MonitorsPublished on Aug 10, 2004
Energy News Monitor I Volume I, Issue 7
Energy Security: the Chinese way

During the first six months of 2004, the Chinese crude oil imports touched 61.02 million tons valued at US $ 15.169 billion, an increase of about 39.3 and 57.4 percent respectively. This is about fifty percent of the projected Chinese crude oil imports for 2004 currently pegged at 120 million metric tons. In 2003, China imported about 91 million tons (up 31.3 percent) primarily driven by continued fast economic growth. Imports accounted for 36.1 percent of national consumption that reached 252 million tons (up 10.2 percent). The demand for gasoline, diesel and kerosene is expected to grow by more than 10% and has forced China to import diesel for the first time since 1998. Meanwhile, the domestic production has been slow. In 2003, China produced some 169 million tons of crude oil (up 1.5 percent year-on-year) and 34 billion cubic meters of natural gas (up 6.8 percent). The above statistics are indicative of the rising demand and the complexity of the problems the oil industry faces particularly when the Chinese economy is expected to grow at about 8 to 9 percent.


The Chinese oil industry concerns were discussed in April 2004 during the National People's Congress (NPC) and Chinese People's Political Consultative Conference (CPPCC) sessions. It was generally agreed that China needed to devise a sophisticated strategy for securing oil supplies from foreign sources and also adopt aggressive strategies to improve domestic production. Yang Qing from the Energy Research Institute of the State Development Planning Commission has noted, "The issue of oil security is related to both the market for oil and the stability of oil supplies. Overall, it's a matter of structural reform."


The “go out” strategy


As regards the issue of securing oil supplies from foreign sources is concerned, China has adopted the "go out" strategy. This strategy involves Chinese firms undertaking exploration activities in different parts of the world that are rich in energy resources such as Africa and South America. Under this strategy, the Chinese firms are expected to invest their technical expertise and financial resources towards exploitation of oil resources in foreign lands.  It is quite evident that such an investment would not only ensure multiple sources but also overcome the risks of over-dependency on any one source. This would also reduce the effects of price fluctuations and would ensure major fluctuations in domestic oil prices that would impact on the national economy and also on the national oil bill. The strategy would also provide an impetus to the Chinese oil industry both in terms of technology and development.


China National Petroleum Corporation (CNPC) is China's biggest player in opening overseas markets. As part of the "go-out" strategy, CNPC produced a total of 60 million tons of crude oil from overseas. It also made investments in projects in Asia, Africa, North and South America. The Corporation invested in oil and gas exploitation, pipeline construction, oil refining, sales of petrochemical products and other industry related activities. In 2003, the CNPC achieved a major success in Muglad oilfield project in Sudan. This involved the construction of an oilfield (annual production capacity of over 10 million tons), a refinery (annual processing capacity of 2.5 million tons) and a 1,506 km pipeline. This success provided the CNPC an incentive to move in to other countries such as Libya, Algeria, Oman, Syria and Iran.


Strategic oil reserves


The CNPC has also been instrumental in developing a blue print for China's 'Strategic Oil Reserves' (SOR) too. In 1993, media reports had suggested that China was planning to set up a US $10 billion fund for SOR from its foreign exchange reserves. The concept of SOR was conceptualized after the oil crisis of 1973-1974 and 1979-1980 and has been in vogue among the developed countries. As a matter of fact, today it has emerged as an important factor in stabilizing supply and demand. For instance, the US maintains 67 days imports as SOR. Likewise, Japan SOR is enough for 154 days supply. China too has decided to build four oil storage bases at an estimated cost of 6 billion Yuan ($ 722.9 million) to build its own SOR. Current plan is to build a 30 days reserve by 2005 and thereafter, work towards a 40-day reserve by 2010.


Securing supply lines


China is also addressing oil transportation security. Foreign flagged vessels carry today more than 90 percent of Chinese crude imports, while domestic shipping companies take only 10 percent of the import. China is considering letting its domestic oil tankers transport half of the oil imports by 2005. Reports indicate that this US$10 billion program is primarily aimed at improving the security of crude oil transportation and reducing reliance on foreign vessels. This would result in domestic fleet size increase and by 2010 the shipment by Chinese flagged vessels will increase to 75 million tons and to 130 million tons by 2020. Meanwhile, at the global level, with the burgeoning Chinese need for oil, there is also likely to be an increase in requirement for Very Large Crude Carriers (VLCCs). By some estimates, the world VLCC fleet alone will have to expand by 70 vessels to meet the Chinese demand for transporting crude from various sources.


The issue of safety and security of sealanes has been looming large in the minds of Chinese national and military planners. One of the missions of the Chinese navy is to safeguarding sea lines of communications.  In the event of closure of the strategic choke points of South East Asia and the South China Sea Strait, China will be adversely affected. The navy would be tasked to keep the sea-lanes open and escort Chinese merchantmen transiting the strategic straits. 


Management of terrorist risks


Besides, China has been addressing the issue of vulnerability of its oil traffic to an attack by terrorists. In June 2004, China carried out its first anti-terrorism drill involving a 300,000 tons oil tanker. The scenario was built around a Chinese oil tanker sailing in the South China Sea and attacked by a small suicide boat packed with explosives.  The drill was jointly carried out by the China Maritime Search & Rescue Center and China Ocean Shipping Company (COSCO) to test the national emergency response mechanism. According Liu Gongchen, Director, China Maritime Safety Administration, the drill aimed to test China's ability in safeguarding traffic security on the seas.


The Chinese are conscious of the vulnerability of their energy security. They are currently engaged in devising sophisticated strategies to secure safe sources of oil and gas as also the transportation of these strategic materials. The primary aim is to build strategic oil reserves and ensure uninterrupted oil supplies and ultimately to secure the national economy.

Vijay Sakhuja

Research Fellow, Observer Research Foundation


Nathpa Jhakri: A Mega Hydro-Electric Project


A new chapter in the history of the development of Hydro-electric Power in the county was added on October 14, 2003 when the first 250 MW unit of the country’s largest 1500 MW, Nathpa Jhakri Hydro-electric Power Project in Himachal Pradesh was inaugurated by Hon’ble Union Minister of Power with Hon’ble Chief Minister of Himachal Pradesh presiding over the programme. The Nathpa Jhakri Project will generate 7000 million units of energy worth Rs 1500 crores (Rs. 15 Billion) annually. In addition, the Nathpa Jhakri Project shall also provide 1500 MW of valuable peaking power to the Northern Grid.


All the six units of 250 MW of the country’s biggest 1500 MW Nathpa Jhakri Hydro-electric Power Project in Himachal Pradesh under execution by the Satluj Jal Vidyut Nigam Limited have been successfully commissioned ahead of the targeted schedule of July 2004. The last (sixth) 250 MW unit of the project has been put on commercial operation on 18th May, 2004. Prior to this, by 31st March, 2004, test synchronization of all the six units with the Northern Grid and putting of four units on commercial operation were achieved  within a timeframe of six moths, the first one having been synchronized in September 2003 and the last one before the end of March 2004. Thus, establishing a Bench Mark in Hydropower development in the country.

The total generating capacity of the Nathpa Jhakri Power Station has now been achieved to its full capacity of 1500 MW which is the highest capacity at any single Hydro-electric Project in the county presently under operation. This significant achievement of the project’s commissioning has been achieved in the face of a number of geological surprises and flash floods encountered in its execution. A joint venture of the Government of India and the Government of Himachal Pradesh both sharing the cost of the Project in the ration of 3:1, respectively. 12% of the energy generated at the bus bar is supplied to Himachal Pradesh free of cost out of the balance is distributed amongst the constituents States of the Northern Region Electricity Board.


The allocation of power amongst the beneficiary states of the northern region is as follows:



Power share in MW









Himachal Pradesh


Jammu & Kashmir




Uttar Pradesh




Central Government





The PPAs have already been signed with the willing states and presently power generated from the Nathpa Jhakri Project is being distributed to the power starved Northern Grid. Depending upon the actual circumstances and requirement of the Region, the actual allocation to the states can slightly vary over various periods of time.


The cost of the project including interest during construction has been estimated as Rs 8657 crore (Rs 86.57 Billion) (Sep., 2002 price level).


A record generation of 37.510 million units has been achieved in a single day from all the six units at full load on July 12, 2004. Till July 15, 2004 a total of 3506 million units have been generated from all the six units and a sum of about Rs 746 crore (Rs 7.46 Billion) have been earned by SJVN so far. The Corporation is set to become the highest profit earning Hydro Power Corporation in the country in the very first year of the commissioning of its maiden venture. The Project is likely to earn a profit of over Rs 465 crore (Rs 4.65 Billion) in 2004-05.


SJVN is also planning to take up more power projects in future. Further recognizing the expertise gained by SJVN during the construction of this mega project, a Consultancy Division has been established. Central Electricity Authority (CEA) has awarded the Consultancy for preparation of the Preliminary Feasibility Reports (PFRs) to two Projects totaling to 2065 MW to SJVN.

CEA has awarded the Consultancy Contract SJVN for preparation of the Preliminary Feasibility Reports (PFRs) for the Khab – I (450 MW) and Khab – II (186 MW) Hydro-electric Power Projects, on the river Satluj in the Himachal Pradesh.


( Satluj Jal Vidut Nigam Ltd.)



Hydro-electric potential

(Excerpts from Economic Survey 2003-2004, NPPC)


Hydropower is a renewable economic, non-polluting and environmentally benign source of energy.  Hydro power stations have inherent ability for instantaneous starting, stopping, load variations etc. and help in improving reliability of power system.  Hydro stations are the best choice for meeting the peak demand.   The generation cost is not only inflation free but reduces with time.   Hydroelectric projects have long useful life extending over 50 years and help in conserving scarce fossil fuels. They also help in opening of avenues for development of remote and backward areas. 

Our country is endowed with enormous economically exploitable and viable hydro potential assessed to be about 84,000 MW at 60% load factor (1,48,700 MW installed capacity).  In addition, 6781.81 MW in terms of installed capacity from small, mini and micro hydel schemes have been assessed.  Also, 56 sites for pumped storage schemes with an aggregate installed capacity of 94,000 MW have been identified.  However, only 15% of the hydroelectric potential has been harnessed so far and 7% is under various stages of development.   Thus, 78% of the potential remains without any plan for exploitation. 

