MonitorsPublished on Sep 28, 2005
Energy News Monitor I Volume II, Issue 15
Electricity Shortage may thwart India's Rush to Modernity

India's Rush to Modernity


ts organisers are calling it a victory for people power. They even invoke the name of Mahatma Gandhi, icon of India's independence struggle. For economic reformers, however, it is a depressing defeat: by making a huge fuss and refusing to pay their bills in full, Delhi's middle class last month persuaded the local government to withdraw an increase--of about 10%--in the residential electricity tariff. The protesters alleged they were being robbed by rigged meters and forced to pay exorbitant first-world prices for an unimproved, erratic third-world service. They had a point. But if not even well-off citizens in the capital will pay an economic rate for their power, what hope is there for the rest of the country, where politicians habitually offer free power to farmers in the hope of winning their votes? And while electricity boards continue to rack up huge losses, what chance is there of finding the money so desperately needed for investment in new generating equipment? More fundamentally, where will the fuel come from?

Power cuts are a way of life in India, at least in parts of the country lucky enough to regard them as an interruption rather than the norm. There is a worsening shortage. Over the past decade, electricity generation has grown at a compound annual rate of 5.5%, but demand has grown even faster. Peak demand exceeded supply by 11.3% in 1998 and by 12.1% in the last financial year (ending this March). That, moreover, is to define demand in the narrowest of senses. The countryside, where more than two-thirds of India's people live, accounts for no more than 13% of electricity consumption. India's 1.1 billion people use on average just 526 units (kilowatt-hours) of electricity a year, compared with 1,247 units in China. Where electricity is available it is often only for a couple of hours a day, unusable for industry and of such poor quality that power surges routinely wreck equipment. Yet India wants electricity to reach every village by 2008—demanding the electrification of 110,000 villages--and every household by 2012. At present, 56% of India's households, and just 44% of those in rural areas, have connections to the grid. Meanwhile, it is hoped that India's economy, already growing at an average of more than 6% for the past 15 years, will expand even faster, meaning more electricity-intensive manufacturing and air-conditioned shopping malls. The government talks of adding 100,000 megawatts (MW) of new generating capacity over the next ten years--a virtual doubling. Indian industry, long used to the failings of the national grid, has survived by building its own "captive" generating plants.

Azim Premji, chairman of Wipro, one of India's information-technology stars, senses that the electricity shortage is "coming to enough of a crisis now that we have to fix it, like we fixed telecoms." T.L. Sankar, an energy expert at the Administrative Staff College of India in Hyderabad, likewise draws succour from past successes in other fields, such as the near-doubling of food production in India during the "green revolution" of the late 1960s and 1970s. Something similar, he argues, is needed now. "Crisis" may be the wrong word for such a long-standing shortage, with its origins in every link in the electricity supply-chain, from fuel through generation, transmission and distribution. But crisis is how it has sometimes felt during the last few months, because of a combination of factors.

Manmohan Singh, the prime minister, has often spoken of the seriousness of the needs, and has set up a committee to tackle them. This summer, too, the oil price has soared and worries have mounted about a shortage of coal, which fuels about 60% of India's electricity, compared with about 26% from hydro-electricity and 11% from oil and gas. A.P.J. Abdul Kalam, India's president and a much-respected scientist in a largely ceremonial post, has put the electricity shortage into the broader context of insufficient supplies of energy. In his speech on the eve of Independence Day on August 15th he called for efforts to make "energy independence" "our nation's first and highest priority". Always the worst season for power-cuts--air-conditioning provides respite from the sweltering heat--this summer has been particularly bad in some places, notably Maharashtra, India's wealthiest and second most populous state. Meanwhile, the row in Delhi has highlighted the mess that is India's electricity distribution.


Delhi had been held up as a model of successful power-sector reform. An Electricity Act in 2003 had achieved little, perhaps because it was so ambitious. Part of the difficulty lies in India's federal system, under which electricity is a "concurrent" subject, where both the central government and the 29 states have a role. Except in a few cities that remained exempt, distribution was monopolised by state electricity boards (SEBs). The act called for the "unbundling" of generation from transmission and distribution, which was to be opened to private competition. Independent regulators would adjudicate tariffs, and the cross-subsidies that penalise industry to the benefit of the domestic consumer and farmer were to be removed. At present less than 42% of electricity is sold to industrial and commercial users, but that yields more than 70% of the SEBs' annual revenues. Only two states--Orissa, in the poor east, and Delhi--have privatized distribution. The Delhi government claims that privatisation has brought big benefits. The two private firms involved, affiliates of the big national conglomerates, Reliance and Tata, succeeded in cutting losses to theft from about 50% of supply to about 40%--the national average. The government claims electricity was on its way to being "self-sustaining". This picture of healthy progress, however, does not match popular perceptions. Reliance, in particular, is accused of having behaved badly. Much suspicion has centred on new digital meters. Reliance denies they run too fast, arguing they are more sensitive than the old mechanical ones. So electricity bills would have risen sharply anyway.


The timing of the furore in Delhi is unfortunate. Electricity reforms have stalled, and may slip into reverse. Communist parties, on whose votes the government led by Mr Singh's Congress Party relies for a parliamentary majority, want to water down the 2003 Electricity Act. Jealously protective of the interests of public-sector workers, they oppose unbundling and privatisation, and support cross-subsidies. Already, Congress-led state governments have been among the worst offenders in using electricity to buy votes and popularity. Some of Maharashtra's troubles, for example, can be traced to elections held last year, when the government offered farmers free power for irrigation pumps. Maharashtra was forced to remove the sop this June, but other Congress-led governments, most recently in Punjab, have offered the same handout. One consequence of failing to fix the SEBs is fiscal. Their average tariff has risen by 20% since 2000, compared with a rise in the cost of their supplies of just 4%. But still, tariffs, on average, are just three-quarters of supply costs. Some estimates suggest that the SEBs lost 10 trillion rupees ($215 billion) over the past decade. This has damaged their ability to add distribution capacity, and even to carry out basic maintenance. The Planning Commission has pointed out that more than 90% of the investment in the power sector goes into generation and transmission rather than distribution, akin, it argues, "to building a superstructure without a foundation". Still, the money needed for new generating capacity is huge--estimates range between $10 billion and $15 billion a year. Efforts to attract private investment, including from abroad, into power generation have been largely unsuccessful. The most spectacular failure was the impressively modern 2,200MW Dabhol power project in Maharashtra, which started operation in 1999, only to shut in 2001 after a row between its promoter, Enron, a collapsed American energy giant, and the SEB. Years of legal wrangling have ensued, with damaging effects all round. Many Indian observers drew the lesson that privatisation and foreign investment in power did not work and meant high prices. Foreign firms wondered whether power-purchase commitments signed by bankrupt SEBs were worth anything. Only now is the project restarting, having, in effect, been nationalised. It will be at least a year before it is producing electricity. Despite Dabhol and a huge gas-fired plant that Reliance is building in Uttar Pradesh, a northern state, coal is expected to remain India's "mainstay" fuel for decades to come. Its proven reserves, of 92.4 billion tonnes, are just over 10% of the global total. But it is of low quality, with a high ash content and low calorific value. It is also, by international standards, expensive (perhaps twice the cost of South African coal), and production is not growing fast enough. Rajiv Sharma, a senior official in the Ministry of Coal, blames this on underinvestment in the 1990s, when coal became a "condemned fuel", because of its polluting effects and contribution to global warming. Coal India, the state's near-monopoly, was unprepared when demand took off in 2003. So India has been importing more coal--nearly 11m tones last year. Vipul Tuli, of McKinsey's, a consultancy, predicts a "massive" shortage of 100m tonnes by 2011-12. Domestic coal usage is constrained and made more costly by an inadequate rail network. Imports are hampered by a lack of capacity at the ports.

Recent months have seen a scramble by India to secure fuel supplies. There is talk of pipelines to bring gas from countries such as Turkmenistan, Bangladesh, Myanmar and, most controversially, Iran. Meanwhile ONGC, a state-owned oil exploration and production company, has teamed up with Lakshmi Mittal, a steel tycoon, to bid for foreign oil assets. India's nuclear industry, which at present supplies about 2% of electricity, received a big boost in July, when Mr Singh went to Washington, DC, and secured an American offer of help for it. Despite having nuclear weapons, which it tested in 1998, India has never signed the international non-proliferation treaty. So this was a diplomatic coup. Mr Singh has suggested India could have 30,000 to 40,000MW of nuclear capacity for the next 20-30 years. But that optimistic figure is still a fraction of requirements. There may be more potential in hydro-electricity, which already produces a quarter of India's needs, in renewable forms of energy, and in moderating demand by enhancing energy-efficiency. India has an estimated 120,000MW of untapped hydro-electric potential. Big dams are controversial, but much of this could be realised through small, run-of-the-river projects. It is hoped to increase hydro's share in production to 40%. The "most significant" strategic goal set by Mr Kalam in his Independence Day speech, however, was to increase the share of renewable energy in generation from around 5% now to 20-25%. Wind power already accounts for about 2%. Solar power is negligible now, partly because of the high capital cost of solar plants, but the president was optimistic that new technology would soon bring the cost down. He estimated, moreover, that 30m hectares of wasteland in India are available for the cultivation of "bio-fuels", such as Jatropha, an oil-producing shrub.

An obsession with "energy security" may not be wise in a world where, in Mr Singh's words, borders are becoming less relevant. But it must make sense to look at options other than coal and imported hydrocarbons. The impediments to meeting India's needs through increases in thermal-power generation seem likely to dog the country's progress for years. They lie not just in the present shortages of fuel and capacity, but in the structure of an industry too long governed by political rather than economic concerns. They are not insuperable. But they are so complex and daunting that one leading industrialist privately argues that the only solution is for electricity to be declared a national emergency. That way, the general recognition of the scale of the challenge might actually turn into action.


(Courtesy: The Economist, Issue dated 24-30 September 2005.)



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Source: IOC



Gazprom-Sibneft: A transaction with many dimensions

(Igor Tomberg, RIA Novosti.)


Almost three months after the first rumors about Sibneft being put up for sale had surfaced, Gazprom signed an agreement with Millhouse Capital undertaking to purchase a 72.7% stake in the oil major at $3.8 per share, which almost corresponds to Sibneft's market value. In addition, Gazprom has bought another 3.016% of shares from Gazprombank, thus getting a qualified majority on its board. It is by far, the largest deal in the Russian oil sector. Gazprom paid $13.091 billion for the majority stake and another $500 million for the 3.016%. The state-controlled gas monopoly will also take over other Russian oil assets that Sibneft does not own directly, but consolidates on its balance under US GAAP. These include a 49.5% share of Slavneft and its subsidiaries (TNK-BP holds a similar stake), 36.84% of the Moscow oil refinery's voting shares and 49% of OOO Sibneft-Yugra. Gazprom intends to pay for Sibneft with a loan taken from a syndicate of banks able to finance such a transaction. It was in talks with ABN Amro and Dresdner Kleinwort Wasserstein on borrowing up to $10 billion. Recently, however, Morgan Stanley and Citigroup joined the negotiations, and the sum rose to $12 billion. Gazprom is expected to pay off part of the loan (about $5 billion) by the year-end, when the government pays it the last installment of $5.7 billion for its shares. The rest will be structured in the form of long-term bonds and loans.


