with a controllable reactive shunt compensator to supply the necessary reactive power locally. The costs of all the equipments versus the advantage will have to be taken into consideration in high power applications.     
Benefits of PST under FACTS technology over conventional PST
The conventional PSTs have been successfully employed for more than three decades in practically all parts of the world, balancing, directing and optimizing the paralleled power network.  Such devices have been passive in nature and do not have response to interact with topological changes. With the use of Power electronics, the flexibility aspect has been added in the otherwise passive power system. With Phase Shifting Transformers, using power electronics to effect the desired changes in controlling the power flow over parallel lines at different voltages, the equipment response to the dynamic changes in the power network is almost instantaneous, say within half a cycle.
Future Plans
The utilization of the developed 2 MVA, 33kV Phase Shifting Transformer along with the thyristor controlled static tap changer in a suitable 33kV transmission network will be the immediate plan for which selection of a suitable site for the intended application becomes an important criteria. Simulation studies will to be carried out on some probable locations to choose the most suitable. With few additions and deletions, the complete scheme can be installed and the performance of the system could be monitored. Extension of the development of technology for higher voltage system forms the Phase II of the project. The study of power flows in northern region corridor may generate a requirement for PST application for which detailed system study will be carried out as a first step towards embarking on Phase II development.
Technology superiority achieved by India with PST
The development of Phase shifting transformer with Thyristor controlled Static tap changer is a new innovation in the field of Flexible AC transmission (FACTS). Even though Phase Shifting Transformers were in use elsewhere in the world, BHEL under the CII-TIFAC initiative is the first to develop this new product in India. There is no evidence of Static tap changer operation for PST anywhere in the world. The development of Thyristor controlled Static Tap changer has given a technological superiority to BHEL and thus to India in this field.
(The article has been edited by ORF Energy Team)

Kyoto Protocol & Perpetuation of Poverty
(Barun Mitra, Director of Liberty Institute, New Delhi)
While the international talkfests on green policies have become louder in issuing warnings about the impending environmental crisis caused by fossil fuel consumption, the issues they espouse have become ever more irrelevant for developing countries.  As the world goes on debating climate change issues, it is warned that green policies can perpetuate poverty.
The ratified Kyoto protocol seeks to promote energy efficiency and alternatives to fossil fuels, and insists on reductions in the emission of greenhouse gases by the industrialised world in the hope that the climate may stabilise. Tony Blair declared his intention to make climate change the cornerstone of the British government's international policy and Margaret Beckett, the environment secretary, went around the world emphasising the need to adopt a more climate-friendly approach. But the problem for the citizens of the poor countries, about two-thirds of humanity, is that they cannot afford to consume modern and clean energy. Consequently, even if all the rich countries were to meet their Kyoto targets, the impact on global climate might be marginal because the poor countries will consume much more energy and that will undercut any reduction in greenhouse gas emissions by the rich countries. 
To persuade poor countries to sign up for the climate-change deal, schemes such as "tradable emission quotas" and the "clean development mechanism" are being offered as carrots to help finance the transition, and provide access to modern technologies. But if the record of foreign aid and development finance is any guide, the climate-linked funds are unlikely to help, as most will just prop up corrupt regimes while perpetuating poverty.  If all this sounds a bit academic, let me use a few snapshots from daily life in my own country, India.
My wife and I decided to do our bit to reduce energy consumption by buying a modern refrigerator a few months ago.  It is CFC-free and much more energy efficient because it uses a frost-free technology that prevents the formation of ice inside. But in a country where electricity is in short supply and power blackouts are common, the frost-free and energy-efficient technology can be a major handicap. The ice that formed inside the old-generation fridges no doubt made them less energy-efficient but during the long hours of a power cut that ice kept the contents cool. We, on the other hand, finished up with a fridge full of useless food. 
The electricity sector is heavily regulated, and the service is mostly provided by monopoly public sector utilities that fail to meet the demand, causing frequent blackouts. So modern energy-efficient devices that rely on a constant supply of electricity are obviously not the best for the job. The Kyoto protocol does little to bring the energy sector under the discipline of competitive market forces, and fails to usher in much needed reforms that might reduce power cuts. 
Many Third World problems, like ours in India, are linked to unreliable energy supplies that stop us from using greener technologies rather than resorting to excessive energy consumption. 
It is a similar case when it comes to fuel tax (beloved of conservationists). Typically, an Indian pays about 100% extra on petroleum fuels in taxes and duties, and similar levies are imposed on vehicles. But far from reducing consumption or pollution, it has the opposite effect. 
Indian cities are characterised by pollution caused by inefficient cars and adulterated petrol. The cost of fuel is so high that we can't afford to buy more modern and efficient ones.
The high cost of transport also contributes to congestion, as people jostle to live as close to their workplace as possible. This exposes them to much higher levels of pollution, not because of their high consumption, but because of their inability to afford to live further out. Such overcrowding was a feature of the Bhopal gas tragedy in 1984. High transport costs contributed to the large number of people living in close proximity to the Union Carbide plant. The poor paid the price for that tragedy. 
It is a paradox that the poor who have the most to gain from fuel efficiency are least able to afford the technologies that make conservation possible.
For instance, if all the light bulbs in Delhi could be replaced by efficient compact filament lamps, the city could overcome its daily electricity shortfall without adding any generation capacity. But 70% of households can not afford the transition.
The problems of the poor and rural Indians are even more acute. Even today, fewer than six in 10 of Indian households have electricity, while 150m households rely on traditional fuels such as firewood, dry cow dung cake and agriculture waste for cooking. These fuels are 20 times less efficient and more polluting than electricity or gas. When they are used in poorly lit and unventilated rural dwellings, they contribute to 1 m premature deaths each year.
Supporters of climate change theory rightly warn that the poor are most vulnerable to natural calamities such as hurricanes, floods and droughts. Yet Kyoto protocol policies seek to retard the economic growth that would enable the poor to leave poverty behind and adapt better. 
One hundred years ago 1 m Indians died annually because of drought and malnutrition while annual floods and hurricanes killed about 100,000 people during the monsoon season. Pristine coastlines and natural mangroves did little to protect the poor then, but now, as a result of development, the monsoon kills only 10,000. 
Not surprisingly, Kyoto does not sound convincing to the world's poor. For what this present debate over climate change has done is to divert attention from the core issue of mankind — poverty.  In the past two decades the world had been slowly moving towards a more market-oriented approach and ensuring greater freedom for people to make their own decisions. But the emergence of the new environmentalism has put the environment, rather than people, at the centre of decision-making.  Consequently, every effort is aimed at reigning in man's creative talents, and curtailing demands for higher consumption. Not surprisingly, the climate-change debate has renewed the faith of old socialists who have found a new chain to enslave man through global regulations. 
It may be counterintuitive but there is only one economic lesson from history— increased consumption stimulates efforts at improving efficiency, which in turn contributes to conservation, economic and environmental. 
The Kyoto protocol seeks to reverse this relationship by focusing on reducing consumption through punitive taxes and so on, which will not ultimately help conservation goals. 
If we can develop, the poor will be able to afford energy-conserving measures. Without development, they cannot and the present cycle can only continue. 
India’s Reforms in the Hydrocarbon Sector

What Has Been Accomplished?
What Remains to be Done? -VI

……continued from issue 48
One other factor that influenced the nationalisation of the oil industry was the refusal of global oil majors with refinery operations in India to give up the freedom to transfer price crude oil.  They used high cost crude from their own sources rather than low cost Russian crude then available.  However nationalisation of the industry combined with the Administered Price Mechanism (APM) resulted in considerable distortion of the market. 
The concept of differential pricing and cross subsidies in the APM resulted in lower price for kerosene and diesel relative to petrol and Aviation Turbine Fuel.  These subsidies and cross subsidies led to serious distortions in consumer prices and did not reflect the economic cost of petroleum products. 
This resulted in large scale adulteration of diesel with kerosene from the Public Distribution System (PDS) and petrol with naphtha and solvent.  Studies have estimated that adulteration alone was a Rs 20,000 crore (Rs 200 billion) business in the country with 28-40 per cent of blue kerosene from the PDS system diverted to the transportation segment.  Adulteration & diversion of products also led to the inefficient use of petroleum products.  
While the distribution business did not corrupt the oil companies, distributors themselves became corrupt entities resulting in massive over-entry in the distribution segment.  Society continues to pay huge costs – towards increased pollution, vehicular damage and increased overall cost.  
In this era of control and regulation, the government resorted to using the oil pool account (whose original intention was only to manage oil price volatility) to refrain from raising the price of petroleum products during politically sensitive periods.  The government also overtaxed the sector to such an extent that the true demands for oil products in a neutral and low value added tax regime became difficult to infer.  The true demand for motor spirit is expected to be far in excess of current demands and of kerosene much lower than the present demand.  The centre and states also derived as much as 20 to 25 per cent of their revenue taxing the petroleum sector.  Overall the era of extensive regulation and control of the entire petroleum value chain starting from exploration and production, refining and marketing, infrastructure and investment planning, distribution and pricing followed the general economic ideology of those times: Self-reliance, import substitution, strategic control, social and distributive justice, promotion of heavy industries and state control of the commanding heights of the economy.  
It was only in the early 1990s that problems in the system became apparent.  APM could not generate adequate financial resources for investment in the upstream and downstream sector.  It also resulted in large deficits in the Oil Pool Account because selling price of petroleum products were not revised due to political compulsions.  Oil companies borrowed at market rates (while waiting for the mounting receivables) which were higher than returns generated on their outstanding dues.   Assured returns on the cost plus formula did not encourage efficiency in operations of PSUs.  Since all investments and costs were reimbursed, there was no incentive to make profitable decisions.  On the other hand, the returns generated by the APM regime were not sufficient for risky ventures in the upstream segment.  
Petroleum Products: Imports & Exports in Million Tonnes
In mmtpa    Imports    Exports
1950-51    3.1    NA
1960-61    2.5    NA
1970-71    1.1    0.3
1980-81    7.3    NA
1990-91    8.7    2.7
1995-96    20.3    3.4
1996-97    20.3    3.2
1997-98    19.5    2.9
1998-99    18.8    1.4
1999-00    13.1    0.9
2000-01    4.2    1.0
Source: Patra, C.D. 2004. Oil Industry in India 

In this period (1970-1990) the primary issue for the refining segment was inadequate capacity.  Though refining capacity grew from 28 million tonnes per annum (mmtpa) in 1975 to 52 mmtpa by early 1990s only one grass roots refinery was set up in that period.  The rest were all capacity additions in existing refineries.  Inadequate domestic refining capacity was made up with product imports.  From a negligible amount in 1970 product imports grew to about 12 mmtpa in the early 1990s and peaked at over 20 mmtpa in the mid 1990s. It was only when the downstream sector was progressively decontrolled and private sector participation invited in the sector that domestic refinery capacity was increased. 