Despite hydroelectric projects being recognised as the most economic and preferred source of electricity, share of hydropower has been declining steadily since 1963.  The share of hydropower has been continuously declining during the last three decades.  The hydro share has declined from 44 per cent in 1970 to 25 percent in 1998.  The ideal hydrothermal mix should be in the ratio of 40:60.  Because of an imbalance in the hydel thermal mix especially in the Eastern and Western regions, many thermal power stations are required to back down during off peak hours.  The capacity of the thermal plants cannot be fully utilised resulting in a loss of about 4 to 5 per cent in the plant load factor.  Even if the share of hydropower is to be maintained at the existing level of 25 per cent, the capacity addition during the 9th and 10th Plan would work out to 23,000 MW.  If the share were to be enhanced to 30 per cent, it would require a further addition of 10, 000 MW of hydro capacity. 


Generation capacity


Year              Thermal       Hydro-Wind      Nuclear          Total

1991-1992        48,086             19,194            1,785           69,065


1995-1996        60,083             20,985            2,225           83,293


1999-2000        70,493             25,012            2,680           98,185


2003-2004        77,968             31,370            2,720        1,12,058


Growth over

1991-2004             4.1                   4.2                3.6                 4.1

Source: Ministry of Power



Trends in the power sector (utilities only)


                                                                         Change over previous year

                               2001-02        2002-03     2003-04*   2002-03    2003-04                 


        1                           2                  3                   4               5                6

                                                           (Billion kwh)                 (per cent)

1. Power                    515.3           535.0            558.1           3.6           4.5



i   Hydro-electric         74.0            63.8              73.8        -13.8          15.6


ii  Thermal                422.0          451.0            466.6           6.4            3.4


iii Nuclear                  19.3             19.2             17.7          -0.5           -4.8


2. Plant load factor of

    thermal plants       69.9            72.1              72.7          NA            NA


* Provisional                                  NA: Not Applicable

**Excludes generation from Captive Non-Conventional Power Plants


Source: Ministry of Power



The constraints, which have affected hydro development, are technical (difficult investigation, inadequacies in tunneling methods), financial (deficiencies in providing long term financing), tariff related issues and managerial weaknesses (poor contract management).  The hydro projects are also affected by geological surprises (especially in the Himalayan region where underground tunneling is required), inaccessibility of the area, problems due to delay in land acquisition, and resettlement of project-affected families, law & order problem in militant infested areas. 



Views, comments and suggestions can be sent to [email protected] or Observer Research Foundation, 20 Rouse Avenue, New Delhi – 110 002. Phone: +91 11 3022 0020 Fax: +91 11 3022 0003.














ONGC to set up Dahej Plant 


August 4, 2004. Domestic exploration major- the Oil and Natural Gas Corporation (ONGC) has won the legal battle with Indian Oil Corporation (IOC) and Gail India Limited over the issue of setting up a Rs 1,500 crore (Rs 15 billion) plant for extracting hydrocarbons like C2/C3 (ethane and propane) and LPG from the 8.5 million tonne per annum of LNG at Dahej in Gujarat. While both Gail and IOC had challenged Petronet LNG Limited's (PLL's) decision to award C2-C3 and LPG extraction project to ONGC, the solicitor general of India, GE Vahanvati (in his opinion to petroleum ministry on July 31 has given a go ahead to ONGC for setting up this project in Gujarat. 


The Country's first imported LNG terminal has been set up by PLL at Dahej and ONGC, IOC, Gail and BPCL, are equal partners in PLL. PLL is importing 5 mtpa of LNG from RasGas of Qatar and is also in the process of expanding the capacity of its terminal to 10 mtpa. While in its board meeting on July 29, PLL had moved a proposal for signing of the contract with ONGC for setting of this plant, objections were raised by IOC and Gail on PLL's decision to award the rights for this project to ONGC. Petroleum secretary SC Tripathi, who is also the chairman of PLL, then ordered 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. The extraction of C2/C3 would strip 15 per cent of the gas volumes.  Following opposition from IOC and GAIL, PLL has not been able to sign an agreement with ONGC for this extraction plant at Dahej. However, as per the legal opinion of the solicitor general, there would be no dimunition of value in relation to the gas delivered to the gas purchasers.


Reliance finds more gas in KG basin


August 5, 2004. Reliance Industries has discovered the "thickest net pay gas section" in the D-6 block of the Krishna-Godavari basin off the Andhra Pradesh coast, and made another gas discovery in the NEC 25 block off the east coast.  Niko has a 10 per cent interest in both the D-6 and NEC-25 blocks, where Reliance holds the remaining 90 per cent equity and is the designated operator space.


The D-6 block in the Krishna-Godavari basin is estimated to yield a total in-place gas volume of 14 trillion cubic feet. Initially, eight wells were drilled. Reliance has chalked out a plan for producing 40 mmscmd of gas by 2006-2007 from the D-6 block. The  capital expenditure plan is estimated at Rs 35,000 crore (Rs 350 billion) over a period of five years.

OVL-Gail targets stake of Daewoo gas block


August 5, 2004. ONGC Videsh-Gail India consortium, which holds 30 per cent interest in recently-discovered gas field in offshore Myanmar, is targeting 50 per cent stake of South Korean Daewoo International in an adjacent gas block. A team of senior officials from Gail and OVL visited Yangon earlier this week to persuade the Myanmar government to allocate them half of Daewoo's 100 per cent holding in the A-3 Block, which was recently awarded to the Korean firm.  Block A-3 is adjacent to Block A-1, where Daewoo-OVL-Gail consortium had made the Shew (gold) discovery that had initial estimated recoverable reserves of between 4 trillion and 6 trillion cubic feet of gas and expect to find a further 7-12 tcf. The Government is considering liquefying natural gas found in Myanmar at 160 degrees and then shipping it in special tankers as it received lukewarm response from Dhaka to the earlier proposal of laying a pipeline from Myanmar to India via Bangladesh for transporting its share of gas in A-1.


Crude oil imports rise 47% in June 


August 5, 2004. Crude oil imports jumped 47.8 per cent in June as oil refiners bought more to hedge against future spike in prices, a petroleum ministry official said. The country imported 10.655 million tonnes (MT) of crude in June this year as against 7.209MT a year ago. While domestic consumption was almost unchanged at 9.159 MT, exports of petroleum products fell 26.3 per cent to 1.007 MT in June 2004.


Joint research on gas hydrates 


August 9, 2004. A programme on gas hydrate research has been initiated by the government to identify an alternative source of energy. As part of this, an Indo-Russian Science and Technology Centre for gas hydrate studies has been set up in the National Institute of Ocean Technology (NIOT) campus at Chennai. This centre will take up detailed investigations on gas hydrates, as a joint research programme between India and Russia. 


Gas hydrates are ice-like crystalline accumulations formed from methane and water. It is a newly discovered mineral deposit that occurs in ocean sediments. One cubic meter of gas hydrate, when brought to the surface, is expected to yield 164 cubic meters of natural gas.  Gas hydrate exploration is a nascent science and various countries are carrying out research and development (R&D) activities to develop techniques for detection and quantification of gas hydrates.




TN Petro’s overseas project by early 2006


August 6, 2004. Tamilnadu Petroproducts Ltd is setting up linear aklyl benzene (LAB) projects in south-east Asia and Middle East. The project in south-east Asia is likely to go on stream by early 2006. TN Petro is planning to set up a sea water desalination plant at Ennore port to augment water supply for uninterrupted running of these units.


Reliance Petro to set up retail outlets


August 10, 2004. Decks are now cleared for Reliance Petro Marketing to set up retail outlets for high-speed diesel and motor spirit in Rajasthan. The state government has received confirmation from the Centre on the issue of granting permission for such outlets last week, paving the way for the petrol marketing arm of the Reliance Petroleum to open model outlets in important cities. Earlier, the state government had withheld permission on the ground that Reliance Petro Marketing could not furnish authorisation from the Centre


Transport / Trade


BPCL, GSPC to ink piped gas supply deal


August 4, 2004. Gujarat State Petroleum Corporation Ltd (GSPC) is entering into a gas sale agreement with Bharat Petroleum Corporation Ltd (BPCL) for the supply of 5 lakh (500,000) standard cubic metres per day (scmd) for distribution in the State capital.  BPCL, which had won the gas distribution right for Gandhinagar, Mehsana and Himmat Nagar, has drawn an investment plan of Rs 300 crore (Rs 3 billion) for putting in place the requisite infrastructure. The entire investment is likely to be made over the next 30 months and the gas supply would begin at 1.5 lakh (150,000) scmd, to be built up to 5 lakh (500,000) scmd over this period. 


The BPCL team has already completed a survey for the house-to-house distribution of piped gas in Gandhinagar. The petroleum company has applied to the Gujarat Roads and Buildings Department for the purchase of two plots of land on commercial rates to set its CNG stations. The BPCL project is likely to galvanise into action the CNG usage pattern in Ahmedabad, which has been adjudged to be among the most polluted cities in the country. The Gandhinagar project of BPCL has become viable with the GSPC gas reaching Ahmedabad and even up to the Kalol plant of IFFCO which is only some 10 km off the capital city.  Currently, there are three piped gas distribution circles in the State with the Adani group leading the fray with Vadodara and Ahmedabad. While BPCL becomes the second company to get off the block to take gas to households and industrial houses, the third company is GAIL. However, that would take some time, as the distribution zone allotted to GAIL is Surendra Nagar and Rajkot, where the gas transmission pipelines of Gujarat State Petronet Ltd will reach only in the next couple of years.


Gail losing pipeline monopoly


August 5, 2004. With the government deciding to allow multiple players for setting up natural gas pipeline infrastructure, state-run gas utility Gail (India) Ltd is set to lose its monopoly in the field. Petroleum Ministry's revised draft pipeline policy proposes to allow multiple players in building and controlling inter-state and high-pressure gas pipelines.  Under the revised policy, all new gas pipelines would be built under common carrier principle where the operator will have the provision of 25 per cent excess capacity required for the allocation on open access basis. Entities will have to seek authorisation for laying pipelines from the government/regulator who will fix the pipeline capacity taking into account the total demand envisaged by third parties. The proposal inviting capacity booking as well as objections on tariff and proposed route would have to be published in two leading national dailies, after which the government/regulator will accord approval for the pipeline.



