Stability, Security, and Sustainability of Asian Hydrocarbon Economics

(Address by Viktor B. Khristenko, Industry and Energy Minister, of the Russian Federation during Asian Oil Ministers Round Table in New Delhi on November 25, 2005.)

articipants: Energy Ministers of Azerbaijan, China, India, Japan, Kazakhstan, Republic of Korea, Russia, and Turkmenistan.)

“You all know the man who should be credited for giving us an opportunity to gather here in New Delhi the first-rate energy exporters and importers of the Asian market. This is Mani Shankar Aiyar, Indian minister of petroleum and natural gas, and I would like to thank him for creating here an excellent working environment and a wonderful platform to share our views on the pressing geopolitical and geoeconomic processes that have changed Asia and the Asia-Pacific region. In organizing this event, Mr. Aiyar has shown that his own energy reserves are enormous.

1. Asia-Pacific As a New Center of Gravity in the World Economy

Asian and Asian-Pacific markets, including the energy market, are the fastest-growing in today’s world.

The International Energy Agency estimates the growth of energy demand in Asia at 3 per cent to 4 per cent annually in oil and 4 per cent to 6 per cent in natural gas, which makes Asia the most rapidly developing market in the world.

I agree with most of Mr. Aiyar’s assessments but would like to look at the broader picture as well. Asia is part of a global market, and performance in Asia should also be viewed from a global energy perspective.

Preparing for today’s conference, we in Russia looked back to the many steps our country had taken on the international markets as well as into the next year when Russia will assume a very special mantle of G8 presidency.

Russian President Vladimir Putin has just ended his Asian tour to Turkey, Korea, and Japan. The agenda of these visits was shaped by energy as well as general political and economic issues. Main energy issues were the East Siberia/Russian Far East development effort, a pipeline that is to connect Siberia with the Pacific coast, the Sakhalin energy projects, where production at offshore oil and gas fields has already begun, and the Russian-Turkish direct Blue Stream gas pipeline. On this last count, we see Turkey not only as an end customer but also as a future hub that we hope will support our new major gas infrastructure projects.

All those visits, meetings, and discussions have once again demonstrated what we already felt: that the dependence between national, regional, and global challenges and efforts is complex and absolutely nonlinear. I am therefore convinced that to resolve issues the Asian energy market is facing would be impossible without a clear understanding and consideration of the global energy situation.

2. Global Energy Agenda

Most forecasts today estimate that global energy consumption will rise by a third in the coming 15 years and by about 45 per cent in the coming 20 years. Global demand for oil might grow by 35 million barrels per day by 2025 (which is 42 per cent higher than today), and for gas – by 1.7 trillion cubic meters per year (which means a 60 per cent increase).

Current global agenda is to a large extent shaped by four main challenges:

1.        In the near future, fast-developing Asian nations will account for up to 45 per cent of the global projected increase in oil demand.

2.        Developed countries will see a widening gap between rising oil and gas consumption and decreasing internal production. By 2020, Europe might import 60 per cent to 70 per cent of its natural gas, while for most Asian countries this proportion is already even higher.

3.        There will be an overall shortage of refining, shipment, and additional production capacities.

4.        There is a lack of transparency in world oil trade.

We believe all these challenges make energy security a vital concern. Due to Russia’s position on the global markets, we treat energy security, the capability of nations to provide stable and sustainable energy supply to their peoples, as less a national than a common issue that affects the entire global community.

We are well aware that Russia does make difference in the world as an energy producing country thanks to its vast resources, shipment-friendly geography, and reliability of supplies.

When in Russia, Mr. Aiyar praised the role of the Soviet Union in supporting India’s territorial integrity for the preceding 50 years. He said Russia could play a similar role in India’s energy security for the following 50 years, a proposition which, considering Russia’s unmatched mineral capacity – over 34 per cent of global gas reserves, around 13 per cent of prospected oil reserves, nearly 20 per cent of prospected fossil coal and 32 per cent of lignite coal reserves – is, I believe, true not only for India. Today’s world energy market cannot exist without a country that is the world leader in gas exports and second-largest exporter of oil and petroleum.

Currently Russia exports over 90 per cent of its energy to Europe but we are looking more closely at Asian and Pacific destinations. We forecast Asia’s share in Russian oil exports to grow from today’s 3 per cent to 30 per cent in 2020, a proportion corresponding to 100 million tons. Asia’s share in our gas exports could grow from the current 5 per cent to 25 per cent, which would make 65 billion cubic meters.

Russia’s agenda of energy security and energy efficiency, proposed for the forthcoming 2006 G8 summit, reflects an understanding of our nation’s role in the global energy system – an understanding that we believe could also be applied to regional energy issues we have gathered here to discuss.

3. Global Energy Security

I would like to tell you how Russia plans to address the issue of global energy security during its presidency.

We suggest discussing the following main provisions:

1.        Reliable supply of traditional hydrocarbon resources to the world economy at reasonable prices.

2.        Diversification of energy supplies through the use of new sources of energy.

3.        Enhancing the efficiency and safety of power engineering.

4.        Creating conditions for transition to a fundamentally new, ecologically clean power engineering.

We need to decide on a common approach to the following comprehensive issues:

1.        The stabilisation of energy markets, which entails:

-       Developing global and new regional energy markets;

-       Ensuring market predictability through broader use of long-term contracts and dialogue between energy producers and consumers;

-       Ensuring greater access to and the transparency of data on reserves, demand, stocks and production capacities.

2.        Enhancing investment into the energy sector, including:

-       Improvement of the investment climate;

-       Introduction of insurance mechanisms and distribution of financial risks.

3.        Spurring effective development of power engineering and energy infrastructure which provides for:

-       Raising the effectiveness of exploration, production, deep processing and use of hydrocarbon reserves, including their non-traditional forms;

-       Diversifying transportation;

-       Developing gas-fuelled power engineering, including the use of liquefied natural gas (LNG);

-       Ensuring the physical safety of energy facilities and infrastructure.

4.        Power engineering and the environment:

-       Elaborate measures to enhance energy efficiency and conservation;

-       Develop safe nuclear power engineering, including with a closed fuel cycle;

-       Step up research and introduce the latest advances in power engineering (hydrogen, thermonuclear, renewable, low carbon energy, etc.);

-       Introduce effective ecologically clean transport systems.

Taken together, the above measures constitute our vision of the main global security issues on the G8 agenda, not only for the next year but in a longer term. Any of the above issues can be discussed in an extended format. I am presenting them to you in the hope of feedback that would allow us to link together all the debated issues.

Some of the measures are the follow-up on the energy issues on the G8 agenda, and we welcome this continuity. This is a kind of a relay baton. Ecological security, which has become the key issue during this year’s presidency of Great Britain, is closely connected with energy security. Soon after our meeting, a conference on climate problems will be held in Montreal on November 29. The subject of the conference - to reduce hazardous emissions by two-thirds - is closely connected with the operation of power engineering.

However, we should not go to extremes. We need to arrive at compromises between environmental problems and existing conditions for economic development, which should take into account the specific features of all market players, both hydrocarbon suppliers and consumers.

This is a formula of dependence of ecology on energy, the two E’s. But it can be easily and logically complemented with one more E – energy efficiency. In fact, a model of economic growth based on energy efficiency should become the global response to the challenges of ecological and energy safety.

Russia plans to carry on working towards this goal as it takes over the presidency of G8.

The G8 is to discuss global energy security issues. There are plans to approve a general political declaration formulating main goals and tasks in the energy sphere, as well as an indicative action programme of their implementation.

It should be stressed that long-term energy security issues require comprehensive actions on the part of all players in the global energy market. It would be expedient to study the possibility of discussing, charting and consistently implementing various measures that would enhance energy security. These efforts should involve countries, major suppliers of energy resources, as well as countries posting the highest energy consumption growth levels. In this connection, we believe it would be expedient to establish specialised permanent working groups that would analyze the main energy security aspects within the G8 framework. Apart from G8 representatives, such groups should involve representatives of energy resource supplying and consuming countries. This concerns first of all the representatives of the countries present here. They should discuss issues of regional energy security and energy efficiency in line with the G8 global agenda.

We expect to achieve the following important results, after global energy security initiatives are implemented:

-       Well-balanced energy resource markets, especially, the oil market;

-       The establishment of a new global market, namely, that of liquefied natural gas;

-       Attracting investments into the energy sector’s development and its transport infrastructure; 

-       Exchanging technological advances;

-       Harmonising national energy policies among G8 countries and leading industrial states, whose intensive economic development and rising energy demand strongly influence global energy markets and the sustainable development of the entire international community.

This is, doubtless, an important issue. We must not adopt a simplistic approach towards the global energy infrastructure as a number of businesses that can offset present-day and future economic development risks in line with the corporate survival logic. A number of serious risks, especially mid-term and long-term, cannot be neutralised at this level. This concerns national, regional and even global risks today.

The international community has come to realise this. Comprehensive and applied joint efforts are therefore essential.

At the same time, Russia starts from the premise that the world’s energy market must follow transparent and clear-cut rules. We have published our Energy Strategy, and we abide by its provisions. We do not conceal information about the Russian fuel and energy sector’s development, production volumes and regions of production, pipeline construction plans and our other actions that can influence the global and regional energy situation. We do not scheme against our partners. Nor do we resort to cunning ploys in relations with them. And we expect our partners to behave in a similar way.

Energy Security: position of Russia

We firmly believe that the stability, security and sustainability of the hydrocarbon economy of Asia cannot be ensured without solving the problem of global energy security. Only by balancing this issue at the global, regional and national levels can we correctly identify, diversify and meet the risks of economic development.

An effective management of non-political risks directly in the hydrocarbon sector of the economy is possible only through a comprehensive attainment of the following goals:

-       Greater access to and the transparency of data on reserves, demand and stocks;

-       Market predictability through broader use of long-term contracts and dialogue between energy producers and consumers;

-       Efficient development of the energy infrastructure in the interests of the market.

For its part, Russia is prepared to assist in the task of ensuring energy security and hence reduce risks in the following ways:

-       Increase exports, including to Asia (in the past five years, Russia has quadrupled oil deliveries to Asia and gas supplies have grown from zero to 5 billion cubic metres);

-       Diversify the commodity structure and increase the volume of higher-processed commodities (Russia will ensure higher processing of hydrocarbons and increase the share of high-quality petrochemicals and oil and gas products);

-       Expand the export geography on conditions of economic expediency, primarily in the Asia-Pacific region. (Russia is creating an infrastructure to link new oil and gas production centres in Siberia and the Far East to the countries in the region. The creation of a port infrastructure for Sakhalin-1 and Sakhalin-2 projects and the construction of the East Siberia-Pacific Coast oil pipeline will make Russia’s hydrocarbon reserves available to most Asia-Pacific countries.);

-       Take steps to stimulate foreign investment into Russia. A relevant example is the successful implementation of the Sakhalin-1 project, whose transition to the commercial stage Mr. Aiyar and I attended in October this year. Major partners from Russia, India, the Untied States and Japan are taking part in this project. I think that this positive example of cooperation should be promoted and carried on;

-       Develop new forms of international cooperation and create mechanisms for coordinating the state policy of regulating foreign trade in the energy sphere.

I would like to stress again that the formulation of the global energy security concept, which the G8 colleagues are to work on, would be impossible without the consolidation of efforts and the involvement of the basic hydrocarbon exporter and consumer countries, including in Asia.

In conclusion I want to express confidence that this meeting will become the first step towards this goal.”

 

Lead distance for coal movement to load centre power plants

(Unit = KMS)

 

(On the Basis of Garo Hills = Notional)

Source: Energy Modelling for India: Towards a Policy for Commercial Energy by Prof. R. Sengupta, Planning Commission

Is TAP a Viable Option for India?

(By Ajish P Joy, Research Assistant-ORF)

n the unfolding scramble for energy resources, Central Asia has been fast emerging as one of the key regions. The region is blessed with abundant resources of oil and natural gas. It has already been identified as the main emerging theatre of global energy politics. Turkmenistan, Kazakhstan and Uzbekistan are rich in petroleum resources. Kazakhstan has the largest oil reserves in the region and it also has considerable natural gas resources. Turkmenistan and Uzbekistan have got lesser oil but significant natural gas resources.  Turkmenistan has proven recoverable natural gas reserves of 2.90 trillion cubic meters. The biggest gas reserves in Turkmenistan are found in the south, especially the Dauletabad field having a capacity of 1.4 trillion cubic meters of gas. Several proposals have been discussed to explore and export these significant gas reserves of Turkmenistan. One of the major transnational ventures in this regard is the Turkmenistan- Afghanistan- Pakistan (TAP) pipeline, with a planned extension to India.

TAP: A BACKGROUND

During the Soviet regime, the resources of Turkmenistan were kept strictly under the state control and were virtually inaccessible for the outside world. After the disintegration of the USSR, the Argentine oil company Bridas was the first one to look at the feasibility of exploring the gas fields of Turkmenistan and propose a pipeline to export the gas.[1] Bridas, suggested a plan to connect Turkmenistan gas with the Indian subcontinent and international markets, through a pipeline to be built from Turkmenistan through Afghanistan, ending in Pakistan and possibly extending to India.  By March 1995-96, Bridas signed accords with Turkmenistan Pakistan and Afghanistan to move ahead with the project. Bridas however, had to face a strong challenger very soon.  The American company UNOCAL too got interested in the pipeline and soon approached the Turkmenistan government for permission to explore the pipeline project. Ultimately, the UNOCAL outmanoeuvred the Bridas and formed an American backed consortium that included Saudi Arabia's Delta Oil, Russia's Gazprom and Turkmenistan's state-owned Turkmenrozgas. The project was named Central Asia Gas Pipeline, or CentGas Ltd.

The first phase of the project, was to construct a pipeline of about 1,700 kilometres length, which can transport up to 20 billion cubic meters of natural gas annually. The final cost of the Project was estimated at $2-2.5 billion. UNOCAL however, abandoned the project after limited technical feasibility studies just as the United States started bombing Afghanistan after the 9/11 attacks. After this, both Turkmenistan and Pakistan tried to keep the project alive even during the days of the Taliban. With the American overthrow of the Taliban, the TAP project received a new thrust.

In order to revive the pipeline, the leaders of Turkmenistan, Afghanistan and Pakistan held a summit in May 2002. The Asian Development Bank (ADB) was commissioned to prepare a new feasibility study of the project. In January 2005, the ADB submitted the final document of the technical-economic feasibility study for the construction of the pipeline. The British firm Penspen conducted the study. According to the report, the earlier estimates were revised and the 56-inch (1,420 mm) diameter gas pipeline, with a working pressure of 100 atmospheres, is now expected to carry up to 33bn cubic metre of gas per annum. The revised cost of the pipeline is estimated at $3.3bn.

India has expressed its interest in being a party to the TAP though a final decision has not been taken in this regard. India will be participating in the next steering committee meeting of the pipeline in January 2006. Pakistan has declined to hold the steering committee meeting for the project at Islamabad on November 29 and 30 as suggested by the ADB because of the devastating earthquake it had to face.

SECURITY OF THE PIPELINE

Despite its pressing energy needs, India has shown some lack of enthusiasm to depend on a pipeline crossing the territory of Pakistan. India will also have to closely monitor the security situation in Afghanistan. The Afghan security is almost entirely guaranteed by the American and the International Security Assistance Forces (ISAF) operating there. Nobody can predict how long the international forces are going to stay in Afghanistan and in case of their pull out, no one will be able to guarantee the security of the pipelines. The current situation is not so reassuring as the authority of the Karzai government exceeds not much beyond the boundaries of Kabul. However, the pipelines would require security throughout Afghanistan. The recent kidnapping and killing of an Indian worker in Afghanistan has further aggravated the situation.

The safety and security of the pipeline can be a problem in Pakistan too. Presently, the route suggested for the pipeline is Dauletabad – Herat – Sokh-Ab – Kandahar – Chaman – Bostan – Dera Ghazi Khan – Multan – Haveli – Fazilka. This route passes through the Baluchistan Province where there is an exceedingly restive local tribal population and there are several instances where they have targeted infrastructural facilities like the domestic gas pipelines to protest against the policies of the federal government. It will therefore be too much of a risk for India to give a green signal for this route.

VERACITY OF TURKMENISTAN CLAIMS

In spite of the ADB report guaranteeing the TAP project, Turkmenistan’s ability to supply the projected gas is under cloud. The pipeline is expected to transport 30 bcm of gas annually for the duration of about 30 years. For ensuring Indian cooperation, the Turkmen authorities will have to mitigate Indian apprehensions regarding uninterrupted availability of the gas - that too in pre-agreed quantities. Turkmenistan is yet to submit a certification of its production capacity and facilities at Dauletabad and there is a persistent doubt whether the projection of resources in the Dauletabad fields is just an unproven hypothesis. According to Dan Millison, a senior ADB energy specialist, the reserves information from Turkmenistan shows that the country could supply enough gas for the first few years but then production is predicted to decline instead of increase. Turkmenistan will need to find gas from other fields to meet pipeline design targets.[2]

The Turkmenistan authorities have been trying to allay the Indian fears. During the Asian oil ministers’ meeting in New Delhi on 26 November, the Turkmenistan delegation, led by A. K. Pudakov, the head of Turkmenistanbashi Oil Refinery, has guaranteed that there is sufficient availability of gas for export to India and that the details of its surplus gas reserves have been sent to the ADB in Manila.

India will also have to undertake a thorough analysis of the economic feasibility of transporting gas through pipelines from Turkmenistan. There are many experts who feel that bringing gas from Turkmenistan to India via pipelines will involve a cost, which is higher than the price of domestic gas available in India. That means, even if Turkmenistan sells its gas free of cost, the transportation costs will make it more expensive than the domestic gas available currently.[3] Such a scenario will have to be examined very carefully.

RUSSIA AND THE TAP

Russia is one of the key players as far as the TAP pipeline is concerned. In fact one of the reasons why the Americans overwhelmingly supported the TAP was the belief that it give the Americans unlimited access to the Daulatabad gas reserves, bypassing the Russians.[4] But in a clever move to outmanoeuvre all the prospective suitors of the Turkmenistan gas, the Russian firm Gazprom signed a 25-year contract with Turkmenistan in April 2003. The agreement was globally hailed as the gas deal of the century and it has ensured Russia’s near monopoly in the sale of Turkmenistan gas. Gazprom is unlikely to approve of any export routes for Turkmenistan gas outside its sphere of influence. Moreover, being the single largest revenue contributor to the Russian economy, Gazprom has the capacity to influence the Russian policies in a significant manner. According to an unidentified oil-industry source, the Russian gas company Itera, which at one point considered involvement in the TAP, might have disassociated itself from the project because it "was not supported by Russian authorities." [5] Gazprom is targeting to enhance its gas imports from Dauletabad to 10 billion cubic meters by 2006 and to 80 billion cubic meters by 2009 with a total of 2 trillion cubic meters in 25 years. Thus it is evident that if TAP was conceived to sidestep Russia in exporting the Dauletabad reserves, it has become more or less impossible in the current scenario.

India, is desperately wooing Gazprom to secure participation in oil and natural gas extraction projects in both Russia and India, and therefore will have to be sensitive to the concerns of Russia and Gazprom. Consequently, if the Russians exert pressure over India to desist from cooperating with a pipeline from Central Asia, which excludes Russia, India will be forced to stay out of the project, seriously undermining its feasibility.

However, Turkmenistan has started being more assertive regarding the gas deal of late. On 18 November, the Turkmenistan government has declared that the 25-years gas supply agreement signed in 2003 with Russia, cannot be considered final as long as the practical details are not tackled. The government says that the deal has not come into force completely as it contains only basic principles without determining the price of the gas. News Central Asia has reported that the Turkmenistan authorities have clarified that the media statements that Gazprom has arranged to purchase the entire gas output of Turkmenistan are totally divorced from reality.[6] Turkmenistan has decided to raise export prices for natural gas to $60 per 1,000 cubic meters starting in January 2006, justifying the move on higher costs. The announcement marks a toughening of Turkmenistan's stance in negotiations with Russia and Ukraine, the principal buyers of Turkmen gas.[7]

TAP AND THE UNITED STATES:

The United States has also shown great interest in the TAP project. A number of American companies are interested in joining the project.[8] The United States used to promote the pipeline even when Taliban was ruling Afghanistan. It gave all possible backing to the UNOCAL to negotiate with the Taliban regime for transit rights. One of the reasons behind the sustained American interest in the TAP is the desire to reduce the chances of success of the India-Pakistan-Iran pipeline due to America-Iran rivalry. The Americans are trying to deprive Iran of a profitable venture. The American Secretary of State Condoleezza Rice has publicly acknowledged that Washington did not want India to buy gas from Iran.[9] There are reports that the United States, to begin with, did not object to the Iranian pipeline because it wanted to eliminate New Delhi's objections to a pipeline through Pakistan. Slowly but surely the US has started to lobby for the TAP. The United States also wants to checkmate the growing Russian influence in the region and its economic clout by keeping it out from as many regional projects as possible.

The Turkmenistan pipeline will allow the American oil and construction companies to bid for the contract for laying the pipeline. This would not be possible in case of the Iran pipeline. An involvement in the pipeline project will also allow the Americans to finance their campaign in Afghanistan. Moreover, by becoming the underwriter of the TAP (which the Americans are desperately trying to), the Americans would be in a position to play a bigger role in the region.