Team Energy ORF
……to be continued

NEWS BRIEF
NATIONAL
OIL & GAS
Upstream
RIL to spend on offshore gas production  
 
May 27, 2005. Reliance Industries Ltd will invest US$2.4 billion to produce natural gas off India’s east coast as demand surges. Reliance’s venture in the Krishna Godavari basin, which has enough gas to supply India for more than a decade, may produce 40 million cubic meters a day within months of the start-up in 2008. The project will boost India’s gas output by 50 per cent and alleviate energy shortages, encouraging investment by companies including Intel Corporation, which is considering building a chip plant in India or China. The company will finance spending on the field, discovered in 2002, with earnings or a possible fund raising. India produces 76 million cubic meters of gas a day, the oil ministry said. Demand may rise to 231 million cubic meters a day by April 2006.

ONGC to invest in Assam  
 
May 26, 2005. The Oil and Natural Gas Corporation would go ahead with its proposed investment of Rs 2,000 crore (Rs 20 billion) in Assam. ONGC have problems in many states. Its rig was held up in Andhra Pradesh. ONGC has yet to reach 5,000 metre which is a zone of interest in offshore exploration in Sunderbans in West Bengal. 
Downstream
Oil companies, ISMA pact on green fuel
 
May 27, 2005. Oil marketing companies and the Indian Sugar Mills' Association (ISMA) will sign an agreement next month for supply of ethanol blended petrol in 10 States including Tamil Nadu, Andhra Pradesh, Gujarat, Uttar Pradesh, Maharashtra and four Union Territories from July. The Ministry of Petroleum and Natural Gas is committed to implementing the ethanol-blended petrol (EBP) programme for which the indigenous ethanol suppliers and the oil marketing companies are equal partners. The Ministry of Petroleum had met the ethanol manufacturers two months ago where it was agreed that ISMA, on behalf of ethanol suppliers, and the Ministry, on behalf of the oil marketing companies, would work on a draft MoU for long-term supply of ethanol by the sugar industry for the EBP programme. The oil marketing companies have separately invited tenders for sourcing indigenous ethanol and negotiations are on. ISMA members will now quote a price in tenders issued by oil marketing companies for sourcing of ethanol, after which the two sides will sign a memorandum of understanding.

360,000 kilolitre (kl) of ethanol is needed for doping five per cent ethanol in petrol in ten States and for the programme to spread to all over the country, 0.5 million kl ethanol is needed. For doping 10 per cent ethanol in petrol, 1 million kl ethanol was needed. 

Shell to receive second LNG shipment
 
May 26, 2005. Royal Dutch Shell will receive the second shipment of around 1,35,000 cubic meters (66,000 tonne) of LNG at its Hazira LNG terminal in mid June. The first cargo of LNG was procured from Australia, the next round of supplies are expected to be from Gulf. A Shell-controlled tanker, the 136,000 cubic metres ‘Gemmata’, had carried the first LNG shipment. Shell is also in talks with various industrial consumers for supplying LNG through direct contracts. Presently, Shell had committed its entire first shipment of LNG to Gujarat State Petroleum Corporation (GSPC) for marketing to various industries in and around the state. Shell has contracted to sell 0.7 million standard cubic metre per day of gas from its Hazira LNG import terminal to GSPC for 210 days at a price of US$3.70 per million btu. Shell’s price is slightly higher than Petronet LNG Ltd’s US$3.66 per mbtu. The first consignment was from Australia’s North-West Shelf project, in which Shell has a 22 per cent stake. The Hazira LNG terminal and port project has been developed at a cost of Rs 3000 crore and is the largest venture of Shell and Total in India. 

GAIL to set up unit in Cochin 

May 25, 2005. The Cochin Port Trust (CPT) has, in principle, agreed to allot about 25 hectares of its land at nearby Puthuvype to Gas Authority of India Ltd (GAIL) for setting up a unit to extract Ethane gas from LNG. Petronet LNG Ltd will be importing the LNG gas. Gail requires about 25 hectares of land adjacent to the terminal complex proposed to be set up by Petronet. GAIL is also contemplating setting up a Petrochemical complex at FACT complex at Udyogamandal.  

Elf gas opens LPG station 
 
May 25, 2005. Elf gas India, a fully-owned subsidiary of Total (Paris), plans to focus on the southern markets of Karnataka, Kerala, Tamil Nadu and Andhra Pradesh for its auto grade LPG business. Due to abundant supply of CNG (compressed natural gas) in north and western India, auto grade LPG market did not exist there. Hence the focus on the south. To strengthen the auto LPG business, Elf gas India has chalked out a plan to set up 50 LPG dispensing stations in south India with Karnataka getting 30 stations. Of these 10 will be in Bangalore. The company opened its first auto LPG dispensing station in Bangalore. Elf India LPG is priced at Rs 19.92 per litre in Bangalore. This station has been set up jointly by Elf gas India and Dars Automobiles. Elf gas India commenced marketing of auto grade LPG under its brand name ‘elf Auto LPG’ in Kerala and then opened an outlet in Tirupati in Andhra Pradesh. Now the company is entering the Karnataka market. 

After the central government’s notification dated August 1, 2001 and the subsequent Auto Fuel Policy of August 2002, use of LPG as an alternate fuel for automobiles has been permitted. LPG as automobile fuel is used in almost 100 countries globally. Backed by the central law, autograde LPG has become the low-cost high performance fuel as an alternative to petrol and diesel.  
Transportation / Trade
MIDC to enter gas distribution  
 
May 31, 2005. After GAIL & Reliance, Maharashtra Industrial Development Corporation (MIDC) is entering gas transport by procuring it from Gujarat State Petroleum Corporation Ltd (GSPCL) for its pilot project at Tarapur. MIDC has roped in PricewaterhouseCoopers to conduct a pre-feasbility study for the proposed pipeline which entails laying a 50 km pipeline from Talasari on the Maharashtra-Gujarat border to Tarapur in Thane district. MIDC has initiated preliminary talks with GSPCL, which had committed one million cubic metres for the pipeline and the entire project would entail an investment of about Rs 200 crore (Rs 2 billion). MIDC and GSPCL will also look at external funding. 

Indian oil group for London float 
 
May 29, 2005. Hardy Oil and Gas is set to become the first Indian oil and gas company to list in London when it floats on the Alternative Investment Market later this week. Formed as Jehan Energy in 1997 by its Indian management team, the company changed its name to Hardy Oil and Gas after it acquired the Indian subsidiary of British Borneo, the UK exploration minnow bought by Italy's ENI, in 1999. Hardy is already profitable, but needs additional cash to help fund its exploration and development programme. It has one field in production in India and interests in three exploration licences. The company's potentially most valuable asset is its 10  per cent interest in a field in the Bay of Bengal. The field, operated by Reliance, the Indian conglomerate, is adjacent to one of the largest gas discoveries in recent years. Exploration drilling is expected to start next year.

IOCL bids for Turkish refineries  
 
May 27, 2005. Indian Oil Corp, country’s largest oil firm, is eyeing acquisition of Turkey’s biggest refiner - Turkish Petroleum Refineries Corp (Tupras). It is bidding for acquiring Turkish government’s 50 per cent stake in Tupras. Tupras owns four refineries - Izmit, Izmir, Kirikkale and Batman - with a combined capacity of 27.6 million tonne per annum. With the total processing capacity of all refineries in turkey amounting to 32 million tonne a year, Tupras, on its own possesses some 86 per cent of the country’s total refinery capacity. It also owns petrochemical production capacity of 153,000 tonne per annum. 