Gail has claimed that the natural gas consumers in the supply constrained market of western India would clearly benefit from the most competitive tariff offered by the company for its proposed 956 Kms Kakinada-Uran pipeline (KUPL). The draft gas pipeline policy as proposed by the Petroleum Ministry last year has declared GAIL as the notified company to build and manage all inter-state trunk pipelines for transportation of gas across the country. The draft policy also said that any producer of gas can lay pipeline up to 100 kms to sell gas directly to consumers. On the other hand, the production sharing contract (PSC) under the New Exploration and Licencing Policy (NELP) has neither imparted any contractual right to the producer nor provided any obligation on the part of the producer of gas to lay overland inter-state trunk pipelines to market the gas. Accordingly, GAIL has proposed the KUPL project to transport the gas discovered in the KG Basin under NELP. Since KUPL is expected to operate under the open access regime, all customers, big and small, enroute drawing their gas supplies from the KG Basin are entitled to a competitive tariff and should not be burdened with a 16 per cent higher tariff. Therefore, while NTPC may have to have a re-look at their contractual obligation, Gail said that the government, while granting approval to lay the KUPL, would have the interest of all small and big customers in the East West corridor in Andhra Pradesh, Maharashtra and Gujarat in mind. The Petroleum ministry, in its revised draft natural gas pipeline policy, has proposed the entry of multiple players for setting up the natural gas pipeline infrastructure in the country. The caveat here is that the entities will have to seek authorisation for laying the pipelines from the government/regulator. At present, GAIL is the only company building trunk gas pipelines in the country. The new policy, proposing the entry of other players, will put an end to GAIL's monopoly status.  As per the revised policy draft, the entity desirous of laying a pipeline will have to provide capacity access to interested parties - build the pipeline on the common carrier principle and not just use the pipeline for captive use. After getting clearance from the government, the proposal would be published, inviting capacity booking from interested parties within a period of two months from the date of publication.  After this, the entity would have to approach the ministry for finalising the capacity and tariff of the pipeline, based on which proposals for acquisition of RoU (Right of usage) will be processed. This, officials said, is being done to ensure that competitive tariff is charged from the users. GAIL has contested that as many as 17 entities have also, in principle, supported the concept of a notified agency to develop an inter-state pipeline network, subject to certain conditions. “In order to validate the principle of development of the grid by a single agency, GAIL has also submitted to the Petroleum ministry a compendium on the global experience in developing inter-state/high pressure integrated gas transmission networks. The report reveals that irrespective of the economic philosophies that were followed in these 38 countries, with the notable exception of USA, the responsibility of developing the integrated gas transmission grid has invariably been placed on a single agency under government ownership", adds GAIL



GAIL to conduct fresh study for petrochemical project


August 5, 2004. The public sector Gas Authority of India Ltd will conduct a fresh feasibility study on the proposed petrochemical complex at Cheemeni in Kasargod district of Kerala. The project, estimated to cost around Rs 7,000 crore (Rs 70 billion), is the centrepiece of the gas cooperation agreement that GAIL signed with the Kerala State Industrial Development Corporation (KSIDC) last month. The agreement envisages a total investment of Rs 10,450 crore (Rs 104.5 billion) by the central public sector in Kerala, KSIDC, which holds a letter of intent for the establishment of a petrochemical complex, had got a feasibility study done in 2001 by Engineers India Ltd (EIL). The study proposed the setting up of a naphtha cracker for production of ethylene, polypropylene, benzene and LDPE, among other things.  The study had projected significant demand-supply gap for the products after 2007-08. Besides, a detailed market survey conducted by the Industrial Development Services of Delhi based on end-use method had established the scope of the project.  However, GAIL India has decided to go in for a fresh feasibility study and it is in the process of finalising a consultant to conduct it, according to sources in KSIDC. A change in the product mix was also on the cards based on the study, they said. 


Ispat in talks with GAIL, Shell for LNG supplies


August 7, 2004. Ispat Industries Ltd is in talks with GAIL (India) Ltd and Shell to source natural gas to run its 1.2-million tonne per annum Dolvi sponge iron plant at full capacity. The company is negotiating to obtain natural gas supplies of around 2.3 million standard cubic metres per day (mscmpd). Ispat hopes higher supplies will boost profits significantly as the Dolvi plant has been running 35 per cent below capacity because of gas shortage.  The Government's gas allocation policy gives priority to fertiliser and power companies but higher gas supplies through the planned Dahej-Uran pipeline should help Ispat boost productivity. Natural gas supplies from ONGC's Mumbai High have been 0.8 mscmpd instead of the allocated 1.75 mscmpd, ever since the Union Government changed its gas allocation system.   


GAIL plans Haldia gas pipeline


August 10, 2004. Gail India has decided to invest Rs 4,000 crore (Rs 40 billion) in building a gas pipeline connecting Jagdishpur in Uttar Pradesh to Haldia in West Bengal, even as the monopoly of the state-run company for laying pipeline has come under doubt.  The rights of usage (RoU) was already with the company and it was going ahead with the plan to set up the 850km pipeline to feed the gas-starved eastern states. This pipeline would be an extension of the Hazira-Bijapur-Jagdishpur (HBJ) pipeline. According to the plan, more quantity of gas will be pumped at Dahej in Gujarat into the HBJ pipeline to feed the eastern market.  The development gains in significance for the fact that the government could allow multiple operators in building pipeline. However, GAIL is going ahead with its plan in building the Rs 20,000 crore (Rs 200 billion) National Gas Grid (NGG).


Policy / Performance


Mega-merger of oil firms?


August 4, 2004. The petroleum ministry is working on a blueprint for creating two mega players in the oil sector by merging state-owned oil companies. The model is on the lines of super corporates formed through mergers of global majors. One major option being examined is to merge Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) with Oil and Natural Gas Corporation (ONGC); and Oil India Ltd (OIL) with IndianOil Ltd (IOC).  In this scenario, gas utility Gail is to be re-integrated with ONGC, from which it had been carved out in 1984. A proposal to merge IOC and ONGC was discussed during the NDA regime.


Based on 2003-04 balancesheets, the ONGC-led group to have net sales of Rs 1,44,245 crore (Rs 1442.45 billion). The group will have a reserve of Rs 58,000 crore (Rs 580 billion) and an annual profit of Rs 14,141 crore (Rs 141.41 billion). The group led by IOC will have a turnover of Rs 1,40,000 crore (Rs 1400 billion). It will have a reserve of over Rs 30,000 crore (Rs 300 billion) and a profit of around Rs 10,000 crore (Rs100 billion).  Both the companies will be in Fortune 500 list. Both entities will be bigger than Petronas of Malaysia, whose tunover was Rs 1,20,000 crore (Rs 1200 billion) in 2003.


Kerosene in polypacks


August 4, 2004. In a plan that may revolutionise retail sales of kerosene across the country, the government is planning to launch polypacks for marketing kerosene through Mother Dairy. The government is working on a nationwide revamp of the existing kerosene distribution system.  The kerosene marketing scheme, currently being given final touches, could have major implications for oil company bottom lines and the manner in which subsidies are targeted at the truly poor and needy.  The oil companies will be in a position to mop up sizeable revenues if they manage to reach the fuel at market rates to pockets where demand remains largely unmet. The new system will seek to attack loopholes in the current subsidised kerosene distribution policy which encourages large-scale adulteration with diesel in urban and semi-urban segments, and creates additional environmental hazards. Huge distances between the refinery and the same point usually leads to diversion and adulteration en route, sources said.


Analysts on oil price


August 4, 2004. With oil touching $44 per barrel, $50 per barrel is no longer inconceivable.  In the aftermath of US' successful invasion of Iraq, some global analysts believed that crude prices could drop to $27-$30 per barrel as Iraq oil came into the market. Analysts estimate Iraq to hold about 115bn barrels of oil in proven reserves and about 110trn cubic feet of gas. The prediction assumed that Iraqi infrastructure such as pipelines will be repaired and production will soon resume from oilfields. More than a year has passed and crude prices, even with the little oil that Iraq is supplying to global markets, is unable to stop prices from climbing.  A May report by Citigroup now predicts an even more dire scenario. Based on the then prevailing price of $41.7 per barrel, the research firm predicts a one year-target of $67 per barrel. "Crude oil now has successfully broken out of a 24-year consolidation phase. We view this as an extremely important structural development. The target is arrived at by measuring the height of the 24-year consolidation phase and projecting it upwards," the report said. The research note also adds $67 may seem an extreme target, but may not seem so, taking inflation adjustment into account. "The mid-1980s high of crude oil at $39.5, adjusted for inflation, would be the equivalent of $89.8 in today's dollars, leaving $67 per barrel well below the 1980 equivalent."  Some analysts however, say this may not happen. "The price rise is largely political. Inventory levels in the US are better than last year's levels," says the analyst from a domestic brokerage. He projects that prices would stabilise at the mid-$30 levels. 


Cut on oil duty possible


August 4, 2004. Petroleum Minister Mani Shankar Aiyar has sought a cut in the Customs duty on domestic cooking gas and kerosene from 10 per cent to nil to rein in Rs 8,800 crore (Rs 88 billion) under-recoveries estimated on the two cooking fuels in 2004-05, due to unchanged prices at a time when the government subsidy has been cut and the prices of crude oil cost are rising.  The cut in the customs duty on the liquefied petroleum gas and kerosene was not likely to affect the government revenue significantly as only a marginal quantity of the liquefied petroleum gas was currently imported. Crude oil, as per proposed formula, will continue to attract 10 per cent import duty.


The prices of the liquefied petroleum gas need to be increased by Rs 68.90 per cylinder and kerosene by Rs 3.71 per litre if they are to be brought to import parity levels.  Two scenarios are proposed. If the Customs duty on the liquefied petroleum gas and kerosene is cut to 5 per cent, this hike would come down by Rs 11.95 per cylinder and Rs 0.61 per litre. In the second case, when the Customs duty is brought down to zero, the required increase in the liquefied petroleum gas prices would only be Rs 45 per cylinder and Rs 2.50 per litre of kerosene, something which the oil firms may be asked to bear.  


CPCL to set up desalination unit


August 5, 2004.  Chennai Petroleum Corporation Ltd proposes to set up a 5.8 million gallons-per-day seawater desalination plant at Ennore, some 16 km from its Manali refinery. The project will cost Rs 193 crore (Rs 1.93 billion) and will take 30 months to complete, says the company's annual report for 2003-04. The plant will take care of the water needs of the refinery, which has had to shut down because of water shortage in Chennai. Alongside, the company is in the process of replacing its old pipeline that carries crude oil from the Chennai Port to Manali refinery, with a new 42-inch pipeline, at a cost of Rs 40 crore (Rs 400 million).