Pakistan also is more interested in TAP than the Iran pipeline. Not only will such a project increase the leverage enjoyed by Pakistan inside Afghanistan and Central Asia, it will also provide enormous support to Pakistan's economy. The entire Gwadar port project depends critically on the Central Asian trade. The US is interested in linking the Gwadar port with the Central Asian trade and energy network. Their main aim is to drive the Chinese out from developing a base on the mouth of the Persian Gulf. As things stand, the United States will lean on both India and Pakistan to consider the Turkmenistan pipeline and give up the Iranian project.[10]

NEW DEVELOPMENTS

During the Asian Oil ministers’ Conference in New Delhi on November 26, several suggestions were put forth regarding the TAP. Indian Petroleum Minister Mani Shankar Aiyar suggested the inclusion of Azerbaijan and Uzbekistan in the TAP. India has suggested that a junction of pipelines should converge at Dauletabad to connect the sources of gas in Azerbaijan, Kazakhstan, Russia, and Uzbekistan, enriching the TAP and increasing its profitability.

Therefore, the future of TAP depends on a number of factors. It will require the support of the big players, especially Russia and the United States. The guarantee that India will be a partner to the project is crucial for the success of the TAP. Political stability in the region, including Pakistan and Afghanistan is also critical. A clear-cur guarantee from Turkmenistan regarding the exact quantity of the country’s reserves is also absolutely essential for the interested countries to proceed. There are also chances that if the India-Iran-Pakistan pipeline gets the nod first, the TAP might be put in the cold storage. To conclude, India will have to weigh all its options very carefully, by taking into account all possibilities, eventualities and risks, before taking a final decision regarding its participation in the Turkmenistan pipeline.

Kazakhstan Natural Gas Production Consumption and Net Export: 1992-2004

(Trillion cubic feet per day)

Year	Production	Consumption	Net Export
1992	0.290	0.710	0.420
1993	0.240	0.523	0.283
1994	0.160	0.530	0.370
1995	0.170	0.383	0.213
1996	0.150	0.510	0.360
1997	0.220	0.494	0.274
1998	0.194	0.473	0.279
1999	0.162	0.480	0.318
2000	0.314	0.491	0.177
2001	0.356	0.505	0.149
2002	0.464	0.526	0.062
2003	0.491	0.558	0.067
2004	0.560	0.550	-0.010

Source: EIA

 

 

 

Opportunities for Investment in Indian Hydrocarbon Sector

 

(Summary of Presentation by Directorate General of Hydrocarbons at an ORF-OVL event titled “Indo-Russian Hydrocarbon Co-Operation: Opportunities & Challenges” on 15^th January, 2005)

Upstream Scenario

·          Annual growth rate for petroleum product demand around 7%

·          Current annual crude production is around 33 Million Tonnes which is only 0.9 % of the world average production

·          Domestic gas production is about 90 MMSCMD (3100 MMSCFD); however it is on the rise

·          India has about 4% of global sedimentary basin area

·          Production of both oil and gas is poised for growth when commercial production from recent discoveries begins

Sedimentary Basins of India

1          Category I: Proven Commercial Productivity

2         Category II: Identified Prospectivity

3         Category III: Prospective Basins

4         Category IV: Potentially Prospective

5         Deep Water Areas within Eez

6         Pre-Cambrian Basement / Tectonised Sediments

 

 

 

 

 

Category-wise Sedimentary Basins
Category I	Category II	Category III	Category IV
Mumbai Offshore	Barmer-Sanchor Rajasthan	Himalayan Foreland	Karewa
Cambay	Andaman-Nicobar	Ganga Valley	Spiti-Zanskar
Assam Shelf	Kutch	Vindhyan	Satpura-South Rewa-Damodar
Krishna Godavari	Bikaner-Nagaur Rajasthan	Saurashtra	Narmada
Cauvery	Mahanadi	Kerala-Konkan-Lakshdweep	Deccan Syneclise
Assam-Arakan Fold Belt	KG Deep Water	Bengal	Bhima-Kaladgi
Jaisalmer, Rajasthan			Cuddapah
			Pranhita-Godavari
			Bastar
			Chhattisgarh

Scope For Exploration

·          Only 18% of the total 3.14 million sq. km. basin area have been well explored.

·          Prognosticated Resources 28 BT (Billion Tonne) estimated only in 15 of the 26 basins.

·          In-place geological reserves established only in 7 basins, which works out ~25% of the prognosticated resources.

 

Domestic Crude Oil Production / Product Demand

·          Total self-sufficiency in refining capacity.

·          Refineries in all producing areas or within 300 kms in non-producing areas.

·          Instant demand for crude oil available in the country.

Domestic Natural Gas Demand / Supply projections

·          Recent discoveries of gas are likely to double the availability.

·          Instant demand for natural gas available in the country.

Rewards of Investments under NELP I, II, III, IV

(a)          Changing Exploration Scenario

(b)          Major Discoveries

1) Mahanadi-NEC Basin is upgraded to Category-II from          Category-III.

 

2) KG Deep Water Gas Discovery:

·          Biggest gas discovery in deep water of India.

·          Water depth: 642m, Drilled depth: 2903m, Gross reservoir thickness: 240m, Net pay: 150m., Gas reserves reported: 15TCF

3) Rajasthan Onland Oil Discovery:

·          Biggest onland oil discovery after 22 years in India.

·          Paleocene reservoir, Tested: 6,000 BOPD, Gross reservoir thickness: 145m, Net pay: 75m, Oil reserves 120 MMt (830 MMbbls).

c) Oil & Gas Discovery Trend

d) Reserves Accretion Trend

e) New Exploration Licensing Policy

a) Attractive terms and conditions

·          No state participation or interest

·          No signature, discovery or production bonus, custom duty and cess

·          Year tax holiday with assured fiscal stability

·          Low royalty rates 5% to 12.5%

·          Special concession for deep water

·          Upto 100% cost recovery (biddable)

 

b) Transparency and Level playing field in awarding blocks

 

c) Complete deregulation of the sector expected to improve margins

 

d) Links returns to International oil prices

 

e) Rapid award of exploration contracts

f) 4-5 times more blocks are awarded under NELP each year, compared to earlier rounds due to better terms and excellent prospectivity of new blocks.

 

f) Investment Trends

Opportunities for Investment

a) Major discoveries in every decade

There is potential for more in pre- tertiary age sediments

1950s      Assam Basin major oil fields

                Cambay Basin – first oil field Ankleswar

1960s      Assam Basin – several major oil fields

1970s      Mumbai offshore – giant Mumbai High oil field and several major oil & gas fields

1980s      Cambay – giant Gandhar and several oil fields

1990s      Krishna-Godavari – with major Ravva field

2000s     Rajasthan onland oil and gas fields

                Mahanadi-NEC shallow offshore gas fields

KG Deep Water– Giant deepwater gas and small oil fields

Cambay : shallowest onland gas, oil and gas in shallow offshore, oil in weathered volcanics

b) Pre Tertiary Targets

·          World over Mesozoic sediments account for more then half of reserves & production but in India Mesozoics are yet to be fully explored

·          Paleozoic sediments are virtually unexplored in Gondwana basins and Himalayas

·          Vindhyan, Cuddapah, Pakhal, Bhima, Chattisgarh, Kaladgi, Proterozoic basins are equivalent of Ripheans that have oil and gas fields in Lena Tunguska basin in Russia

·          Some Indian basins are equivalent to Vendians of China which produce oil & gas from Bohai Basin, China and Amadeus basin of Australia

c) Exploration Bocks Under Operation by NOC’s & Pvt. / JV Companies (as on 01.08.2004)

d) Growing confidence in India

·          Investor friendly & progressive Govt. policies

·          Flexible and transparent systems & procedures

·          In NELP-V 20 blocks on offer with more attractions

·          Opening of two new NELP-V data rooms at Dubai and Calgary

·          One more likely at Moscow

·          This time more foreign companies interested

·          Global oil majors are also showing keen interest in India now

·          The number of high quality service companies seeking entry into E&P sector is growing

·          Over 16 foreign E&P companies operating in India

·          The Russian gas major Gazprom is pursuing active exploration programme in its NEC block with GAIL

·          Gazprom is very optimistic about the chances of succeeding in their efforts

e) Foreign Companies Operating in India

CAIRN ENERGY, OKLAND, OAO GAZPROM, MOSBACHER, HARDY, BRITISH GAS, NIKO, CANORO, TULLOW, JTI, GEO GLOBAL, HERAMEC, GEOPETROL, PREMIER OIL.

f) Why Invest in India

·          Vibrant Capital market

·          Skilled manpower

·          Investor friendly Government policies

·          Conducive foreign investment environment

·          Transparency in procedures

·          Established independent Judiciary

·          Established position on the world’s economic map

·          Steady Growth rate

·          Post 1991 Liberal approach in every sector

·          4th Largest economy in terms of purchasing power

·          Large and rapidly growing consumer market

·          Large and diversified infrastructure

·          Efficient commercial banking sector

 

g) Investment Potential in Coal Bed Methane and Gas Hydrates

CBM

Gondwana coalfields: Raniganj, Jharia, Bokaro, N&S Karanpura, Singrauli, Sohagpur, Korba, Ib-valle, Talchir, Satpura, Wardha, Godavari, Birbhum, Rajmahal

 

Tertiary Coal/ Lignite fields: Assam-Meghalaya, Neyveli, Cambay, Barmer-Sanchor, Bikaner

Jammu & Kashmir

Gas Hydrates

Immense potential in Deep Water areas offer investment opportunity in a long run.

Prognosticated resources potential of gas trapped in gas hydrates is about 1894 trillion cubic meters.

Russia's Fuel and Energy Industry: Present and Future

(Vasily Zubkov, RIA Novosti Economic Commentator)

Domestic Demand for Fuel and Energy

ussia's fuel and energy complex fully meets the country's internal requirements and its export needs, providing the amount of energy resources required for the country's effective social and economic development.

Unfortunately, Russia's economy today is energy-inefficient. The country's GDP (at purchasing power parity) is 2.3 times more energy-consuming than the rest of the world, and 3.1 times more than Europe.

Russian economists have calculated that the country has enormous energy-saving potential, of between 360 million and 430 million metric tons of equivalent fuel, or 39%-47% of its current energy consumption. Nearly one third is in the fuel and energy sectors (especially in electric power generation and heating).

Restructuring the economy and saving measures are expected to reduce the energy intensity of GDP by 26%-27% by 2010, and 45%-55% by 2020. More than half of forecast economic growth can be obtained without increasing energy inputs by mere restructuring. An additional 20% will be provided by energy savings, and only one third of GDP increase will require energy consumption.

Natural gas will remain the staple fuel for domestic demand under any development scenario. In 2020, its share in the balance of primary energy resources will drop to 45%-46% from the current 50%.

During the period under consideration liquid fuel (oil and refined products) will account for around 20%-22%, and solid fuel for about 19%-20%. Steady demand will exist for non-fuel resources (electric power and heat generated by hydroelectric and nuclear plants and renewable sources of energy).

Russia's Fuel and Energy Industry: External Markets

Above all, external demand for fuel and energy will be dictated by global economic growth rates, which existing estimates put at between 2.5%-4% over the next 10 years. Average annual requirements for hydrocarbons will grow at a moderate rate  - 2%-4% a year (1.5%-2.5% in Europe).

As Europe continues to integrate and its power grids run increasingly in parallel, Russia's unified energy system will also join the process. This will give Russia equal access to Europe's energy markets, boost trade relations, promote economies of scale, and introduce higher-level cooperation in power generation. European demand for Russian electricity is expected to rise to 20-35 billion kW-hours by 2010 and to 30-75 billion kW-hours by 2020.

Energy exports, including hydrocarbons, will increase in line with world economic growth. Russia is now gradually moving into new markets. In the first nine months of this year, for example, it exported 20 million tons of oil to the United States. It is also beginning to export to Asia-Pacific countries (China, Japan, Korea and others).

Russia's Fuel and Energy Resources

Russia has vast hydrocarbon resources, estimated at between 36 billion tons and 44 billion tons of oil (including 12 billion tons in demonstrated reserves) and 127 trillion cubic meters of gas.

Territorially, the forecast oil and gas resources are distributed unevenly. Whereas oil is concentrated mainly on the land surface (approximately three quarters), gas is shared equally between land and shelf. Two federal districts - Urals and Siberian - account for about 60% of oil resources and only 40% of gas. Of other regions the Far East stands out, with 6% of forecast resources of oil and 7% of gas.

The economic slowdown of 1990 also affected geological prospecting. Russia's current discovered reserves are running low, and little is being done to increase them. Oil extraction is becoming increasingly skewed, with more profitable fields being intensively developed. Newly prepared deposits are small- and medium-sized and difficult to exploit. Overall, hard-to-extract reserves account for more than half the country's explored oil resources.

Gas extraction is more favourable but also tends to be dominated by difficult and hard-to-work fields. The reserves of the West Siberian deposits (Medvezhye, Urengoi, Yamburg), the country's main gas-producing area, are 55%-75% exhausted, and their output is already declining or will do so in the next few years.

In view of the existing geographical distribution of forecast resources and their degree of exploration, it is planned to step up preparation of hydrocarbon reserves for exploitation after 2005-2010 in the Barents, Kara and Okhotsk seas and in the Russian sector of the Caspian Sea.

Oil Production

Production of oil in Russia will vary depending on the chosen scenario of social and economic development. Given a combination of favourable external and internal conditions and factors (the best-case and most favourable scenarios), Russia may produce 490 million tons in 2010, increasing output to 520 million tons in 2020. In 2005, it is planned to produce 485 million tons (458.8 million tons in 2004).

Under a medium-case scenario, oil production remains at a much lower level - up to 450 million tons in 2020. Lastly, in the worst-case scenario, oil output is sustained only for the next couple of years, dropping to 360 million tons in 2010 and 315 million tons in 2020.

Oil production will develop both in traditional producing areas - Western Siberia, the Volga area, and the North Caucasus - and new oil and gas regions in the north of European Russia (Timan-Pechora), in Eastern Siberia, the Far East, and southern Russia (the North Caspian region).

The main supplier during this period will remain Western Siberia. Output there will grow until 2010-2015 under all scenarios except the critical one, and then drop somewhat to 290-315 million tons in 2020.

In the Volga-Urals region and in the North Caucasus, oil production will fall because of the depletion of the fields. In total, European Russia may produce 90-100 million tons (including from the shelf) in 2020 (compared with 110 million tons in 2002).

On the Sakhalin shelf, output will reach 25-26 million tons in 2010 and will plateau until 2020. In the worst-case scenario, it would slip to 16 million tons.

Gas Production

The future pattern of gas production will depend on the same factors as oil, except that domestic prices will have a bigger role to play.

Forecast production volumes will differ substantially depending on the development scenario adopted. Given favourable internal and external conditions and factors, Russia may produce 645-665 billion cubic meters in 2010, increasing output to 710-730 bcm in 2020. Under a medium-case scenario, the forecast figure is 635 bcm in 2010 and 680 bcm in 2020. Under the worst-case scenario, gas production may start falling in the immediate future and will stabilise at 555-560 bcm a year in 2010. It would not be until after 2020 that production would begin to grow, reaching the levels of the first half of the 1990s (610 bcm) by 2020. In the first nine months of this year, Russia produced 468.9 bcm of gas, or 0.66% more than in the same period last year.

In the period under examination, independent producers will play an increasing role, rising from current levels of 73 bcm (10%-12%) to 115-120 bcm (18%) in 2010 and 140-150 bcm (25%) in 2020.

During this period the main gas producing area will remain the Yamal-Nenets autonomous area, which concentrates 72% of all Russia's gas reserves, notably the Nadym-Pur-Tazov region.

The Yamal Peninsula and northern seas will become Russia's strategic priority regions for gas production in the years to come. Developing these deposits will require massive investments because they are remote from any existing gas pipelines.

Eastern Siberia will be another major gas-producing area in 2010-2020. Here, as well as in the neighbouring Far Eastern regions, the industry will develop the Kovykta gas and condensate deposit in the Irkutsk region, the Chayadinskoye oil and gas field in the Republic of Sakha (Yakutia), oil and gas condensate deposits in the Krasnoyarsk territory, and shelf deposits off Sakhalin.

Under favourable conditions, annual gas production in Eastern Siberia and the Far East may rise to 50 bcm in 2010 and 110 bcm in 2020. In addition to developing major deposits, it is also worthwhile tapping smaller fields, above all in European Russia. Present estimates put a likely increase in output from three regions alone - Urals, Volga, and North-West - at 8%, or 10 bcm.

Coal Industry

Russia possesses considerable reserves of coal (more than 200 billion tons, or 12% of the world's total) with 105 billion tons actually prospected. Geological resources of coal are estimated at 4,450 billion tons (30% of the world's total), but distribution is very uneven: over 80% is concentrated in Siberia, with European Russia accounting for a mere 10%.

Despite large explored reserves, planned production in a number of regions is handicapped by unfavourable geographic, geological and economic factors.

In 2004, Russia produced 283 million tons of coal, and output in September reached 25 million tons. Every month, Russia exports nearly 7 million tons.

Above all, future levels of coal production in Russia will depend on demand inside the country and on how well coal will be production- and price-competitive against alternative energy sources in an already saturated market.

Given favourable conditions (under the best-case and most favourable scenarios), coal production in Russia may be as high as 300-330 million tons in 2010 and 400-430 million tons in 2020.

Electric Power Generation

The strategic goals of electric power development in the contemplated period are to:

·          Supply the economy and the public with electricity;

·          Keep intact and develop the national power grid and integrate it with other grids on the Eurasian continent;

·          Ensure more effective operation and development of the power industry by using up-to-date technologies;

·          Reduce harmful environmental impact.

With forecast demand figures for electricity in a rapidly developing economy, there are different scenarios for the electric power industry. Under the best-case scenario, overall electricity generation may rise more than 20% (to 1,070 billion kW-hours) by 2010, compared with 2000, and 60% (to 1,365 billion kW-hours) by 2020. In January-August 2005, Russia generated 615.6 billion kW-hours (an increase of 2% on the same period of 2004). Monthly output reached 68.5 billion kW-hours. With the economy slowing down, 1,015 and 1,215 billion kW-hours of electricity, respectively, would be generated.

Still untapped are the generating capacities of Siberian hydroelectric and thermal plants: unused capacities in the region total 7-10 billion kW. So one of the industry's strategic tasks is to develop inter-grid transmission of 500-1,150 kV current to ensure steady operation of the unified grid of Siberia in tandem with grids in European Russia and the Far East. This arrangement will avoid costly coal transportation from the Kuzbass fields. Coal will be fired locally to produce 5-6 million kW for European Russia and 2-3 million kW for Eastern Siberia.

Besides, manoeuvering capacities available at the Angara-Yenisei cascade of hydroelectric plants will ease load regulation in the European area.

Wear and tear on power plants is 60%-65%, and over 75% in rural distribution networks. The Soviet-made equipment that forms the core of the industry is obsolete, does not meet modern requirements and is inferior to the best products worldwide. It not only needs maintaining to operate properly, but also modernising to comply with modern methods and technologies in generation and distribution of power and heat.

The high percentage of worn-out plants, coupled with the lack of potential capital available for restoring it, puts the industry at risk from breakdowns and failures and as a result makes supplies less reliable.

The current irrational fuel balance is due to the wrong price policy on primary energy sources for generating plants. Coal prices are generally 50% higher than gas prices. Under such conditions, coal-fired generating plants, which are more capital intensive, become uncompetitive and cannot develop, worsening the fuel situation in the sector when thermal plants generate more than 60% of electricity by burning gas.

In developing a unified power network as the principal element of Russia's national power grid and consolidate the country's economic space, it is planned to build more power transmission lines to ensure the steady functioning of the grid. 500-750 kV capacity power lines, will as before, form the core of Russia's power networks. Depending on the scenario, a total of 25,000 to 35,000 kilometers of 330 kV transmission lines is to be built by 2020.

To guarantee the forecasted levels of power and heat consumption, the best-case and favourable scenarios provide for the commissioning of 177 million kW of generating capacities during the 2005-2020 period (including replacement and modernisation). The breakdown here is as follows: 11.2 million kW for hydroelectric and pumped storage plants, 23 million kW nuclear plants, and 143 million kW thermal power plants. Under a medium-case scenario, new capacities commissioned are estimated at 121 million kW, including 7 million kW for hydroelectric and pumped storage plants, 17 million kW for nuclear plants, and 97 million kW for thermal plants (31.5 million kW for steam gas and gas turbine plants).

The following guidelines will determine the development of the power industry in different regions in the period under examination:

·          European Russia - conversion of gas-fired thermal power plants by replacing steam turbines with steam gas units and by ensuring maximum development of nuclear plants;

·          Siberia - development of coal-fired thermal power plants and hydroelectric plants;

·          Far East - development of hydroelectric plants and gas-fired heat and power plants in cities, and nuclear and nuclear power and heat plants in individual regions.

Thermal power plants will remain the industry workhorse during this period and will be responsible for 60%-70% of all installed capacities in the branch. Their output will rise 40% by 2020, compared with 2000.

The fuel pattern at thermal plants will change by 2020, reducing gas and increasing coal. The ratio of gas to coal will be determined by existing prices for the two and the state's policy on using fossil fuels for power generation.

 

In the Oil and Gas Sphere

uring his visit to Delhi in December 2004, President Vladimir Putin said that a stronger Russian-Indian energy partnership is of mutual benefit to the two countries’ economies. “As India’s long-term and tested partner, Russia is ready to contribute to the energy stability of India's growing economy and the development of its fuel and energy complex,” Putin said. Russian companies, he added, would come to India with advanced technologies for increasing oil wells’ productivity, reanimating old dormant fields and developing oil fields where oil is difficult to recover.

Russia's Zarubezhneft, Stroitransgaz, Neftegazexport, and Tyumenneftegeofizika have some experience of work in India and are willing to help the Asian giant develop its oil and gas fields. Within the framework of cooperation with the Oil and Natural Gas Corporation (ONGC), Zarubezhneft has signed a contract to conduct well-drilling operations in the Indian state of Assam and is carrying out this contract now. In addition, it supplies unit components for capital repair of wells. Russia’s gas monopoly Gazprom has signed a Strategic Cooperation Agreement with the Gas Authority of India Ltd. (GAIL) and a Memorandum of Understanding with the ONGC Videsh. Among the main areas of cooperation are projects to supply natural gas and other hydrocarbons to India, carry out joint oil and gas prospecting, and provide oil and gas field facilities in India and Russia.