Kalol plant to get gas from GSPCL  
 
May 27, 2005. Indian Farmer Fertiliser Cooperative Limited (IFFCO) is into advanced stages of finalising a long-term contract with Gujarat State Petroleum Corporation Limited (GSPCL) for supply of additional gas to its fertliser plant located at Kalol in central Gujarat. IFFCO will be supplied gas at US$4.572 per btu by GSPCL. The gas supplies from GSPCL will resume from July 1, 2005 after which the plant will become a gas based fertiliser unit of IFFCO in Gujarat. The initiative has been taken by IFFCO as part of its energy conservation measure where the usage of natural gas will supplement the usage of Naphtha and furnace oil at the Kalol plant. IFFCO had earlier hired the services of GSPCL, and the Kalol plant is receiving 5.5 lakh metre cube of gas from GSPL. The long term contract will be signed for additional supplies of 3 lakh meter cube. Prior to signing of agreement, IFFCO had invited bids for the supply of gas at its Kalol plant. 
Policy / Performance
Roadblock to BG’s plan for GPEC stake  
 
May 31, 2005. BG Group’s (formerly British Gas) plans to acquire 30 per cent stake in Gujarat Paguthan Energy Company (GPEC) promoted by HongKong based CLP Group has hit a roadblock. The reason is one of the successors to the unbundled, the Gujarat Electricity Board, wants to renegotiate the power purchase agreement for the 655 MW Paguthan power project, owned by GPEC. The decision to seek lower tariff follows the Gujarat Electricty Board (GEB) being unbundled into seven separate entities — a holding company, a generation company, a transmission company and four distribution companies from April 1, 2005. The BG Group was keen on picking up the GPEC stake in the post Electricity Act 2003 scenario. This has paved the way for a competitive framework in the power sector and over a period of time, will enable consumers to choose their power suppliers. The model follwed so far had been that only the electricity boards could buy power. Since these boards are loss-making, private power producers shied away from investing in the sector. 

Higher gas prices may not fuel inflation 

May 30, 2005. The government’s recent decision to raise the prices of administered natural gas by 12 per cent will have no direct impact on inflation. “Natural gas” does not figure in the list of items covered under the wholesale price index (WPI), which is a measure of the general price level in the economy. The secondary impact, if at all, is unlikely to be very strong, say economists. Neither steel, nor petrochemicals will be in a position to pass on the impact of a price hike to consumers.  

Gas prices hiked 12 per cent  
 
May 27, 2005. The government hiked the price of natural gas by 12 per cent to Rs 3,200 per thousand standard cubic meters (tscm) for power and fertiliser units. This will enrich Oil and Natural Gas Corporation (ONGC) by Rs 1,600 crore (Rs 16 billion) although it hits power distribution utilities, GAIL and other companies including IPCL, which will have to fork out this amount. While gas prices for the power and fertiliser sectors have been raised by 12 per cent to Rs 3,200 per thousand standard cubic meters (tscm), all other industrial consumers such as Reliance and Essar Steel will have to pay market determined prices of Rs 6,740 per tscm or USUS$ 3.86 per million btu, which means a hefty 136 per cent hike. 

ONGC supplies around 19 billion cubic metres of gas to these units. Even on the APM price of Rs 2,850 per tscm, the balance being subsidised from the gas pool account. Following the 12 per cent hike, ONGC will start getting Rs 3,100 per tscm now against the increased price of Rs 3,200 per tscm. This will mean additional revenues of Rs 1,600 crore (Rs 16 billion). 

The ad-hoc hike in prices of natural gas was approved by the cabinet committee on economic affairs (CCEA). Of the 88 mmscmd of natural gas available in India, around 55.1 mmscmd or 62 per cent is subsidised at Rs 2,850 per tscm. Of this, power units consume 42 per cent and fertilizer units 27 per cent. These units would now be charged Rs 3,200 per tscm. Gail will take a severe beating since it uses a significant amount of gas for producing LPG as well as petrochemicals. 
This will add to its woes at a time when it is already forced to share LPG and kerosene subsidy bills borne by PSU oil marketing companies due to non-revision of retail prices. Its margins are also under pressure as returns on the money-spinning pipeline are under review, with an interim government report suggesting that it be pared by a half. For power generation companies, which fire close to 8,000 MW on this gas, the tariff will rise by around 10 paise a unit, as the fuel cost will rise from around 90 paise a unit to little over a rupee. Since fuel costs are a ‘pass-through’, the purchasing state power distribution utilities and, in turn, the consumers, will bear the brunt of this hike in the gas price — Rs 350 per thousand cubic metres. The additional power bill on this count will be around Rs 350 crore (Rs 3.5 billion) a year. And, most of this will be borne by consumers in western India where a significant part of gas-based power generation capacity is located.

Essar to reduce sales 

May 27, 2005. Essar Oil Ltd plans to cut down sales of its 504 retail franchisees by one-third. In the last four months, the company has accumulated Rs 60 crore (Rs 600 million) losses from its retail operations. Essar Oil is losing between Rs 1.2-1.5 crore (Rs 12-15 million) everyday as it has been paying Rs 3 more for purchase of one litre of petrol and diesel from Mangalore Refinery and Petrochemicals Limited (MRPL), run by Oil and Natural gas Corporation Limited (ONGC) in comparison to the retail price it has been offering for petrol and diesel. Essar Oil, which buys its entire chunk of petrol and diesel from MRPL paying the Refinery Transfer Price (RTP), has already raised the matter with Petroleum Minister, requesting him to hike the retail price of petrol and diesel. Essar Oil, which is optimistic of commissioning its refinery at Vadinar in Jamnagar during the second half of 2006, has also urged the govermnment to review the high burden of taxation on the petroleum industry and also give freedom to companies to align the retail prices with the international markets. Essar Oil sells 2,000 kilo litres of petrol and diesel everyday through its 504 retail outlets — all run by franchisees. However, another private sector major in petroleum retailing, Reliance Industries would not face the heat as its outlets are not run by the franchisees, but owned by the company itself.  

Govt to force cos. to hike kerosene supply  
 
May 26, 2005. The petroleum ministry plans to shortly issue an order under the Essential Commodities Act directing all refineries (including Reliance Industries and MRPL, a subsidiary of ONGC) to produce sufficient quantities of kerosene for meeting the domestic demand. Inadequate availability of kerosene from RIL and MRPL has forced the oil marketing companies (OMCs) to import kerosene at a much higher price from global markets for sale in the public distribution system (PDS). With no change in the domestic price and restricted supplies from RIL and MRPL, oil companies led by Indian Oil Corporation (IOC) have recently issued a warning to the petroleum ministry of possible dry-outs in the domestic market, especially for sale in the PDS. The requirement of kerosene for the current financial year is expected to be around 10 million tonnes. With shortfall in adequate supplies from RIL and MRPL, IOC has imported 85 thousand metric tonnes (tmt) of kerosene during April 2005 and has lined up imports of 200 tmt during May to meet the domestic demand. 

Oil consumption fell in April  
 
May 26, 2005. India’s oil consumption fell 5.3 per cent to 8.88 million tonne (mt) in April this year, while crude imports declined 2.9 per cent on lower demand. The fall is the result of negative growth in petrol and diesel, mainly due to high base on account of Lok Sabha elections last year and disruption of business activities due to Vat implementation. Diesel, which makes up for over 35 per cent of oil produce demand, saw consumption slip by 5.3 per cent to 3.324 mt, while petrol requirement was lower by 0.8 per cent at 671,00 tonne. LPG consumption at 816,500 tonne continued to rise, the April demand being 5.2 per cent higher than 776,500 tonne of the same month last fiscal. Crude imports fell 2.9 per cent to 7.78 mt as against 8.016 mt imported in April 2004. Petroleum product imports, however, rose 53.2 per cent to 667,600 tonne as oil firms imported cleaner petrol and diesel to meet stringent emission norms that came into effect from April 1.  Diesel imports jumped over four folds to 36,200 tonne, while 47,700 tonne of petrol was imported in April. India imported 144,100 tonne of LPG and 101,400 tonne of kerosene as domestic production fell short of demand. Oil product exports fell 4.3 per cent to 1.227 million tonne mainly on account of 24.2 per cent dip in diesel (523,400 tonne) and 35 per cent fall in petrol (144,500 tonne) export. 

Reliance for kerosene economic prices  
 
May 26, 2005. Reliance Industries Ltd told IOC that it was willing to negotiate price which is near about the "export parity price" for kerosene supplies. Domestic availability of SKO was not an issue during first two years of post-APM regime (2002-04) as all domestic oil companies were compelled to ensure a minimum level of kerosene production (as a percentage of crude thruput, about 9 per cent) to meet PDS SKO demand without any import. However, IOC has informed the ministry that MRPL has substantially reduced its offer of SKO during 2005-06. As against the requirement of 1,990 thousand metric tonnes (tmt), MRPL has finally offered only 389 tmt (against 1,250 tmt during 2004-05). RIL has also offered only 50 tmt per month during April-June 2005 against the requirement of 180 tmt per month. MRPL has charged that refineries of IOC, BPC and HPC have reduced kerosene production. As per MRPL, the refinery is consuming huge quantities of kerosene to supply higher grade diesel.

IOC may post maiden loss, borrow more  
 
May 25, 2005. Indian Oil Corporation Ltd.(IOCL) may report a loss for the first time in its history and will borrow money for routine expenses as its revenue is reduced by a cap on fuel prices. IOC may lose Rs 3,000 crore (Rs 30 billion) in sales in April and May. The company may borrow as much as Rs 5,000 crore (Rs 50 billion), raising its outstanding debt to Rs 23,000 crore (Rs 230 billion) by the end of the year. Its profits fell 22 per cent in the nine months ended December compared with a year ago. The Centre squeezed profits at the companies to shelter consumers from record oil prices and to curb inflation. IOC and its state-run rivals lost Rs 20,300 crore (Rs 203 billion) in revenue in the year ended March 31 as they sold products below the cost of production to subsidize consumers. Borrowing money to meet routine expenses may impair the company’s ability to make investments in projects for the future as the new proposed borrowings will take the company’s proportion of debt to 80 per cent of its equity. 