Govt. considering hike in natural gas price


August 6, 2004. The Petroleum Ministry is reviving an earlier proposal for a hike in the price of natural gas supplied by Oil and Natural Gas Corporation (ONGC). If implemented, power sector consumers who account for 42 per cent of the natural gas consumption will be burdened with an additional bill of Rs 550 crore (Rs 5.5 billion). The fertiliser consumers, who account for 34 per cent of natural gas consumption, will also bear the brunt. The proposal, approved by a Group of Ministers (GoM) in July last year, proposes a Rs 350 per thousand cubic metres hike in domestic natural gas price as well as a Rs 10 per thousand cubic metres per day hike in transportation cost. The latter will accrue to GAIL (India) Ltd. 


AP increases sales tax on ATF to 30.55 percent


August 6, 2004. Andhra Pradesh has raised the sales tax on aviation turbine fuel (ATF) to 30.55 per cent from the earlier lower rate of just 4 per cent.  Interestingly, AP had in April 2002 lowered the sales tax on ATF from 30.55 per cent to 4 per cent. Justifying the move the then State Minister for Commercial Taxes, Mr K. Vijayarama Rao, had said that the huge slashing in percentage point was intended to give a boost to domestic airline operations, traffic and creation of infrastructure for the international airport project in Hyderabad.  Airline sources while stating that Andhra Pradesh had raised the sales tax on ATF in late July said it would be difficult to immediately calculate the financial implications of the State's latest move on the domestic aviation sector.


Government concerned over Energy Security


August 9, 2004. Focusing on the importance of ensuring energy security, the Union Minister for Petroleum & Natural Gas Mr Mani Shankar Aiyar, has said the full scope of attaining oil and gas equity, both in India and abroad, would be tapped. He also said that, subject to necessary clearances from the Defence authorities, the exploration of two blocks in the southern part of Andaman & Nicobar Islands "might be proposed" under the New Exploration & Licensing Policy V. Earlier, under the New Exploration & Licensing Policy IV, two blocks in the northern part of the islands have been awarded to Oil & Natural Gas Corporation.  At the present rate of growth, India's oil security quotient (reliance on domestic sources of oil) would go down to 15 per cent by 2020 from 30 per cent at present. In view of this, it is essential that the country tap every possible source of oil and gas energy. In this context, Mr Aiyer said that oil companies - upstream, retail, et al - should pool their resources and "synergise" their expertise with a view to achieving a common objective. "We will pursue and back, subject to environmental and Defence clearances, all initiatives taken to ensure energy security," he said. According to him, a move has been initiated to ensure that domestic oil companies present a "strong and united face" when they bid for projects in global markets. He said the price band system was the best that could be devised under the circumstances in keeping with the `human face of reforms'.  Mr Aiyar said Indian Oil Corporation had initiated discussions with the Andaman & Nicobar Islands administration on expanding its presence in the islands here.






Tata power closer to Maharashtra project 


August 3, 2004. Tata Power Company (TPC) has crossed a major hurdle with the Maharashtra Pollution Control Board (MPCB) not raising any major objections to its proposed 1,000 mw coal-based project in the coastal Raigad district. MPCB, which has recently received report on the public hearing for TPC's project, however, asked TPC to take into account "grave concern" expressed by the locals. MPCB also directed TPC to study socio economic and environmental impact of other thermal power units and rectify probable difficulties.  Similarly, the state-run Maharashtra Industrial Development Corporation (MIDC) has called upon the TPC to inform the locals about various supplementary industries that would be created by the proposed thermal power plant. MIDC is currently studying the situation of the anticipated ancillary industries. MIDC also suggested that a local coordination committee comprising TPC should be set up to sort out various issues pertaining to the project. 


Dishergarh power to raise capacity


August 5, 2004. Dishergarh Power Supply Company Ltd (DPSCL) has firmed up plans of expanding its generation capacity to 100 MW from 40 MW as of now.  The company is also planning to set up another 100 MW power plant in collaboration with the Salim group of Indonesia. 


Thermal power stations face coal shortage


August 5, 2004. The creation of new power generation capacity will be challenged as supply of coal and natural gas appears "uncomfortable" as indicated by Mr R.V. Shahi, Secretary in the Union Ministry of Power.  Mr Shahi said the country would require an additional 25 million tonnes of coal in the next two years to cater to the requirement of thermal power stations under implementation. He suggested that the state-owned coal companies augment coal production to ensure adequate availability of power-grade clean coal.  He said that at least 22 thermal power stations in the country had been running with critical coal stock positions while existing gas-based power plants were unable to raise their plant load factor (PLF) beyond 60 to 62 per cent because of the short supply of natural gas. He felt that intensive efforts had to be made to improve the availability of coal and natural gas.  Mr Shahi said his Ministry had plans to impose certain restrictions on the consumption of power by industries.


Vemagiri Power to modify pact with AP


August 5, 2004. As per the directions of the Andhra Pradesh Government, Vemagiri Power Generation Ltd (VGPL) has decided to defer its scheduled date of completion of the project and suitably modify its power purchase agreement (PPA) with the Transmission Corporation of Andhra Pradesh (APTransco). The company expressed its willingness to accept the proposal of the State Government to delete the provision relating to alternative fuel in the PPA and also to postpone the commercial operation of the project.  In turn, the Government assured Vemagiri Power to make all reasonable efforts to protect the interest of the project by facilitating conclusion of gas supply contract with alternative suppliers and agreeing to enhance the capacity of the power project to 1,000 MW. 


JSPL to increase power plant capacity


August 7, 2004. Jindal Steel and Power (JSPL), the Rs 1,200 crore (Rs 12 billion) arm of Jindal Corporation and a producer of long products, is looking at increasing its power plant capacity to 335 mw by March 2006.  At present, JSPL has a power generation capacity of 205 mw at its Raigarh plant which will be increased by another 55 mw by the end of this year. By March 2006, the capacity would be 335 mw with the additional 75 mw. JSPL will also set up a 1000 mw power plant which is estimated to cost Rs 2,000 crore (Rs 20 billion). 


Karnataka turns to hydel stations


August 6, 2004. With the southwest monsoon in full swing, Karnataka has backed down the liquid fuel stations in the State and is meeting most requirements from low tariff hydroelectric stations. The generating company, Karnataka Power Corporation's hydel stations were currently generating close to about 38 million units a day. This included the Almatti project, which was currently contributing about 3 lakh (300,000) units into the grid. Only a 15-MW unit of the Almatti project has so far become operational. The remaining 275 MW (5 units of 55 MW each) was still under construction and was expected to become fully operational in 2005. Monsoon has reduced the power requirement to about 75 million units (mu) a day, as against the normal requirement of about 95 mu.  This situation has allowed the State-owned transmission entity, Karnataka Power Transmission Corporation Ltd, to get the high tariff, liquid fuelled generating stations to back down.


Greaves Cotton to tap power market


August 6, 2004. Greaves Cotton Ltd is gearing up to tap the 100 per cent processed gas-based captive power generation market, especially in the small and medium scale sector.  In an effort to promote the use of processed gas from bio-mass for generation of cheap power, the Union Ministry of Non-conventional Energy Sources recently announced a substantial subsidy on the first 100 such projects in the country. Claiming to have taken the first such commercially viable initiative in the country, Greaves Cotton is currently installing a 200 KW 100 per cent processed gas-based generation unit at a rice mill in Burdwan district of West Bengal as a precursor to starting commercial production of such engines. The project is due for a trial run this month. A Greaves Cotton official said processed gas-based generation being an emerging technology, the company was treading cautiously before taking up any aggressive marketing strategy.  


Narmada Nigam to start power generation


August 9, 2004. Sardar Sarovar Narmada Nigam Ltd (SSNNL) is all set to start power generation from August 15 producing 50 mw.  The height of the dam has already been increased to 110.64 metres and with that power generated will be around 40 per cent of the 1,450 MW of capacity. When the height of the dam is increased to 121 metres in June next year, over 80 per cent of the 1450 MW capacity will be generated and finally in June 2006, when the height of the dam is increased to over 138 metres, generation will reach 1450 MW. Transmission lines have already been laid from the dam site at Kevadia Colony where the canal head power house (CHPH) and the river bed power house (RBPH) are located. The CHPH has been ready since June 1998 and five turbine generating units of 50 MW capacity each are operational.  The Prime Minister Manmohan Singh is scheduled to commission the first unit of the RBPH on August 15. There are six units in the RBPH, each capable of generating 200 MW.  Thus, while the CHPH will generate 250 MW, when complete in about 18 months from now, the RPBH will be able to generate 1200 MW and in total RPBH and CHPH will generate 1450 MW. 


Jaypee to tap market for Baspa-II


August 9, 2004. The Jaypee group is considering public offers for its Baspa-II and Vishnuprayag hydro-electric projects to rise around Rs 800 crore (Rs 8 billion) for its 1,000 mega-watt Karcham Wangtoo hydel project in Himachal Pradesh.  It has proposed to invest another Rs 400 crore (Rs 4 billion) from its accruals in the construction business. Sources said the Karcham Wangtoo hydel project is expected to achieve financial closure shortly, since the promoters, Jaypee Karcham Hydro Corporation Limited (JKHCL), a subsidiary of Jaiprakash Associates Limited, have proposed the new fund infusion formula.  While the 300 Mw Baspa project in Himachal Pradesh is already operational, the 400 Mw Vishnuprayag project in Uttaranchal is expected to commence generation shortly. The Baspa Hydel Project, commissioned last year at a cost of around Rs 950 crore (Rs 9.5 billion), is already a profit- making venture as it operates on a cost plus formula. 

Transmission / Distribution / Trade


Experience scores for Transmission project


August 3, 2004. The proportionate marking system adopted by Power Grid Corporation of India Ltd (PGCIL) where a score of 50 is awarded for past experience in transmitting and operating transmission lines may favour Reliance Energy as it has completed and maintained a 220 Kv transmission line between Mumbai and Dahanu while Essar is yet to open its account in this business.  While Reliance Energy has proposed 74% equity stake, Essar has offered an equity stake of 51%. According to the bidding criteria PGCIL would adopt proportionate marking with maximum score assigned to the bidder with 74% stake.  Since the evaluation on several counts is on the basis of proportionate marking, Reliance Energy may stand to gain going by the larger number of projects they have executed and the total capital outlay in the projects. While Reliance Energy has listed at least five projects spread over Dahanu, Goa, Andhra Pradesh among others, Essar Power is known to have commissioned only one IPP in Gujarat. This transmission project is being set up to evacuate power from two hydel power projects in Himachal Pradesh - the 800 mw Koldam project and the 350 mw Parbati project.


