MonitorsPublished on Aug 03, 2004
Energy News Monitor I Volume I, Issue 6
Perspectives on oil depletion

Oil is critical for two things.  It powers almost all transportation on the surface of the Earth and it is the critical ingredient for nearly 5000 consumer products - from medicines to make-up, fabrics to fertilizers, plastics to petroleum jelly.   How much longer will oil continue to be the ingredient for these critical aspects of modern life? Will it remain affordable?  When will production of oil peak?


The answer depends on whom we ask - there are those who believe that oil production will peak in just about 10 years from now.  There are those who believe that production will peak only in 2040.  There are those who believe that no one really knows because information is controlled by vested interests both political and business. There are optimists who think that technology to extract energy from Hydrogen will be in place before we run out of oil and there are also those who believe that there is too much oil and the continued burning of it is about to cause climate catastrophe of unimaginable proportions. 


The world is using oil at the rate of about 80 million barrels per day (mbpd) and the consensus figure for remaining reserves is about 1000 billion barrels (1000 Gb).  At current rates of production this gives a reserve to production ratio of about 40.  But production is not going to continue at current rates for the next 40 years and then suddenly fall to zero.  Normally production from any oil field hits a peak and then begins to decline at about 8 or 9 per cent a year.  This has been observed in all large oil fields in the US which peaked in the 1970s.  The UK North Sea production peaked a year or two ago and is expected to drop at about 8-12 per cent each year.  This means that within 5 or 6 years these fields will be producing half as much oil they did in 1996.  All experts agree that production of conventional oil (often interpreted as cheap oil) will peak, plateau for some years and then begin to decline but there is a problem in forecasting exactly when this peak is expected because data on this is unreliable, partly because information is said to be ‘managed’ for political and business reasons and partly because there is no standard definition of what is called ‘conventional’ oil and is called ‘non-conventional’ oil.  


Production will peak between 2030-2040


This more optimistic view that oil production will peak only in 2040 is based on US geological survey (USGS) data which uses a figure of about 3345 billion barrels (3345 Gb) for ultimate global supply of oil. Optimism is built into the study as it does not factor in political or environmental constrains and includes many sources that are considered 'non-conventional' by other estimates.  Expensive environments such as the Artic and Northern Alaska regions, deep water areas, natural gas liquids, heavy oil from the tar sands of Canada and Venezuela are included.  But there is reason behind this optimism.  Natural gas liquids currently account for a third of all US production.  More than half the current production from the western hemisphere came from what is commonly called 'non-conventional' oil.  Large fields have been found in deep waters where geologists once believed that no oil can be found. The one billion barrel giant field Thunder Horse in the Gulf of Mexico is at a depth of 6000 feet. It is now believed that the deep waters of the Gulf of Mexico could yield nearly 25 billion barrels of oil ultimately.  Canada holds the equivalent of about 1.6 trillion barrels of heavy oil in the tar sands of Alberta and this is more than the remaining reserves of conventional oil. The Government of Alberta estimates that 174 billion barrels of this could now be tapped economically and this figure has been included by the US Department of Energy as part of Canada's proven reserves. 


Production will peak between 2010-2015


There are experts, prominent among whom is Dr Colin Campbell of UK, who think that the USGS survey forecasts are way too optimistic.  They argue that the USGS estimate that 674 billion barrels of oil will be found in a 30 year period between 1995 and 2025 is unrealistic.  If an average of that figure is taken, about 25 billion barrels oil has to be found each year.  Nine years into the study period, on average only 10 billion barrels of oil have been found each year. Yet another argument is the decline in discovery rates.  Discovery peaked in the early 1960s.  Most of the best prospects were found between 1930 and 1970.  More than 20 years have passed since an oil field that would produce a million barrels a day was discovered.  This argument is strengthened by oil industry trends.  The four biggest oil companies own about 4 percent of the world's reserves from which they produced about 3.2 billion barrels last year accounting for about 10 percent of production worldwide. From the information filed by these companies with regulatory authorities it is easy to see that the relationship between reserves and production is weakening.  ChevronTexaco's proven oil and gas reserves have risen 14 percent, more than one billion barrels but for each of those years, ChevronTexaco's wells have produced less oil and gas than the year before and the company's annual output has fallen by almost 15 percent. Its oil reserves increased from 6.9 billion barrels at the beginning of 1994 to 7.7 billion barrels in January 1998 to 8.6 billion barrels at the start of this year. But after surging from 644 million barrels in 1994 to 757 million in 1998, production fell to 641 million barrels last year.  At Exxon Mobil, reserves rose from 9.6 billion barrels at the beginning of 1994 to 12.1 billion barrels at the start of this year, a 26 percent increase. But Exxon Mobil's production fell 2 percent, from 909 million barrels in 1994 to 893 million last year. At BP, the data is not clear as the company has had many acquisitions and sales over the last several years. Still, BP's production at its wholly owned fields has plunged to 562 million last year from 672 million barrels in 1998, while its reserves have risen to 7.5 billion from 6.5 billion over that span.  Shell actually increased its production slightly since 1994, despite the embarrassment of its announcement in January that it had improperly classified billions of barrels of reserves as proven instead of probable or possible.


This camp has little optimism for the ability of unconventional oil tied up in oil sands in Canada, bitumen in Venezuela or oil shale in western Colorado to meet demand for oil as conventional production declines.  Their argument is based on the fact that production from oil sands is very different from production from, say, a Saudi Arabian oil field, where oil gushes out at the rate of 20,000-30,000 bpd from a well.  Producing from the oil sands is more like mining and is highly capital and labour intensive.  Two tonnes of sand are required for each barrel of oil. Bitumen has to be put through cokers at temperatures of about 485 C to break the tar molecules and then through catalysts to produce crude oil. Energy required to produce a barrel of oil from these fields is much higher than that for conventional oil.  Production from such reserves also causes substantial environmental damage. These features of heavy oil they argue are bound to keep heavy oils in the margins of the oil market, at least until 2040.   


There will be a smooth take over by Hydrogen


Many do not see a big problem with oil depletion because they believe that the world will get much more efficient in using oil or in substituting other sources to do the same jobs - only better and cheaper. They point to the fact that oil productivity has more than doubled in the last 25 years within the western world and expect this figure to be improved continuously. Keen environmentalists among them are in agreement with geologists that there is a pressing need to find alternatives to oil but they believe that the problem regarding oil is not that it is going to run out but that the world has too much.  They contend that even if a quarter of the existing reserves of fossil fuels are burnt we will face catastrophic climate change.  Some believe that oil may become uncompetitive even at low prices before it becomes unavailable even at high prices because more efficient substitutes will be found. As for the petrochemicals industry, they point to the widespread misunderstanding that oil is the key feedstock for these industries when in reality it is natural gas - which is much more plentiful. While natural gas will sustain the petrochemical and pharmaceutical industry in the short term, they say eventually chemistry will enable any hydrocarbon or carbohydrate (polylactic acid from corn cobs for example) to produce polymers and pharmaceuticals. 


Yet another subset within this camp believe that natural gas, liquid hydrocarbon from coal along with renewable sources like the sun, wind and bio fuels will substitute oil in many of its end uses.  Most of the optimism is however reserved for the emergence of a Hydrogen economy.  Hydrogen is not an energy source but an energy carrier like electricity or petrol.  Hydrogen is never found independently as Hydrogen in nature but has to be freed from chemical compounds in which it is bound up.  Broadly there are three ways to do it: using heat and catalysts to reform hydrocarbons or carbohydrates, or electricity to split hydrocarbons or carbohydrates, or experimental processes based on sunlight, plasma discharge or micro organisms.  When hydrogen is used as a fuel, water is the only major by product and this makes hydrogen a very attractive fuel for the future dominated by environmental considerations. Proponents of Hydrogen dismiss all criticism including those that say that hydrocarbons such as oil and natural gas are required to produce hydrogen and that making hydrogen will use more energy than it yields.  While they agree that use of hydrocarbons to produce hydrogen may be true in the short term eventually hydrogen will be produced from renewable sources at competitive prices. Greater end-use efficiency of hydrogen, they argue would more than offset conversion losses.  A common example cited is a hydrogen powered car that can to give 3-4 times the motive power one can get in an otherwise identical petrol car.  They point out that Chairs of large oil companies are in agreement that the world is entering the ‘oil endgame’ and the start of a ‘hydrogen era’.  The puzzle about hydrogen is that it has some support from all quarters - governments back it, environmentalists back it and so does the industry - almost all big oil companies and car companies have a comprehensive hydrogen program. 


No one really knows


There are many who believe that no one really knows how much oil there is left in the world as they suspect a huge multinational numbers game between the west and the OPEC oil producers of the Middle East that have an interest in keeping this information in a muddle. Political elements are also suspected. Much of the argument is centred on the assumption that the US which imports 60 per cent of its oil needs, has a desperate desire to keep world oil prices down. Oil is cheaper than milk or water in the United States.   Hyper mobility of Americans is said to be fuelled by low oil prices. The average American motorist drives 12,000 miles a year which is equivalent to driving to the moon every 20 years.  A typical baby boomer in the US drives or flies more than a million miles in their lifetimes.  The optimistic figures put out by the USGS are supposedly intended to undermine the confidence of OPEC in the way they manage production and hence price.  Part of Osama Bin Laden’s anger against the western world is attributed to the low price of oil - he is said to consider $100 per barrel as more appropriate.


Details of reserves and output are closely guarded secrets for most countries. During the 1980's, members of OPEC sharply raised their reserve estimates, because OPEC's output quotas were based in part on national reserves. While OPEC countries manage their reserve numbers because they want higher allocation oil companies manage their reserve numbers because they want to sustain share price.  Since every player in the game expects every other player to misrepresent reserve estimates overall misrepresentation is compounded.  Royal Dutch/Shell, the world's third-largest oil company, admitted recently that it overstated its oil and gas reserves by 22 percent, the equivalent of 4.5 billion barrels of oil.  There is doubt, even about the remaining reserves of Saudi Arabia - commonly assumed to be the world’s central bank for oil. 


The challenge for India


Wherever the truth may lie, the fact remains that oil & gas are one time geological inheritances which will run out sooner or later.  We are already facing the signs of an oil stressed world as oil is not only becoming expensive but also staying that way.  A survey from the International Energy Agency shows rising demand, drop in production by oil super majors offers more evidence that energy prices may stay high for the foreseeable future. More and more data is starting to say that underlying all this, the supply-demand balance is tighter than we thought. Tight markets and high oil prices are likely to be around for a long time. Developing countries such as China and India who are the worst hit by rising oil process are now the primary drivers of oil price.  Oil analysts point to the surge in demand from China and the rest of Asia as the largest single factor behind the recent rise in world oil prices. Indian oil demand is growing at double digit rates and is already the world's seventh-largest consumer of oil. 


The question for India is whether it will have demand side measures in place before supply side constraints arrive irrespective of when they arrive?  When oil production peaks we may turn to even dirtier fuels such as coal.  It is a cheaper fuel and still relatively widely available.  We may not be able to power our cars with it but we can rely on it to be a substitute in many of oils end uses.  But we must have the technology in place to make coal environmentally acceptable.


Over the long term the only viable solution is to free ourselves from our dependence on oil entirely, by shifting to other forms of energy. But in the meantime, we are trapped in a complex and dangerous present, in which we need to ensure that we have the oil we need to keep the economy going while we seek to develop alternatives on a meaningful scale. In the short term, we need to improve our technology, our rolling stock of vehicles, our consumption practices, our efficiencies, our energy policy & our energy pricing policy. We can’t go on business as usual for another decade.  We cannot remain satisfied following strategies of other consuming countries. We have to think beyond concepts of supply and demand and begin to think in terms of the final value that we expect to derive from consuming energy.


