MonitorsPublished on Nov 01, 2005
Energy News Monitor I Volume II, Issue 19
China’s Global Pursuit of Energy Security: Issues and Implications for India - Part V

(by Dr.Samir Ranjan Pradhan)



hus as the above discussion shows, India is vastly growing to be one of the largest energy markets of the world. It is a developing economy transiting from state regulated centrally planned economic discipline to the options, imperatives and practicalities of competitive market economy. Therefore it can be said that the Indian oil-gas sector is in the process of transformation from its normative present to a combative future. As mentioned by one analyst,

“The sector is confronted with reserve replacement, stagnant oil production, surmounting oil-gas demand, depleting and/or dysfunctioning reservoirs of some of the major oil fields, vastly expanding oil demand of the national economy, technological deficiencies, impacting developments of deregulating oil-gas regime, and massive need of capital. All these problems and hazards are radically altering the risk, reward and rationalize the future of business in Indian oil-gas sector. On the other side, it is throwing up new possibilities and attractive opportunities for those countries/organizations/companies who are not threatened with the impermanence of corporate prosperity in a constantly changing business world”[1].

Prognosis of segment-wise investment potential for the next 10-12 years (see Table 3.14), of both upstream and down stream sectors of Indian petroleum industry, opens up new opportunities for the oil and gas exporting GCC countries, given that, GCC countries are the traditional energy suppliers to India and presently GCC countries as a whole account for 65% of India's energy imports.

Table 3.14: The Oily Demand of Investment in Indian oil-gas sector till 2010 (US$ billion)




Oil-gas and Coal Bed Methane Exploration


Oil-gas Field development, Rehabilitation and production


Natural Gas and LNG, Storage, Importation, Transportation, Distribution and Marketing


Oil Refining


Product Pipelines


Tankage, Storage and Port Facilities


LPG Import, Distribution and Marketing


Oil products distribution and marketing



Source: Oil Asia Journal, January-March 1999, and p.44.

It can be mentioned that in recent years there are some positive developments regarding the source of diversification of import sources. Though these endeavors are marginal in comparison to attempts by China to secure oil imports from abroad, yet these give respite and encouragement for the future.

India is taking a ‘‘calculated risk’’ to venture into countries where multinational angels fear to tread. ONGC Videsh Limited, the only firm permitted to pursue overseas exploration projects, has gone into strife-torn Sudan, outcaste Libya, explosive Iraq to secure that extra energy. The strategy was to tie up with countries, which required less investment, but were oil-rich, since safe havens like Saudi Arabia, Kuwait and UAE were already cornered by the MNCs. That strategy is reflected in the country’s Hydrocarbon Vision 2025, a report prepared by a Group of Ministers chaired by then Finance Minister Yashwant Sinha. In the medium term, it said, the focus should be to build strong relations in focus countries with high attractiveness like Russia, Iraq, Iran and North African countries.

No wonder then that India’s gambles — some of which are now paying off — include Sudan, Libya, Syria, Iraq, Myanmar and now Angola, where OVL plans to acquire Shell’s 50 per cent equity in a large discovered field. On the radar is Nigeria and Azerbaijan (see figure 4.2).

The oil diplomacy is also using another tool suggested by the Group of Ministers: leveraging India’s ‘Buyer Power’ to obtain quality exploration and production projects abroad. In the year 2003, it managed to arm-twist Iran into yielding highly prospective oil fields in return for India’s purchase of five million tonnes of liquefied natural gas (LNG). Teheran even agreed to give OVL and its Indian partner’s equity in the South Pars field to provide gas for conversion to LNG. Indian Oil Corporation, which has established deep relations with Middle-East exporters because of its annual term purchases of crude oil, has been able to get its foot in Saudi Arabia’s exploration programme.

The security concern has also translated into diversifying the crude purchase points. India currently sources 65 per cent of its crude imports from the Middle East but the strategy is to reduce the country’s dependence on the forever-troubled region. A government strategy paper suggests that refineries switch over to low sulphur crude oil from Nigeria and net imports from North Sea, Venezuela, West Africa, and the Far East etc. In the last few years, India has tied up with new sources like Brunei, Libya, Nigeria and Yemen and efforts are on to build new contracts with Venezuela and Angola.


Figure 4.2

Source: Indian Express, January 25, 2004.

However the ground reality is different as per analysts. India can not afford to lower its dependence on the Gulf region as the domestic as well as global realities of the world oil and gas industry has transformed dramatically with competition spiraling to hurricane proportions. Being fiscally and technologically deficient, these efforts to shy away from the Gulf regions and diversifying imports from other parts of the world is really a Herculean task.

Thus, the crux of India’s external energy strategy can be broadly identified as follows:

v  Diversifying oil and gas import portfolio geographically, instead of putting all eggs in the basket.

v  Consistently pursuing policies to be integrated with world energy market.

v  Scouting for equity oil and gas assets abroad.

v  Working on diplomatic channels to secure equity oil and gas deals in countries and regions, where India has maintained good relations over the years.

v  Striving for establishing regional cooperative arrangements for pursuing energy security initiatives-holding roundtable conferences of consumers and producers as well, acquiring observer status in the Energy Charter Treaty

v  Including energy sector cooperation in all bilateral economic pacts with both consuming and producing countries.

v  Campaigning for an Asian energy market by establishing Asian marker for crude imports from the Dubai market (to take care of the Asian Premium).

v  Started exporting refinery equipment and also products to the GCC countries in 2003-04.

v  Working on cross investment proposals with oil and gas exporting countries in all possible regions, from Gulf, Africa, Russia, Central Asia, East Asia, South Asia, Latin America, North America, etc.

v  Aspiring to be the regional hub in oil refining and products trade in the region and framing policies in this regard.

(Views are personal     -Concluded-)

Rising Crude Oil Prices: Impact on India & Appropriate Policy Responses



il prices have significant bearing on a country’s economic performance. Since the 2001 price spike followed by a brief moderation till mid-2004, oil prices have registered an unprecedented upward spiral owing to the convergence of a wide variety of cyclic and short-term factors (see appendix), ably supplemented by speculative dimensions of oil hedge funds and commodity pools. Though the prices have moderated mildly at the time of writing (Brent at $58.88/bbl and WTI at $ 61.09 as of 27th October’ 05, Bloomberg) after reaching historical levels (crossing $ 70/bbl mark in the summer of 2005), the pernicious effects of such unimaginable price spikes and the possibility of further increases in the future commends a critical analysis to reflect on possible short, medium and long term policy responses.

This background paper summarises various economic effects of the high oil prices on the Indian economy and seeks to highlight short, medium and long-term policy responses. Attempt is made to highlight the current policy deliberations and other issues in this perspective. It can be contended that though the impact of higher oil prices have not made a considerable dent in the overall performance of the Indian economy, the effects are quite visible in the overall current trade deficit of around $30 to $40 billion. This leaves considerable room for devising suitable policy responses in order to ward off the crystallisation and channelisation of the negative effects in the long run.

Economic Effects of Higher Oil Prices

The quantitative relationship between oil prices and economic performance is complex. The negative impact of higher oil prices (both direct and indirect) can be broadly classified into price effect and income effect. The effects of higher oil prices are channelled mainly through three accompanied effects such as (i) Terms of Trade effect (ToT), (ii) Adjustment effect and (iii) BoP effect. The first and foremost impact of oil price spikes on economic performance arises from changes in purchasing power between oil-importing countries and oil-exporting countries. With higher oil prices, oil-importing countries generally experience a reduction in purchasing power subject to their oil intensity of production and price elasticity of oil demand. In fact during the past oil shocks, terms of trade changes have been quite large, however, in the current price spiral, it has been moderate in the industrialised countries (especially OECD) and emerging economies like China and India, and severe in some African countries.

Higher oil prices have strong effects on domestic prices and inflation. Inflationary effects mirror the ToT changes in their impact on producer prices. As far as the headline consumer price inflation is concerned, taxes on oil products help to insulate the general price level from oil price changes, fundamentally by helping to reduce oil intensity in the long run, but also statistically in the short run, since the proportional impact of an oil price rise is inversely related to the tax content of the retail price.  However, whether the increase in the price level translates into a shift in core inflation depends on the “second round” effects-i.e. primarily dependent on wage-price flexibility/rigidity, which in turn, depends on the monetary policy regime of the country.

Domestically, the income loss arising from the price rise would be borne by consumers to the extent that the demand for oil and oil products is inelastic in the short run. This would be the case for final consumption products like petrol and diesel. However, where oil is used as an input into price-elastic final goods, the negative revenue effects would initially be borne by producers in a competitive market, since they would be unable to pass on the higher costs. More generally, when oil is an input in the production of almost all goods and services, both consumers and producers would bear losses. To the extent that producers are affected, profit margins and returns on capital will fall, with effects on capital allocation. While capital is highly flexible and the most footloose factor of production in the long run, and would move from energy-intensive sectors to sectors with higher rates of return, in the short run, capital in energy-intensive industries is relatively inflexible, which make it bear the income loss.

The effect of higher oil prices on the level of output and employment is determined by the relative supply responses of labour and capital. To the extent that labour market institutions inhibit the adjustment of real wages to shocks—i.e. higher oil prices imply higher input prices which reduces profitability—the deterioration in the terms of trade following an oil shock can affect the equilibrium level of employment, since it creates a wedge between value-addition and consumer prices. In general, the short-run economic impact of an oil shock on output and employment would be smaller, the higher the proportion of the price rise that can be passed on to consumers and/or the more flexible are wages if the price rise cannot be passed on.

The negative impact of high oil price on domestic demand and income will diminish over time as consumers and producers modify their behaviour, since the long run price elasticity of demand is higher than the short run elasticity. However, research (OECD, 2005) seems to indicate that there is an asymmetric effect if oil demand does not revert to the initial level as oil prices fall. In that case, the income losses experienced by oil importers may eventually be partly reversed. Thus, where fluctuation in oil prices create uncertainty, there may be a reduction in investment activity, but it is less clear that the effects on profitability or capacity utilisation are asymmetric.

Recent Trends

It can be asserted that the impact of sustained high oil prices has not been similar to those in the past. The price of crude has more than tripled in the last four years and yet global GDP growth and that of India are well above trend, while inflation remains low. Several explanations are being given. One view is that though the latest price increase is about as big as those are in previous price shocks, it has been more gradual. In 1979 the price of oil doubled in six months; this time it took 18 months, giving the economy more time to adjust. Another view is that in real terms oil is not as expensive as it was during the previous shock. Adjusted for American consumer-price inflation, the price of a barrel of crude would have to be about $90 to match the price in 1980. However today price is already above its peak in 1974 and 1990, which were high enough to bring on recession.

However, looking at the current trends of oil prices relative to producer output prices- the appropriate measure for businesses- real oil prices are already close to their 1980 peak. For oil-importing economies such as India the relevant deflator is export prices, as the cost on the economy due to high oil prices is most severe on terms of trade. Till now, India has withstood the impact of higher oil prices due to the economic buoyancy and some strong (domestic as well as external sector) fundamentals. Strong rupee position due to huge foreign exchange reserves, impressive growth rate, less oil intensive industrialisation and government’s administered price regime have insulated, at least to some extent, the negative effects of higher oil prices. However, since the impact of high oil prices kick in with a time lag, there are serious concerns regarding the pernicious effects. Moreover, there are clear trends of oil prices not reverting to the levels seen at the beginning of the year 2004.  This along with persistent increase in global demand, oil prices will remain a cause of concern to all, more so, the emerging economies like India. In case of India, the prospects of manufacturing boom in the near future make a strong case for policy design that takes high oil price into account, as this sector is basically oil intensive.