Gazprom and Zarubezhneftegaz, jointly with GAIL, are continuing work on the contract with the Indian government for oil and gas exploration drilling operations on Block 26 of the shelf in the Bay of Bengal. They have completed field seismographic operations (3D/2D) and shipboard data processing, chosen a site for a 2,400 metre-deep exploratory well, conducted geological model investigations, assessed the promising facility and carried out engineering and -geological investigations in the drilling area. In line with the Memorandum of Understanding signed by Gazprom with GAIL in New Delhi on October 3, 2000, Gazprom is looking into possibilities to export Iranian gas to Pakistan and India, and also to cooperate with ONGC on the Sakhalin-1 project and with Reliance Industries on the Indian gas market.

In February 2003, Gazprom subsidiary Stroitransgaz, jointly with Essar Constructions and the Indian Oil Corporation (IOC), signed a contract with Gujarat State Petronet to build the Baroda-Ahmadabad gas pipeline. On December 3, 2004, Gazprom signed a Memorandum of Understanding with GAIL on cooperation in Russia, India and third countries. Following the accords, Stroitransgaz President Viktor Lorents met with India’s Petroleum Minister Mani Shankar Aiyar and GAIL director B.S. Negi in Moscow in January 2005. During the negotiations, he discussed prospects for cooperation with GAIL in elaborating projects to build the Iran-Pakistan-India and Myanmar-Bangladesh-India gas pipelines. Back in December 1998, LUKoil and the Indian Oil Corporation (IOC) signed an agreement providing for long-term supplies of oil and oil products to India (15 million tons a year). In the first half of this year, LUKoil Overseas Service Ltd. conducted a series of talks with the ONGC Videsh to examine opportunities for joint work, but no specific projects have been discussed yet.

Apart from geological prospecting and pipeline construction, Russian companies have managed to occupy another niche of service and maintenance works in the fields. Thus, since December 2003, Russia’s United Engineering Plants (OMZ) has been supplying ONGC with mobile drilling units worth a total of $13.6 million. Besides, the ONGC development programme for the next few years envisages spending some $400 million on reorganisation works in the oil fields and modernization of drilling units. At present, ONGC is looking into possibilities to participate in the development of the Kovykta gas condensate deposit in Eastern Siberia. The licence for its development is now held by Russia Petroleum. According to the Irkutsk regional administration, India is ready to invest around $6.5 billion into Kovykta. ONGC Videsh Ltd. has a 20% share in the Sakhalin-1 project. The Indian corporation has already invested $1.7 billion into the project. It is expected to be its largest capital investment abroad. In the final count, Sakhalin-1 will provide 2.3 billion barrels of oil and 17.3 trillion cubic metres of natural gas. The partners intend to start oil production next year. The ceremony of starting commercial oil production, held on October 1 this year, was attended by Industry and Energy Minister Viktor Khristenko and his Indian counterpart, Mani Shankar Aiyar.

Neftegazexport is continuing negotiations with Indian oil and gas companies on oilfield services and supplies of oil-and-gas field equipment and also power, electrical, high-voltage and other equipment and materials. On September 19-20, Mani Shankar Aiyar visited Moscow. He met with Gazprom and Rosneft top managers, Khristenko and Deputy Prime Minister Alexander Zhukov. At the meeting with Zhukov, the Indian petroleum minister confirmed his government’s intention to buy at least 10 million tons of oil in Russia. Considering that the European market is swamped with Russian oil, a long-term contract with India is most promising. Thus far, Russia has had no direct crude supplies to India, selling only petrochemicals through middlemen.

In the Energy Sphere

Russia’s Siloviye Mashiny continues equipment supplies to the Sipat and Barh super thermal power plants (3 power units of 660 MW each) and also fulfils obligations on contracts for work at the Konasima TPP, the Balimela hydroelectric power plant (HPP), the Birla thermal power plant (TPP), and the Tehri HPP. In March 2005, Technopromexport signed three contracts with its Indian client, National Thermal Power Corporation (NTPC), undertaking to design boiler plants for the Barh TPPs (3 x 660 MW), manufacture them, deliver and transport to the site, unload, store, assemble and conduct tests and startup and commissioning operations, and then put them into operation. The contracts are in the execution phase now. Technopromexport is carrying out the contract for modernizing the Obra TPP (5x50MW), signed in February 2003 with the electricity board of Uttar Pradesh. Work is under way now to install the equipment supplied by the Indian market. Technopromexport is also implementing the contract for the supply and assembly of hydro-mechanical equipment at the Indira Sagar HPP (8x125MW). It has manufactured all the equipment and assembled about 90% of the equipment under the contract. Work is to be completed in November 2005. Technopromexport has submitted documents for its participation in tenders for the modernisation of the Patratu HPP, supply and assembly of hydro-mechanical equipment for the Subanshiri HPP, and also of electrical engineering equipment for the Thista-IV HPP.

The OAO Engineering Centre of the Unified Energy Systems (UES) – Gidroproyekt Institute is planning to launch negotiations with the National Hydro Power Corporation (NHPC) of India to determine specific cooperation projects and the terms of implementing engineering operations and providing engineering services, and also with the Tehri Hydro Development Corporation Ltd. for building the third stage of the Tehri hydroelectric power complex. Representatives of the MMPP Salyut are engaged in negotiations with Indian companies for building an energy complex in Nagpur for solid domestic waste treatment and two power plants – for Chennai Power Generation Limited and King HiPower.

In Nuclear Power Engineering

On February 12, 2002, Atomstroiexport and the Nuclear Power Corporation of India Limited (NPCIL) signed a contract for Russian supplies of the equipment and materials for the Kudankulam nuclear power plant (NPP). This contract was concluded within the framework of the Memorandum on Basic Principles of Cooperation on Kudankulam NPP signed on November 6, 2001, by Alexander Rumyantsev, Russia’s then atomic energy minister, and Anil Kakodkar, secretary of the department of atomic energy (DAE) in the Indian government. Under the contract, Russia is to supply the basic large-sized equipment for the NPP, including reactor and turbine units and a steam generator. The equipment is to be supplied within 68 months of the effective date of the contract (March 2002). Hundreds of Russian enterprises, including such majors as United Engineering Plants, Siloviye Mashiny and many others are busy implementing the Kudankulam contract. “We hope that in the future other nuclear power plants will be built in India with Russia’s participation,” said Vijay Kumar Chaturvedi, NPCIL’s chairman and managing director. He also said that India badly needed electricity, some 100,000 MW within the next ten years.

In Coal Mining

Indian industry manufactures a wide range of mining equipment. A sizeable portion of this equipment is made in cooperation with well-known foreign companies, and another portion is imported. According to Indian analysts, the Indian market for mining equipment will develop rapidly in the next few years. In addition, India may become a major mining equipment manufacturer and increase its export to other countries. The Janjra mine, designed and built with Soviet technical assistance in the 1980s, remains one of the most promising facilities, providing ample opportunities for Russian companies to render technical services and supply equipment for the Indian coal industry.

The Giproshakht institute in St. Petersburg is implementing various design projects within the framework of the Memorandum of Understanding between the Giproshakht and CMPDI, an Indian sectoral design organisation. Other Russian producers, including the Chelyabinsk Tractor Works and the Uralmash, are trying to get a foothold in the local markets for technological mining equipment, and participate actively in tenders for the supplies of excavators and bulldozers for coal strip mines. Recently, Coal India Limited (CIL) awarded the OEM (Original Equipment Manufacturer) status to the United Engineering Plants (OMZ), Russia’s heavy engineering major. This status gives OMZ automatic access to all tenders for mining equipment supplies to the Indian corporation. OMZ regards India as a promising market for the supplies of heavy-duty mine excavators and drag-lines.

At present, CIL based in Calcutta has intensified the drafting of projects for developing two new open-cast coal mines in the Jharkhand State (Magadh and Amrapalli, 50-80 km north of the State’s capital Ranchi). CIL representatives are interested in Russian mining equipment manufacturers’ participation in the planned tender, with Russian equipment being well known in the country’s mining industry. According to CIL managers, Russian mining machinery and equipment have proved their worth and would fully comply with the technical and financial-economic requirements for the development of new open-cast mines.

The Fragile Gas Balance of the CIS

(Alexander Libman, senior researcher at the Russian Academy of Sciences' Institute of International Economic and Political Studies for RIA Novosti)

 

t goes without saying that energy plays a key role in cooperation in the post-Soviet space and Eurasia as a whole. Links between the oil and gas provinces of Russia and the Caspian region and consumers in the European Union and Asia are the biggest driving force of economic integration.

The list of players is not limited to the Commonwealth of Independent States (CIS) but also includes Europe (63% of Russian oil exports and 65% of gas, which accounts for 30% and 50% of consumption, respectively, in the 25 EU countries), the United States and Turkey. India and China's interest in the energy reserves of the former U.S.S.R. is growing, as proved by the involvement of China’s CNPC and India’s ONGC in the auction for PetroKazakhstan, a Canadian company that owns a few attractive assets in the region.

Gas is a key factor in this region, which has nearly 30% of the world’s proven reserves. Currently there is a “fragile balance” because of the geographical structure of transportation. Russia holds the monopoly on gas transit from Central Asia, but its gas deliveries to Europe depend on the western CIS countries – Ukraine and Belarus.

At the same time, Russia cannot fully satisfy Europe's gas requirements without using Central Asian gas. The only alternative is the development of Siberian gas resources, which entails major outlays.

However, Ukraine and Belarus also depend on Russia as the main supplier of energy reserves. The role of transit (pipeline monopoly) is considerably bigger in gas production than in the oil industry, as there are many more alternative oil routes.

In the 1990s Russia tried to create a scheme for the CIS gas industry. Until the mid-1990s, Russia aimed to limit Central Asian states' access to the European gas market, to satisfy European requirements with its own reserves, and to use its pipeline monopoly to hinder the access of rivals such as Turkmenistan to the European market.

The situation changed at the turn of the century, when Russia accepted the need to involve Central Asia in gas deliveries to Europe, while dissatisfied countries in the region started looking for alternative gas routes.

Since early 2002, Russian gas monopoly Gazprom has been pursuing a pro-active policy toward the Central Asian states, whose gas is seen as a strategic reserve. It has signed agreements with the region's three gas producing countries – Turkmenistan, Uzbekistan and Kazakhstan – on long-term gas deliveries via Russia.

A 25-year agreement with Turkmenistan stipulates an increase in gas exports to 70-80 billion cubic metres by 2009-2029. The agreement with Uzbekistan provides for the annual acquisition of 10 billion cubic metres of gas beginning in 2005. Gazprom will get gas from the Shakhpakhty field, which is being developed under a production sharing agreement (PSA).

Gazprom and its export division, Gazexport, have signed agreements with Kazakhstan's KazMunaiGaz. A joint venture, RosKazGaz, has been created to export Kazakh gas, which some analysts view as the foundation for a gas transportation consortium of post-Soviet states.

In 2002, Gazprom and Kazakhstan's Karachaganak Integrated Company agreed on gas deliveries to Russia's Orenburg Refinery, and 7 billion cubic metres of gas have been shipped there annually since 2003. Gazprom and LUKoil are working jointly in the development of Kazakhstan’s Caspian shelf.

Meanwhile, Russia has been developing relations with the western CIS states, trying to establish gas transit routes via Ukraine and Belarus and to streamline their access to Central Asian gas. Ukraine has long been buying Turkmen gas, paying for it partially in cash and partially by investment into the Turkmen economy. A five-year gas delivery agreement was signed in 2001.

In 2004, Gazprom and Naftogaz Ukrainy devised a new scheme for gas deliveries to Ukraine, under which RosUkrEnergo, set up by Gazprombank and Raiffeisen Investment, is the operator of the Turkmen gas transit project. It should become the main supplier of Turkmen gas to Poland, replacing Hungary's Eural Trans Gas, which has already provoked quite a few scandals over low profits and questionable tax optimisation schemes.

The fragility of the situation in the western and eastern parts of the CIS became apparent in 2005. On December 31, 2004, Turkmenistan blocked gas deliveries to Russia and Ukraine by announcing a unilateral decision to raise prices from $42 to $60 per 1,000 cubic metres of gas. State gas corporation Naftogaz Ukrainy agreed to pay $58. (Nikolai Azarov, acting premier of Ukraine, later said that he had not authorised the head of Naftogaz to sign the document, but Turkmenistan refused to accept complaints regarding the illegitimate nature of the contract and demanded that Ukraine honour it.) Gazprom refused to reconsider the price. Following difficult talks, the sides agreed to resume deliveries. Under the contract, Turkmenistan will deliver 4 billion cubic metres of gas in 2005 beginning on May 1 and 7 billion in 2006 at $44, without the commercial component.

The outcome of that conflict was predictable; it was made inevitable by the partners' mutual dependence. Europe’s reaction was the most serious result of the Turkmen gas war for Russia. Dr. Wulf H. Bernotat, chairman of the board and CEO of E.ON, a leading German energy corporation that includes Ruhrgas, said that halting gas deliveries to Ukraine and terminating supplies to Russia were examples of growing instability of energy deliveries to Europe. This statement  coming from the head of a major German concern is especially significant.

The energy problem remains crucial for Ukraine’s leaders, who are dissatisfied with their country’s oil and gas dependence on Russia and want to diversify energy imports. One way to do this is attract as many suppliers as possible. Naftogaz has announced the intention to participate in the development of oil and gas deposits in Russia, Iraq, Pakistan, Libya and Afghanistan. There is a draft agreement on gas deliveries from Uzbekistan.

Ukraine also is contributing to the creation of new gas balance schemes in the post-Soviet states. In March 2005, Naftogaz Ukrainy suggested creating a trading house jointly with E.ON and Poland's PGN&G to sell “non-Russian [primarily Turkmen and Kazakh] gas” to the EU.

The issue was later removed from the agenda, but when Ukrainian President Viktor Yushchenko came to Turkmenistan in spring 2005 the two presidents announced their intention to create a consortium with Russia and Kazakhstan to construct a new pipeline along the eastern coast of the Caspian Sea, from Turkmenistan to Aleksandrov Gai in Kazakhstan and thence to Novopskovsk on the Ukrainian-Russian border and on to Ukraine.

The key goal of the consortium, its authors said, was to liquidate the bottleneck in the system of deliveries, which is the Uzbek part of the pipeline.

In the short term, these two projects will not lead to fundamental changes in the line-up in the energy sphere, because export gas will be transited via Russia. But the idea of a Ukrainian-Polish-German consortium has a major aspect that could influence Russia’s energy dialogue with the EU. In these conditions, the EU might increase pressure on Russia to liberalise its gas market, especially because the issue of free transit has always been a stumbling block in Russia-EU relations.

In addition, the EU calls for the creation of a system of flexible short-term deliveries, while Gazprom favours long-term contracts.

In the longer term, we can expect the appearance of alternative transit routes across the Caspian Sea, Azerbaijan and Georgia, which are being discussed today.

So far, relations between the western and the eastern flanks of the CIS on the hydrocarbons issue of “bypassing Russia” are not very good. Turkmenistan has repeatedly accused Ukraine of delaying the payment of gas debts (which it described as “unheard-of fraud”). In October, Turkmen President Saparmurat Niyazov again raised the issue of Ukraine’s $0.5 billion gas debts. Moreover, Turkmenistan’s capabilities are seriously limited by its 2003 contract with Russia, which exceeds the country’s gas export potential or at least leaves no reserves for other projects.

Alexander Ryazanov, deputy chairman of Gazprom’s executive board, said in July that there were doubts regarding Turkmenistan’s ability to fulfil its gas deliveries obligations until 2007 (the country delayed provision of international gas audit results without good reason). Gazprom’s agreement allowing it to regulate gas deliveries via Uzbekistan gives Russia one more regulating instrument, but it could lose it if the new gas pipeline is built.

Ukraine-Kazakhstan oil and gas cooperation has a future, though mostly in the oil sector. The possibility of substantial Kazakh oil deliveries was made public during Yushchenko's July visit to Kazakhstan. In September, Ukraine's Ukrtransneft and Kazakhstan’s KazMunaiGaz announced the intention to create a joint venture for oil export to Europe.

Kazakhstan showed a desire to participate in the construction of pipelines and acquire oil refining assets in Ukraine. Kazakh Prime Minister Danial Akhmetov spoke in favour of the aforementioned consortium of Russia, Kazakhstan, Ukraine and Turkmenistan. But the Kazakh leadership is spotlighting the need to solve energy problems within the Common Economic Space, meaning with Russian involvement.

Russia-Ukraine gas relations suffered a series of setbacks in 2005. The worst concerned 7.8 billion cubic metres of gas stored in the underground storage facilities in Ukraine last winter. In spring 2005 Ukraine refused to provide this gas for export, which made Gazprom decide unilaterally to count this gas as payment for transit.

The situation is very complicated and the real motives of the players and agreements between them are not entirely clear. In any case, statements have been made on raising gas prices for Ukraine to world standards. As for Eural Trans Gas, the delivery of Turkmen gas to Ukraine in spring 2003 is being investigated.

There are two problems with the gas balance:

Firstly, non-transparent schemes of interaction continue to play a key role. The energy sphere is dominated by the “integration of common exceptions,” rather than the “integration of common rules.” It is no accident that the players make use of all kinds of barter schemes, which often entail accumulation of debts. In this situation major corporations with a strong lobbying potential have excellent rent-seeking opportunities. The system of harshly authoritarian and semi-authoritarian political regimes in partner states in Central Asia only exacerbates the situation.

Secondly, the players are becoming increasingly mistrustful of each other, and this mistrust is not only encompassing post-Soviet states but is also spreading to the EU. The West fears that Russia will abuse its monopoly standing. Central Asian states want to reduce their dependence on Russian transit. And Russia does not trust the West, fearing that market liberalisation would limit its opportunities for gas deliveries to Europe. In many cases, justified mutual mistrust is largely provoked by the above policy of “common exceptions.” The result is a certain “accord based on pessimism,” meaning the apprehension that “the partner will cheat one way or another.” Dealing with these two problems is crucial for the development of international economic and political relations in post-Soviet territories and Eurasia.

Kazakhstan Oil Production Consumption and Net Export: 1992-2004

(‘000 bbl/d)

Source: EIA

India-Kazakhstan: Prospects and Priorities

(By Kulpash Konyrova  - RIA Novosti)

ust over a month ago India attended the latest Shanghai Co-Operation Organization (SOC) conference as an observer. Soon after that an official Indian delegation headed by Deputy Foreign Minister Rajiv Sikri arrived in the Kazakh capital. India considers Central Asia to be an important element of its foreign policy. It has its interests in this region, including Kazakhstan.

Rajiv Sikri spent two-days in Astana this week and met with Kazakh Foreign Minister Kasymzhomart Tokayev. He also took part in consultations between Kazakh and Indian Foreign Ministries. Both Sikri and Tokayev discussed the subsequent development of political, trade and economic relations, as well as those in the field of sports and culture. India is particularly interested in Kazakhstan’s oil-and-gas sector.

(Rajiv Sikri, 57, has worked as a diplomat for over 35 years. He served with India’s Embassy in Russia, and from 1992 to 1995 was India’s Ambassador to Kazakhstan. He speaks Russian fluently.)

According to Sikri, India and Kazakhstan attach priority to energy, information technologies and the pharmaceutical industry. However oil comes first. Therefore, negotiations with Kazakh Energy and Mineral Resources Minister Vladimir Shkolnik featured prominently on Sikri’s agenda. Moreover, ONGC (Oil and Natural Gas Corporation) representatives accompanied the Indian delegation to Astana.

It is common knowledge that the rapidly developing Indian and Chinese economies are hard pressed for oil and gas. New Delhi, which annually needs about 100 million tons of oil and gas, imports 70% of this grand total. China needs 200 million tons per year. Global oil prices have skyrocketed as a result of this tremendous demand.

Kazakhstan is a major oil producer, while India is one of the main oil consumers today, Sikri told NP. In his words, Kazakhstan needs a reliable sales market; and India needs guaranteed raw materials deliveries. Both sides admit that this spells mutual advantages, Sikri stressed.

“We are now discussing the establishment of an oil-production joint venture on Kazakh territory; I believe that this issue will be settled completely in the next few months,” Sikri said.

India plans to invest $1.5 billion into Kazakhstan’s oil-and-gas deposits. New Delhi is interested in the Kurmangazy offshore deposit, which contains an estimated 900 million to one billion tons of oil. Kazakh’s KazMunaiGaz and Russia’s Rosneft signed a production-sharing agreement in regard to this oil field one month ago. India hopes to acquire a 20% stake in that project.

ONGC will join oil projects on Kazakh territory together with Mittal Steel Corporation, Sikri said.

According to foreign news reports, Mittal Steel, the world’s largest steel company, and ONGC have established two joint ventures for implementing major oil projects all over the world. Mittal Steel owns the Karmet metallurgical factory in Karaganda, Kazakhstan. The companies ONGC Mittal Energy Limited and Mittal Energy Services Limited were established under mutual agreements that had been approved by the Indian Government. The first company will buy stakes in oil-and-gas projects outside India, and the second will implement service contracts on fuel-and-energy processing, transportation and trading. The joint ventures will operate in 14 countries, Kazakhstan included.

Apart from the Kurmangazy project, India’s oil specialists are quite interested in ten other less important projects on the north Caspian shelf. KazMunaiGaz, Kazakhstan’s Energy and Minerals Resources Ministry and ONGC have already held several rounds of talks on developing the Satpayev and Makhambet deposits with the potential reserves of about 200 million tons of oil. These offshore deposits are located 60 km from the Atyrau region’s Kurmangazy district.