References: Crude Facts. BBC Radio programme.  The imminent peak of global oil production, Colin Campbell, The end of cheap oil, National Geographic, June 2004, Twenty Hydrogen Myths, Rocky Mountain Institute. 


 Lydia Powell

Observer Research Foundation




Indian Oil & Gas Sector Update

(Excerpts  from Economic Survey 2003-2004)


Turbulence in the international crude oil market has brought back to prominence the questions of dependence on oil, progress in exploration in India, better utilization of natural gas, and improvement in energy efficiency.


Natural gas production was 31.40 billion cubic metres (BCM) during 2002-03, up by 5.7 percent from 2001-02. In 2003-04, production went up by 1.8 percent to 31.96 BCM.


In the fourth round of New Exploration Licensing Policy (NELP-IV) to accelerate the pace of exploration of oil and gas in the county, Government signed contracts for 20 blocks in February 2004. With these blocks, in the first four rounds of NELP, contracts of 90 blocks covering 9.1 lakh square kilometers have been signed and the area under exploration has gone up by over 250 percent from 0.35 million square kilometers to 1.24 million square kilometer. Today, as much as 74 percent of the under exploration and production belongs to the NELP blocks. With the implementation of NELP, 9 discoveries have been made. Of these, the gas discovery in the Krishna Godavari basin, announced in October 2002 is the most significant with an initial estimated availability of 7 trillion cubic feet (198 BCM of gas).


ONGC Videsh Limited (OVL) has acquired 25 percent interest in the Greater Nile Oil Project (GNOP) in Sudan as part of the process of acquisition of equity oil and gas abroad. The field is already producing, and OVL’s share in production works out to about 3 million metric tonne per annum. In addition, OVL has acquired interest in 2 exploration blocks in Sudan, 2 exploration blocks in Libya and 1 block in Syria.


Government introduced the Petroleum Regulatory Board Bill, 2002. The Bill was referred to the Department related Parliamentary Standing Committee for examination. The Committee presented its report to Lok Sabha on May 8, 2003 and recommended that the Bill may be passed subject to its recommendations and observations. The Ministry has examined the recommendations and accepted them with minor modifications.









ONGC to provide Rs 8 billion subsidy


July 28, 2004. Oil and Natural Gas Corporation is expected to provide for Rs 8 billion as its share of kerosene and cooking gas subsidy for April-June 2004 when it finalises its accounts for the first quarter. The government had asked ONGC, Gail (India) Ltd and Oil India Ltd to take one-third of the subsidy amounting to around Rs 14 billion during the first quarter of the financial year.  While the oil marketing companies would take a one-third hit, the rest will be accounted for in the Centre's Budget. The oil marketing companies reported under-recoveries of Rs 51 billion from the sale of kerosene, cooking gas, diesel and petrol during the first quarter.  Of this, under-recoveries from the two cooking fuels were estimated at over Rs 36 billion.


India expects higher crude output


August 2, 2004. India expects large investments in oil exploration and higher crude output after some promising oil and gas finds, but analysts say more discoveries are needed to lure potential investors into the sector. India will launch the fifth round of its New Exploration Licensing Policy (NELP-V) in a month, hoping to increase upstream investment and provide more oil reserves for the energy-deficient country that imports 70 per cent of its crude oil requirement.  Indian firms are stepping up exploration spending, hoping to emulate Reliance Industries, which found 14 trillion cubic feet (396.4 billion cu metres) of gas in 2002, and Britain's Cairn Energy Plc, which made a significant oil discovery in the desert state of Rajasthan.  Cairn said this year its Mangala field in Rajasthan had estimated oil in place of 450-1,100 million barrels, which Indian officials say could be India's biggest discovery since the giant Bombay High offshore oil field was found in the 1970s. 


ONGC's new plant hits a roadblock


August 1, 2004. Oil and Natural Gas Corp's plans to build a Rs 9 billion plant at Dahej in Gujarat to extract C2/C3 and LPG from LNG has hit a roadblock with the government seeking legal opinion on award of rights to the company. Petroleum Secretary S C Tripathi ordered a legal opinion when state-run refiner IOC and gas utility Gail India challenged Petronet LNG Ltd's decision to award the C2/C3 and LPG extraction project to ONGC, sources said. ONGC, IOC and Gail, along with BPCL, are equal partners in Petronet LNG Ltd, India's first Liquefied Natural Gas (LNG) import firm.  PLL board on July 29 was to consider signing of contract with ONGC for the plant but objections raised by IOC, which were supported by Gail, made Tripathi, who is also the chairman of PLL, to ask for a legal opinion.  Gail is contesting the project, saying it had set up LPG fractionators and petrochemical projects on the premise that it would execute the C2/C3 project. On the other hand, IOC wants rich gas (gas which has not been stripped of ethylene and propylene - C2/C3) for its petrochemical plants.




BPCL to raise refining capacity


July 28, 2004. Bharat Petroleum Corporation said that it would upgrade its refining capacity to 240,000 barrels per day (bpd) by March 2005 from the current 180,000 bpd. The company has said that the upgrade project would cost Rs 18 billion. Higher production at the refinery would allow BPCL to export more naphtha, fuel oil and gas oil.  Crude oil imports by BPCL and its subsidiary, Kochi Refineries Ltd., would rise to 30 million tonnes (260,000 bpd) in fiscal 2005/2006 (April-March), from 10 million tonnes in the current fiscal year.  BPCL's refining margin in April-June rose to $5.20 a barrel from $4.00 in the same quarter a year ago. This would not lead to higher company profits because of the burden of subsidies on domestic sales of kerosene and LPG and low retail prices of gasoline and gas oil.


IOC shuts down Numaligarh refinery


July 28, 2004. Indian Oil said that it had raised output at its Guwahati and Bongaigaon refineries as more crude was available after the shutdown of another refinery in the region due to floods. Crude output in Assam state was normal despite floods. Numaligarh refinery in Assam state was shut down due to floods.


Indian Oil to launch alternate fuel


July 29, 2004. Indian Oil Corporation (IOC) is planning to launch a hydrogen-mixed compressed natural gas fuel for three-wheelers and buses in Delhi. It can also be used for running generator sets with hydrogen accounting for 10-30 per cent of the fuel. The government has designated IOC as the nodal agency for hydrogen research on behalf of oil and gas companies. A corpus of Rs 1 billion has been set aside for the purpose. The company intends to take up research projects for the production, storage and application of hydrogen, including setting up of infrastructure for dispensing hydrogen for automotive vehicles, an IOC release said.  The oil major signed a memorandum of collaboration with Minda Industries for the development of a hydrogen mixture system for internal combustion engines.  Minda is at present the original equipment manufacturer (OEM) supplier of CNG and LPG systems for gensets, three-wheelers, cars and buses.


BPCL to invest Rs 12 billion to make Euro-IV fuel


July 28, 2004. Bharat Petroleum Corporation Ltd (BPCL) plans to invest Rs 12 billion towards producing auto fuel compliant with Euro-IV emission norms. The refinery is currently undertaking expansion of the refinery capacity to 12 million tonnes.  The expansion of Mumbai refinery to 12 million tonnes from 8.76 million tonnes per annum by March 2005 will enable BPCL to produce petrol and diesel compliant with Euro III fuel emission norms. BPCL has also planned an investment of Rs 12 billon to produce Euro IV fuel. BPCL is investing Rs 18.31 billion in expanding its Mumbai refinery to produce Euro III compliant diesel and another Rs 1.1 billion towards producing cleaner petrol.


IOC forays into gas pipeline business


July 30, 2004. The Indian Oil Corporation, a Fortune 500 Indian energy major, is diversifying into gas pipeline business. The company successfully forayed for execution of Baroda-Ahmedabad-Kalol gas pipeline project of Gujarat State Petronet Ltd. IndianOil, in consortium with Stroytransgaz of Russia and Essar Constructions Ltd, Mumbai commissioned the 133 km-long, Rs 198-crore gas pipeline in May 2004 on turnkey contract basis. The pipeline is for transporting natural gas from Baroda to Ahmedabad and then to Kalol in Gujarat. 


BPCL offers HPCL equal stake in Bina refinery project 


August 2, 2004.  State-run Bharat Petroleum Corp has offered to take Hindustan Petroleum Corp as equal partner in the Rs 63.54 billion (US$1.37 billion) Bina refinery in Madhya Pradesh. Of the six million tonne products Bina refinery will produce annually, HPCL has indicated a requirement of 1.4 to 1.6 million tonnes of petrol, diesel, LPG and kerosene for marketing in Madhya Pradesh. Bina refinery, in which BPCL holds a 51 per cent stake, is slated for completion in the second half of 2008. Oman Oil Company holds about 2 per cent interest in Bharat Oman Refinery Ltd (the company executing the Bina refinery project) and the remaining equity is being offered to HPCL. 


Oil marketing firms ask govt to slash tariffs


August 2, 2004. Oil marketing companies have approached the government to reduce tariffs since they will continue to lose around Rs 2.1 billion due to a Rs 1.20 per litre under-recovery on diesel.  There will, however, be no under-recovery in case of petrol.  According to estimates, minus the marketing cost, oil companies have a margin of around Rs.0.20 per litre in case of diesel and Rs. 0.50 for petrol.  While raising the price of petrol by Rs 1.10-1.19 a litre and diesel by Rs 1.42-1.69 a litre in the four metros, the oil companies did not alter the selling price of kerosene and cooking gas.  The oil companies lost Rs 36 billion due to the subsidy since the under recoveries in case of kerosene is estimated at around Rs 5 a litre and cooking gas at around Rs 130 a cylinder. 


Gujarat Oleo delivers bio-diesel to IOC


August 2, 2004.  The Ankleshwar-based Gujarat Oleo Chemicals Ltd (GOCL) shipped the first commercial consignment of bio-diesel to Indian Oil Corporation Ltd (IOC).  IOC will use the bio-diesel in test trials for the railways.  Derived from the Jatropa plant seed, whose cultivation is being promoted by the Gujarat government, the first consignment of 450 kilo litre of bio-diesel was handed over to IOCL at Ankleshwar on Saturday. While the company has become the first Indian company to provide bio-diesel to a public sector oil major, OICL may pick up another consignment from the company in the near future.  Public sector oil majors Hindustan Petroleum Corporation and Bharat Petroleum Corporation have also initiated talks with the company for bio-diesel.  At present priced below Rs 45 a litre, the price of bio-diesel could come down further, if the government provides tax exemptions. 


Shell set to get permit for petrol, diesel retailing


August 2, 2004. The Government is set to allow Shell India Pvt Ltd to set up 2,000 retail outlets in the country for marketing petrol and diesel. This follows the multinational oil and gas major fulfilling the investment criteria for obtaining the market authorisation permit to sell transportation fuels. Around three months ago, Shell cleared the investment requirement of Rs 20 billion in the country by way of completing a good part of the $650-million 2.5 million- tonne per annum LNG regassification terminal at Hazira, Gujarat. Since deregulation of the petro-marketing business on April 1, 2002, the Government has given the market authorisation permit to four companies. These are Reliance Industries Ltd, Essar, Numaligarh Refineries Ltd (NRL) and Oil and Natural Gas Corporation (ONGC). While Reliance has set up around 100 retail outlets, Essar has set up roughly 70 outlets.