Tata Power to enter distribution in Jharkhand


August 3, 2004. Tata Power Ltd is looking to enter distribution of power in eastern states and is expecting finalisation of a joint venture agreement with Damodar Valley Corporation (DVC) for setting up a 1000 MW Thermal Power Station at Maithon right bank within this year.  The company, which is also planning to set up a 1000 MW pit head power plant near Singrauli Basin in Uttar Pradesh, had been preparing feasibility report for its proposed distribution business in Jharkhand.  TPC is in the process of acquiring land for the project. Already 550 acres have been acquired and talks are at a final stage for another 448 acres and further 200 acres of public land. 


Floods hamper power supply in Punjab


August 7, 2004.  Power plants in Himachal are dependent on the railways for their coal supply, and with rail services disrupted they may need to cut down production. The railways have already alerted Punjab State Electricity Board that traffic on the Ambala-Ropar line cannot be resumed before August 13. Due to breaches at four places on the Ambala-Shambhu section, rail traffic is being diverted on the single-line Rohtak-Jakhal-Dhoori track. Passenger traffic is their priority so the extra goods trains will take more time to reach their destinations.  With its stock of coal, the Ropar plant can function for 11 days but not at peak capacity. The plant needs at least six rakeloads of coal to run all six units but at present this supply seems unlikely. 


Policy / Performance


Captive plants free to sell surplus power: MERC


August 3, 2004. The Maharashtra Electricity Regulatory Commission said that captive power plants are free to sell surplus power to any buyer provided they have dedicated transmission lines; marking the end of State Electricity Board's monopoly on power transmission as envisaged in the Electricity Act 2003.  The MERC said a captive plant does not need a licence or permission to sell surplus power to a dedicated buyer through its own transmission lines and the buyer need not pay surcharge. Also, these plants need not pay wheeling charges to the Maharashtra State Electricity Board so long as the seller and buyer do not use its grid. 


WBSEB misses central power funds


August 6, 2004. Cash starved West Bengal State Electricity Board (WBSEB) failed to avail incentives of Rs 421 crore (Rs 4.21 billion) under the Accelerated Power Development and Reforms Programme (APDRP) following the failure of its accounting department. WBSEB understated its losses and failed to furnish the revised figures for one fiscal within the end of the next fiscal. The reforms programme envisaged that on successful implementation of reforms WBSEB would not only achieve break-even by March 2003 but also would earn a positive return thereafter. The funds would have been provided under two heads - investment and incentive.


DERC-Transco clash over arrears transfer


August 6, 2004. It is said that Delhi Electricity Regulatory Commission (DERC) has over-stepped its jurisdiction that could ensure a steeper tariff for electricity next year. Government-owned Transmission Company Transco has protested against the order and asked for a review in its petition dated July 22, 2004. The petition says that the regulator's order "is likely to have an adverse impact on tariff". At the time of privatisation, the amount of Delhi Vidyut Board (DVB) arrears realised by the distribution companies were to be shared between the holding company and the companies in a ratio of 80:20. In the tariff order, DERC had recommended that the terms and conditions of the transfer scheme (for the unbundling of DVB) be changed so that the money owed to the holding company could "be ploughed back into the sector" and given to Transco. A similar order had been passed for 2002-03 by the regulator. But the order was rejected on grounds that the transfer scheme could not be altered. Delhi government has rejected DERC's contention for the second time in an order dated June 4, 2004 mentioning that the matter "had been reviewed and the original transfer scheme should remain as it is." 








Oil, gas from Chanda field to save $30 million


August 4, 2004. Oil and Gas Development Company Limited (OGDCL) and Pakistan stated the production from Chanda would gradually be increased to 13-15 mmscfd of gas and 3000 bbls per day of oil and added that on completion of second phase of the project, OGDCL would subsequently produce 40 tons per day of LPG. "The preliminary production from Chanda will result in a foreign exchange saving of around $30 million per year and will contribute significantly towards reducing the oil import bill of the country," the company said. OGDCL is a publicly traded company at the stock exchanges.


Pakistan to enhance oil & gas reserves


August 4, 2004. Federal Minister for Petroleum and Natural Resources Chaudhry Nouraiz Shakoor Khan has said that the Government would mobilize all resources to boost oil and gas production in order to put the country on the road to self-reliance. Ch Nouraiz Shakoor said that the Government was making concerted effort to enhance oil and gas exploration and production activities in onshore and offshore areas. He said that a number of furnace run power generation units have been converted to gas which would save US $700 million annually on oil import bill. He said that a plan was underway to enhance oil production from 64,000 to 100,000 bpd and gas from 3 billion cubic feet per day to 5 billion cubic feet per day in next 10 years.


China's crude oil import soars


August 3, 2004. According to an analytical estimation by Ministry of Commerce China's crude oil import will for the first time break through 100 million tons this year to hit a record of 110 million tons, a year-on-year increase of 21 percent. The import of refined oil is to reach 40 million tons, a rise of some 40 percent.  As the customs statistic indicates: the import of crude oil in the first half of the year reached 61.02 million tons valued at US $15.169 billion, which was a respective increase of 39.3 and 57.4 percent. The import of refined oil reached 19.85 million tons at a value of US $4.457 billion, witnessing a respective increase of 56.6 and 66.1 percent. The total imported value of the crude and refined oil in the first half of the year added up to 19.626 billion US dollars, taking up 7.4 percent of the country's total imported value and a rise of 7.306 billion US dollars as against that of last year. 


CNOOC makes discovery in Bohai Bay


August 3, 2004. CNOOC Limited announced that it has made an oil discovery with the exploration well JZ 21-1S-1. Located on JZ21-1 south structure in Liaozhong Sag in Bohai Bay, Well JZ21-1S-1 was drilled to a total depth around 2400 meters in 20 meters of water. On 7.94mm and 7.14mm chokes, the well flowed about 700 and 500 barrels of oil equivalent per day respectively during two drill stem tests.


LNG contract awarded in Nigeria


August 3, 2004. Technip announced that Nigeria LNG Limited (NLNG) has awarded the engineering, procurement and construction (EPC) contract for the NLNGSix project at its existing liquefied natural gas facility to partners of the equal joint venture team, which includes Technip, Snamprogetti, KBR and JGC Corporation. This is the fourth project that the partners contracted with NLNG.  The addition of the sixth train will boost NLNG's production capacity by four million TPA of LNG, to an overall production capacity for the complex of 22 million TPA of LNG and five million TPA of natural gas liquids. The sixth train is scheduled to start up in the 4Q 2007 and most of the production has been sold for North American destinations.


NLNG shareholders are Nigerian National Petroleum Company (49%) and subsidiaries of Royal Dutch/Shell (25.6%), Total (15%) and Agip (10.4%). With a workforce of about 19,000 persons, Technip ranks among the top five corporations in the field of oil, gas and petrochemical engineering, construction and services.


Venezuela's Petrozuata boosts oil production


August 4, 2004. Venezuela's foreign-financed Petrozuata synthetic crude project has ramped up production following upgrades, partner ConocoPhillips said. It made a   proposal to invest $6 billion project to upgrade extra heavy oil from Venezuela's eastern Orinoco Faja region into lighter, exportable synthetic crude. Petrozuata, a partnership between the U.S. oil major and Venezuelan state oil firm PDVSA, processed nearly 150,000 barrels per day (bpd) of extra heavy crude into approximately 140,000 bpd of lighter synthetic oil last month. The project, which came online in 2001, was originally designed to process 120,000 bpd of extra-heavy crude into 102,000 bpd of synthetic oil. Venezuela's vast extra-heavy oil reserves from the eastern Orinoco region are too heavy to be processed by normal refineries.


Exxon sees first gas from UK field by year end


August 4, 2004. Exxon Mobil has started developing the Arthur gas field in the UK's southern North Sea and expects it to start producing by the end of the year, the company said.  The Arthur field, 30 miles off England's east coast, is expected to recover over 130 billion cubic feet of potential reserves, Exxon in a statement. Arthur will be a subsea development tied back to the existing ExxonMobil-operated Thames platform by a new 20-mile, 12-inch pipeline and umbilical. The field may ultimately consist of up to three development wells. Exxon subsidiary Mobil North Sea Limited is the field's operator, with a 70 percent interest. The balance of the equity is held by EOG Resources United Kingdom Limited. Exxon's move on Arthur comes as UK North Sea production tails off after peaking in 2002. Britain, which fuels over a third of its power stations with gas, is expected to become a net importer within a couple of years.


Opec on standby to increase supplies


August 6, 2004. Opec is on standby to increase oil supplies by up to 1.5 million barrels per day (bpd) to ease concerns that have sent prices to record highs but no decision will be made until September, its president said. Opec's Purnomo Yusgiantoro told reporters here that the cartel was already overproducing to counter soaring prices fuelled by the financial woes of Russian oil giant Yukos and was looking at further increases.  He said crude supplies from Iraq were helping ease the burden but discussions on a further increase would wait until Opec's September 14 meeting in Vienna. "The (daily) total production of Opec at the moment reaches 30 million bpd, consisting of a quota of 26 million, two million from Iraq and two million others from Opec's overproduction in the field.  "This is an addition in response to oil prices so it is Opec's contribution for world oil prices." We are ready to increase production between 1.0-1.5 million bpd and this issue will be discussed in the September 14 meeting in Vienna," Yusgiantoro said. 


OPEC 'must regain global market share'


August 9, 2004. Oil producers in the Persian Gulf and other parts of the Middle East should revise their policies to reverse a decline in global reliance on their crude as they badly need cash for development, according to a prominent oil analyst. Middle East oil giants were the main crude suppliers to the West and Japan during the oil boom 20 years ago before those consumers began turning to other suppliers because of OPEC pricing policies and other factors, said Fadhil Chalabi, Executive Director of the London-based Centre for Global Energy Studies (CGES), which is owned by former Saudi oil minister Shaikh Ahmad Al Yamani. In a study presented to a recent conference in Rome, Chalabi said the world's dependence on Persian Gulf oil has been in continuous decline over the past 25 years due to flawed pricing policies and geopolitical reasons. His figures showed Persian Gulf oil exports to Western Europe peaked at around 10.3 million barrels per day in 1973, representing nearly 41 per cent of the area's total primary energy consumption. But by 2002, Persian Gulf exports had fallen to 3.2 million bpd, representing only 10 percent of Western Europe's energy consumption a dramatic decline of 76 per cent in its dependence on Persian Gulf oil. Over the same period, Japan, a natural market for Middle East oil, reduced its energy dependence on Persian Gulf oil from 63 to 38 per cent, a drop of 57 per cent, said Chalabi, a former Iraqi oil ministry undersecretary.