Moreover, ONGC and the China National Petroleum Corporation (CNPC) are among potential buyers of stakes in PetroKazakhstan that owns the Kumkol deposit group. When asked about this, Sikri remarked evasively that oil production and rivalry always went hand in hand. “The Chinese are here, and they are strong. But we are also here, and we are strong enough,” Sikri added.

As far as bilateral IT co-operation is concerned, India is ready to share its experience in space exploration with Kazakhstan.

The Kazakh space program hinges on the following two projects. Firstly, the republic aims to build the new Baiterek space complex. Secondly, it intends to launch the Kazsat-1 communications satellite. Astana cooperates actively with Russian specialists in this field. According to Sikri, India implements its own space program and launches its own satellites. In his words, India boasts advanced long-range remote-sounding satellites, and some countries produce satellites with the help of Indian technologies. “We believe that our experts can cooperate rather effectively in many spheres,” Sikri said.

Another potential field for co-operation is pharmaceutics. The world knows a great deal about the achievements of Indian pharmaceutical industry. Some time ago New Delhi and Astana discussed the creation of two joint ventures that would produce medications on Kazakh territory. Indian medical preparations are in high demand and marketable. “We discussed the creation of one or two joint ventures,” Sikri noted. “However, drug production has not commenced yet. We must discuss various incentives in order to promote successful business operations,” Sikri told NP.

At present India is also very interested in Kazakh machine-building factories that are part of the Kazakhstan Engineering national company. The Kirov factory in Almaty produces heat-seeking torpedoes. Moreover, sectoral enterprises produce machine guns, robots and hydraulic systems that sell quite successfully. “We believe that the vast Indian market is more promising than the Chinese market. India has a large navy wielding Soviet-era weaponry that was produced by our factories. We would like to expand this cooperation that promises us hundreds of millions of dollars in profits,” said Galym Orazbakov, general director of Kazakhstan Engineering.

Indian-Kazakh co-operation is not confined to economic aspects. New Delhi and Astana have also discussed culture. There are plans to set up a cultural center in Astana. The Almaty cultural center is now operating quite effectively, Sikri said. He did admit that India and its culture were not adequately represented in Astana. According to Sikri, the Indian Embassy will work on this project.

 

ONGC Exploration Status upto January 2005

 

 

 

Russia Guarantees Safety of Kudankulam Nuclear Power Project

(RIA Novosti commentator Tatiana Sinitsyna)

aving put all its eggs in the nuclear basket, Russia is now pro-active in pursuing every aspect of nuclear technology, which is justly said to be on the rise in the country today. Nuclear power is being revived not only for pragmatic purposes and not only because it has recovered from its financial crisis. An important factor is the gradual disappearance of the “Chernobyl syndrome” — public fears generated by the man-made explosion at the Chernobyl nuclear power plant in 1986.

Russia’s present-day nuclear industry is strongly integrated in the world community. This year it is expected to bring more than $3 billion in commercial returns from abroad. Apart from trading the Federal Nuclear Power Agency also builds nuclear power plants (NPPs) in other countries. Currently Russian specialists are constructing nuclear reactors in China (Taiwan), Iran (Bushehr) and India (Tamilnadu).

The Kudankulam NPP is being erected by agreement between Russia’s Atomstroi and the Nuclear Power Corporation of India. Two VVER-1000 pressurised water reactor units are planned — the most economically and technologically sound option. According to the Agency, the first unit will go online at the end of 2008, and the second, in 2009. An estimated $2.6 billion has been invested in the project. The Russian government has extended India a long-term credit to cover half the costs.

Work on the first unit is proceeding according to plan, with the reactor building already in place. Equipment is being gradually installed. The main workforce is Indian, with Russian specialists providing only engineering supervision. Russia is likewise to supply fuel for the reactor. Prospects for nuclear cooperation are marred by the fact that India is not a signatory to the nuclear non-proliferation treaty.

Russia guarantees the VVER units will be absolutely safe. Fifty-two of them are in operation at present, with 14 in Russia. Together they have logged more than 1,000 cumulative reactor-years. In cost-benefit terms, VVER-1000s are the most preferable today. The reactor going up in India embodies the latest concepts of Russian projects being implemented by Atomstroiexport. They incorporate the best nuclear technologies available in the world for safety and security.

The Chernobyl syndrome has taught Russian nuclear scientists a lot. Independent experts and the IEAE now consider Russian reactors among the most reliable in the world. They feature the following engineering solutions guaranteeing safe operation:

·          Highly dependable passive safeguards triggered without external energy inputs and cooling the reactor unit continuously for no less than 24 hours with no human interference;

·          A dual protective shield: an internal seal and an external envelope capable of withstanding such impacts as a falling aircraft or an explosion;

·          Systems to deal with accidents that reach beyond the design limits.

Modern technologies permit no one to switch off reactor protection systems, be he a staff worker, a nuclear power minister, or a terrorist (it was the human factor that played foul in Chernobyl). But imagine an impossible thing — a Boeing impacting on the station envelope. What about it? You need not worry — the casing will remain intact, which cannot be said of the Boeing.

Oil Refining in Russia upto April – 2005

	2004		2005		2005 as % of 2004
	January-April	Incl. April	January-April	Incl. April	January-April	Incl. April
Primary oil refining, mln. T	63.1	15.6	65.4	16.1	103.7	103.0
Output of oil products:
Motor gasoline, mln. T	9.5	2.3	10.1	2.3	105.7	102.2
Diesel oil, mln. T	18.1	4.4	19.0	4.6	105.5	104.8
Fuel oil, mln. T	18.1	4.4	18.8	4.6	103.9	106.5

 

Growth in Demand for Petroleum Products

*Growth rate as per X plan (2002-07) document: 3.7%

 

Source: EIA/International Energy Outlook 2004

 

Russia, Kazakhstan Ink Product-Sharing Agreement on Kurmangazy Oil Field

(By Kulpash Konyrova – RIA Novosti)

he story of  “the division” of one of the Caspian’s most promising oil fields – Kurmangazy has come to and end. Russia and Kazakhstan have signed a product-sharing agreement.

A two-year stage of the long and difficult talks between Kazakhstan and Russia on a joint development of one of the Caspian’s promising oil fields has come to and end. This week Kazakh Energy Minister Vladimir Shkolnik, KazMunaiGaz oil and gas company president Uzakbai Karabalin and Rosneft oil company head Sergei Bogdanchikov signed a product-sharing agreement on the Kurmangazy oil field.

“The project we have signed today is one of global dimension because the point at issue is a billion tons of prospective reserves,” this is how Sergei Bogdanchikov described this event.

So, the destiny of one of the Caspian’s three oil fields located at the juncture of the two states’ interests has been decided. It should be recalled that in 2002, the Kazakh and Russian presidents signed a protocol on the division of the bottom of the Caspian Sea. Under this protocol, three oil fields - Kurmangazy, Tsentralnoye and Khvalynskoye turned out to be on the border dividing the areas allotted to either country for the use of mineral resources. The issue of their    development was raised to the level of interstate relations. While the issue of the development of the Kurmangazy oil field has been solved, the situation concerning the two other oil fields – Khvalynskoye and Tsentralnoye - may be clarified only after the discussion of this issue in the Russian State Duma.

The drilling of the first oil well on the Kurmangazy oil field will begin next year. In oilmen’s words, it will take them two years to prospect for oil, another three years to estimate its reserves and announce a commercial discovery (that is, announce whether there is oil at all) there, and another five years – to build the requisite infrastructure of the oil field and start production. Only after that, the commercial production of hydrocarbons will begin. Under the project, its volume will be 60 million tons a year. Admittedly, to produce  “the first oil,” the sides will have to invest at least $23 billion. However, the game is worth the gamble. The country’s treasury will receive up to $31 billion over the whole period of the development of this promising oil field - 40 years. Admittedly, this is just a tentative figure. The bulk of revenues will be formed after the beginning of commercial production. KazMunaiGaz and Rosneft hope to gain $10 billion in net profits, each.

Vladimir Shkolnik told the press that according to the new requirements of the Kazakh side, upon signing contracts for the development of Kazakh oil fields, investors would be obliged to supply 10% of the oil produced to Kazakhstan’s internal market in order to make petrol prices acceptable in market terms. Rosneft has agreed to these requirements.

It is expected that KazMunaiGaz’s subsidiaries will develop Kurmangazy jointly with Rosneft. These subsidiaries are AO Morskaya Neftyanaya Kompaniya KazMunaiTengiz and  Rosneft-Kazakhstan.

Gas production in Russia upto April – 2005

	2004		2005		2005, as % on 2004
	January-April	Incl. April	January-April	Incl. April	January-April	Incl. April
Total gas output, bcm	222	54.1	225	54.2	101.3	100.3
Including:
Gazprom OJSC	191.3	46.5	192.6	46.4	100.7	99.8
Other producers	30.7	7.5	32.4	7.8	105.5	104
Gas export, bcm	70.1	15.6	74.1	16.7	105.7	107

 

Reserves by Production Ratio (R/P) & Exploitation Index by ONGC

 

Basin	R/P Ratio	EI (in per cent)
Cambay	16	0.56
Upper Assam	49	0.25
AAFB	15	0.77
KG	12	1.42
Cauvery	20	0.69
Total Onland	21	0.50
Total Offshore	13	0.66
Total ONGC	16	0.60

 

Energy: The Solid Foundation of Russian-Indian Cooperation

(By Lidia Pryanikova, the Russian Ministry of Industry and Energy)

he Russian press refers to India as the country's most important trade and economic partner on an increasingly regular basis. First of all, Russia and India have common interests in the industry and energy sphere. This is highlighted by the September 2005 session of the Russian-Indian working group on power engineering. Businessmen from the two countries are saying that the sides have managed to expand energy cooperation. And now I would like to say a few words about the situation inside different energy sectors.

The Oil Sector

Zarubezhneft and ONGC Eastern Division have successfully completed a major consultative contract. They assessed the state of idle and ineffective oil wells in order to boost output at the Lakwa-Lakhmani, Geleki and Rudrasagar deposits in the state of Assam. Moreover, Zarubezhneft has implemented a contract for cutting sidewall shafts at four idle wells in the state of Assam. These wells now each yield up to 40 tons of oil a day. The company has now charted new cooperation venues, such as increasing the oil seam yield at operational oil fields. Zarubezhneft has made this proposal to the working group’s Indian section. Moreover, Russian companies are offering to conduct seismic reconnaissance and to intensify oil production through physical and chemical influence on oil seams. The concerned parties are also discussing the delivery of Russian oil and gas equipment to India.

Lukoil and OLV are continuing constructive negotiations regarding cooperation projects in Russia and third countries. However, the first production of oil under the multibillion-dollar Sakhalin-1 project is the most graphic example of effective Russian-Indian partnership relations. It should be mentioned here that the project involves Russia’s Rosneft and OLV of India.

The Gas Sector

Moscow believes that expanded joint projects between Gazprom and leading Indian companies GAIL and ONGC are one of the most important aspects of bilateral cooperation in this sphere. The sides are currently implementing the December 2004 strategic cooperation agreement between Gazprom and GAIL, as well as the February 2005 memorandum of mutual understanding between Gazprom and ONGC. Coordinating committees have been established in line with these documents. Gazprom plans to take a most active part in building the Iran-India pipeline. This project is currently undergoing technical expert checks.

The sides are now discussing joint construction of gas pipelines on Indian territory. This project will involve Russia’s Stroitransgaz and India’s GAIL, Engineers India Ltd. and Indian Oil Corporation Ltd. Specialised national R&D institutes are also getting down to business.

The Power Industry

Both countries have a sizeable cooperation potential in the power industry. Moscow and New Delhi are currently discussing contracts for the delivery of electric and power engineering equipment and possible projects in the field of gas-turbine units. The Russian side noted during the latest talks that its companies were ready to jointly build, modernise and overhaul power plants in several Indian states together with Indian organisations.

Indian specialists are quite interested in Russian R&D projects aiming to use renewable energy sources, such as solar and wind energy, the energy of biological resources, tidal power plants, as well as nuclear and thermonuclear facilities, etc.

The Coal Industry

India buys many industrial tractors, bulldozers and pipe layers from Promtraktor, based in the town of Cheboksary. The first major contract was signed in 2003, when Promtraktor enlisted the services of the WBE intermediary to supply 25 TG-503-YA pipe layers for the state-run coal company Neyvely Lignite Corporation. Direct contacts with NLC and Coal India were subsequently established.

Russia is delivering its equipment to India’s Tamiland state, which is famous for its coalmines. Russian pipe layers move huge conveyors with a length of several hundred metres inside local opencast mines, whose productivity depends on conveyor speeds.

India has streamlined a system for training local specialists that operate heavy-duty Russian tracked vehicles. Major pipeline-laying companies, such as Punj Lloyd, Essar Group and Gammon, are particularly interested in such equipment.

As we can see, joint real-life projects facilitate expanded Russian-Indian cooperation. Experience has shown that the energy sphere is a solid foundation for the entire range of our trade and economic relations. This foundation makes it possible to implement even the most ambitious projects.

 

New Energy Technologies for an Energy-Efficient Economy

 

(Prof. Semyon Dragulsky, Doctor of Physics and Mathematics, Director General of the Russian Union for Energy Efficiency for RIA Novosti)

raditional sources of energy are not inexhaustible and cannot last for ever. So far, the global energy situation can be described as relatively satisfactory, but the future outlook is uncertain and has been a matter of concern to scientists for a long time.

Mankind need not fear an energy crisis caused by depletion of oil, gas or coal if we learn to use renewable sources of energy. These sources will help us to deal with emissions from power plants and transport, produce high quality food, provide education and health care, and increase the quality and span of life.

The current tendency in Russia and the world is for environmentally friendly power plants to produce more electricity and heat in a decentralized fashion. Liberalization of the power market will involve tens of millions of small independent generators in the process.

It is my firm belief that large, environmentally dangerous power plants will be gradually phased out. This trend can be explained, on the one hand, by climate change and the need to observe the Kyoto Protocol to reduce greenhouse gases in the atmosphere and, on the other, by the necessity to increase the energy security of the regions and the country as a whole by decentralizing fuel and energy supplies. Also, fuel-less power generation, distributed over the country’s expanses and using local resources, reduces the risks and costs of oil-importing countries and increases the export potential of fuel and energy-exporting ones.

Let us now look at the renewable energy technologies and equipment being developed by Russian scientists and engineers:

1.        Conversion of wood and plant waste, peat, coal or slate into liquid or gaseous fuel by rapid pyrolysis. The yield is at least 40% of the weight of solid organic fuel. The present capacity of equipment is 1 to 2 metric tons a day. Possible applications: engines of internal combustion, Diesel and gas turbine power plants, and boiler houses.

2.        Micro- and mini-thermal electric power plants attached to diesel and gas turbine power stations and using biomass as a fuel for the combined generation of electricity and heat.

3.        Energy-rich plantations of fast-growing plants yielding 10 to 15 tons of dry biomass per hectare.

4.        Environmentally friendly, wind-driven power plants free of blades, vibration, and low-frequency noise and not affecting bird migration and propagation of radio waves. The range of wind velocities being utilized has been extended to 3-50 m/sec.

5.        Chlorine-free production of solar and electronic polycrystalline silicon that reduces costs to 10-15 dollars per kilogram, and improves its quality and the environmental characteristics of manufacture.

6.        Solar modules with stationary concentrators reducing costs and expenses of solar photoelectric module production by one half to one quarter, or down to 1,000 dollars per kW.

7.        Polymer-free sealing of solar modules, doubling their service lives to 40-50 years.

8.       Resonance-based methods of transmitting electric energy at enhanced frequency via single-conductor waveguides, reducing consumption of non-ferrous metals in electrical grids to between one-third and one-fifth and increasing by many times the dependability of electric power supplies by replacing aerial long-distance transmission lines with underground electric cables.

The developers of all these technologies have taken out the appropriate patents, and have models, preproduction prototypes and investigation results to show for their efforts. The technologies greatly boost the scope and role of renewable sources of energy.

Unfortunately, too many economic, technological, legislative, financial and information barriers stand in the way. Economic barriers involve high costs of equipment and power generated. Technological barriers, on the other hand, can be overcome by the new technologies. The progress reviewed above, when mastered by industry, can increase the competitive ability of renewable power on the energy market and help lower economic barriers.

This is why state support for renewable power is so important. And it lies not so much in increasing budget spending as in creating priority conditions for producers and consumers of equipment that uses renewable power. Central among these conditions are free access to the electric power market, lower rates for linking up with the electricity grid, and regulated power tariffs and taxes on emissions and environmental pollution.

The state should guarantee ground rules on the financial market of energy resources and in risk insurance. What does the state gain? It re-energizes private capital, creates thousands of new jobs, improves urban climate and ecology by reducing CO2 discharges by 0.16 Mt/MW-hr and substituting environmentally clean plants for polluted ones, preserves fossil fuel for future generations, and enhances energy security by spreading fuel-less power generation over a greater area. Thus the state improves the welfare and quality of life of its citizens. This may prove profitable for a grid company, if it implements these projects itself. It will have lower power transmission losses and a lower peak load on power plants operating at normal rate.

Preconditions for Introducing New Energy Technologies

Prerequisites for adoption of such technologies already exist in some countries, including Russia. Russian scientists and inventors have long accepted the social order for developing such technologies. As a result, today there is a considerable number of generators for work with new sources of energy:

·          Low-capacity peat-fueled thermal and electric power plants

·          Thermal-water power plants

·          Wind-powered electric power plants

·          Solar-powered photoelectric modules

·          Wind-driven photoelectric installations

·          Vortex energy devices: vortex hydraulic heat generators, vortex wind-driven installations, automobile vortex injector nozzles, etc.

·          Solar collectors

·          Small and micro-hydroelectric power plants (including an experimental tidal plant)

·          Thermal pumps

·          Boilers using fluidized beds to burn the waste of commercial timber enterprises

Not all of these are as yet capable of meeting the required economic criteria, but due credit must be given to all who take part in developing them.

Among the variety of solutions proposed, mention can be made of generators to produce heat developed by Russian scientists and those to transform wind power into electricity. A vortex hydraulic heat generator and a vortex wind-driven power installation can form the principal generating sources for power grids carrying basic loads and meeting the requirements described in the previous section. Perhaps the most unexpected engineering solution in a series of other solutions is a new energy technology called electric power technologies, which comprise uninterrupted power supply modular systems using renewable sources of energy.

The vortex hydraulic heat generator transforms the energy of a liquid moving through it into thermal energy. The agent is water or antifreeze. The water is heated due to its circulation in a closed circuit of the heat generator by means of a thermal pump and a vortex system for spinning the flow of the liquid.

The heat generator is designed to heat and supply hot water to industrial and agricultural facilities, and municipal amenities — especially in territories with no centralized heat and gas supplies.

The advantages of the VHHG in comparison with known models are:

·          Conversion coefficient of 98%;

·          The unit is environmentally friendly, economical and reliable;

·          Simple design involving minimum labor inputs in exploitation;

·          The vortex heat generator uses no electric heaters or fuel (gas, coal or oil) — only electric power to drive the hydraulic pump.

The vortex wind-power installation is a new departure in wind power technology. Its core is the “vortex generator”, a device that transforms an even flow of wind into vortex-like streams that serve to concentrate energy, organize and accumulate wind power and low-potential air thermal currents in the same way as the kinetic energy of wind in nature distributed throughout a considerable volume of the stream is concentrated to enormous values in the compact nucleus of a tornado.

The advantages of this installation compared with traditional wind units are as follows:

·          Working wind speed, weight and dimensions are 1.5-2 times less;

·          No shaft or universal joint needed — they are replaced with a rotor-generator system;

·          No system needed for orienting the wind intake;

·          A design allowing for modular construction;

·          A nominal rating that can be set by adding together a number of modules;

·          A speed of rotation is stabilized by altering the width of the wind intake;

·          A design ensuring stability against wind gusts and hurricanes, with the unit remaining operational in any wind velocity. The technology has been protected by five Russian patents.

Efficiency of New Energy Technologies

These technologies have gone through various tests and are practically ready for introduction. They can deliver most efficiency when organizing local power supplies in distant and hard-to-reach areas. Adopting them would make it possible to create local power supply systems with costs never exceeding those to set up centralized grids in megalopolises. The use of non-renewable sources of energy can be reduced by 80 per cent to 100 per cent, depending on the renewable sources employed.

The technologies listed above feature different economic efficiencies, but many of the proposed ones are beyond comparison in principal economic and ecological indicators.

The Russian Union for Energy Efficiency is the organizer of the second international forum “Energy and Ecology” to be held in Moscow on November 8-10, 2005. In view of the forthcoming restructuring of the power industry across the world, it will pay special attention to new principles and energy technologies not based on fossil fuels and nuclear fuel.

Based on the developments made by Russian scientists in alternative and non-traditional sources of energy and the extensive experience of the Russian Union for Energy Efficiency in expert evaluation and introduction, we offer mutually beneficial cooperation to all Indian organisations, both state-owned and private.