SHV Energy to up focus on industrial LPG pie


July 31, 2004. SHV Energy India Private Limited, supplier of 'Super Gas' liquefied petroleum gas (LPG), is increasing its thrust on the industrial and the commercial sectors to drive growth.  The strategy is also part of the fact that parallel LPG marketers in India are unable to price their LPG competitively due to huge government subsidies doled out to nationalised oil companies.  Part of the $10-billion Dutch multinational SHV Group, the world's largest LPG gas distribution company, SHV Energy India is counting on its expertise to provide 'total energy solutions'. It offers advice on aspects such as cost economics, equipment suitability and conversion to LPG, safety, training etc. It can be either new installations or existing installations that use LPG or any other fuel.  The company sold 110,000 tonnes of LPG and recorded a turnover of Rs 2.5 billion last year. Of the total sales, the domestic (home) segment constitutes a mere five per cent, while commercial and industrial sectors account for 20 per cent and 75 per cent respectively. 


Transport / Trade


GAIL-BPCL JVs to supply gas to Kanpur and Pune 


July 28, 2004. GAIL India Limited has signed two joint venture agreements with Bharat Petroleum Corporation (BPCL) for implementation of city gas projects in Kanpur and Pune. The petroleum ministry, has allocated 0.1 MMSCMD of natural gas for Kanpur and 0.4 MMSCMD for Pune for implementation of the projects. As per a GAIL release, the agreements have made way for the formation of JV companies for supply of compressed natural gas (CNG) and piped natural gas (PNG) in these two cities. For this purpose, a spur line shall be laid from GAIL's HVJ pipeline to Kanpur. The pipeline is expected to be completed by November this year. Simultaneously, a CNG station will also be set up in Kanpur. For Pune, GAIL's proposed Dahej-Uran Pipeline (DUPL) will be extended to the city; and the project is expected to be implemented in 2006-07. Mahanagar Gas Limited (MGL), which manages the city gas business in Mumbai, shall also be a partner in the JV company of Pune. The use of CNG as automotive fuel and PNG as domestic fuel is expected to reduce environmental pollution in the cities. GAIL has taken up city gas distribution in India as a thrust area and the two agreements are a step in this direction.


India and Iran discuss $3b gas pipe via Pakistan


July 28, 2004. Iran and India discussed a proposed $3 billion gas pipeline through Pakistan, an idea the two countries have been pursuing for the past seven years without success, an official said. "The matter was discussed. It is going to be discussed further, studied further," External Affairs Ministry spokesman said after talks between the foreign ministers of India and Iran, Natwar Singh and Kamal Kharrazi. Iran has been pursuing the pipeline proposal with India and Pakistan since 1996, but tensions between the two South Asian nations over the Himalayan region of Kashmir have blocked progress. Prime Minister Manmohan Singh said he has an "open mind" toward Iran's proposal for a pipeline to supply natural gas to India through Pakistan, the Press Trust of India reported. Iran says the proposed 2,600-kilometre pipeline would save India around $300 million a year in energy costs.


Adani to buy 74% in Petronet SPV


August 2, 2004. The Adani group is picking up 74% equity stake in the special purpose vehicle (SPV) set up to develop Petronet LNG's 4 MMTPA solid cargo port at Dahej. As a part of the concession agreement with the Gujarat government, Petronet LNG was recently allowed to opt for a partner for the Rs 3 billion solid cargo port project.  Petronet LNG, which has developed the country's first LNG terminal at Dahej, has to mandatorily construct a dry cargo port at Dahej as a part of the original agreement with the Gujarat government. In the initial phase, an investment of Rs 3 billion has been envisaged for the cargo port project and its debt equity ratio has been fixed at 70:30 for the SPV - Gujarat Adani Petronet Dahej Ltd. Mr Sanjay Gupta, CEO, Adani group confirmed the development. It may be pointed out that Adani Port Ltd has jointly developed the Mundra port which has capacity of 11 MMTPA.


Petronet to supply more gas to generate power


August 3, 2004. The government has asked Petronet LNG Ltd to supply an additional regassified liquefied natural gas to National Thermal Power Corporation (NTPC), besides allocating additional gas to the public sector company, as part of its strategy to increase the electricity generation to compensate for shortages on account of inadequate rain. The ministries of petroleum and power have asked Petronet to supply an additional 1.3 MCMD regassified liquefied natural gas to NTPC's Kawas and Gandhar plants with a combined capacity of 1,300 mega watt. Also, 1 MCMD additional gas will be supplied to the company's Dadri, Auraiya and Faridabad units. The decision was taken following consultations by the power secretary with state energy secretaries last week.  In addition to these measures, states have been asked to enter into commercial arrangements with captive generation units, wherever there is an additional capacity available. Further, the power generating units owned by the Central utilities have been asked to defer maintenance to make good the shortfall arising due to the lower generation by hydel plants.


KRL keen to take part in LNG terminal project


August 2, 2004. Kochi Refineries Ltd (KRL) seems to be keen on participating in the LNG terminal project here, irrespective of who sets it up. The fate of the proposed terminal to be set up by Petronet LNG Ltd (PLL) hangs in balance for want of tie-ups for 60 per cent of its capacity of 2.5 million tonne a year.  Recent market studies have revealed that there are enough buyers in Kochi and in Coimbatore and Salem, who could absorb about 60 to 70 per cent of the capacity of the 2.5-million-tonne terminal. Hence, the major impediment now is the `pricing' of LNG. The question is whether the company setting up the terminal would supply gas at a price acceptable/affordable to the prospective buyers.  KRL is planning to diversify into power generation following the introduction of the Electricity Bill 2003, by reviving its old proposal to set up a 500 MW power plant.


Policy / Performance


Energy panel to look for ways to cut dependence on oil 


July 29, 2004. The Integrated Energy Policy Committee headed by Planning Commission member Kirit Parikh will come up with suggestions to correct distortions in energy pricing in a bid to reduce the country's dependence on petroleum products.  He said that the energy sector in the country would be integrated in the true sense of the word only if the existing pricing distortions were corrected and that a system of rational pricing of power is to be established. Dr Parikh pointed out that the price of coal was artificially high because of high freight costs which in turn were a result of cross subsidisation by the Railways. This made coal relatively expensive compared to subsidised products like natural gas and negatively influenced consumer choice, he added. While the government's initiative to link petro prices to international prices was a welcome move, Dr Parikh said that the initiative was incomplete till prices of competing products like natural gas and other fuels were also linked to international prices.  Other members of the Integrated Energy Policy Committee will be finalised next week, he said, adding that he had been asked by the government to submit the policy in six months' time. On the issue of energy security, Dr Parikh said that it was important to examine all options to arrive at the most cost-effective solution.


Petrol, diesel prices set to go up


July 28, 2004. Petrol prices are set to go up by Rs 0.57 per litre and diesel by Rs 0.92 per litre from August 1. The price hike in New Delhi would be sharper due to the increase in sales tax. Diesel price in Delhi will go up by Rs 2.40 per litre, after factoring in sales tax of Rs 1.60 per litre. While state-run Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd want to raise petrol and diesel prices by Rs 1.50-2 per litre each, the narrow price band, within which the oil firms can revise prices, will see only a marginal increase in prices.


Gail to share gas subsidy bill


July 30, 2004. Gail India Ltd, the gas firm, will pay Rs 2.26 billion to the state-run oil marketing firms to part-compensate for the losses they suffered during the first quarter for selling LPG and kerosene below the cost. The government has asked exploration and production firms to bear one-third of the estimated Rs 36 billion loss Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp suffered in April-June due to non-revision of LPG and kerosene prices despite rise in cost and cut in budgetary subsidy. As part of the LPG and kerosene subsidy sharing formula, Oil and Natural Gas Corporation picked up Rs 8.1489 billion bill while IOC would bear a little less than Rs 1.5 billion. In turn, IOC (including IBP) will receive around Rs 7 billion, while HPCL and BPCL will share the remaining spoils equally. 


Govt opposes BG's hike in gas price


August 2, 2004. The Petroleum Ministry has objected to British energy firm BG's hike in ceiling price of natural gas from Tapti field in Mumbai offshore and has instructed Gail India to protect its interest by declining to accept such high price. BG raised the ceiling price of Tapti gas to 5.57 dollars per million British thermal unit (mBtu) from 3.11 dollars per mBtu from June 26, 2004. Currently, the 5.2 million standard cubic metres per day of Tapti gas is sold to gas marketer Gail at a price between 2.11 and 3.11 dollars per mBtu. The ministry is citing BG's admission to Petroleum Secretary in April 2004 that a price revision, if applied as per the production-sharing contract, would result in a gas price that the market might not be able to absorb. 






Tender opens for Bhilai power plant 


July 27, 2004.  The tendering process for the 500 MW power plant to be set up as a joint venture by Steel Authority of India Ltd (SAIL) and National Thermal Power Corporation (NTPC) in Bhilai has begun. The new plant is being set up so as to meet the expected power requirements as the company increases its capacity in phases to 20 mt by 2012.  The cost of the plant would be Rs 20 billion, with a debt component of Rs 14 billion and equity component of Rs 6 billion, representing a debt-equity ratio of 70:30. SAIL will contribute Rs 1.5 billion towards the equity of the new plant, representing 50 per cent of the equity. NTPC will contribute the balance Rs 1.5 billion (50 per cent). According to current estimates, the plant will be commissioned by 2007.  SAIL will be able to source its power requirements from the plant when it completes its expansion plan. SAIL does not face any shortage for its power requirements of 500 MW. Subsequent to the expansion, the company's power requirement will go up to 800 MW.  The surplus power will be wheeled to the grid. 


Sugar co-op plans power plant


July 27, 2004.  Shree Khedut Sahakari Khand Udyog Mandali Ltd, a 50-year-old sugar co-operative, plans to set up a 100 MW power plant and an ethanol distillery at Bardoli, about 30 kms from Surat.  The proposed ethanol distillery will have a daily production capacity of 90 kilolitres. Environmental clearance from the government is expected in the next four to five months.  The sugar factory, which has an annual turnover of Rs 3.5 billion, has played an important role in the development of Bardoli, the co-operative said.


Nagarjuna Power work to start by end-2004


July 28, 2004. Karnataka's soon to be largest private power producer, Nagarjuna Power Corporation, will start work on its Rs 40 billion 1,015 mw plant in Mangalore by end-2004. It is currently in the process of signing the power purchase agreement (PPA) with Karnataka Power Transmission Corporation for 30 years.  The financing is being done on a 70:30 debt equity basis with Power Finance Corporation and Regional Electrification Corporation wearing the lead institution hats. The consortium of banks is led by SBI. The Rs 12 billion equity infusion is being made by the promoters, Nagarjuna Group with 50% contribution while the rest is being brought in by a group of domestic HNIs and foreign corporate bodies. It is understood that the investor group is still being firmed up. Once the coal fired plant gets commissioned in 36 months in 2007, it will be pumping 20 million units of power per day into the grid. The facility will work on a plant load factor (PLF) of 85-90%. It will be selling power at Rs 2.10-2.15 per unit. The company is sourcing the coal from Australia and South Africa. To ensure that the costs stay stable, the coal prices will be locked for in the first five years. The tariff is expected to more or less remain the same through the life of the PPA with revisions coming only with change in variable cost (fuel price).