The deal has many aspects. Apparently, Gazprom is launching its presence on the Russian oil market. Its management has announced their intention to consolidate the gas giant's oil assets in a single division, Gazpromneft, and boost oil production from 10.5 million tons annually to 35-40 million tons by 2010. By the acquisition of Sibneft Gazprom seeks to achieve its strategic goal of becoming a global energy company. This has significantly contributed to solving the problem of de-privatization in a civilized way. The sale of Sibneft puts an end to one of the most controversial privatizations in Russia's extremely controversial privatization history. The loans-for-shares privatization of 1995 was "the original sin" and the recent sale of Sibneft has closed this chapter. Gazprom paid a market value for the company, which is good news for the market. Quite explicably, all foreign analysts draw a parallel between Roman Abramovich and Mikhail Khodorkovsky, saying that the owner of Sibneft and Chelsea FC has received an incredibly lucrative deal. However, the Russian billionaire does not have to leave the country, as some American publications suggest. Mr. Abramovich is quite likely to remain Chukotka governor. The most important aspect in this case is that the Kremlin showed its intention to resolve property issues by financial methods and not by force. The acquisition, on the one hand, makes Gazprom the world's largest energy company, which positively influences the investment attractiveness of both the firm and entire Russia. On the other hand, the transaction arouses certain fears as to the efficiency of managing the new oil assets and the possibility of monopolizing the market. Still, experts do not see it as a frightening situation. They are of the view that all production in producing countries is, as a rule, controlled by the state in some or other way and that private investors control downstream assets. In Russia we have a transitional stage and if we are moving towards conditions in which the rest of the world lives then there is nothing to fear. Of course, private businesses are generally more efficient than state-run operations. However, it becomes a disputable issue concerning the efficient use of natural resources. It is obvious that the management efficiency of private companies is higher than that of the state ones. However, private oil companies are inclined to boost production by "reaping the cream," which means, developing the best fields and abandoning less lucrative wells in terrible environmental conditions. The authorities are more worried about the future of the country's resources than about efficient, but wasteful development.


Besides, there are arguments that refute the opinion of the all-out onslaught of the state. They explain that the nationalization of the oil industry today reminds one of a room with two entrances: on the one hand, state-owned companies buy private assets, but on the other, there is a reversed process - Gazprom plans to remove the ring fence around its shares, and Rosneft plans to put up 49% of its shares for an IPO. Foreign analysts seem to be especially critical about the increased state presence (and influence) in the Russian fuel industry. Most probably, the reason is that it gives Russia a stronger position in the global energy market. With the current situation on global markets, this contributes to an increase of the country's geopolitical influence. Energy resources today, provide a geopolitical tool as important as missiles. By the way, no one thinks of privatizing nuclear arsenals - a tentative, but acceptable comparison. Next year Russia will chair the G8, which sees its global task as ensuring the world's energy security. Hence this close attention to the situation in the Russian oil industry. In other countries such a transaction would be interesting only for its financial scale. But Gazprom's purchase of Sibneft send vibrations through all spheres, from economy to geopolitics.

(Views are personal)


(Please also see *Aiyar for stake in Russian pipeline)

China’s Global Pursuit of Energy Security: Issues and Implications for India


By Dr. Samir Ranjan Pradhanª


Growth induced structural changes have resulted in voluminous energy consumption in all Asian countries in the recent past. The most significant aspect of such structural transformation can be witnessed in the energy sectors of China and India, where the consumption of oil and gas in particular has registered phenomenal growth. Given the fact that domestic as well as regional energy reserves are inadequate to meet current as well as future demand, these countries, have ventured into outside areas in search for energy resources. Given the quantum of present as well as future dependence on external sources these countries have developed high stakes in the security and stability of sources of supplies. In short, their energy security has become linked to the external market. Against this background, an important and vigorous ongoing policy debate in India as well as Asia concerns the implications of PRC’s quest for energy security for India-another emerging major energy consumer- and rest of the region. The general perception and trend is that since China and India will vie for the same sources of energy, there is likelihood of cooperation as well as conflict, as requirements of both China and India are complementary. In this respect, one of the imminent issues of concern for India has been the imperative to devise a pragmatic energy strategy (national as well as foreign) embodying the inherent economic, political and strategic factors to make India secure at this vital front.


The issue of energy security assumes immense importance against the divergent trends as envisaged by various scholars. Broadly, these analyses have focused on two contrasting hypothetical drifts: (i) Daniel Yergin’s Analysis[1], in which, ‘Energy Poverty will be the cornerstone for the foundation of a mutually inclusive cooperative framework to ascertain what is called, “Asian Energy Identity”-(that may well transcend the economic, political, geographic landscape of the region as well as the world)-and (ii) Kent Caldor’s Analysis[2] of nightmarish scenarios having the potentialities of a major catastrophe that may alter the geopolitical and security calculus of the region as well as the world.


Such perplexing and divergent analyses make a strong case to approach the issue from an Indian perspective. While there are few Indian attempts to address such a strategic concern, still they have not been adequate to deal with this predicament expansively. The apparent signals and policy pondering regarding India’s emergence as a major global energy player in the near future appropriately connote the inevitability of an in-depth study taking into account the compatibility of India’s eventual ascendancy to the status of a major player with China as an already established major player in the global oil and gas regime. Moreover, such a strategic aspect, where the country has not only emergent economic stakes but also other multidimensional stakes involved, needs to be analyzed objectively to reflect upon our future bilateral and multilateral policy considerations for the pursuit of overall national security.

This four-part article will focus on the regional, intra-regional and sub-regional aspects of evolving energy scenarios in Asia from Indian perspective. The main objectives are:


v  To analyze the economic, geopolitical and geostrategic imperatives of energy security in the ambit of emerging global scenarios consequent upon the energy fundamentals of China and India.


v  To elaborate on Beijing’s emerging energy-security policies and the resultant energy-related links, which it has begun to establish - since its oil import dependency started in 1993 - with other key players in the Middle East, Russia, Central Asia and the ASEAN region, in search for some certainty of long-term supplies and reasonable protection against market volatility- and their economic, political and strategic implications for India as an emerging player in the global oil and gas regime.

The Platform

As China and India’s GDP continue to grow apace, so do their energy needs. Indeed, in the next quarter-century, China is expected to account for over one-fifth of growth in world energy demand, though India is expected to register skyrocketing growth albeit less than the Chinese proportion. Current estimates show that Asia (comprising all sub-regions and Middle East) accounts for about one-third of world oil demand and has been referred as the global demand heartland. Interestingly this phenomenal growth of demand is taking place in a region, which has been the traditional supplier and can be termed as traditional supply heartland of the world that comprises West Asia, Central Asia and other promising areas such as Bangladesh, Myanmar, and Vietnam, etc. If China and India sustain their blistering economic pace in the short-to-the medium term, and which is likely, they are going to have their cataclysmic effect in their energy sectors, as well as in the global energy market. In terms of pure economics, the outlook for energy security in the Asia-Pacific looks particularly troubling, with rising levels of oil consumption and an even stronger rise in demand. Some experts contend that the Asia-Pacific region’s dependence on Middle Eastern oil may exceed 90% by 2010. While oil fields in Russian Siberia and Central Asia do offer some short-term energy relief, the lack of existing infrastructure to facilitate the transport of this oil poses costly political and economic challenges of their own. Therefore these countries’, especially, China and India’s foray into outside in search for energy security has become imminent and pertinent thereby raising their stakes in the security and stability of the sources of supplies.

Asian Energy Security Debate

Until the mid-1990s, energy did not figure prominently in discussions of the future of Asian security that preoccupied regional specialists. With China, world’s sixth largest oil producer becoming a net importer of oil, observers began to ponder over the energy supply implications of another groundbreaking economic expansion East of Suez. Further, the strong possibility that Beijing will need to import an additional 2 to 5 million b/d of oil by 2010 awakened fears about competition, or even confrontation, over energy supplies and lines of transportation. The struggle to develop and secure sources of supply to meet rising energy requirements has become a major policy imperative for Asian nations in this century. Therefore, energy security concerns has started to reemerge in the Asian strategic calculus.

Security concerns about free access to energy supplies can be divided into two main spheres: protection of the national (and global) economy and fuel consideration for military and strategic purposes. Though, increasingly, even the resource poor countries in Asia are showing willingness to consider market-based solutions to the economic risks of major oil and gas supply disruptions, yet, market solutions offer less solace for those worrying about the more abnormal circumstances of war or prolonged scarcity. Therefore a traditional emphasis on regional and international alliances, oil diplomacy and military buildups continue to dominate thinking about energy security.

(Views are personal)





OVL, GAIL tie up with Daewoo for Myanmar block

October 4, 2005. ONGC Videsh Ltd. (OVL) and Gas Authority of India Ltd. (GAIL) signed an agreement with South Korea’s Daewoo International for acquiring 30 per cent stake in A-3 exploration block in Myanmar. OVL will have 20 per cent and GAIL 10 per cent in the exploration asset, while South Korea’s Daewoo and Kogas will have 60 per cent and 10 per cent, respectively. Daewoo will operate the field. The four companies are also partners in A-1 block in Myanmar.

ONGC’s Mahanadi drilling stalled

October 4, 2005. ONGC cannot start the exploratory drilling process in the highly prospective Mahanadi basin as the environment ministry has not granted it clearance. This is because drilling may harm the Olive Ridley turtles that breed in the area. 

OVL bags Vietnam block

September 30, 2005. OVL has been awarded 100 per cent participating interest and operatorship for an exploration block Block 127 in Phu Khanh Basin in Vietnam. Block 127 is close to the Nam Con Son project sourcing gas from Lan DO and Lan Tay fields discovered by OVL (then Hydrocarbons India Ltd) in 1992 and 1993 respectively. This is the biggest oil and gas project in Vietnam. OVL holds 45 per cent participating interest in these producing fields. Phu Khanh basin is an undrilled deepwatar basin with more than 14,000 km of 2D seismic data already acquired. The block is located at water depth of more than 400 metres with 9,246 area where two prospects have been identified with estimated in place resource of more than one billion barrels. 


Oil cos for first pt VAT on kerosene, LPG

October 3, 2005. The country's oil companies have suggested to the value-added tax (VAT) panel that kerosene under public distribution system (SKO-PDS) and liquefied petroleum gas (LPG) for domestic use should be subjected only to first point taxation. They have submitted that multi-point taxation should not be allowed so long as the prices for these two products are not fully decontrolled. Currently, prices of SKO-PDS and domestic LPG are not fully market determined. However, these products are subjected to multi-point tax, say the oil companies. The contention of the oil companies are that the extension of VAT to the distributor stage increases the losses incurred by the oil marketing companies as they have to compensate the distributors for the taxes. Under multi-point taxation, the levy is attracted at every stage.

Ruia’s stake in Essar Oil to go up

September 30, 2005. The promoter’s stake in Essar Oil could go up from 20 per cent to 37 per cent, following the intention of the promoters to subscribe to a preferential offer amounting to $300 mn (Rs 13.2 bn). The proceeds of the issue will be utilised to finance the Essar Oil refinery project at Jamnagar. The initial plan was to commission the refinery by 1995-96. During this period, it has gone through multiple revisions in project cost. The present cost of the refinery is pegged at Rs 9,863 crore ($2.2 bn). The company claims that the 10.5 metric million tonne per annum (mmtpa) oil refinery project will be commissioned in January 2007.