The impact of high oil prices on the Indian economy in the long run can be ascertained by a number of recently concluded studies. A study by the IEA (May’04) points out that in the case of a $ 10 sustained oil-price increase, India’s GDP will fall by 1 percentage point and inflation will increase by 2.6 percentage points. Presently oil imports constitute nearly 30% of India’s total imports and about 3.5% of GDP. Another study by ADB (June’04) contends that a $10 per barrel increase in oil prices will reduce India’s GDP by 0.2 percentage points and trade balance by 0.6 percentage points. Moreover, the study asserts that in case of Asian countries and India, the most direct impact of higher oil prices is felt in trade balances (as a percent of GDP) and corresponding deteriorating terms of trade resulting in decreasing real income and outputs. Thus, higher oil prices if sustained, long enough, would hamper India’s economic performance.

Policy Responses

The government is the dominant player, influencing price, output and investment decision in the Indian energy sector.  Initiation of privatisation has not changed this feature; however, the form of government intervention is changing and the mechanism of influence has shifted from the boardrooms of nationalised entities to more explicit policy instruments and regulatory control. But the idea that the governments could simply retreat from the sector and leave it entirely to the market dynamics is an illusion.  In the presence of multiple externalities, energy sector in general and the oil sector in particular come into the strategic domain and therefore cannot be left to the market forces.  The first market failure upon which energy policy should concentrate is security of supply. Energy is complementary with the whole economy, implying that consumers will typically want stable and predictable prices, in line with their investments in durables, housing and capital stock at any point of time. In other words, this implies that the way to think about security of supply is to start with some idea of the level of fairly stable prices that consumers might be willing and able to pay, and to see whether, given this demand, there are secure supplies available. It is to be noted that rapid adjustments to oil shocks are typically difficult to achieve and very costly, nevertheless policy responses should be designed for such an emergency addressing primarily management of risk and improvement of flexibility (IEA, 2001).

With crude oil prices having increased by more than 350 per cent over the last two and a half years, the upward spiral of inflation and wages can prove to be devastating if proper short, medium and long term policy reposes are not designed and implemented. However in formulating appropriate policy response to oil price shocks, we need to consider the following:

v  The size of the shock both in terms of percentage of increase and the real prices. Though the current oil price is high, the real price of oil is lower than the peak in 1982-83.

v  The shock’s persistence: If the price hike is due to short term disruptions in supply (or perceived disruptions in supply) they will not be sustained and therefore may not require immediate policy response. 

v  The link between the economy and oil or in other words, the oil intensity of the economy.  

v  Monetary and fiscal conditions

A policy response ideally consists of demand side as well as supply side interventions. Demand management without compromising country’s global competitiveness is the major policy response to ward off the negative impacts of high-priced oil imports in the long run. In the short and medium term, the supply side responses are crucial due to the presence of structural rigidities which limits the flexibility in inter fuel substitution. Before analysing the various possible policy responses, let’s have a look at following undergoing policy responses of India.

v  Partially raising retail prices of mass consumption products like petrol and diesel, subsidising oil marketing companies, removing the road cess, etc.

v  Diversifying oil and gas import portfolio geographically.

v  Consistently pursuing policies to be integrated with world energy market.

v  Scouting for equity oil and gas assets abroad.

v  Working on diplomatic channels to secure equity oil and gas deals in countries and regions, where India has maintained good relations over the years.

v  Striving for establishing regional cooperative arrangements for pursuing energy security initiatives-holding roundtable conferences of consumers and producers as well, acquiring observer status in the Energy Charter Treaty

v  Including energy sector cooperation in all bilateral economic pacts with both consuming and producing countries.

v  Campaigning for an Asian energy market by establishing Asian marker for crude imports from the Dubai market (to minimise the Asian Premium).

v  Exporting refinery equipment and also products to the GCC countries in 2003-04.

v  Working on cross investment proposals with oil and gas exporting countries in all possible regions, from Gulf, Africa, Russia, Central Asia, East Asia, South Asia, Latin America, North America, etc.

v  Aspiring to be the regional hub in oil refining and products trade in the region and framing policies in this regard.

It can be asserted that, though policy responses have been devised and the present government is seriously inclined, yet implementation is disappointing.  There are signs that reforms that were committed such as withdrawal of subsidies, market driven pricing and duty regime are being withheld.

Short term (1-3 years)

v  Clinching long-term oil deals with the suppliers through economic diplomacy.

v  Rationalised duty structure with balancing the stakes of all-the government, companies and consumers.

v  Establishing a purely oil trading company (carving out from the existing oil companies) to penetrate into oil futures and deal with hedging instruments to manage the risk, on purely commercial basis.

v  Judicious balance of fiscal and monetary instruments by the authorities.

v  Equity oil investment pursued on the basis of Business Logic.

Medium term (3-7 years)

v  In the medium term, keeping energy security in mind, there would be a need to build sufficient reserves of crude oil such that the future spikes in the crude price can be taken in the stride rather than as a shock.

v  Refinery capacity expansion would be required not only to cater to domestic demand but also to cater to export market. The required capacity expansion should be designed so as to process heavy and sour crude.

v  Fuel switch away from petroleum products to gas particularly in stationary applications would aid in assuaging the expanding demand for transport fuels. This calls for optimising the use of indigenous coal in the country’s primary energy mix and enhancing the use of natural gas.

v  In transport sector, there are fewer substitutes to oil products. Bio-fuels such as ethanol and bio-diesel hold promising positions as augmenting supply. Current design of engines can take up restricted blends of bio-fuels. Therefore, need to develop improved engines, which offer more flexibility.

v  Another option in Transport sector is Auto LPG and CNG, but these are limited to private transport vehicles and have not been an option so far for freight moving vehicles.

v  Technology is the key to overcome the current barriers and challenges. However, over the long-term, there is a strong felt need to look for indigenous technological solutions combined with technology transfers from abroad.

Long term

v  Cooperation with oil consumers such as China, Japan, Korea and others to establish a regional oil market, information sharing, strategic stockpiling, etc.

v  Enhancing energy saving and efficiency and reducing oil intensity, with investment in research and technology.

v  Reforming taxation of oil products and public expenditure, with phased removal of subsidies on LPG, Kerosene.

v  Enhancing stable prices especially for transportation sector, reduction of oil price inelasticity, especially for transport sector

v  Over medium to long-term, several technologies need to be further developed so that they can be commercially exploited. These include, coal gasification, coal-to-liquids, fuel cells etc

v  Cooperation and institutional promotion for supply diversification with arrangements with exporting and transit countries

v  Promoting technological progress and expanding energy supply capacity


The economic and oil policy response to counter the pernicious effects of higher oil prices has a bearing on the overall impact on the economy over the long run. Government policy cannot eliminate the adverse impacts but it can minimise them. Similarly, inappropriate policies can worsen them. Overly contractionary monetary and fiscal policies to contain inflationary pressures could exacerbate the recessionary income and unemployment trends. On the other hand, expansionary monetary and fiscal policies may simply delay the fall in real income necessitated by the increase in oil prices, stoke up inflationary pressures and worsen the impact of higher prices in the long run. However, it can be mentioned that, while the mechanism by which oil prices affect economic performance is generally understood, the precise dynamics and magnitude of these effects-especially the adjustments to the shifts in the terms of trade-are still uncertain (IEA, 2004). Moreover, it should be noted that, all policy responses must take into account the divergence between economic and security policies, because economic policies require adherence to cost/benefit rules, while security policies rely on worst-case analyses (Lynch, 1999). This implies that the issue needs greater debate and consensus building in order to take care of the vagaries of higher oil prices.

-By  Samir Pradhan-

This paper was prepared as a Background Note for the National Conclave: ‘Rising Crude Oil Prices: Impact & Responses’ to be organised by ORF shortly. Suggestions & Comments on the paper may be sent to [email protected]






Assam Co strikes oil in Arakan basin

November 1, 2005. Assam Company Ltd, owned by the UK-based Duncan Macneill group, has struck oil in the Assam Arakan basin. Oil was found in well 5 of Amguri oil field in upper Assam, jointly owned by Canada based Canoro Resources and ACL. There were eight wells in the 52.75 square kilometre Amguri oil field. An estimate by Canoro indicated production of 588 barrels per day from the well. Oil production from the well will start in next three to four months. ACL would invest around Rs 450 crore ($100 mn) in next 3-4 years for the development of oil blocks. It had invested around Rs 40 crore ($8.9 mn) for the blocks. ACL now jointly owned two blocks, Amguri and AN 07, with Canoro, and three marginal blocks at Bihubar, Laxmijan and Barsilla on its own. 

ONGC bids for project in Angola

October 31, 2005. ONGC has bid to participate in Angola's $3.75 bn (Rs 169 bn) Sonaref project for building a 10 mt refinery at Lobito. Sonaref project involves setting up a grassroot refinery of 200,000 barrels per day (10 mt a year) capacity at Lobito on the Atlantic Coast and is linked with equity participation in exploration of deepwater blocks 15, 17 and 18. ONGC plans to participate in the Sonaref project through its subsidiaries OVL for upstream exploration and Mangalore Refinery and Petrochemicals Ltd for the refinery project. The company had in July held talks with Sonangol in London to finalise partners for the project and firm up structure of the partnership. Sonangol had also invited Hydro, Exxon, Sinopec, Chevron, Energem, Petrosa and the existing group of partners in Block 15, 17 and 18 for the talks. 

Angola's state-owned Sonangol would hold up to 40 per cent interest and is looking for partners to keep minimum of 20 per cent stake. The project is estimated to cost $ 3.75 bn and is expected to be completed by 2009-10. The refinery will come on stream in 2009-10 and approximately half of production is destined for domestic consumption and the remaining 50 per cent will be for export. OVL also plans to bid for exploration blocks in the ultra deepwater and deepwater in the Congo and Kwanza basins that are likely to be offered towards end 2005 or early next year.

ONGC MoU for LNG and E&P in Egypt

October 27, 2005. ONGC has signed an MoU with Partha S Ghosh, executive chairman of a mergers and acquisition (M&A) firm, Access International Partners (AIP), for sourcing LNG from Segas, which has recently commissioned a 5 mtpa plant in Egypt. Segas is a special purpose vehicle in which Union Fenosa Gas (which is 50 per cent owned by Union Fenosa of Spain and 50 per cent by Italian energy company Eni) holds an 80 per cent stake followed by a 10 per cent stake each by Egyptian Natural Gas Holding Company and Egyptian General Petroleum Egypt. Ghosh has claimed that LNG quantity exceeding 1.2 mtpa could be made immediately available to ONGC. It is understood that the LNG would be available at a competitive price in relation to prevailing market price of natural gas and R-LNG in the Indian market. What is more, Ghosh is also holding out the prospect of helping ONGC partner in E&P activities in Egypt. Ghosh will use his good offices to coax the Egyptians to entrust ONGC with a prospective gas block along with attendant transportation, liquefaction, terminalling, shipping and marketing functions for the gas so produced. Ghosh was first spotted by Petroleum Minister Mani Shankar Aiyar.

Shortage of deepwater rigs for ONGC: Fearnley consultant

October 27, 2005. International consultants Fearnley Offshore has presented a deepwater rig availability report for ONGC in July 2005. The report traced the availability of Dynamically Positioned (DP) deepwater (DW) drilling units in early 2007 when the contracts for ONGC's two deepwater drillships -- Belford Dolphin and Discoverer Seven Seas -- were going to get over. The report said that at that only four deepwater units capable of operating up to a depth of 6,000 feet were available for hire from first quarter 2005. As for drilling rigs capable of going down to a depth of 10,000 feet, the Belford Dolphin was the only available unit, apart from Transocean's Discoverer Spirit which was likely to stay with its current operator, Shell. Fearnley Offshore had predicted in July that all available rigs would be tied up within the next 90 days. While ONGC was able to renew the contract for the Discoverer Seven Seas, the Belford Dolphin slipped out of its hands. After considering the limited supply situation, the consultants had predicted a day rate in the range of $350,000 to $500,000 (Rs 15.8 mn to 22.5 mn) per day for contracts ahead.

