MonitorsPublished on Oct 12, 2005
Energy News Monitor I Volume II, Issue 17
China’s Global Pursuit of Energy Security: Issues and Implications for India - Part III

(by Dr.Samir Ranjan Pradhan)

China’s External Energy Strategy: Implications

“For the first time in its 5,000-year-old civilization, the long energy-insulated Middle Kingdom, with its considerable natural resources and famous penchant for self-reliance, was acknowledging-in bold neon lights-that it required resources from abroad to sustain its daily life. Suddenly, a fledgling state oil company was establishing itself a s a global “resource warrior”, even though Western firms believe it vastly overpaid for its investments”

- ‘Resource Warriors’, Asian Wall Street Journal, July 23, 1997.

With the mercantilist expansion of the Chinese economy getting fast paced day by day, one visible structural offshoot can be deciphered in the energy front. The sheer volume of energy demand and accompanied burgeoning imports has brought Chinese policy making into the forefront of global public discourse. China is now world’s second largest energy consumer after the United States. Historically, China has been largely self sufficient in energy supplies, primarily due to the abundance of indigenous energy sources such as coal, which still dominates country’s primary energy mix. Over the years, the Chinese authority have relied on policies to substantially utilize coal resources and not to allow imports of other energy sources such as oil and natural gas. In fact the Chinese were actually exporting oil to Japan before the year 1993, which analysts put as a legacy from the autarkic Maoist era of the 1950s and 60s. However, the energy-intensive economic growth pattern facilitated primarily by the manufacturing boom resulted in spiralling oil demand and inadequacy of domestic reserves, that led to voluminous oil imports. Moreover, due to environmental constraints, authorities emphasized on the utilization of natural gas in the primary energy mix. These factors increased China’s import dependence in recent years and the trend is likely to continue as per near and medium term projections.

Since the mid-1960s, China has been one of the largest oil producers in Asia, currently producing nearly 3.8 million metric barrels per day (mmbd). Chinese oil production is concentrated in onshore northeastern fields such as Daqing, Liahoe and Shengli. Oil production in China peaked strongly from the 1960s to 1980s with the development of these fields and by mid-1980s. China became exporter of oil, especially to Japan. However, oil demand with respect to the pattern of economic growth accelerated during the 1980s and early 1990s, while production declined in the matured fields and there was no substantial reserve accretion. Oil demand registered sharp increase as a result of the booming manufacturing sector and persistent demand for electricity. Demand doubled between 1984 and 1995 from 1.7 to 4 mmbd and has continued to rise upward since, rising to 6.1 mmbd by the year 2005. In 1993, China became a net importer and by 2003, it surpassed Japan to become world’s second largest oil consumer and the fifth largest oil importer (currently importing nearly one-third of its oil). The figure ‘a’ below shows China’s growing net oil import dependence, based on several projections.

This tectonic shift of the energy paradigm has resulted in domestic sectoral reforms and calibrated global energy security policy making in China. While the efforts are energized in the domestic front from oil exploration to distribution, these are supplemented by the “going out” strategies to secure oil and gas equity abroad. Pervasive import dependence and associated vulnerabilities have propelled policy catalysts to reassert Chinese prowess yet in another global front. Chinese leadership has relatively built upon their external energy strategies by maintaining a judicious balance between geopolitical interests and energy interests. They strongly assert that energy security is too strategic to be left to the market dynamics and the Chinese approach has been decidedly mercantilist and competitive (Herberg, 2004). The going out strategy is premised on three fundamental factors such as; (i) apprehension of global oil supply disruption resulting in energy shortages and price spikes, negatively affecting Chinese monumental growth in the short and long run; (ii) vulnerability arising out of unstable oil supply sources such as Persian Gulf, Central Asia and Africa; and (iii) threat perception about US presence and dominance in all supplying regions as well as exporting maritime routes.

Chinese energy strategy can be broadly analysed under the following heads:

v  Geographical diversification crude supply sources and exports routes by strengthening relationships in key producing regions.

v  State oil companies aggressively pursuing equity oil stakes in many existing and less competitive and prospective oil fields.

v  Cross-investment and commercial ties with major producing and exporting countries through economic diplomacy.

v  Aggressive posturing in the surrounding resourceful maritime regions to assert sovereignty and ownership.

v  Aid diplomacy in clinching successful deals bereft of commercial viability.

China has successfully expanded its energy supply horizon from the Southeast Asia to West Africa including Persian Gulf, Central Asia, Russia and Latin America. State oil companies CNPC, Sinopec, and CNOOC have been aggressively buying equity oil assets in many existing and prospective fields in diverse countries such as Kazakhstan, Sudan, Venezuela, Iraq, Iran, Angola and Peru. In some cases Chinese inexperience and desperation to grab assets have led to over payments and overvaluation of oil assets. Another most important aspect of Chinese external energy strategy is the bilateral cross investment agreement with major oil producers such as Saudi Arabia and Kuwait in the domain of economic diplomacy. Moreover, China is also aggressively venturing into surrounding resource based maritime regions such as Spratley and Paracel Islands in the South China Sea and Senkaku/Diaoyo Islands in the East China Sea. Chinese exercises and intentions in these regions has considerably affected and also have the potentials of becoming as bone of contention in its relations with other bordering such as Indonesia, Vietnam and Japan. It has been argued that China’s willingness to promote cooperative regional solutions to energy security in Asia has been very limited due to its opaque intentions of becoming a super power and economic hegemony.

Nevertheless, Chinese energy security strategy is wide ranging and pragmatic. It is state centric and mercantilist built on the common vision of senior communist leadership, national oil companies and intricately aligned with broader trade and aid diplomacy and alliances. In its search for energy security, China has become a major player not only in the Asian geopolitics, but also in the global geopolitical vortex. In addition, Chinese quest for energy security has the potential to complement or complicate great power equations as well as bilateral, regional and multilateral relations among states. In such a background, India, an emerging major consumer and importer is bound to be influenced and affected by the Chinese calculations and assertions.

(Views are personal), to be continued…)

Baltic Pipeline: A Great Opportunity for Russia

(Sergey Kolchin - RIA Novosti)

Recently an agreement was signed between Russia and Germany on building a North European gas pipeline (NEGP). The offended Ukraine, Poland and the Baltic countries immediately dubbed it "the Putin-Shroeder pact." Discontent in the former "transit" counties is understandable, but this project is obviously more economically than politically oriented.

Gazprom, BASF AG and E.ON AG signed a basic agreement on building the North-European Gas Pipeline, with its route running under the waters of the Baltic Sea. The parties intend to set up a Russian-German joint venture in which a 51 per cent stake will belong to Gazprom, while BASF and E.ON will hold 24.5 per cent stakes each. Total investments, necessary to complete the project, are over 4 billion Euros. The NEGP will connect the Baltic seashore near the city of Vyborg with the Greifswald region on the German coast. The 1,200 km pipeline will be put into operation in 2010. The plan is to build two parallel gas pipeline legs. The first stage envisages the construction of one 27.5 billion cubic meters (bcm) capacity leg, with the second one to be commissioned later and double the NEGP capacity to 55 bcm of natural gas per year.  The project is designed to create a direct route for gas deliveries from Russia to its biggest market in Western Europe, bypassing transit countries. It will benefit not just Germany alone, but other countries as well, since the resources of alternative gas producers in the region (Norway, the Netherlands, Britain) are close to depletion.

Both Russia and Germany stand to gain from the project. Today, Germany is Gazprom's main export market. The NEGP will be the company's additional route providing gas to this steadily growing market. Also it will bolster the gas giant's position and reputation as a reliable gas supplier to Germany and other consumers in Western Europe. Through the NEGP Germany will be directly connected to Russia's gigantic natural gas fields. It should help quench Germany's and other countries' growing gas thirst and ensure reliable gas supplies. European officials, experts and mass media say that stable energy supplies are fully dependent on Europe's relations with Russia for years to come. Besides, due to the NEGP's integration into the existing German pipeline systems of Wingas and E.ON Ruhrgas, German companies will receive additional gas volumes. Experts predict that during the first year of the NEGP operation Gazprom will earn about $4 billion. Russia's transit expenses will also decrease. Currently they add up to 20 per cent of the receipts for gas transit via Ukraine alone (13 per cent for transit costs, and 7 per cent for keeping up pressure in the pipes).

Besides, the possibility of new countries - Great Britain, the Netherlands and Denmark - joining Gazprom's gas grid gives Russia a great chance to expand its energy presence in Europe. Today's favorable market conditions and high oil and gas prices helped bring the project to fruition. Earlier other Russian gas-transportation projects were discussed with equal enthusiasm - laying an additional leg of the West Siberia-Western Europe pipeline through Belarus and the Blue Stream route to Turkey. To put it mildly, both projects failed to meet expectations. In the first case, Russia was unable to provide ample amounts of gas without investing heavily in the gas production, while the western partners would willingly loan money to Gazprom, but didn't want to make direct investments. In addition, transit dependence on Minsk turned out to be no better than transit dependence on Kiev. As regards the second project, the Turks suddenly refused to buy all the gas offered to them at fixed world prices. Later the situation was rectified, but the existence of problems was an undeniable fact.

However, radical changes have taken place since then. Fuel prices have risen steadily and obviously to stay for long. World gas giants are ready to directly invest into both the Russian gas industry and the construction of infrastructure and gas processing facilities. There is even a rivalry among the investors for the right to participate in Gazprom projects. More to it, they are willing to share profits and property with Gazprom in the field of gas supplies to European consumers. Consequently, the long-known projects to develop huge gas deposits in the North of Russia (Zapolyarnoye, Prirazlomnoye, Shtokmanovskoye, Yuzhno-Russkoe, etc.) are becoming quite promising and profitable. The primary source of raw materials for the NEGP will obviously be the Shtokmanovskoye gas condensate field. Gazprom has recently published a preliminary list of five companies to form this gas field's development consortium. It includes Norwegian companies Hydro and Statoil, the French Total and American Chevron and ConocoPhilips.

(Views are personal)


Energy Conferences:


Capacity Building Programme

November 15 - 17 2005, Kochi


The Energy Management Centre is organizing a capacity building programme on energy efficiency


For more details, contact:

The Director, Energy Management Centre

Tycaud, Thiruvananthapuram - 695 014

Phone: 0471-232 3363, 232 1820

Niko offers customers Hazira gas at $3.89 per MMBtu


October 2005. GSPC and Niko have now proposed a new compromise formula to its cutomers. The basic gas price is $3.89 per MMBtu against the previous price of $3.68 per MMBtu and the new price will be effective from backdate 1st May 2005 but as demanded by several customers, this new price will be effective until April 2007 and not for one year as GSPC and Niko originally wanted. After April 2007, price would be re-negotiated. The new price would be ex-Hazira and does not include transportation cost and taxes.

Myanmar-Bangladesh-India pipeline

October 2005. The Indian intelligence agencies are reported to have advised Government of India against promoting any project or investments in Bangladesh. They feel that radical groups have become very powerful and are very anti-Indian. Alternatively, Ministry is gearing itself to conduct feasibility study for pipeline through Northeast states or through CNG. Ministry is also backing the proposal to set up a 5000 MW power plant in Myanmar fuelled by gas from A-1 block. Ministry of Petroleum is of the view that any delay in evacuating gas may tempt Myanmar to export gas China or South Korea. Myanmar Government has scheduled to summit Draft Heads of Agreement for sale of gas from block A-1 to India by the end of October 2005. Meanwhile, Daewoo is reported to be trying to ensure gas supply to S Korea from A-1 and A-3 blocks.

Dahej – Uran pipeline project

October 2005. After the GAIL Board approved lifting of stay on the execution of the project, GAIL floated tender for the third time for supply of line pipes. GAIL has received 7 bids for the supply of line pipes. 3 foreigners and 4 Indian vendors have bid.