BPCL to add 600 retail outlets

September 29, 2005. Bharat Pertroleum Corporation Ltd (BPCL) has earmarked about Rs 450 crore ($ 102 mn) investments to add about 600 retail outlets to expand its retail presence to 7,000 outlets during the current year. The company said that about 300 outlets have already been set up. These outlets will come up in urban cities, tier II cities and highways.  

Transportation / Distribution / Trade

Petronet foundation stone on Nov 1

October 4, 2005. Prime Minister Manmohan Singh will lay the foundation stone for the Rs 23 bn Petronet-LNG (PLL) terminal project at Puthu Vypin, Kerala on November 1. The LNG terminal project is expected to pave the way for additional investments of Rs 97.50 bn in Kerala. 

Andhra Gas grid to be ready in 5 yrs

October 3, 2005. A gas grid catering to the industrial and domestic sectors in Andhra Pradesh would be in place in four to five years. There would be tremendous development in the state as large gas reserves had been discovered in the Krishna-Godavari basin. The state government is currently holding talks with GAIL, Reliance and Gujarat Petro Company for formation of the gas grid. The gas grid will cost Rs.5 bn for 200 km. The gas will be supplied to fertilizer and electricity projects besides domestic consumers.

Petronet to hike Dahej capacity

September 30, 2005. PLL has decided to increase its rated capacity to 12.5 million tonne (mt) from present 5 mt per annum. The company will set up two additional tanks and two gasifier units at a cost of Rs 1,000 crore ($ 228 mn) with a capacity of 2.5 mt each at its Dahej LNG receiving terminal. The approval from the Union ministry of forest and environment is awaited to set up this facility at the Dahej project site. The approvals for the project from the Gujarat Pollution Control Board and Gujarat State Department of Forest and Environment have already come. At present, the company uses one of its two tanks at the Dahej port as spare capacity to store LNG. At present, the company has two re-gasifier units for two tanks in Dahej. 

5 mt LNG from Iran by year-end

September 30, 2005. Iran is close to selling 5 mt of LNG to India and an agreement between the two countries is likely to be reached by the year-end. Discussions are also on about India’s request for additional 2.5 mt LNG and for the development of the Zufeyr field in Iran. Iran had earlier said it would reconsider economic ties with countries that had voted against it at last week’s International Atomic Energy Agency (IAEA) meeting. The import of 5 mt LNG is linked with India taking 20 per cent in the Yadavaran field, which has an estimated capacity to yield 60,000 barrels of oil per day (bpd). The option of taking the additional 2.5 mt LNG is linked to ONGC getting 100 per cent operatorship of the Zufeyr field with an estimated capacity of 30,000 bpd.

NCDEX to launch natural gas spot contract

September 30, 2005. The National Commodity and Derivatives Exchange (NCDEX) is set to launch a spot contract in natural gas in the next four weeks. The platform for the natural gas contract is currently being tested. The contract is expected to be traded by industries, would be the first of its kind in Asia.

Fresh supply of LNG is not cheap: Qatar

September 29, 2005. India’s hopes of getting cheap LNG suffered a setback when Qatar said the costs of production and liquification have gone up substantially. Qatar’s RasGas Company Ltd, which has signed a long-term pact with PLL for supply of 7.5 mt LNG, had conveyed that any fresh supplies would be at international rates. RasGas had already tied up all its spare capacity, so anything outside it would come only if the facilities reached their peak. RasGas will have a capacity of 36.6 mt by October 2009 from its seven LNG trains. Its fourth train with a capacity of 4.7 mt will be completed shortly. 

*Aiyar for stake in Russian pipelines 

September 29, 2005. Petroleum minister Mani Shankar Aiyar will initiate discussions with the Russian authorities on participation of Indian oil and gas companies in six transnational oil and gas pipeline projects. The projects, currently under various stages of execution, are for transporting crude oil and gas from Russia to various parts of the globe. Mr Aiyar, would also push for giving a final shape to OVL discussions with Russian energy major Rosneft for jointly participating in six oil and gas properties — Vankor, Timan Pechora, Sakhalin-3, Kurmangazy, Yiganskneftegaz besides acquisition of a producing company.

Talks will also be held with Gazprom for a stake in the prestigious Sibneft and Shtokman fields. In the near future, as per a petroleum ministry’s note, India is looking at sourcing as much as one million barrels a day of oil or oil equivalent gas from Russia either directly or through swap arrangements. The pipeline projects include Blue Stream (to transport Russian natural gas to Turkey through the pipeline under the Black Sea), the North-European Gas pipeline (to transport natural gas to western Europe), Baltic pipeline system, Druzba-Adria crude oil pipeline (to export oil from Russia to southern Europe and the Mediterranean), Burgas-Alexandropolis pipeline (which will go to Bulgaria and Greece through the Bosphorous channel) and the East-Siberian crude oil pipeline from Taishet to Perivoznaya Bay via Kazachinskoe-Sokovrodino.

Gail looks to buy, E&P co, Nabucco pipeline stake

September 29, 2005. GAIL India is planning to acquire a small or medium-sized exploration and production (E&P) company to strengthen its position in the upstream area. The gas transportation major is also exploring possibilities of acquiring stake in the Rs 25,000-crore ($ 5.68 bn) Nabucco pipeline project in Europe.

OIL to bid for TNK-BP arm

September 29, 2005. Oil India (OIL) is in talks with the Itera group, Russia’s largest private gas trader to bid for Saratovneftgaz, a subsidiary of the TNK-BP group. The TNK-BP group is an integrated Russian oil company where British Petroleum has a 50 per cent stake. The oil company has put Saratovneftgaz on the block and OIL is expected to put in its expression of interest by the first week of October. Saratovneftegaz is developing 47 fields in the Saratov and Volgograd regions, with aggregate extractable crude oil and condensate reserves exceeding 33 mt.

RMG Group plans JV with Indian co

September 28, 2005. German gas solution major RMG Group forging a joint venture with India's Autometers Alliance Ltd to manufacture high technology natural gas distribution equipment. The new company called 'RMG Autometers Gas Technologies Ltd' (RAGTL) would deliver a spectrum of services, including the supply of high end equipments needed to set up gas station.

Policy / Performance

OVL willing to buy full Sakhalin-I LNG

October 3, 2005. India is in discussions with Russia for import of the entire LNG production from the Sakhalin-I oil block where OVL has a 20 per cent stake. This comes at a time when apprehensions are being raised over energy links with Iran and India’s bid to diversify its energy sources. OVL has initiated discussions with the US oil giant Exxon Mobil, which is the operator of the Sakhalin block to buy the entire gas produced and ship it to India as LNG. At full capacity, this could give India as much as 8 mt of LNG annually. Talks are also on with Shell for a possible collaboration in the LNG gassification facility being developed at Sakhalin-II. This move comes at the behest of the PM’s energy co-ordination meet that has asked the petroleum ministry (MoPNG) to explore options with regard to swap possibilities for the gas from Sakhalin.

India, which has the first right of refusal over Roseneft’s equity gas and oil in Sakhalin, thus has a right over 40 per cent of the gas and oil produced there. But India is likely to face stiff competition from China, which has been pursuing possibilities of importing the gas through an overland pipeline. But India is banking on Japan, an interested buyer, to support the LNG route for the export of gas from Sakhalin. India has till now contracted only 5mt of LNG from Qatar. Its deal of importing another 5 mt from Iran is awaiting a formal ratification by National Iranian Oil Company. The Sakhalin-I block will be pumping almost 10 bcm of gas at full capacity. While 2 bcm of gas is to be reserved for the local market in Russia, the balance is meant to be marketed to other countries. The agreement governing the promoters of this project requires a consensus on the mode of export. Also, the entire export of gas will have to be in one lot, which is either through pipeline or as LNG. India will be importing crude oil from Sakhalin-I for Mangalore Refinery and Petrochemicals (MRPL) from April. 

New entity for global oil & gas forays: MoPNG

October 3, 2005. Petroleum ministry has proposed to create a new Indian entity with substantial financial muscle and presence in the total value chain of oil and gas business. The entity will have capability attributes at par with the likes of ChevronTexaco and ExxonMobil. The idea is to create a large and successful international petroleum company from India given OVL’s track record of having failed universally in its attempts to buy into producing properties and its unsuccessful attempts in award of exploration blocks in petroleum rich countries. In a draft presentation on “Energy security and India’s oil diplomacy”, the ministry has mooted restructuring of OVL into a Single Special Purpose Delivery Vehicle. As per the draft, OVL has managed to get participating interests in exploration blocks only in “friendly regimes of Cuba and Sudan”. The regimes of petroleum rich country of Latin America and Africa have not been very supportive of OVL’s efforts, it said. OVL is not an operator in any of its three producing properties of Sudan, Vietnam and Sakhalin-I in Russia, it noted.

Draft energy policy for full price competition

October 3, 2005. The draft report of expert committee on energy policy has called for implementation of comprehensive reform package for the oil and natural gas sector, which should include pricing, regulation, industry structure and subsidy. It has also suggested instituting an independent regulatory body for upstream and downstream activities. For petroleum products, the draft report calls for full price competition at all levels or full price competition at least “at the refinery gate and retail level”. The report has noted that petroleum products are priced at international parity without any competition among incumbents and then loaded with taxes and levies. As a general rule, all commercial primary energy sources must be priced at trade parity prices at the point of sale. Once full price competition is permitted, the need for building up costs on a normative basis, as being currently done, would be obviated and efficiency gains will show up in procurement/pricing, it said. On the issue of subsidies, the report proposes to bid out available subsidies for LPG and kerosene against access to targeted benefits. For non-traded goods, the report said these have to be handled differently. It mentioned, “Prices of non-traded commercial energy supplies can be determined through competition among different producers (this presumes multiple sources and a competitive supply-demand balance) or independently regulated on a cost plus basis including reasonable returns (where competing supply sources are absent and/or demand exceeds available supply). A final option could be to price these non-tradable energy supplies on a net-back-basis”. The regulatory mechanism proposed should have the power of looking into the production and costing issues relating to oil and gas and must be empowered to delineate the principles of pricing of gas. Also, it is suggested that production of oil and natural gas be included in the purview of the proposed regulator, who should be empowered to review the production sharing contract provisions.

OVL’s new plans

October 2, 2005. OVL is eyeing oilfields in East Siberia, which is estimated to hold some 20 bn barrels of reserves. It is also looking at participating in the Russian continental shelf, which may contain oil and gas in 4 million sqkm of its total area of 6.5 million sqkm (the largest in the world). The talks between the India and Russia is believed to have covered OVL participation in the 3.2-trillion cubic metre super giant gas field Shtokman and the Prirazlomneye oilfield, which holds recoverable oil reserves of more than 83 mt. Besides this India's agenda also include OVL's interest in stake in Sibneft, Russia's fifth-largest oil producer, which is being bought over by the Russian gas monopoly Gazprom for $12 bn (Rs 528 bn). The OVL's investment radar is also scanning a smaller firm, Severnaya Neft.