Nigeria has over 180 trillion gas reserve


August 8, 2004. Managing Director and Chief Executive Officer of Gaslink Nigeria Limited, Mr. Ibrahim Boyi has confirmed that Nigeria has a gas reserve estimated at over 180 trillion Standard Cubic Feet that is equivalent of about 25 billion barrels of oil and ranked ten in the world for proven the reserve.  Making the revelation in a lecture organised by Indian Professionals Forum, titled; "Alternative Source of Energy in Nigeria- The Gas Advantage", delivered in Lagos recently, Boyi reiterated that Nigerian gas reserve in energy terms is about twice the crude oil reserve adding that over two billion cubic feet of gas is produced daily in the country with 49 percent of it being flared.  In order to monetise the over 49 percent of gas being flared on daily basis, Boyi said government has announced that the year 2008 as the deadline to eliminate gas flaring adding that to achieve its ambition, government has put in place fiscal incentives that will aid gas development projects.


Opec to invite non-members to help end oil price crisis


August 9, 2004. Opec is to invite producers from outside the cartel to talks next month on how to stablise sky-rocketing oil prices, the organisation's president Purnomo Yusgiantoro said. The unusual move to throw open the September 14 Opec meeting in Vienna to non-members comes just days after crude prices hit record highs, reaching $44.77 a barrel in New York.  "Opec will discuss steps to stabilise world oil prices with non-Opec countries and large oil producers, among them Russia and Angola," Purnomo said. "We will discuss world oil price conditions," he said. Supply uncertainties caused by the financial woes of Russian oil giant Yukos and terrorist attacks on Iraqi oil pipelines have sent prices soaring in recent weeks, prompting Opec to consider a hike in production. But Purnomo, who last week branded oil prices "crazy", has said a decision whether to increase supplies by around 1.5 million barrels per day cannot be made before the Vienna talks. He said there were no plans to bring the meeting forward, despite concerns over Opec's ability and willingness to control the market.


Kazakhstan to triple oil output by 2015


August 9, 2004. Kazakhstan expects to more than triple its annual oil production by the year 2015, according to Uzakbay Karabalin, president of the country's state oil company, KazMuniGas. The country, which considers itself the prominent among Central Asia's republics, expects to produce between 1.2 billion to 1.3 billion barrels of oil per year by 2015, well above the 396 million barrels produced in 2003, Karabalin said. Most of that growth would come from the TengizChevroil, Karachaganak and North Caspian projects, he added. KazMuniGas predicts that the Tengiz field has geological oil reserves of 23 billion barrels, with recoverable reserves from 5.5 billion to 8.2 billion barrels. The Karachaganak field likely has the ability to produce more than 200,000 barrels per day, the company estimates.


Indonesia signs gas deal


August 9, 2004. A unit of ConocoPhillips has signed a 17-year deal to sell 2.3 trillion cubic feet of natural gas from the Corridor production sharing contract in Indonesia that it owns with Talisman Energy Inc.   The Canadian oil and Gas Company said in a statement that the sale was to PT Perusahaan Gas Negara (Persero), Indonesia's national gas transmission and distribution company. ConocoPhillips (Grissik) Ltd. owns 54 percent of the Corridor venture and operates it. A Talisman unit has a 36 percent interest and Pertamina, the Indonesian state oil and gas company, has a 10 percent interest. The gas sales start in 2007 at a rate of 170 million cubic feet per day and will be sold at the Corridor plant gate for $1.91 per thousand cubic feet, net of pipeline tariffs.  Talisman said that the partners will spend about $192 million over the next two years to expand plant capacity and drill new wells to meet the deal's requirements.


White Rose project on target


August 9, 2004. Husky Energy Inc, Canada's No. 5 oil producer and refiner, said that tests have confirmed the quality and production estimates for its White Rose offshore oil project on Canada's East Coast. Calgary, Alberta-based Husky, known for its western Canadian chain of Husky and Mohawk gas stations and its dominant position in heavy oil production and processing, is the operator and 72.5 percent owner of the White Rose project. Peak production for the White Rose oil field is projected to be 100,000 barrels a day, with probable reserves estimated to be between 200 million and 250 million barrels, the company said.



5 Korean refineries to face heavy fine


August 5, 2004. Five major Korean oil refineries incurred 114 billion won in losses on the government after they made prearranged biddings between 1998-2000 for oil to be used by the military, according to a report. The report, shows SK, LG-Caltex, S-Oil, Hyundai Oilbank and Inchon Oil Refinery garnered some 114 billion won in illegal profits by prearranging the biddings initiated by the Defence Ministry. The report will be a crucial reference for a damage suit filed by the Defence Ministry in 2001 against the five oil refineries, but it has been suspended due to a dispute over the estimation of the exact amount of damage. The Seoul Central District Court, which is reviewing the case, requested Seoul National University last December to calculate the amount of damage for a ruling. The court is expected to resume the case soon.


Vietnam sells lubricants to China


August 5, 2004. Vietnam has shipped its first locally blended oil products to neighbouring China as it moves to tap the vast market in that country. The sale is the communist country's first such official export of oil products. Despite being Asia's sixth-largest crude producer, averaging 400,000 barrels per day (bpd), Vietnam still has to import most of its oil product requirements as it lacks major refineries. Vilube, which has a domestic lubricant market share of around 11 percent, has sold an average 10 20-foot containers of various lubricant products a month to China. It also exports the products to Cambodia.  The unlisted firm operates a blending facility in commerce hub Ho Chi Minh City with a capacity of 25,000 metric tonnes per year and a storage tank of 2,400 metric tonnes. Its lubricant products include auto oils, high-grade engine and hydraulic oils. The company imports base oils and additives from a number of international suppliers including Dupont Dow Elastomers, a joint venture between Dow Chemical Co, Dupont Co.


BP starts clean gasoline unit


August 5, 2004. BP has commissioned a new Clean Gasoline Unit at their Cherry Point Refinery. With the addition of this facility, the refinery will produce gasoline that exceeds all current and impending gasoline quality regulations. This investment strengthens BP's commitment to bring cleaner burning fuels to market and follows their introduction of low sulfur, premium gasoline in 2001. According to the company BP's low sulfur fuels are considered "cleaner fuels" because they enable a car's catalytic converter to work more efficiently, reducing Nitrous Oxide (NOx) emissions.   Fuel quality has a direct impact on emissions quality. Catalyst contamination by fuels with high sulfur content can significantly increase undesirable vehicle emissions.


Iran refuses to lower LNG price for India


August 6, 2004. Iran has refused to lower the price of liquefied natural gas (LNG) it plans to sell to India arguing that it was offering the most competitive price at $2.22 per million British thermal unit (MBTU). An Indian delegation visited Tehran last month to convince Iran on lowering the LNG price to $1.85 per MBTU, but no understanding could be reached. Tehran is offering 5 million tons per annum of lean gas at $2.22 per MBTU.  Though Iranian offer price is lower than Qatar's $2.53 per MBTU sale price to Petronet LNG, India's first LNG import firm, the government is asking for a price lower than $2 per MBTU to keep the delivered cost of degasified-LNG to power and fertilizer plants at around $3.5 per MBTU. The delivered price of Qatar gas is $4.8 per MBTU while at $2.22 per MBTU, the delivered price would be just over $4. Currently, natural gas produced by private firms in India is sold at $3.4 per MBTU.  Petronet's contract with Rasgas for buying 7.5 million tons of LNG implies that Qatar will match price of any company offering to sell to India LNG at a price lower than its $2.53 per MBTU.


Pakistan to decide on gas imports from Iran by end of 2004


August 6, 2004. Pakistan's government will decide upon importing gas from Iran, Turkmenistan, or Qatar by the end of 2004, according to Pakistan Oil and Natural Resorts Minister Norouz Shakour.  Iran and Pakistan agreed last fall to cooperate in construction of a gas pipeline between the two countries. According to oil and gas technicians, if the New Delhi would trust Islamabad, the best route for Iran-India gas pipeline is passing through Pakistan's soil. The construction of that pipeline has not been finalized during the course of the past few years due to the lingering high tension in New Delhi-Islamabad relations. Foreign Minister Khursheed Mahmud Kasuri said that Pakistan was keen to make progress on the proposed Iran-Pakistan-India gas pipeline project. In his arrival statement, the foreign minister said the two countries shared strong ties of common history and heritage, religion and culture. "Pakistan and Iran are close neighbours, with a growing mutuality of interests," he added.


LG-Caltex sees oil exports normalising in August


August 9, 2004. LG-Caltex Oil Corp., South Korea's second-biggest oil refiner, expects its oil exports to return to normal in August after a recent strike disrupted shipments in July, a company spokesman said. The labour union at the 50:50 joint venture between South Korea's LG Group and ChevronTexaco Corp. ended its 20-day strike, yielding to growing public pressure and a crackdown by state prosecutors. The refiner, which controls a quarter of the domestic market, had declared a force majeure on exports of more than 3 million barrels of petroleum products booked for July and August shortly after the strike broke out on July 18.


Transportation / Trade


China West-East gas pipeline JV collapses


August 3, 2004. A planned joint venture between state-run Petrochina and foreign energy firms has collapsed, ending the companies' involvement in an $8 billion gas pipeline traversing China, a Royal Dutch Shell spokesman said. The cancellation ends weeks of speculation that the foreign partners were due to exit the ambitious West-East project, just two years after they agreed to participate in gas exploration and production in the remote Tarim basin to feed the pipeline. Stretching from Tarim in the northwest region of Xinjiang to the eastern financial hub of Shanghai, the project was touted as a major energy artery for the country's booming economy. PetroChina officials and industry analysts insisted that the US$14.5-billion west-east gas pipeline project will be unaffected by the collapse of the proposed joint venture between PetroChina and a foreign consortium.


China to double oil tanker volume


August 6, 2004. China is set to nearly double its commercial oil products tankages in the next two years led by independent firms seeking fat investment returns or a foothold in a booming market ahead of deregulation. The world's second-largest oil consumer with double-digit demand growth is in dire need for infrastructure ranging from pipelines, to berths and storage tanks, to handle record oil imports as current facilities have hit a bottleneck, said the China-based sources. Smaller firms have headed the drive costing more than $500 million to boost the commercial storages on the eastern seaboard to nearly 80 million barrels, or about two weeks of consumption by end-2006, from 40 million barrels. State oil giants have been pre-occupied with boosting storages to serve their own refining systems. As a commitment to the World Trade Organisation, China is slated to open its lucrative domestic wholesale oil markets from the end of 2006. New traders, local and foreign, expect to gain entry into the Chinese market by building the storage facilities.