Combined heat-power plant mooted for Tirupur cluster


July 28, 2004. The Textile Ministry's Textiles Committee and Ecosmart, the environment services body floated by IL&FS, will initiate a dissemination meet in Tirupur on the feasibility of a combined heat and power (CHP) plant.  The focus will be on a cost-effective electrical and steam energy alternative for the Tirupur-based wet-processors looking for cheaper energy sources. The concept meet will unveil debate on the techno-economic feasibility for establishing the CHPs as common energy facility points for group of wet-processing units.  It will be held in the form of a workshop and will seek views of the Tirupur industry on the scope of setting up CHPs in the backdrop of a survey done sometime ago by Ecosmart in specified textile units in and around Tirupur. The survey carried out between December 2003 and February 2004 that covered a total of 96 units largely engaged in dyeing and allied processing works in Veerapandi and Karaipudur areas of Tirupur will form the focal point for the CHP plant models for Tirupur units which largely use both the thermal and electrical energies for running units and also for direct wet processing operations.


Plans for two 250 Mw power plants in Bengal


July 31, 2004. Power utility and RPG group company, CESC Ltd is looking at the possibility of setting up two 250 MW power plants at Budge at Rs 20 billon.  It has already received the clearance for the first 250 MW plant from the West Bengal pollution control board. The clearance from the Ministry of Environment is expected in another few weeks and the project is likely to be commissioned by December this year. The total project is expected to be complete in three year.  While the first phase would be completed through a mix of debt and internal accruals, the second phase is likely to be a combination of debt, equity and internal accruals.  CESC has also firmed up plans of rising around Rs 7.25 billion of loans for swapping its high cost debts - both long-term and working capital with cheaper ones as part of its second round of restructuring effort. The company is also talking to two other similar entities for procuring additional loans for swapping its costly debt. 


Transmission / Distribution / Trade


Northern grid under pressure


July 28, 2004. Power grid Corporation of India Ltd has asked north Indian states, facing electricity shortage, to exercise restraint in drawing power from the Northern Grid since the frequency is hovering around the minimum permissible 49 hertz level.  In the recent past, the frequency dipped below the 49 Hz level resulting in a tripping of the Rihand-Dadri 1500 MW HVDC line resulting in problems across almost all north Indian states. While most areas in Delhi witnessed load shedding of 90-120 minutes, certain areas of Uttar Pradesh had to do without power for five-six hours. Powergrid executives said that the transmission utility was trying to ensure that the frequency remained over 49 hertz and had successfully managed the situation today. 


Reliance and Essar in race for PGCIL project 


July 29, 2004.  Reliance and Essar have emerged as the final contenders for Rs 5 billion Koldam transmission project of Power Grid Corporation of India Limited (PGCIL).  As many as eight domestic and foreign companies, including L&T, KEC, Kalapataru, the Spain-based Isolex Wat and a Russian firm had shown interest in the project. These companies had even participated in the pre-bid meetings with Power Grid Corporation. While Reliance has sought a 74 per cent equity participation in the project, Essar Power has put in a bid for a 51 per cent stake. A bid guarantee amount of Rs 11 million has been paid by each of the two companies. A final decision on selecting the joint venture partner is expected by August 15. The 400 kv Koldam transmission line project is the second private sector transmission project in the country. It will be implemented as a joint venture project between PGCIL and the qualified bidder. The first 400 kv private transmission line project is being constructed jointly by Tata Power and PGCIL for power evacuation from the Tala power project in Bhutan. This transmission project will evacuate power from the 800 mw Koldam and 350 mw Parbati hydro-electric projects in Himachal Pradesh. Bids for the project were invited from private companies by PGCIL through the international competitive bidding (ICB) route.


ONGC, PTC in power trading deal


July 29, 2004.  PTC India Ltd (Power Trading Corporation of India Ltd) has entered into an agreement with Oil and Natural Gas Commission for trading of the entire surplus from ONGC's existing generating units and new power projects to be set up all over the country. The memorandum of understanding was signed by Subir Raha, chairman and managing director (CMD), ONGC and T N Thakur, CMD, PTC.  ONGC is planning to generate power from its dispersed, isolated and marginal gas producing fields, either on its own or through a special purpose vehicle to set up independent power producers (IPP).  ONGC had also invited PTC for equity participation for the development of the proposed IPP. 


Bhel bags Power Grid order


August 2, 2004. Engineering major Bharat Heavy Electricals Ltd has bagged a Rs 650 million order from national transmission utility Power Grid Corporation for setting up a 400/220 kV grid sub-station in Bihar on turnkey basis. The order, which also envisages extension of a 220 kV sub-station of Bihar State Electricity Board at Muzzafarpur, would be completed in 22 months, a Bhel release said. The package is part of the East-North Interconnector II transmission project, it said. Under the deal, Bhel would design, manufacture and commission transformers, shunt reactors, circuit breakers, disc insulators and other associated auxiliaries. The equipment would be built at the state-owned company's Bangalore and Hyderabad plants.  


Policy / Performance


Tenth plan power target likely to be met 


July 28, 2004. The country would definitely achieve the 10th Plan target of adding power generation capacity of 41,000 MW, Union power secretary R V Shahi said at a national seminar.  Of the proposed additional 41,000 MW capacity, 36,000 MW has already been implemented. For the remaining 5,000 MW, letters of awards were being distributed, Mr Shahi said. Post electricity Act 2003, private sector interest in power projects has been revived. In the last six months, eight private power projects have achieved financial closure and by September/October this year, another eight to nine private projects would be cleared, Mr Shahi said. These would total up to 9000 MW.  The Union government has proposed to add 50,000 MW capacity of hydroelectric power and 100,000 MW of thermal power capacity, which is expected to be implemented in the 11th, 12th and 13th Plans. Besides the power sector, supporting industries will also have to prepare to meet this challenge, Mr Shahi said. For instance, steel and cement companies will have to provide quality material which could determine the quality of transmission and equipment manufacturer BHEL and transmission company PowerGrid Corporation were already readying themselves for it. Finance would not be a problem if the project was good, Mr Shahi said. Howewver, companies would have to put in equity of 20-30 per cent from internal accruals.  Mr Shahi said that if the price of LNG was around $3 per MMBTU, LNG could be used for producing power. The tariff of the generation plant would have to be maintained at around Rs 2 per unit for it to be beneficial to consumers, he said.


Maharashtra may opt for free power to farmers 


July 29, 2004. The Congress-led government in Maharashtra has asked a three-member committee to gauge the impact of free power supply to farmers and its implications on the western grid. The committee is expected to submit its findings in the next meeting of state cabinet scheduled for August 4.  The Chief minister Sushil-kumar Shinde said that it was a question of political will and his government would make necessary efforts in this regard. Mr Shinde's announcement is in response to the Shiv Sena chief Bal Thackeray's pre-election rhetoric that Sena-BJP combine would provide free power to farmers which have been reeling severe financial stress. The state government would have to make an extra provision of nearly Rs 7 billion in addition to the present subsidy level if the decision to supply free power to farmers was taken. It may also lead to unrestricted demand for power which may result in unrestricted load shedding in the state.  Moreover, free power supply would also lead to a problem of rationing and may not be technically feasible for the state MSEB to do so.


Proposal to develop world-class power plants


July 29, 2004. THE CII-Sohrabji Green Business Centre has proposed to develop at least five world-class power plants, with a view to helping the Indian power sector to reach global standard as the Electricity Act offered great opportunities for making Indian power plants world class. World-class power plants addressed factors like availability, reliability, cost of supply and environmental concerns.  CII is keen to promote the concept of world-class power plants that reduce the cost of power with all modes of power generation so that the target set by the Planning Commission to achieve an installed capacity of 283,000 MW by the end of Twelfth Plan.  Tapping captive power generation sources could ease local demand loads. The CII has said that it was not opposed to free power scheme announced by the Andhra Pradesh Government.


AP seeks IDBI aid for Godavari hydel projects


July 30, 2004. The Chief Minister, Dr Y.S. Rajasekhara Reddy, has said that the Government was contemplating to take up mega hydropower projects on the River Godavari and sought financial assistance from the Industrial Development Bank of India (IDBI). Apart from seeking a revision of interest rates on loans given to the individual power projects in the State, the Government has also urged the IDBI to extend a special line of credit of around Rs 8 billion for specific requirements and activities excluding infrastructure projects.  The Chief Minister said proposals were on to maintain the hydropower projects in the public sector. Dr Reddy urged the IDBI Chairman and Managing Director, Mr M. Damodaran, to formulate a bankable scheme for the proposed projects costing Rs 10 billion to Rs 15 billion.  According to a press release issued by the Chief Minister's Office, the IDBI Chief responded positively and extended consultancy services required by the State Government on various projects.  Stressing the importance of industrial growth, the Chief Minister said that though his Government was making every effort to revive the rural economy, equal importance was being accorded to promotion of industrial development.  The State has already emerged a hub for industrial sectors such as pharmaceuticals, biotechnology and information technology.


West Bengal breaks cheap power promise


August 2, 2004. The West Bengal State Electricity Board (WBSEB), to provide relief to domestic customers, has withdrawn the concession that it used to provide to new and sick industries in the state, and this would cause industrial sickness. "Non adherence to contracts is something that a state government cannot afford - this will send wrong signals to potential investors," explained M L Beswal, president, Hoogly Chamber of Commerce & Industry (HCCI).  "While the West Bengal Electricity Regulatory Commission (WBERC) had mentioned about doing away with subsidy component in tariff, the recently announced tariff and the Electricity Act does not mention anything about withdrawal of concessions," Beswal pointed out.  The concession was actually being provided by the West Bengal state government in form of relief on the duty component of tariff for new and sick companies which was around 7.5 per cent of the tariff amounting to Rs. 0.30 per unit. Instead the government was considering the possibility of providing some duty relief to the domestic consumers through WBSEB. Companies which had set up units, or were in the process of setting up units to take advantage of the concession, would have to rework their financial plans and reassess their viability. Many would close down. The government, through WBSEB, had entered into agreement with new companies. Under the scheme, concessional tariff was promised for six years at diminishing rates.  New units would be provided concession at 25 per cent for the first three years and 15 per cent, 10 per cent and 5 per cent in the last three years.  This was in fact the government's decision which was implemented through WBSEB because the duty component on tariff gets channelled to the state government's kitty. 









Husky JV to develop natural gas from coal


July 27, 2004. Husky Energy Inc. announced that it has signed a farm-out and joint venture agreement with Trident Exploration Corp. to develop natural gas from coal (NGC) or coal bed methane (CBM) in central Alberta. The agreement extends the original 2002 joint venture between Husky and Trident for the exploration and development of NGC in the Fenn Rumsey area. The agreement calls for an additional 120 wells to be drilled over the next two years. Capital costs for drilling and associated facilities will be approximately $40 million, of which Husky will pay 30 percent to earn a 50 percent interest in the production. Husky and Trident have successfully drilled more than 50 NGC wells in the Fenn Rumsey area since 2002. With 32 wells tied-in, current production is approximately 6 million cubic feet per day (mmcf/d) of natural gas, shared 50-50 between Husky and Trident. This agreement covers more than 250 net sections of Husky land, upon which Trident will drill a minimum of 40 additional wells in the remainder of 2004 and have the option to drill a minimum of 80 wells in 2005. Trident will manage production in this area and Husky will be the operator of the facilities and other infrastructure required to transport and process the gas. It is estimated that Husky's lands in the Fenn Rumsey area have 500 billion cubic feet (bcf) gross natural gas resource in place in coals and interbedded sands.