ONGC may substitute GAIL for supply to RVUNL

October 2005. The Petroleum Ministry is reported to approve the proposal of ONGC to supply gas for the Rajasthan Vidyut Utpadan Nigam  Ltd (RVUNL) gas based power project at Dholpur from its PMT fields from end 2006. RVUNL has signed draft MoU with ONGC and is under discussion for GSA finalization. Earlier GAIL had signed HoA for the supply of gas but failed to sign GSA as GAIL refused to drop the security deposit requirement for construction of required spur line and had offered late supply from 2008.





Natural Gas Availability

October 2005. Production of Natural Gas during the period was of the order of 87 MMSCMD. Contribution from various sources is detailed below.



% Age














Apart from domestic production, RLNG from PLL Dahej contributed additional 17 MMSCMD, taking the total availability of gas to 104 MMSCMD. Supply of natural gas had been of the order of 90 MMSCMD with internal consumption of 11 MMSCMD. Balance 3 MMSCMD was flared, mostly technical flaring. Shell terminal at Hazira did not receive any LNG during this month

Experiment to enhance recovery rates from Cambay wells

October 17, 2005. ONGC has chosen wells in the Cambay basin for a novel experiment. It involves the use of a technique that promises to increase the recovery of oil multi-fold. In economic terms, it could mean, earning millions of rupees. In scientific terms, it would mean, establishing the feasibility of the technique in the low-yielding Indian oil fields. The scientific technique, demonstrated by the Norwegian University of Science and Technology, Trondheim, has been established in Norway, where the secondary recovery rates from oil wells have increased up to 60 per cent.

The Hyderabad-based National Geophysical Research Institute (NGRI) has, through a joint collaboration, absorbed the technique and it proposes to try it in Cambay basin with the help of the Norwegian team. The NGRI, the Norwegian University and ONGC had already signed a memorandum of understanding (MoU). Following this, ONGC has entrusted select wells in the Cambay basin to NGRI to carry out the experiments. The recovery rate in these wells is well below the average recovery rate of 26 per cent in the ONGC oil wells. Traditionally, water is injected to dilute the viscous oil and aid in its easy recovery. In Norway, carbon dioxide, captured from the atmosphere near the oil wells itself is used for the purpose. The NGRI also proposes to use this method, called Carbon dioxide Sequestration to get better results.

BP eyes stake in RIL’s KG basin

October 17, 2005. Oil major BP Plc is interested in helping the RIL to develop a large gas field in the Bay of Bengal. Reliance plans to produce 1,400 million cubic feet of natural gas a day, about half of India's current production, by the end of 2007, from its blocks in the Krishna-Godavari basin.

ONGC for exploration alliance with BP

October 17, 2005. ONGC was in touch with British Petroleum (BP) for exploration collaboration in India and overseas. It is also looking at collaboration in renewables with BP because the British company is very positive in that regard. OVL is eyeing acquisition of several medium-sized oil and gas firms in central Asia, Africa and Eastern Europe and may need upwards of $2 bn (Rs 89.6 bn) for each acquisition. Such huge fund requirement has forced the parent firm ONGC to get shareholders’ approval for raising borrowings limit to Rs 65,000 crore ($14.51 bn).

ONGC ties up with Mumbai firm

October 12, 2005. ONGC has signed a project worth $5 mn (Rs 224 mn) with Mumbai-based IDE Infotech Ltd to implement automatic identification and data capture technologies. The project will allow ONGC to keep track of its inventory across the country through a wireless network and bar-coding of its products.


IOC loss from under recovery at $2.2 bn 

October 18, 2005. IOC has incurred a Rs 9,900 crore ($2.2 bn) loss for selling petroleum products below import parity price during the first six months of the current financial year. The company, however, expects to be back in the black during the July-September quarter. Oil companies were underselling petrol by Rs 4.46 a litre and diesel by Rs 5 while LPG was being sold at a loss of Rs 120 a cylinder and kerosene at a loss of 14 per litre. IOC subsidiary IBP is likely to remain in the red and report a net loss of about Rs 400 crore ($89 mn) in the third quarter too.

Shell, ONGC to set up bitumen refinery

October 17, 2005. Shell India and ONGC will set up a bitumen refinery at Mangalore in Karnataka. The refinery will produce high-grade bitumen with an eye on the domestic market. Shell may take an equity in the project and also bring in technology. ONGC might float a separate company to execute the project. The details of plant capacity and investments would be worked out once the two companies had an agreement. Shell is one of the world’s leading bitumen suppliers with an extensive global network. The company is also planning to set up a mixing plant at Haldia in West Bengal for modifying bitumen. 

Bitumen will be sourced from refineries and modified to meet the demand for higher-grade varieties of the product. Shell already has a range of bitumen products in India. The plant at Mangalore will modify bitumen sourced from ONGC’s Mangalore Refinery and Petrochemicals Ltd (MPRL). The new company may also market the product. The country’s bitumen requirement had increased following large-scale road construction activities. Bitumen production increased to 3.3 mt in 2004-05 from 2.72 mt in 2000-2001. Until a few years back, India was heavily dependent on bitumen imports but has now started exporting the product in small quantities.

ONGC plans to open 45 retail outlets

October 17, 2005. The ONGC is planning to increase its presence in retail marketing in a phased manner. Since the launch of its first outlet under the brand name of ONGC Values Limited (OvaL) in Mangalore in March, the company is planning to open 14 more outlets by the end of the fiscal. Over the next fiscal, the company plans to open a total of 45 outlets. Initially the company plans to open its outlets in Karnataka, Andhra Pradesh and Maharashtra due to the proximity of these locations to Mangalore Refinery and Petrochemicals Limited. Out of total capital expenditure of Rs 12,000 crore ($2.68 bn) allocated for the fiscal, the budget for the retail plans would be only between Rs 25 crore to Rs 26 crore ($5.58 to $5.80 mn).

BP to pick up 26 pc in HPCL’s refinery 

October 13, 2005. Global oil major BP Plc and HPCL signed a letter of intent (LoI) to form a 50:50 joint venture that will invest in the domestic refining and marketing sector. On the drawing board is a $3 bn (Rs 135 bn), 9 mt Bhatinda refinery in Punjab that will help BP qualify for the petro-retailing business in the country, given the Rs 2,000 crore ($445 mn) investment norm.

The joint venture will also work on a marketing plan that will be in line with the commissioning of the refinery project in 2009. It is, however, likely that HPCL and BP will hold 26 per cent apiece with the rest split between the financial institutions, thus creating a non-PSU company. HPCL will also be looking at obtaining access to BP’s overseas assets before inking the Bhatinda contract. Interestingly, BP’s interest in the transportation fuel retailing business comes at a time when the dominant players, Indian Oil Corporation, HPCL, BPCL, IBP are forced to sell at below cost and the threat of production controls looms large.

Transportation / Distribution / Trade

LPG import may rise to 2.3 mt

October 17, 2005. India is likely to import 2.3 mt of LPG in 2005 compared with 1.9 mt a year ago. On behalf of the oil industry, IOC has firmed up term contracts to import 2.1 mt in 2005. But it has managed to get an additional 200,000 tonnes to make up for a shortfall. IOC has contracted 15 out of the 27 additional LPG cargoes it needs to import to offset the shortage of this fuel in the country. IOC had estimated an import requirement of 46 cargoes during January-December 2005, but the shutdown at Jamnagar refinery of Reliance necessitated an additional 27 cargoes.

3 firms bid for Petronet LNG deal

October 14, 2005. Shipping Corporation of India (SCI), Great Eastern Shipping and Varun Shipping have teamed up with global LNG ship owners/operators to submit techno-commercial bids for the contract to haul additional quantities of gas from Qatar to the expanded Dahej terminal of Petronet LNG Limited (PLL) in Gujarat. However, Essar Shipping has pulled out of the fray at the last minute without submitting the bids. SCI has bid for the contract in joint venture with three Japanese shipping lines Mitsui O.S.K Lines-NYK Line, and K Line. SCI had also forged a joint venture with Qatar Shipping to bid for the deal, but this team decided against submitting the techno-commercial bids. Great Eastern has put in the techno-commercial bids with Bahamas-based Teekay Shipping Corp while Varun has joined hands with Belgian natural gas shipping firm Exmar and public sector IOC to submit the bid.

EIL, PLL to bid for global gas ventures

October 14, 2005. Public sector petroleum consultants Engineers India Limited (EIL) and Petronet LNG have agreed to jointly bid for overseas LNG projects. The two companies have signed an MoU to associate on a case-to-case basis. EIL provides engineering and consultancy services in hydrocarbon gas-processing, liquefication, storage and regasification. PLL, a joint venture promoted by GAIL India, Oil and Natural Gas Corporation, Indian Oil Corporation and Bharat Petroleum Corporation, is in the process of setting up a terminal at Kochi in Kerala. 

KPTL forays into oil-gas pipeline construction

October 12, 2005. Kalpatru Power Transmission Ltd (KPTL) has secured a Rs 83-crore ($18.6 mn) contract for the construction of a feeder pipeline from Laban (near Kota) to Bijwasan (Delhi) for Bharat Petroleum Corporation Ltd (BPCL). The contract, which marks KPTL's breakthrough into the construction of oil and gas pipeline, was secured by the company's international pipeline partner, who had bid for the project with KPTL's support. The company has also been successful in securing two more turnkey projects in Algeria worth Rs 127 crore ($28 bn) for the establishment of 400 KV Berrouuaghi-El Khemis and 220 KV A Bir Ghebalou transmission line projects by Sonelgaz, Algeria.

These are in addition to the earlier 400 KV project of $30 mn (Rs 1.34 bn) secured in Algeria in July 2005 and $22 mn (Rs 983 mn) 132 KV project from Kahrama, Qatar, in February 2005, taking the order booking of international turnkey jobs in excess of Rs 500 crore ($112 mn). The company has also secured contracts worth Rs 125 crore ($28 mn) for 400 KV transmission lines from Nagda to Jalod and Rapp (Kankroli) from Power Grid Corporation of India and further tower supplies orders worth Rs 39 crore ($8.7 mn). 

Policy / Performance

38 pc of PDS kerosene ends in market: NCAER

October 18, 2005. More than 38 per cent of kerosene meant for distribution through public distribution system (PDS) gets diverted to the market. It is sold to households without ration cards as well as to others for non-households usage. Black marketing has resulted in about 18 per cent of total PDS kerosene being sold to households at more than double the PDS price. According to the National Council for Applied Economic and Research (NCAER) study, siphoning off of kerosene from PDS for non-household use is estimated as 18.1 per cent of the total sale of PDS kerosene. Households without any cards purchase another 2.6 per cent. More than 50 per cent of the PDS sale in Bihar, Chandigarh, Delhi, Jharkhand, Orissa and Punjab is diverted. "Very high leakage" (about 40-50 per cent of sale of PDS kerosene) is observed in Assam, Chhattisgarh, Tamil Nadu and Uttaranchal. High leakage (20-40 per cent) is observed in Andhra Pradesh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Rajasthan and Uttar Pradesh. Less than 20 per cent diversion is observed in Goa, Himachal Pradesh, Kerala and West Bengal. Kerosene usage penetration in the country is estimated as 94.4, 68.9 and 86.9 per cent respectively for rural, urban and all areas. Per household consumption of kerosene using households is estimated as 55 litres per year. The NCAER studies, commissioned by the ministry of petroleum, looked into the kerosene distribution system across states, assessed the demand for PDS kerosene and determine future trends. The study suggested that the kerosene distribution should follow a method similar to that of PDS grains. All households possessing APL (above poverty line) cards should purchase kerosene at the market price (at economic cost to the government) and subsidised PDS kerosene should be made available to people with BPL, Annapurna, Antyodaya or such cards indicating low income status of households. Taking out the APL card holders from the purview of subsidies and controlling the leakage will bring down the subsidy bill substantially. The study said that most of the states have a three-tier monitoring system: monitoring by the department of civil supplies, at the state level by which the supplies are obtained for the state as a whole, at the wholesaler level and at the retailer level. However, the efficiency and effectiveness of monitoring system varies substantially across states.