ONGC to share $643 mn subsidy burden: MoPNG

October 2, 2005. The Union Ministry of Petroleum and Natural Gas (MoPNG) has asked ONGC to share Rs 2,830-crore (Rs $ 643 mn) subsidy burden in the second quarter. With this, the company will share a subsidy bill of Rs 5,706 crore ($ 1.3 bn) during the first half of 2005-06. This is against a total subsidy bill of Rs 4,104 crore ($ 932 mn) paid for the full year of 2004-05. The MoPNG had earlier indicated that ONGC may have to bear a subsidy burden of approximately Rs 12,000 crore ($2.73 bn) during the year against an estimated under-recovery of Rs 40,000 crore ($ 9 bn) by the oil marketing companies.

Centre launched Kerosene scheme in AP

October 2, 2005. The Union Government has sanctioned 104 out of the 605 locations for launching the pilot project, offering kerosene throughout the month. Nationally, the Jana Kerosene Pariyojana has been launched on October 2, marking the Gandhi Jayanthi. The main objective of the new scheme is to facilitate supply of kerosene to the consumers throughout the month as against the existing system of supplying it two, three days a month. Oil companies were expected to spend Rs 700 crore (159 mn) on this scheme. Of this, the State would get Rs 120 crore ($ 27 mn).

GAIL eyes smaller firms overseas for acquisition

September 29, 2005. GAIL is looking to acquire small and medium sized companies in Oman, Malaysia, Australia, Qatar and Abu Dhabi to bring in expertise in areas like reservoir engineering and geo-physics to enable it to undertake exploration work. It has participation interest in 12 exploration blocks, but has not begun work. In order to undertake operating position in these areas, it will acquire companies. The company planned to use its cash surplus to fund these acquisitions. Consortium partners with GAIL in above blocks are ONGC, Gujarat State Petrochemicals, Gazprom, OIL, IOC, Hardy Exploration & Production, Enpro Finance Private and Daewoo International.

Oil ties with South Africa in the pipeline

September 29, 2005. India and South Africa will explore avenues for cooperation in the petroleum sector. The areas of cooperation identified are upstream, gas to liquid, biodiesel and LPG bottling.  While India sought to join hands for gas to liquid technologies, South Africa wanted collaboration in biodiesel. India also seeks to initiate upstream projects in South Africa and to tie up with Petro SA for pursuing projects in other countries. OVL will work on a joint approach in the exploration business while Indian Oil Corporation will collaborate on biodiesel and LPG bottling facilities.

Gas, kerosene subsidy to go by March ‘07

September 28, 2005. MoPNG said the government would adhere to the March 2007 deadline for phasing out subsidy on kerosene and LPG. The policy and quantum of subsidy provided in the Budget had not changed but the government would issue bonds to overcome the under-recoveries faced by the public sector oil marketing firms.

India, Japan to promote energy JVs 

September 29, 2005. India and Japan agreed to promote joint oil and gas exploration ventures in third countries, besides enhancing bilateral co-operation with regard to energy conservation, strategic crude reserves and undertake joint research to develop an Asian oil market. The two energy-hungry countries decided to work on a plan of action, which would include encouraging Japanese companies to invest in India and explore possibility of an MoU between OVL and Japan Oil Gas and Metals National Co-operation. India and Japan, among the world’s largest energy consumers, would also promote co-operation in heavy oils and coordinate research in gas hydrates.

IOC eyes stake in Calik Enerji 

September 27, 2005. Indian Oil Corporation is engaged in talks with Turkish firm Calik Enerji for a stake in their $2 bn (Rs 88 bn) plus 8 mt per annum refinery-cum-crude oil pipeline project. The project at Ceyhan is in the Turkish port on the Mediterranean. Calik Enerji is an integrated oil and gas company in Turkey and was IOC’s partner for Tupras but the consortium had lost out to Royal Dutch Shell. The refinery will be an export-oriented refinery. Turkey ’s strategic location makes it a natural ‘energy bridge’ between major oil producing areas in west Asia and Caspian Sea regions on the one hand, and consumer markets in Europe on the other. Turkey’s port of Ceyhan is an important outlet both for current Iraqi oil exports as well as for potential future Caspian oil exports. Turkey’s Bosphorus Straits are a major shipping ‘choke point’ between the Black and Mediterranean Seas.

Burden-sharing on oil prices to continue: Govt.

September 28, 2005. The government said that continue its policy of equitable burden-sharing between the state, oil companies and consumers for absorbing the impact of the upward spiral in international oil prices. Accordingly, oil companies would bear half of the burden (arising from firming up of international oil prices), the government would take one-third of it on itself and only 14 per cent of the burden has been put on consumers.



NPC plans huge power plant in M’ shtra

September 29, 2005. Nuclear Power Corporation having identified Joytapur in Sindhudurg district, in Maharashtra, for its huge power plant. The plant will have a capacity of 6,000-8,000 MW. NPC is going to construct seven plants at seven different sites in the country, and it would be one of these plants that is coming to the state. It would take NPC another five to six years to commission the plant. The estimated cost of the project is around Rs 13,000 crore ($2.95 bn).

Transmission/ Distribution / Trade

M’ shtra to invite bids for co-generation units

October 3, 2005. Maharashtra will be inviting bids for setting up of co-generation projects with total generation capacity of 200 MW on BOOT basis at 10 sugar cooperative units in the state. Infrastructure Leasing and Financial Service (IL&FS) has been appointed as sole transaction adviser. These projects, which will be largely located in the sugarcane rich western Maharashtra, are expected to resume power generation in 2006-07. The per unit tariff would be Rs 3.05 as per the Maharashtra Electricity Regulatory Commission’s order. The developer will organise finance not only for co-generation plant, but also for modernisation of the sugar factory. The total cost including modernisation would be Rs 4 crore ($0.91 mn) per megawatt. After meeting the requirement of steam and power during the crushing season, the developer would sell surplus power to Maharashtra State Electricity Distribution Company (MahaDiscom) by utilising bagasse during the crushing season. The developer would run the co-generation plant during the non crushing season by purchasing surplus bagasse from the nearby sugar factories, agro waste, rice husk and even small quantities of domestic coal. During non crushing season, the developer is expected to sell the entire power generated from the co-generation project to MahaDiscom.

BHEL bags captive power plant order

September 28, 2005. State-run Bharat Heavy Electricals Ltd had bagged a repeat order to set up a captive power plant for KSK Energy Ventures Ltd. The order for a 43 MW captive plant has been placed by Sitapuram Power Ltd, a company promoted by KSK Energy. The plant would be set up in Nalgonda district of Andhra Pradesh and would cater to the requirements of Vishnu Cement and is scheduled to be commissioned in thirteen-and-half months.

Policy / Performance

Punjab to give free power to all farmers

October 3, 2005. The Punjab cabinet approved free power for all farmers in the state, reversing a three-and-half-year-old policy. The state would give additional subsidy of Rs 439 crore ($99.78 mn) to the Punjab state electricity board. The state had, after assuming power about over three and a half years back, discontinued the facility of free power given by previous government.


Ammonia plants cut energy costs

October 3, 2005. Indian Farmers Fertiliser Cooperative (Iffco) has initiated a major energy- saving project in all its ammonia plants at Kalol, Aonla and Phulpur in Gujarat at an estimated cost of Rs 405 crore ($ 92 mn). Under phase-I of the project implemented, Kalol unit, which switched over to use of re-gassified liquified natural gas from naphtha, has reduced the subsidy burden of Rs 147 crore ($33 mn) annually on the government. As a result, the urea plant is operating with energy of about 6 giga calorie (gcal) per tonne of urea. Under the second phase to be implemented in April 2006, it is expected that ammonia-specific consumption will be cut to 8.5 gcal per tonne entailing a cost of Rs 125 crore ($28 mn).

28 coal blocks for state power utilities: Centre

October 3, 2005. The government is considering allocation of additional coal blocks to state government mining undertakings in view of the prevailing shortage of coal. The coal ministry has identified 28 coal blocks to offer to state undertakings and firms like the Mineral Development Corporation and power utilities for undertaking coal mining. Several states had complained to the Centre about non-availability of coal blocks, especially for captive use of their power sector utilities, leading to shortages in production. The latest move by the Centre would address the problem by providing coal blocks directly to state government companies for further transfer to state utilities. While Coal India Limited (CIL) has made concerted efforts to meet the requirements of such consumers through e-auctions and allotments to state agencies, the state governments would be in a position to redress the problems to a great extent if they take up a few coal blocks for mining through their agencies. The coal so mined can be supplied to the industrial units and smaller consumers in their respective states. The proposed 28 blocks are raw blocks where only regional prospecting has been done by the Geological Survey of India. This means that state mining firms would have to use their own resources to conduct thorough exploration at the mining sites and bring it to production stage.

While coal production has consistently grown over the past few years, it has not been able to meet the growing demand. As per Planning Commissions’s estimates that coal production would grow by 20 mt to 342 mt (Coal India production) during current fiscal. However, this increased production would still result in a gap of 39 mt between demand and supply of coal requiring several state and Central utilities to resort to imports.


Govt plans to recharge power regulator

September 29, 2005. All electricity regulators at the Centre and in the UPA-ruled states may be asked to resign as part of a grand plan to institute a new regime. A new team of power regulators is likely to be selected by instituting appropriate eligibility criteria and a transparent selection process based on expertise and essential skill sets to purge the ‘existing inefficient regime’. The current regulators will also be eligible for selection. The regulators may be made accountable to Parliament and mandatorily publish annual reports. For an empowered and independent regulatory system, experts have stressed the need to separate the regulatory responsibilities from the control of ministries. The poor regulatory environment is stated to be of major concern to private investors in the power sector. The mid-term appraisal of the Tenth Five-Year Plan has also pointed out that “it is necessary to have an independent regulatory authority credible with consumers and producers for ensuring a level playing field between the incumbent public sector service providers and the new private sector entrants”. The Planning Commission and related ministries in the energy sector have been engaged in discussions to explore the possibilities of a comprehensive energy regulator. The Planning Commission has also proposed the setting up of institutional capability in the form of an academy. 

Jindal to buy foreign coal mines

October 3, 2005. Jindal Stainless is in “advanced stages” of acquiring coal mines in Australia, the Middle East and Indonesia. Jindal plans to invest $50-75 mn  (Rs 2.2-33 bn) in these acquisitions and negotiations are in progress to arrive at the right valuations. The acquisition would be done either by Jindal alone or through a joint venture. Earlier this year, the company signed an MoU with the Orissa government to set up a 1.6 mt integrated stainless steel plant and a 500 MW captive power plant at Kalinga Nagar in the Jajpur district for Rs 6,628 crore ($1.5 bn). The entire project was scheduled for completion by 2011. But the company has revised the capacity of its proposed steel plant to 6 mt a year from 2 mt planned originally. Besides, it will also set up a 900 MW captive power plant. With the changes, the envisaged investment has gone up from Rs. 3,850 crore to Rs. 13,135 crore ($875mn to $2.98 bn). The power plant will be gas-based and meant for captive consumption.  

India eyes foreign coal to meet demand

October 3, 2005. The government is turning its attention to promoting acquisition of coal mines abroad to meet the country’s growing demand for coal. Australia, Indonesia, Mozambique and Zimbabwe are in the list of countries where mine acquisition is being considered as a viable option. This is part of the strategies being worked out by the prime minister’s Energy Coordination Committee towards long-term energy security. Acquiring coal properties overseas was also being considered as most coal reserves in the country had low-grade coal with high ash content. The government would encourage acquisitions by both public and private companies. Assistance could also be taken from international funding institutions like the Asian Development Bank and a few multinational companies for acquiring mines abroad. The government is also planning to remove the cap on foreign investment in coal mining for steel and cement companies. Currently, while these companies are allowed up to 74 per cent foreign direct investment in coal mining, power companies can have 100 per cent equity. 