Iran plans to explore oil, gas in Kish


July 27, 2004. Preliminary seismographic information culled in Kish Island indicates the presence of an anticline in the region, but Iran plans to explore to ascertain that it is cost-effective. Kish region is the continuation of anticlines in Fars region. Varavi, Tabnak, Homa, Shanol and a new gas field recently discovered in Lavan Island are also continuation of the same anticline. Deputy Director of National Iranian Oil Company’s exploration department referred to PC2000 seismography project in the Persian Gulf and around Kish Island. The region is projected to yield substantial gas reserves.


Algeria grants 8 oil & gas blocks for exploration


July 28, 2004. Several oil companies, including Norway's Statoil, Amerada Hess of the United States and two Chinese firms, won contracts on Wednesday to explore for oil and gas in OPEC-member Algeria, Energy Minister Chakib Khelil said. State oil and gas company Sonatrach received eight bids for the 10 proposed onshore blocks in various parts of the vast North African country, including the Berkine basin, site of recent joint-venture successes Ourhoud and HBNS. The minimum amount expected to be invested in these eight blocks is $130 million. Along with Statoil and Amerada Hess, the other tender winners were Sinopec and CNPC (China), Repsol-Gas Nat Petroceltic and, with reservation, BHP-Woodside.  Algeria's goal was to produce 1.5 million barrels per day of crude in 2005. China, represented by two companies, won three blocks for exploration. In Oslo, Statoil said it had won a gas exploration licence close the  big In Salah project.  This was Algeria's fifth international licensing round for oil and gas exploration opportunities. The first one was in November 2000 with 6 blocks and $25.7 million of investments. The second in May 2001 for 10 blocks gave $93.75 millon of investments. The third was in February 2002 with 10 blocks and $106.8 million, and the fourth one was in June 2003 with 12 blocks and $39.5 million.


Pakistan to double oil & gas production in 10 years


July 29, 2004. The government plans to enhance oil production from 64,000 barrels per day to 100,000 barrels per day and gas production from 3 billion cubic feet per day to 5 billion cubic feet per day during the next 10 years. To achieve this objective, the level of exploratory drilling will be increased from 30 wells to 100 wells per year, according to an official source. The procedural bottlenecks relating to equipment, taxation and land acquisition have been eased to explore more oil and gas reserves. The proven oil reserves stand at 778 million barrels. However, estimates from independent sources are many times higher. They claim the oil potential to be 27 billion barrels in the country. Similarly, discovered gas reserves are 43 trillion cubic feet, but its potential is estimated at 282 trillion cubic feet. To uncap this potential, the government wants to accelerate exploration and production activity by consolidation, continuation and improvement of policy terms, besides introducing operational flexibility. In this regard, production sharing contracts have been designed for offshore with incentives based on water depth. For onshore exploration, income tax rates have been reduced to 40 percent from earlier, the onshore zones have been redefined in the difficult areas to make the operations of exploration companies more viable. 

Mexico's Pemex invites bids for new gas blocks


July 29, 2004. Mexican energy monopoly Pemex opened a second-round tender to foreign and national companies for contracts to produce natural gas in northern Mexico and help stem a dependence on U.S. imports. Pemex is inviting oil groups to provide services in four new areas, or blocks, in the Burgos field south of Texas. Added to five blocks awarded in an initial tender last year, the contracts aim to halve Mexico's gas imports by around 2007. The multiple service contracts (MSCs) have stirred up controversy in Mexico -- where the constitution bars foreign companies from extracting oil or gas -- as they give private operators more independence than when services are contracted out one by one. Pemex insists the contracts do not amount to concessions as they pay companies for services with fixed fees based on per- day or per-kilometer rates and the gas produced would belong to Pemex. Bids for the Pandura-Anahuac and Ricos blocks are invited from July 29, while the tender for the other two areas, Pirineo and Monclova, is due to open on Aug. 17. The deadlines for the technical bids for the different blocks fall between Oct. 26 and Nov. 23, with Pemex due to make its decision a couple of days later in each case. In total, the second-round contracts are worth around $2.7 billion.


Oil found off Cuba but no crude bonanza seen


July 29, 2004. The discovery of a non-commercial oil deposit deep under Cuba's Gulf of Mexico waters dampened high expectations of a needed bonanza for the communist-run island's battered economy on Thursday. Spanish oil company Repsol YPF announced it had found high-quality oil but decided its first exploratory well drilled one mile (1.6 km) under the sea was not commercially viable and it was studying its future exploration options. Another oil company considering exploration in the same off-shore area said the mixed result kept alive the prospect of striking commercial quantities of petroleum in Cuba. But President Fidel Castro's cash-strapped government, which relies on generously financed imports from Venezuela, had been crossing its fingers for a major strike. The good news was the proven existence of good quality oil 20 miles (30 kms) off Cuba, and more exploration could detect viable reserves. Cuba faces the prospect of losing a favorable supply deal of 53,000 barrels a day of Venezuelan oil if that country's populist President Hugo Chavez a close ally of Castro's is ousted in a recall referendum on August 15.


Unocal affiliate sells interest in Brazilian production venture


July 29, 2004. Unocal Corporation said its Unocal Global Ventures II, Ltd., affiliate sold its 50-percent equity interest in a jointly held project company that owns UnoPaso Exploracao e Producao de Petroleo e Gas Ltda., a Brazilian exploration and production venture, for $61 million plus approximately $7 million in working capital. The purchaser is EL Paso Production International Cayman Company, a subsidiary of El Paso Corporation which now owns 100 percent of UnoPaso. Unocal may also receive up to $19 million in potential additional payments that are contingent on attainment of certain natural gas prices and/or volume thresholds. The underlying assets sold represent net production of approximately 4,500 barrels-of-oil-equivalent per day to Unocal.


ConocoPhillips sees Venezuela field online in 2006


July 29, 2004. U.S. oil major ConocoPhillips expects to begin producing 70,000 barrels per day (bpd) of oil at its Corocoro field in north-eastern Venezuela in 2006, a company official said.  The firm, which is a partner with Venezuelan state oil firm PDVSA in the field, won rights to explore the Gulf of Paria West area where Corocoro is located in a 1996 bidding round. Oil was discovered there in 1999 and a development plan was approved by the Ministry of Energy and Mines in 2003. ConocoPhillips has previously said it plans to initially invest about $480 million in the field and that drilling will start late this year. Venezuela, the world's No. 5 oil exporter, is counting on rising output from foreign oil companies to help it reach its oil production target of around 5 million bpd by 2009. The government says output is around 3.1 million bpd now, but analysts say the OPEC nation has never fully recovered production following a crippling two-month strike that ended early last year. They peg output closer to 2.6 million bpd.


Production begins from Pakistan’s Chanda Field


July 30, 2004. The Oil and Gas Development Company Limited (OGDCL) of Pakistan has started production of oil and gas from its Chanda field located in District Kohat, the first ever discovery of hydrocarbons in NWFP. The Company will initially produce 10 million cubic feet of gas per day (mmscfd) and 2000 barrels of oil per day, it was officially announced by the Company here on Thursday. The gas will be transmitted to SNGPL network at Daukhel, whereas the oil will be transported to Attock Refinery Limited (ARL). The production will be gradually increased to 13-15 mmscfd of gas and 3000 bbls of oil per day. Subsequently, on completion of second phase of the project, the Company will also produce 40 metric tonnes of LPG per day. The preliminary production from Chanda will result in a foreign exchange saving of around US$ 30 million per year and will contribute significantly towards reducing the oil import bill of the country. The Chanda field located at Shakardarra area in District Kohat of NWFP has added a new dimension to petroleum exploration in the province. It is a joint venture between OGDCL (72%), Government Holdings (Private) Limited (17.5%) and Zaver Petroleum (10.5%). First Well Chanda-l was drilled in 1999 and second well was drilled in 2000. Being the first ever discovery in NWFP, start of regular commercial production from Chanda field marks an important milestone, which will generate revenues in the form of royalty and GST for NWFP from oil and gas production. Kohat plateau is one of the most complex regions of Pakistan. The other Oil Companies, after conducting the survey abandoned the area considering it to be a high-cost, high-risk area having poor prospects. OGDCL was however persistent in its efforts and acquired new seismic and geological data, which culminated in drilling of Chanda Exploratory. OGDCL is a public limited company engaged in exploration and production activities in the country for the last four decades. It holds the largest share of oil (47%) and gas (35%) of the total reserves in the country. Its percentage share of total oil & gas production in Pakistan is 34% and 28% respectively. Presently, OGDCL is 100% owner in seven Exploration Licenses.


Yukos can continue to operate 3 oil units  


July 30, 2004. The Russian government clarified a previous order freezing some assets of Yukos, which the country's largest oil producer had warned could have shut down its oil production. The Justice Ministry said the company's three oil-producing subsidiaries - Yuganskneftegaz, Samaraneftegaz, and Tomskneft - could continue sales and production. But Yukos's property and assets remain frozen, as the company still faces a massive tax bill that it has been unable to pay. A top Justice Ministry official on Thursday denied that Yukos had been ordered to halt production, after the threat of a stoppage pushed world oil prices to record highs on Wednesday. Yukos issued a statement saying that its three production units received notification from the Ministry of Justice dated July 28 revoking earlier orders that prohibited "disposal or change of assets' status." 


Total to develop Indonesian gas fields 


July 30, 2004. Total SA, Europe's third-largest oil company, will develop two gas fields in Indonesia next year to boost supply to the world's largest liquefied natural gas plant, an Indonesian government official said.  Total's Sisi and Nubi offshore fields are in the Mahakam area in East Kalimantan province, said Zanial Achmad, deputy of planning at state oil regulator BPMigas. Total has said it plans to spend $1 billion this year in Mahakam, after investing $1.1 billion last year.  Indonesia's government is seeking more natural gas to supply the Bontang plant, which produces LNG for exports. The government earlier this year asked Total, Unocal Corp. and a unit belonging to both BP Plc and Eni SpA to supply more gas to the plant after a drop in gas supply from Total and the BP unit disrupted production of LNG.  LNG plants turn natural gas into liquefied form for export in ships.  Total operates the Mahakam area under a so-called production sharing contract that will expire in 2017. The company produces 2.5 billion cubic feet a day of gas from the Tunu and Peciko fields in the Mahakam area.  Total is the biggest supplier to the Bontang plant, PT Badak NGL. Indonesia is the world's largest LNG exporter.


Marathon plans 70,000 bpd Norway oilfield


July 30, 2004. Independent U.S. energy group Marathon has filed a plan for developing the Alvheim oilfield off Norway and expects it to produce over 70,000 barrels per day after a 2007 start-up, officials and the company.  Alvheim lies in the North Sea west of the Heimdal field. Marathon said in a statement that Alvheim, comprising the Kneler and Boa discoveries and the undeveloped Kameleon, is estimated to contain resources of about 180 million gross barrels of oil equivalent. The Alvheim and related Klegg field development would together ramp up to production for Marathon of more than 50,000 barrels per day during 2007, it said. The 50,000 bpd figure was Marathon's own share based on its 65 percent stake in the Alvheim production licence. Marathon also holds 46.9 percent of the nearby Klegg discovery, the company said. The U.S. group's Norwegian unit Marathon Petroleum Norge AS is operator and licence holder. Its partners in Alvheim are Norske ConocoPhillips AS with 20 percent and Sweden's Lundin with 15 percent.