 

ONGC Well Productivity as on January 2005

 

Region	Oil Production (Tons/day/well)
Middle Region	70
Western Region	7
Eastern Region	15
Southern Region	21
ONGC	21

Peaceful use of Nuclear Energy

(Gennady M. Evstafiev  - Lieutenant General, PIR Center Senior Adviser)

ussian-Indian cooperation in the sphere of peaceful use of atomic energy has its positive achievements as well as some unresolved and pending problems. As it is well known bilateral relationship in this vital area legally is covered by Russian-Indian intergovernmental memorandum dated 4 October 2000 which envisages the expansion of technical and economic cooperation in the field of producing atomic energy for peaceful purposes, building nuclear power stations included, creation new nuclear-safe technologies from the point of view of non-proliferation of nuclear weapons, for improving ecological situation and maintaining sustainable growth

It is a well-known fact that India, which in recent years has shown remarkable economic achievements, suffers from permanent electricity shortages. The amount of electricity produced at 14 Indian nuclear power blocks at present reaches to only 3% of total energy supply in the country. The target is to have it at 10%. To overcome this growing problem Delhi has started a robust national program aimed at vastly expanding its energy complex. Suffice to mention that within the next few years they plan to invest in it up to 170 billion US dollars. This makes the Indian energy market a very promising place for versatile economic and technical cooperation. Among major world companies for that reason we see such giants as General Electric, AES, Transpower Generation Corporation (all USA companies), Siemens (Germany), Rolls Royce and National Power (UK), China Power Generation (China).

Russia (previously the USSR) traditionally played a leading role as a reliable partner in cooperation in nuclear field. In 2001 when other countries including the USA citing the requirements of the Nuclear Proliferation Treaty (NPT) refused to accommodate. The Indian urgent request to supply nuclear fuel to Tarapur nuclear power station built by the way by American firms. Russia has taken a crucial political decision in the interests of nuclear safety in India to Delhi low enriched uranium worth 23 million dollars thus saving Indian nuclear sector from a possible collapse. Doing this Moscow has demonstrated political responsibility, global vision and great understanding of Indian precarious situation. Russia was very much criticized (and is still criticized) by those very quarters that are now rushing to gain as much place on the Indian market as possible. Now Moscow stands vindicated in its friendly and principal approach towards the vital Indian needs. But it does in no way mean that Russia should neglect its obligations under NPT and regulations of Nuclear Suppliers Group (NSG) every now and then.

In 1992 NSG has adopted an important principal according to which any nuclear export is legitimate only when a receiving country has concluded special agreement with International Atomic Energy Agency (IAEA) on full-scale guarantees which means that all its nuclear activities are under monitoring of IAEA. This is not the case with India, which in addition to this is not also a party to the NPT—a cornerstone of Russian Federation’s policy on nonproliferation of nuclear weapons. The present cooperation of Russia and India in construction of 2 nuclear power reactors in Kudankulam is based on bilateral deal, which has been reached in 1988 well before the introduction of the abovementioned NSG principal.

In this case Russia once again demonstrated that it is true to its agreements with India. There is every reason to believe that first nuclear power block at Kudankulam will enter into operation by the end of 2007. Of course, in exceptional cases connected with the necessity to secure nuclear safety of peaceful nuclear facilities in foreign countries according to the Decree of the President # 312(27.03.2002) the Government of Russia has some room for maneuver in allowing certain nuclear-related material and equipment to be delivered to some countries which have yet to put all their nuclear activities under IAEA guarantees. At the same time with a purpose to create the necessary judicial base for advancing the fulfillment of the Joint Memorandum on Understanding and Expansion of Cooperation in the Field of Nuclear Energy signed by RF and India in 2000 Russian delegation to the NSG is working on formulating the proposal of the status of associated membership. If successful this might remove some of the barriers on the path of unlimited deliveries to India of nuclear fuel and nuclear energy power blocks. This becomes even more urgent since in July 2005 US President Bush and Prime Minister of   India Manmohan Singh reached agreement on broad cooperation in nuclear field thus confirming major shift of American policy in nonproliferation sphere.

For example, now Americans promise that they will work with their friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India ‘ including but not limited to expeditious consideration of fuel supplies for safeguard nuclear reactors at Tarapur’. Yes, it is the very same station, which was salvaged earlier by timely Russian help. This clearly shows that situation is dynamically changing and Moscow should keep pace with these changes in order to secure its solid position on the market. The Joint Statement between President Bush and Prime Minister M. Singh among other matters calls for  “Strengthening energy security and promotion the development of stable and efficient energy markets in India with a view to ensuring adequate, affordable energy supplies and conscious of the need for sustainable development”. We in Russia find nothing wrong with such an effort and consider that Indian-American understanding removes some of hesitations on the part of Russian business community and opens new avenues for the well-established Russian-Indian collaboration all fields of energy production, advanced energy technologies and safeguarding the environment. Of course, with American presence commercial competition on the Indian energy market, including nuclear sector will be much stronger, but Russian level of technology, experience in doing business with Indian partners gives reasonable confidence in our ability to adequately protect our longstanding political and economic interests. The only thing we should not do is to sit idle watching how others advance their interests in this very important country.

Despite the fact that India has recently become a nuclear power, we should not forget that this country right from the beginning was open about its intensions to become a full fledged nuclear power and for that reason it honestly took a national decision not to join NPT on the conditions most of the other developing country did. We are not going to discuss pros and cons of this decision. It is already too late. One has only to keep in mind prevailing political conditions in the world at that time and the unfolding role of India as a regional power. At same time we should credit Delhi with very responsible policy in the field of preventing proliferation of military nuclear technologies to foreign countries which puts it in a very advantageous position   vis-à-vis developed countries and creates conditions for special relationship in certain areas of nuclear cooperation .A Pakistani record of behavior in this vital area is a far cry from sufficiently clean policy of India which being relatively strong and versatile economically and scientifically has done what it has done. Naturally, world community should further continue to watch very closely Indian nuclear activities not only in uranium and plutonium but also in thorium technology. On the 6-th of June 2oo5 Indian parliament confirmed Government policy by special Act to prohibit unlawful activities in relation to weapons of mass destruction and their deliveries systems in which it has stated that is determined to safeguard its national security as a NUCLEAR WEAPON STATE which does not help much at the moment those who want broader collaboration with it in nuclear field. But what is more important—India “ committed not to transfer nuclear weapons or other nuclear explosive devices, or to transfer control over such weapons or explosive devices, not in any way to assist, encourage, or induce any country to manufacture nuclear weapons or other nuclear devices…India is committed to prevent a non-state actor and a terrorist from acquiring weapons of mass destruction and their delivery systems”. This farsighted formula, in our view is a very big step forward by India towards the demands of world public opinion and will open for Delhi new serious opportunities in cooperation with the members of NPT and IAEA and make it an acceptable partner in promising joint international projects .For example, in international thermonuclear experimental reactor (ITER) project in Kadarasch (France). We think that Russia should support growing Indian participation in such kind of international exercises because has some scientific and technological expertise which would be good addition to the common effort. But this will take time because the school of thought that considers that this is not enough is strong especially in the USA where many politicians and non-proliferation experts call recent American-Indian agreement  (signed in Washington 18 July 2005)“ a bad agreement for the cause of non-proliferation”.

The broadening of collaboration between Russia and India in the field of peaceful use of nuclear energy conforms to the strategic interests Russia. On the other hand at the highest possible level India repeatedly stated about its readiness to significantly expand the existing framework of cooperation between the two countries in this highly technological sphere. It appears that there is a meeting of mutual interests. There are several directions along which we would be advised to proceed. First, it is a traditional collaboration in civil energy sector. This is a very promising large-scale market for Russian industry if it will be properly supported and given financial help from the government. The package of Indian proposals for collaboration with Russian side amounts up to 10 billion US dollars. It suggests Russia participation in construction in the next 10 years up to 7 nuclear power units in Kudankulam, delivery of nuclear fuel and equipment to the Indian nuclear power stations. Indians are ready to work together with us also in developing new nuclear-safe technologies from the point of view of preventing the spread of atomic weapons.

After Indian Prime Minister Manmohan Singh declared that his country will identify and separate civilian and military nuclear facilities and programs in a phased manner and file a declaration regarding its civilian facilities with the IAEA, he also promised to take a decision to place voluntarily its civilian nuclear under IAEA safeguards. As a crucial step looks a promise to sign and adhere to the Additional Protocol with respect to civilian nuclear facilities as well as to continue Indian unilateral moratorium on nuclear testing. Since Indians also hope to harmonize its export control legislation with guidelines of Nuclear Suppliers Group, all this should give necessary impetus to our officials to remove self-imposed limits on mutual cooperation with Delhi and get all abovementioned contracts, which Indians propose us. Politically we witness maturity of our Indian partners and they should be encouraged to continue move in the right direction. At the same time such a move will facilitate big Russian business in that country to secure and expand its share in nuclear sector. One can foresee much greater competition from American, French and Chinese firms, which have already created necessary conditions to increase their presence at the Indian market of civilian nuclear energy. One should not also overlook another positive element in cooperation with Indians—that is – Indian orders constitute substantial share of our unique atomic equipment industry production and give it a great chance to maintain high standards and advance to the other international markets with its unique production.

Indians are also working hard in several new areas of civilian nuclear energy, first of all aimed at the introduction of sophisticated and safe technology without the use of   Plutonium. Major effort here is directed at constructing modernized heavy water reactors, which will use Thorium (Th-232) together with   Uranium 233 as nuclear fuel. This project and other activities concentrated on creation of new generations of nuclear reactors could become an important and mutually beneficial field of far reaching joint research and practical collaboration between Russian and Indian scientific and industrial groups. One cannot but notice that US, French and some other countries’ governmental and private institutions and companies have realized that India possesses large potential and for that matter quickly develop bilateral ties with Indian counterparts. Russian side should not miss its chance. Moreover the necessary legal basis already exists. We on the Russian side must take some additional steps to streamline certain internal procedures in customs and currency control spheres and improve conditions for financing those enterprises, which operate in the field of producing equipment for foreign customers and participate in the construction of nuclear facilities abroad. Special attention should be given to the training of the personnel, which requires to be seriously improved.

Finally, the rapidly growing Indian civilian nuclear sector is in great need of ideas, concepts and equipment for safeguarding and secure use of nuclear materiel against all kinds of possible encroachments on the part of terrorists and criminal groups. In the last 15-20 years Russia has acquired tremendous experience in this field, which it can share with Indian partners. This type of collaboration would be a great contribution to the noble cause of nuclear proliferation.

Prospects for the Russian Oil Industry

(Nina Kulikova, RIA Novosti Economic Commentator)

ecent news about the situation in the Russian oil sector has been largely confined to reports about two or three major oil companies. The Yukos saga has dominated, but there are other trends in the Russian oil sector that influence the country’s economy. Oil is Russia’s most profitable sector and is developing intensively, with production is expected to exceed 450 million metric tons this year. Traditionally, Russian businessmen are more optimistic in their forecasts for oil production growth rates than government officials and the scientific community. Andrei Gaidamaka, head of the Investment Analysis and Investor Relations Division at LUKoil, predicts steady production growth of 4-5% a year. The president of the Energy Policy Institute, Vladimir Milov, believes a figure of 1-2% a year is more realistic.

Any potential growth in Russia’s oil production and exports depends on investment, the introduction of new technologies, major systemic solutions concerning the construction of new pipelines, and the development of deposits in Eastern Siberia. According to Andrei Klepach, the director of the macroeconomic forecasting department at the Russian Ministry of Economic Development and Trade, a maximum of 500 million metric tons of oil will be produced by 2010 if infrastructure and new deposits are not developed. If the government focuses on infrastructure problems by launching the construction of new pipelines, particularly to Nakhodka and Murmansk, and increasing the capacity of the Baltic transportation system, Russia will be able to produce 530-550 million metric tons of oil a year. Two problems are to blame for these modest forecasts. First, many oil companies are in no hurry to invest in oil production, because of low transport capacities. Large volumes of exported oil are transported by rail and ship, which is two or three times more expensive than pumping it through a pipeline. Transportation is the second largest expense item after taxes on the balance of LUKoil. According to Gaidamaka, the Russian pipeline system does not completely meet Russian oil companies’ export demand.

Klepach says proposals on pipeline construction are included in a medium-term program drawn up by the Ministry of Industry and Energy that has been presented to the Ministry of Economic Development and Trade and will be submitted to the cabinet. At the same time, the relevant resources, i.e., existing cost-effective oil reserves, must cover the creation of new transportation capacities. It is doubtful that this base exists, as production is increasing slower than exports. In the future, it will become increasingly difficult to guarantee growth in production and exports from reserves in Western Siberia. The second problem is the instability of the taxation system and differences in the government on how to improve oil sector taxation. Under the current system, if the price of oil is higher than $25 per barrel, oil companies lose up to 90% of additional revenue to pay taxes. Even representatives of the Ministry of Economic Development and Trade doubt that new deposits can be developed and capital-intensive projects implemented in such conditions.

While giving credit to the government for its successes in collecting taxes, businessmen also point out that the burden on the oil sector is so great that it affects investment decisions. Over the last three years, LUKoil’s tax payments have gone up more than twice against the backdrop of a 100% increase in oil prices. Consequently, Gaidamaka says, with the growth in world oil prices, companies' surplus revenues are transferred to the budget. After new taxation rules are introduced in 2005, oil companies will lose more funds than they may yield from oil trade to pay taxes, says Galina Antonova, the head of the Yukos analytical department. Representatives of oil companies and government officials are unanimous that the tax burden on the oil sector is approaching critical mass, which means that taxation policy in this sphere needs to be revised. The problem is how to alleviate the burden. At present, export duties and the tax on natural resources production, which is pegged to the world oil prices, account for the lion's share of tax payments. One of this system’s great disadvantages is that a slide in world oil prices may hit domestic production hard. Besides, the tax on natural resources production hinders the development of new deposits. According to Arkady Dvorkovich, who heads the Presidential Expert Department, the dependence of the tax on natural resources production on world prices makes domestic prices for oil products higher. The majority of experts believe companies' profits, and not natural resources production, should be taxed.

Oil Prices and Ordinary Consumers

 (Yuri Filippov, RIA Novosti commentator)

urging world oil prices have become one the factors bringing Russia into the foreground of international politics. In experts’ estimates, the country controls 4-6% of the world’s oil reserves. The oil factor is not the only one that raises Russia’s international standing. Considerably weakened by the break-up of the USSR, Russia has nevertheless preserved its strategic nuclear forces, vast territory and influence on the adjacent states. Participation in the international anti-terrorist coalition, which started forming after the terrorist acts of September 11, 2001, a skilful diplomacy in relation to the United States, European and Asian countries, in international organizations, pursued by the Putin administration, and a favourable situation on the international raw materials market helped the country to recover after the post-Soviet shock.

However, the oil, and generally speaking, raw materials factor is still a key one. Suffice it to recall the Russian-American summits of the past few years with their traditional agenda based on the triad: efforts against terrorism - nuclear non-proliferation and strategic arms reductions – and energy dialogue. In relations with Europe, energy cooperation is coming to the fore.

Strictly speaking, Russia’s role as the world’s leading supplier of energy resources (for example, as recently as two years ago, only Saudi Arabia could compete with Russia in oil exports) could not be contested even without the current surge in oil prices. However, what is special about the current situation is a several-fold rise in both the absolute price of oil (which, considering world inflation, might not necessarily lead to an improvement in Russia’s foreign trade standing) and its relative price, expressed in other goods, not in dollars.

Ordinary Russian consumers have felt this better than anyone else. The current price of 1-2 barrels of oil is close to that of a small Japanese TV-set and even those Russians who live below the official poverty line can afford it. Meanwhile, only twenty years ago, at the dawn of the Gorbachev perestroika when the level of the USSR’s oil exports was close to the current one, far from every representative of the middle class could afford it. Western high-tech goods for which Russian consumers organized a real hunt were inaccessible, first of all, because of their high relative prices.

The country also owes the success of mass computerization, which has taken place in Russia over the past 10-15 years, to its raw materials exports. Russia does not produce computers, it only assembles them from imported components. Nevertheless, there are computers even in outlying rural schools. President Putin is currently setting the task of connecting all Russian general secondary schools to the Internet and even the opposition does not doubt that this will be done quickly.

Over a third of the population of the 147-million-strong country have cell phones. Meanwhile, when the price of oil was $8 a barrel, only well-off people could use them. If high oil prices and the rouble’s growth persist (which is beyond doubt), Russia has a real chance to renew not only its citizens’ household appliances and wardrobe but also its worn out production assets, inherited from the U.S.S.R.

Some consider this point of view to be too optimistic. Indeed, it is hard to find an example of a successful modernization on the basis of raw materials exports in recent history. The Russian Cabinet of Ministers even seems to be ashamed of the country’s excessive dependence on raw materials exports. Our own production of high-tech goods with their subsequent exports has been a slogan and a cherished dream of all  Russian and Soviet governments in the past 30-40 years. However, in order to produce such goods, we need imported equipment, licenses, etc. A rise in relative prices of raw materials can do a good turn to Russia:  what was too expensive for it yesterday, becomes quite accessible today.  Such a process of trading raw materials for equipment and technologies was underway in the U.S.S.R. but then was suspended because of a fall in oil prices in the 1980s and subsequent domestic problems. The West’s apprehensions over the current situation are obvious. How will Russia behave now that its main export item is becoming one of the world’s most expensive and critical commodities? What if it wants to dictate its will to western partners?

Analysis of Russia’s steps would be the best answer to these questions. Over half a century of its active oil exports, this country has never expressed the wish to join OPEC - an organization which often acts as an opponent to the oil consuming countries. Even at the most dramatic moments of the Iraqi crisis, Russia did not try to speculate on the signs of “oil hunger” and inflate prices. It is indicative that on the eve of the G8 summit in Sea Island, USA, in 2004, President Putin called $20-25 per barrel of Russian Urals brand oil “a fair price”. Currently, the Russian government is not trying to take advantage of the situation – in the next year budget, the export price of oil has been set at $40 per barrel.

This “shyness”, which is perhaps not understandable to many in the oil-rich Arab world, is explained by the fact that Russia is really striving to become an inalienable part of the industrialized Western world. It is working out and demonstrating the principles of partnership which are acceptable in the long term perspective both for Russia and the leading Western countries.

Russia’s Raw-Material Economy

aw materials currently dominate Russia’s international trade balance. Oil and gas reserves allow the country to fully meet domestic demand for energy and also sell considerable amounts abroad. Existing proven oil reserves allow Russia to produce oil for decades to come, while gas reserves are estimated at nearly 47 trillion cu m and those of coal at about 200 billion tons. Production of raw materials is moving ever deeper into remote parts of the country that have severe climates, which requires more spending on production and delivery.

Commodity structure of Russia’s foreign trade in 2001:

Export	53.7%  - oil, gas, coal, electricity 11.6% - metals (ferrous and nonferrous) 10.3%  - machines, equipment and transportation means About 10% - precious stones and articles made of them
Import	27.5% - machines, equipment and transport vehicles 16.9%  - foodstuffs and agricultural raw materials 14.1%  - chemical goods

Source: Russia’s State Statistics Committee

Most resources are located in West Siberia, where almost three quarters of the discovered reserves are concentrated, and in the near future this region will be the country's main source of raw materials. In the longer term, Russia’s continental shelf, which measures about 6 million sq km, or 20% of the global total, will be a large reserve for oil and gas production. About 90% of the resources in the Russian zone are concentrated on the country's Arctic shelf, where a number of large mineral deposits have already been discovered, and potential hydrocarbon reserves are estimated at 100 billion tons. At present, less than 2% of Russia’s shelf has been explored.

Oil accounts for 33% of the total amount of primary energy reserves produced in Russia, and two thirds of Russia’s oil is exported crude or refined. The share of exports in the production of gas is 31%, coal 17.7% and electricity 2.2%. The oil sector brings in most revenues gained from oil and gas exports, and oil is Russia’s main export item. In 2000, the value of the exports of oil and oil products was 65.9% of the export value of Russia’s energy resources and 35.2% of the value of all Russia’s exports. Natural gas accounts for 30.9% of the export of energy reserves and 16.5% of total exports, while other energy resources equal 3.2% of the export of Russia’s fuel and energy output and 1.8% of its total exports.

Export orientation of the fuel and energy sector in 2001:

	Output	Export	Share of exports in output, %
Oil, mln tons	348.1	230.5*	66.2
Gas, bln cu m	581.5	180.9	31.1
Coal, mln tons	269	47.6	17.7
Electricity, bln kW	888	19.7	2.2

*Including oil products

Source: Russia’s State Statistics Committee

Three periods can be identified in the development of Russia’s oil sector in 1992 to 2003. The first period (1992-1996) saw a drop in oil production – decline was most significant in the first years of that period, when it dropped by 10-14% annually. Production dynamics and investments over that period were marked mainly by a sharp reduction in domestic payable demand for oil and decreased demand from the former Soviet states, and showed practically no response to global price changes. The 1997-1999 period can be described, in terms of production dynamics, as a stabilisation period (with some recession in 1998 as a result of a decrease in global oil prices.) The years from 2000 to 2003 saw stable growth in production, profits and investments in the oil sector in conditions when global oil prices were high and the country’s economy was growing. Greater investments in the oil sector caused increased demand for equipment and materials in the oil industry and stimulated the growth of related industries. Overall, the reaction of the Russian oil sector to fluctuations in global oil prices in recent years may be viewed as a market response typical of oil producing countries with relatively high production expenses.

In the past few years the oil and gas industry has been increasing exports of energy resources. Western and Central Europe remains the largest energy market for Russia. It has been estimated that gas supply to Europe will increase by 50% by 2010, and oil exports, which have been growing by 10% annually in the past three years, will grow as well. As pipeline systems are being developed, Russia’s presence will expand to reach the energy markets of the Pacific region and Asia (China, Japan and Turkey). The future market of the countries in the Asia-Pacific Region is estimated at about 30 billion cu m of gas and 30 million tons of oil annually.

Another politically important area in trade in energy reserves is the CIS member-states. Today, countries like Belarus and Ukraine largely depend on energy imports from Russia. Cooperation with the CIS countries in fuel and energy is conducted on a bilateral or multilateral basis and is often politically motivated.