88.72 mt coal linkages for power sector

September 30, 2005. Coal linkages of 88.72 mt were approved for the power sector for the third quarter of the fiscal. This inludes 80.32 mt to power utilities and 8.04 mt for captive power plants. The cement sector has been given a quarterly linkage of 3.48 mt from Coal India Ltd and Singareni Collieries Ltd. 

PM council for change in coal royalty formula

September 30, 2005. The Prime Minister’s economic advisory council has recommended a shift from the existing system of levying royalty on coal on specific (tonnage) basis to a combination of specific and ad valorem levies. While proposing a formula-based yield, with a fixed (specific) and variable (ad-valorem) component, the advisory council has clarified that any revision in royalty should not be made applicable automatically to states, which levy their own cesses. The royalty to be allowed to such states should be adjusted for the local cesses so as to limit the overall revenue to the formula based yield. The advisory council has also endorsed the coal ministry’s view that the Central government should leverage this shift and ask all states to agree against levying any state specific cess over and above the royalty. Most of the earlier committees including the 12th Finance Commission had recommended that rates of royalty be fixed on an ad-valorem basis. The argument for the shift is the grievance of state governments that they are being deprived of the benefits of increasing coal prices. The formula proposed is : Royalty = a + bP, where a is specific component (in Rs/tonne); b is variable (Rate of Royalty, ad-valorem) and P is the price of coal (in Rs/tonne). This formula will provide a certain minimum royalty under the specific component plus a share in the price as a variable component, thus taking care in a balanced way of the interests of both the producers and the consumers. It may be mentioned here that although royalty on coal is paid to states, the power to set the quantum vests with the central government under the Mines and Minerals Development and Regulation Act.

China outsmarts India in power reforms 

Text Box: • Low construction cost and higher plant availability are notable features of Chinese power plants 
• There is no preferred policy for FDI vis-à-vis state-owned companies. Private investment is incidental and the declared policy of China is to use government funds for achieving self-sufficiency
• China has added more than 3 lakh MW in less than four years
• With power shortages of only about 5 pc, the current installed capacity of China is over 4.5 lakh MW
• Transmission losses are only around 2 per cent and loss in distribution is just about 7-10 pc.

September 29, 2005. Despite being a late starter in initiating power reforms, China is much ahead of India in its capacity addition programme and has added more than 300, 000 MW in less than four years. With India still struggling hard to overcome power shortages (its current installed capacity being around 120, 000 MW), China is moving close to achieving a 520, 000 MW installed capacity by the end of this fiscal. Central power regulator emphasised that India should learn from the development in China’s power sector and make concerted efforts towards enhancing its power capacity to meet shortages. With power shortages of only about 5 per cent, the current installed capacity of China is over 450, 000 MW. The regulator has also advocated for strengthening co-operation between Indian power companies, including NTPC, Powergrid Corporation of India with their Chinese counterparts, such as Shanghai Electric Power Company and the East China and North China Grid Company. It said that low construction cost and higher plant availability are the notable features of Chinese power plants. Transmission losses in China are only around 2 per cent and loss in distribution too is just about 7-10 per cent. An interesting feature of China’s power policy, the regulator pointed out, is that while private investment is welcome in China, there is no shortage of government funds. It also said that in China, there is no preferred policy for FDI vis-à-vis the state-owned companies. Private investment is incidental and the declared policy of China is to finance power sector development through government funds for achieving self-sufficiency.

MoC’s emergency coal production plan takes off 

September 27, 2005. The much-hyped Rs 5,000-crore ($1.14 bn) emergency coal production plan of the ministry of coal (MoC) will finally get off the ground, with government planning to start work on it from the next fiscal. The ministry would soon approach the Public Investment Board for clearance of additional Rs 2,500 crore ($568 mn) investment required to complete the project that envisages additional coal production of 71.3 mt. Under the plan, government intends to increase non-coking coal production from existing 16 mines of four Coal India Ltd (CIl) companies - Northern Coalfields Ltd (NCL), South Eastern Coalfields Ltd (SECL), North Eastern Coalfields Ltd (NECL) and Central Coalfields Ltd (CCL). The ministry has already secured clearance for Rs 2,500 crore investment. As there is an urgent need to step up coal production in the country, the plan would aim to reach additional 71 mt coal production by 2011-12. This would leave a 10-11 mt coal surplus against a shortfall of about 60 mt tonne (by 2011-12) estimated by the Planning Commission. The emergency coal production plan also involves reaching 30-35 mt coal production over two or three periods after securing all clearances for the project.




Libya awards oil exploration rights

October 2, 2005. Exxon Mobil Corp., BP Gas and Eni SpA of Italy were among several companies that won oil exploration rights in Libya. 120 foreign oil companies submitted offers for the second round of bidding for certain oil and gas exploration and production contracts in the country. Exxon Mobil Corp. won one contract for exploration in the center of the country along with Japanese giant Nippon Oil Corp. and PT Pertamina of Indonesia. British Petroleum won two contracts in Sirte along with PT Pertamina and India's Oil India, while Eni SpA and British Petroleum won the two contracts in the Kufra fields. Companies from France, Norway and Russia won contracts in the Murzuq fields in the west. Libya has proven reserves of 29.5 billion barrels of oil, the country's main source of revenue.

Russia's Sakhalin-1 starts pumping oil

October 2, 2005. Russia's massive Sakhalin-1 oil and gas field started pumping oil off the country's Pacific coast at the weekend. The Sakhalin-1 project is one the largest single foreign investments ever made in Russia, and about $12.8 bn is expected to be committed to developing the three fields over a lifetime spanning about 40 years. The field is also expected to yield $40 bn in revenues for the Russian government over the coming decade.

Initial production from Sakhalin-1, which will rise to about 50,000 barrels a day by year end, will be sold on the Russian domestic market. Output from the Chayvo field is expected to rise to full capacity of 250,000 barrels per day by the end of 2006 when a pipeline linking the island to an export terminal in the Russian mainland seaport of Dekastri will also allow shipments to international markets. Gas production from the field starting at about 1.7 million cubic meters a day and later rising to 7.1 million cubic meters, will also at first be sold only to Russian consumers in the mainland Khabarovsk region bordering China.

Norsk Hydro discovers natural gas

September 30, 2005. Norsk Hydro ASA has discovered natural gas with an exploration well drilled in a little-probed area of the Norwegian Sea. The well in the area designated Stetind was production tested at a promising 120,000 cubic meters (4.2 million cubic feet) of gas per day. The well was drilled by a floating rig in water depths of 828 meters (2716 feet), about 290 kilometers (180 miles) off the western Norway town of Sandnessjoeen. It was the company's sixth oil or natural gas find in Norwegian waters this year. The government has been urging stepped up exploration to maintain production that makes Norway the world's third-largest oil exporter, after Saudi Arabia and Russia.

Petrobras, PVDSA sign E&P agreements

September 30, 2005. Brazil's federal energy company Petrobras and Venezuela's state oil company PDVSA have signed three agreements for joint exploration and production operations in Venezuela. The two companies ratified memorandums of understanding (MOUs) signed in February this year for the offshore Mariscal Sucre gas project as well as joint operations in the Orinoco belt region and other oil and gas fields. The two companies signed a preliminary agreement to conclude by January 2006 negotiations for the creation of a joint venture for the development of the Río Caribe, Mejillones, Patao and Dragón fields in the offshore Mariscal Sucre area in eastern Venezuela. The fields have estimated natural gas reserves of 11 trillion cubic feet (Tf3). The development of the fields will require total investment of US$2.2bn. Venezuela aims to eliminate its national deficit in natural gas and become a net gas exporter by 2008.

Oil & gas discovered in Central Alberta

September 29, 2005. Blue Parrot Energy Inc. has completed a successful well in central Alberta with a private partner. The well was completed in the Basal Quartz zone and tested at 1.6 mmcf/d of gas and 144 bbl/d of oil, equating to approximately 410 boe/d. Blue Parrot's interest in the well is 25 per cent before payout and 12.5 per cent after payout, with a 25 per cent working interest in the area of mutual interest. The well will be brought onto production as soon as possible. The Company's 15-12 well in the Antelope area has tested at 120 mcf/d in the Colony zone. It also will be brought onto production as soon as possible. The Company has a 40 per cent working interest in a new development program at Antelope comprised of 7 wells targeting various zones based on 3D seismic. The program has a proposed capital budget of $4.25 mn and forecasted results between 550 and 650 boe/d.

Petrobras in cooperation with Japanese Firms

September 29, 2005. Brazil's federal energy company Petrobras is in talks with Japanese companies to participate in the second development stage of its heavy oil Jubarte offshore field. Petrobras is looking at alternatives for developing the second stage of the field from 2007 to 2029. Petrobras is considering selling control of the deepwater field located in the Campos basin for $2 bn-$3 bn. There are 10 companies reportedly interested in the field including Mitsubishi, Mitsui and Sumitomo.

Jubarte is one of Petrobras' largest finds. Oil was discovered there in 2001. The first stage of the field's development will be started in 2006, when the Seillean FPSO will be replaced by the 60,000b/d P-34 FPSO. The P-34 will produce oil from four wells at water depths of some 1,400 meters. For the second stage Petrobras' original plans were for a 150,000b/d FPSO. Jubarte is estimated to have reserves of 300 million barrels of 17 degrees.


Gazprom plans to build gas depot in Belgium

October 4, 2005. Russian natural gas monopoly Gazprom intends to build a depot in Belgium for natural gas delivered via North European gas pipeline. Gazprom is negotiating an agreement with the Belgian partners on the construction of a major natural gas depot. France, the Netherlands and Britain have expressed interest in participating in the NEG project. The 1,200km-long NEG pipeline will not employ third-party countries for transit, lowering transport costs and making it more reliable for export. The pipeline will pass through Russia's Vyborg region, go under the Baltic Sea and emerge in Germany. Russia intends to increase natural gas deliveries to European countries by 60 billion cu m in the near future. The contracts have been signed already.

Romania interested in refineries in Pak

October 2, 2005. Some private Romanian companies have shown keen interest in setting up refineries in Gwadar besides looking for other opportunities to initiate joint ventures. However, they could not sign any agreement in that regard as his country was driven by the private sector. A representative from the refinery sector showed interest and was studying options after visiting Balochistan a day earlier. The objective of the delegation was to attract foreign investment as his country offered golden opportunities to foreign investors. The delegation included representatives from coal, oil and gas, cement, textile and light engineering sectors, who were interested to see the opportunities and possibilities of joint ventures as well as trade relations.

AltaGas to build new gas plant in Alberta

September 30, 2005. AltaGas Income Trust will build a 20 MMcf/d sour gas processing plant near Princess, Alberta. Construction of the $14 mn Princess Gas Plant is expected to begin next week, with commissioning anticipated by December 1, 2005. The plant is expected to be connected to AltaGas' existing Bantry facility, which will increase the overall reliability and flexibility of processing for all area producers.