Goldman Sachs plays foul in Petrokazakh stake: Aiyar

October 17, 2005. Petroleum minister Mani Shankar Aiyar charged investment banker Goldman Sachs with ‘foul play’ in the auction of Canada-based PetroKazakhstan stake despite a higher bid by ONGC. He said though the ONGC-Mittal combine’s $3.98 bn (Rs 178 bn) bid was the highest, China National Petroleum Corp was allowed to revise its bid by Goldman Sachs to $4.18 bn (Rs 187 bn) after the close of bids. Recently, CNPC had offered to sell 30-33 per cent of PetroKazakhstan to state oil company KazMunaiGas. Kazakhstan is asking CNPC for a higher stake. India is, however, hopeful of getting a share of the assets of PetroKazakhstan following the restructuring of the company by the Kazakhstan government. The Kazakh government is in the process of passing a new law allowing the state to intervene in the sale of oil assets to foreigners. India may gain from the law that aims to give the Central Asian state the right to buy foreign-held stakes in oil companies that are put up for sale and to limit property rights over “strategic resources” like oil and gas.

New panel for petro pricing

October 17, 2005. The government plans to put in place a new transparent mechanism for autonomous adjustment of petroleum product prices by the oil marketing companies—IOC, HPCL, BPCL and IBP Ltd. To study various aspects relating to pricing and taxation of petroleum products, the government has constituted a six member committee under the chairmanship of Dr C Rangarajan, who heads the Prime Minister’s economic advisory council. The committee will suggest a comprehensive mechanism for pricing of sensitive petroleum products while balancing the interests of all stakeholders including the government, oil companies and the consumers. The committee, which includes expenditure secretary Adarsh Kishore, petroleum secretary SC Tripathi, member (energy) Planning Commission Kirit Parikh and two experts, will submit its report in six months. It will be assisted by the Petroleum Planning and Analysis Cell of the petroleum ministry. The committee has been asked to examine different aspects relating to pricing and taxation of petroleum products and suggest measures on stabilising prices in view of the financial position of oil companies. 

Despite a steep increase in global crude oil prices, the government did not allow frequent revision in petro product prices by the oil companies. This strained the bottomlines of these companies, which posted their first ever losses in the first quarter of this fiscal. International prices of crude and products increased significantly during the current year. The crude price peaked to all time high of $70 a barrel while petrol and diesel prices reached $89 a barrel and $76 a barrel respectively. This has significantly increased the losses on sale of these products by the oil companies. Continued negative margins have resulted in severe cash crunch and there has been a continuous increase in the borrowings of the oil companies. After the recent price hike, oil companies are again knocking on the doors of the petroleum ministry to implement another hike in the prices of petrol and diesel. The current negative margins on petrol stand at around Rs 3 a litre while on diesel are around Rs 2.3 a litre.

Govt mulls takeover of ONGC Videsh

October 16, 2005. Government is mulling takeover of OVL, and converting it into a national exploration and production flagship for investments overseas. OVL, which has committed over $4.5 bn (about Rs 198 bn) in 14 countries on the strength of its parent firm, is 100 per cent owned by ONGC. Petroleum Minister Mani Shankar Aiyar feels OVL under ONGC was "suffocating" as the parent firm had "kept it inadequately staffed and failed to provide the technical support" needed to pursue E&P projects. With just one managing director and a director (finance), OVL has not been able to follow-up on the opportunities arising from Aiyar's much-acclaimed oil diplomacy. He now wants to make OVL a 100 per cent government-owned firm after snapping it from ONGC with a view to better coordinate diplomacy and commercial deals. Aiyar feels India faced competition from aggressive mega-merged and multinationals in its quest for equity oil abroad and OVL's attempts to buy into producing properties have failed universally. He also feels OVL had been entirely unsuccessful in award of exploration blocks in petroleum rich countries and the company is not an operator in any of its three producing properties of Sudan, Vietnam and Sakhalin (Russia). He is of the view that the essential features of a successful international petroleum company include large size in terms of financial capabilities, presence in total value chain of petroleum and natural gas, geo-political backing and sound international relations. Aiyar believes that if only OVL is allowed in international forays it would lead to excessive risk exposure through one company and lead to unrealisation of potential of other PSUs. He said that if all PSUs enter global business via dedicated subsidiaries it would lead to confusion in international geo-political dialogue for support and fragment bargaining power. 

HPCL, BPCL plan own hedging desks

October 16, 2005. HPCL and BPCL are implementing an in-house hedging mechanism to counter the crude oil shocks. HPCL has roped in Ernst & Young, BPCL has hired Accenture to set up their hedging desk. Oil PSUs have been chary of setting up hedging desks inhouse because of fear of vigilance and parliamentary committee investigations on their decisions. Only IOC set up an internal hedging desk two years ago. While Reliance is believed to have made a profit of Rs 60 crore ($13.39 mn) from hedging last fiscal, IOC did not see net gains against profits of Rs 2.34 crore ($522 mn) in 2003-04. The hedging function is called ‘Oil Price Risk Management’ and the activity for hedging crude cost and refinery margins will be operational by the end of the year.

RIL plans 25-ship fleet

October 15, 2005. Reliance Industries Ltd is planning to acquire 25 ships— a combination of chemical tankers, crude carriers, gas carriers and product tankers—at an estimated investment of over Rs 5,000 crore ($1.12 bn). The company needs to acquire these ships to support the proposed doubling of its petroleum refining capacity at the Jamnagar complex from 30 mt to 60 mt. A medium-range product tanker and an LPG carrier costs over $40 mn (Rs 1.79 bn) each. In contrast, the price of an LNG carrier is over $200 mn (Rs 8.96 bn) while a very large crude carrier (VLCC) costs around $125 mn (Rs 5.60 bn). Among other vessels, an Aframax carrier costs $60 mn (Rs 2.69 bn) while a chemical tanker costs over $30 mn (Rs 1.34 bn). The company will have to acquire a shipping company if it wants to expand its fleet immediately as buying new ships will take a couple of years. The order books of shipyards across the globe are full till 2008. The company now carries out trans-shipment operations in the open sea from other vessels. Reliance now has mostly small carriers like tugs, barges and offshore vessels. The company is exploring all possibilities, including acquisition of old vessels

Shipping Ministry for an India-owned LNG fleet

October 16, 2005. With LNG imports set to increase dramatically in the next few years, Indian ship-owners are realising the need to swiftly build up a fleet of LNG carrying vessels. With India emerging as a major importer of the gas, even the Ministry of Shipping has asked Indian ship-owners in no uncertain terms to take the initiative to develop an LNG fleet. It is estimated that by 2012 India's LNG imports will almost equal Japan's current LNG imports of 60 mtpa. And to transport this quantity, the country will need about 25 LNG vessels by 2012 and 34 by 2025, assuming that one vessel can transport 2.5 mtpa. Japan transported about 43 per cent of its total LNG import of 59.1 mt in 2003 on Japanese owned and controlled ships. Similarly, Korea transported about 61 per cent of its LNG imports of 19.3 mt during that period on Korean controlled ships. In the combined import of Japan and Korea, third party owned ships participation was only 8.3 per cent. Though the first commercial LNG movement from Algeria to the UK took place in 1964, India started importing this fuel only from 2004. Today, Indonesia, Algeria, Malaysia and Qatar have emerged as the major LNG exporting countries, and Japan and Korea the big importers. While 176 LNG ships now transport the fuel from various sources across the world, the global fleet will expand by another 111 vessels in the next four years. The first LNG import terminal was set up at Dahej by Petronet with a 5 mt capacity, and was followed by a second terminal at Hazira, with 2.5 mt capacity. It is estimated that India's requirement of natural gas, as per the Hydrocarbon Vision, will balloon to 313 million metric standard cubic metres per day (MMSCMD) by 2012 and 391 MMSCMD by 2025, while the estimated domestic gas availability will be 90 MMSCMD by 2025. In other words, the estimated natural gas deficit to be met by imports will rise to 223 MMSCMD by 2012 and 301 MMSCMD by 2025. In terms of tonnage, India is likely to import 62 mt by 2012 (Japan's present import level) and 84 mt by 2025.

Understandably, this kind of LNG fleet development will mean significant value addition to the economy. On an average, the value added by the shipping industry to the economy per unit of Gross Registered Tonnage (GRT) acquired is Rs 2,211. This would mean that if India acquires an LNG fleet of 25 vessels by 2012 there would be a value addition to the economy of Rs 5.20 bn (assuming that one LNG ship is 1,38,000 or 94,000 GRT). Similarly, an LNG fleet of 34 ships would mean a value addition of Rs 704.6 crore ($157 mn) to the economy. The development of an Indian-flagged LNG fleet can also have a multiplier effect on the country's tonnage. It has been estimated that the total profit of a typical three-year-old LNG vessel at the current pricing structure for the remaining 27 years (assuming a vessel's economic life is 30 years) will be in the region of $281.3 mn.

MoPNG not satisfied with synergy panel report

October 14, 2005. After a detailed scrutiny of the V Krishnamurthy-led “synergy in energy” committee’s report, the petroleum ministry has inferred that the committee has not been able to give clear cut recommendations regarding any restructuring or change in strategy required for ensuring energy security and for undertaking exploration and production activities in India and abroad. Petroleum secretary, SC Tripathi, said, this will have to be examined separately by the ministry only and perhaps a note on issues in this regard may have to be taken separately to the Cabinet.

AP to emerge a gas hub

October 14, 2005. Andhra Pradesh, endowed with rich onshore and offshore natural gas resources, will soon emerge as the Henry Hub of India, becoming the gateway for the country's gas supplies. Henry Hub is a focal point on the natural gas pipeline system in Louisiana (the US). It interconnects nine inter-State and four intra-State pipelines. It is also the pricing point for natural gas futures traded on the New York Mercantile Exchange. Ideally, the grid would be in place when the State can access abundant gas reserves that are expected to come up for realisation by 2008. The state government, in association with GAIL (India) Ltd, has evinced interest in having a regional gas grid in the state to exploit effectively the gas reserves found at the K-G Basin. GAIL has decided to accept the state’s proposal to provide technology support. While a national gas grid focusses on transportation of high pressure gas from one state to another, a regional grid has lesser pressure and will help in easing out the transportation problems. As part of the national gas grid project, around 1,700 km of pipeline network is proposed in the state. The national grid is expected to meet the increasing demand for natural gas which will connect the LNG sources from Dahej to Kakinada to Kolkata. GAIL operates around 750 km of pipeline in the K-G Basin supplying natural gas to about 32 customers, including power and fertiliser plants in the state. By the year 2008, the new-found reserves at K-G Basin is expected to monetised. The first access to piped natural gas will be at Vijayawada targeting about 1,000 homes during 2006 through the JV company Bhagyanagar Gas Ltd.

NTPC to invest in E&P, LNG terminals

October 14, 2005. To become an integrated energy utility NTPC invited bids for appointing consultants to advise the firm in making investments in the entire LNG value chain including gas exploration and liquefaction terminals. It has invited expressions of interest from internationally reputed consulting companies for ’advisory services’ to take equity stakes in upstream LNG chain in India and abroad to ensure long-term availability and price competitiveness of gas or LNG.

Nigeria scouting for investments by India

October 13, 2005. Lakshmi N Mittal has brought along with him a high-powered delegation from Nigeria to India, to scout for investments in rail and oil sectors. The delegation, comprising ministers of oil, power & steel and commerce, the heads of Nigeria National Petroleum Corp and Nigeria Railway Corp and Julius o Ihonvbere, special adviser to the President on policy and programmes monitoring, to discuss collaboration in areas of LNG, export refinery and rail transport in Nigeria. The West African nation also wanted India to help it in national rural development and building power plants. Petroleum Minister, Mr Mani Shankar Aiyar, said India was keen on increasing its import of crude oil from Nigeria and wants the West African country to contribute as much as 20 per cent of the total imports. Last year, India imported 91 mt of crude, of which just over 2 mt came from Nigeria. 