NEWS BRIEF

OIL & GAS

ONGC, CNPC joint bid for Syrian oilfields

November 26, 2005. The government-owned energy companies of India and China are teaming up for the first time to bid for a $1bn (Rs 45.79 bn) package of assets in Syria. ONGC and China National Petroleum Corp. are bidding for Petro-Canada’s interest in a major Syrian oil and gas joint venture with Royal Dutch Shell. Petro-Canada might sell its 38 per cent stake in the Shell-operated Al Furat venture in Syria, which accounts for about 70,000 barrels of oil equivalent of the company’s daily output. The Al Furat venture pumps as much as 50 per cent of Syria’s production. It produces oil and gas from 36 fields with 220 wells in three concession areas. Petro-Canada was selling the assets to reduce its political risk profile and to concentrate on other assets in which it has operating control.

BPCL ropes in Petrobras for NELP-VI

November 24, 2005. Bharat Petroleum Corporation Ltd has roped in Petrobras of Brazil for the sixth round of NELP bidding, which is slated to be announced in January next year. Hindustan Petroleum Corporation also decided to join hands with GAIL India for the next round of NELP bidding. BPCL has set aside a corpus of Rs 1,500 crore ($328 mn) to be spent for its exploration and production (E&P) activities over the next three years. Petrobras of Brazil, along with other global giants like BP of UK, ENI of Italy and Petronas of Malaysia had bidden for Indian blocks in the recently concluded NELP V. However, only ENI of Italy, in consortium with ONGC, managed to bag an exploratory block. BPCL had been awarded three blocks under the NELP IV round, two blocks in the deep sea water in the Krishna-Godavari and Mahanadi basins in consortium with ONGC and OIL and one on-land block in the Cauvery basin along with ONGC. The company has already commenced exploration works in these blocks. The company is actively considering participation in the offshore marginal fields offered by ONGC, where oil and gas has been discovered. This involves providing services for development and exploration of these fields.

Crude oil production of PSUs dips 10 pc

November 22, 2005. ONGC and OIL have registered a dip in their crude production by more than 10 per cent during October this year. In Assam, ONGC has registered a lower production by more than 77 per cent owing to environmental reasons. The state-run oil PSU’s crude production also suffered heavy losses due to low production from the BHN and the NQO wells and lower gas lift at the BHS wells. The OIL’s production in Assam also went down owing to shutdown of wells in north Chandmari.

Refinery in Rajasthan to come soon

November 29, 2005. Rajasthan government is in process to formally announce the date of setting up of 7.5-mt oil refinery in Barner district of the state. The refinery is expected to cost Rs 9,000 crore ($1.96 bn). MRPL has been identified as the implementing agency for the project. ONGC is reported to have asked the state government to provide rebates and concessions in electricity tariff, entry tax and octroi. The state government has already sanctioned 2,000 acre of land to ONGC to set the oil refinery in the state. The state government has expressed interest in picking up a token stake in the project.

IOC may build refinery in Turkey

November 24, 2005. Indian Oil Corporation may build a new greenfield refinery project in Turkey along with Calik Energy as it seeks to retail fuel in east Europe. It expects to sign an agreement by December. The refinery may be able to process 120,000 barrels of crude oil a day. IOC was also planning to export LAB from its Gujarat refinery to Turkey. OVL would jointly place bids with Turkish Petroleum Corporation for oil fields in Far-East Asia and Africa. Turkish Petroleum may also bid for oilfields in India. OVL already partners IOC in two exploration blocks in (188 and 189) in Libya.

Total for 26 pc in stake HPCL’s refinery

November 24, 2005. French oil major Total is close to acquiring up to 26 per cent equity stake in Hindustan Petroleum Corporation Limited’s 15 mmtpa Vizag refinery. The equity participation will allow Total to enter petroleum retailing in India, since it would have invested more than the mandatory Rs 2,000 crore ($438 mn) which is the minimum investment criteria to secure licence to retail petroleum products in the country. The export-oriented refinery would cost about Rs 16,000 crore ($3.5 bn). HPCL and Total are expected to own 26 per cent stake each in the Vizag project, while the balance 48 per cent would be offered to public through an IPO. The refinery is expected to be commissioned by the end of 2011-12. Apart from Total, other global firms such as Saudi Aramco, Petronas and British Petroleum had also expressed interest to partner in the project.

IOC commissioned largest H₂ generation unit

November 23, 2005. IOC has commissioned a critical hydrogen generation unit (HGU) at its Panipat refinery as part of the ongoing Rs 4,300-crore ($940 mn) refinery expansion project. The expansion involves doubling its capacity from 6 mt to 12 mt per annum. The HGU is the first major unit of the refinery expansion project to go on stream. With a capacity of 140,000 tonnes per annum, it is the largest hydrogen unit in the country and also the largest plant in the world licensed by Haldor Topsoe of Denmark. Larsen & Toubro constructed the unit on a lump sum turnkey basis, with Engineers India Ltd as project management consultants.

Include Azerbaijan, Uzbekistan in TAP: India

November 26, 2005. India has suggested that Azerbaijan and Uzbekistan could also be included in the Asian Development Bank supported Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline to tap the Caspian gas. The country, which is also considering joining the project, has suggested laying a crude pipeline from Azerbaijan to the Arabian Sea to bring Caspian oil to the world's fastest growing consumption centre.  The Minister for Petroleum and Natural Gas, Mr Mani Shankar Aiyar suggested to Mr Idriz Rzabeyov, Head of Energy Department, Ministry of Energy, Azerbaijan that the TAP pipeline should start in Azerbaijan and culminate in India. India had been invited for the next meeting of the Steering Committee on TAP pipeline as observer before committing to join the project. As regards gas reserves in Turkemistan and what would be available for TAP pipeline, he had assured that the country had enough gas reserves for TAP after meeting commitments to Russia.

Indian companies such as IOC was interested in downstream oil refinery, petrochemical and LNG collaborations with Uzbekistan, while OVL had shown interest in acquiring stake in Turkmenistan's state-owned oil and gas company. OVL was also keen on exploring for oil and gas in Uzbekistan, Azerbaijan and Turkmenistan, while IOC was looking to participate in upgradation of a refinery in Turkmenistan. Mr Aiyar also proposed to host a seminar in the first quarter of 2006-07 for the participants of the Baku-Tiblisi-Cehyan (BTC) oil pipeline (Azerbaijan, Georgia and Turkey).

IOC sees 06/07 crude imports up 12-15 pc

November 26, 2005. Indian Oil Corp. expects crude oil imports to rise 12-15 percent in 2006/07 as its refining capacity will expand. India's largest refiner is likely to import about 40 mt, or 800,000 barrels per day of crude in the fiscal year to March 2006.

OVL may get equity in PetroKazakh

November 25, 2005. The Kazakhstan government has assured India that it would consider allowing OVL to acquire a share in the assets of Canadian oil company PetroKazakhstan. Earlier, China’s CNPC had outbid OVL for acquiring PetroKazakh with a $4.18 bn (Rs191 bn) offer. The Kazakh government has promulgated a new law by which it would have pre-emptive rights over the sale of PetroKazakh’s assets to foreign companies. The new law gives Kazakhstan National Oil Company the right to acquire 51 per cent stake in PetroKazhak. The Kazakhstan government opposed the CNPC takeover because PetroKazakh did not inform it about the deal and the government also wanted control over some of Petrokazakh’s assets, including the Shymkent oil refinery — one of the three refineries in that country. PetroKazakh accounts for about 12 per cent of oil production in Kazakhstan and is the third largest oil producer in that country. The company has 500 million barrels of reserves, produces 150,000 barrels a day of crude and owns a refinery in Kazakhstan.

OVL to get first Sakhalin oil by Q2 ‘06

November 24, 2005. OVL will receive its first shipment of oil around 50,000 barrels a day (bpd) from Russia's Sakhalin-I fields, where it is investing more than $2.7 bn (Rs 123 bn), from the second quarter of 2006. The Sakhalin-I fields, where ONGC Videsh Ltd has 20 per cent stake, began producing oil and gas earlier this month. This would be India's first shipment of equity crude oil from the Russian fields. Currently, the limited production from the fields is being sold in Russia. Sakhalin crude, which is low in sulphur, can either be shipped directly to India or be swapped with Gulf oil destined for Japan or Korea. OVL had given loans to Rosneft to fund the Russian company's 20 per cent stake in the project as well as paying for its own 20 per cent share of development costs.

Open acreage policy for oil sector likely

November 29, 2005. In a move that could result in the privatisation of blocks held by ONGC, the government would introduce an open acreage policy for the oil and gas sector next year. This will mean that oil companies will be able to identify blocks and bid for them unlike the present practice where the government puts blocks on offer. The new policy would encourage foreign companies to come to India. Earlier, ONGC had production and exploration licences for about 114 blocks in the country. A small number of blocks, mainly in the Assam Arakkan basin, were allotted to the other public sector player Oil India Ltd. Most of the country's prime fields have peaked and face the possibility of a natural decline though ONGC has maintained crude oil production at over 26 mt for the past few years. India need to jack up domestic production by bringing new areas under exploration as 80 per cent of India's prognosticated reserves had not yet been explored. If India has to grow at 7-8 per cent, then its production of 32 mt of oil will have to go up by half as much over next 20 years. Similarly, gas production of over 90 million standard cubic metres per day will have to reach 200 mmscmd over the next 20 years.

Oil ministry seeks sops for E&P firms

November 29, 2005. The ministry of oil and natural gas, in order to attract investments in the exploration and production (E&P) sector amid burgeoning competition, has appealed to the Centre for providing a slew of fiscal incentives. These sops comprise exemption from minimum alternate tax (MAT), exemption from the payment of tax on interest income and dividend, allowing availing of tax holidays within initial 15 years. The ministry has also sought similar sops for the Indian companies acquiring equity in E&P abroad. It has called for an exemption from corporate tax in respect of dividends distributed by wholly-owned overseas subsidiaries, deduction on capitalised part of premium paid for acquiring an overseas exploration and production asset be a deductible expense and the rate of depreciation be 25 per cent as applicable for block assets. The ministry in its Budget proposals for upstream sector 2006-07 has argued that investors have to be given sufficient encouragement through fiscal incentives to undertake exploration in high risk areas. Further in the last few years, competition among the countries to attract exploration investment has become very stiff with Russia, CIS countries, Brazil, Venezuela, Iran and north-west African countries opening their borders to foreign companies for E&P of oil and gas. The companies involved in E&P have pleaded that the present incentive of seven years tax holidays under the Income Tax Act, 1961 was inadequate as during the initial seven years of commercial production. They are not able to take the benefit of the tax holidays as they have to set off huge accumulated expenditures. Earlier income tax rate for foreign and domestic companies was same for E&P sector. However, since last few years, the rate applicable for foreign companies is higher than for the domestic companies. All payments made by the assessee towards consideration for acquisition of interest in full or in part in any exploration or producing properties/blocks to commence and carry out E&P, whether in India or abroad, be allowed as deductible business expenses from taxable income, in the year in which such payments were made by companies.

GoM approves setting up of Oil India Videsh

November 28, 2005. The Group of Ministers has endorsed the formation of Oil India Videsh (OIVL) for the acquisition of equity oil abroad. The new entity, under Oil India (OIL), will have equal financial power as that of OVL. The GoM, constituted by the Union Cabinet, included Union finance minister P Chidambaram, petroleum minister Mani Shankar Aiyar and minister for public enterprise, heavy industries and water resources, Santosh Mohan. The GoM has also endorsed the recommendation of the Advisory Committee on Sy-nergy in Energy for a much bigger role for the state-owned OIL. OIL will now have the power to choose to combine with any down stream navaratna oil public sector units namely IOCL, BPCL, HPCL and Gail for exploration. The Chinese experience of allowing three Oil companies for acquiring equity oil aboard has promoted the GoM to give the go-ahead to the OIVL proposal. The advisory committee, constituted by ministry of petroleum and natural gas with V Krishnamurthy as chairman and GV Ramakrishna, GK Arora, Vijay L Kelkar, BC Bora and U Sundararajan as members, was entrusted with the task of examining core competence of the PSU in the face of national and international competition. After analysing options available for leveraging their strengths for fulfilling the national objectives of energy security, accelerated growth rate and sustained economic development, and recommending most appropriate structure for the PSUs to achieve these objectives.

Asian oil ministers call for integrating energy market

November 25, 2005. Major Asian oil and gas producing, and consuming, countries have recognised the need for integrating the energy markets of the region as well as improving the transportation structure. During the round-table meeting of Asian oil ministers, the Union Petroleum Minister, Mr Mani Shankar Aiyar, said a need was felt to study the possibility and feasibility of promoting and developing gas and oil inter-connections through liquefied natural gas (LNG) and through trans-national oil and gas pipelines within the region for the purpose. The oil producing countries included Russia, Kazakhstan, Uzbekistan, Turkmenistan and Azerbaijan. The major oil consuming countries were Japan, Republic of Korea, China, Turkey and India. The participants agreed that regional cooperation in the Asian oil and gas economy must be pursued within the framework of global cooperation. This study could include the exploration alternative linkages by land and sea throughout Asia, including alternatives of linking the Caspian basin to countries in South Asia, he said. To this end, the Indian proposal to initiate such a study in association with participating countries, in particular the Republic of Korea, which has proposed a working group to prepare a master plan, under the overall aegis of the International Energy Forum, was endorsed, the Minister said. The study would also take into account the possibility of establishing the proposed Asian Gas Grid Institute, he added. The importance of mutual cross-investment to reinforce mutual trade in oil and gas and associated downstream industry was emphasised as the optimal means of promoting stability, security and sustainability in the Asian oil and gas economy, Mr Aiyar said. Another issue that was stressed at the round table was having transparency in access to all relevant data relating to reserves, demand, supply and investment, the Minister said.

India, Korea sign MoUs for HC sector

November 25, 2005. India and Korea inked six MoUs for cooperation in hydrocarbon sector. These include an umbrella agreement on hydrocarbon cooperation between India and Korea, strategic underground petroleum storage facility, gas hydrate related technical collaboration, MoU on hydrogen and compressed natural gas (CNG), hydrogen and fuel cell, and on establishment of strategic alliance. The hydrocarbon cooperation agreement was signed by the Petroleum Minister, Mr Mani Shankar Aiyar, and the visiting Korean Minister for Industry and Energy, Mr Hee Beom Lee.

India, Turkey sign MoU for oil exploration

November 24, 2005. To encourage and promote bilateral cooperation in developmental issues in the oil and natural gas sector, India and Turkey inked a MoU. The areas of cooperation between the two countries include tie-ups between companies in undertaking exploration and production (E&P) initiatives in Turkey and bidding by Turkish companies in various New Exploration Licensing Policy (NELP) rounds for participating in the Indian E&P sector. According to the MoU, India and Turkey would undertake joint studies and partnerships to secure oil and gas supplies of the two countries by investments in third countries. The two nations agreed that Caucasian, Caspian/Central Asian, South-East Asian, and African opportunities constitute the high priority areas for such cooperation. It was also agreed to encourage execution of large engineering and construction contracts including oil and gas pipeline projects in Turkey, India and third countries by Turkish and Indian companies. The two also agreed to encourage taking up of LNG-refinery projects by Turkish and Indian companies in Turkey, India and third countries. Apart from these, the two also agreed to participate in basic and applied research and development regarding oil and natural gas issues.

Govt. for Regulator in downstream oil sector

November 24, 2005. The government is setting up a five-member downstream regulator for the petroleum and natural gas sector. A Bill to this effect is likely to be placed before the Cabinet shortly for its approval. The government will also empower the directorate-general of hydrocarbon as a regulator for exploration and production activities with powers to regulate gas prices in terms of production sharing contracts. There would be a common appellate tribunal for electricity, petroleum and natural gas. While the Petroleum and Gas Regulatory Board (PGRB) would look into the price of natural gas in the context of provisions relating to restrictive trade practices and transportation charges for use of pipelines, the DGH would look into the pricing of gas in terms of the provisions of production sharing contracts. The PGRB Bill would provide a methodology for the computation of transportation charges in line with the existing provision in the Electricity Act 2003. PGRB would regulate refining, processing, storage, transportation, distribution, marketing and sale of petroleum products and natural gas. The Bill would introduce open access for common carriers, including contract carriers with surplus capacity. The Bill would also do away with licences for marketing of petroleum products. Companies, which meet the creteria set by the government for entering marketing, may need to only register themselves with the government. Registration would also be required to establish storage facilities for petroleum, petroleum products or natural exceeding capacity specified in the regulations. 

Dual pricing for kerosene, LPG

November 23, 2005. The government is planning to introduce dual pricing for kerosene and LPG for below poverty line consumers who will continue to get the products at subsidised rates while others have to pay the market price.  The subsidies and the under recoveries on these two products were about Rs 10,000 crore ($2.19 bn) each annually. The LPG backlog in the country was only 8, 500 metric tonne while the national average monthly requirement was 900, 000 metric tonne. The country had shortfall of only around 1 per cent in LPG. The petroleum ministry said India would be importing 1.763 million tonne during 2006-07. 

Indonesia invites Indian cos to invest in energy

November 23, 2005. Indonesia has spelt out opportunities for Indian business houses through bilateral trade in sectors like oil and energy among others.  Indian imports were already entering Indonesia but needed good marketing to sell these products. While a number of Indian companies have a presence in Indonesia, there is still a need to explore the untapped potential such as healthcare, biotech, drugs and pharmaceutical, oil and gas etc. 

POWER

Waste heat recovery power plant coming up in Goa

November 27, 2005. Goa Energy Private Ltd, a Videocon group company, in association with Sesa Goa is in process of setting a Rs 130-crore ($28.39 mn) waste heat recovery 30 MW power plant at Navelim in north Goa. The project will use heat available in waste gases generated during operations of Sesa Goa's coke oven facilities and pig iron facilities to produce the superheated steam capable of generating 30 MW power. The project will be entitled to carbon credits under the Kyoto protocol. Such additional power generated will help in setting up more industries in the State.

DVC to float JV for Panchet power plant

November 22, 2005. Damodar Valley Corporation is poised to float a brand new JV with a leading private sector power producer to set up a 2,000 MW super-thermal station in Panchet, West Bengal. DVC will shortly invite expressions of interests (EoIs) to rope in a JV partner for executing the Panchet-TPS during the 11th Plan (2007-2012). At present, DVC has a paltry 80 MW of hydro power capacity in Panchet. The upcoming 2,000-MW super-thermal power plant will, entail at least Rs 8,000 crore ($1.75 bn) of investment. Till date, DVC has taken the 70:30 debt-equity route to finance mega-thermal projects. Issues like power evacuation and export of the upcoming Panchet thermal generation will be considered after formation of the JV. While DVC's yet to take a call on the ownership structure of the proposed joint venture company, indications are that its partner may be given the option to hold up to a 74 per cent controlling stake. At present, DVC's installed generation capacity is roughly 3,000 MW, and it proposes to undertake close to 9,000 MW of capacity expansion within its Jharkhand-West Bengal command area during the 11th Plan. DVC has recently inked a 50:50 joint venture with Steel Authority of India Ltd (SAIL) for executing a 1,000 MW coal-fired power station in Bokaro.

Andhra to slash surcharge on power dues

November 25, 2005. The state government directed the power utilities to approach the AP Electricity Regulatory Commission and seek a one-time waiver of surcharge on electricity dues. The move is aimed at providing relief to domestic consumers in the State. It is estimated that the electricity dues from the domestic category amount to Rs 400 crore ($87.36 mn), of which, Rs 140 crore ($30.57 mn) is the surcharge. This measure would benefit the lower category of domestic consumers who use up to 100 units a month.

REL, Essar may bid for transmission project

November 24, 2005. PowerGrid Corporation has floated tender for the establishment of transmission lines associated with the western region system strengthening scheme. Reliance Energy, Essar Power, RPG group’s KEC International, Kalpataru, newly formed Maharashtra State Transmission Company are expected to take part in the bidding process. The project would need a total investment of Rs 1,900 crore ($416 mn) and would include strengthening of transmission system in the politically influential south Maharshtra, comprising Pune, Pandharpur, Sholapur, Karhad, Parli and also in Gujarat. PowerGrid has projected the completion of these projects by 2008-09.

Capital can pick power provider in ’07

November 23, 2005. The Capital will step into the open access regime, both in transmission and distribution of power, in 2007. Delhi Electricity Regulatory Commission (DERC) has prepared guidelines for the open access system. According to the Electricity Act, in an open access system, a customer is permitted by the DERC to purchase electricity from a person other than the distribution licensees of his area of supply. In this system, Delhi Transco Limited (DTL) will not be allowed to trade but it will only provide its corridor for the transmission of electricity, which the distribution companies can buy from whichever source they want. For this discoms would be required to pay to DTL the wheeling charges fixed by the DERC.

The discoms will first buy power from state-owned power generating companies and then procure the remaining capacity from other sources. At the distribution level, open access will be on the first-come-first serve basis. It will depend on the availability of capacity available. The long term open access customer shall be given priority over his short term counterpart. People consuming power of 5 MW or more can opt for open access from July 2007, and those consuming not more than 1 MW will need to wait till July 2008. According to the commission’s guidelines ‘short term’ implies availing open access in electricity for a period of one year. And by long term it means one can go for more than five years.

 

Cabinet nod for power tariff policy soon

November 29, 2005. Power secretary RV Shahi said opening up of power trading facilitated balancing idle capacities and deficits. He said legislative and policy frameworks are in place to introduce competition in the sector. He said that open access on transmission has led to increase in capacity to 10,000 MW. He also said that the new Electricity Act paved way for deregulation of techno-economic aspects of the power sector. He said captive coal blocks for thermal plants were being allotted to tide over the crisis. The cross subsidy issue - to deal with situations arising out of large consumers shifting from one discom to another - would be addressed through the tariff policy to be announced over the next 2-3 weeks, he added.