Venezuela to buy refinery in Argentina

September 30, 2005. Venezuelan state oil company PDVSA signed a draft agreement with Argentine company Rhasa to buy its assets that include a small 7,000 barrel-per-day refinery in the Buenos Aires province for $100 mn. Apart from the refinery in the town of Campana, Rhasa also has a distribution network with 62 service stations and an own fuel transport network. PDVSA and Spanish-Argentine oil group Repsol-YPF also signed a cooperation agreement that will give PDVSA a 10 percent stake in Repsol oil production fields in Argentina, while both will explore crude and natural gas reserves of Venezuela's Orinoco belt. Brazil and Venezuela signed a range of energy agreements during a South American summit in Brasilia, advancing on a planned $2.5 bn joint refinery in Brazil and outlining possible exploration projects worth at least $2.2 bn.

Brazil & Venezuela for new refinery

September 29, 2005. The state-owned oil companies of Brazil and Venezuela will equally share the cost of constructing a new $2.5 bn (euro2.08 bn) refinery. The refinery will be built in the northeastern Brazilian port city of Suape and will have capacity to refine 200,000 barrels of crude daily when production starts in 2011. Half of the oil will come from Brazil and half will come from Venezuela. Brazil needs more refining capacity for heavy crude to phase out imports of diesel fuel and light crude in coming years.

Oil refineries to be set up in Gwadar

September 30, 2005. The Pakistan government would set up oil refineries in Gwadar to help make it a regional trade hub and provide cost-effective fuel for sustaining the country’s economic growth. Pak government was striving to develop gas, coal, water and alternative energy sources as part of its strategy to minimize the country’s dependence on imported oil. Pakistan has reduced its dependence on oil for power generation from 70 to 59 per cent through greater use of gas and it intends to bring the share down to 30 per cent in the near future for provision of inexpensive electricity.

Sibneft buys natural gas deposit in eastern Siberia

September 29, 2005. Russian oil company Sibneft has won an open auction on exploration rights for the Khotogo-Murbaisk deposit in the Republic of Saha in eastern Siberia. According to the document, the deposit has estimated natural gas reserves of 10.6 billion cubic meters. Sibneft will pay more than $300,000 for the exploration license. Gazprom, Russia's state-controlled natural gas giant, would pay $13.1 bn for a 72.7 per cent stake in Sibneft. Gazprom had already acquired 3.016 per cent of Sibneft shares from Gazprombank.

Shell inks JV deal with Turkey's Turcas

September 28, 2005. Anglo-Dutch oil giant Royal Dutch/Shell Group had signed an agreement with Turkey's Turcas Petrol to establish a joint venture. The joint venture will be engaged in retail, commercial fuels and lubricants marketing, as well as in distribution activities in Turkey.

BP sells off 50 Colorado gas stations

September 28, 2005. BP has sold 50 of its 100 gas service stations in Colorado to K & G Petroleum LLC, a private company based in Lone Tree, a suburb of Denver. The sale is expected to close by the end of the year. The stations sold to K&G will continue to operate as gas stations. The company operates some 1,100 natural gas wells in the state and is the state's largest natural gas producer at 675 million cubic feet of natural gas per day.

Transportation / Trade

Transocean wins Nigeria drilling contract

September 30, 2005. Transocean Inc. its drillship, the Deepwater Pathfinder, won a potential $315 mn contract to drill off Nigeria. The contract, which could run for 800 days, is with a consortium led by Royal Dutch Shell Plc's. Shell Nigeria Exploration and Production Co. The contract is expected to commence in April 2006, immediately following the conclusion of the rig's current contract.

Nigeria's Oando to raise $1 bn in S. Africa

September 30, 2005. Nigerian energy group Oando planned to raise more than $1 bn in South Africa over the next five years after completing its secondary listing on the JSE. The capital, to be raised in several tranches, would fund Oando's entry into the Nigerian refining and power sectors, and possibly exploration and production activities. Oando was awarded rights to three blocks in Nigeria's last bidding round, one of which was a gas field with very good prospects. Converting gas into liquid fuels would allow Oando to earn returns across the energy value chain. Oando has a strong presence in the West African fuel retail sector with more than 500 outlets and has an eye on refining opportunities. It is bidding for a 51 percent stake in the Nigerian government's Port Harcourt refinery, which has the capacity to produce more than 200 000 barrels of oil a day, and plans to build a new 360 000 barrel a day refinery in Lagos at an initial cost of $1.5 bn.

Norsk Hydro awards seismic contract in Morocco

September 30, 2005. Hydro Morocco has awarded a contract worth approximately NOK 85 mn to the Norwegian seismic acquisition company Fugro-Geoteam. Fugro will perform a 3D marine acquisition survey off the coast of Morocco, northwest of Safi. The survey comprises approximately 2,200 square kilometers for which Fugro's flagship vessel, the R/V Geo Pacific, is being used. The R/V Geo Pacific will tow a wide spread of six streamers, each 6,000 meters long, with 150 meter streamer separation, allowing efficient acquisition of this 3D exploration survey. The work is expected to begin in November 2005.

LUKoil to start exports to China early ‘06

September 29, 2005. LUKoil, Russia's largest oil producer, plans to start direct oil exports to China late this year or early next. The supplies would be 1.5 million metric tons of oil per year. LUKoil hoped to buy PetroKazakhstan Inc.'s 50 per cent stake in Turgai Petroleum, operating in the northern sector of the Kumkol oil field in south-western Kazakhstan. LUKoil Overseas Kumkol BV owns the other 50 per cent stake, worth an estimated $700 mn. In this case, exports to China may reach 2.5 million metric tons of oil per year. LUKoil accounts for 19 per cent of Russia's and 2 per cent of the world's crude oil output and has the equivalent of 20 billion barrels of oil in proved reserves, 1.5 per cent of world reserves. The company has operations in 60 Russian regions and 25 other countries.

Transneft to attract $6.6 bn for East Siberian pipeline

September 29, 2005. Russian oil pipeline monopoly Transneft intends to attract $6.6 bn in 2006-2008 for construction of the first segment of an East Siberia - Pacific Ocean pipeline. The length of the pipeline will be 4,188 kilometers. The total cost of the overall project is $11.5 bn. The first segment of the pipeline will be ready by 2008 and will have an output capacity of 30 million metric tons of oil per year. The second stage of construction may require project financing. The targeted annual output capacity of the pipeline was 80 million metric tons. Transneft owns 48,708 km of oil pipeline and transports 93 per cent of the oil produced in Russia.

Gazprom buys Sibneft

September 28, 2005. Gas giant Gazprom signed Russia's biggest-ever takeover, buying control of oil firm Sibneft for $13.1 bn from Chelsea soccer club owner Roman Abramovich. Gazprom will acquire 72.7 percent of Russia's No. 5 oil company - and with it 660,000 barrels per day in oil output - taking the world's largest gas firm a step closer to its goal of becoming a global energy super-major. The state-controlled gas monopoly will raise its total holding to 75.7 percent of Sibneft and thus ensure outright strategic control. The two sides had signed binding documents.

No takers for spare oil: Saudi Arabia

September 27, 2005. The Saudi Arabia sad that there are "no takers" for it's offer to pump more oil for a global market pressured by soaring prices and refining constraints. It said that there was "plenty" of oil available globally to meet future demand, and the world's biggest crude exporter was working to soon boost its proved reserves by 200 billion barrels from 264 billion barrels now. World Petroleum Congress in Johannesburg said the kingdom would stick to plans to gradually boost its total oil output capacity to about 15 million barrels per day (bpd) from about 11 bpd at present, keeping ample spare available.

Policy / Performance

India-China partnership favorable for Asia

October 3, 2005. Southeast Asia stands to gain if regional powerhouses India and China succeed in jointly securing long-term energy supplies to fuel their fast-growing economies.  The two former rivals are now key trading partners of Southeast Asia and if they can work together to ensure their energy needs are met, it will mean a continuation of the sizzling growth that has benefited the region. China and India plan to sign pacts in November aimed at teaming up to bid for oil and gas projects, the latest signal yet that ties are improving after 1962. The two neighours had been vying for scarce energy resources around the world with Beijing winning the latest bout when China National Petroleum Corp. outbid India's Oil and Natural Gas Corp. for Kazakhstan's third-largest oil producer, PetroKazakhstan.

Russia wants India in future oil projects

October 2, 2005. Russia indicated its willingness to take along Indian companies such as OVL for exploration of oil and gas in future Sakhalin projects as well as enhancing energy cooperation in third countries. It said a lot of groundwork has already been done and the meeting with his Indian counterpart discussed prospects of further cooperation in energy sector. Sakhalin-I and II projects have already been decided and Russia is planning to invite bids in future for Sakhalin-III, IV, V and VI projects in the vast energy-rich region. ONGC Videsh, the overseas arm of state-run Oil and Natural Gas Corporation, has 20 per cent stake in Exxonmobil-operated Sakhalin-I project, which started producing about 23,000 barrels of oil per day and ramp up production to 250,000 bpd by 2006-end.

Petrobras to invest $589 mn in Ceara by ‘10

September 30, 2005. Brazil's federal energy company Petrobras plans to invest $589 mn in the northeastern state of Ceará from 2006-2010. Petrobras plans to invest $189 mn in oil exploration and production, $172 mn in natural gas production and another $46 mn in distribution and transport activities. The announcement of the investments coincided with Petrobras' decision to build a $2.5 bn heavy crude refinery in Pernambuco state rather than Ceará or Rio Grande do Norte states, which had also been competing to attract the investment. The refinery is a 50:50 joint venture with Venezuela's state oil firm PDVSA. Petrobras and PDVSA chose Pernambuco due to the size of the local market, the infrastructure of the Suape port in the state capital Recife and the possibility of expanding the port to accommodate large tankers.

Angola, Nigeria want aid for oil exploration deals

September 30, 2005. Along with bids, India will have to offer economic development packages to Angola and Nigeria if it wants to acquire oil and gas exploration blocks in these countries. Economic development package could include assistance in power, railways and construction of roads. Nigeria made it clear that though the winning bidder would get the blocks, the degree of participation there would be commensurate with the development package. 

India had lost to other countries in securing oil and gas blocks in Angola and Nigeria after the winning bidders offered economic development packages. OVL lost its bids for two large deepwater blocks — OPL 321 and OPL 323 - despite being the highest bidder at $485 mn (Rs 21.3 bn). The Korea National Oil Company won 65 per cent control while OVL was offered 25 per cent stake in the blocks for which, bids were opened on August 26. Nigeria announced this after the Koreans signed an agreement to invest up to $6 bn in the construction of a 2,000 MW independent power plant, a rail transport system and a gas pipeline. Similarly, Angola’s Sonangol blocked OVL’s move to buy Shell’s 50 per cent stake in Block 18 for about $620 mn (Rs 27 bn). The deal would have yielded about 5 mt crude daily for India. China got the deal by offering aid to the tune of $2 bn (Rs 88 bn) for several projects in Angola, compared with India’s offer of $200 mn (Rs 8.8 bn) for developing railways. While Angola would be offering fresh blocks in January, Nigeria would be putting over 100 blocks on offer. 