L&T bags $53m oil process platform order in UAE


August 8, 2004. An Indian company, Larsen & Toubro Limited, has been awarded a $52.5 million contract by Bunduq UAE for building a process platform in an oil field in the Gulf. L&T will engineer, procure, construct, and install the platform in the El Bunduq field near the border between UAE and Qatar. The platform, with facilities for compressing and injecting gas, will be completed in 18 months.  The initial work on the project has already started in India and Bunduq representatives have visited L&T to apprise itself of the progress.


China to pump $3b into biggest oil pipeline


August 9, 2004. China plans to spend 14.6 billion yuan ($3 billion) to build the country's biggest oil pipeline, stretching 4,000km from Xinjiang to the north-western province of Gansu. Work on the pipeline, which would carry crude oil and refined products, would begin in October and it was expected to go into operation in 2006. China has been investing heavily in energy infrastructure as its booming economy sends demand skyrocketing. It already has plans to start work on two oil pipelines in Xinjiang this year. One is a 1,500km crude oil pipeline with an annual capacity of 10 million tonnes, running from Shanshan in Xinjiang to Lanzhou in Gansu. The other is an 1,800km product pipeline with annual capacity of eight million to 10 million tonnes that will link Xinjiang's capital of Urumqi with Gansu's capital of Lanzhou. Part of a sweeping government plan to invest more in China's relatively poor west, the Xinjiang-Gansu pipeline would be the biggest oil pipeline in the country, the newspaper said. China has just finished work on a 4,000km natural gas pipeline from Xinjiang to Shanghai.


Bangladesh may allow India-Myanmar gas line


August 9, 2004. Bangladesh is ready "in principle" to accept a proposed pipeline through its territory to supply India with gas from Myanmar because of the economic benefits to Bangladesh, a state minister said. India has been waiting for at least two years for Bangladesh's approval to build the 290 km (181.25 miles) pipeline, which is expected to cost more than $1 billion. But, for final approval, India will have to agree to conditions that include laying the pipeline along Bangladesh's existing roads and highways and having the project jointly managed by India and Bangladesh, he said. India must also agree to allow Bangladesh to use the pipeline to export gas to India or import it from Myanmar, he said. The proposal is now waiting for Prime Minister Begum Khaleda Zia's approval after it was revived at talks between Bangladesh Foreign Minister M Morshed Khan and India's Petroleum Minister Mani Shankar Aiyar in New Delhi in June.


Bangladesh does not sell natural gas to India as its reserves are not sufficient to meet the country's long-term needs. Its proven natural gas reserves have shrunk 25 per cent to 15.33 trillion cubic feet from a previous 20.5 trillion. Indian energy firms were in talks with Daewoo International Corp for a stake in the A-3 exploration block in Myanmar, hoping to find enough natural gas to justify imports of liquefied natural gas (LNG) to India. Myanmar lies to the south-east of Bangladesh, which also borders India's Tripura and West Bengal states. South Korea's Daewoo operates and owns 60 per cent of Myanmar's gas-rich A-1 block, in which India's Oil and Natural Gas Corp Ltd holds 20 per cent, while GAIL India Ltd and Korea Gas Corp. each hold 10 per cent.


Policy / Performance


World Bank agrees to continue oil, gas lending


August 3, 2004. The World Bank agreed to continue making investments in oil, gas and mining, setting aside an independent review's recommendations that it phase out lending for such projects. The bank's board of directors lent its support to a previously disclosed management proposal to encourage selective investment in extractive industries, including a greater focus on how projects may impact local communities.  In 2000 the world bank commissioned an independent review led by Indonesia's former environment minister Emil Salim, recommended the bank radically change its approach to funding such projects and even stop supporting some. Salim had called for an end of oil-related loans by 2008. The World Bank Group's management responded in June by saying it would continue to fund oil, gas and mining projects but would require high environmental and social standards. It also said it would boost its support for environmentally friendly renewable energies and clean energy sources like natural gas.


The World Bank Group lends about $500 million to $600 million per year - about 3 percent of its total commitments on extractive industries projects. In the past year, World Bank affiliates helped fund two criticized private sector oil projects the Chad-Cameroon and the Baku-Tbilisi-Ceyhan pipelines which both carry crude thousands of kilometers overland to the sea. The bank management is expected to tweak language on some issues contested during the board meeting, including references to so-called "free, prior and informed consultation" rights for communities and governance standards for projects. An updated version of its proposal will be reviewed by the board in coming weeks, the World Bank said. Following that last hurdle, the World Bank Group said it would hold an annual review of its activities in the oil, gas and mining sectors. In a statement, the U.S. Treasury Department said it supported the bank's decision, but cautioned work was needed to help mitigate the risks associated with extractive industries in poor countries.


IMF tells Central Africa to cut dependence on oil


August 4, 2004. The head of the International Monetary Fund urged countries in Central Africa to reduce their dependence on oil in return for financial assistance and support in winning debt relief. Some nations in the region have seen their wealth boom, thanks to a share in the oil-rich Gulf of Guinea, but there are concerns about whether enough crude can be pumped to sustain their economies in the long term. A major challenge for the region is securing debt relief, which requires IMF lending programs. In exchange, the IMF expects countries to push on with privatization and encourage investment in industries other than oil. Gabon had reached a key stage in its history as oil production declines and it seeks to open its economy to other industries. Gabon is sub-Saharan Africa's fifth-biggest oil producer, but economists have warned its oil could run dry in 10 to 15 years. The IMF approved a 14-month $102 million loan program for Gabon in May to help it adjust to declining oil output, saying it had shown new resolve to address economic problems.


Peru drops 10 percent tax plan for gas


August 4, 2004. Peru's Economy Ministry dropped plans for a 10 percent consumer tax on local consumption of natural gas from its massive Camisea reserves following criticism the levy could hold up distribution. Some 70,000 households and businesses are expected to switch to Camisea gas by 2009. The Energy and Mines Ministry criticized the tax plan because it wants to maximize the number of companies and households that tap into the new supply. President Alejandro Toledo will officially inaugurate the arrival of the gas in Lima and the Camisea field is expected to begin supplying the capital on Monday, starting with seven industrial contracts. Businesses and households currently buy imported gas in tanks and canisters, but the Camisea reserves will allow users to connect to a central pipeline, which the government says should halve costs.






California approves gas based power plant


August 2, 2004. The California Energy Commission  licensed Duke Energy Corp.'s project to build a new natural-gas-fired power plant at Morro Bay on the central California coast. The $800 million plant, which will replace an old power station formerly operated by PG&E Corp.'s Pacific Gas & Electric Co. subsidiary, will have a generating capacity of 1,200 megawatts, or power for about 1 million homes, according to the commission.


Power plant in Thar


August 3, 2004.  A German firm has shown its willingness to set up a power plant in Thar, Sindh with a estimated cost of 2.4 billion euros. Addressing a press conference Sindh Minister for Mines and Minerals Irfanullah Khan Marwat said that a delegation to be led by Chief Minister Dr. Arbab Ghulam Rahim would visit Germany from August 8 to 12 in this regard.  He did not disclose the name of the German firm but informed that negotiations were going on with the firm to generate 10,000 MW electricity by utilizing coal.  He stated that the proven coal reserves in Sindh were to the tune of 184.123 billion tons and of these 175.506 billion tons were in Thar alone.


Iran to call for power station tenders


August 3, 2004. The Ministry of Energy will call for tender bids on construction of a 60-Megawatt power plant in the north of the country, according to official sources.  The tender for building Manjil Power Plant has not been held but the ministry is negotiating with a number of nations including Japan.   The tender will be held after the necessary loan is received. 


Iran, Tajikistan sign MOUs on construction of 15 power plants


August 3, 2004. Iran’s Minister of Energy Habibollah Bitaraf said that Iran and Tajikistan signed two Memoranda of Understanding (MOUs) on construction of 15 hydro-electric power plants in Tajikistan. The Iranian minister said his ministry is to submit its proposals on implementation of the projects to the Tajik energy ministry within six months. Tehran-Dushanbe talks on production and utilization of Tajikistan’s water and energy resources will continue in the future, he added. Voicing Iran’s interest in transfer of Tajik electricity to the country, he said construction of power transmission line with the capacity of 400 kw via Turkmenistan is currently underway. Measures are being taken to provide facilities for transfer of Tajik electricity to Iran in the next two years, Bitaraf further announced.


According to an agreement signed by the two sides last December, Iran agreed to participate in construction of the Sangtuda hydro power plant on the Tajik river of Vakhsh. Construction work on the Sangtuda power plant began in 1987 but was suspended because of the civil war and the lack of necessary funds of up to 360.9 million dollars. The government funded the hydro power plant in 1996. Iran and Tajikistan have decided to begin construction of the power plant by forming an international consortium and attracting other countries’ credits. Russian and Czech officials have recently announced their readiness to participate in construction of the power plant which is to generate, when completed 670MW electricity annually.


Nominal capacities of power plants increased in Iran


August 4, 2004. The nominal capacities of the power plants as well as the capacity of producing electricity has increased to 26000 MW during 1977-2002. The report on the 25-year performance of the Islamic Republic of Iran issued by the Management and Planning Organization said that during this period, the power grid network covering the whole country was established as all the local networks have been connected to the entire network. The report added that during the years after the Islamic Revolution, the cities were provided by the electricity, and that the number of the electricity-equipped villages increased to 46000 from 3600. According to this report, some changes have occurred in the electricity sector, as the Iranian experts have constructed dams, power plants, and high voltage posts by using the methods different from those taken by the foreign experts at the time before the Islamic Revolution. Based on this report, implementing the decentralization policies in the electricity industry through the relative dependency of the local electricity companies would bring about production and purchasing management, as well as better outputs. Iran has already exported electricity to Turkey, Azerbaijan, and Armenia. The report added that improper use of renewable energies due to the entire dependency on oil sector is among the weak points of the energy sector.


Chinese firm wins first contract for Pakistani nuclear plant parts


August 5, 2004. A Chinese firm has won the first contract to provide components for a second nuclear power station Beijing is building in Pakistan. China First Heavy Industries would supply the pressure vessel for the new reactor which will be built at Chashma, some 270 kilometers south of the capital Islamabad. China National Nuclear Corporation and Pakistan Atomic Energy Commission signed an agreement to build the plant in May. The 600-million-dollar project is likely to be completed in six years and comes under the supervision and inspection of the International Atomic Energy Agency.