Premier to drill first well in Cachar

October 27, 2005. Premier Oil Ltd (POL) is preparing to drill its first exploratory well in Block CR-ON-90/1 at Cachar in Assam. The company has conducted the in-house seismic interpretation and structural modeling of the Masimpur drilling location. Pre-drilling studies for the exploratory well, Masimpur-3, have been completed in the block. Cachar has some complex geological structures and is located in a remote part of Assam.  The company has already carried out reprocessing of the block's seismic data, which it acquired in 2004. Premier entered Phase-II of the minimum work programme (MWP) on March 12, 2005. Premier partners IOC and Essar Oil in this prospective block.

GSPC eyes E&P in Russia

October 27, 2005. The state government-owned Gujarat State Petroleum Corporation now plans to enter Russia for oil exploration and production (E&P) activities. The company is eyeing projects in the Astrakhan region, off Caspian Sea, known for its hydrocarbon deposits. This will be GSPC's first foray overseas. It need a local partner there and are in talks with a few of global companies to form a consortium. It is estimated that the landlocked Caspian Sea holds a projected 3 per cent of the world's energy supplies. The US Energy Information Administration has estimated that the Caspian could hold between 17 billion and 33 billion barrels of proven oil. So far, ONGC is the only Indian company present in the region, through its overseas investment arm ONGC Videsh.

The Gujarat government and the Astrakhan state government had earlier signed a MoU in ten areas of mutual co-operation, which also included oil and gas. As per the MoU, the Astrakhan Regional Administration will inform the Gujarat government about the announced tenders for exploration and development of oil and gas deposits, located in the territory of Astrakhan region. Apart from Russia, GSPC is also eyeing blocks in Libya, Qatar, Oman, Yemen and Australia, bidding for which is expected to start in January next year.


Lack of supply may jeopardise Kochi LNG terminal

October 28, 2005. Even though it is almost certain that Kochi LNG terminal would become a reality, there are apprehensions that any complacency on the part of the State Government might result in a delay in the commissioning of the proposed terminal. There are enough reasons to arrive at this inference. Already bottlenecks have emerged on the proposed $22 bn (Rs 990 bn) deal to import 5 mt of LNG from Iran. Besides, 2.5 mt of LNG from RasGas, Qatar, which was earmarked for Kochi terminal when the SPA was signed long ago, is almost certain to be diverted to Dahej as the expansion of this terminal is under way. No substitute supplier has so far been identified for the Kochi terminal. The uncertainty over the supply from Iran appears to have compelled Petronet LNG Ltd (PLL) to look for suppliers in Malaysia and Australia and this exercise is still in the primary stages. It is understood that since there is good demand for LNG from Dahej, PLL might not delay the expansion of this project for the sake of Kochi terminal. If the reported ban on supply of US patented commercially proven LNG liquefaction technologies to Iran is enforced then the supply from Iran would be delayed, causing a cascading effect on the prospects of the proposed terminal. Other sources of supply are yet to be identified, deal processed and finalised. The price would become a major factor. Therefore, as it stands now, if the Kochi terminal were to be commissioned by the projected schedule of September 2009, the only chance available for it is to bring the 2.5 mt of LNG from Qatar and in that event the Dahej expansion might have to be delayed. At the same time, though the PLL sources were persistently reiterating that the Kochi terminal project is well ahead of the proposed ONGC terminal at Mangalore, the delay that could happen for want of timely supply of LNG to the terminal here might pave the way for it being overtaken by the Mangalore terminal. If it happens, the setting up the terminal here might be in jeopardy, depriving the State of the huge investment. Even apprehensions are in the air about the possibility of NTPC not expanding the capacity of its Kayamkulam thermal plant to 2,300 MW now.

RIL to give discount to oil retailers

October 29, 2005. The import parity pricing in the petroleum refining sector seems to have been given a go-bye with oil companies agreeing to grant 40 per cent discount on import and export parity prices of petrol and diesel while selling from their refineries. Reliance Industries Ltd, the private refiner with a 33 mt capacity, will give a Rs 750 crore ($166 mn) discount on LPG and kerosene to public sector retailers in 2005-06. It will also give a 40 per cent discount on petrol and diesel on quantities sold by it to PSU marketeers. Indian Oil Corporation will have to grant discounts to Bharat Petroleum Corporation and Hindustan Petroleum Corporation. The move will mainly benefit HPCL and BPCL. RIL sells about 20 per cent of its products to PSU companies, including 2.8 mt of LPG and kerosene. RIL was, till last year, granting discounts to PSU oil companies, but now it will become a trade norm and all companies will be following it. The total discount on petrol and diesel will be Rs 1,200 crore ($266 mn). While discounts on LPG and kerosene were worked out for the entire 2005-06, that on petrol and diesel will be for the seven months beginning September. Standalone refineries, including RIL, were offering a total of Rs 1,500 crore ($333 mn) discount on LPG and kerosene they sell to IOC, BPCL and HPCL. Besides RIL, other standalone refineries include Kochi Refineries Ltd, Mangalore Refinery and Petrochemicals Ltd and Bongaigaon Refineries and Petrochemicals Ltd. 

Price hike helps oil PSUs in Q2

October 29, 2005. The revision in diesel and petrol prices has helped Indian Oil Corporation get back into the black in the second quarter of 2005-06, though its subsidiary, IBP Ltd, and Bharat Petroleum Corporation Ltd, continued to be in the red during the period. IndianOil’s net profit of Rs 949.72 crore ($211 mn) for the July-September quarter was 23 per cent lower than the net profit for the same quarter of the previous year, though its gross turnover moved up by 24.32 per cent from Rs 35,182 crore ($7.79 bn) to Rs 43,737 crore ($9.7 bn) during the period. The company had reported a loss of Rs 54.23 crore ($12 mn) during the first quarter of 2005-06. IBP Ltd, too, reported a loss of Rs 190.53 crore ($42 mn) for the quarter, compared with a Rs 60.89-crore ($13.5 mn) loss during the corresponding period last year. BPCL reported a loss of Rs 203 crore ($45 mn) during the July-September quarter, compared to a profit of Rs 373 crore ($82.8 mn) last year.

Transportation / Distribution / Trade

IOC to buy 57 mt crude in `06-07

November 1, 2005. Indian Oil Corporation will buy about 57 mt of crude oil in 2006-07 for its refining requirements. About 45 mt of this quantity will be imported. The company would buy 12 mt sweet oil from domestic companies. The company will need to import about 18 mt of sweet crude and 27 mt of sour crude. Sweet crude has sulphur content lower than 0.5 per cent, while sour crude has higher sulphur content. IOC, with a 54-mt refining capacity, is the biggest refiner in the country, but most of its refineries are tuned in to process sweet crude. The company’s Panipat refinery, currently undergoing expansion, will be putting up a desulphurisation plant of 6 mt capacity. The plant will be commissioned in April next year and will be able to process sour crude. 

India imports crude oil to fulfil 70 per cent of its requirements, which rose from just over 90 mt in 2003-04 to 95.314 mt in 2004-05. IOC imported almost 32 mt of crude oil and over 3 mt of petroleum products, while exporting over 1 mt of products in 2004-05. The company was also trying to negotiate a crude oil supply contract with Nigeria, a sweet crude producer, which supplied 2 mt under a term contract during 2004-05. IOC is seeking about 4-6 mt from Nigeria under the term contract. A term contract involves a purchase agreement with oil exporting companies for a certain period and comes with supply surity. It does not have any price advantage over spot purchases because crude price in both the cases is determined at the time of loading.

Reliance submits best offer for Ceypetco’s tender

October 27, 2005. Reliance Industries has submitted the best offers for all three portions of Sri Lankan refiner Ceypetco's tender seeking petrol, diesel and aviation turbine fuel (ATF). The next lowest bids came from ONGC subsidiary MRPL, but as has been the case in the recent past, it was unable to match the offers of the private refiner.

E&Y files report on feasible structure of Iran-India pipeline

October 26, 2005. Ernst and Young (E&Y), the financial consultants to the $7.5 bn (Rs 338 bn) Iran-Pakistan-India (IPI) gas pipeline project, has submitted its first report on a feasible project structure for the tri-nation pipeline project. October 28 has been set as the deadline for finalisation of the report by E&Y and India’s position on the project structure and security aspects will be finalised by November 7. As per the new schedule worked out by Petroleum Ministry, approval of the Cabinet on the proposed project structure and the tri-partite framework agreement would be sought in mid-December and the final signing of the framework agreement between the three countries has been proposed for December 31.

Shell offers LNG to Dabhol

October 26, 2005. Royal Dutch/Shell has offered to sell LNG at 20 per cent discount of the current naphtha prices to restart the beleagured Dabhol Power Project. The government, which is looking at restarting the project by July 2006, has had little success in sourcing LNG to fire the 2,184 MW plant in Maharashtra at a maximum price of $4.25 (Rs 191) per million British thermal unit (mbtu) to produce electricity at Rs 2.70 per unit.  Shell had earlier offered to sell LNG at $6 (Rs 270) per mbtu but they were unable to meet that commitment. Now they have offered to give gas at a price which is 20 per cent cheaper than naphtha (the alternate fuel for firing the plant). Naphtha is ruling at close to $10 (Rs 450) per mbtu and a 20 per cent discount would essentially mean LNG at $7-8 (Rs 315-360) per mbtu.

Policy / Performance

ONGC plans toll-refining

October 26, 2005. ONGC is considering `toll-refining' options for its proposed 15 mt greenfield capacity addition at Mangalore Refinery and Petrochemicals Ltd (MRPL). The proposed greenfield project will effectively raise MRPL's refining capacity to 30 mt. It is currently expanding the capacity of its existing facility to 15 mt. Under toll-refining, the refiner lends the refining capacity to another company. The crude and the refined product belongs to the other company. The refiner has no responsibility except refining. ONGC is negotiating a long-term contract with a global exploration and production major, which will have its West Asian heavy crude refined at MRPL and buy back the refined product for supply to Asian markets. The company has prepared a plan to set up a second unit at the existing MRPL premises. Since the project will share common facilities with the existing MRPL refinery, the cost is estimated to be between Rs 7,000 crore ($1.6 bn) and Rs 8,000 crore ($1.8 bn), which is substantially lower than the average cost of such a project.

DGH okays extension in Gujarat deepwater block

October 27, 2005. The Directorate General of Hydrocarbons has recommended an extension of one year to the ONGC-GAIL consortium in the Gujarat-Saurashtra deepwater block GS-DWN-2000/2. Owing to the poor prospectivity of the block, an extension period of 12 months in Phase-I -- till August 15, 2006 -- has been recommended. ONGC cited extremely poor prospectivity of the terrain and discouraging results of the well already drilled in this block as main reasons for not competing the minimum work programme (MWP) for Phase-I on time. Also, two wells drilled in the adjacent block -- GS-DWN-2000/1 -- did not produce any encouraging results. GS-DWN-2000/2 is a NELP-II block in which ONGC has a 85 per cent stake. GAIL holds another 15 per cent participating interest

Chinese keen to tie-up with OVL

October 26, 2005. China seems as keen as India in forging a strategic relationship to jointly bid for overseas hydrocarbon acreages. The Chinese are willing to tie-up with OVL and other companies in an attempt to keep acquisition prices low. Chinese were unilateral in the view that acquisition prices were being pushed up because of intense competition between Chinese and Indian companies. 