Indo-Pak discussion on Iran gas line

May 25, 2005. India and Pakistan expect to open talks on the construction of a so-called "peace pipeline" from Iran, despite U.S. concerns about the US$4 billion deal. The proposed pipeline would carry Iranian natural gas from the Persian Gulf across Pakistan to India, offering economic and diplomatic benefits to both of the South Asian rivals. But Secretary of State Condoleezza Rice expressed reservations about the plan during recent visits to India and Pakistan because of American desires to isolate Iran, which it fears is seeking to develop nuclear weapons. 

The United States has warned India that it could run afoul of the Iran-Libya Sanctions Act, which empowers President Bush to order punitive measures against any international company that invests more than US$20 million a year in Iran's energy sector. The proposed pipeline would stretch for 1,724 miles across south-western Asia, of which 472 miles would be in Pakistan. Both India and Pakistan would draw gas from the pipeline, which later could be extended beyond India. However, numerous legal and commercial issues between the countries have yet to be resolved as well as concerns within India's security services about relying on Pakistan for its energy needs. The Petroleum Ministry said that the June 4 meeting would mark the first time India and Pakistan would be formally discussing the pipeline in concrete terms of quantum of gas requirements and issues related with the route and the transit fee that India would have to pay. 

Security issues are expected to be raised during the initial talks, with Pakistan reported to be thinking of contracting its armed forces to protect the pipeline in exchange for an annual fee of US$100 million. India also would pay Pakistan a transit fee for the gas that passes through its territory. India also hopes to explore the possibility of exporting diesel fuel to Pakistan and discuss how Indian companies can pursue oil-exploration projects in Pakistan. 
POWER
Generation
Reliance’s 12,000 MW plant in Orissa 
 
May 31, 2005. Reliance Energy Ltd has proposed to set up a 12,000 MW thermal power plant at a cost of Rs 48,000 crore (Rs 480 billion) at Hirma in the Jharsuguda district of Orissa. Reliance Energy has proposed to put up the power plant in phases. Reliance Energy is present in Orissa through its three electricity distribution firms — Nesco, Wesco and South — following its acquisition of BSES. Reliance Energy’s entry into power generation in the state will bring synergy to its operations in Orissa.  

NCL mulls foray into power generation  
 
May 30, 2005. Northern Coalfields Ltd (NCL), the most profitable subsidiary of Coal India Ltd, is actively considering a foray into power generation, preferably through the joint venture with Neyveli Lignite. NCL had decided to develop the ‘Gorbi B’ colliery, having a production capacity of 3.5 million tonne, with the Coal India board clearing the proposal. Even if Neyveli Lignite sets up a power plant on its own, coal linkage will be given from the Gorbi B mine. 

Proposed plant have a generating capacity of 500 MW and need an investment of Rs 2,500 crore (Rs 25 billion). NCL was likely to register a profit of Rs over 2,000 crore (Rs 20 billion) during 2004-05, against Rs 1,646 crore last year. NCL currently supplies coal to NTPC’s 2000 MW power plant in Shaktinagar. It also caters to the 2,250 MW Vindhyachal super thermal and 1,000 MW Rihand super thermal power plants. 
Transmission/ Distribution / Trade
Gail to pick up equity in Doraha power plant 
 
May 30, 2005. Gail will pick up a 10 per cent equity in the proposed 1000 MW Doraha gas based power plant of Punjab State Electricity Board (PSEB), to be set up at Doraha, near Ludhiana in Punjab. The company and PSEB have recently signed the Heads of Agreement (HOA) for the supply of 4.5 MMSCMD of natural gas for the proposed mega power project, likely to be commissioned by the year 2008-09 at an estimated cost of Rs 3,500 crore (Rs 35 billion). This will be the second power project in which the company will take equity participation. The company has a 12 per cent equity in the 156 MW power plant at Hazira of Gujarat State Energy Generation. 

Siemens to invest in power transformer 
 
May 30, 2005. Siemens is setting up a greenfield power transformer factory at its Kalwa complex near Mumbai. The company has earmarked an investment of Rs 150 crore (Rs 1.5 billion) for the new factory. The new factory, which is spread over an area of 40,000 square meters, will provide direct employment to about 500 persons and another 1,000 are expected to get indirect employment opportunities. The new factory is the company's eighth manufacturing facility in Maharashtra, fifth in the Kalwa complex and the third within its power transmission and distribution (PTD) division.
 
Transmission plan for N-power approved
 
May 27, 2005. The Cabinet Committee on Economic Affairs (CCEA) approved a proposal by the Power Grid Corporation of India Ltd for a Rs 500-crore (Rs 5 billion) transmission system for evacuating electricity from the Rajasthan Atomic Power Project (5 and 6). The cost of the project includes an Interest During Construction (IDC) component of Rs 22.38 crore (Rs 223.8 million). The transmission system will include a 198-km line from the power project to Kankroli and another 400 KV line spread over 62 km connecting the plant to Kota, both in Rajasthan. The transmission system will be completed within 33 months and the beneficiary states include Jammu and Kashmir, Rajasthan, Punjab, Haryana, Uttar Pradesh, Uttaranchal and Delhi. 

ESCOMs to take over power trading activity 

May 25, 2005. Electricity Supply Companies (ESCOMs) will take over power trading activity in Karnataka State from June 10 by directly purchasing power from generating companies after the State transmission utility, Karnataka Power Transmission Corporation Ltd. (KPTCL), ceases to trade in electricity as specified in Section 39 (1) of the Electricity Act, 2003. With KPTCL barred from trading in electricity under the Electricity Act, it was decided that the best option would be for the ESCOMs to purchase power directly from generating companies. This would require assignment of Power Purchase Agreements (PPAs) from KPTCL to the ESCOMs. According to a recent Government Order, PPAs in respect of renewable energy projects will be assigned to the ESCOMs based on the geographical location of the projects. The PPAs of Karnataka Power Corporation Ltd. (KPCL), Vidyut Vitaran Nigam Ltd. (VVNL), Central generating stations (CGS) and conventional independent power producers (IPPs) will be assigned to all the ESCOMs with each ESCOM becoming a signatory to the PPAs with their rights, duties and liabilities limited to the extent of their share. The power supplied by KPCL, VVNL, CGS and conventional IPPs will be allocated between the various ESCOMs on the basis of the share of each ESCOM (calculated according to a ratio) in total energy consumption during the year. For implementing the decision, each ESCOM will open a current escrow account facility with KPTCL in respect of transmission charges while the input costs and transmission charges will be shared between the ESCOMs in proportion to their allocation. The transmission losses will be allocated in proportion to the energy consumed. 

DPSC looking for strategic investor 

May 24, 2005. DPSC Ltd (Erstwhile Dishegarh Power Supply Company Ltd), one of the oldest utilities in the country supplying power to coal companies in the Asansol belt of West Bengal, is looking for a strategic equity investor and arrange for debt financing its expansion plans, entailing an investment of about Rs 200 crore (Rs 2 billion). DPSC has been supplying power to its licensed area covering 618 sq km around Asansol. The company first set up a 2 MW thermal generating station in 1928 at Dishergarh. By 1938 its generating capacity had touched 22.2 MW with the addition of the Sheebpore power station. DPSC's installed capacity increased to 42.2 MW after the commissioning of the Chinakuri power station in 1992. The capacity was further raised to 52.2 MW with the installation of a 10 MW turbine at Chinakuri. But due to antiquated technology of older stations of Dishergarh and Sheebpore and their steady degeneration over the years, derated capacity stood at 47.8 MW in 2003, while cost of generation at Sheebpore compelled suspension of operation of the plant in August 2003. Similarly, old boilers of Dishergarh had to be scrapped in 2003-04 due to maintenance problems. The company is exploring the feasibility of increasing the generation capacity by 30 MW with the installation of fluidised bed boilers, which will use cheaper and lower grade coal bringing down the generation cost. This apart, the company proposes to set up soon a pilot project of 5 MW using coal-bed methane gas in the Asansol area.
Policy / Performance
Electricity deficit swells 
 
May 31, 2005. Rising demand for electricity and practically static supply has meant the gap between demand and supply of electricity in India has widened from 3,015 MU in April 2004 to 4,695 MU in April 2005, a rise of almost 56 per cent. The peak power deficit--the gap between requirement and availability during peak hours--rose to 10.5 per cent, from 9,665 MU in April 2004 to 10,681 MU in April 2005. The west and the north reported rising deficits, while the south was better off, mainly because of the additional supply from power plants commissioned recently. The deficit was worst in the west, where availability was 16.7 per cent short, up from 10.7 per cent in April 2004. Among the states in this region, Madhya Pradesh performed worst. The power deficit in the state was 25 per cent in April 2005, up from only 12.8 per cent in April 2004. The figures, compiled by the Central Electricity Authority, are based on the average supply and demand for the month. Availability has been estimated based on feedback from regional offices and regional load dispatch centres, while requirement is estimated by adding power cuts data to the availability. Among the northern states, Uttar Pradesh—another state that has not added capacity in a long time—saw its deficit widening from 9.3 per cent to 17.9 per cent. Jammu and Kashmir was next, with its deficit going up from 1.3 per cent to 10.3 per cent. The east is a power surplus region and deficits, if any, are because power is supplied to the grid, rather than within the state, in order to generate additional revenue. The south has, however, reported significantly improved performance. The deficit has gone down from 3.5 per cent in April 2004 to only 0.8 per cent in April 2005. The maximum improvement has been seen in Karnataka, where the deficit has gone down from 350 MU, or 11.1 per cent, to 21 MU, 0.7 per cent, in April 2005.  