Petroleum development Oman makes new oil discovery


August 1, 2004. Petroleum Development Oman (PDO) has struck oil again in the Shuaiba Formation in north-west Oman's Malaan area, one of the country's most productive geological formations. This latest discovery can be attributed to three factors - revisiting the geophysical interpretation of seismic data in the area, making a bold decision that went against conventional thinking and drilling with new technology. The Shuaiba Formation has been yielding oil for some time. It contains, for example, the reservoirs of the Yibal Field, which is now into its fourth decade of production. The Malaan location was first targeted in 2000 as a likely place to find more oil reserves in the formation. The first well - Malaan-1 - proved a disappointment when it failed to produce oil at an economically viable rate. Perseverance and further studies of the seismic and well data uncovered an ancient shoreline stretching along the edge of the Malaan structure. In June, an appraisal well, Malaan-3, was successfully completed and tested, producing 2,600 barrels of oil per day. This success might not have been possible without the deployment of a new drilling technology that was used in an exploration well for the first time.


Nigeria agrees on $1.6bn gas project with partners


July 31, 2004. The Nigerian National Petroleum Corporation (NNPC) and its three multinational joint venture partners agreed to fund the construction of the sixth train (production line) of the Liquefied Natural Gas (LNG) project at a cost of $1.604 billion (N211.7 billion). The signing of the Final Investment Decision (FID) in London by NNPC, Shell, Total and Eni, will raise gas production from Bonny LNG plant to 22 million tones per annum, from nine million tones, and five million tones of natural gas liquids (LPG and condensate) per year. Revenue from export of gas from the plant will hit about $4 billion by 2007. Speaking shortly after the signing of the FID, the Group Managing Director of the NNPC, Engineer Funsho Kupolokun, said the project represents another major step in achieving the present government's objective of raising income from gas to match that of crude oil. According to Kupolokun, with the completion of the NLNG train six in third quarter of 2007, Nigeria's gas exports would have raised from zero level in 1999 to 22 million tones. The terms for the FID provide that the four shareholders will provide the entire $1.604 billion to fund the project. NNPC with 49 percent equity will provide about N785.9 million. Shell holding 25.6 percent will contribute $410.6 million, France's Total with 15 percent shares, will provide $240.6 million and Italy's Eni with 10.4 percent equity, will provide $166.82 million. The magnitude of funds the shareholders will provide, stretched negotiations on the taking the FID to three days.


Crude rises to record on concern that OPEC can't meet demand


August 3, 2004. Crude oil futures in New York rose to a record after OPEC President Purnomo Yusgiantoro said the producer group may not be able to increase production fast enough to lower prices. Crude oil for September delivery rose as much as 13 cents, or 0.3 percent, to $43.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest intraday price since futures trading began in New York in 1983. `If prices continue to rise what can OPEC do? Prices are crazy,'' Purnomo told reporters in Jakarta. Saudi Oil Minister Ali al-Naimi said. They can increase supplies, but it cannot be done immediately, it needs time. Crude oil has risen 38 percent in the past year on concern about possible attacks on oil pipelines in the Middle East and potential disruption to exports from Russia, Nigeria and Venezuela. The Organization of Petroleum Exporting Countries, which produces more than a third of the world's oil, is already pumping close to capacity. 


Gas reserves facilitate implementation of Kyoto Protocol in Iran


July 31, 2004. The positive point of Kyoto Protocol for a country like Iran is abundant gas reserves which will facilitate implementation of the Protocol. Afshin Javan, a senior expert for gas marketing and export told the gathering on 'Kyoto Protocol: challenges and opportunities for sustainable development of the Islamic Republic of Iran' that sectors that create added value are less affected by changes in gross domestic products and despite negative effects of Kyoto Protocol, Iran's potentialities can cushion those effects. Javan stated that studies carried out in Iran have taken into account the impact of oil revenues on implementing Kyoto Protocol, adding, "The results show that the protocol will cost Iran 1.25 billion dollars for the Iranian economy," he said. The expert noted that the impact of oil revenues on gross domestic product stood at 60 percent and the rest of effects on gross domestic product resulted from other sectors. Addressing the gathering, Mehran Amir Moeini, director of research department of Institute for International Energy Studies stated that the positive performance of clean development mechanism (CDM) has led to job creation and promotion of technology that will not only amount for reducing air pollution, but also generate more revenues for the country. He added that some plans generally announce oil production in various parts of the world at higher than the actual figures, and this difference amounts to 2.3 million barrels per day in 5-6 year periods which affects efforts made to create new capacities.


Turkey in Major Oil Deal with Iran   


August 2, 2004.  The Turkish oil refineries joint stock company will import six to seven million tons of crude oil from Iran as of August 2004 to July 2005. Turkey had signed a protocol with Iran a year ago for import of 5.5 million tons of oil. He added that under the new deal, three million tons of oil imported from Iran would be of light type. Danesh said 24.5 million tons of crude oil are to be refined at Turkish oil refineries this year, a figure that will reach 25 million tons in the next Christian year.




Iran to launch modern refinery in Masjed Soleyman


July 27, 2004. Iran is supposed to launch the most modern gas refinery in the second half of the current calendar year, director of the project Gholam-Reza Askari said. He told PIN that more than 90 percent of the structures have been installed. Masjed Soleyman Oil and Gas Recovery Company produce 112,000 barrels per day of crude. The output has increased by 10,000 bpd compared to the preceding year. It is hoped that the production would hit 18,000 bpd in the near future. At moment, Masjed Soleyman produces 175 million cubic feet of gas for delivery to Bandar Imam Petrochemical Complex.


Iran building major gas refinery in South Pars


July 27, 2004. The biggest gas refinery is under construction in the giant South Pars Gas Field. The project is under way in the Phases 6,7 and 8 of South Pars by Petropars Company. The refinery is designed to process three billion cubic feet of gas. "Relying on its valuable experiences, Petropars undertakes efforts to take another great stride in oil and gas projects," director for the projects Mirzaei said. "Three offshore platforms are being built," he said. Petropars and Italy's ENI are jointly operating phases four and five of South Pars, which sits on the world's largest reservoir of natural gas. Phases four and five of Iran's giant South Pars gas field in the Persian Gulf will come on-stream in the next two months. The phases would come on-stream at 500 million cubic feet (14.2 million cubic meters) of refined natural gas per day and 80,000 barrels of condensate. Iran, which has the world's second-largest reserves of natural gas, has been slow to develop its resources. The South Pars field in the Persian Gulf has been divided into 25 phases.


Serbia says no plan to privatise oil refineries


July 28, 2004. Serbia said that it had no intention of privatising its two crude oil refineries independently of the rest of the oil monopoly to which they belong but would encourage investment to upgrade the facilities. The two refineries in Novi Sad and Pancevo, heavily damaged during the 1999 NATO bombing of Yugoslavia, have a combined capacity of 167,000 barrels per day. Their predecessors had planned to offer the refineries for sale in a first step to privatise the Naftna Industrija Srbije oil and gas monopoly, which imports, processes and distributes the products. Privatisation receipts are vital for Serbia to keep the budget deficit and inflation on track. Kostunica's government has so far kept mum on the refineries sell-off. Company privatisations ground to a halt this year and the International Monetary Fund and the World Bank want to see the process restored in the second half of 2004 to make sure that restructuring of the Serbian economy continues. Late last year, Serbia held talks with an oil consortium including Shell Group and Kellogg in The Hague on the project to upgrade the two refineries, in an investment estimated to cost $450 million and take four years to complete. There has been no report on a progress towards agreement so far.


Praxair starts up two new hydrogen plants


July 28, 2004. Praxair, Inc. recently started up two new hydrogen plants in Texas City and Port Arthur, Texas. Now fully operational, the plants produce a total of 200 million cubic feet per day of hydrogen, increasing Praxair's hydrogen-production capability along the U.S. Gulf Coast by nearly 55%. In addition to supplying major refiners in Texas City and Port Arthur, the plants will supply other customers along Praxair's 300-mile hydrogen pipeline system, the largest in the world. Praxair expects demand for hydrogen to increase more than 20% per year for the next several years as refining customers invest in new processes to meet the clean-fuels requirements of the U.S. Environmental Protection Agency.   Praxair supplies a complete portfolio of industrial gases and specialized services to refinery customers and is a leading supplier of hydrogen to a variety of customers worldwide. It operates 28 steam-methane reformers and seven hydrogen pipeline systems that deliver more than 700 million cubic feet per day of hydrogen. Praxair is the largest industrial gases company in North and South America, and one of the largest worldwide, with 2003 sales of $5.6 billion. The company produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings.


CNOOC to build 16 billion yuan refinery in south China


July 29, 2004. Chinese energy giant CNOOC Group is to build a 12 million ton-per-year oil refinery in southern China with investment totalling 16 billion yuan (S$3.3 billion), the company confirmed yesterday. The project has been approved by the State Council (China's cabinet), but CNOOC is still awaiting official approval from the council's Development Reform Commission. Mr Li said construction would be completed before 2008. The refinery will be located near the group's mammoth petrochemical joint venture with Anglo-Dutch oil giant Royal Dutch/Shell in Daya Bay in Huizhou city in Guangdong province. It will turn the country's third oil firm into an integrated one providing upstream and downstream products.


Nigeria LNG plant expansion gets go-ahead


July 30, 2004.  Multinational shareholders in a huge Nigerian liquefied natural gas (LNG) plant sanctioned a $1.25-billion expansion plan on Friday that will make it the largest industrial project in Africa. The sixth phase of Nigerian Liquefied Natural Gas (NLNG), which is going ahead despite corruption probes into contracts for two previous expansions, will raise capacity by 4.1 million tonnes to 22 million tonnes per year by 2007. NLNG owned by state-run Nigerian National Petroleum Corp., Royal Dutch/Shell Total and ENI takes gas produced along with oil in Nigeria's violence-torn delta freezes it and ships it to Europe and the United States where it is used mostly for power generation. Its sixth phase is due to start up in 2007 and will produce of 4.1 million tonnes of LNG per year and one million tonnes of condensate and cooking gas. Royal Dutch/Shell subsidiary Shell Gas BV said it had sealed agreements to buy three million tonnes of LNG from train six to supply customers in North America and Europe. Total will buy the remaining one million tonnes annually. TSKJ, a multinational consortium, will be awarded the $1.25 billion engineering, procurement and construction contract for the latest expansion. 


New refineries aren't built in U.S. anymore


August 1, 2004. Demand for gasoline is high and profits are pouring in but oil companies in the US are not investing in new refineries. There hasn't been a new refinery built in the United States in 28 years and more than 200 smaller facilities have closed. Refining never has been viewed as a cash cow by the petroleum industry, which complains about meagre profits, hefty environmental costs and too much government regulation. But with gasoline prices hovering at $2 a gallon for much of this year, the country's largest oil companies and independent refiners reported soaring profits from refinery operations in second quarter earnings this week. Exxon Mobil Corp., the world's largest publicly traded oil company, posted record profits of $5.79 billion, and the Royal Dutch/Shell Group of Cos. saw its earnings rise 54 percent. An early hint of the industry's healthy bottom line came last week from Sunoco Inc., which reported a $217 million profit from refining related business, quadruple the total from a year ago. The refineries set production records during the first half of the year, including 8.6 million barrels of gasoline a day, but still couldn't keep up with demand, the American Petroleum Institute reported. Still, no major oil or refining company appears eager to add a new refinery. Instead, more could close. A refinery in California is expected to shut its gates this fall. Two Texas refineries have been on the market for three years with no takers. And an offer by Saudi Arabia to help build several U.S. refineries brought not even a hint of interest on Wall Street.