Duty-free oil imports for EOUs, SEZ trade units

October 27, 2005. The Centre said special economic zones (SEZs) trading units can now import various kinds of oil like motor spirit, superior kerosene oil, high-speed diesel, light diesel and fuel oil for supply to export-oriented units (EOUs) and SEZ manufacturing units. It also stated that the drawback rates for supply of high speed diesel to EOUs and SEZ units has been fixed at Rs 1,025 per metric tonne (pmt), while that of the furnace oil has been revised to Rs 1,300 pmt from Rs 1,050 pmt. This will facilitate supply of duty free fuel to EOUs and SEZ manufacturing units. Entrepreneurs will have to first set up an SEZ trading unit in any of the SEZs for import and supply of fuel to manufacturing units. The import of these fuels in the country, in general, is permitted only through state trading enterprises namely IOC and companies who have rights for marketing of transportation fuels like HPCL, BPCL and IBP.

Petrol prices to stay put till March: Petroleum Secretary

October 26, 2005. Consumer prices of petrol and diesel are unlikely to be revised till March 2006. Only if there is an unprecedented increase in international crude oil prices, the government will approach the Cabinet for a price hike. The Indian basket of crude oil has climbed down from its earlier peak of $62 (Rs 2,791) a barrel to $55 (Rs 2476) a barrel.

Plan panel, ministries differ over petro products pricing

October 26, 2005. The C Rangarajan committee on pricing and taxation of petroleum products will have to carefully balance the divergent views emanating from various ministries and departments before recommending a new structure for pricing of petroleum products. While the ministry of petroleum has favoured continuation of the existing import parity pricing (IPP) mechanism, the Planning Commission has suggested moving to a trade-parity regime. The finance ministry on its part had proposed pricing of petroleum products on the export parity pricing system.

Under trade parity mechanism, the import parity prices will be applicable only on ‘net importable’ products while products which are ‘net exportable' will get export parity prices. Presently, while pricing the petroleum products at the refinery gate, oil companies are levying the import duty component even on products which are not being imported. The petroleum ministry is, however, not in agreement with the trade parity mechanism and feels that continuation of the existing import parity pricing regime would encourage creation of additional refining capacity in line with the growing demand of petro products. As per the ministry, the refinery capacity of the country post-deregulation has more than doubled from 62.24 mt per annum to 127.37 mtpa at present. The domestic refinery industry was, therefore, able to take advantage of the global trend of high refining margins. In case adequate refining margins are not allowed to the domestic refiners, creation of additional capacity in the country would be hampered. This may lead to increase dependence on imported products and more foreign exchange outgo. The adverse impac on refinery profitability will hamper new investments and capacity additions.

On the other hand, the ministry has worked out an extra burden of Rs 6,000 crore ($1.33 bn) if the pricing principles is based on the export parity mechanism. In trade parity, the ministry has contended that constant switchover between net import and net export position over various periods will not impart stability to pricing principles as can be explained the fuel oil/LSHS data in the successive years. In addition, as the refineries can change their product slate by appropriate changes in their crude mix or blending various inter-mediate streams. This can affect the net import or export position from time-to-time. As per the petroleum ministry, the pricing mechanism at refinery gate is based on legally binding agreements between refineries and marketing companies.

Govt may penalise RIL for gas delay

October 27, 2005. The government plans to penalise Reliance Industries if it delays gas production from its field in the Krishna-Godavari basin beyond mid-2008. The ministry had asked the DGH to look into the reasons for delay in the commencement of gas production. RIL had indicated to the petroleum ministry a date not earlier than June 2008 to start producing 40 million standard cubic metres per day of gas, even though the government wanted it to be advanced to January 2008. Reliance has cited non-availability of rigs and service contractors for the delay in developing Dhirubhai-1 and 3 gas fields, two of the 13 discoveries the company made in the block. RIL discovered 14.5 trillion cubic feet gas reserves in deepsea block KG-DWN-98/3 and had contracted to supply gas to National Thermal Power Corporation by mid-2007. The company has now indicated June 2008 as the delivery date. 



TPC proposes capacity addition in Maharashtra

October 1, 2005. Tata Power Company has formally submitted its proposals to the Maharashtra government to set up two 1,000-MW coal-based projects at Vile and Bhal in Raigad district with an investment of Rs 8,000 crore ($1.78 mn). As far as Vile project is concerned, the company has sought clarifications on investing to strengthen jetty, the dredging if required and rail linkage for carrying coal from jetty to the plant site. This apart, TPC has also expressed its desire to repower the existing gas-based unit at its Trombay facility with a capacity of 500 MW. However, the company has clarified that it would be possible only after the gas availability is assured after two years.

Tuticorin port, NLC tie up for thermal plant

October 30, 2005. The Tuticorin Port Trust (TPT) and Neyveli Lignite Corporation have signed an agreement for a proposed 1,000 MW thermal plant to be set up on the Tuticorin port land. Two new thermal power plants, each 500 MW capacity, at a cost of Rs 4,600 crore ($1.02 bn) are proposed to be set up by NLC Tamil Nadu Power Ltd, a joint venture between NLC and the Tamil Nadu Electricity Board (TNEB). The plants would come up adjacent to the Tuticorin Thermal Power Station (TTPS) of TNEB. The plants were likely to be commissioned in 2008. Annually, about 5.5 mt of thermal coal would be handled in the port through a proposed captive jetty to be constructed for this purpose.

Jaypee to foray into thermal power

October 28, 2005. Jaiprakash Associates Ltd, the flagship firm of Jaypee Group, plans to foray into thermal power and will take up more hydel projects to become a 5,000 MW generation firm by 2012 from 300 MW now. The diversified infrastructure company is also looking at cement and hydro power projects in neighbouring Bhutan besides foraying into power transmission. While most of generated power would be hydro, the company is also looking at thermal plants. The company has submitted a bid for a 500 MW coal-fired plant to Madhya Pradesh State Mining Corporation to form a joint venture for a coal mining project in a debt-equity ratio of 70:30. The successful bidder would also set up a power plant. The Jaypee Group, which operates the 300 MW Baspa hydro power plant in Himachal Pradesh, will commission the 400 MW Vishnu Prayag hydel plant in Uttaranchal in March 2006. The firm is likely to begin construction on the 1,000 MW Karcham Wangtoo hydro project in Himachal Pradesh in a month. The Environment Ministry has recommended project clearance and financial closure for the Rs 5,600 crore project ($1.24 bn) is expected by December this year.

Surya Roshni plans power generation foray

October 28, 2005. The board of directors of Surya Roshni cleared a proposal to foray into the business of power generation. The board approved change in the object clause of the memorandum of association (MoA) of the company. A new object clause, i.e to generate electric power by conventional and non-conventional methods and distribution and sale of such power, would be incorporated in the MoA.

Two more reactors for Koodankulam

October 25, 2005. Two more reactors of 1,000 MW capacity will be coming up at the Koodankulam nuclear facility in Tirunelveli district in the State. The Union Government has recently approved the company's proposal to construct eight more reactors for power generation and two each have been sanctioned for Koodankulam in the State, Jaitapur in Maharashtra, Kakrapar in Gujarat and Kota in Rajasthan. Nagpur-based National Environmental Engineering Research Institute has completed its environment assessment report on the proposed construction at Koodankulam and the same would be submitted to the Atomic Energy Regulatory Board for approval.

Transmission / Distribution / Trade

Kerala to get 90 MW of power at cheap rates

October 30, 2005. Kerala will get an additional 90 MW of power at "cheap costs" from the central grids, starting from November 1., the formation day of the State. Not only the present Government, even the next Government would not be required to effect any increase in the tariff as the State Electricity Board is marching towards profit. The decision to give additional power would benefit the State Electricity Board (SEB) as the 90 MW of power (equivalent to two million units of power a day) would be available at a price of less than Rs.2 a unit as against nearly Rs.6 a unit charged by the National Thermal Power Corporation (NTPC). The State was now receiving 180 MW of power from the NTPC's unit at Kayamkulam at a price of Rs.6 a unit. The Kerala Government requested the Centre to give cheap power in the wake of the supply of 180 MW of power from the Kayamkulam station. The State had a power purchase agreement (ppa) with the Kayamkulam station to avail of the entire 360 MW of its installed capacity and to pay fixed charges of Rs.20 crores ($4.4 mn) a month, irrespective of the power drawn from the station.

CESC to buy power from REL group co

October 28, 2005. RPG flagship CESC has quietly entered into a power import arrangement with Reliance Energy Trading (RETL). Under the terms of the agreement, CESC will import roughly 50-to-100 MW from RETL to manage its daily peak power requirement effectively. Reliance Energy Trading, which has a national power trading licence, is slated to source peaking power for CESC from units in Orissa. While the precise electricity import commercials are unknown, it is learnt that CESC plans to source a sizeable chunk of its peak requirement through Reliance Energy Trading at an average bulk rate of Rs 4 per unit. At present, the peak power requirement in CESC’s 567 sq km command area is often as high as 1300 MW. Since CESC’s own generating stations can only meet up to 860 MW, it needs to rely on power imports to ensure uninterrupted power supply to its 2 million consumers during peak evening hours. For the moment, CESC imports an average 350-360 MW to meet total peak system demand. While the RPG utility continues to meet bulk of its import requirement through WBSEB, the decision to import power from RETL aims to address the peak requirement of CESC’s 1.65 million domestic users and high-tension industrial/commercial users. CESC also has similar power import arrangements with Power Trading Corporation (PTC).

Bhel, Alstom sign deal for tech transfer

October 27, 2005. Bharat Heavy Electricals Ltd entered into a "technology transfer" agreement with French power major Alstom for design and manufacture of large-size supercritical boilers, a move that would enable the PSU to undertake 800 MW power projects. The agreement with Alstom includes transfer of state-of-the-art technology to Bhel for any size of Once-Through Boilers and associated coal pulverisers. During the period of agreement, Alstom will provide training to Bhel engineers as well as support in the design, engineering, manufacturing, assembly, testing, erection, commissioning, repair, retrofit and upgradation of the boilers. With this, Bhel would be able to meet the requirements of higher-size supercritical thermal plants aimed at meeting country's objectives of providing power on demand by 2012. According to Bhel, once-through boilers are being employed world wide due to their higher efficiency, which enables higher generation of power despite using the same amount of fuel, besides substantially reducing environmental pollution from fossil fuel fired power plants.

CERC caps per unit tariff at Rs 2.20 for Udupi project

October 27, 2005. In a landmark order, the Central Electricity Regulatory Commission has capped the tariff of the 1,015-MW inter-State power project in Udupi promoted by the Nagarjuna Power Corporation Ltd (NPCL). On the basis of the CERC order, the approved capital cost for the project now becomes Rs 4,299.12 crore ($955 bn) on the basis of a 70:30 debt-equity ratio. This would translate into first-year power tariff of about Rs 2.20 per unit. The CERC order, however, allowed for flexibility to improve on the capital costs. In such a situation, these costs would then be taken as completion costs for tariff purposes. However, the order has also made it clear that pass through of additional capital expenditure would not be permitted. This is the first such "in-principle clearance" being accorded by the CERC since it announced the norms in August.

Policy / Performance

Ficci urges tax breaks for core sector projects

October 1, 2005. Ficci has urged the government to provide investment-oriented tax breaks to industry for development of infrastructure. In its pre-Budget memorandum to finance ministry the industry body has called for 100 per cent tax holiday for 10 consecutive years after the commencement of operations in this sector. The memorandum further stressed on the need for a variety of incentives and duty benefits to areas like power, telecom, hydrocarbons, industrial parks, housing, shipping, and tourism. Other sectors that need fiscal support, include textiles, cement, pharmaceuticals, steel, wind energy, automobiles and fertlisers.