Dutch delegation to tap new markets in India 

October 13, 2005. A delegation from the Netherlands led by its deputy Prime Minister Laurens Jan Brinkhorst will visit India to boost trade relations. The delegation will also comprise representatives of 40 Dutch companies mostly from the ICT, medical equipment, biotechnology, logistics, energy, environment and the agro-business sectors. The visit will focus on meetings with ministers including petroleum minister Mani Shankar Aiyar, power minister PM Sayeed etc.

Iran’s Natural gas scenario

October 2005. Iran Government’s failure to officially substitute the previous Oil Minister till date has left vacuum in the hierarchy of authority in the Oil Ministry of Iran.  Progress on the proposed investments in the upstream acreage has slowed down. Add to it is the uncertainty over the prospect of Iran incurring UN sanctions for failing to halt its nuclear enrichment program and the debate over the best way to harness the giant gas reserves at the South Pars field. One section believes that all the gas from South Pars should be re-injected into onshore oil field while the other section supports gas export projects. Gas export projects are moving slowly and could lag further. LNG has made only gradual progress after more than five years of perseverance. The Pars LNG consortium signing a framework agreement for the project which calls for production of some 9 MMTPA of LNG from two trains, starting 2009. Gas will come from South Pars Phase 11. The other Persian LNG consortium i.e. NIOC Shell and Repsol has put in initial agreement but is yet to finalize commercial details. The third NIOC LNG project is making far slower headway.

Govt. mulls open bidding for gas pipeline projects

October 11, 2005. The petroleum ministry has drafted a gas pipeline policy that will open up the sector by allowing open bidding for all future pipeline projects. For the first time ever, the government is now mulling over possibilities of doing away with the cost-plus approach adopted hitherto by pipeline companies for calculation of transportation charges. Pipeline companies instead will be allowed to offer competitive rates within a set ceiling. Pipeline transportation charges are important as they constitute up to 40 per cent of the gas costs in some cases. The policy proposal provides for the regulator to set a ceiling rate for transportation charges. Companies will be free to offer rates at different levels as long as it is under the ceiling. The proposed ceiling rate will be calculated so as to discourage profiteering.

This principle of allowing free competition within ceilings has been drawn from the power sector, where the regulator sets the maximum ceiling for rates, and companies can offer any rate within the limit. The policy seeks to bring in competition by totally liberalising the sector, hitherto dominated by PSU monopolies. It will cover cross-country pipeline operators and city gas distribution companies. The policy is being brought in as several investors have been awaiting a clear policy guideline in this regard. Currently, most gas pipelines are being built only by Gail. Although the government has okayed Reliance’s plan to set up a gas pipeline, lack of policy direction has deterred interested players from coming in. The open-bid mechanism proposed in this policy will allow interested companies to propose and participate in pipeline projects. 

Romania to explore energy ties with India

October 11, 2005. A Romanian delegation, which includes 12 oil and power company representatives, will explore cooperation in several sectors including energy, automotives, heavy machinery, pharamaceuticals and real estate. The representatives of oil and power will follow-up the discussions they had with Indian companies during their meetings earlier in the year. And will also have meetings with officials from ONGC, IOC, GAIL and EIL. The two countries recently had extensive discussions for cooperation in energy and defence as they both felt that there was tremendous scope for cooperation in these sectors. Mr Aiyar visited Bucharest a few months back and four MoUs were signed in the hydrocarbon sector.

Gas in Gujarat under ST burden 

October 11, 2005. Major corporates in Gujarat including Reliance Industries, Essar Oil, Sanghi Industries, Nirma and Arvind Mills will have to together cough up close to Rs 5,000 crore ($1.12 bn) as sales tax and penalty, with the Gujarat sales tax department cancelling its earlier circular giving 12 per cent tax set off with retrospective effect and initiating procedure of recovering the sales tax. The set off was given to companies in the business of buying or selling natural gas and light diesel oil to be used as feedstock. While no sales tax was paid on the gas as companies showed it as a consumable product, which did not attract sales tax. The move of Gujarat sales tax department is in lines with the Supreme Court order stating that fuel used by the industries cannot be considered as consumable goods.



Centre allots captive coal mine to APGenco

October 18, 2005. The Union coal ministry has allotted the first captive coal mine block in Singareni to the Andhra Pradesh Power Generation Corporation. The Tadicherla block, which is estimated to have 50 mt of coal reserves, had been taken out from the open bidding route with an intension to award it to the state-owned company.  APGenco had applied for this block to meet the requirements of a 500 MW second thermal unit proposed at Bhupalapalli in Warangal district. The first 500 MW unit, which is in the pipeline, has received the coal linkage from the state-owned Singareni Collieries Company Limited (SCCL). The Tadicherla block will be sufficient to run a 500 MW unit for 25 years. Recently a team of a UK-based firm approached the Andhra Pradesh government and offered to undertake mining in Tadicherla block for APGenco at a much lower cost than by SCCL. The opencast mining in this block is to cost relatively higher due to the presence of huge overburden. Originally, seven coal blocks in Singareni coalfields were identified for privatisation for the captive mining purposes but subsequently, the number was brought down to five. Tadicherla is considered the best among the rest of the coal blocks identified for captive mining.

Transmission / Distribution / Trade

MahaTransco may bid for WR transmission

October 15, 2005. The Maharashtra State Electricity Transmission (MahaTransco) proposes to participate in the bidding for the Rs 5,000-crore ($1.12 bn) strengthening of the western region (WR) transmission system. Private sector players, like Reliance Energy Ltd, Tata Power Company, Kalpa-taru Power Transmission, may also participate in the proposed bidding process to be launched by state-run PowerGrid. According to the Central Electricity Regulatory Commission, PowerGrid would invest Rs 2,928 crore ($654 mn) in two segments of the proposed WR transmission system. However, CERC has asked for bids to be invited for joint venture participation for the other two segments. MahaTransco plans to focus on regional strengthening in southern Maharashtra, which comprises Parali-Pune 400 kV double circuit (DC), Pune-Aurangabad 400 kV DC, Parli-Pandharpur 400 kV DC, Pandharpur-Kolhapur 400 kV DC.

Bhel bags orders from Jindal

October 13, 2005. Bharat Heavy Electricals Ltd has bagged orders totaling Rs 82 crore ($18 mn) from Jindal group companies to supply transformers. Jindal Stainless Ltd, Gurgaon has placed an order to supply transformers for their 250 MW power plant in Orissa. The order is to be completed within eight months. Jindal Power Ltd, Delhi has placed an order for its 500 MW power plant in Chhatisgarh. The order has to be completed in a tight schedule by April 2007. The third order has been placed by Jindal Steel And Power Ltd, Raigarh for supply of generator transformers by July 2006. The equipment for all the projects will be manufactured and supplied by Bhel's Bhopal and Jhansi facilities.

Essar plans power trading foray

October 12, 2005. Essar Electric Power Development Corporation Ltd, an Essar Group company, has approached Central Electricity Regulatory Commission for a category 'C' license to undertake 200-500 million units of inter-state trading a year. The company has a net worth of Rs 7.67 crore ($1.72 mn), slightly higher than the Rs 7.5 crore ($1.68 mn) net worth stipulated by the power regulator for a category 'C' license. If approved, EEPDCL would be only the second firm after state-run MMTC Ltd with a category 'C' license. So far, 17 companies have received trading licenses of which 10 have a category 'A' license which is for trading only 100 million units of electricity in a year. Only five companies - Tata Power Trading, Reliance Energy Trading, NTPC Vidyut Vyapar Nigam Ltd, PTC India and Adani Exports - have a category 'F' license which allows trading of more than 1000 million units of electricity in a year. 

Policy / Performance

ONGC, BP in energy talks

October 17, 2005. ONGC is in talks with BP Plc for setting up a coal gassification project, and renewable energies including wind energy and biofuels. Last year, the company’s move to take up coal gassification projects jointly with Coal India (CIL) had suffered a setback as the CIL’s board has expressed reservations in undertaking such ventures as per terms specified by ONGC in its draft proposal. In September 2005, however ONGC commissioned two pilot projects for UCG - one in coal and another in lignite. An MoU was entered by ONGC with the public-sector Neyveli Lignite in September 2005 regarding the same. The Union Ministry of Coal has also allowed CIL to take up an underground coal gasification project jointly with ONGC by using Russian technology. This will now help CIL sign a formal MoU with ONGC, although the CIL board has already approved ONGC's proposal. CIL would begin with a pilot project for ascertaining whether the Russian technology works in Indian geo-mining conditions. A 50:50 joint venture company would be promoted, subject to the successful implementation of the pilot project.

Institutions to raise $112 mn more for RGPPL 

October 17, 2005. A consortium of financial institutions (FIs), which have invested in the Ratnagiri Gas and Power Pvt Ltd (RGPPL) which took over the assets of the erstwhile Dabhol Power Co earlier this month, is likely to bring in a few more lenders to raise an additional Rs 400-500 crore ($89- $112 mn) for RGPPL. Of the Rs 10,338 crore ($2.3 bn) that was assessed by Rothschilds as the value of the Dabhol plant, RGPPL has already spent Rs 7,012 crore ($1.6 bn)– borrowed from institutional investors – to acquire the 2,184 MW capacity plant at Guhaghar. While the power plant itself is fully functional, the LNG terminals are yet to be completed. Of the three LNG terminals, one is complete, but the other two are in different stages of development. Again, while the jetty for birthing LNG tankers is about 70 per cent complete, the breakwater facility is said to be only around 30 per cent complete. The lenders have estimated that the cost of completing these structures, combined with the cost of replacement and repair of machinery already installed, would be in the range of Rs 900-1,200 crore ($201-$268 mn). The interest component during construction, on the other hand, is expected to be around Rs 700 crore ($156 mn). Besides, the new entity, RGPPL, has to pay for the cost of preservation of the plant over the past three years, estimated at Rs 170 crore ($38 mn).

MahaGenco to seek carbon credit from WB

October 15, 2005. The Maharashtra State Power Generation Co (MahaGenco) has roped in The Energy and Resources Institute (Teri) to prepare a roadmap for seeking carbon credit from the World Bank and Japan Carbon Fund. It proposes to avail the carbon credit facility for its thermal power plants situated across the state by carrying out their renewal and modernisation (R&M). MahaGenco runs over 7,300 MW of coal-based power projects in the state. Initially, the company plans to seek carbon credit for its Koradi plant with two generation units of 125 MW each. The company by implementing the R&M of Koradi plant can get carbon credit of Rs 4.5 crore ($1 mn) from 2007 onward for next 10 years. The company would also undertake R&M of Koradi’s third and fourth units with generation capacity of 120 MW each. This would be followed by R&M of Nashik plant’s two units.

Centre mulls fresh tariff-setting 

October 13, 2005. The Government is considering a proposal to unburden paying consumers (those in the billing net of utilities) from shouldering the entire quantum of the annual electricity tariff hikes.  Till now, State Electricity Boards and private distribution utilities across the country follow the practice of loading their entire transmission and distribution (T&D) losses on their paying consumers, with the result that they are made to shell out money for those who are out of the utility's billing net as well as for the transmission losses and other inefficiencies of the utility. The move follows a Parliamentary Standing Committee report submitted to the Government that asks the Centre to make changes to the legislative framework to ensure that the entire burden of retail tariff hikes is not passed on to the honest consumers. Among the options under consideration, there could be an upper limit on the revenues that distribution utilities can raise from their existing customer base during the annual tariff revisions process. This could make it binding on the utility to expand its customer base and bring defaulters into the billing list, thereby spreading out the burden of the tariff hike over a larger base and bringing down the effective tariff burden on the paying customers.