Transportation / Trade


Qatar/Exxon units seek deal for LNG supply


July 27, 2004. FPL Group Inc. unit FPL Group Resources LLC and Ras Laffan Liquefied Natural Gas Co. Ltd. II (RasGas II) said that they signed a preliminary agreement to supply the super-cooled gas to Florida markets via a proposed terminal and regasification facility in the Bahamas. Florida-based FPL and RasGas, a joint venture between Qatar Petroleum and ExxonMobil unit ExxonMobil RasGas Inc., said under terms of the exclusive "Heads of Agreement" they expect to complete an LNG sale and purchase for about 800,000 million British thermal units (mmBtu) per day, or about 750 million cubic feet, to be delivered over a 25-year period beginning mid-2008. "Heads of Agreement," or HOA, is a non-binding document outlining the main issues relevant to a tentative partnership agreement. The LNG will come from Qatars North Field, the largest offshore non-associated natural gas field in the world, with proven reserves in excess of 900 trillion cubic feet (tcf), the companies said in a joint statement.


China keeps up pipeline pressure


August 1, 2004. Combined reports PetroChina, China's largest oil producer, said that it will not invest in a proposed plan to pipe Siberian oil to Russia's Pacific port of Nakhodka unless it includes a branch to China's northeastern city of Daqing, China Oil, Gas & Petrochemicals reported, citing a company official it did not identify. Siberian oil piped to Nakhodka would be more expensive than imports from the Middle East, the report cited the official as saying. The proposed Nakhodka pipeline would allow Japan, the world's second-largest oil importer, to tap Siberian oil reserves and reduce dependence on supplies from the Middle East. The Nakhodka route is competing with a proposal from China to divert the pipeline to Daqing. PetroChina's parent company, China National Petroleum Corp., said Kazakhstan had banned one of its subsidiaries from pumping oil at 14 wells because of environmental legislation violations, citing a Kazakh court decision.


Syria-Lebanon joint gas project


July 31, 2004. Lebanese Minister of Energy and Water Resources, Ayyoub Hamid, has stressed that the building of the Syrian-Lebanese gas pipeline has an important investment value for Lebanon.Following the inspection of the course of work at the pipeline in line with signed agreement between the two countries, he stressed that the Syrian gas will be utilized at the first stage, while the second stage of the project will be executed to make the Syrian gas reach the oil installations in Zahrani in the south following a feasibility study. He stressed that the change in energy production from fuel and diesel oil to the use of gas will ease the burden of home electricity consumption on Lebanese citizen and will also reduce the rate of environment pollution.


Indonesia to buy gas from US company ConocoPhilips 


August 3, 2004. The Indonesian government and US oil and gas giant ConocoPhilips are in the final stage to sign a gas supply deal for West Java and the industrial island of Batam, an official said. Under the deal, Conoco will supply 400 million cubic feet of gas per day to state-run electricity company PLN and another 300 million cubic feet per day to state gas company PGN, both in West Java, starting from 2006, said HandayaWarnika, deputy chairman of oil and gas executive body (BP Migas). In Batam, Conoco will supply PGN with some 15 million cubic feet of gas per day starting August this year. The sale-and-purchase agreement between Conoco and PGN in Batam will be completed soon for signing, so will the agreement between Conoco and West Java-based PLN and PGN, Handaya was quoted by Detikcom on-line news service as saying. Conoco will supply gas from its reserves in South Sumatra province.


India softening on Iran gas pipeline: Iran


July 31, 2004. Iran, India, and Pakistan are likely to sign an agreement soon to kick start the construction of a three billion dollar gas pipeline over an area of between 2100 to 2600 kilometers. A tripartite meeting involving officials of the three countries is on the cards in the wake of New Delhi toning down its aggression over security concerns involving the project. Meanwhile, sources here have confirmed that the Asian Development Bank, being the lead manager for Turkmenistan-Afghanistan-Pakistan Gas Pipeline, is keen to get India onboard for the TAP project. The TAP Gas Pipeline is on an advanced stage as compared to Iran-Pakistan-India Pipeline. The TAP Ministerial Steering Committee is also to meet shortly to consider reservoir certification, demand projections, and security status in Afghanistan. The last steering committee meeting in Islamabad early this year had given six months to Turkmenistan to get its Daulatabad reservoir certified as sufficient for the pipeline's estimated life of 25 to 30 years.


Policy / Performance


Iran, Turkey go ahead with gas talks


July 28, 2004.  Turkish Prime Minister Recep Tayyip Edrogan and Iran's Minister of Oil Bijan Namdar Zanganeh have studied Iran-Turkey gas dispute. Trade relations between Tehran and Ankara have been damaged by a disagreement over the price of natural gas Turkey is importing from Iran under a 1996 deal. Turkey halted imports, complaining of poor quality and asking Iran to reduce the price. Zanganeh and Erodgan exchanged views about joint venture deals in oil, gas and petrochemical sectors. They agreed to proceed with talks about Iran's gas exports to Turkey. The two countries signed a 25- year, $30 billion contract in 1996 on the export of natural gas from the north-western Iranian city of Tabriz to Ankara. The contract went into effect in 2001. Iran and Turkey have agreed to bring to $5 billion the volume of trade exchanges from a current $2.3 billion. According to official figures, trade between the two countries has increased dramatically in recent years, and was valued at 2.4 billion dollars (2.0 billion euros) in 2003, a 90 percent increase on the previous year.


US cracks down on firms not paying fuel import tax


July 29, 2004. The Treasury Department issued guidelines to crack down on U.S. importers of fuel that don't pay the taxes due on gasoline, diesel fuel and kerosene shipments. The regulations from the Internal Revenue Service come as the United States has become more dependent on foreign petroleum supplies to meet domestic demand. U.S. imports of crude oil and refined petroleum products last week reached a record 11.3 million barrels a day. The IRS said those importers not registered and avoiding paying the tax have an unfair advantage over their competitors following the rules and are also depriving the government trust fund that pays for highway and mass transit projects of revenue. The agency did not estimate how much money is lost or how many unregistered dealers there are. The regulations say that importers and the unregistered dealers acting on their behalf when buying foreign fuel are jointly liable for the tax. Under present rules, the IRS will be able to collect any tax that is not paid by either the importer or the unregistered dealer by charging the importer's customs bond. The IRS said importers can avoid liability for the tax by doing business only with fuel dealers that are registered with the agency. The new regulations have a certification procedure so importers can verify a fuel dealer's registration.


Argentina says could increase oil export taxes


July 30, 2004. The Argentine government is studying whether to increase oil export taxes in a move to keep domestic supply cheaper as international prices hit their highest level in at least 21 years on Friday.  The government is worried that rising oil prices will lead to energy companies increasing exports rather than supplying the local market, which could lead to a spike in prices for Argentine consumers. A 2002 currency devaluation was a boon to Argentine exporters, whose ability to compete in global markets was helped by the peso's 70-percent depreciation.  That same year, the government introduced export taxes to boost revenue. In May, Argentina raised its export tax for crude to 25 percent from 20 percent previously and that on liquefied petroleum gas to 20 percent from 5 percent. Meanwhile, gasoline carries a 5 percent levy.






Cuba to expand 150MW plant 


July 26, 2004. Canadian mining and energy company Sherritt International has finalized negotiations on a 150MW expansion to the 33MW Boca de Jaruco thermoelectric plant in Cuba and will start construction this year.  The 80MW first phase involves the installation of two additional gas turbines which should be operating within 18 months of construction starting. The second phase would add 70MW in combined cycle operations. Along with the 173MW Varadero plant, Boca de Jaruco is owned by the Energas JV in which Sherritt and Cuba's respective oil and electricity companies - Cuba Petróleo (Cupet) and Union Eléctrica (UNE) - all have 33% stakes. Sherritt will finance, construct and operate the expanded facilities under the terms of a memorandum of understanding between Energas partners signed in March this year. Sherritt will generate 20% of the island's power on completion compared to 12-13% at present.


Malaysian firm in talks to build power plant in India


July 29, 2004. Tronoh Mines Malaysia Bhd, which has successfully transformed itself into a power plant design and construction group from a mining concern, is currently in talks to build and partially own a 300-megawatt gas- and coal-fired power plant in India. Tronoh was expected to take up at least 20% equity in the independent power producer (IPP) project that was estimated to cost between RM800mil and RM1bil. Tronoh was confident of landing its maiden IPP deal, and expected it to generate good recurring income.  The indicative internal rate of return on the IPP project was 14%; 70 % of the construction cost would be financed by debts, with the remaining 30% to come from equity financing. Apart from the Indian IPP project, Tronoh was also bidding for five contracts to build power plants on a design-and-build basis, as well as engineering, procurement and construction jobs in India, Indonesia, the Middle East and Vietnam.


Pakistan-China in nuclear plant deal 


July 29, 2004. Pakistan has formally approved proposals to build a new nuclear power plant with help from long time ally China, Finance Minister Shaukat Aziz said. Aziz who is expected to become prime minister next month, told state-run television the new nuclear plant would cost 51 billion rupees ($874 million). The 300 megawatt plant will be built at Chashma on the banks of the Indus river, around 280km south of Islamabad, alongside the first plant that China helped build in 1999. An official statement said the project also envisaged the transfer of technology from China to enable the Pakistan Atomic Energy Commission (PAEC) to run the plant itself.  The project includes a nuclear steam supply system, a turbine generator and related equipment. The statement said the project will be completed in seven years but did not say when it will be started. PAEC and China's National Nuclear Corporation signed the deal on the construction of a new nuclear power plant in May.


Iran to construct five power plants in Tajikistan


July 1, 2004. Iran is to construct five hydro-electric power plants in Tajikistan pursuant to an agreement reached by the energy ministries of the two countries. The Iranian delegation of energy engineers are holding talks with their Tajik counterparts on the modalities for constructing the power plants that will have a projected capacity of 100-500 KW. The Islamic Development Bank has made available a loan of $9 million to the Tajik government for the project. According to official records, Tajikistan produced 16 billion kilowatts of electrical power in 2003. Iranian Minister of Energy Habibollah Bitaraf is scheduled to visit Dushanbe in the near future, it was learned. During his upcoming visit officials of the two countries will further explore avenues for consolidating bilateral relations.


Bahrain signs deal for $500m private power plant 


July 1, 2004. Bahrain broke new ground with a $500 million (BD189m) deal for its first private power plant clearing the way for privatisation on a much wider scale. More power plants, Mina Salman and new Khalifa bin Salman super-port could also be privatised. Up to 500 news jobs are also promised at the Al Ezzel Independent Power Producer (IPP), to be built at the Hidd Industrial Area. It will produce 950 megawatts a day, meeting a third of the country's electricity need. Belgian-Gulf consortium Tractebel EGI and Gulf Investment Corporation (GIC) will design, build, own and operate the plant. It will sell the electricity to the government which will then re-sell it to the consumers - at "reasonable" rates.