Dabhol SPV may get nod to raise funds overseas

October 31, 2005. Gas and Power Investment (GPICL), which will take over the debt of Dabhol Power Company, would be eligible to borrow overseas under the approval route. RBI said that a special purpose vehicle (SPV) or any other entity notified by the central bank, which is set up to finance infrastructure companies/projects, would be treated as a financial institution (FI) and the external commercial borrowings (ECBs) raised by such an entity would be considered under the approval route. Although RBI is yet to firm up the eligibility criteria for FIs, this SPVs is seen as claimant for being given this status. Considering the constraints in the local market in raising long-term funds, the latest RBI move offers a window of opportunity for infrastructure project SPVs.

3,870 MW extra power for UP by ’11

 October 30, 2005. Uttar Pradesh will generate 3,870 MW additional power in the next five years to meet the increasing industrial demand. Three power stations were nearing completion and would be commissioned in 2006-07 to generate 1,700 MW. The first unit of Tehri power project with a generation capacity of 350 MW would be commissioned early next year followed by the second unit in about 6 months time. The Vishnu Prayag Hydel Project in Uttaranchal would also add 400 MW followed by another thermal power plant with generation capacity of 420 MW. With the commissioning of these projects, the gap between demand and supply would reduce to 2,000 MW. By the year 2009-10, additional 1,700 MW would be generated followed by 1,000 MW by the year 2010-11.

Govt to focus on setting up mega thermal stations

October 28, 2005. With the ongoing fuel shortage taking its toll on the power sector, the Ministry of Power has decided to shift its thermal generation strategy in favour of setting up mega thermal stations of around 3,000 to 4,000 MW capacity, either along the coastline or at pithead sites for supplying power to more than one State. The Ministry has directed the Central Electricity Authority (CEA) to identify coastal and pithead sites for setting up these mega thermal stations. The CEA has been asked to complete the exercise over the next three months. The Ministry has drawn up a programme for capacity addition to the tune of 11,500 MW by ten private power projects (IPPs), which are being monitored by an inter-institutional group. The list of IPPs includes Mangalore thermal project, Karnataka (1,015 MW), Pathadi (coal), Chhattisgarh (Ph-II 300 MW), Karcham Wangtoo hydro HP (1,000), Dadri (gas), UP (3,500 MW), Tata Power Company’s Vile project, Maharashtra (1,000 MW), gas-based GPEC-II plant in Gujarat (1,050 MW), gas- based project at Hazira, Gujarat (1,500 MW), Vizag, AP (500 MW), Kattupalli, TN (1,000 MW) and Rosa project, UP (567 MW). It was also decided that as a general planning guideline, States should plan to meet their demand growth through a combination of power from central PSUs (about 50 per cent of the overall requirement) and the remaining from projects to be set up by the State utilities themselves or through independent power producers (IPPs). The Ministry has also decided to call a meeting of developers of IPPs to ascertain their problems and impress upon them the need for timely tying up of issues such as equity. The Ministry has also decided to ask States to finalise their action plan for procuring power to meet their requirements in line with load projections, particularly in case of Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu, Karnataka, Punjab, Haryana, Rajasthan and Uttar Pradesh where the projected load growth is comparatively higher.

Utilities tripping on coal import target face penalty: MoC

 October 28, 2005. Power utilities failing to meet their coal import targets will face ‘disincentive’ in the form of corresponding cut in indigenous coal allocation during the last quarter of the current fiscal year. The coal ministry (MoC) has sent a notice to all power utilities, warning them to meet their import targets or face linkage cut from domestic coal sources. Against a target of 13.45 mt of coal imports sought by power utilities, it has just managed to import 3.8 mt (25 per cent of targets) till September 30. Even during last fiscal (2004-05), power utilities imported just about 30 per cent of targets. Against a coal production target of over 400 mt during the current fiscal, coal shotage is expected to be about 39 mt. The coal ministry has provided coal linkages of about 279 mt to power utilities for 2005-06. The proposed import of 13.45 mt for the current fiscal amounts to about 25 mt tonne of coal available through domestic sources due to its superior quality.

Growth in core sectors declines to 4.4 per cent

 October 27, 2005. Growth in six core industries slipped to 4.4 per cent during the first half of this fiscal against 5.3 per cent in the same period in the previous fiscal. This was primarily due to a drop the in growth of crude petroleum, coal, electricity and cement. The index of the core industries, which includes petroleum refinery products, crude petroleum, finished steel, coal, electricity and cement, stood at 190.4 points in September this year, reflecting an increase of 1.8 per cent compared to a growth of 0.2 per cent in the same month of 2004. The six core industries constitute 26.7 per cent of the total weight in the IIP basket.

Crude petroleum production (weight of 4.17 per cent in IIP) slowed down by 7.3 per cent in September this year as compared to 2.5 per cent in the corresponding month last year. Crude production fell by 4.9 per cent during April- September in current fiscal compared to 4.3 per cent in the same period last fiscal. But crude refinery production (weight of 2 per cent in IIP) grew by 5 per cent in September this year as compared to a deceleration of 0.2 per cent in September 2004. Petroleum refinery production decelerated by 0.7 per cent during the first half of this fiscal as compared to an increase of 7.3 per cent in the same period last year. Coal production (weight of 3.22 per cent in IIP) grew by 4.6 per cent in the month as compared to 9.3 per cent in September 2004. During April-September 2005-06, coal production grew by 5.3 per cent during compared to an increase of 6.3 per cent in the same period of last fiscal. Electricity production (weight of 10.17 per cent in IIP) also fell by 0.6 per cent in the month as compared to a rate of 7.6 per cent in September 2004. Electricity production grew by 4.7 per cent during April- September in the current fiscal as compared to an increase of 7.8 per cent in the same period last fiscal.

Rosa Power, UP Govt in captive mining tie-up

October 26, 2005. Rosa Power Company (RPC), an Aditya Birla group company, and the Uttar Pradesh government have reached an agreement on floating a joint venture for captive mining for the 567 MW (2X283.5 MW) coal-based thermal power project, to come up on the Lucknow-Delhi National highway in Shahjahanpur. The project is likely to achieve financial closure by March next year and construction is likely to begin soon after. Power Purchase Aggrements are likely to be signed this week and ratified by the state power regulator next month. The RPC was first mooted in 1993. The proposed JV will bid in the captive mining block auction by the Union coal ministry soon in Jharkhand and Chattisgarh and the mines under Northern Coalfields Ltd. This proposal has also been approved by the UP cabinet. In the proposed JV, UP Power Corporation Ltd, will hold 26 per cent equity while RPC would hold the remaining 76 per cent. The JV is being floated to ensure fuel security for the Rosa thermal plant, which would annually need 2.7 million tonne per annum (MTPA) of coal. With the present coal linkage available to the Rosa plant, the coal ministry would be able to supply only 80 per cent of the requirement. With this quantity of coal the Rosa plant can operate only at 68.49 per cent of its capacity. The JV will ensure that the plant operates at 80 per cent of plant load factor.

Jharkhand sets up project clearance agency

 October 26, 2005. The state government finally set up the single window system (SWS) agency to help investors with information and permissions needed to set up new projects. The role of the agency operating the SWS will be discharged by the Jharkhand Industrial Infrastructure Development Coorporation (JIIDCO). From the beginning of 2005, the Jharkhand government been overwhelmed by a large number of leading international and domestic investors keen to invest in the core sector in the state. Investors sought help to set up projects in sectors like steel, mining and power generation. Leading investors who had signed agreement to set up new projects included steel sector investors like Tata Steel, Mittal Group, Jindal and Essar, while RPG Enterprises inked a deal to set up a thermal power plant in the state. So long, in the absence of a agency running the single window system, investors had to get proposals vetted by a large number of state departments to secure information and apply for permissions. Following the setting up of JIIDCO as the SWS agency, investors would find it much easier to secure permissions and getting required clearances for start of construction works.

REC extends aid for AP

October 26, 2005. The Rural Electrification Corporation Limited has agreed to extend financial assistance to the tune of Rs 487 crore ($108 mn) for electrifying 8,470 village habitations and 25,12,731 rural households in 643 mandals spread over 13 districts of the State. This is in addition to sanctions recently accorded for Rs 160 crore ($35.53 mn) in Visakhapatnam, Guntur, Anantapur and Khammam districts. The REC has agreed to fund the electrification of households in Srikakulam, Kadapa, Nizamabad, Vizianagaram, Kurnool, Chittoor, Krishna, Mahabubnagar, West Godavari, Nellore, Nalgonda, Prakasam and Adilabad districts. The REC has also agreed to give Rs 400 crore ($88.85 bn) to electrify an additional 4 million houses.

Orissa demands free power from CIL power project

October 25, 2005. The Orissa Government has placed a demand for 12 per cent free power from a generation project proposed by Coal India Ltd (CIL) as part of its plans to diversify into power generation. Mahanadi Coalfields Ltd's (MCL), a subsidiary of CIL, is in talks with Orissa Government for setting up a 2,000-MW thermal power plant. However, during the negotiations, the State Government came up with the demand for 12 per cent of the power generated by the plant free of cost, as is done in the case of hydel power generation. CIL is in talks with Neyveli Lignite Corporation (NLC) and the National Thermal Power Corporation (NTPC) for the project.




Indonesia seeks exploration of eastern area

November 1, 2005. The Indonesian government is drafting incentives aimed at attracting exploration to the country's eastern regions. Chairman of Indonesia's upstream oil and gas agency BP Migas, said the agency would propose to the Ministry of Energy and Mineral Resources that the exploration commitment be limited to geological studies and seismic surveys. State oil and gas firm PT Pertamina has identified 41 mature fields and begun offering them to investors. Four multinational investors, including China Petroleum & Chemical Corp., had shown interest joining partnerships to brown fields.

Petrolifera wins exploration rights in Peru

November 1, 2005. Petrolifera Petroleum Ltd., private Calgary independent, won exploration rights to Block 107 in the Ucayali basin. The 3.2-million-acre block is north of and on trend with the Camisea gas-condensate fields. Minimum work program is $16.4 million and drilling one well in the 7-year term. Connacher Oil & Gas Ltd., Calgary, is a guarantor of the license and retains a 10% carried working interest. Block 107 contains Rashaya Norte, a look-alike feature to Aguaytia gas-condensate field. The block has a number of undrilled surface anticlines.

Austral Pacific spudded in New Zealand

November 1, 2005. Austral Pacific Energy Ltd., Wellington, NZ, spudded the Oru-1 exploration well on PEP 38716 in the Taranaki basin. The well, projected to 5,600 ft, is to test a structure above the east flank of Waihapa oil field. Austral is the operator with 52.9% interest.  Wingrove-1 on the Oru structure's north flank tested oil from thin sandstones near 4,000 ft but at sub economic rates and encountered good reservoir sandstones near 5,000 ft in 1993. The deeper sandstones produce oil at nearby Cheal field and are the main target of Oru-1. Austral is preparing a drillsite at Pukengahu, adjacent to the Oru structure, and will spud there in December if Oru-1 is successful.

Russian cos to join in Egyptian oil, gas projects

November 1, 2005. Egypt is calling on Russian oil and gas companies to expand their presence in Egypt's oil and gas industry. In particular, Russian companies have the opportunity to invest an estimated $5 bn to acquire assets to explore and develop oil and gas resources, $10 bn in petrochemical projects needed over the next 20 years, about $5 bn in the construction of new-generation refineries and projects related to the production of liquefied natural gas. Russian companies could also deliver their equipment to Egypt and participate in service contractsm, Lukoil and Gazprom are among the Russian companies that are already actively involved on the Egyptian market.