India to increase coal imports soon

November 28, 2005. India is set to significantly increase its coal imports to match its growing domestic requirement for power generation. India started coal imports last year to meet the requirement for power generation. So far this year India has imported around 7 mt of coal, which is set to reach about 14 mt by March. The country is preparing to import 20 mt of high calorific value coal in 2006-07, when the country is expecting about 30 mt shortage. Although one of the world's largest coal producers, India's coal has a high ash content leading to a growing shortfall in production as against the demand, particularly by the power industry. The current requirement of coal for power sector is about 365-370 mt. The import option is being pushed in addition to the captive coal mining to ensure that shortage does not lead to unutilised power generation capacity, which was witnessed last year.

Consumers may soon be compensated for power cuts

November 26, 2005. The Centre's new power Tariff Policy is likely to direct State Electricity Regulatory Commissions (SERCs) to impose monetary penalties on power utilities if they fail to maintain prescribed standards of service for consumers. The policy, which would set out broad policy guidelines for tariff setting by power sector regulators, is expected to be placed before the Union Cabinet shortly. It is likely to focus on regulators setting minimum service standards for power utilities. Regulators could, thereby, be required to set benchmarks for the maximum number of hours of power cuts allowed in a day or the permissible levels of voltage fluctuations. If power cuts are more than the limits set by the regulatory commission or rampant voltage fluctuations damage equipment at home, consumers can claim monetary compensation from the utility. The concept of penalty for utilities against benchmarked performance levels, provisions for which are also there in the Electricity Act 2003, could, however, take a couple of years to be implemented across all States, since regulators would have to set out minimum prescribed standards of functioning for utilities first. Some States such as Delhi have already headed in this direction.

Trading cos to source 50-70 pc power from long-term contracts: Govt

November 25, 2005. In a bid to lower the cost of traded power, the Government is considering making it mandatory for power trading firms to source the bulk of the electricity through long-term contracts. Traded power has become very costly, partly because trading companies source power through short-term contracts. This pushes up the cost of power for the buyer, resulting in higher tariffs for consumers. The Power Ministry could make it binding on trading firms to procure nearly 50-70 per cent of electricity through long-term contracts with surplus power utilities. The Ministry's move comes close on the heels of the Central Electricity Regulatory Commission's proposed move to fix trading margins at two paise per unit against trading margins levied now ranging between five paise per unit and up to even 35 paise per unit in some cases. The trading contracts could be of 10 to 25 years duration, which would ensure that the cost of power remains low for the deficient State, which is purchasing power from the trader. Short-term contracts also resulted in higher trading margins, which was good from the traders' perspective but could pose difficulties for the power sector in general.

Essar, Hindalco may set up coal mining JV

November 24, 2005. Aditya Birla Group company Hindalco and Essar Power is in process of development of the Mahan captive coal mine in Madhya Pradesh. In fact, the proposal for the formation of a joint venture has been mooted by the union coal ministry. The coal ministry's decision to allot the captive coal mine is in line with the recent initiative of the Centre whereby captive mines are allotted to meet the increasing gap between demand and supply of coal. Essar Power's case for the allotment of the captive coal mine with a capacity of 120 mt was recommended by the Madhya Pradesh government to the Centre. The company has proposed to set up an independent power project with the generation capacity of 1,000 MW in MP.

MSEB to set up finance corporation to fund projects

November 22, 2005. The Maharashtra State Electricity Board has decided to set up its own state power finance corporation to fund generation projects. The board plans to add 2000 MW capacity which would need an investment of Rs 8,000 crore ($1.75 bn). The state government has signed MoUs with private players for generating 12,500 MW. There is a huge gap between signing of MoUs and getting power. In the last six months detailed project reports of only 4,000 MW have been submitted to the government. So, MSEB would have to step in and add to the generation capacities. MSEB had plans to set up two gas-based projects at Uran and Talegaon but these have now been pushed back because acute shortage and price volatility. So MSEB is now concentrating on another set of projects which are coal-based at Khaperkheda, Chandrapur and Bhusawal. Demand for power in Maharashtra is picking up at a great speed with demand going up from 12,000 MW last year to 15,000 MW this year. The gap was slated to grow to 10,000 MW by 2010 and the MSEB is seriously looking at filling the gap by various means and it has formulated a plan to spend Rs 5,000 crore ($1.09 mn) in the next five years.

Power PSUs get 5-yr period for tariff-based bids

November 24, 2005. The committee of secretaries (CoS) has cleared the tariff policy for the power sector with two significant changes. These relate to the ticklish issue of computation of the cross-subsidy surcharge and allowing a five-year transition period to state-owned companies for developing power projects on the basis of competitive bidding. According to the final recommendations of CoS, While for the private sector, all projects would be developed on the basis of competitive bidding, the tariff of all new generation and transmission public sector projects should be decided on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition. The maximum level of opening cross-subsidy surcharge, together with all other charges payable for availing open access, should not exceed the difference between the current tariff of the relevant consumer category and the current average cost of supply inclusive of all costs and charges. This is expected to benefit open access consumers substantially. Further, it has been decided that the cross-subsidy surcharge be brought down to a maximum of 20 per cent of its opening level by 2010-11. The cross-subsidy is proposed to be reduced such that by the end of 2010-11, tariffs are within +/- 20 per cent of the average cost of supply.

OIL & GAS

OPEC ready to pump enough oil

November 29, 2005. OPEC will pump enough oil to build up global stockpiles and cushion consumers in the United States, Europe and Japan from higher prices this winter. The Organization of Petroleum Exporting Countries has been producing nearly flat out at 30 million barrels per day (bpd) for months as it seeks to fill storage tanks and tame prices that roared above $70 in August. OPEC previously described 56 days of forward demand cover as excessive. According to the International Energy Agency, forward demand cover from inventories held in OECD industrialized nations was 52 days in September so OPEC has some leeway. But analysts said OPEC’s stock-piling plan, however well-intentioned, cannot relieve tightness in refined oil products such as heating oil and gasoline.

CNOOC make discovery in Bohai Bay

November 29, 2005. CNOOC Limited announced that Jinxian (JX) 1-1, a new discovery was made via drilling JX1-1-2D, an independent wildcat. JX1-1-2D is drilled on JX1-1 structure in Liaodong Bay, in the Northeastern part of Bohai Bay.  With a water depth of about 29 meters, JX1-1-2D was spudded this August and drilled to a total depth of 3,143 meters. The well encountered about 31.5 meters of pay zones. Drill stem tests were conducted on various intervals. On 7.94 mm and 11.91 mm chokes, the well flowed about 1000 barrels of crude and more than 0.73 million cubic feet of gas per day.

Angola seeks investors to drive offshore oil boom

November 28, 2005. Angola, is seeking international investors for deep and shallow water acreage in a new-style licensing round. Sub-Saharan Africa's second largest oil producer after Nigeria, Angola is offering shallow water blocks 1, 5 and 6 and deep water acreage in blocks 15, 17, 18 and 26.

In total the acreage on offer contains potential reserves of an estimated 6.2 billion barrels, including light and heavy oil. The figure could be as high as 10.4 billion barrels. For the first time in the last 29 years, all the bids will be opened publicly. Angola hopes foreign investment will help it to achieve its goal of producing around two million barrels per day (bpd) by 2008, up from around 1.3 million bpd now.

Venezuela to start Mariscal gas project by ‘08

November 27, 2005. Venezuela hopes to begin producing natural gas at its Mariscal Sucre project in 2008 and construct a new LNG plant by 2010. Venezuela earlier  dropped Anglo-Dutch Company Royal Dutch/Shell from its plans to develop the natural gas fields in waters off the eastern Paria peninsula and construct the LNG exporter terminal. The terminal will gather natural gas for export from the Mariscal Sucre fields, as well as from the offshore Deltana area on the maritime border with Trinidad and Tobago.

In 2008 the first gas will be coming out and by 2012 the liquefied gas plant will be construction. The government had said it planned to start the tender process this year and foreign energy companies hope to begin exports of LNG by 2009 or 2010. The project envisages $2.7 billion investment to explore the Mariscal Sucre blocks and to construct a 4.7 million tonne -per-year LNG terminal. Petrobras  interested in participating in the project.

Chinese oil formula for emergencies

November 25, 2005. China, the world’s second largest oil consumer, will build strategic oil reserves as insurance against supply disruption while initiating dialogue with other countries for stable energy supply at affordable prices. To properly respond to emergencies and also to prevent oil supply risks, China will gradually build up the oil reserve system and emergency response mechanism. China, Asia’s largest oil consumer, plans to strengthen reforms in electricity, coal, oil and gas. India, which is 73 per cent import dependent to meet its oil needs, also has plans to build strategic crude oil reserves so that it can meet the country’s requirement for at least 15-days during emergencies.

CanArgo discovered gas in Kazakh

November 23, 2005. CanArgo Energy Corp., London, completed a dry gas discovery on the Akkulkovsky block in the North Ustyurt basin and won rights to a second block in the basin. The AKK04 discovery well stabilized at 3.18 MMcfd of gas on a 43/64-in. choke with 343 psig flowing tubinghead pressure.

The AKK03 and AKK05 wells have reached TD and are cased awaiting tests on the exploration area, which surrounds shallow Kyzyloy gas field. Logs indicate the presence of thinner gas-bearing sands than those at AKK03. The BN Munai LLP subsidiary acquired 100 per cent interest in the Greater Akkulka contract that covers 2.5 million acres northeast of the Aral Sea for 25 years.

Delta oil and gas discovers new gas pool

November 23, 2005. Delta Oil and Gas, Inc, has completed testing of its Todd Creek Well located in 13-28-9-2W5 in Alberta, Canada and the well has been classified as a new natural gas pool discovery. Log analysis shows that the well has intersected two gas formations with a combined net pay of over 80 feet. Preliminary natural gas reserve estimates for this well exceed 700 mcf of gas.

Construction of a new gas processing plant just south of this Todd Creek discovery is expected to commence shortly and Delta expects to tie its anticipated gas production into this gas plant by spring of 2006. The gas plant is initially capable of accommodating 10 mcf of gas per day with significant expansion capabilities.

PDVSA, Argentina eye heavy oil project

November 23, 2005. Venezuela's state oil firm PDVSA and Argentina's state-run ENARSA are studying a joint venture in Venezuela's Orinoco extra heavy oil belt as part of growing energy cooperation between the two nations. Venezuela, the world's No. 5 oil exporter, has invited foreign companies from Russia, Iran, India and Brazil among others to study and measure oil reserves on 27 Orinoco blocks before auctions in two and a half years.

Venezuela and Argentina signed accords for Venezuela to supply 5 million barrels of diesel to Argentina and to study a gas pipeline between the two countries. They are evaluating the possibility of PDVSA and ENARSA working together on production and exploration in both countries, including measuring the reserves in the Orinoco oil belt.

Companies involved in the studies will have an advantage when the fields some of which hold reserves as high as 21 billion barrels of oil - are auctioned. Foreign companies are currently partnered with PDVSA in four extra heavy crude projects in the Orinoco region that produce around 600,000 barrels per day (bpd) in Venezuela.

Transocean signs Chevron drilling contract

November 22, 2005. Transocean Inc’s Chevron Corp. had hired one of Sedco-700 offshore drilling rigs for at least three years under a contract worth about $385 million in revenues. That contract could be extended to a five-year period, which would increase the revenues to about $550 million. The semisubmersible rig, which will be deployed to Chevron's Frade project offshore Brazil, will be upgraded at a shipyard for about $300 million in order to increase its drilling capability to 6,500 feet (1,980 meters).

Johannesburg oil refineries invest for leaded petrol

November 29, 2005. Local oil refineries had invested R10 bn in preparations for next year’s government-initiated phasing out of leaded petrol and reduction of sulphur content in diesel. The changes, which take effect from January, are part of government’s plan to align the country with international fuel specifications and introducing cleaner fuels. Oil refineries were ready for the changes and had made multibillion-rand investments to their plants.

The investments were mainly on plant modification to enable production of octane fuel without the lead and to be able to reduce the sulphur content in diesel. The companies would not be able to recoup the costs directly from customers because of price regulation. It had taken the different companies about four years to put the required technologies in place. Unleaded petrol sales have increased from under 10 per cent in 1996 to more than 40 per cent at the moment. The sulphur content in diesel will be reduced from 3000 parts a million to 500 parts a million.

ConocoPhillips to purchase German refinery

November 25, 2005. Oil major ConocoPhillips would buy a German refinery for cash in a move that would increase its European refining capacity by about 74 per cent. The deal with British-based Louis Dreyfus Energy Holdings Ltd. for the Wilhelmshaven refinery should be completed in the first half of 2006. Conoco has laid out aggressive plans for expansion of its global refining capacity. It would spend as much as $5 billion between 2006 and 2011 to boost capacity and utilization. It wanted to invest in the German plant so it would be able to process different types of crude while decreasing operating costs. Wilhelmshaven currently has a capacity of 275,000 barrels per day. With the purchase, its European refining capacity would rise to 647,000 bpd.

Tesoro's Kenai Refinery to produce cleaner diesel for Alaska

November 22, 2005. Tesoro Corporation is investing $45 million over the next three years to construct a Distillate Desulfurization Unit (DDU) at its Kenai Refinery to produce and provide cleaner fuels and products. In association with the DDU project, Tesoro's wholly owned subsidiary, Tesoro Alaska, has entered into a five-year agreement to supply gasoline and ultra-low sulfur diesel fuel to Flint Hills Resources Alaska LLC. Tesoro will supply up to 6,000 bpd of product to Flint Hills Resources' Anchorage facility.

The DDU has a design capacity of 10,000 bpd and is expected to be online at the Kenai refinery by mid-year 2007. The U.S. Environmental Protection Agency's requirements for low sulfur diesel fuel will be phased in between 2007 and 2010. Beginning in 2007, new vehicle engines will require ultra-low sulfur diesel. Tesoro's DDU project is timed to help meet the increasing demand for cleaner fuels in Alaska.

Statoil to deliver more gas to the UK

November 28, 2005.  A 10-year agreement to deliver 500 million cubic meters of gas per annum from October 2007 has been concluded by Statoil with the Scottish Power gas and electricity supplier in the UK. This deal will help to strengthen position in the British market. It also contributes to greater utilization of increased transport capacity to the UK.

The gas will be delivered to the National Balancing Point, a hub for gas sales to the British market. Statoil already has long-term contracts with BP and Centrica subsidiary British Gas Trading, as well as deals with major industrial groups for deliveries to the UK. Britain is a key outlet for the group because of its growing demand for imported gas and proximity to the Norwegian continental shelf. Statoil is ambitious to expand deliveries substantially when the southern leg of the Langeled trunkline becomes operational next year. This pipeline will also begin transporting gas from the Ormen Lange field in the Norwegian Sea in 2007.

Subsea awards contract from ConocoPhillips

November 28, 2005. Subsea 7 has been awarded two contracts from ConocoPhillips Skandinavia AS. The first contract, valued in the region of US $32 million is for work associated with the Ekofisk 2/4 FTP by-pass project, in water depths ranging from surface to 80m in the North Sea. The scope encompassing this work will include the engineering, procurement, fabrication, construction, removal, installation and pre-commissioning (EPCIC) of the subsea pipeline system for the project and will see the fabrication and installation of approx 500m of spools, a 90m long riser and associated platform work. Installation work is scheduled for 2006.

The second award, valued in the region of US $37 million is for a pipeline bypass around the Norpipe H7 gas booster platform which is located in the German sector of the North Sea in a water depth of approximately 40m. The work will include engineering, procurement, fabrication, construction, installation, pre-commissioning and commissioning assistance of the 36in nominal diameter bypass which will be tied in to the existing Norpipe Gas Export Pipeline system. Offshore operations for this contract will take place in 2006 and 2007 with the main diving campaign being performed around mid 2007.

Pipeline shortages boost LNG prices

November 28, 2005. Rising fuel demand in Asia, Europe and the U.S. and a shortage of pipelines are pushing liquefied natural gas prices to records, benefiting producers such as BP Plc and hurting industrial companies from Spain to South Korea. The price of spot LNG being shipped to Europe may more than double to $15 per million British thermal units. Spain's Gas Natural SDG SA is among utilities that are increasing imports of LNG, or gas chilled into liquid.

London-based BP, Europe's biggest oil company, is among producers importing LNG to the Isle of Grain terminal in southeastern England. Europe's biggest oil company is benefiting from prices more than doubling in the past year as output from the North Sea declined and temperatures dropped below freezing.

Madrid-based Endesa SA, Spain's biggest utility, has stopped signing new gas customers because government limits on tariffs force it to sell the fuel at a loss after LNG import costs soared. Competition for supplies is intensifying as record oil prices in the past two years prompted utilities to increase the use of cheaper, cleaner LNG. A drop in supply from Indonesia, the world's biggest seller of the fuel, is also forcing Asian buyers such as Korea to seek more cargoes outside the region. Last year, about 26 percent of the natural gas that was traded across borders globally, or 178 bcm, was delivered in liquid form by ships.

Russia keen to participate in IPI pipeline project

November 25, 2005. Russia was willing to participate in the proposed Iran-Pakistan-India (IPI) pipeline project. Also, the Russian gas major, Gazprom, was ready to invest in the multi-million dollar project. The country had the technological expertise to offer for the pipeline project. Russia has had experience in building undersea pipelines spread over 1,000 km. Russia and Gazprom are interested and prepared to share risks along the pipeline route. Russia hopes the stakeholders will begin to share with Gazprom and among themselves the risks and benefits of the ambitious project.

BP to supply crude to Indonesia's Pertamina

November 24, 2005. Oil major BP Plc. will supply Indonesia's state oil firm Pertamina with a total of 250,000 barrels of crude oil from December to February. The deal would be the first step in a plan by Pertamina to seek 140,000 barrels of crude oil per day for domestic needs from contractors operating in Indonesia. The oil will come from BP's equity fields in Ardjuna off the coast of western Java, the crude would be refined at Pertamina's Cilacap crude distillation unit.

Pertamina cut its crude oil and condensate supplies to term lifters to 1.054 million barrels in November, down 10 percent from October levels, in line with Indonesia's move to trim exports to keep supplies for the domestic market and limit costly imports. But the company has raised December export allocations of term crude and condensate to 1.752 million barrels. Indonesia imports 200,000 barrels of crude oil per day via term contracts and 200,000 barrels daily from the spot market.

French to swap LNG for Russian gas

November 24, 2005. Gazprom has agreed to swap gas it supplies Europe by pipelines for liquefied natural gas from Gaz de France, then deliver the LNG to Shell Western LNG in the United States. Gazprom will buy the LNG from Gaz de France's joint venture with Algeria's Sonatrach. The cargo will be delivered next month to Cove Point, Maryland. Gazprom delivered its first LNG to the United States, buying the fuel in August from BG Group, a British gas producer. Gazprom plans to build up business in the United States, the world's largest energy consumer, where so far it sells almost no gas. Gazprom aims to have 10 percent of France's natural gas market by 2010. Gazprom supplied 10.9 bcm of gas to France in the first 10 months of the year. Since 1975, France has received more than 250 bcm of gas from Russia and, before 1991, the Soviet Union.

Gazprom is considering offers from Chevron and Total, among other companies, to develop a $10 billion offshore Arctic field and ship LNG to North America. Demand for gas is rising as consumers switch to cleaner fuels. Gazprom has been in talks with companies operating in North Africa and Europe, including BP, to provide gas supplied to Europe by pipelines in exchange for LNG in the United States. The swaps could cover 3 bcm to 5 bcm of gas in 2005. Gazprom plans to swap LNG with its partners from 2006 to 2009 and sell Russian-made LNG under long-term contracts beyond 2010.

Venezuela & Colombia to build gas pipeline

November 23, 2005. Venezuela and Colombia have agreed to build a 200 km-long gas pipeline running from Colombian offshore gas wells to facilities in Venezuela's oil-rich city of Maracaibo. The deal was struck between the two countries' national oil companies Petroleos de Venezuela (PDVSA) and Colombia Empresa Colombiana de Petroleo (Ecopetrol). The two companies would spend $300 mn on the bi-national project.  

Suez LNG trading signs transport agreements

November 23, 2005. Suez LNG Trading SA of France has signed a 20-year contract with three Japanese firms for the transport of LNG from Yemen to the US and Europe. Under the contract, Mitsui OSK Lines Ltd., Sumitomo Corp., and LNG Japan Corp. will establish a company to transport 700,000 tonnes/year of LNG over 20 years. The venture will lease a 154,200 cu m LNG tanker, which is to be built by Imabari Shipbuilding Co. The tanker will have a transport capacity of about 90,000 tonnes of LNG. Deliveries will begin in May 2009 from a liquefaction plant in Yemen under construction near Bal Haf on the Gulf of Aden. Production is to begin by year-end 2008.

Newest RasGas LNG train goes on steam

November 23, 2005. RasGas's latest LNG processing facility, Train 4, in Qatar has gone live with a production capacity of 4.7 million tonnes per year. Train 4 will serve the company's European customers, adding it is among the largest LNG processing facilities in the world. The engineering, procurement and construction contracts for the onshore components of Train 4 were carried out through a joint venture between Japan's Chiyoda Corporation and Mitsui & Company, Italy's Snamprogetti and Al Mana Trading Company. Dubai-based J Ray McDermott Eastern Hemisphere executed the contract for its platforms and pipelines.

Gazprom gas supplies to UK, Ukraine and Romania

November 23, 2005. Russian energy giant Gazprom intends to supply some 5 bcm of natural gas to Britain in 2006. Gazprom is planning to increase exports of natural gas to Britain to 10 bcm by 2010. 1,000 cubic meters of natural gas could cost about $200 in Europe next year. The price of natural gas in Europe will be higher than this year's and will be about $200 per 1,000 cubic meters.