Central guarantee for Dabhol  
 
May 31, 2005. The government has decided to limit its guarantee towards the Dabhol power project to US$300 million. It has reached a settlement for US$760.7 million as against the US$861.7 million claimed by various stakeholders including overseas banks, Opic, GE and Bechtel. Under the new financing plan proposed by the finance ministry for approval of the empowered group of minister’s (EGoM), besides the Centre’s US$ 300 million guarantee, US$460.7 million will be brought in up-front as equity contribution: NTPC and GAIL (US$96.6 million each), Indian financial institutions (US$ 154.5 million) and MSEB (US$113 million). Under the restructuring plan, two special purpose vehicles will be set up. While the project SPV, comprising NTPC, GAIL and Indian financial institutions would settle the non-debt claims of Opic, GE and Bechtel, the financial SPV would float bonds to raise funds for the buyout of the offshore banks and Opic debt. The US$300-million government guarantee includes US$230 million guarantee for buyout of offshore banks and a US$70-million guarantee for buyout of OPIC debt of US$128 million. The Indian lenders led by IDBI will have to extend a guarantee of US$58 million towards the remaining OPIC debt. Significantly, as per the EGoM note, the government has refused to acknowledge the US$97.7 million political risk insurance claims of OPIC. This along with the US$305 million claims of GE and Bechtel will be funded by upfront equity contribution by GAIL, NTPC and FIs. "MSEB’s contribution of US$113 million will be utilised by the project SPV to pay to GE and Bechtel. NTPC and GAIL are not keen on making an upfront equity contribution. NTPC and GAIL apprehend that if the assets of Dabhol Power Company  are to be transferred on auction basis and not outright sale to the project SPV, then the possibility of the SPV not emerging as the successful bidder cannot be ruled out. Under this scenario, there must be an agreed compensation mechanism. For this, EGoM proposes that the application of the FIs for transfer of assets through the auction in Debt Recovery Tribunal should provide that the successful bidder will pay the project development charges incurred by GAIL and NTPC.

Time to switch off free power: PM  
 
May 28, 2005. Prime Minister Manmohan Singh said that the time has come to disconnect free power. He said that the free power concept was a big hurdle in additional power generation in the country. While dedicating the 1500 MW Nathpa Jhakri Hydel Power project to the nation, he said that free power would not help in self-sufficiency in the power generation. He said that while the demand for electricity in the country is increasing, the power shortage is assuming alarming proportions. The Prime Minister said the government was committed to fulfill the dreams of former Prime Minister Rajiv Gandhi to bring the nation in the list of developed nations. Dr Singh hoped the Himachal Pradesh government would be able to add another 10,000 MW of hydel power in the next few years. He said this would not only contain the power cuts in Himachal Pradesh but also improve the power situation in the states. The PM described Himachal Pradesh as one of the fastest growing states in the country with enhancement of road connectivity to all villages and potable water. He said the Centre and states should work together for the uplift of economic growth and industrialisation. Dr Singh said the country would make rapid progress in the next four years under the various development schemes of the UPA government. 

Power minister PM Sayeed said the government was trying to generate additional 1 lakh MW during the 10th and 11th plans. There were possibilities to generate 1.84 lakh hydel units in the country, he said. The government has a national policy on the rehabilitation of displaced families and we are moving in the right direction to address the problems of local residents, he said. After successful commissioning of the country’s largest hydel project, Sutluj Jal Vidyut Nigam Limited has also taken up implementation of six more projects in Himachal Pradesh and Uttaranchal towards its target to achieve 5,000 MW of power generation at the end of the 11th Plan. Of the identified project in the state, the corporation has already commenced investigation work for the 434 MW Rampur Hydro Project, 465 MW Luhri Hydro Project and 636 MW Khab Hydro Project.

Power tariff hiked in Rajasthan 

May 27, 2005. The Rajasthan Government increased the power tariff by nearly 10.5 per cent in all categories by partially accepting the recommendations of the State Electricity Regulatory Commission. The hike will lead to a financial burden amounting to Rs. 392 crores (Rs 3.92 billion) on agricultural and domestic consumers effective from May 1 last. The State Government would continue to provide a subsidy ranging from Rs. 130 crores (Rs 1.3 billion) to Rs. 160 crores (Rs 1.6 billion) to the three power corporations - established after unbundling of the State Electricity Board - depending on the power consumption. The hike has been introduced after a gap of about four years following the recommendation of the Commission to revise the rates from January 1 this year. The State Government exempted the consumers from the proposed hike till April 30 last and gave an additional subsidy of Rs. 171 crores (Rs 1.71 billion) to the power companies to compensate the losses. The power companies, situated in Jaipur, Ajmer and Jodhpur, will now earn an additional sum of Rs. 522 crores (Rs 5.22 billion) annually, facilitating a partial reduction in their annual burden of Rs. 1,041 crores (Rs 10.41 billion). The liabilities were constantly increasing in view of rising coal prices, rail freight, dearness allowance paid to the employees and the increasing interest on debt burden. The electricity charges for the domestic consumers have been increased from Rs. 1.70 per unit to Rs. 1.95 per unit for the first 50 units per month, and thereafter Rs. 3.50 per unit, against Rs. 2.75 per unit charged earlier. The agricultural consumers will now pay Rs. 1.10 per unit against the previous rate of 90 paise per unit. Those getting power at farm-houses will be charged at the rate of Rs. 3.40 per unit. The fixed charges for each connection have also been revised. The flat rate tariff has been increased from Rs. 85 per horse power per month to Rs. 120 in the general category and Rs. 200 for the consumers in the special `fodder scheme'. The non-domestic consumers, using electricity for commercial purpose, will now pay Rs. 4.50 per unit for the first 100 units per month and thereafter Rs. 4.90 per unit. The relief package would be applicable to the domestic consumers with low income, below poverty line (BPL) families in both the urban and rural areas, farmers using sprinklers and drip irrigation, and the industrial consumers keeping a good load factor. 

CIL to acquire new blocks in Indonesia  
 
May 27, 2005. Coal India Ltd is planning to acquire mine blocks in Indonesia and South Africa to source coking coal, with the CIL board approving the incorporation of Coal Videsh. With the proposed overseas venture in Mozambique falling through following the withdrawal by Sail, the coal monolith may now go alone for acquiring 100 per cent stake in Indonesian blocks. The proposed venture was still at a preliminary stage and the company was holding talks with the Indonesian government. CIL has plans to produce about two to three million tonnes from the Indonesian blocks. 

GE India to tap power opportunities  
 
May 27, 2005. GE India has embarked upon a plan to consolidate its presence in the fast growing Indian power sector. Apart from working on a contract basis for the revival of now closed Dabhol project, GE India has formulated an action plan to tap opportunities during the capacity addition of 37,000 MW in the 10th plan and 60,000 MW in the 11th plan. GE had provided the state-of-the-art 9FA turbine to the now closed Dabhol project. The company claims that the 9FA has been the most advanced, commercially available gas turbine in the world and no other company either possesses either the proprietary technology or the designs for spare parts. 

New panel for West Bengal power units 
 
May 26, 2005. The state government has formed a six-member perspective committee on power that would study various expansion proposals submitted by the state owned power generation and utility companies to the government. This committee will advise the state government on whether to allow expansion plans or if additional increase in project size in terms of capacity was required. The central government had a few years ago formed a perspective committee to monitor the demand-supply situation in the country and in various states. Since power demand situation in the country has changed in the recent past, the state government has decided to set up a new committee that will look into the power situation in the new perspective and all new power projects would be examined by this committee. Two major power generation utilities in the state recently announced large expansion plans. As part of its expansion plan, West Bengal Power Development Corporation Ltd (WBPDCL) planned to set up a new gas-based, 1,000MW (2x500MW) plant at Katwa in Bardhaman district at a cost of Rs 3,500 crore (Rs 35 billion) as also 2,000 MW gas based power plant using combined cycle technology under a memorandum of understanding signed with Gas Authority of India Ltd (Gail). The company will also invest another Rs 3,300 crore (Rs 33 billion) for enhancing its installed capacity at its existing locations. These would involve setting up a sixth generation unit at Bakreshwar which would generate additional 210MW and two 300MW at Sagardighi plant. The sixth unit at Bakreshwar would involve an investment of Rs 800 crore while WBPDCL will have to shell out Rs 2,400 crore (Rs 24 billion) for the Sagardighi units. All these plants would come up in the 11th Five year plan period.  
  
Utilities profit through hourly contracts 

May 25, 2005. The ongoing power shortage situation engulfing much of the country has prompted a handful of electricity utilities to adopt innovative ideas to turn the crisis into a commercial opportunity. While power trading between States has been taking place on a regular basis over the last two years, utilities are now increasingly getting into more flexible hourly contracts across select days of the week. CESC Ltd — the RPG-owned power distributor in Kolkata — has entered into a contract to supply electricity to Punjab. CESC has drawn up a schedule to sell 50 MW to Punjab between 8 a.m. and 5 p.m. every Sunday during the four summer months. With offices being shut in Kolkata on Sundays, CESC has decided to sell the extra power available on weekends to deficient States such as Punjab, where agricultural activity is in full swing and power from any source welcome. Tripura and Assam are also taking advantage of the recently announced short-term transmission open access norms. Tripura, for instance, is selling power to Punjab during three separate time slots on a daily basis. Assam is also selling power to Uttar Pradesh at different time intervals during the day on a contractual basis across the summer months. Short-term open access transactions have got a boost with the Central Electricity Regulatory Commission's (CERC) revised inter-State transmission norms coming into effect. The payments by the buyer are generally made when the contract is struck, with the remaining payments spread across the contract period. 