Gazprom to decide on Shtokman Partners by April ‘06

November 1, 2005. Russian gas giant OAO Gazprom will choose its partners for the development of the Shtokman gas condensate field no later than April 2006. Gazprom plans to set up supplies of liquefied natural gas from the Shtokman field to North America. This field is located in the central part of the Barents Sea and its reserves are currently estimated at 3.2 trillion cubic meters of gas and 31 million tonnes of condensate.

Saudi Aramco to invest $14 bn on oil capacity

November 1, 2005. Saudi Aramco, plans to spend SAR52 bn ($13.9 bn) on its oil output expansion plans by 2009. Samba Financial Group said that Aramco's investment would pay for its previously announced plans to boost crude oil output capacity from 11 million barrels a day to 12.5 mb/d by 2009. The kingdom's 2005 oil revenue is expected to rise 54% from last year. Export revenue would reach $163 bn, up from 2004's record $106 bn, with the value of Saudi crude for the year averaging $51 a barrel, above last year's $35/bbl. Production is forecast to average 9.5 mb/d, up from 2004's 9 mb/d.

OPEC spare crude oil ample for winter

October 31, 2005. The Organisation of Petroleum Exporting Countries has sufficient spare capacity to meet rising demand for crude oil this winter. OPEC spare capacity of 2 mbpd will be more than adequate to cover demand this winter.

Russia may boost oil, natural gas production by 2015

October 30, 2005. Russia may significantly increase oil production and crude exports by 2015. Russia could increase oil production to 530 million metric tons a year, and oil exports to 310 million tons by 2015. For comparison, Russia produced 458.7 million tons of oil and exported 257.4 million tons in 2004. Russia's production and export of natural gas could reach 740 billion cubic meters and over 290 billion cubic meters respectively by 2015. The export of Russian fuels to Asian-Pacific countries may rise by six times by 2015 and the share of Russian oil derivatives on the North American market had grown more than twice in 2005. The North European Gas Pipeline, which will be laid on the Baltic Sea floor to Germany, would directly link the Russian natural gas transportation system to European pipeline networks.

Carnarvon to sell PNG stake for $0.5 mn

October 28, 2005. Carnarvon Petroleum has agreed to sell its interests in Petroleum Retention Licenses 4 & 5 in Papua New Guinea to New Guinea Energy Limited, who will assume all of Carnarvon's rights and obligations in respect of the PRLs. NGE has made an unconditional offer comprising an initial cash payment of $250,000 and the issue of a non-interest bearing convertible loan note in the amount of $250,000, convertible at Carnarvon's election into 1,250,000 fully paid ordinary shares in NGE at an issue price of 20 cents per share, on or before NGE's planned listing on a reputable stock exchange. In the event that NGE's planned listing does not occur by June 30, 2006, NGE shall, at Carnarvon's election, redeem the convertible loan note and pay $250,000 cash to Carnarvon.

NGE is an Australian company that is currently raising capital for oil and gas exploration and production from four Petroleum Production Licenses in Western Province PNG that were awarded to it in August 2005. The purchase of Carnarvon's interests in PRLs 4 and 5 will form a strategic fit with the licenses already acquired.

Rosneft to invest $1 bln in Vankor field

October 28, 2005. State-owned oil major Rosneft intends to invest about $1 billion in developing the Vankor oil and gas field in the Krasnoyarsk Territory. The industrial production of oil would start August 30, 2008.

LUKOIL, Kazakhs may build $3.7 bn chemical plant

October 27, 2005. Russia's top oil company LUKOIL is in talks with the government of Kazakhstan about jointly building a gas-chemical complex at a cost of $3.6-$3.8 billion. The plant would be able to process up to 14 bcm a year, with 5.5 bcm going to a chemicals unit and the rest sold as natural gas. Gas supplies would come from the Khvalynskoye, Rakushechnoye, Sarmatskoye and Kilometre 170 fields in the northern Caspian. The complex will include a gas processing plant, an olefins unit and a olefins-methane unit, costing around $500 million, $1 billion and $2 billion respectively. The whole complex might take four or five years to build. LUKOIL is already increasing its exposure to Kazakhstan, Russia's oil rich southern neighbour, with a $2 billion acquistion of Nelson Resources another Toronto-listed Kazakh oil producer.

EnCana to sell natural gas liquids unit

October 27, 2005. EnCana Corporation and certain affiliates have reached an agreement to sell substantially all of their natural gas liquids business to Provident Energy Trust for approximately US$586 million (C$697 million), before adjustments. The sale, with an expected closing before year-end, is subject to closing conditions and regulatory approvals. The company continues to focus on its industry-leading position in long-life North American natural gas and oilsands resource plays. Proceeds from the sale is expected to be directed to debt reduction and potentially the continuation of EnCana's share purchase program pursuant to EnCana's Normal Course Issuer Bid.

Repsol YPF wins Brazil exploration sites

October 27, 2005. Repsol YPF has won 16 offshore exploration areas in Brazil in the latest bidding round organized by the National Petroleum, Natural Gas & Biofuel Agency of Brazil (ANP). All areas are located in the main offshore producing basins of Campos, Espíritu Santo and Santos. The award brings Repsol YPF's total offshore ownership in Brazil to 24 blocks, making it the second largest operating oil company behind state-owned giant Petrobras in terms of number of exploration blocks. Repsol YPF will operate 11 of these areas, and will partner with Statoil, Amerada Hess, BG Energy and Petrobras for the remaining 5.

The areas were awarded at depths between 100 and 2,500 meters of water, and bolsters Repsol YPF's plan to focus on upstream assets for growth during the next several years.  The distribution of blocks is as follows: 1 block in the Campos basin (50% Repsol YPF, 50% Statoil); 2 blocks in the Espíritu Santo basin (one is 100% Repsol YPF and the other which is 40% Repsol YPF, 60% Amerada Hess); 13 blocks in the Santos basin (9 solely operated by Repsol YPF and the remaining blocks in partnership with Petrobras and BG Energy).

APEC to step up investment in Asia Pacific 

October 27, 2005. The APEC countries have agreed to increase investment in oil production in Asia and the Pacific region, and thereby, reducing their dependence on the supply of crude oil from the Middle East. The member countries could optimise some of their oil deposits in the region.

CNPC’s acquisition of PetroKazakh successful 

October 27, 2005. China National Petroleum Corporation has successfully acquired Canada-based PetroKazakhstan Inc through its wholly-owned subsidiary CNPCI after a Canadian court approved the sale. The $4.2 bn takeover of PetroKazakhstan by Chinese oil company CNPC has won approval from a Canadian court in Alberta. Calgary-based PetroKazakhstan will close the deal with CNPC soon. CNPC’s rivals for PetroKazakhstan, whose fields are located in Kazakhstan, included Russian Lukoil and Oil & Natural Gas Corporation (ONGC). Kazakhstan’s government has already given its blessing to the CNPC deal and has agreed to buy 33% of PetroKazakhstan for $1.4 billion.

2 Companies win oil, gas leases in Alaska

October 26, 2005. The first sale of state oil and gas leases in 22 years on the Alaska Peninsula generated 37 bids, with a major oil company winning the most. Shell Offshore Inc., part of Shell Exploration & Production Co., was the high bidder on 33 tracts, all centered near Port Moeller. The site is southeast of Nelson Lagoon, about 580 miles southwest of Anchorage. Hewitt Mineral Corp. of Ardmore, Okla., was high bidder on four tracts in the same area. Alaska offered 1,047 tracts covering about 5.8 million acres, an area about the size of New Hampshire. The sale acreage available stretched from the Nushagak Peninsula in the north, down the north side of the Alaska Peninsula, to an area north of Cold Bay, including offshore tracts. The bids generated about $1.3 million. The minimum bid was $5 per acre. Shell submitted identical bids of $5.02 per acre generating $28,911 per tract on its 33 successful bids. Hewitt bid $21.14 per acre, and a total of $121,767 each, for two tracts. It bid $6.11 per acre for two other tracts. The 10-year leases have a fixed royalty rate of 12.5 percent.

Indonesia boosts daily output of oil and gas

October 26, 2005. Indonesia will launch $1.2 billion worth of 13 oil and gas projects this week, which will add some 53,800 b/d and 1.53 bcf/d of natural gas to the country's daily output by next year. Included are the development of 12 oil fields and a pipeline, involving global investors BP, Total and Petrochina. Indonesia is expected to increase its oil production by 5% to 1.11 mmb/d next year from 1.075 mmb/d this year. The country produced 1.52 mmb/d in 1999.  Some of the fields have been producing since July 2004. The latest would be a 15,000 b/d field at Salawati in Papua province, which would start producing next month under the Indonesian state-owned oil and Gas Company, PT Pertamina, and PetroChina under a joint operation body (JOB) contract.  The other fields include 9,500 b/d of oil, which LPG producer Betara III began producing in August under PetroChina. Kodeco's KE-40 field in Bangkalan, East Java, and Pertamina-Medco's JOB in Tiaka, Central Sulawesi, will produce 5,000 b/d each.

EnCana extends Chinook discovery off Brazil

October 26, 2005. Kerr-McGee Oil & Gas Corp. made another successful appraisal of a Campos basin oil discovery on Block BM-C-7 in 350 ft of water 75 km off Brazil. The EnCana Corp. 3-ENC-4-RJS appraisal well extended Chinook field to the northeast by 1.5 miles. Kerr-McGee increased its estimate of the field's resource to 150-250 million bbl from 100-200 million bbl. The appraisal well, drilled to 7,692 ft TD updip of the discovery well, encountered 80 ft of net pay in the Cretaceous Carapebus formation. An earlier appraisal well, 3-ENC-3-RJS drilled 2.5 miles southwest of the discovery well, tested at rates of 1,400-1,800 b/d of 14º gravity oil.  Feasibility studies are under way to evaluate the commerciality and development options for Chinook field. EnCana operates the 133,000-acre block with a 50% interest. Kerr-McGee holds the remaining 50%.


Valero plans work at 6 plants in 1st half '06

October 31, 2005. Leading U.S. refiner Valero Energy Corp. overhaul work is planned on units at six of its 17 refineries in the first half of 2006. Many of the projects are upgrades of crude oil processing and coking capacity, but the biggest project is a 21-day overhaul of the 180,000 bpd Memphis, Tennessee, refinery in March.  The San Antonio-based refiner has also shelved plans for a $5-billion "mega-expansion" at its 275,000 bpd Aruba refinery, but is considering smaller projects in 2007 and 2008 at that plant so it could produce finished gasoline. Valero is considering expanding the 225,000 bpd Port Arthur, Texas refinery it acquired in September from Premcor Inc. to 400,000 bpd. The plant is already being expanded to 325,000 bpd in refining capacity by the third quarter of 2006 year. No time frame has been set for expanding the Port Arthur plant beyond 325,000 bpd.

Expanding or upgrading crude and coking units enables Valero to more efficiently process high-density, high-sulfur, but cheaper grades of crude oil. One of the 2006 projects, a hydrotreating upgrade at Valero's 210,000 bpd Texas City, Texas, refinery in intended to meet U.S. regulations mandating ultra-low sulfur diesel. At total of 130,000 bpd in refining capacity will be offline while the work is done. In the fourth quarter of this year, Valero has overhauls underway at its 175,000 bpd Delaware City, Delaware, refinery and 158,000 bpd McKee refinery in Sunray, Texas.