As per the present practice, distribution utilities forward an estimate of their expenses and projected revenues in a petition called the Annual Revenue Requirement (ARR) to the State Electricity Regulators, which forms the basis for the tariff hike. The regulator then ratifies the estimates forwarded by the utility and divides the revenue gap (that between projected revenue and expenses) over the number of paying customers, since the non-paying customers are out of the billing net. With losses in the range of 30-50 per cent for most utilities, the effective tariff burden nearly doubles for the paying customers, while those stealing power get away without paying anything. The Parliamentary Standing Committee on Energy had expressed concern over the practice of tariff setting. In the Ninth report to the Government in August on power reforms, the Committee said the present practice of making honest customers pay for T&D losses of the utility was "unfair" and that the extant system of billing would not encourage distribution utilities to reduce their losses as in any case they were assured of their returns by loading the losses on the honest consumers.

Draft power policy seeks fixed formula for surcharge

October 12, 2005. The draft power tariff policy being discussed by the committee of secretaries has proposed a fixed formula to calculate cross-subsidy surcharge and surcharge for open access. Regulators view that such a proposal will be detrimental to promoting competition and have suggested that the method of fixing surcharge be left to the regulators. Besides the objections raised by the regulators, there appears to be a divergence of views on the computation of the surcharge between the power and finance ministry, on the one hand and the Planning Commission, on the other. The national electricity policy states that the amount of cross-subsidy surcharge and additional surcharge to be levied on consumers allowed to avail of open access should not be so high that competition in the generation and supply of power is eliminated. The power ministry’s proposal defines surcharge as a difference between the tariff levied on the category of consumers opting for open access and the cost of distribution incurred in supplying power to the same class of consumers. The ministry suggests that the cost of supplying power to the consumer will be calculated as a difference between the average of the cost of power from the top 5 sources and the distribution charges determined on the principles laid down for intra-state transmission charges. This will not include power generated from liquid fuel or renewables — essentially this means the cost of buying power from the top (as per cost) hydro and thermal stations. The Planning Commission finds this system to be “conceptually incorrect”, and has suggested using the marginal cost method. This means that surcharge will be determined by taking into account the average cost of buying power for a utility and cost of delivering power to consumers opting for open access. Regulators say that neither system is acceptable. As far as the method of determining surcharge is concerned, chairmen of various state and central regulatory commissions had agreed to use the avoided-cost method to determine it.

Competitive bids for coal block auctions put off

October 13, 2005. The coal ministry has deferred introducing competitive bidding for the auction of coal blocks and has invited applications for 20 coal and eight lignite blocks for captive mining. The applications would be processed through the screening committee route, which was currently being followed. The coal ministry has set October 31 as the last date for submitting applications for 28 blocks with over 2,395 mt of coal and 816.37 mt of lignite reserves in Jharkhand, Andhra Pradesh, Madhya Pradesh, Maharashtra, West Bengal, Tamil Nadu, Rajasthan and Jammu & Kashmir. The process for introducing competitive bidding had reached an advance stage with a Cabinet note on the issue being finalised and a bidding document drafted. The coal ministry had planned a two-stage bidding process to replace the screening committee route. According to the draft, companies have to pledge annual production-linked payments (PL) to the government. The bidder will be required to quote a percentage of coal produced from a captive block year-wise, to be shared with the government for the entire mine life. 

M’shtra may become power surplus state  

October 11, 2005. Maharashtra may join the power surplus states club in five years if everything goes as per schedule. The state government, which has inked an MoU for the capacity addition of 12,500 MW, has already received detailed project reports (DPRs) from Tata Power Company (TPC), Reliance Energy Ltd (REL), Ispat and Jindal for their plans to set up projects in the state. However, Ispat for its 2,000 MW coal-based project in Vidarbha region, Essar for its 1,000 MW thermal project, GMR for its 1,000 MW project and Spectrum Technologies of US for its 500 MW project have yet to submit their DPRs.

TPC, which has the generation capacity of over 1,850 MW, has planned coal-based 1,000 MW project at Vile, Raigad and also got environment clearance from the environment and forests ministry. The company has also proposed 1,000 MW of coal-based project at Bhal, Raigad. It would also repower the existing unit at its Trombay plant site. REL has proposed a 4,000-MW gas-based project near Patalganga, Raigad district. The company plans to seek gas linkage from Reliance Industries and other suppliers in the market. Jindal has also submitted DPR for its 1,000 MW coal-based in Jaigarh, Ratnagiri district.




CNPC, Kazakhs reach agreement on PetroKaz

October 17, 2005. China's CNPC had agreed to transfer a stake in Canadian oil firm PetroKazakhstan to Kazakhstan's state oil company, paving the way for CNPC's $4 bn PetroKaz takeover. Kazakhstan had said it opposed the CNPC takeover because PetroKazakhstan did not inform it about the deal and because it wanted control over some of PetroKazakhstan's assets, including the Shymkent oil refinery - one of only three in Kazakhstan.

Japex to invest $48 mn in Libya 

October 15, 2005. Japan Petroleum Exploration Co. (Japex) plans to invest 5.5 bn yen ($48 mn) in oil and gas exploration in Libya over five years. Japex expects to start exploring two blocks in Opec member country Libya in late November. The Japanese exploration and development company won the offshore and onshore blocks via the second post-sanctions international licensing round for the North African country in early October. Japanese companies, including Mitsubishi Corp and Inpec Corp, won the biggest share of the licensing round which earned Tripoli $103 mn in signature bonuses.

US Sept oil production lowest since World War II

October 14, 2005. US crude oil production in September fell to the lowest monthly level since during World War II as hurricanes Katrina and Rita disrupted oil output in the Gulf of Mexico. September oil production averaged 4.19 mbpd, the lowest level since July 1943, when 4.11 mbpd was produced. It was the first time monthly output fell below 5 mbpd since April 1950. Meantime, oil slipped as a European Central Banker warned high prices were to stay and the US’ trade deficit widened to its third highest level on the rising cost of oil imports. With the world’s oil producers at full stretch and refiners around the globe running at full tilt, prices for crude oil, heating oil and gasoline are near levels unseen in real terms for a quarter of a century.

Chevron & Gazprom develop gas field

October 14, 2005. Gazprom and Chevron discussed the U.S. Company's proposals on the development of the Shtokman natural gas field. They also discussed joint LNG production and the use of Chevron regasification capacities in the United States. The Gazprom-operated Shtokman natural gas field is located in the Russian sector of the Barents Sea and is estimated to contain 3.2 trillion cu m of natural gas. Chevron is on the Gazprom shortlist of potential partners for the Shtokman field development.

Gazprom 547 bcm record production in ‘05

October 14, 2005. Gazprom's expects the record production level of 547 bc m of natural gas in 2005. This volume of production would fully meet both domestic and foreign demand. Gas exports will reach 147 bcm, a record high for Russia and Europe. Gazprom's Investment and Construction Department, had previously said that an increase of 568.7 bc m in the company's gas reserves was expected in 2005, and 550.8 bcm in 2007. Gazprom plans to produce 580-590 bn cu ms of gas by 2020 and 610-630 bn by 2030. Gazprom's main investment projects will be the Zapolyarnoye and the Pestsevoye fields and the Aneryakhinskaya and Kharvutinskaya deposits of the Yamburg field.

BP to spend $2.2 bn on U.S. gas field

October 13, 2005. Oil major BP planned to invest up to $2.2 bn to double production from its part of the Wamsutter gas field in the Rocky Mountain region of the United States. The project, which involves drilling about 2,000 wells, is part of a $15 bn BP programme to develop its North American operations. The drilling is expected to raise BP's share of recovered oil equivalent by 450 mn barrels and increase its daily net production to 250 mn standard cubic feet per day from 125 mn by the end of the decade.

Pioneer Gulf of Mexico block discovery

October 13, 2005. Pioneer Natural Resources Company discovered on its Clipper prospect in the Green Canyon 299 Block in the deepwater Gulf of Mexico. Pioneer operates the block with a 55 per cent working interest. The block is included in Pioneer's deepwater Gulf of Mexico divestment program, which includes existing production from Canyon Express, Devils Tower and the Falcon Corridor, discoveries under development at Ozona Deep and Thunder Hawk, and ninety exploration blocks. Pioneer plans to open the divestment data room during the week of October. The Company is being advised by Randall & Dewey on its deepwater Gulf of Mexico sale and the sale is expected to close around year-end 2005.

Alaskan producers to increase production

October 13, 2005. North Slope oil producers will increase production by about 10,000 barrels per day over the next few weeks in response to a request by Alaska Gov. to supply additional oil in the wake of hurricane-related cutbacks in the Gulf of Mexico supply. Much of the increase is a result of accelerated work on previously planned projects. BP Exploration (Alaska) Inc. will be able to increase production from wells in the Niakuk and Northstar fields due to accelerated well workovers and increased injection of fluids in reservoirs to stimulate production. ConocoPhillips Alaska Inc. will be able to increase production from the Kuparuk River and Alpine fields.

Kenya in talks with China's CNOOC oil exploration     

October 13, 2005. Kenya is negotiating with Chinese oil company CNOOC to kick-start fresh exploration of natural gas and oil explorations along the coastal strip of Lamu, which is believed to posses massive oil deposits. An agreement with CNOOC Ltd to prospect for oil and gas in six blocks in the north and south of the country was in the making. CNOOC is China's top offshore oil producer. Kenya is a net importer of oil, which accounted for 22.5 per cent of total imports in the year to June 2005.

Energem Resources wins exploration block in Mali & Nigeria

October 13, 2005. Energem Resources Inc., won exploration block interests in Mali and Nigeria. Mali Blocks 12 and 13 require minimum commitments for seismic surveys, geological work, and drilling of $11.6 mn for Block 12 and $12.1 mn for Block 13. The blocks nearly cover the Nara Trough northeast of Bamako. Energem also acquired 10-year licenses to blocks OPL 905, 722, 733, 809, and 810 off Nigeria. Energem signed a technical operating partnership with Gas Transmission & Power Ltd. of Nigeria on OPL 905, with resulting interests of GTPL 60 per cent and Energem 40 per cent. New Nigerian Development Co. Ltd. of Nigeria came in for a 10 per cent carried interest on the remaining Nigerian blocks and may elect to increase this to a 15 per cent paid interest.

Egypt offers 13 blocks for auction

October 13, 2005. State-owned Egyptian General Petro-leum Corporation (EGPC) was offering for auction 13 exploration blocks in the Gulf of Suez and the Eastern and Western Deserts. Bids should be submitted by February 13, 2006. Egypt's crude oil production was 575,000 bpd in September and natural gas output was 4.87 bcf (137.9 mn cubic metres) per day. At the start of this year, Egypt began exports of LNG.

Note: The details about the auction would be available from October 16 on the company's website

Lukoil signs with PDVSA to study reserves

October 12, 2005. Lukoil has signed an agreement with PDVSA to do research on the reserve capacity of the Junin-3 block, located in the Orinoco oil belt. The agreement is valid for three years. The negotiations between the parties will commence under the auspices of the Ministry of Energy and Petroleum of Venezuela with the aim of formulating and establishing a joint project to develop the Junin-3 Block.

Dragon finds oil with offshore Turkmenistan     

October 12, 2005. Dragon reports that well LAM 10/111 on the refurbished LAM 10 platform in the Cheleken Contract Area, offshore Turkmenistan, has tested oil from Zones 4, 5 and 6 at a combined rate of 2,586 bpd of oil. Well 10/111 was spudded and drilled to a total depth of 3,544m MD (measured depth) in reservoir Zone 7. The well was successfully completed using dual completion which enables two reservoir intervals, at different reservoir pressures, to be produced simultaneously. This is the first time that Dragon has used dual completion technology. Reservoir Zones 4 (lower part), 5 and 6 were produced through the lower completion string and tested at a rate of 1,506 bpd. The upper part of reservoir Zone 4 was produced through the upper completion string and tested at a rate of 1,080 bpd. Both intervals will be produced together.