NTPC ranked 486th in Forbes 2000 
 
May 24, 2005. National Thermal Power Corporation (NTPC) has been ranked 486th in the Forbes Global 2000 list of world's leading companies. Besides NPTC, 30 other Indian companies, including ONGC, SBI, IOC, Reliance, ICICI, BPCL, HPCL, TCS and Gail have found a place in the list. NTPC, with an installed capacity of 23,749 MW, has 13 coal-based, seven gas-based and three joint venture power plants. The members of Forbes 2000 are the biggest and the most powerful companies in the world. Companies are selected on the basis of sales, profit, assets and market value.
INTERNATIONAL
OIL & GAS
Upstream
China refuses Japan request over gas project

May 31, 2005. China has turned down a Japanese request to stop its exploration of a gas field in the East China Sea, but the two Asian powers agreed to continue talks over the dispute. China had offered a proposal to jointly develop the gas field in the disputed waters in the East China Sea. But Japan found the proposal "unsatisfactory," Kyodo quoted the Japanese delegate as saying. No details of the proposal were immediately available.The disagreement over exploration of the seabed between the energy-hungry East Asian neighbors for oil and gas has added to tensions between Beijing and Tokyo related to Japan's 1931-45 invasion and occupation of parts of China. China criticized Japan for jumping the gun and starting to award exploration rights to private companies. Japan responded saying Beijing's going ahead with construction in the region was "outrageous." Tokyo has demanded China stop energy exploration and provide data on its gas development projects in the area. Despite the deterioration in diplomatic ties, trade between China and Japan has been growing strongly, valued at nearly $170 billion in 2004.

Statoil awards oilfield job to FMC

May 30, 2005. Norwegian oil and gas group Statoil has awarded a contract worth about 170 million crowns ($26.71 million) to FMC Kongsberg Subsea to improve recovery at its Norne field by 2006. FMC Kongsberg Subsea is a Nowegian unit of New York Stock Exchange-listed FMC Technologies, Inc. Norne is a 100,000 barrels per day field which at the end of 2004 had estimated remaining reserves of about 163 million barrels of oil and 10.2 billion cubic metres of gas. The contract awarded by Statoil on behalf of the Norne licencees is for expanding the field's subsea production system. The new subsea equipment will be installed in September and new wells will be drilled next year to allow production from the project to begin in autumn 2006.

Indonesia Tangguh LNG investment to total $6 bln

May 30, 2005. The BP Plc. led Tangguh LNG project in Indonesia will need investments totalling $6.0 billion compared with market estimates of $5.0-$5.5 billion. The engineering, procurement and construction (EPC) contract for onshore work, signed in March, is worth $1.8 billion. Tangguh, in Indonesia's remote Papua province, is slated to start production by end-2008. Its projected output capacity is equivalent to 6 percent of current world demand for liquefied natural gas (LNG). The $6 billion investment includes the cost of related upstream developments, marine infrastructure to bring gas from an offshore field and two LNG trains. Half of the funds will be sourced from the market. Of that amount, about $1 billion is expected to come from Chinese syndicated loans and the rest from private banks and international lenders. 

Production starts:ENI's Gulf of Mexico oilfield

May 26, 2005. Production has started at ENI's K2 field in the deepwater Gulf of Mexico, with the first well delivering 8,000 barrels of oil equivalent per day. Two more wells will be operational by the end of the third quarter of 2005. It expects an equity peak production of about 6,000 barrels of oil equivalent (BOE) per day, net of royalty. The oil field, some 200 km off the coast of Louisiana, contains an estimated 100 million BOE. ENI holds an 18.2 percent stake in K2, with the rest owned by U.S. oil and gas groups Anadarko Petroleum Corp.

Saudi, Kuwait to pump out more barrels a day  
 
May 26, 2005. Gulf Opec producers Saudi Arabia and Kuwait are between them boosting crude supplies by more than 2,00,000 barrels per day this month, lifting total cartel output to 30.2 million bpd for May. Overall output from the 11-member producer group may swell to 30.5 million bpd from July as the cartel seeks to accelerate its stock building drive to meet higher winter demand. Saudi Arabia now is pumping 9.65 million bpd, up about 150,000 bpd from April. Production from Kuwait is running at 2.65 million in May versus around 2.58 last month. Top world oil exporter Saudi Arabia could provide a significant portion of the extra 300,000 bpd. The Kingdom's output capacity is 11 million bpd. 

First pipeline from Caspian Sea opened

May 25, 2005. Azerbaijan, Georgia and Turkey pulled orange levers to send the first flow of Caspian Sea crude into a $3.2 billion pipeline seen as key to reducing the West's reliance on Middle East oil. By year's end, the 1,100-mile pipeline is to ship up to 1 million barrels a day to Turkey's Mediterranean port of Ceyhan. The United States has consistently supported (the pipeline) because we believe in the project's ability to bolster energy security, strengthen participating countries' energy diversity, enhance regional cooperation and expand international investment opportunities. The U.S.-backed pipeline realizes several crucial goals for Washington, including reducing dependence on Russian pipelines and avoiding Iran. While the pipeline crosses areas plagued by separatist conflicts, raising security concerns, the countries hope it will be a catalyst for calm and prosperity as well.

Venezuela hikes royalty on Sincor extra oil output

May 25, 2005. Venezuela will impose a royalty of 30 percent on production from its Sincor heavy oil project that goes beyond output levels agreed with foreign partners. The project, partnering state oil company PDVSA with Total of France and Norway's Statoil, produces 210,000 barrels per day (bpd), while authorized output in heavy crude upgrading was 114,000 bpd. The current royalty is 16.6 percent for heavy crude projects in the country's Orinoco extra heavy oil belt.

Iran, Iraq for long-term OPEC growth

May 25, 2005. Much of the growth in OPEC crude oil production needed to meet energy demand over the next 25 years is expected come from Iran and Iraq as well as Saudi Arabia, according to Exxon Mobil Corp estimates. Though any talk of a ramp up in OPEC production invariably zeroes in on Saudi Arabia, the world's largest crude oil exporter, Exxon estimates politically volatile neighbors Iran and Iraq are likely to show dramatic increases in output if the cartel's production is to satisfy energy demand in 2030. Crude oil production in Iraq, ravaged by violence since Saddam Hussein's regime was toppled two years ago, is expected to more than double or nearly triple by 2030.

Iran to increase production 

May 25, 2005. The feasibility studies of constructing a new refinery in Abadan, Khuzestan Province, would be completed in June, the project commissioner of renovating Abadan Refinery. National Iranian Oil Engineering & Construction Company along with a foreign company are conducting studies, however, details of studies are yet to be determined. The first phase of the project, renovating Abadan Refinery, would be completed by June, and the refinery’s production capacity would see an increase of 180,000 barrels per day (bpd), compared to the current amount of 130,000 bpd. Two units will be put into operation in this refinery, including the vacuum distillation unit with the production capacity of 70,000 bpd, and the gravitational reduction unit with the production capacity of 25,000 bpd.
Downstream
SGR, FPL’s natural gas storage site

May 25, 2005. In order to ensure adequate natural gas supplies in the U.S. Southeast, privately held SGR Holdings, LLC and FPL Group Inc., they will jointly construct a new salt-dome gas storage project in Mississippi. Construction on the Southern Pines Energy Center, in Greene County, is slated to begin in late summer, with the first phase of commercial operations expected to begin late in the first quarter of 2007. The companies said in a joint statement that all major federal and state permits required for construction of the initial phases had been obtained. The site is authorized to provide 12 billion cubic feet of natural gas storage capacity on an open-access basis at market-based rates subject to permits granted by the Federal Energy Regulatory Commission, with expansion capability for a total capacity of 16 bcf. When completed, the project will be capable of withdrawals of up to 1.2 bcf and injections of up to 600 million cubic feet of natural gas per day.
Transportation / Trade
German gas shortage attracts Empyrean
 
May 31, 2005. The latest company to head for the Alternative Investment Market has foregone the popular exploration areas of Africa and Asia in favour of the German gas market. Empyrean Energy wants to raise £6 million as part of a listing on AIM next month. The company’s strategy is to tap into Germany’s gas shortage. Europe’s biggest economy imports 79 per cent of its annual gas consumption at an estimated cost of $13.9 billion (£7.6 billion). Empyrean, headed by Chris Lambert, a former City trader, and Malcolm James, a co-founder of Asia Energy, has an option to acquire up to 52 per cent of the Neues Bergland gas project near Frankfurt. Empyrean has entered into joint ventures with three US partners and believes that it is sitting on 175.5 billion cubic feet of gas. The company expects to spend £2 million to establish whether the Bergland gas deposit is commercial. 
Hiroshima Gas to buy LNG from Sakhalin  

May 30, 2005. Hiroshima Gas Co. has concluded a basic agreement to buy up to 210,000 tons of liquefied natural gas a year from the operator of the so-called Sakhalin 2 gas and oil development project over 20 years beginning in April 2008. Hiroshima Gas concluded the accord with Sakhalin Energy Investment Co., the operator of the project off the island of Sakhalin in the Russian Far East. The partners will continue negotiations to conclude a final agreement. Hiroshima Gas said it wants to secure a stable, long-term supply of LNG as its purchase contract with Indonesia expires in 2015. Natural gas deposits subject to exploration under the project are estimated to produce 340 million tons of LNG, according to Hiroshima Gas.