About natural gas supplies to Ukraine, which has been a stumbling block in bilateral relations, the gas price that the natural gas monopoly had offered Ukraine was preferential. The price of $160 per 1,000 cubic meters of gas offered to Ukraine was lower than the real market price. However, Ukraine has been insisting that Russian gas supplies and transit be continued on the same terms as in 2005, despite earlier top-level agreements to move to European prices and tariffs.

A board member of BASF subsidiary Wintershall, signed an agreement on natural gas supplies to Romania until 2030 via WIEH, a Gazprom-Wintershall joint venture in which each company holds a 50 per cent stake. The sides also discussed current trans-border pipeline projects and cooperation on the enlargement of gas storage in Romania.

Chevron's Kazakh venture launches Caspian oil route

November 22, 2005. A ChevronTexaco-led venture developing Kazakhstan's giant Tengiz oilfield launch of a southern route across the Caspian Sea which enables access to a new Turkey-bound pipeline. The Southern Route will enable Tengiz crude oil to be exported from Kazakhstan through Aktau across the Caspian to Baku, Azerbaijan and onwards to Batumi, Georgia on the Black Sea for further shipment to international markets.

The Southern route will also enable TCO to access the Baku-Tbilisi-Ceyhan (BTC) pipeline. TCO, 50 percent owned by ChevronTexaco, currently exports all its crude via the CPC pipeline running to Russia's Black Sea port of Novorossiisk. But the current expansion project at Tengiz means that TCO output will exceed the CPC pipeline's capacity for some time in the near future, "thus necessitating the need for alternate export routes."

In line with the TCO expansion project, launched in 2002, output at Tengiz is expected to nearly double to some 480,000 bpd next year. The new route is good news for the Baku-Tbilisi-Ceyhan pipeline project backed by the United States as a factor easing Russia's stranglehold on energy exports from the region. The $4-billion BTC venture, led by Britain's BP Plc, will eventually pump more than 1 million bpd from Azerbaijan to Turkey's Mediterranean coast.

Chevron to sell more Gorgon LNG to Japan

November 22, 2005. Chevron Australia Pty. Ltd. and Japanese power company Chubu Electric Co. Inc. have signed a heads of agreement for the sale of 1.5 million tonnes/year of LNG from the Gorgon project over a period of 25 years, beginning in 2010. The agreement with Chubu follows one struck by Chevron in October to sell 1.2 million tonnes/year of LNG to Tokyo Gas Co. from the Gorgon development, and it takes the project closer to committing all of its 12.9 tcf of natural gas reserves.

Gazprom to hike price in natural gas exports to Baltics

November 29, 2005. Russian energy giant Gazprom is planning to increase the price for natural gas exports to the Baltic states from $80 to $120-$125 per thousand cubic meters in 2006. The company had concluded an agreement with Georgia last week to set the price for exported natural gas at $110 per cu m. In Armenia the price will also be about $110, and in Moldova about $150-$160. The gas supply networks would cover 60 per cent of Russia by 2008, adding that some regions, including the central Russian republics of Tatarstan and Bashkotorstan, had been already 100 per cent covered. The natural gas monopoly would invest about $1 billion next year in the development of gas supply infrastructure in Russia.

Gazprom calls on Ukraine to sign contract

November 28, 2005. Russia's natural gas monopoly, OAO Gazprom offered to sign a contract with Ukraine under which it would receive European rates for the transit of Russian gas to Western Europe while negotiations continue on the price paid by Ukraine for its own gas imports. Moscow and Kiev are locked in a bitter dispute over Russian demands that Ukraine give up cut-price gas deliveries from Russia and pay full market rates, a disagreement that could potentially threaten supplies to Western European customers. The state-controlled energy company accused Ukraine in a statement of "effectively sabotaging" the signature of a new transit and delivery contract for 2006 in a bid to "hang onto subsidized rates for supplies of Russian gas." Gazprom supplies a quarter of Europe's natural gas, most through pipelines that transit Ukraine and Belarus. It warned that Ukraine's stance was endangering "reliable supplies of Russian natural gas to European consumers."

Under the current agreement, still valid through 2013, Russia pumps natural gas to its European customers through Ukrainian pipes, and Ukraine, in turn, gets a heavy discount on gas it purchases for its own needs. Ukraine currently pays $50 for 35,300 cubic feet. But Russia proposed doing away with the discount and paying Ukraine a transit fee instead, starting 2006. That could triple prices for Ukraine to about $150for 35,300 cubic feet, the same as Moscow's European buyers pay. Russia - whose role as the region's main energy provider gives it considerable clout - appears to be using this lever in dealing with ex-Soviet republics where pro-Western leaders have come to power. Moscow has demanded that Georgia pay nearly double for its gas supplies while Moldova also faces higher gas rates. All three countries have leaders that have worked to distance their countries from Russia. Belarus, is on good terms with Moscow, also enjoys subsidized gas rates, but these are not being renegotiated. Ukraine is heavily dependent on Russia for energy supplies, so fears run high that Moscow could turn off the taps or raise prices and thus prompt an economic crisis to achieve its political aims.

New technologies may unlock more Middle East oil

November 28, 2005. Recently developed technologies will help find and extract more crude from the Middle East, the world's richest oil region, and are also a selling point for Royal Dutch Shell PLC. The Middle East holds 62 per cent of the world's proven estimated oil and gas reserves, or 733.9 billion barrels, according to BP PLC's (BP) annual statistical review. As of October, Middle Eastern countries produced 71 per cent - or 21.1 million barrels of oil a day - of the total output of the Organization of Petroleum Exporting Countries, according to the IEA. Those figures don't include the U.S. or European countries.

Saudi Arabia and Oman as examples of Middle Eastern countries in which innovative techniques to explore and produce oil more efficiently are being used. State-owned Saudi Aramco can be credited as the largest user of smart fields technology, referring to the real-time monitoring, model updating and control of oil wells.

Petroleum Development Oman, formally launched the use of a technology called enhanced oil recovery, or EOR, to raise the percentage of extractable crude from the current 10 per cent of reserves to over 40 per cent. PDO is 60 per cent controlled by the Oman government, with 34 per cent owned by Shell and the rest by Total SA (TOT) and Partex. PDO is using EOR - a technique that involves re-injecting gas into the reservoir to extract oil - for the first time at the Harweel field development in southern Qatar.

With the right technology the level of oil production from existing fields will reach 6 to 7 million barrels a day in the next few years compared with 1.96 million on average in the past 10 months. Countries such as Saudi Arabia, Iraq or Kuwait have yet to open their oil-producing fields to foreign companies, and the majors face increased competition from Indian and Chinese players expanding abroad when they bid for new licenses. The integration of multiple technologies will help maximize recovery from existing fields.

Russia offers to hike crude export

November 25, 2005. Russia, the world’s second largest oil producer, has offered to increase crude oil exports to Asia for ensuring energy security and reduce risks in the region. Russia will also take steps to stimulate foreign investment into the country and develop new forms of international cooperation and create mechanisms for coordinating the state policy of regulating foreign trade in the energy sphere.

Currently, Russia exports over 90 per cent of its energy to Europe but is now looking closely at Asian and Pacific destinations. Russia forecast Asia’s share in Russian oil exports to grow from today’s 3 per cent to 30 per cent in 2020, a proportion corresponding to 100 mt. Asia’s share in Russia’s gas exports could grow from the current 5 per cent to 25 per cent, which would make it 65 billion cubic metres.

Turkmenistan, China to sign gas supply deal

November 24, 2005. Central Asia's Turkmenistan will sign a major agreement next year to sell natural gas to China and jointly develop Turkmen gas fields. China is increasingly looking abroad to secure reliable oil and gas supplies for its booming economy. Turkmenistan, a largely desert nation, has huge natural gas reserves and is the second-largest gas producer in the former Soviet Union after Russia. The deal, expected to be signed during visit to China early next year, would involve building a gas pipeline to China from eastern Turkmenistan, where the fields planned for joint extraction are located. The pipeline will be able to carry 30 bcm (1 tcf) of natural gas a year. The financial terms of the agreement were not disclosed.

Gazprom approves gas output plan

November 23, 2005. Gazprom has approved the 2006 gas balance and a draft balance up to 2008. The latter envisages a further increase in gas production by the company. As such, gas output will reach 548 bcm in 2006, 550 bcm in 2007 and 552 bcm in 2008. Independent producers and oil companies will raise gas production to 95 bcm in 2006, 96.6bn cubic meters in 2007 and 100.9bn cubic meters in 2008. Gazprom's supplies to Russian customers are forecast at 296.5 bcm in 2006, 297.9 bcm in 2007 and 299.8 bcm in 2008. Russian gas exports to countries outside the CIS will amount to 151 bcm in 2006, 157.7 bcm in 2007 and 162.9 bcm in 2008.

Mexico approves crude pipe for planned US refinery

November 23, 2005. Mexico has given an Arizona company permission to build and own a pipeline that would carry Mexican crude to a planned refinery north of the border, which if built, would be the first new U.S. refinery in nearly 30 years. The move is unusual as Mexico's constitution has banned foreign firms from upstream oil and gas activities since 1938. The group, Arizona Clean Fuels Yuma, plans to buy Mexican Heavy Maya crude in southern Mexico, load it onto boats, and then ship it to the mouth of the proposed 250-mile

Russian natural gas exports to increase in ‘06

November 23, 2005. Energy giant Gazprom said that Russia's natural gas exports to countries outside the former Soviet Union will increase to 151 billion cu m in 2006. In 2007, the figure should reach 157.7 billion cu m and 162.9 billion cu m in 2008. About 125.6 billion cu m were exported in the first 10 months of this year. Gazprom says it plans to continue building up natural gas output, which is expected to hit 548 billion cu m in 2006, 550 billion cu m in 2007 and 552 billion cu m in 2008.

Independent natural gas producers and oil companies will raise natural gas output to 95 billion cu m in 2006, 96.6 billion cu m in 2007 and 100.9 billion cu m in 2008. Independent producers will supply Russian customers with 47.6 billion cu m of natural gas in 2006, 48.7 billion cu m in 2007 and 49.2 billion cu m in 2008.

Pakistan, Australian firm ink gas deal

November 22, 2005. The government of Pakistan and Australian Petroleum Company BHP Billiton-led Joint Venture signed an agreement for gas sales and purchase of additional 150 mcf gas per day from the Zamzama gas filed in Dadu district of Sindh. The additional gas would be supplied to Sui Southern and Sui Northern Gas companies. Under the Zamzama phase-2 development, an investment of over $120 million by the BHP-led joint venture will be made to enhance the production by 50 per cent to 450 mmcfd by the third quarter of 2007. The joint venture will construct state-of-the-art nitrogen rejection unit to produce pipeline quality gas under the phase-2 development project.

Power

American MNC to set up thermal plant in MP

November 28, 2005. American multi-national company ISN would set up a 2000 MW capacity thermal power plant at a cost of Rs 10,000 crore ($2.18 bn) at Sidhi in Madhya Pradesh. The power plant would become operative in three years.The state govt. assured full cooperation to ISN. The plant would be at later stage increased to 4000 MW. Coal for the power plant would come from Moher coal mine, about 15 km from Sidhi on the border with Uttar Pradesh, while water supply would be ensured from Rihand Dam. The railways would get 1000 MW, while 500 MW would be supplied to NMDC and 500 MW to Madhya Pradesh when the plant becomes operational.

Iran to export more power to Iraq

November 23, 2005. Iran's power exports to Iraq will rise to 200 MW by next one month from 150 MW. Iraq demands 1,000 MW power imports from Iran and it is predicted that Iraq will be able to meet the shortage in a year. Iran is also to set up two power plants in Iraq with the capacity to generate a minimum of 500 MW of power and the two sides are to examine the issue closely in the near future after a visit by an expert team from Iraq. Iran is also to reconstruct Iraq's water networks and energy transfer lines.

SNC-Lavalin wins Bruce Power project

November 22, 2005. SNC-Lavalin Group Inc. has been awarded a contract on the restart project at Bruce Power, Ontario's biggest nuclear facility. SNC-Lavalin, its nuclear unit will replace the steam generators at units 1 and 2 of Bruce Power's Bruce a nuclear power station. Bruce Power and the Ontario government agreed in October to a C$4.25 billion ($3.6 billion) project to fully restore the Bruce a station. The first unit will enter service in 2009, subject to the approval of the Canadian Nuclear Safety Commission. Units 1 and 2 were shut in 1997 and 1995, respectively, because they needed extensive upgrades. The units entered service in 1977. The return of units 1 and 2 will replace about 20 percent of the province's coal-fired generation, which the government wants shut between 2007 and 2009 to reduce pollution and health problems.

Johannesburg Govt launches energy regulator

November 23, 2005. The department of minerals and energy launched the National Energy Regulator of SA (Nersa) to regulate the electricity, petroleum and gas pipeline sectors, while promoting competition and the emergence of new players in the largely monopolistic industries. The National Electricity Regulator (NER) that has been responsible for regulating the electricity industry since 1995 will be phased out at the end of March next year and its responsibilities will be taken over by Nersa.

The newly formed Nersa will change the landscape of energy regulation as its existence means that petroleum and gas pipeline industries will be regulated for the first time in the country.

The NER had provided valuable lessons for the government on regulation and the experience would be used in the petroleum pipeline and piped gas industries. Initially Nersa will focus on the petroleum pipeline and piped gas industries and the NER will continue to be responsible for electricity until April 1 next year. Apart from collecting levies from the industries that it regulates, Nersa will also be responsible for issuing licences, promoting competition, regulating energy prices and facilitating access to petroleum pipeline products.

It is estimated that about R240 billion in new investments over the next 20 years will be needed to meet rising electricity demand and power blackouts that are plaguing Gauteng, the country's industrial and financial hub. As part of the country's plans to upgrade transport and electricity infrastructure, state-owned electricity company Eskom will play a key role in the R165 billion investment with transport parastatal Transnet.

Renewable energy major eyes India

November 29, 2005. World leaders in wind energy generation and a key player in renewable energy sector, Iberdrola, Spain was looking for strategic partners to enter the sector in India. It has a goal to achieve 8000 MW energy production till 2008 and, therefore, it is exploring new markets in Asia. Iberdrola has wide international experience and has developed activities with international institutions in projects related to renewable energy for clients such as the European Commission, World Bank, InterAmerican Development Bank, in almost every continent.

Kalpataru Biomass project, first, to get UN ratings

November 29, 2005. A Ganganagar-based biomass power project has got certified emission reductions (CERs) from a UN body. Kalpataru Energy Venture, a Ganganagar-based biomass power Project, has become one of the first three projects in the world and the first in India to which the United Nations Framework Convention on Climate Change (UNFCCC) has approved issuance of such reductions.

The certified emission reductions (CERs) issued by the UNFCCC, part of the clean development mechanism of the Kyoto Protocol, to a green project can be acquired by an investing company (from the developed nation) to meet its emission reduction commitments at home. India acceded to the Kyoto Protocol in August 2002, thereby opening up CDM project financing opportunities.

The firm is Rajasthan's first biomass-based independent power producer with a 7.8 MW power plant in Padampur, Ganganagar, generating power using mustard crop residue. It is the biomass division of Ahmedabad-based Kalpataru Power Transmission Ltd. The project has been in association with SenterNovem, Netherlands.

It has entered into a power purchase agreement and a power wheeling agreement with the Rajasthan Vidyut Prasaran Nigam and three distribution companies of Jaipur, Jodhpur and Ajmer based on the Rajasthan state policy of non-conventional energy.

The plant sold over 25 million units (kw/hour) to the Rajasthan grid in 2004-05. The company now plans to set up another 7 MW project in Uniara, in the Tonk district of Rajasthan. The project is slated for commissioning by March at Rs 30 crore ($6.54 mn). 

KMC to use solid waste for green power

November 29, 2005. Kolkata Municipal Corporation might use its solid waste for generating 'green' power. KMC has shown interest to be a part of the municipal solid waste (MSW) scheme of West Bengal Renewable Energy Development Agency (WBREDA).

Under KMC, around 4,500 tonnes of solid waste is disposed every day with a capacity of producing 20 MW of green power. The energy generated from the solid waste would be taken by the power utilities as per rules by the electricity regulator. The project cost would be around Rs 180 crore ($39 mn). Private developers of 'South City' would be implementing solar water heater for 1600 flats. WBREDA has also taken up project for building 25 houses in New town Rajarhat that would use 'building integrated photo voltaic thereby saving around 2.12 kw of electricity. The project would be complete by February 2007.

WBREDA will provide electricity through non-conventional source to 100,000 families in Sundarbans and work would begin in February, 2006. The project cost would be Rs 140 crore ($30.51 mn), out of which Rs 130 crore ($28.33 mn) would come from central government and remaining from the state government. Both governments had given in-principle approval to the project, which was likely to be completed in two years.

Loan schemes for purchase of solar equipment

November 25, 2005. Andhra Bank has launched three soft loan schemes for the purchase of solar equipment under the interest subsidy programme of the Union Ministry of Non-conventional Energy Sources (MNES). Under the AB Surya Sakthi Scheme, the bank will offer loans to women under self-help groups (SHGs) for the purchase of solar cookers, which are available at Rs 1,000 per unit and at Rs 1,500 with electrical backup. This is an interest- free loan, where the MNES subsidises the entire interest.

The loan has to be repaid in 10 monthly instalments. Under a similar scheme, the bank offers loans for the purchase of solar water heaters with costs ranging from Rs 18,000 to Rs 80,000. The device is said to save on electricity bills and ensures supply of trouble free hot water. The saving can be up to Rs 600 per month on electricity bill depending on the tariff and hot water usage.

Andhra Bank offers soft loans for the purchase of solar water heaters with interest rate ranging from 2-5 per cent. An interest rate of 2 per cent would be charged for individuals, 3 per cent for institutions and 5 per cent for industrial and commercial organisations. Repayment can be made in 60 easy instalments.

European Carbon Fund to invest in India

November 24, 2005. European Carbon Fund (ECF) has firmed up plans to invest up to $125 mn (about Rs 500 crore) in carbon assets in India over the next two years. ECF is the first European private fund dedicated to carbon finance. Ten large European banks have parked with it huge funds to be invested in creating carbon assets, which are market-based green house gas (GHG) emission reduction instruments. India, Brazil and China have been identified by ECF for long-term investments in carbon assets. ECF is keen to fund projects in the areas of wind, hydro, solar, biomass and other alternative energy routes. Professionally-managed Indian companies, with a strong social commitment, will have access to the funds. ECF seeks to acquire 10 mt of CERs (carbon emission reduction) from projects in India. In addition to the Kyoto Protocol, the EU launched the Emission Trading Scheme, an emission trading market of 2.2 billion tonnes of carbon-dioxide per year, involving 25 countries and 11,500 industrial and power generation sites. The annual shortage for European entities is expected to be in the range of 60 to 120 mt of carbon-dioxide. This provides the basis for the ECF investment strategy.

Brazil’s ethanol output expansion struggle

November 29, 2005. Brazil may struggle to expand ethanol production fast enough to match demand growth because of a lack of affordable land close to ports on which to grow sugar cane. Land planted with cane will have to expand by more than 1 million hectares (2.5 million acres) by 2010, a gain of 8 per cent a year. That is three times the average growth in the last several years. Although the government plans for large investments to be made in logistics, to tempt mills to plant cane further away from ports than it is now economic to do, this will take several years. Global demand for ethanol for blending with gasoline has risen in the past year, driven by record oil prices and the need for lower carbon dioxide emissions to combat global warming.

BP to spend $8 bn on green energy

November 28, 2005. BP plans to invest $8 billion (£4.6 billion) in wind, solar and hydrogen power over the next decade in a drive for more renewable energy. The push for green power, announced by the British Government of its energy review, will renew the oil company’s green credentials by doubling spending over three years to $1.8 billion, with a major focus on wind power. The investment plans are revealed at a sensitive time for the British oil industry, with energy companies accused of manipulating the natural gas market.

The new commitment of $1.8 billion will raise a political challenge to Shell, its rival, which has also promoted green energy and invested $1.5 billion in renewables, including a big push into wind power in Britain. The solar manufacturing capacity would double with a view to tripling sales. A major focus will be the creation of a portfolio of wind turbines in America generating 200 MW by 2007. BP will concentrate investment on industrial sites inherited from Atlantic Richfield, the California-based oil company that it acquired in 1999.

Supply of wind turbines for New Brunswick

November 24, 2005. A major European wind turbine manufacturer has agreed to supply 20 MW of new wind turbine generators in 2006, for Grand Manan Project in New Brunswick, Canada. The value of the purchase is over Cdn. $20 million and the agreement for 2006 delivery will be finalized in a formal Turbine Supply Agreement prior to January 31, 2006. The turbine manufacturer will supply the agreement to the Company prior to December 16, 2005.

The Company was awarded the 20 MW contract from New Brunswick Power on June 24, 2004. During the past year, the Company has executed over $800 million of power purchase agreements totaling 159.5 MW from the sale of wind energy electrical generation, from three separate utilities. The Company was the first to execute a "wind" PPA in the Province of New Brunswick, Canada, the first to execute a "wind" PPA in the State of Arizona, and in California, is expanding from management's 24-year continuous operating history in the Tehachapi Pass.

Largest wind power project in Canada

November 22, 2005. Leader Wind Corp., and Enbridge Inc. have awarded two renewable energy projects by the Ontario Government's Renewable Energy Supply RFP. The awarded energy projects comprise an agreement to purchase a total of 200 MW of wind power from Leader Wind. Construction of this wind farm is expected to commence in April 2006. When completed, the Leader Wind Projects will be the largest wind power project constructed to date in Canada.

Total consideration for the transaction is approximately CDN $17.2 Million. This consideration is comprised of a cash payment for development costs with the balance of proceeds payable in free trading Enbridge common shares. Approximately 50 per cent of the consideration has been paid. The balance shall be paid over 2 milestones, at approximately 12 months and 60 months.

 

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