New Zealand preparing for oil & gas boom

October 12, 2005. New Zealand is getting ready for an oil and gasfield boom. Already the $1 bn Pohokura gasfield development project is under way, and the development of three other offshore fields - Kupe off the south Taranaki coast and Tui and Maari adjacent to the Maui field off south-west Taranaki - begins in the next three months. Final investment decisions sanctioning the development of all three fields are imminent, with "first oil" expected to flow from them in 2007. Also expected is a final investment decision on development of the Tui oil field, expected to cost at least $300 mn. That these decisions are almost certain to be made is underlined by the fact that a big offshore rig has already been contracted to drill the production wells.

CNOOC made new discovery in Bohai Bay

October 12, 2005. CNOOC Limited has achieved a new discovery, Luda (LD) 27-1, in Bohai Bay. Discovery well LD 27-1-1 is an independent wildcat spudded this July. The well was drilled in 16 meters of water to a total depth of 2772 meters. LD 27-1-1 encountered 34 meters of oil pay in 7 pay zones. The well was tested to flow 179 bpd of oil from three intervals 1170-1180, 1261-1267, 2691-2696 metres during drill stem tests. CNOOC limited acts as the operator and holds 100 per cent interest of the discovery.

BP holds talks on stake in Sinopec 

October 11, 2005. Britain’s BP Plc has held talks with Chinese officials about a partnership with Sinopec Corp that could see BP take a major stake in China’s largest oil refiner. The deal would be as ambitious in scope as BP’s 2003 partnership with Russia’s TNK. Negotiations will focus on what stake in Sinopec, BP will receive in return for injecting assets — presumably oil or gas fields — and expertise into a joint venture. China is the world’s second-largest oil consumer and one of the fastest-growing markets for energy and petrochemicals. The Chinese energy market is also dominated by state-controlled oil firms, and its growing importance poses a strategic threat to the western major oil companies, whose strength has been based partly on unrivaled access to the world’s biggest energy markets.

Chevron wins exploration rights in Vietnam

October 11, 2005. U.S. oil giant Chevron Corp has won the right to explore an oil block in the Phu Khanh Basin, off the coast of central Vietnam. Chevron will hold 50 per cent equity in the Block 122, which covers an area of 6,981 square kilometers. The remaining equity belongs to Malaysia's Petronas Carigali. India's Oil and Natural Gas Corp. Ltd. (ONGC) also won another block in the Phu Khanh Basin, Block 127, which has been estimated to hold potential oil reserves of more than 1 bn barrels. Phu Khanh Basin is a deep-water basin located along the southern coastline of the Southeast Asian country with water depths from 50 metres to 2,500 metres and thick sediment of up to 8,000 metres. State oil monopoly Petrovietnam, preliminary studies showed the basin, held probable oil and gas reserves of 1.5-2 bn barrels of oil equivalent.

Canoro awarded new exploration block in NE India

October 11, 2005. Canoro Resources Ltd., by the Government of India, awarded of the AA-ONN-2003/2 onshore exploration block. This block in Arunachal Pradesh, northeast India, was awarded to Canoro (30per cent) and its consortium partners National Thermal Power Corporation - 40per cent and Geopetrol International Inc. (Geopetrol) - 30per cent and Operator). This was the only block Canoro bid on under India's fifth round of New Exploration Licensing Policy (NELP V). The 295-km2 block is 2.5 km from the producing Kharsang oil field, which Geopetrol jointly operates, and approximately 150 km northeast of Canoro's exploration and development blocks in Assam. No wells have been drilled on the block and there is limited seismic coverage over the area.

The block has an initial seven-year exploratory period, broken into three phases, followed by a 20-year production term for any commercial discoveries. There is a possibility for a five-year extension. The first exploratory phase includes a minimum work commitment of 200 km of 2-D seismic acquisition, 100 km2 of 3-D seismic acquisition and seven exploration wells of varying depths between 2,000 and 4,000 meters over the next three years. Phases two and three, each two years in duration, have additional seismic and drilling commitments.


Abu Dhabi plans $4bn oil refinery

October 18, 2005. The Abu Dhabi Oil Refining Company (Takreer) plans to build an oil refinery in Fujairah with an investment of $4 bn. The refinery, designed to process high-grade petrol, diesel and related products, will have a capacity of 300,000 barrels per day. Takreer chose Fujairah for its convenient location and also because it wanted a major refinery far away from Abu Dhabi, primarily as a safety back-up that might eventually even replace the existing refineries in the future. Takreer currently has a total refining capacity of 500,000bpd.

Oklahoma refinery to be expanded

October 17, 2005. Wynnewood Refining Co. will upgrade and expand the capacity of a refinery in Oklahoma. WRC, a unit of Denver's Gary-Williams Energy Corp., will boost capacity of the plant in Wynnewood, Okla., from 55,000 barrels per day to 70,000 barrels per day. The company also will upgrade the plant so it can process heavy, high-sulfur crude oil. Koch Partners LP, received an engineering, procurement, and construction contract to design and build the facilities, which will include a new crude oil distillation unit and related facilities and a new diesel hydro desulfurization unit.

Alberta plans $7 bn refinery

October 13, 2005. The Alberta government and 16 industry sponsors are looking at building a giant, $7-bn refinery complex near Edmonton, the first in North America in a quarter century. The group, led by Alberta Economic Development, is getting down to the finer details of an ambitious strategy that started two years ago and could lead to a 300,000 barrels-a-day refinery and petrochemical complex that could be in operation as early as 2012. The refinery would be the largest in Canada. It would be expandable to 450,000 barrels per day, putting it on par with the giant refineries of the U.S. Gulf Coast.

Exxon Mobil to spend $571 mn for refineries

October 11, 2005. Exxon Mobil Corp. will spend $571 mn to install pollution-reduction equipment on seven U.S. refineries in a settlement with the U.S. government. In the settlement, Texas-based Exxon Mobil, the world's largest publicly traded Oil Company, will also pay an $8.7 mn civil penalty and spend $9.7 mn on community environmental projects. Exxon Mobil agreed to install equipment on refineries in five states to cut emissions of sulfur dioxide and nitrogen oxides by 75 per cent in coming years.

Those pollutants are linked with acid rain, smog and asthma. The settlement is for alleged violations of the "New Source Review" section of the Clean Air Act, which requires refineries and utilities to install pollution-reduction equipment when they upgrade and expand their facilities.

Transportation / Distribution / Trade

PGN signs gas pipeline contract

October 17, 2005. PT Perusahaan Gas Negara (PGN) has signed an engineering, procurement and construction (EPC) contract with Nippon Steel Corp (NSC) in cooperation with Tomen Corp to build a 105 km pipeline from Labuhan Maringgai in south Sumatra to Java's westernmost town of Cilegon.

The project is the offshore segment of the South Sumatra West Java (SSWJ) Phase I project. Nippon Steel will perform such tasks as engineering, material procurement and physical sub-sea pipeline construction, which will commence in February 2006. Commercial operation of the SSWJ Phase I project can get underway in March 2007. The pipeline can deliver gas with a daily maximum capacity of 600 mmscfd.

GE to build five LNG trains in Qatar

October 16, 2005. GE’s oil and gas business unit signed an agreement in December 2004 with Qatar Petroleum Group for the supply of equipment and services, recently received orders to build five additional GE-designed LNG (LNG) super-trains. This agreement follows the announcement made in February 2004 for GE to supplying the first "super-train" (the first compressor train to be driven by GE Frame 9E gas turbines) for the Qatar gas II LNG project located in Ras Laffan Industrial City. Under these major new orders, GE's oil and gas business unit will provide three Frame 9E gas turbines and six centrifugal compressors for each super-train.

Canada to export 450,000 bpd of oil in 6 yrs

October 16, 2005. Canada could export up to 450,000 barrels per day of crude oil to China from northern Alberta's oil sands in the coming six years. China's president expressed interest in Canada's oil sands in talks earlier in the day.

UK & Australia race for legal advisors to IPP

October 16, 2005. British and Australian legal firms seem to be the main contenders for appointment as legal advisors for the Iran-Pakistan-India gas pipeline project. There has been no response from any Indian legal firm to the global tender floated for the purpose. A high-level committee constituted by the Ministry of Petroleum and Natural Gas comprising, GAIL (India) Ltd, IOC and a senior official from the Ministry is monitoring the selection and appointment of financial, technical and legal advisors for the project.  Stringent conditions have been laid down for bidders to be nominated as legal advisors, including the stipulation that the legal firm should have worked on at least one trans-national pipeline project and one LNG project.

Recently, Ernst & Young (E&Y) was nominated as the financial advisor for the pipeline project. While IOC was mandated to make an offer for the appointment of a financial advisor, GAIL has been asked to tender for appointing technical and legal advisors. The financial advisor shall lead the consortium of advisors and act as the lead advisor. The legal advisor will help in drafting and negotiating various inter-state and state-level agreements. This will include MoU between the heads of the states (Iran, Pakistan and India), and the inter-governmental agreement between the three nations to facilitate the realisation of the project within the territories of these countries. The legal advisor will also guide the governments on protection of investment and trade. The appointed entity will also help in formulating the clutch of government agreements to be entered into separately by India, Iran and Pakistan with the project investors to deal with the requirements of each host country individually and the project activity within each country. The major scope of work for the technical advisor shall be to recommend the route, safety and security aspects, the optimum cost of the project, the transportation tariff and the technical specifications of the pipelines. India signed an agreement with Iran in May to purchase 7.5 mt of CNG. India and Pakistan expect the pipeline to be laid by 2010.

Williams to transport Blind Faith oil, gas

October 14, 2005. Williams Cos. Inc., Tulsa based has signed an agreement to transport oil and gas produced for the life of the leases in Blind Faith field on Mississippi Canyon Blocks 695 and 696 in the deepwater Gulf of Mexico. Chevron Corp. operates the field with a 62.5 per cent working interest, and Kerr-McGee Corp. holds 37.5per cent. Under terms of one agreement, Williams will spend $177 mn to extend its Canyon Chief and Mountaineer pipelines, which were placed in service in May 2004 to handle production from Devils Tower field on Mississippi Canyon Block 773. The pipelines will be extended 37 miles each to handle production from Blind Faith and the surrounding blocks. The extensions are expected to be complete by mid-2007. Blind Faith field, which has an estimated gross resource potential exceeding 100 mn boe, is expected to initially produce 30,000 bpd of oil and 30 mmcfd of gas in the first half of 2008.

Peru looking for gas plant builder

October 14, 2005. Peru's liquid natural gas consortium was ready to award a contract for the construction of LNG plant in southern Peru. The engineering procurement construction could go to one of three companies worldwide capable of handling the project. The projected start date for construction of the project $2 bn plant would be some time in the first quarter of 2006.  The plant's LNG would then be shipped to Mexico and the west coast of the United States, with a projected production date in 2009.

Petro-Canada eyeing potential LNG in Russia  

October 13, 2005. Canadian oil company Petro-Canada considers the port of Primorsk to be a better location for a LNG plant than the Ust-Luga port. Primorsk looks more suitable due to its infrastructure and also the water depth in the port. Total investment in this Gazprom project would amount to $1.5 bn. In about six months Petro-Canada and Gazprom plan to start to implement the second phase of the project, which will include preparing technical and commercial details for the construction of the plant and accompanying infrastructure. A decision will also be reached on the required size for ships to supply LNG to the East Coast of North America and a more detailed estimate of expenditure will be calculated. Petro-Canada is interested in taking part in upstream projects in Russia. The company has a lot of experience of working in the north of Canada, which has similar climatic conditions to Russia. The company is ready for cooperation from a technical, strategic and financial point of view. The company wants to complete the LNG plant project and then consider other possibilities. Gazprom and Petro-Canada signed a MoU in October 2004. They intended to examine the possibility of supplying LNG produced at a plant in Russia's Leningrad region to the North American market by 2009.

Expro North wins contracts from Petro-Canada     

October 13, 2005. Expro North Sea Limited has been awarded a major three-year contract for the supply of offshore production and maintenance personnel and expertise to Petro-Canada Netherlands BV.  Petro-Canada was recently required to re-tender the contract in light of a significant increase in the scope and value of the work as a result of the De Ruyter development coming onstream in the second half of 2006. In this contract, Expro will be working in partnership with UTS Energy who will provide maintenance personnel.