BG’s first LNG cargo from Egypt

May 29, 2005. British oil and gas producer BG has shipped the first liquefied natural gas from its Idku plant in Egypt, more than three months ahead of schedule. As a result there will be 6 extra shiploads of LNG produced before the 20 year contract for this plant to supply Gaz de France. The second train at Idku is set to produce its first LNG cargo before the end of 2005. BG and Malaysia's Petronas hold stakes of 35.5 percent each in train one. The Egyptian Natural Gas and Egyptian General Petroleum groups hold 12 percent each and Gaz de France owns 5 percent. The Idku plant is located east of Alexandria and is supplied with gas from the deep Scarab Saffron and Simian Sienna gasfields, about 100 kilometers off Egypt's coast.

Russian crude oil shipments to China grow

May 27, 2005. Russian Railways plans to haul 690,000 tons of crude oil to China in June, 430,000 of which is production from Moscow's state-owned Rosneft. Besides the Rosneft production, Yukos will account for another 230,000 and Sibneft an additional 30,000 tons of crude oil. In the first five months of this year, Russian Railways transported an estimated 680,000 tons of oil to China. By the end of this year an estimated 10 million tons of Russian crude oil will have been shipped to China.

Energy Dept for comment on Alaska gas line

May 26, 2005. The U.S. Energy Department will ask for public comment on a federal government loan guarantee program to help build a pipeline to transport Alaskan natural gas to the continental United States. Congress approved legislation last year requiring the government to guarantee repayment of up to 80 percent, or $18 billion, of the commercial loans for the proposed $20 billion pipeline project. The pipeline would be one of the largest private construction projects ever undertaken and take 10 years to build. Supporters say the 3,500-mile pipeline will help ensure adequate and affordable gas supplies to meet growing U.S. demand. Alaska holds an estimated 35 trillion cubic feet of natural gas reserves. When the Alaska pipeline is fully operational, it will have the potential to add nearly 2 trillion cubic feet of natural gas each year to our supply, which would help to further stabilize prices.The loan guarantees should make it easier and cheaper for private energy companies to get financing for the pipeline, because if the companies cannot repay the loans the government will do so.

Supply and demand redefine energy market

May 26, 2005. With global oil supplies barely keeping pace with stronger than expected oil demand, particularly from emerging Asia, both upstream and downstream energy companies have benefited from strong industry fundamentals. Earnings of companies in the S&P Energy Sector surged 50% in 2004 and 39% in the first quarter, and S&P expects earnings will rise about 21% during 2005. Production & Marketing Industry Survey is published twice yearly by Standard & Poor's, a leading provider of independent investment research, ratings and indices. As a result, energy continues to be the best performing sector within the S&P Composite 1500, climbing 29.9% in 2004 versus a 10% for the broader market and up 7.3% so far this year versus a 1.8% decline in the market.

Tatneft not to rebid for Turkish Tupras

May 26, 2005. Russia's mid-sized oil firm Tatneft has firmly decided against bidding again for Turkish refiner Tupras. An attempt to sell state-controlled Tupras, Turkey's largest refinery, was thwarted last year by a court ruling in favour of a trade union lawsuit against the sell-off. The decision led to the cancellation of a $1.3 billion sale of a 65.76 percent stake in Tupras to a joint venture between Turkey's Zorlu Group and Tatneft 

Crosstex to upgrade pipeline

May 25, 2005. Crosstex Energy LP will spend $225 million to upgrade its Crosstex LIG pipeline system. Crosstex said the expansion will generate cash flow of about $40 million per year once its pipeline is connected to a proposed line from Kinder Morgan Energy Partners LP. 

Calpine eyes US LNG projects

May 25, 2005. Power plant developer Calpine Corp. is exploring liquefied natural gas projects in California, the Gulf of Mexico and on the East Coast. The Company also is studying plans for an LNG terminal near Astoria, Oregon. The company is testing petroleum coke, a byproduct of oil refining, as an alternative fuel to natural gas in power stations.

Indonesia may buy 18 LNG cargoes  
 
May 25, 2005. Indonesia, the world's top LNG exporter, may buy 18 liquefied natural gas cargoes from abroad to resell to contracted buyers in 2006. The Govt. has approved a proposal to buy one LNG cargo for resale this month. Indonesia expects to export about 400 cargoes of its own output this year, but has been struggling to meet sale commitments because its output has declined and supplies have been diverted to the domestic market. Indonesia had expected to export 25 million tonnes of LNG this year to its Asian customers. It traditionally exports LNG to Japan, South Korea and Taiwan.

Enbridge plans Texas gas pipeline links

May 24, 2005. An Enbridge Energy Partners LP subsidiary plans to invest $19 million on pipeline links in Texas to accommodate an agreement to transport as much as 100 mmcfd of natural gas through the Atmos Energy Corp. intrastate pipeline system. New pipeline will be added upstream and downstream of the Atmos system to complete a new link from North Texas to the head of Enbridge's new natural gas transmission line at Bethel, Tex. This 500 mmcfd East Texas transmission line offers gas delivery service to the systems of Houston Pipe Line Co. and Natural Gas Pipe Line Co. of America. Completion of the final leg of the new transmission line is scheduled for the end of June, when it will increase access to the major Carthage, Tex., hub. The 5-year term transportation agreement will go into effect in April 2006, when first deliveries begin. 
Policy / Performance
Airline group losses may hit $6 billion
 
May 31, 2005. The airline industry will lose $6 billion this year globally as high fuel prices and soaring costs in North America outpace growth in Asia and Europe. Airline fuel bills are projected to rise 31 percent this year to $83 billion, based on an average price of $47 a barrel for Brent crude oil. Losses between 2001 and 2004 exceeded $36 billion, and will lose another $6 billion this year. The association, which represents 95 percent of the world's airlines, earlier estimated 2005 losses at $5.5 billion. Airlines have not been able to fully cover their costs with surcharges. The airline group urged governments to pursue business-friendly policies and criticized a French-German proposal to tax air travel costs to aid developing countries. 
China to depend heavily on foreign oil, gas

May 29, 2005. China's booming economy and industrialization process will make the country dependent on foreign supplies for about 50 percent of its oil and natural gas requirements even as the country faces a shortage of coal. About 50 percent of China's oil and natural gas supply is expected to rely on foreign resources by 2020 due to a huge gap between domestic demand and production. China is estimated to consume 450 million tons of crude oil and 200 billion cubic meters of natural gas by 2020, and half of the supply would depend on imports. China produced 175 million tons of crude oil in 2004 and the maximum annual output could not exceed 200 million tons in the future. China now produces 40.8 billion cubic meters of natural gas a year and the gap between domestic demand and supply would reach eight billion cubic meters by 2020. Meanwhile, experts estimate that China will consume 2.2 billion tons of coal by 2010, causing a shortage of 330 million tons. 

EU to expand energy cooperation with Iran 

May 28, 2005. The European Union indicated strong determination to promote energy cooperation with Iran as Iran is one of its most important energy suppliers. The EU attaches great significance to the importance of dialogue between oil producing and consuming countries, stressing that the union plans to expand its energy cooperation with Iran. The union also plans to cooperate with Iran in other sectors as well including sea, road and rail transport issues. The Iranian oil official proposed that Europe could invest in the energy industries including petrochemical, aluminum, steel and the electricity sectors in Iran and export the products to Europe. Iran is situated in a very important geo-strategic region and as a corridor for the East, the West, the North and the South is very keen in cooperation with the EU in the transport sector. With the aim to push forward the work of the EU-Iran energy and transport group, the two sides agreed to soon form three experts committee in the fields of investments, efficient use of energy and air transport.

Ukraine and Azerbaijan for oil and gas venture 

May 27, 2005. Naftogaz Ukrainy and Azerbaijani have discussed cooperation in the gas and oil sphere. In particular, the two sides have discussed a general agreement between Naftogaz and Azerbaijan's state oil company on Ukrainian oil and gas production at Azerbaijani fields. The oil companies have considered the creation of a joint venture to procure and transport oil through the Basku-Supsa and Odessa-Brody pipelines to Europe.
China, Uzbekistan sign oil deal

May 26, 2005. The leaders of China and Uzbekistan signed an agreement to establish a "friendly co-operative partnership" signalling a new determination on both sides to further consolidate the traditional friendship. Uzbekistani counterpart, Islam Karimov, met in Beijing and witnessed the signing of 14 more agreements that are expected to open ways for more co-operation in trade, customs, high technology and energy. Among the agreements signed was the establishment of a joint venture by China National Petroleum Corp and its Uzbekistani counterpart. It worth a total investment of US$600 million and is seen as an important step for energy co-operation between the two countries.

China for Greenland’s oil, gas

May 25, 2005. Greenland expects Chinese oil companies to bid for exploration licences next year. The Chinese are very interested in the great potential in oil and gas exploration in Greenland. It is very likely that Chinese oil companies will be bidding in the coming oil exploration concession rounds next year. China is the world's No. 2 oil consumer and its thirst for energy has stretched global supplies and contributed to the upsurge in crude oil prices. Chinese oil companies are aggressively competing for stakes in foreign oil and gas projects to secure supplies.