ADNOC plans 10 new fuel stations

October 30, 2005. The Abu Dhabi National Oil Company's Adnoc for distribution is planning to construct 15 new fuel stations in Abu Dhabi. The costs of the construction of the new fuel stations will Dh150 million in total. The project aims to keep pace with the development process and promote the standard of services level in the western region of Abu Dhabi.

Iran plans to build oil refinery in Ilam

October 30, 2005. Ilam Province Governorate has started negotiations with a number of domestic and foreign companies to build an oil refinery in this southwestern province bordering Iraq. Ilam Province enjoys rich oil and gas reserves it lacks an oil refinery of its own however, the governor general of the province has begun negotiations with some Iranian companies as well as a Norwegian enterprise to construct an oil refinery in the province. Over 3.15 percent of Iran’s onshore oil reserves yielding some 11.87 billion barrels of oil are supplied in Ilam Province. Despite abundant oil and gas reserves in the province, it still lacks a fuel network to supply fuel to its urban areas.

Lankan investor plans to build oil refinery

October 28, 2005. Private investors plan to build a $795 million oil refinery that could triple Sri Lankan capacity, but first they want a government pledge to buy half of its output. It is not clear the name of the backers of the 100,000 barrel-a-day refinery, to be built alongside the government's 50,000 bpd facility at Sapugaskanda on the outskirts of Colombo. It is still under negotiation with the government. The government has agreed in principle but there are still certain issues to be cleared. The project was launched because of a lack of refining capacity in Sri Lanka. Even after a decision, it would take four to five years for the refinery to be built and brought into operation.

Russia turns to Black Sea refineries

October 27, 2005.  Imports of Urals crude by Black Sea countries are set to increase as refiners modernize and boost capacity, and as Russian firms diversify exports away from the Mediterranean. Russian oil major LUKoil has upgraded and boosted refinery runs at plants in Bulgaria and Romania, while rivals in Romania are spending millions of dollars on upgrading and expansion work.

Marathon in $2.2 bn refinery expansion

October 27, 2005. Marathon Oil Corp. would pursue a $2.2 bn expansion of its refinery in Garyville, Louisiana. It expects to increase the refinery's capacity to 425,000 bpd from 245,000 bpd currently as early as the fourth quarter of 2009.

Transportation / Distribution / Trade

Canadian LNG terminals on track for 2008

November 1, 2005. As companies scramble to get LNG terminals into often-unfriendly sites in the U.S. Northeast, workers are quietly readying two Canadian East Coast plants for construction next year. Crews are scheduled to start building storage facilities at Anadarko Petroleum Corp.'s Bear Head terminal at Point Tupper, Nova Scotia, next spring. Likewise, next spring is the target for onshore construction at Canaport LNG, a terminal partnership between privately held Irving Oil and Spanish oil company Repsol at St. John, New Brunswick. Both terminals are designed to send out 1 bcfd of natural gas to customers in eastern Canada and the northeastern United States, starting in 2008. The biggest difference between the projects is that Canaport already has plans for incoming LNG from Repsol's Atlantic Basin liquefaction projects.

Indonesia wins subsea gas line

November 1, 2005. Indonesian gas distributor PT Gas Negara has awarded PT South East Asia Pipe Industry an $84.2 million contract to construct a subsea pipeline between South Sumatra and West Java. The 32-in., 160-km pipeline will deliver natural gas from Labuhan Maringgai in Lampung province to Muara Tawar, West Java. SEAPI will work on the project with India's Welspun Gujarat Stahl Rohren Ltd

Kazakh oil to China by Russian pipeline

October 26, 2005. Kazakh has offered Russian oil companies the use of a Kazakh pipeline to transport oil to China. Russian state-owned oil company Rosneft has applied for permission to transport 1.2 million metric tons of oil via the Kazakhstan-China pipeline in 2006. Currently, Rosneft transports its oil to China by rail. In 2005, Rosneft plans to deliver 4 million tons of oil to China. Lukoil, another Russian oil giant, has also showed an interest in the pipeline. The Atasu-Alashankou pipeline is to begin operations on January 1, 2006. It will eventually have a capacity around 20 million tons a year, but initially carry 10 million tons a year.

Policy / Performance

Russia’s energy exports to Asia to grow six-fold by 2015

November 1, 2005. Russia’s energy exports to the countries of the Asian Pacific region will grow six-fold within the following decade and are hoped to make up 18 per cent of Russia’s entire oil and gas exports by the year 2015. Europe will remain Russia’s main energy market. Russia's growing energy exports to the United States. Over the past year the share of exports of Russia’s oil and oil products to the United States has more than doubled. Although Russian experts account for only four per cent of the overall energy consumption in the United States a positive dynamics in the development of bilateral cooperation in the energy sector is quite obvious. By the year 2015 oil production in Russia will make up 530 mn tons and exports - around 310 mn tons, Western Siberia, where oil production will be growing by 2010-2015, is Russia’s main base of energy resources.

$230mn ADB loan to take gas to western Bangladesh

October 29, 2005.Asian Development Bank (ADB) will help expand the natural gas infrastructure and delivery system in Bangladesh to support the country's economic growth through a US$230 million loan package approved. The project will construct four gas transmission pipelines totaling 353 kilometres to transport about 360 mcf of natural gas a day to the less developed western region of the country, covering an area with a population of nearly 15 million. About 320 km of gas distribution pipelines will also be constructed to create a new distribution network in the Rajshahi area in western Bangladesh. Based on an ADB-financed study, Petrobangla, the Bangladesh Oil, Gas and Minerals Corporation, has formulated an investment plan for the period 2002-2020 that envisages $3 billion in investments for the gas sector to meet the country's increasing gas requirements. The total cost of the project is estimated at $413 million. A $225 million loan from ADB's ordinary capital resources will help finance the construction of the pipelines and installation of compressors.

The loan carries a 20-year term, including a grace period of five years. Interest will be determined in accordance with ADB's LIBOR-based lending facility. A $5 million loan from ADB's concessional Asian Development Fund will help finance the capacity building components. It will have a repayment period of 32 years, including a grace period of 8 years, and an interest charge of 1 per cent per annum during the grace period and 1.5 per cent thereafter.

The government of Norway is considering giving a $5 million grant for the capacity building component, and the government of Bangladesh will provide the balance of $178 million. Petrobangla and four of the state-owned gas companies under it will serve as the executing agencies for the project's various components. The project is scheduled to be completed in June 2010.

World Bank mulls withdrawal from Chad oil pipeline

October 27, 2005. The World Bank may withdraw from a high-profile oil pipeline investment in Chad and halt lending to the government if it changes a law to access a larger share of oil profits. The move would be a major setback for the bank's biggest investment in Africa - one it considered a test case for its strategy for oil investments as a way to benefit poverty-stricken nations. In exchange for funding the $3.7 billion pipeline, the World Bank told Chad to pass a law ensuring that 10 percent from oil proceeds go into overseas bank accounts and is spent only on poverty programs. The government is expected to earn about $2 billion over 25 years from the heavy oil projects developed by an Exxon Mobil-led consortium. The bank could also insist that Chad pay back its World Bank loans more quickly.

Chad's government has said its budget is being squeezed by the increased security costs related to thousands of refugees fleeing the Darfur conflict in neighboring Sudan. The Bank's decision last year to fund the 620-mile (1,000 km) pipeline to take crude to market through Cameroon was criticized by aid agencies which warned Chad was marred by corruption, political instability and human rights abuses.

Chevron signs deal for Gorgon gas in Japan

October 27, 2005. Chevron Corp. its Australian subsidiary will sell liquefied natural gas (LNG) to Tokyo Gas Co., a Japanese utility. The agreement covers the purchase of 1.2 million tons per year of LNG from its Gorgon project in Australia, starting in 2010, for a 25-year period. Financial details were not disclosed.

LUKoil to raise Arctic crude output

October 27, 2005. LUKoil, Russia's largest oil company, and ConocoPhillips plan to increase average daily crude oil output in the Arctic Timan-Pechora region by about 5.4 percent this year. Their Timan-Pechora projects will pump 12.3 million tons of oil this year (247,000 barrels per day), up from 11.7 million tons last year.



France's EDF wants to build nuclear power stations in UK

November 1, 2005. The state-owned French power company Electricité de France would be keen to build a new generation of nuclear power stations in the UK if Tony Blair gives the go-ahead to such a programme. EDF is the world's biggest nuclear electricity generator and it has the world's youngest fleet of stations. The group operates 58 reactors across 19 locations, accounting for 17 per cent of global nuclear capacity. Three-quarters of its output is nuclear and it has 42 million customers worldwide, including 28 million in France. EDF planned €28bn of expenditure between 2006 and 2008 of which €8bn would be devoted to acquisitions and development of the group.

Gas-fired power plant in Toronto

November 1, 2005. Natural gas-fired power plants are becoming too expensive to fulfill Ontario's growing thirst for electricity, but they still make sense in addressing the Toronto area's "dire need" for more generation. The new 250 MW power plant will be ready preferably before the summer of 2009. Calgary-based TransCanada is a growing power producer in Ontario through its one-third stake in Bruce Power, which operates a large nuclear plant on the shores of Lake Huron in southwestern Ontario..

Progress energy seeks to build nuclear plant

November 1, 2005. Raleigh, N.C.- based Progress Energy Inc. notified the U.S. Nuclear Regulatory Commission plans to seek a second license to build and operate a new nuclear plant. Progress Energy, the parent company of St. Petersburg-based Progress Energy Florida Inc., might build two new nuclear power plants, one in Florida and one in the Carolinas.

Iran’s first phase of Shirvan gas power plant in Feb

November 1, 2005. The first phase of Shirvan gas power plant with the nominal capacity of 159 MW will be put into operation by February. Shirvan gas power plant has 4 gas turbines, each with the capacity of 159 MW, and two development units. In order to supply the gas fuel of Shirvan power plant, it has made a contract with the National Gas Company.

Utility to build nuclear plants

October 27, 2005. Duke Power was making plans to build two reactors designed by Monroeville-based Westinghouse Electric. Duke has chosen Westinghouse's newest reactor design, the AP1000, for possible construction in its service territory of North and South Carolina was greeted with excitement at the company's headquarters campus. Charlotte, N.C.-based Duke has not yet placed an order or signed a contract for the reactors, but it was preparing an application to the Nuclear Regulatory Commission that it will submit within 24 to 30 months. That application process alone can cost approximately $30 million to do. If the regulatory process stays on schedule and Duke agrees to proceed with the project, construction could begin by 2010, and completed by 2015 as a potential completion date. According to the Nuclear Energy Institute, there are now 105 commercial nuclear power plants producing electricity in the United States, located at 65 sites in 31 states. Together they supply about 20 percent of the nation's electricity.

Transmission / Distribution / Trade

2-AGL buys hydro assets for $1.4 bln

October 31, 2005. Australian Gas Light Co. Ltd. bought a hydro and wind power business for $1.43 billion ($1.1 billion) and unfolded plans to split into two listed companies. AGL, Australia's largest power retailer with a market capitalisation of nearly $7 billion, it plans to list as an energy company for its gas and electricity retail business and an infrastructure company on the Australian bourse in April. AGL bought 11 hydro power stations in Australia's eastern Victoria and New South Wales states and a wind farm in South Australia state from New Zealand energy company Meridian Energy.

Ontario to buy C$500 mn of power from Manitoba

October 27, 2005. Ontario, facing energy shortages, it agreed to buy hydro-electric power from Manitoba as part of a six-year, C$500 mn ($427 mn) deal. Ontario plans to buy 400 MW annually, enough to power 250,000 homes, by 2009, when the last of Ontario's four coal-fired power plants is scheduled to close. Ontario, which will start by buying 150 MW from Manitoba next year, also agreed to pay half the estimated C$120 to C$160 mn cost to upgrade transmission lines between Winnipeg, Manitoba and Thunder Bay, Ontario, to accommodate the increased flow of power. This deal is the first phase of a 1,500- to 3,000-MW power sale under discussion by the two provinces. The 400 MW represents about 1.3 percent of Ontario's power supply.