India to get 0.1 mbpd Sakhalin oil from ‘07     

October 12, 2005. India will get 100,000 barrels of oil per day beginning 2007 from Sakhalin-I oil and gas fields in Far East Russia and will recover its 2.7 bn dollar investment in less than three years time. The Sakhalin-I fields, where India's ONGC Videsh Ltd has 20 per cent stake, began producing oil and gas earlier this month. OVL had given loans to Rosneft to fund the Russian company's 20 per cent stake in the project, as well as paying for its own 20 per cent share of development costs. India, which imported 76 per cent of its crude oil requirement last year, is seeking stakes in overseas fields such as Sakhalin to feed the nation's 7 per cent annual economic growth. The field would initially produce 23,000 barrels per day of oil and about 58-59m standard cu. ft of gas per day. Oil production would rise to 50,000 barrels per day by April 2006 and hit the peak level of 250,000 barrels per day by 2006 end. Gas production will rise to 200m standard cu. ft per day by next year.

Total spending on Sakhalin-1 has so far exceeded 4 bn US dollars. OVL, the overseas arm of ONGC, purchased a 20 per cent stake in Sakhalin-I project for 1.7 bn dollars in 2001. In November 2003, India had approved 1.1bn dollar of additional investment in Sakhalin-I. ONGC Videsh plans to ship around 7,00,000 barrels of oil from Sakhalin-I fields to India every 70 days from April 2006. This would be India's first shipment of equity crude oil from the Russian fields. The Sakhalin-I field is expected to produce about 12.5m tonnes of oil and 10bn cu.m. of gas annually at its peak production level, of which OVL's share would be 20 per cent, in proportion to its equity. The total production of Sakhalin-I in its 40-year life cycle is estimated at 307m tonnes of oil and 485bn cu.m. of gas. The Sakhalin- I project includes the Chayvo, Odoptu and Arkutun-Dagi fields. Over the 40-year life of the project, plans call for producing 2.3bn barrels of oil and 17 trillion cu. ft of gas.

Bangla govt to build gas pipeline for Tata

October 11, 2005. Bangladesh government has agreed in principle to construct a 30-km pipeline for supplying gas to the Tata Group’s proposed fertiliser plant in Chittagong. The Asian Development Bank (ADB)  will finance the proposed gas pipeline project, whose cost is yet to be determined. The government was also positive about implementing another gas pipeline project to ensure supply of gas to a proposed steel plant of the group. The Tata’s submitted the investment proposal worth $3 bn in April 2005 and have been negotiating fiscal incentives on the investment, gas security, gas price and tariff for purchase of power produced by the company’s plant.

Fluor wins Kashagan construction project

October 11, 2005. Fluor Corporation, Fluor-led joint venture known as North Caspian Constructors (NCC) has been awarded the onshore construction of Kashagan Experimental Program facilities by Agip KCO, a company wholly owned by Eni through Agip Caspian Sea B.V. The value of the contract to Fluor was not disclosed and was booked in the company's second quarter.

Kashagan is the largest oil field discovered in the North Caspian Sea PSA contract area. It is located offshore, about 80 kilometers from Atyrau and extends over a surface of approximately 75 kilometers by 45 kilometers. Kashagan is one of the largest oil fields discovered over the last 30 years. The team will provide management of the onshore construction effort and self-performance of all in-country construction activities for the Onshore Processing Facility, located at Eskene West near Atyrau, which will comprise final oil stabilization and gas processing facilities incorporating sulphur recovery to produce export quality oil and gas as well as elemental sulphur. Construction is due to commence in October 2005 with completion scheduled for September 2008.

Oneok to sell natural gas assets for $528 mn

October 11, 2005. U.S. natural gas distributor Oneok Inc. agreed to sell some Texas natural gas assets to privately held Eagle Rock Energy for $528 mn as it seeks to shed nonstrategic assets. The company plans to use the proceeds from the sale to purchase other assets or to reduce debt. The properties, located in the Texas Panhandle region, include six gas processing plants and 3,700 miles of gas gathering lines. The sale to the Houston-based natural gas provider will generate an after-tax gain of about $162 mn, which will be recorded in the fourth quarter. The deal is expected to close on Dec. 1.

Policy / Performance

Qatar may become gas capital of the world

October 16, 2005. The gas sector in Qatar, notably the LNG industry, is experiencing a steady growth. Plans are under way to export LNG to the US and more European countries, especially the UK. In 2004, contracted LNG exports amounted to nearly 19 mn tonnes per annum (mtpa) heading to clients in Japan, South Korea, India, Italy, and Spain. Still, Qatar Liquefied Gas Co (Qatargas) and Ras Laffan Qatar Liquefied Gas Co (RasGas), the two gas-producing firms, have reached heads of agreements (HoAs) with numerous firms to increase production capacity to about 77 mtpa in 2012.

The state-owned Qatar Petroleum, international oil companies own strategic stakes at both Qatargas and RasGas. Owners had to set up three additional versions of Qatar gas plus two others of RasGas in order to entertain a rise in production. In September, Chiyoda of Japan and Technip of France won a contract worth $3.8 bn (Dh13.94 bn) to build two trains for RasGas III. Each of the two trains is designed to produce 7.8 mtpa of LNG. Japan's Chiyoda and JGC Corporation together with Kellogg Brown & Root (an arm of Halliburton) secured a contract from Royal Dutch/Shell to develop 140,000 bpd plant at Ras Laffan known as Pearl GTL, which is the largest of its kind in the world.

Commissioning of the first production line is scheduled for 2009, with the second in 2010. Total cost of the project is put at a staggering $6 bn. Also, progress is being made in the ambitious Dolphin Gas Project to deliver up to 2 bn cubic feet per day of gas to the UAE via a sub-sea pipeline at the cost of $3.5 bn (Dh12.84 bn). Gas deliver is to start in 2006 with commissioning completed in 2007. Qatari forecast fresh investments of more than $50 bn in the energy sector alone until 2010. Qatar intends to spend a hefty $15 bn to add 70 vessels to its fleet of tankers to export LNG. Qatar controls 14.8 per cent of the proven natural gas reserves in the world after Iran and Russia, which own 15.5 per cent and 30.7 per cent, respectively. But Qatar's North Field is the single largest reservoir of non-associated gas in the world. If the pace of expansion continues, Qatar could overtake Indonesia as the largest supplier of LNG in the world as early as 2007. Clearly, Doha is on its way to become the gas capital of the world.

World Bank to lend $325m to Turkey

October 15, 2005. The World Bank will lend $325 mn to Turkey for construction of the country's first gas storage facility. The storage capacity will be 1.5 bn cubic metres, and the project, near Salt Lake in the centre of the country, will take seven years to complete. Turkey is unique among large economies in the world with no gas storage capacity at all. Most countries run between 10-20 per cent of their annual gas consumption in storage. A gas storage facility will help stabilise gas prices and also the country's energy security. Turkey buys most of its gas from Russia and also Iran, which has interrupted gas flow during winter months in the past when its own consumption peaked.

Russia can improve oil quality to raise prices on world mkt

October 14, 2005. Russia can improve the quality of oil to up its prices on the world market. The department of state tariff regulation and infrastructure reforms, it said that the system of tax allowance should be used to boost oil production and refining. The high-sulfur crude producers could be given allowances for mineral extraction tax (MET) for a certain period. In this case, oil companies will have to use saved funds to upgrade production or create petrochemical refineries. The ministry proposed making a single list of oil provinces, especially in East Siberia and on the Arctic shelf that would be granted MET allowances. The government adopts a relevant resolution, it will help prevent local officials from abusing their power. The list should include oil provinces, not oil fields, so that it is not constantly supplemented with new fields.

EU calls for investment in oil sector

October 13, 2005. The European Commission called on the oil industry to plough the bumper profits earned from high oil prices back into investment to boost production and refining capacity. 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 big investments in refining because such outlays were deemed to be unprofitable until the recent jump in crude prices starting 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 sulphur content crude, analysts have sounded alarm bells about the lack of refining infrastructure in big consuming countries that can handle heavy, sour or high sulphur content crudes that are particularly abundant in Saudi Arabia. The present profits of the oil companies resulting from present price levels need to be used as an opportunity to ensure that bottlenecks in refining capacity do not develop in the future.

No lasting damage to growth of oil demand: IEA 

October 11, 2005. Global oil demand growth is set to rebound next year after a dip in 2005 when hurricanes knocked out US rigs and refineries and sent prices to record highs. At the same time supplies from countries outside the Organisation of the Petroleum Exporting Countries (OPEC) will sink to a six-year low this year, the International Energy Agency (IEA) said in its monthly Oil Market Report. The Paris-based agency, energy adviser to 26 industrialised nations, slashed non-OPEC supply growth by 330,000 bpd to 170,000 bpd this year, but anticipated a recovery to 1.3 mbpd in 2006. OPEC, which pumped 29.8 mbpd in September, has less than 2 mbpd in reserve. Much of that oil is heavy and high in sulphur, making it hard for some refiners to process. Investment by OPEC could boost the cartel’s sustainable production capacity by 500,000 bpd by the end of the year and further in 2006.  Production outages in the U.S. Gulf have meanwhile boosted the requirement for OPEC oil by 800,000 bpd to 29.9 mbpd in the fourth quarter. The call on OPEC oil this year and next has been raised by 300,000 bpd to an average 28.4 mbpd. The IEA trimmed 2005 global oil demand growth by 90,000 bpd to 1.26 mbpd on the 83.4 mbpd world market. It expected a rebound to 1.75 mbpd next year following the “largely temporary impact” from the hurricanes and a recovery in Chinese demand. The storms ultimately could cause losses of 140 mn barrels of crude and 163 mn barrels of product to December. IEA said world oil markets were still capable of covering supply shortfalls, with added flexibility offered by its emergency reserves release.



Bangladesh power plans in trouble

October 18, 2005. The government’s desperate measures to allow setting up small power plants (SPP) with a capacity to produce electricity between 10MW and 50MW in the private sector to shore up the worsening power shortage has reportedly run into trouble. There was no provision in the government’s 20-year Power System Master Plan (PSMP) for installing small power plants in the private sector. But to generate more electricity quickly meeting the country’s current 1,000 MW deficit between the peak hour demand and supply, it was allowed as a ‘quick fix’ measure as part of crisis management. The World Bank in connection with the disbursement of the third installment of its development support credit (DSC) questioned the government’s selection process of the parties to install the plants and the purchase policy of buying electricity from the successful producers.

The frequent power shutdowns that dogged the government since it took over the reign have been depriving the nation of two per cent growth of its gross domestic product (GDP) annually. At least twice it cancelled the establishment of two power projects with combined capacity to produce about 600 MW electricity. These two cancelled power projects were to go into steam by late 2006 or early 2007. The authorities initially decided to allow 23 SPPs installed in the private sector but strong lobbies by the vested interest groups forced it to raise it to 49 in no time, which the WB found to be the result of political interference and nepotism. About 350 entrepreneurs have applied for setting up the power plants and the selection process is unlikely to be completed by December next. Bangladesh need to take immediate corrective measures to steady the project, add between 1,000MW and 1,500MW of electricity generating capacity at the quickest possible time and ease the power crisis, giving a break to the hapless people.

Transmission / Distribution/Trade

Amec wins $ 298 mn nuclear contract

October 18, 2005. Amec, the UK engineering group, was awarded a £250 mn ($ 298 mn) contract to oversee the expansion of one of the world's biggest nuclear power stations. The contract, which involves investment of £2bn ($ 2.38 bn) to bring two reactors back into service at the giant Bruce station in Canada. The work will takes four years and will increase Bruce's capacity to 6,200 MW enough to supply 4 mn homes or about one-quarter of the electricity consumed by Ontario on a typical day. Bruce, which has a total of eight reactors including the two being brought back into service, was formerly owned by British Energy but was sold to a consortium of Canadian companies in 2003 after the UK nuclear generator hit financial crisis.