Seoul to seek $1.5 bn for energy forays

September 29, 2005. South Korea, the world's fourth-biggest crude oil buyer, plans to sell special financial products to raise some $1.54 bn (HK$12 bn) to help finance the purchase of foreign energy assets. South Korea, like other energy- dependent Asian countries, is keen to boost foreign energy-producing assets in an effort to secure stable sources of energy. The government planned to boost oil output from overseas oil and gas fields in which it has stakes to 55,000 barrels per day (bpd) by 2013, which will cost an estimated 16 trillion won (HK$120 bn). The planned sale of financial products, designed to attract private money, will be a first for South Korea. The proportion of crude oil and natural gas produced in Seoul-invested foreign fields stands at just 4 percent of total imports of the fuels as of end-2004. The increased output would account for 18 per cent of imports by 2013. South Korea will begin importing liquefied natural gas from Russia in 2008 under a 20-year long-term agreement signed with Russia's Sakhalin Energy Investment. The deal will let Seoul purchase 2 mt of LNG a year. It hoped to sign an agreement with the Russian government by the end of the year to help pave the way for the building of a natural gas pipeline between the two countries.

Gazprom and CNOOC for oil-gas ventures

September 29, 2005. Gazprom and China National Offshore Oil Corp are discussing potential for cooperating in the development of offshore oil and gas fields, and also for work in other countries.  The sides also discussed the possibility of cooperation on the liquefied natural gas market, in particular - to supply LNG to the Asia-Pacific region, including China. CNOOC has the exclusive rights for exploration and production off China. Most of the exploration work and a large portion of oil and gas production are conducted with foreign oil and gas companies. One of the largest projects is the construction of a network of LNG re-gasification terminals along the coast. It is completing the first two terminals at present. The first will be opened in 2006 and the second in 2007. The government of China has confirmed projects for several more terminals.

China's onshore oil production could reach 150 mt in 2010

September 29, 2005.  China's oil and gas reserves will grow steadily in the coming 20 years and the crude production will reach 150 mt in 2010. China will have a bright prospect of onshore oil development, through the efforts of enhanced exploration and rational development. In the east China, oil exploration will be enhanced to find more reserves build new productivity and ensure that the early oil production maintained around 100 mt. In the west onshore China, the government is to further the exploration efforts in frontier areas and basins, target to find large-medium oil and gas fields and realize the strategic resource backup and the rapid increase of production. It also forecast China's crude onshore production will reach 170 mt in 2020.

Oman seeks cooperation in exploration with China

September 29, 2005. Oman welcomes Chinese firms to further cooperation with Omani counterparts in oil and gas exploration, petrochemical, metallurgical, mining and fishery sectors in Oman. At the China-Oman trade fair held recently in Beijing, the trade volume between the two countries reached $4.5 bn in 2004, ranking the third among the Arabic countries. At the same time, Oman has become the largest exporter of oil products to China. While seeking for cooperation with Chinese firms in oil and gas exploration, petrochemical and other fields, Oman also likes to learn from successful experiences of Chinese firms in mineral mining, shipbuilding and the development of small and medium-sized enterprises. It is reported that in 2003, Oman's total value of production in national economy stood at $21.7 bn with a growth rate at 6.9 per cent and per capita income of $9,260. Its revenue of oil and natural gas production accounted for 72.7 per cent of the government's total.

Shelf exploration program until ‘30: Gazprom

September 29, 2005. The Management Committee of Gazprom, Russia's natural gas giant, has approved a program on the exploration of Russia's Arctic shelf until 2030. The relevant Gazprom departments have been instructed to continue work on licensing the exploration of the Severo-Kamennomyssky, Obsky and Dolginsky deposits in 2005-2006. The document also said the Shtokmanovskoye gas condensate field was considered Gazprom's priority in the Barents Sea as it aimed to produce liquefied natural gas for export. Gazprom will alsp participate in 2005-2006 in auctions on exploration licenses for deposits in the Obsky and Tazovsky bays in the northern Karskoye Sea. Experts estimate the oil and natural gas reserves on Russia's continental shelf at about 100 billion tons of standard fuel, with 80 per cent in natural gas. The program will allow Gazprom to increase its natural gas reserves by more than 14 trillion cubic meters and oil reserves by 500 mt. The state controlled Gazprom, striving to become a largest energy company in the world; it would pay $13.1 bn for a 72.7 per cent stake in Sibneft, Russia's fifth largest oil company.

Pak to welcome investment in oil, gas

September 29, 2005. Pakistan had lot of potential in the area of hydrocarbons and would welcome foreign investors to exploit the full potential. Pakistan was strategically situated at the mouth of the Persian Gulf and close to the Central Asian region and the government was contemplating to set up a mega oil refinery and would welcome foreign investors. This refinery would not only cater to the domestic needs but also export oil products. The government had carried out broad-based economic reforms through privatization, deregulation and liberalization, forming the major planks of its economic agenda.

ONGC may Rebid for PetroKazakhstan

September 28, 2005. ONGC may counter China's plan to buy PetroKazakhstan Inc. by submitting a revised bid. China National Petroleum Corp. agreed on August to buy Calgary-based PetroKazakhstan for $4.18 bn, outbidding ONGC to secure supplies for the world's fastest-growing major economy. India and China are competing over energy resources as the world's two most populous nations acquire overseas oilfields as demand outpaces domestic production. China trumped India on bids worth $5.6 bn to buy assets in Kazakhstan and Ecuador within a span of 30 days since August 22.

EU urges oil firms to boost refineries

September 28, 2005. EU urged oil companies to step up investment in oil refineries in order to avoid bottlenecks and help combat high prices. The appeal for more investment in refineries was part of a five-point plan by the EU to respond to high oil prices exacerbated by events like Hurricane Katrina in the United States. The plan includes saving energy and reducing demand, increasing the use of alternative energy forms, making oil markets more transparent and predictable, boosting supplies and reacting better to oil stock emergencies. The European Commission is increasingly concerned about soaring oil prices but there is little it can do to help ease them other than to coordinate the management of members' emergency reserves and encourage energy conservation. Oil companies have largely avoided building costly new refineries since the last wave of investment in the sector two decades ago following the 1970s oil crises. Energy groups spurned making big investments in refining because such lay-outs were deemed to be unprofitable until the recent jump in crude prices started several years ago. As a result, refiners are now struggling to keep up with growing consumer demand, which has helped push prices higher. Amid dwindling supplies for easy-to-refine light, sweet or low sulfur content crude, analysts have sounded alarm bells about the lack of refining infrastructure in big consuming countries that can handle heavy, sour or high sulfur content crudes which are particularly abundant in Saudi Arabia.



Pak to construct Rajdhani power plant

October 2, 2005. Pakistan will construct Rajdhani power plant work on which would start in the beginning of next year. The production capacity of this hydropower project would be 132 MW. This would be constructed on the Poonch River, about 11Km upstream of Mangla reservoir in District Kotli, of Azad Kashmir. This project will generate 694 CWHR electricity annually. The project will start producing electricity in July 2009. The parties concerned have agreed to implement the project on Fast Track Basis to achieve the Financial Close Date of December 31 2005. An accord has been signed here between the three foreign and Pakistani company.

AEP signs GE, Bechtel for coal plant

September 29, 2005. American Electric Power Co. is going forward with a plan to build a coal-fueled power plant that uses a cleaner-burning technology called "coal gasification." Columbus, Ohio-based AEP contracted General Electric Co. unit GE Energy and privately held Bechtel Group Inc. to provide preliminary engineering and design for the 629 MW plant, which will be located in Meigs County, Ohio. The utility holding company expects this preliminary process to take 10 to 12 months and give it a more accurate estimate of construction costs.

The company said it expects commercial startup for the plant 2010. The project still must clear regulatory approval. AEP plans to fulfill its plan by building another, 600 MW plant by 2013 in the eastern part of its 11-state operating area - which ranges from Virginia to Texas. AEP has not determined an exact location for the facility.

Transmission/ Distribution / Trade

Houston power plants to be sold to NRG Energy

October 2, 2005. The power plants that light up most of the Houston area will have a new owner under a $5.8 bn deal. Princeton, N.J.-based NRG Energy will buy Texas Genco, the owner and operator of eight plants around Houston and a 44 percent stake in the South Texas Project nuclear power plant. The deal will more than double the size of NRG, giving it nearly 24,000 MW of power generating capacity from coast to coast. The deal is expected to close in the first quarter of 2006.

Reliant Energy to sell 3 NYC plants

October 3, 2005. Power Company Reliant Energy Inc. will sell three New York City power plants to an investor group led by private equity firms Madison Dearborn and US Power Generating Co. for $975 mn. The Astoria, Gowanus and Narrows plants have a combined summer capacity of about 2,100 MW. The company acquired the plants in Feb. 2002. It said it expects to record a third-quarter pretax loss of about $160 mn from the sale and will treat the assets as discontinued operations. The deal, which requires the approval of the Federal Energy Regulatory Commission and the New York Public Service Commission, is expected to close in the first quarter of 2006.

Policy / Performance

India, US and China can be oil energy independent

October 4, 2005. India, China and the United States are among very few countries in the world, which can easily attain energy independence by substituting synthetic fuel, obtained from petroleum with coal. India, the US and China are rich in coal deposits and can easily attain energy independence by producing synthetic fuel or Synfuel from coal. Observing that Synfuel production will give energy independence in the purest sense as it will be free from wild market fluctuation of fuel prices, as Synfuel has become very economical in view of soaring crude oil prices.

The Synfuel process, which is nothing like conventional coal use, removes greenhouse gases as well as toxins like sulfur, mercury and arsenic. A Synfuel plant can generate electric power, make synthetic natural gas, and produce hydrogen that many, including President George W Bush, believe is the energy source of the future. The process was used in America as early as 1928. In World War II, 92 per cent of Germany's aviation fuel and half its total petroleum came from synthetic fuel plants. South Africa has used a similar technology for 50 years, and now makes 200,000 barrels per day of synthetic gasoline and diesel.

Saarc plans energy centre in Pak

October 2, 2005. Energy ministers from Saarc member decided to set up a Saarc Energy Centre in Pakistan and to examine the viability of electricity interconnection master plan, envisaging a uniform policy and institutional, technical, fiscal and regulatory framework for energy trade among the member states. The member countries of Saarc decided with consensus to establish a Saarc energy centre in Pakistan to achieve the objective of creating an energy ring in South Asia. One of the most ambitious objectives of the energy centre will be to study the viability of a Saarc power interconnection master plan for inter-linking power supplies among the member states, in an area where surplus power is usually thousands of kilometres away from energy deficient regions and countries. The energy centre would strengthen the region’s capability in addressing global and regional issues in energy sector by enhancing the coordination of energy strategies of Saarc member states. It would facilitate inter-regional trade in energy through the establishment of interconnecting arrangements of electricity and natural gas within Saarc such as the proposed power grid stations and trans-national gas pipelines.

Plant to turn waste coal into diesel in Harrisburg

September 29, 2005. The nation's first commercial plant to convert waste coal into zero-sulfur diesel fuel and home-heating oil will be constructed in Pennsylvania. Waste Management and Processors Inc. in Gilberton plans to begin the $612 mn project next spring in Mahanoy Township, about 50 miles northeast of Harrisburg. The process involves mixing gasified waste coal with oxygen and water, then heating it to 2,500 degrees Fahrenheit to produce a synthetic gas. The gas undergoes another chemical reaction to become paraffin wax, which is refined into diesel fuel. The state has agreed to buy 15 million gallons a year of diesel to fuel its vehicles and oil to heat its buildings during the next 10 years. Most of the rest is expected to be bought by other consortium members, which include Worley & Obetz Inc., a heating-oil company, the Keystone Alliance, a fuel-purchasing group for the trucking industry, and other businesses.