Policy / Performance

PNM signs 10 year, 150-MW power sale with APS

November 1, 2005. PNM Resources' has signed a 10-year agreement to sell 150 MW of power to Arizona Public Service Co. during the summer months beginning in 2007. The agreement gives APS the option to take delivery of power over the 10-year term. As structured, APS will pay a demand charge for the capacity. It also provides the potential of additional revenue from the sale of delivered energy. PNM will deliver energy to APS at the Palo Verde Hub, west of Phoenix, from June through September in 2007 and 2008, and from May through October in 2009 through 2016. APS is Arizona's largest electric utility, serving more than 1 million customers in 11 of the state's 15 counties.

Norsk Hydro to make long-term energy investment in Iran

November 1, 2005. The Norsk Hydro ASA of Norway is going to continue its work in Iran. The company, second largest oil giant in Norway, intends to stay and invest in the nation’s energy sector by initiating serious negotiations with the country’s officials. It is one imperative task of the company to implement its experiences in Iran and future investment in aluminum industry is another indication of Norway’s long-term outlook in Iran, he maintained. The Norsk Hydro ASA is also going to follow up on ongoing oil exploration in Anaran region and Khorramabad exploration block is also on the company’s list.

China seeks coal solution in attempt to beat oil crisis

October 31, 2005. Turning coal into synthetic fuels requires huge investments, but many companies are showing interest, betting that oil prices will stay high and coal prices will not rise. Coal is China's biggest energy source. Most is burned directly, resulting in low energy utilization and heavy pollution. With gasification, instead of being burned, coal is broken down into its basic molecules, which undergo other chemical reactions to form synthetic gas, methanol and other liquid fuels.

Most companies interested in coal gasification have their eye on methanol, an important ingredient in industrial products like plastics. In some parts of China, it is added to gasoline to improve engine performance. Unsurprisingly, the big players in the gasification field are coal miners. Yanzhou Coal plans to open a 500,000-tonne methanol plant in Shaanxi in about two years. China International Capital predicts demand for methanol in China will reach 5.72 million tonnes this year.

Enerchina Holdings, a unit of Sinolink Worldwide, a property-to- energy conglomerate, has ambitions to produce 400,000 to 600,000 tonnes of methanol per year. The cost of producing a tonne of methanol using coal gasification technology is about 1,000 to 1,500 yuan, depending on production scale and efficiency. For coal gasification to be profitable, ex-mine prices for coal should not exceed 200 yuan per tonne, while oil should be above US$30 per barrel.

One private player, Shandong-based Jiutai Energy, aims to increase its total production capacity by up to six times. It has tied up with America's Rockefeller Foundation and has ambitions to build a one million tonne-a-year dimethyl ether (DME) project in Inner Mongolia. Alternatively, the project could produce up to 1.5 million tonnes per year of methanol. DME, which can also be derived from the coal gasification process, is used in solvents. It is also a clean- burning alternative to liquefied petroleum gas, diesel fuel and gasoline.

Renewable Energy Trends


Sugar millers hopeful of gasohol programme launch

October 31, 2005. SUGAR millers in Tamil Nadu are optimistic that the programme to supply ethanol-blended petrol would be launched with the oil companies getting closer to purchasing ethanol from the mills. This follows a meeting between oil companies and sugar mills last week when the price bids were discussed. The sugar mills had quoted about Rs 18.75 a litre of anhydrous ethanol. The programme could take off by the month end. The South Indian Sugar Mills Association has also represented to the Tamil Nadu Government to approve production of larger quantities of anhydrous ethanol to cover the entire State under the programme.

The oil companies have asked the sugar millers if their distilleries could produce enough to cover the entire State under the programme. This would mean supplying about 40 million litres a year. Now the 5 distilleries, attached to sugar mills, that are cleared to produce anhydrous ethanol make about 20 million litres of it - enough to bring seven districts under the ethanol programme. Their total capacity is estimated at about 5 million litres. But the State Government has to clear this production. Earlier, when the ethanol programme was launched the sugar mills had been going through a low in sugarcane production due to drought. This also hit production of alcohol.

Kalam for greater use of solar power

October 30, 2005. President A.P.J. Abdul Kalam called upon the scientific community to help the country attain energy independence by 2030 through greater use of solar power and other renewable energy sources as also hydropower, nuclear energy and bio-fuels. Emphasising that India must graduate itself from fossil fuels such as oil, gas and coal that would decrease naturally in few decades, he said there was a need to establish nuclear reactors based on Thorium. He said that research and technology development of Thorium-based reactors is one of the immediate requirements for realising self-reliance in nuclear power generation and long-term energy independence of the nation.

Ministries battle for bio-fuel control

 October 27, 2005. Government departments and ministries are lobbying to be nominated as the nodal ministry for production and development of bio-fuels. This follows the huge interest evinced by leading corporate houses and multinational companies to venture into commercial production of bio-fuels, including ethanol and bio-diesel.

While the ministry of non-conventional energy sources (MNES) has moved the Cabinet, presenting its case, the petroleum ministry differs. It favours bringing bio-diesel under the ambit of the department of food & public distribution. Under the Allocation of Business Rules, 1961, there is currently no entry as ‘bio-fuels’, ‘ethanol’ or ‘bio-diesel’ against any ministry or department. MNES has written to the Cabinet to amend these rules to bring bio-fuels under its ambit. The petroleum ministry is of the view that MNES is a scientific ministry and its strength lies in R&D and not commercial activities. It feels that as MNES has so far not taken much interest involving “commercial production or commercialisation of bio-fuels”, it should not be given the responsibility. As per the petroleum ministry, even in the proposed National Mission on Bio-diesel, the role envisaged for MNES is only that it “may support studies related to bio-diesel and ethanol, development of appliances to run on Jatropha oil”. The petroleum ministry noted, that the department of food and public distribution already has the allocated business of industries, trade and commerce of vegetable oil and fats. The production of bio-diesel is essentially further processing of vegetable oils and fats. Therefore, for synergy, it appears appropriate if that department is also made the nodal ministry for production and development of bio-diesel rather than MNES for whom bio-diesel or ethanol are only marginal activities, being residual in nature. In line with this, the petroleum ministry has proposed that allocation of business in matters of bio-fuels be spelt out between the ministry of petroleum (which is the user ministry for both ethanol and bio-diesel) and the department of food and public distribution, if considered appropriate.

Reliance for large-scale jatropha farming

October 26, 2005. The Reliance group's arm, Reliance Life Sciences (RLS), is planning to scale up its jatropha plantation to a few thousand acres in a couple of months' time. Currently, RLS has a 50-acre pilot project called Samalkot Farms at Kakinada, close to its Krishna-Godavari offshore gas fields, where the hybrid jatropha plants are at the flowering stage. While the fresh land will come up largely from near their own manufacturing facilities in various parts of the country, RLS is also in talks with Maharashtra, Gujarat, Andhra Pradesh and Rajasthan Governments, to get access to land for contract farming. The plan was to take up the land under jatropha cultivation on two fronts — a few thousand acres of land adjoining the RIL manufacturing facilities in places such as Jamnagar and simultaneously, go in for contract farming arrangement with independent farmers in various parts of the country. Reliance’s bio-fuel initiative can get really big, provided the State Governments facilitate access to land for contract farming. Reliance Life Science is planning to approach more State Governments with this in mind. It is focusing over the next 6-12 months at the potential of growing jatropha in various climatic zones. The Reliance game plan, unlike the Union Government policy on bringing semi-arid and marginal land under jatropha cultivation, is to persuade farmers to go in for high investment-high yield module, where fertigation (fertilisation through drip irrigation) and high density cultivation would hold the key.

Southern Online plans bio-diesel trial runs on variety of vehicles

October 26, 2005. Southern Online Bio Technologies Ltd, currently in the process of establishing the country's first commercial scale bio-diesel facility, has decided to conduct trial runs of bio-diesel on more number and varieties of vehicles. As the Andhra Pradesh State Road Transport Corporation has expressed satisfaction over the trial runs conducted on a city bus till recently, the Hyderabad-based company now plans to run four vehicles of different segments on bio-diesel, these include jeep, car and auto. The company is currently setting up a bio-diesel facility with a capacity of 10,000 tones per annum at Samsthan Narayanpur in Nalgonda district at an investment of Rs 17.1 crore ($3.8 mn).


Cargill to build nation's largest sugar refinery

November 1, 2005. Cargill Inc. plans to build a $100 mn sugar refinery in Louisiana that will process about 10 per cent of the sugar consumed in the United States. Minnetonka-based Cargill and Louisiana Sugar Cane Products Inc., a cooperative representing more than 700 cane growers, will split the cost and ownership of the refinery. Construction on the refinery, which would be the largest in the country, will start early next year, with production planned to start in 2008. The refinery will be built at an existing Cargill grain-shipping port in Reserve.

Two biodiesel plants planned in Singapore

October 31, 2005. Two firms have announced plans to build biodiesel facilities on Jurong Island, the center of Singapore's petrochemical industry. Germany's Peter Cremer GMBH will initially invest as much as $34 million (Sing.) for its plant, which will have a capacity of 200,000 tonnes/year of biodiesel fuel. It expects the plant to start up by first quarter 2007. It plans to spend as much as $50 million (Sing.) on a biodiesel facility with an initial capacity of 150,000 tonnes/year, eventually doubling. The 50 million gal/year facility will be built in Velva, ND, near ADM's existing crushing facility, and will use canola oil as its primary feedstock. The construction completion date would depend on final engineering and permit approval.

Italian waste-to-energy plant to be expanded

October 28, 2005. Lomellina Energia awarded an engineering, procurement, and construction contract to a unit of Foster Wheeler Ltd. for a second processing line at a waste-to-energy plant at Parona, Italy. The contract value exceeds $130 million. Commercial operation of the expansion is scheduled for September 2007. The original plant, which started commercial operation in 2000, was designed and built by Foster Wheeler, which continues to operate it along with partners. The existing plant processes 200,000 tons/year of municipal solid waste (MSW), converting 60% of the MSW into refuse-derived fuel (RDF), which is combusted to generate 15 MW of power. The expansion will allow the plant to process an additional 180,000 tons/year of RDF and produce an additional 19 MW, which will be sold to the Italian national grid.

Husky Energy to build ethanol plant

October 27, 2005. Husky Energy will build a C$145 million ($123 million) ethanol plant that will replace an existing 25-year-old facility. The plant, which is scheduled to be fully operational by mid-2007, will have production capacity of 130 million liters of ethanol per year. The plant will be built on the site of Husky's existing plant at Minnedosa, Manitoba and is the company's second major ethanol facility. Ethanol, made from grain or other plant sources, reduces greenhouse gas pollutants because the plants absorb carbon dioxides as they grow.

Boralex opens wind farm in France

October 27, 2005. Boralex inc. opens a total installed capacity of 39 MW the Ally-Mercoeur site is now the largest wind farm in France. The 26 wind turbines on the Ally-Mercoeur site will generate about 78 GWh of electricity annually. The commercial startup of this site and the Cham de Cham Longe and Plouguin sites make Boralex the largest independent wind power producer in France, with 6 wind farms. Currently, the total installed wind power capacity in France is about 500 MW. By the end of 2005 it will be about 700 MW. The goal for 2010, according to the stated objectives of the French government, is to have 7000 to 10000 MW generated by wind turbines on land and sea.



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[1] B.K.Bose, Oil Asia Journal, January-March 1999

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