Siemens consortium bags Qatar power order

October 14, 2005.  A consortium of Siemens India and Siemens AG, Germany, has received a Rs 1,570 crore ($351 mn) order from Qatar General Electricity and Water Corporation (Kahramaa) to develop a power transmission network in Qatar. It is the largest export order as well as one of the largest orders for Siemens. Kahramaa is the central authority of the government of Qatar for power transmission and water. After a competitive bid, the Siemens consortium won the contract to be executed over a period of 22 months. The turnkey project includes setting up of 16 high-voltage substations of varying voltages – 66 kVs, 132 kVs and 220 kVs – and approximately 600 km of high-voltage cabling. The scope of work also involves modification of three substations. Siemens AG will provide the necessary project management skills and support to India. The work will primarily be in and around the capital of Doha. Siemens’ power T&D division in India provides products, systems and solutions in the area of medium-voltage and high-voltage switchgear, medium-voltage switchboards, high-voltage substations, production systems and substation automation, and power system control and energy management systems.

Policy / Performance

Paris to cooperate with Iran in nuclear power

October 18, 2005. Paris is ready to cooperate with Iran in the production of nuclear electricity. France is aware of Iran’s concerns and its demand to access to nuclear technology for the production of nuclear electricity and is prepared to cooperate in this regard.  Iran’s announcement that it is prepared to accept other countries as partners in its nuclear activities was the best and most important proposal for confidence building, transparency, and proving the peaceful nature of Iran’s nuclear program. The French government’s position toward Iran’s nuclear program is a hurdle to the expansion of ties between the two states. Public opinion in Iran regards France as reasonable, free, and a supporter of justice, and due to this view, it was expected that the government of that country would be on the side of Iran in the nuclear issue. Despite all the cooperation of Iran with the International Atomic Energy Agency, through the adoption of some unjust positions, some countries are trying to impose their views on the Iranian nation.

Renewable Energy Trends


No hope for biofuel programme without 4 Ps: Aiyar

October 17, 2005. The Petroleum Minister, Mr Mani Shankar Aiyar said that the successful implementation of biofuel programme depends on four Ps— public-private-panchayat-partnership. The Minister said the success of the plan to dope diesel with non-edible oil extracted from plants such as Jatropha so as to cut imports, depends on the involvement of local bodies in the programme. He said, unless P3 - public-private partnership - is converted into P4 - public-private-panchayat partnership, there is no hope for the biofuel programme. While the country's prospects for oil and gas are limited, it has unlimited potential to produce bio-diesel, he said. Minister said that automobile engines do not require any modification for using diesel doped with 20 per cent bio-diesel as fuel. Mr R.K. Pachauri, Director General, TERI, said 13.4 million-hectares of land in the country could be used for Jatropha plantation. The initial cost of production of bio-diesel would be upwards of Rs 23 a litre and over time, it could be brought down to Rs 15-18 a litre, he said. He said that there was a need to move from the present single feed stock, sugarcane molasses option towards multi-feed stocks, sweet sorghum and sugar beet for ethanol production. He pointed out, though the bio-diesel purchase announcement was made by Ministry of Petroleum and Natural Gas, a decision on National Mission of bio-diesel was still awaited.

Oil firms keen on jatropha as fuel additive

October 17, 2005. Oil marketing companies (OMCs) in India are banking on bio-diesel, a blend of oil extracted from seeds of jatropha plant and diesel, for generation of cheaper and greener fuel. State-owned IOCL, HPCL and BPCL have started jatropha plantation on a large scale on contract farming basis in states like Tamil Nadu, Chhattisgarh, Rajasthan, Haryana and Gujarat. They plan to source bio-diesel from contract farmers and other private players at Rs 25 a litre. Bio diesel would initially constitute 5 per cent of the total diesel supply in the country, which would later go up to 20 per cent in a phased manner. OMCs would set up 20 purchase centres including 10 by IOCL and five each by HPCL and BPCL. ONGC and IOC has approached the Chhattisgarh government seeking permission for contract farming of this plant, which is a good source of bio-diesel. HPCL has joined hands with the Maharashtra State Farming Corporation Ltd (MSFCL), a GoM undertaking, for a jatropha seed-based bio-diesel venture. ONGC’s upcoming export-oriented oil refinery at Kakinada in Andhra Pradesh will produce oils that comply with the latest emission norms and would be first project in the world to have the capability to process bio fuels. Jatropha extracts are to be used to produce ethanol to blend in the fuels.

BP to tap rural mkts with hybrid appliance

October 14, 2005. BP is planning to expand its solar power business, and plans to tap rural India with cheap and clean fuel sources. It has developed a hybrid appliance integrating an LPG cylinder and a biomass burner, which can dramatically reduce indoor air pollution and allow people to choose the fuel they use. The offer includes home delivery of the appliance, LPG cylinder and micro finance options for the initial capital cost. The company intends to cover 20 million households across rural India by 2020.

K M Sugar seeks nod to sell power to UP govt

October 14, 2005. K M Sugar Mills is in the process of adding 10 MW additional of capacity to its 7.5 MW power plant. It has also sent a proposal to the Uttar Pradesh government seeking to supply 6 MW power to the government.  By the time the expansion is completed, the company would be able to generate 17.5 MW power. Of this about 10 MW will be used up inhouse. K M Sugar Mills is also expanding its cane-crushing capacity from 4,500 TCD to 6,500 TCD at Faizabad, UP and set up a greenfield ethanol production plant at Ahmedabad with a capacity of 60 kilo litre at an investment of about Rs 37.56 crore ($8.4 mn). 

Green investments may touch $600 bn in ‘05: ADB

October 13, 2005. Environmental investments are expected to open up a $600-bn global market in 2005, according to an Asian Development Bank report. Asia and the pacific region are the fastest growing regions in the world accounting for $37 bn currently. The environmental market is slated to expand to more than $800 bn by 2015. The Asia-Pacific region is growing the fastest at a rate of 8-12 per cent and its market share is expected to triple to $100 bn by 2015. Indian, Thailand, and Chinese governments were enforcing pollution-control laws, hiking budgets for environmental protection. The improved environmental quality demanded by the public will require investment in waste water treatment, solid waste management, sustainable public transport, and clean, renewable energy systems - all of which are critical for the economic and environmental future of the region, the report said.


China may lead the world in wind power

October 18, 2005. China is in a position to become the world leader in wind power. Wind Guandong, a study of wind power potential in the heavily industrialized Guandong province in southern China, says that by 2020 alone, the region could feasibly produce enough energy from wind turbines to meet the equivalent of Hong Kong's total current electricity supply. By 2020 enough wind power could feasibly be installed in Guangdong to cut carbon emissions by 29 mt. By 2020, winds breezing through Guangdong could be producing 35,000 gigawatt hours of electricity 17 per cent of the province's total 2003 power consumption, and enough to match the provincial capital's yearly power demands. Guangdong, the richest and most populous province in China, is among the biggest emitters of carbon dioxide (CO2) in China and Chinese scientists claim that the concentrations of carbon dioxide in the region are among the highest in the world.

China starts to build 1st straw power plant

October 16, 2005. China has begun to build its first straw power plant in Shanxian County, east China's Shandong Province. The plant, with an installed capacity of 25,000 KW, is projected to generate 156 mn KWh of electricity per year. The project has a total investment of about 223 mn yuan ($ 27.53 mn) and is expected to start operation in June 2006. Shanxian, a major producer of farm produce in Shandong Province, has an abundance of straw and crop stalks. They are usually burned beside the fields or on nearby highways, not only causing serious pollution to the environment but also posing a potential hazard to drivers and pedestrians. With the completion of the new power plant, 200,000 tons of crop stalks will be consumed yearly, saving some 100,000 tons of coal a year. The plant approved by the National Development and Reform Commission in March 2004.

Biomass power plant for Scotland

October 13, 2005. The UK's biggest dedicated biomass power station, which will burn forestry products, will be built at Lockerbie in southern Scotland by Eon, the German group that is Europe's largest listed utility. The £90mn ($ 107 mn) plant will produce 44MW of green power, enough to meet the needs of 70,000 homes and displace the emissions of 140,000 tonnes of greenhouse gases. Work will start this year on the project, which will create 40 direct jobs and 300 extra forestry and farming jobs in Dumfries and Galloway, with commercial operation planned for the end of 2007. Siemens and Kvaerner will be part of the construction consortium.

Earth biofuels - biodiesel distribution agreement

October 12, 2005. Meadows Springs, Inc. dba Earth Biofuels, Inc. has executed a biodiesel fuel distribution agreement with Oklahoma-based Alternative Fuel Distribution Company, LLC (AFDC). Under terms of the agreement, AFDC will be the exclusive distributor for the Company's B100 (100per cent) biodiesel fuel product in the state of Oklahoma, and AFDC will distribute only the Earth Biofuels branded product in the state. The Durant production facility, under construction since June, is the second biodiesel project for Earth Biofuels. The Company expects the plant to begin producing biodiesel fuel during the fourth quarter of this year.

ENDESA begins wind farms construction in Sicily

October 11, 2005.  ENDESA is constructing two wind farms in Sicily, which will have a total installed capacity of 56 MW. The total estimated investment in the facilities is Euro 66 mn ($ 79 mn). These two new facilities further ENDESA Italia's renewable energy programme, which contemplates almost 400 MW of wind, generated energy in Italy by 2009. These wind farms form part of Endesa's strategic plan, representing another milestone in the implementation of the group's global environmental and sustainable development policy. The wind farms, located in Trapani and Vizzini, are expected to be operative in summer 2006. The wind farms will consist of 66 wind turbines, each with a capacity of 850 KW. The Trapani wind farm will have 38 wind generators totaling capacity of 32.3 MW while the Vizzini farm will have 28 wind turbines, giving it capacity of 23.8 MW. These wind farms will result in environmental benefits in the form of annual savings of approximately 10,000 tonnes of oil and 84,000 tonnes of CO2 emissions.

Microfield wins wind project

October 11, 2005. Portland based Microfield Group, Inc. has contracted with S & C Electric to provide the Electrical Collection system for a Wolverine Creek Wind Farm project near Idaho Falls, Idaho. The project consists of trenching and laying approximately 26 miles of direct bury electrical and fiber optic cable. The facility, when completed, will generate nearly 65 MW of electrical energy. The project will start in October, and scheduled to be completed during the 4th quarter of this year. Total current value of the contract to CPS is approximately $3.2 mn.


List of participating Russian companies and state institutions


Energopromexport; Rosoboronoexport; Gazprom; Lukoil; Rosneft’ (oil company); Russian Alumunium; AFK “Systema; Irkut (aviation); Rosaviakosmos; Sukhoi; Khrinichev Center (cosmoc); Sylovye Machiny; United Machinery Plants; KAMAZ (automobile industry); Eurochim (chemisty); Stroitransgaz (pipe lines construction); Zarubezhneft’ (oil exploration); Neftegazexport; Tyumen’neftegeophisika; Anomstroiexport; Kurchatov Institute (nuclear research); Uralmach; Zarubezhugol’ (mining); Kran-Uzlovsk Machinery Plant; Baltpromapparatura (machinery); Yurmach (machinery); Koreisk Machinery Plant; Sberbank; Vnesheconombank; Vneshtorgbank; Roseximbank; Eurofinance Bank; Alfa Bank; Promsvyaz’ Bank; National Reserve Bank; Investkredit Bank; Bank of Moscow; Moscow International Bank; Chamber for Trade and Commerce, Russia; Committee on International Relations, State Duma; Ministry for Foreign Affairs, Russia; Ministry of Finance, Russia; Ministry for Economic Development and Trade,  Russia; Ministry for Industry and Energy, Russia; Central Bank of Russia; Embassy of India, Moscow; Russian-Indian Intergovernmental Commission on economic relations, science and technology and cultural cooperation.



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