LUKOIL hopes to sign Venezuela oil deal

May 25, 2005. Russia's largest crude producer, LUKOIL, hopes to sign a production contract with Venezuela's state oil company by the end of the year as part of its plans to expand abroad. The company was also interested in Venezuelan offshore energy production. LUKOIL wants to invest up to $1 billion in oil projects in Venezuela, the world's No. 5 oil exporter. The company is looking to expand oil and gas development in Caspian countries, North Africa, South America and the Middle East Gulf, after its net profit rose 11 percent last year due to high oil prices and rising output. Excluding one-time gains in 2003, the company's net profit leaped by 72 percent. LUKOIL's energy production last year was 1.83 million barrels of oil equivalent per day, which it hopes to expand to 2.8 million to 2.9 million boepd in 2014.

Singapore opening of gas market 

May 25, 2005. Singapore is on schedule to open up its gas market by the end of the year - the deadline recently set by the Ministry of Trade and Industry. With oil prices above US$25, liquefied natural gas has become feasible  'The Network Code, governing the gas market participants' behaviour, is done, and we are taking another look at it before implementation. Resolution of commercial sticking points involving earlier piped gas contracts and disputed third-party access to the existing gas pipelines is also expected by then. This involves players like Gas Supply Pte Ltd (which buys Sumatran gas) and PowerGas which operates the local portion of the Sumatra-Singapore pipeline - which are in arbitration over their gas transportation agreement. 
POWER
Generation
Teco to set up plant in Philippines

May 31, 2005. Teco Electric & Machinery Co., Ltd., one of Taiwan's leading manufacturers of electric machinery, will cooperate with the Japan-based Kyushu Power Co. to set up a thermal power plant in Subic Bay Industrial Park of the Philippines at a total cost of over NT$2 billion. Teco noted Subic Bay Economic Development Special Zone Administration has issued a green light to the investment project. With the consent of the administration, Teco is vying for the possibility of extending the power grid of the prospective plant from Subic Bay area to the neighboring U.S. Clark Air Force Base. 

First floating nuclear plant

May 26, 2005. Russia's atomic energy agency RosAtom plans to build the world's first floating nuclear power plant. RosAtom told a low-power plant with an electrical capacity of 70 megawatts and heat capacity of 140 gigacalories may be constructed in the Russian northwestern town of Severodvinsk within five years. The project's estimated cost is $180 million, and $30 million has already been spent on the planning stage. The plant will be able to provide a town of 50,000 people with heat and electrical energy or can be used to desalinate seawater China, Indonesia and a number of Middle Eastern and Mediterranean countries have reportedly expressed interest in the project.
Transmission / Distribution / Trade
Siemens to produce 220KV transformers

May 26, 2005. Siemens Pakistan has planned to start producing 220KV power transformers in Pakistan with an investment of Rs500 million. The power transformers market was growing at 5 per cent a year and would continue to grow for the next 10 years due to stronger economy, political stability and an improved climate for investment. Demand for 220KV transformers had increased considerably and expected to grow further. The new facility at the Siemens would not only enable the country to save precious foreign reserves, but also to export medium-range power transformers to other nations in the region such as Saudi Arabia, Kuwait and South East Asian countries.

China’s new grid plan aims to plug power gap  

May 28, 2005. China's largest power web builder is plugging a heap of grid extension plans to try and satisfy the country's surging demand for power. The State Grid Corporation of China (SGCC) plans to put a 750-kilovolt pilot transmission project into commercial operation in north-western China within five months, to link the two provincial grids of Qinghai and Gansu. Construction (for the 750-kilovolt project) is expected to wrap up in October. On completion, the project will be the highest voltage power transmission facility in China built at the highest altitude worldwide.
Policy / Performance
Iran, Turkey to boost energy exports to Iraq 

May 29, 2005. Iran and Turkey are to increase power exports to Iraq. As government figures showed that electricity output in the country plagued by cuts has worsened since the U.S.-led invasion two years ago, Iran has agreed to raise electricity exports to Iraq from 90 megawatts a day to 150, while Turkey will increase them from 150 to 230. The combined increases represent consumption by more than 100,000 homes and businesses in Iraq. Electricity ministry figures put current daily electricity production around 3,300 megawatts, compared with 5,000 before U.S.-led forces invaded the country in March 2003. 

China looks to coal to oil

May 27, 2005. Turning China's abundant coal reserves into oil to help close a widening supply gap might once have seemed a little more than a dream, but synthetic fuels may soon be a key part of the country's energy mix. Optimists say China could be making up to 1.2 million barrels per day of liquid fuel from coal in 10 years, equivalent to more than a sixth of current demand, as high prices and a growing import reliance renew interest in the process. Pessimists say uncertainty over the price of oil and that of coal, which has also surged, will impede development. 
Renewable Energy Trends
National 
J & K to construct 37 power projects 
 
May 31, 2005. The Jammu and Kashmir government has decided to construct 37 mini hydel power projects, which would generate an additional 59.25 MW of electricity, to tide over the energy crisis in the state. The work on four such power projects at Pahalgam, Bhaderwah, Faftal and Igo-Mercelang was nearing completion. These four projects were estimated to jointly generate 7.5 MW of electricity. Efforts were on to start the construction of 11 mini hydel power projects at Aharbal, Khamil, Hirapora, Athwatoo, Ranjala Dumadi, Tangmarg, Mandi, Boniyar, Brenwar and Drung as the technical formalities had already been completed. Niaz said 22 more such projects had been identified and work on these projects would be initiated soon. In addition, work on the Baglihar-II with a generation capacity of 450 MW power, Sawalkot (1200 MW), Baniyar (37.5 MW), New Ganderbal (95 MW), Karthai (240 MW) and Purnahi (50 MW) were in full swing. The Centre had released Rs 32 crore (Rs 320 million) as an additional central assistance scheme for Jammu, Srinagar, Budgam, Udhampur, Rajouri, Doda, Kathua, Poonch, Baramulla, Kupwara, Anantnag and Pulwama for the upgrade of the existing facilities. Besides, a sum of Rs 517 crore (Rs 5.17 billion) has been earmarked for the development of infrastructure in the power sector in Kashmir Valley under the recent package announced by Prime Minister Manmohan Singh. 
Global
Grass power to heat homes  

May 30, 2005. A power station fuelled by grass is to be built in Staffordshire. Work will begin later this year on the £6.5m bio-energy station at the Raleigh Hall Industrial Estate, in Eccleshall, near Stafford. The two-megawatt generator will be capable of supplying 2,000 homes and run on Miscanthus, or elephant grass. The grass originated in Africa and about 170 farmers are now diversifying into growing the crop, according to recent estimates. The plant will operate 24 hours a day and save one tonne per hour of carbon dioxide which would be emitted generating electricity from fossil fuel. 

Wood to biofuel - Germany may soon see a plant  
 
May 26, 2005. Royal Dutch/Shell Group, Europe’s second-largest oil company, and specialist fuel producer Choren Industries GmbH are studying building a factory in Germany that will turn wood chips into fuels similar to diesel. Shell and privately held Choren signed a letter of intent to build a plant making 150,000 tonne of fuel a year in Freiberg, eastern Germany, using Choren’s biomass fuels expertise and Shell’s decade of experience in gas-to-liquids technology. Construction would probably start in 2007 or 2008 and the plant would start producing fuel sometime between 2010 and 2012. 
Azerbaijan: Oil Pipeline, Americans, Wahhabites

Alexei Makarkin, Deputy Director General of the Center for Political Technologies for RIA Novosti

Recently, the expansion of ties between Washington and Baku has become obvious. The opening on May 25 of the oil pipeline Baku-Tbilisi-Ceyhan, by-passing Russia, is one of the best examples of the recent trend. According to many experts, this project bears clearly geopolitical rather than economic significance. It fits perfectly in the framework of other projects related to the US military presence in that strategically important region.

From time to time, information leaks into the media about the US plans to deploy its military contingents in Azerbaijan. The sources hint at the possibility of "temporarily deploying mobile forces," which might stay in the region for a rather prolonged period. These forces are supposed to provide security for the pipeline and exert pressure on Iran and Russia.

Officials in Baku denied these rumors, although it does not mean Azerbaijan would not contemplate the possibility of talks on the issue. The Azeri Defense Ministry took a different position on another issue, though. It did not confirm or deny information about the possible creation of a military bloc consisting of Azerbaijan, Georgia and Turkey, a sort of NATO "subsidiary." Some sources assume Ukraine might become a member of the new alliance later. 
The new prospect certainly looks good for NATO. The reason is the three post-Soviet states do not meet the criteria for joining NATO - insufficient level of democracy, existing territorial problems (both in Georgia and Azerbaijan), the presence of military forces of the states that do not make part of NATO (Russian bases in Georgia, the Russian Black Sea Fleet in Sevastopol). A "mini-alliance," though, would not have such strict requirements, and its members might be always encouraged by the promises to become NATO members in the mid- or long-term perspective. At the same time, such a solution will increase Turkey's role in NATO as a compensation for the delay in its integration with the European Union. In the future US military bases might be deployed in Georgia, as well. It is worth mentioning that the pipeline passing through the territory of the three states will become a foundation of the future military bloc.

Such a development will certainly hurt Russia's interests. That is why Russia attempts to delay the withdrawal of its military bases from Georgia for as long as possible and receive guarantees that the US bases will not replace them in the future. Political risks for Armenia and Iran will increase as well. Armenia still remembers the Turkish genocide during World War I, and Iran remains a potential target of the US invasion.

Courtesy RIA Nocsti

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