Tax relief for dual fuel power projects - Pak

September 28, 2005. The Central Board of Revenue (CBR) has exempted dual fuel (oil/gas) power projects set up on or after September 1, 2005 from income tax on profit and gains. The decision was notified through an income tax notification SRO1009 of 2005 issued. The exemption would be available to those projects which was owned and managed by a company formed for operating the said project and registered under the Companies Ordinance and having its registered office in Pakistan. The project was not formed by the splitting up, or the reconstruction or constitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business, which was being carried on in Pakistan at any time before the commencement of the new business.

KFx plans to build K-Fuel(TM) plant

September 28, 2005. KFx Inc. plans to supply for long-term coal and site lease agreements with Buckskin Mining Company, a wholly owned subsidiary of Kiewit Mining Group Inc., to allow for the construction and operation of a 4 million ton per year (TPY) K-Fuel(TM) plant.  The plant is to be located at Buckskin Mining Company's Buckskin Mine in the Powder River Basin (PRB) in Wyoming, and is anticipated to be initially majority owned and operated by KFx. The agreement has been signed allowing for a K-Fuel(TM) facility to be located at the Buckskin Mine site.

Renewable Energy Trends


UK co identifies 60 strains of jatropha for cultivation

October 2, 2005. The UK-based D1 Oils Plc, which works through consortiums with local partners in Nambia, Kenya, Ghana, Philippines, Mozambique, South Africa and Egypt, has entered into an agreement with the Chennai-based Mohan Breweries and Distilleries to float an outfit for contract-farming cultivation of jatropha. The new venture - D1-Mohan Bio Oils Ltd - is exploring the possibility of taking up largescale jatropha plantation in Tamil Nadu, Andhra Pradesh and Chhattisgarh. The company was targeting to cover an area of 5 million hectares (under jatropha) over a five-year period. The process of signing contract  farming agreements has commenced and D1 - Mohan Bio Oils would target an area of one-lakh hectares during the current year. There was no organised cultivation of jatropha at present, as it was mostly found in the wild and the seeds picked by the poor for use by soap/paint units. So the first time, the company was proposing to raise it in an organised manner.

The company began the initiative last year by setting up a product development centre in Coimbatore for developing elite seeds/seedlings, formulation of bio-fertiliser suited for the crop and soil and development of best agronomical practices for long term success. The Indian arm - D1 Oils India (Private) Ltd was working with various State Governments on Waste Land Policy apart from co-ordinating with the Ministry of Agriculture. The parent company, meanwhile, has proposed to invest Rs 8 crore ($1.8 mn) over the next 12 months for research in India. The target yield per hectare by the company would not be less than 2.7 tonnes of oil over the next two-three years. The yield could vary depending on the location, type of soil etc., but the company would strive at doubling it when the target is achieved.

Sugar mills blase about lifting of ethanol ban

October 2, 2005. The Association of Ethanol Manufacturers in Maharashtra has questioned the state’s lifting of ban on ethanol production by sugar mills at a time when majority of ethanol produced by them remains unused or unsold. The ban has reportedly been lifted in the wake of soaring oil prices in the global market and the recommencement of ethanol purchases by oil and petroleum companies. Out of 220 sugar mills (both co-operative and private) in the state, 71 are involved in ethanol production with a total capacity of 802.9 million litres. But they are able to supply only 200 million litres to oil companies as per the Centre’s decision of 5 per cent blending of ethanol at Rs 17.50 per litre. Petroleum companies have yet to take a decision on the procurement of ethanol from mills situated in the western zone, though tenders were floated about two years ago. Of the 171.1 million litres, Maharashtra is expected to supply 10 crore litres, followed by Gujarat (64.2 million litres) and Goa (6.9 million litres).

AP makes 5 pc renewable energy mandatory

September 29, 2005. The Andhra Pradesh Electricity Regulatory Commission (Aperc) has finally come out with a non-conventional energy policy making it mandatory for every distribution licensee, including captive power and open access consumers, to buy 5 per cent of his total requirement from cogeneration or renewable energy sources. Of this, 1.5 per cent of the total consumption in a year is reserved for procurement of wind-based energy. In its orders the commission has summarily shut the doors for any further capacity addition in the biomass sector. The above Text Box: •	Every distribution licensee, including captive power and open access consumers, has to buy 5 per cent of his total requirement from renewable energy sources 
•	Quota fixation for the wind and other forms of renewable energy is expected to give a boost to the biomass power sector 
•	In wind power sector, Aperc’s orders would provide a scope for at least 350 MW installed capacity in the state 

orders will be in force for a period of three years, during 2005-06 to 2007-08. While the orders pertaining to biomass power will not have any immediate impact as several of these projects that even entered into the power purchase agreements (PPAs) with APTransco have not been kicked off due to tariff problems, the quota fixation for the wind and other forms of renewable energy is expected to give a boost to this sector. Inclusion of cogeneration into the renewable energy obligation is expected to help sugar mills that come under the cooperative sector and where the government is keen to set up cogeneration units in order to make them viable. In the wind power sector, the Aperc’s orders would provide a scope for at least 350 MW installed capacity in the state. While the state is estimated to have a technical potentiality for 1,920 MW wind power capacity, so far units with a total capacity of 124 MW are in operation as compared to more than 2,000 MW wind power units in the neighbouring Tamil Nadu. While the biomass power units with a total installed capacity of 207.75 MW are in operation, PPAs are in place for another 74.5 MW capacity. With the regulatory commission reducing the biomass power tariff from Rs 3.48 paise to Rs 2.88 paise a unit in April, 2005, capacity addition in this sector has slowed down. The APTransco has developed cold feet as far as biomass power is concerned since the relatively higher tariff of these units will increase its power purchase bills. With the Aperc’s orders in place, entrepreneurs who want to enter this field may go ahead with their plans. Due to the delay in formulating a policy such as this, several private companies like Andhra Sugars and Nuziveedu Seeds have shifted their plans of establishing wind power units to Tamil Nadu. According to Aperc orders, the distribution licensees, captive power and open access consumers will have to meet the renewable power purchase obligation from sources within the state only. 

Godrej plans to set up biodiesel plant in Malaysia

September 29, 2005. Godrej Industries is considering setting up biodiesel plant in Malaysia to cater to the Indian market. Initially, it ought to be a small project based in Malaysia - of about 50,000- 100,000 tonne - using crude palm oil or palm stearin. The company will be setting it up with a Malaysian partner and are currently scouting for one. The biodiesel that it will produce will be for the Indian market and not European Union (EU). Godrej feels that India can be a lucrative market of biodiesel. According to the company the jatropha yields are likely to be low and will be time-taking. 

UN keen to help India adopt biofuels 

September 29, 2005. Food and Agriculture Organisation of the United Nations has expressed its desire to provide technical assistance to India for the launch of biofuels on a sustainable basis. FAO will not provide any financial aid but is keen to give technical help in the promotion of biofuels in the country. FAO could take part in providing training and also preparing various models of biofuels in India. FAO could also help India in carrying out technical feasibility of shifting from petroleum products to biofuels. FAO had witnessed Brazil’s move to adopt biofuels — especially ethanol usage — since 1980. It has also observed the phase in Brazil witnessing the launch of multi fuel engines.

Centre initiates forming of National Biofuels policy 

September 29, 2005. The Centre has launched an exercise to formulate a comprehensive national policy on biofuels with an objective of 10 per cent of petroleum requirements to be met by biofuels by 2012, against the backdrop of soaring oil prices in the international market. A special policy is necessitated to induce different stakeholders to commit investment and resources to achieve replacement of hydrocarbons by biofuel. This apart, the Centre is in the midst of establishment of National Biofuel Development Board (NBDB) for the preparation of the national policy and identify programmes and projects based on it. Present policy for 5 per cent blending of ethanol and biodiesel development would help the Centre in the preparation of the long term policy. The policy will be framed after seeking coordination of various ministries and organisations and also looking into availability of raw material for ethanol and other biofuels including logistics. Technological barriers will also be taken into consideration.


BPA completes wind-energy substation

September 30, 2005. The Bonneville Power Administration has completed a major milestone in development of a 50 MW wind-energy project with construction of the $5 mn Tucannon River Substation. The substation will distribute the power generated at Puget Sound Energy's Hopkins Ridge Wind Energy Project to customers in western and central Washington. Blue Sky Wind LLC is building the 83-turbine Hopkins Ridge project in Columbia County, in southeast Washington, and expects it to deliver enough energy to power 50,000 homes. The project is expected to cost a total of about $200 mn, including the cost of building the distribution infrastructure.

$150 mn power plant using wood in Russell

September 29, 2005. Russell Biomass LLP has filed a plan with the state to build a new $150 mn power plant – using wood as its primary fuel to generate steam to run massive turbines that produce electricity. The proposed 50 MW plant would be based in Russell, two towns west of Springfield. A number of municipal-owned electric companies across Massachusetts – including some in the Boston area – have already agreed to purchase power from the future wood-fueled plant, which would generate enough electricity for 40,000 homes.

Bio-fuel demand up as oil soars

September 28, 2005. Soaring crude oil prices and environmental concerns are likely to propel the demand for bio-fuel in the coming months leading to firming up of edible oil prices, Malaysian industry experts said. A larger share of edible oil output is likely to be diverted towards bio-fuel production-which will add pressure on existing supplies, they said. The sudden spurt in crude mineral oil prices has led to an increased interest in use of vegetable oil to produce bio-fuel. Bio-fuel is used by the industry as well as by automobiles as a substitute for conventional fuel. Bio-fuel is liquid or gas fuel produced from processed vegetable oils. Global production of vegetable oils will rise by 5.3 mt in the season ending October next year while the demand is expected to rise by 6.0 mt during the year. The European Union is one of the major drivers of the demand for bio-diesel, closely followed by the US. Vegetable oil used for fuel purposes is not taxed in the European Union and the US. The current bio-diesel capacity in the US requires 600,000 tonne of soyoil annually. The US is likely to need 1.6 mt of soyoil in 2006-07. According to US Department of Agriculture, soyoil ending stocks for 2005-06 are seen at 725,000 tonne. The European Union currently consumes around two mt of bio-fuel per year, which is likely to be doubled by 2010. Malaysia’s palm oil output is likely to stagnate to 20 mt per annum by 2010 and this will also put a curb on its palm oil exports. As Malaysia is the world’s largest producer of palm oil, lower exports from the country will add pressure on global supplies-thus leading to a rise in edible oil prices. Soy acreage in Brazil is also likely to stagnate or decline, exerting further pressure on supplies. The current soyoil rate is $515 (Rs 22, 660) per tonne. 



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[1] Daniel Yergin is regarded as the most influential and authoritative scholar on international relation and energy security issues. His view can be found in his epoch making book, “The prize: The Epic quest for oil, Money and Power”, New York: Simon & Schuster, 1991.

[2] Kent Caldor, Professor at Princeton published a book, “Asia’s deadly Triangle: How Arms, Energy and Growth threaten to destabilize Asia-Pacific” in 1996; that created much debate about the energy geopolitics in the Asia-Pacific.

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