Pakistan completes 285 microhydel power plants


July 31, 2004. Pakistan Council of Renewable Energy Technologies (PCRET) so far, has successfully installed about 285 Microhydel Power (MHP) plants with consolidated generation capacity exceeding 3.5 MW in the far flung, remote and hilly terrain of NWFP, FATA and Northern Areas. In view of the success of PCRET, MHP scheme, a number of GOs/NGOs are approaching this Council for provision of technical assistance for successful launching their respective MHP schemes. This Council has, quite recently signed an MOU with Barani Area Development Project, Planning and Development Department, Government of NWFP. A similar MOU was signed earlier with Malakand Rural Development Project. Under these two agreements PCRET will install 151 MHP plants with the total cost of around 70 million rupees that will be provided by NWFP Government. The project is based on PCRET model if "Participation of local communities" who are engaged in each phase of the project i.e. from initiation to implementation and subsequent operation and maintenance. The expanses incurred on civil work and the power distribution system is borne by the local communities/beneficiaries in addition to provision of land and labour for the installation of MHP Plants. Moreover, power plants are maintained by the communities through their representatives constituting management committee.


Policy / Performance


Philippine power plant sale draws interest from 17 firms


July 27, 2004. The first major power plant put up for sale by the Philippines under a plan to cut the country's crippling debt has drawn interest from 17 companies, a privatisation official said.  Manila has said it aims to raise up to $5 billion by the end of 2005 by selling power plants and grids owned by the country's debt-laden National Power Corp. (Napocor). Six of the companies interested in the 600-megawatt, coal-fired Masinloc unit were Japanese, three were from Southeast Asia and there was one each from India, Australia and South Korea, said an official at Power Sector Assets & Liabilities Management Corp., the state agency privatising Napocor. The other five companies were based in the Philippines and included power producers, said the official, who did not want to be identified and would not name the companies. U.S.-based Mirant Corp., and state-owned Korea Electric Power Corp., are the main foreign investors in the country's power industry. The official declined to reveal the value of the Masinloc plant. Usually, a plant of that size would be valued at more than $180 million. Analysts are sceptical Manila will meet its timetable for privatising Napocor because of an opaque regulatory structure and political meddling in tariff-setting.


Slovenia ready to have energy cooperation with Iran


July 28, 2004. Slovenian Prime Minister Anton Rop voiced his country's full determination to have cooperation with Iran in energy, gas and oil fields. Rop, in a meeting with Iran's accredited Ambassador to Austria Mohsen Nabavi, stressed good relations between the two countries in political and economic fields. He said peaceful use of nuclear energy is the absolute right of all countries and voiced satisfaction of Slovenia, as a new member state of the European Union, over expansion of cooperation between Iran and the EU. Pointing to the Iraqi crisis, he assessed as complicated the ongoing situation in that country, saying Slovenia regards no wise solution for Iraq's very near future but supports transfer of power in this country. Rop stressed that Iran can play a very vital role for its neighbouring states due to its presence in the region and its neighborhood with Iraq. The premier further stated that Slovenia can enjoy a better cooperation with certain countries including Iran on issues including Iraq and the Middle East.


California grid agency approves wind energy project


July 29, 2004. The California Independent System Operator, which manages the state's power grid approved a project to expand development of wind energy in Southern California. The agency endorsed a high-voltage power line to carry electricity from wind turbine generators in the Tehachapi and Antelope Valley areas north of Los Angeles to electricity customers throughout the state. Utility Southern California Edison, a unit of Edison International plans to apply to utility regulators for final permission to build a 25-mile line estimated to cost about $94 million, the ISO said. The line could be in service by the end of 2007. The Tehachapi area has more than 600 megawatts of wind generation and 1,100 megawatts of new wind projects are planned. One megawatt is power for about 1,000 homes. The California Public Utilities Commission has directed Southern California Edison, working with the ISO, utilities and wind companies, to develop a plan to upgrade transmission capacity in the region. The CPUC believes the area could eventually produce as much as 4,000 megawatts of wind power. The state's investor-owned utilities are required to make renewable energy 20 percent of their electricity resources by 2017.


Saudi Arabia pushing for 70,000 Mw by 2020


July 29, 2004. With current power generation capacity at around 40,000 MW, Saudi Arabian electrical power generation growth is being pushed forward by industrialization, including diversification from oil-based projects, and the high rate of domestic consumer consumption, and steady population growth of fewer than 4% per annum. In a power market environment that saw supply subsidies removed in 2000, the Saudi Electric Company (SEC) is targeting 70,000 MW by 2020, and is fine-tuned to localized power demands, in addition to pursuing the macro targets with major projects.


Brazil issues new rules for electricity sector


July 30, 2004. Brazil introduced new electricity sector rules in an effort to make investing in the industry more attractive and to ensure the country has sufficient electricity going forward after suffering widespread blackouts in recent years. The regulations are meant to stabilize the market and cut prices through compulsory auctions for energy purchases and a requirement that distributors buy contractual needs in advance. Brazil had to resort to nine months of power rationing in 2001 and 2002 after droughts and bad planning left the country's hydroelectric dams low on water. Under the auction system, the lowest tariff offered by a distributor or large consumer would be the winning bid in sales by electricity generators. Power distributors and other energy purchasers would have to buy 100 percent of needed power ahead of time, as opposed to 85 percent, as is currently the case. The measure is to prevent distributors buying a portion of their power on the spot market to increase gains - a practice that can lead to instability in power supplies and markets. The regulations on energy trade, one of a series of decrees after a new energy law, aim to cut market speculation by obliging energy contracts to be based on actual power plants that can guarantee supply. To protect distributors from swings in demand, the decree allows so called "old energy" distributors that generated by plants that went into service before 2000 to not take up to four percent of their contractual commitments. Distributors will also be able to charge consumers for costs in their errors in forecasting energy demand up to 103 percent of their electricity load. Under the new rules, auctions of new power will be held three to five years before delivery of energy.


New gas-run power plants banned in Pakistan


August 1, 2004. In view of the looming gas shortfalls, the government has decided in a major policy shift to reject investment proposals for gas-fired power plants and has put in place a new gas allocation plan. The Private Power and Infrastructure Board (PPIB) said the two gas utilities - SNGPL and SSGCL - have clearly refused to commit gas supplies beyond five years in view of non-availability of the gas. The PPIB has so far received around $4 billion worth of two- dozen unsolicited proposals for gas-based power plants with a total capacity of 3,548-mw. This has sent alarm bells in the government circles because if proposals for investments in the gas-fired power plants on raw sites are accepted, the government would be exposed to substantial financial risks against the sovereign guarantees it is required to provide under the 2002 power policy. In view of this situation, the government has imposed a moratorium on accepting raw-site proposals based on pipeline quality gas. Accordingly, it has been decided that the PPIB would send request of serious investors to petroleum ministry for confirmation of gas availability, who in consultation with the gas utilities would respond to that. Moreover, the gas utilities and the petroleum ministry have been restricted not to directly correspond with the sponsors of the power projects regarding gas availability. Furthermore, in view of limited gas availability and also to avoid the risk of any unforeseen gas shortage a provision would now be kept in design agreements of new power plants to run on dual fuel as and when needed. However, to cut the cost, the duel firing system would be imported only after confirmation regarding non-availability of gas. Also, gas to captive power plants would be supplied strictly in accordance with decisions of the economic coordination committee to industrial units only and not to hotels, wedding halls, banks and other commercial organizations. The official said the government is left with the only option to hold international competitive bidding for one or two projects on sites where supply of pipeline quality gas is available on a long-term basis i.e. at least 20-plus years, because of significant interest shown by the sponsors for such sites.


Iran to construct power plants on BOT, BOO basis


July 31, 2004. By the end of the current Iranian calendar year of 1383 (March 21, 2004-March 20, 2005), agreements for the construction of 330 MW power plants are projected to be signed with Iranian companies. Three Iranian companies including MAPNA and Mahtab Gostar have voiced their readiness for the construction of the power plants. The power plants are to be built in southern Qeshm Island, Zanjan city, central province of Zanjan, and some other small cities. No foreign companies are invited because the Iranian companies have adequate expertise and experiences.




A BOO (Build-Own-Operate) contract is similar to a build-operate-and-transfer (BOT) contracts but the private sector retains lifetime ownership of the project. State-run Tavanir Company, a subsidiary of the Power Ministry, is in charge of signing the contracts. Tavanir is the Iranian abbreviation for "The Power Generation and Transmission Management Organization."

Taiwanese firms in China struggle with power shortages


Jul 26, 2004. Taiwanese companies with manufacturing operations in China have been making contingency arrangements against chronic power shortages, which are expected to worsen this year, business and industrial sources said. Taiwanese companies or individuals with trade or manufacturing operations in China have been adopting various measures, including altering work shifts and acquiring their own generators to help tide them over difficulties incurred from persistent power shortages, particularly in the southern and eastern parts of the country.


China increases reliance on coal energy


 Jul 30, 2004.  China has ordered emergency shipments of coal by road and waterways to help ease severe energy shortages said to be the worst in two decades, state media reported. Coal will be transported by expressways from major mining areas to the coast and then shipped to eastern and southern areas worst hit by shortages.  The Communications Ministry, which oversees transport, has requisitioned cargo ships from international shipping lines to help boost coal shipments, and major Chinese ports have beefed up their coal facilities to help meet demand, the official Xinhua News Agency reported. China is facing its worst summer power shortage since the early 1980s, with the shortfall of electricity forecast to hit 30 million kilowatts. 


Global Renewable Energy Trends


GE hopes to boost solar sales to 1 billion by 2010


July 27, 2004. Citing recent success in alternative power, GE Energy, a subsidiary of General Electric Co. is hoping to boost its solar energy sales to $1 billion annually by the end of the decade, the head of GEs solar business said. In 2002, GE Energy bought assets of bankrupt Enrons wind turbine business for under $200 million and then doubled sales to $1.3 billion. This year, GE bought Delaware-based Astropower, once a solar power leader, for about $19 million. Astropower went bankrupt after failing to file several financial reports with the government last year.  Recent growth in demand of solar equipment that is tied to the national electricity grid, over traditional units designed for remote areas that are far from the grid, could play a big role in boosting the companys production.  That amount of sales could be seen per year by the end of the decade. Worldwide, solar is a $7 billion per year business, according to industry groups. GE Energy is adding about 20 contractors for production operations at its plant in Delaware formerly owned by Astropower for at least six months. Solar demand in Japan and Germany has been fuelled by production-based incentive programs in which utilities are required to pay a premium for power generated by renewable energy. Demand has been driven to a lesser extent in the United States, where many states have rebate-based incentives for residential and commercial solar systems.


Britons 2010 renewable energy targets 'wishful thinking': 


July 28, 2004. Britain will not meet the government's target of producing 10% of its electricity from renewable sources by 2010, energy experts said. Some argued that fossil fuels would be important for several decades yet and the government should focus its efforts on developing ways to trap the carbon dioxide produced when they are burned - the process known as carbon sequestration.  Britain would also need more nuclear power stations to meet the increasing energy demands, contrary to current government thinking, some experts felt.  However, the government insists that not only is this target attainable, the aspirational target of shifting 20% of energy production to renewable sources by 2020 is also feasible. In consequence it has poured money into the development of several offshore wind farms. By 2005 Britain will have more than 500 offshore windmills, between them generating more than 1,000 MW of power - enough for almost 1 million homes. Some experts observed that wind power was too unreliable, and could provide a maximum of 4% of Britain's energy needs by 2010.  Greens argued that wind power alone could power the country many times over.  Some experts felt that the looming energy crisis could only be solved by building more nuclear power stations. The government has vetoed this idea. Latest designs produced only 10% of the waste of older stations and used fuel 60 times more efficiently. The [nuclear] market needs massive amounts of government subsidy, experts said. Two UK nuclear companies - BNFL and British Energy - both are in debt massively. That is not a great case for nuclear energy.







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