Philippines wants to convert nuclear plant to gas


August 6, 2004. The Philippine president announced that the government would start accepting offers to convert the mothballed Bataan nuclear power plant to one that uses natural gas in a bid to avoid a looming energy crisis. The move is part of efforts to make the country less dependent on foreign energy and head off an expected shortage of around 600 megawatts on the main island of Luzon by 2008, President Gloria Macapagal Arroyo said. Starting next year, the government will be accepting offers from the private sector to convert the unused 620-megawatt nuclear power plant, she said.


The US$2 billion plant, built in the early 1980s in a seismically active area, was found to have numerous defects and has never been used. The government is still paying off the money it borrowed to build the plant, including around US$155,000 a day in interest payments. Korea Electric Power Corp., which operates a 1,200-megawatt natural gas power plant and a 650-megawatt oil power station in the country, has estimated the conversation would cost around US$600 million -- and said it would be cheaper to build an entirely new power plant. Arroyo noted an Asian Development Bank study that indicated the Philippines needs to build 6,000 megawatts of additional power generation capacity over the next 10 years to avoid a repeat of a power shortage seen in the early 1990s.


Transmission / Trade


Italy to sell chunk of Enel Power Company


August 4, 2004. Italy's Economy Ministry said it plans to sell as much as 20 percent of the state-controlled power company Enel SpA. Any resulting deal is likely to be worth billions of euros. The sale which is part of a four-year, 100 billion euros($120 billion) fund-raising campaign to cut debt  is expected to occur by the first half of November, the ministry said. The offer will be aimed at Italian retail investors as well as foreign and domestic institutional investors. The state's 61 percent stake in the power company is worth 24 billion euros ($29 billion) at current market prices.


Policy / Performance


How does China cope with power supply crisis?


August 3, 2004. Late last month, with daytime temperatures reaching 37 deg C, Shaghai’s electricity consumption surged to a weekly record of 14.35 million kilowatt-hours (kwh).  The city authorities resorted to asking 2,100 businesses to operate at night and 3,000 others to adjust operating hours. Even high-profile multinational companies were not spared. General Motors and Volkswagen were ordered to suspend production for more than a week. This episode mirrored a nationwide shortage of electric power. In Beijing, on July 22, the Municipal Power Supply Bureau imposed the capital's first brown-out of the year, disrupting supply to suburban areas for 47 minutes in the afternoon. The Chinese government has certainly been working tirelessly to resolve the power crisis. Last month, Premier Wen Jiabao exhorted railway departments to 'do their utmost for the transport of coal for electricity generation'. In the first half of this year, Chinese railways shipped 480 million tonnes of coal, up 12.2 per cent over the same period last year. Ships have been diverted from overseas routes to domestic coal transport. 


China’s power supply crisis: A solution


China is the world's second-biggest coal exporter. Last year, it exported 93 million tonnes of coal, including 80.8 million tonnes of thermal coal. This year, to assure supplies for electric power plants, the Chinese government limited coal exports to 80 million tonnes. China Coal Import and Export vice-president Zhou Dongzhou predicted that exports of thermal coal would fall to 70 million tonnes. What more can be done? The government can fully liberalise the coal market and, specifically, cease regulating the price of thermal coal supplied to electric power plants.  Since the 1960s, the Chinese government has regulated the supply of thermal coal to power plants. It requires coal mines to supply power plants with about one quarter of their coal purchases at a contract price. Typically, that price is set below the spot market price. For instance, between last year and this year, while the spot market price of thermal coal rose by 25 per cent, the contract price rose by only 10 per cent.  As a result, many mines have ignored their power plant contracts and have sold coal on the spot market. Some power plants then cut back production, so exacerbating the national power shortage. The government justifies its regulation of coal prices by its regulation of electricity prices. It regulates the latter to protect end-users. And to ensure the economic viability of electric power generation, it forces mines to sell coal cheaply to power plants. This is clearly a case of 'two wrongs don't make a right'. Even if coal mines deliver at the contract price, power plants have an incentive to sell their cheap coal rather than burn it. Some estimate that the nationwide power shortage will soon reach 30 million kilowatts, which is more than double Shanghai's peak consumption. The solution obviously is to free both electricity and coal prices. Indeed, the National Development Reform Commission did increase electricity prices in June by an average of 2.2 fen (0.5 Singapore cents) per kwh in the eastern, northern, central and southern grids. But, apparently, this increase has not been sufficient.  There are two ways to resolve the electricity crisis: One is to increase supply, while the other is to curb demand. Higher prices can accomplish both. For instance, in 2001, when the western region of the United States experienced a power crisis, aluminium producers readily sold their electric power supplies to other, needier users. The current power shortage is an economic problem. It was not caused by some unforeseen disaster. Therefore, it can be resolved by an economic solution. There is no need for Prime Minister Wen to exert himself pleading with the railways, shipping lines and power companies. The Chinese government could just sit back and let prices do the job.


Global Renewable Energy Trends


Research on renewables drops 40% since oil crisis


July 28, 2004. Research in renewable energies has dropped by 40% since the post-OPEC period, according to an analysis by the International Energy Agency.  RD&D budgets among IEA countries from 1974 to 1986 totalled US$158,240 billion, notes ‘Renewable Energy - Market and Policy Trends in IEA Countries.’ Of that amount, 16.7% or $26,496 billion was allocated to renewables, including hydro. Over the 12-year period, the annual research budget for renewables was $2,208 billion a year. Another $8,607 billion was spent on conservation, $15,948 billion on nuclear fusion, $20,559 billion on fossil fuels and $84,866 billion on nuclear fission. Between 1987 and 2002, total RD&D spending on all energy technologies dropped to $132,781 billion, with 15.4% or $20,460 billion on renewables.


Lifecycle assessment shows favourable impact of renewables


July 28, 2004. Renewables have been shown to have a favourable impact in a lifecycle assessment study from the World Energy Council. The study analyzes all stages of energy production and use for a range of conventional and alternative energy sources from raw materials supply, production, transport and energy generation to recycling and disposal stages.  Comparison of the various renewable energy sources shows greenhouse gas emissions from solar PV are five times higher than wind turbines when calculated on a lifecycle basis. A solar PV module will emit as much as 104 tonnes of CO2 equivalent for every gigawatt-hour of electricity it generates over its 30 year life, according to data in the report, ‘Comparison of Energy Systems Using Life Cycle Analysis.’


The minimum lifecycle emission is 12.5 tonnes. Offshore wind is shown as 22 tonnes, with onshore wind as high as 14.5 and as low as 6.9 tonnes per GWh. Nuclear is 3 to 40; hydro is 4 to 120; gas cogeneration is 398 to 499; and coal emits 800 to 1,372 tonnes per GWh of electricity. For heating technologies, wood chips are lowest at 10 to 23 tonnes per GWh of thermal energy, followed by earth energy heat pumps at 24 to 105, natural gas at 263 to 302, gas-fired electric space heating at 712 and coal-fired electric at 1,102 t/GWh-t. “A rapidly growing number of people around the world are becoming concerned about environmental issues” and it is important to examine ways in which negative effects on the environment are assessed, the report notes. The objective of lifecycle accounting is to “describe and evaluate the overall environmental impacts of a certain action by analysing all stages of the entire process from raw materials supply, production, transport and energy generation to recycling and disposal stages.” Lifecycle evaluation of emissions from energy production and transportation has been the principal target of studies, with some assessments reflecting the large amounts of land required for “dilute” solar and wind resources. “It can also be argued with reason that some of the externalities cannot be covered by the LCA methodology - or any other analytical method - but must be addressed within the political process.”


Presidential contender promises 20% from green power in U.S.


August 4, 2004. The presidential candidate for the Democratic party has promised to generate 20% of U.S. electricity from renewables by 2020.  “To create an energy-independent America, we will have to do more than use existing energy sources more efficiently,” John Kerry says in his energy policy. “To grow our economy, tap our ingenuity, and protect our environment, we will also have to explore and develop new energy sources.” “A key priority will be ensuring that the federal Production Tax Credit for wind and biomass is applicable to the full array of renewable technologies, since the unpredictability of frequent short term extensions of the PTC has greatly hindered investment and expansion of the industry in the U.S.,” he explains. “No single solution can meet all of our society's future energy needs - we will need a diverse group of energy technologies. Predictable and stable federal policies are critical to achieving this goal.” Kerry and vice presidential candidate John Edwards, say domestic renewable energy reduces oil dependence, creates electricity and enhances markets for electricity, “and growth in these new technologies will create quality jobs, as well as goods and services for export.” They will increase funding to research renewables, “offering the prospect of both technical advances and the development of an enhanced supply chain.” “Like any other business development, clean energy technologies and projects need capital to get off the ground,” and they will improve access to financing for renewables and work with the investor community to find ways to encourage additional investment. “America will commit its technological and industrial prowess to developing and sustaining clean, renewable sources of fuel,” the policy says. These new sources will not only dramatically reduce our dependence on foreign oil, they will also create new industries, new jobs, and new ways to protect our environment.” The plan calls for an increase in the use of domestic green fuels, such as ethanol, by five billion gallons by 2012, to increase the use of waste biomass, and to provide funding and financing mechanisms for further research. It also involves development of domestic oil supplies in the western and central Gulf of Mexico and the National Petroleum Reserve in Alaska, in order to diversify the world oil supply to include non-OPEC suppliers. “Americans will be freer and stronger when we break our dependence on foreign oil,” says Kerry. “America will be safer and freer when the resources that fuel our economy are in our own hands, when we develop new energy sources right here in America.” The U.S. consumes 2.5 million barrels of Middle East oil every day, and instability in that region has pushed prices to record highs, he explains. Soaring energy costs are “burdening middle-class families with higher gas prices, and our dependence on Middle East oil is putting our national security at risk.” The plan calls for increased efficiency in transportation, creation of a Hydrogen Institute to develop a ‘New Energy Economy’ by 2020, improving efficiency in buildings, reducing energy costs of the federal government by 20% by 2020, constructing a pipeline to move natural gas from Alaska to the lower states, and developing new ways to generate cleaner power from coal with an investment of $10 billion over the next decade to improve the efficiency of current coal generation facilities.


West Texas Intermediate Crude Price

(Base case and 95 % confident interval)

The confidence intervals show +/- 2 standard errors based on the properties of the model.  The ranges do not include the effect of major supply disruptions.  EIA Short Term Outlook, August 2004.  


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