MonitorsPublished on Dec 27, 2005
Energy News Monitor I Volume II, Issue 27
Biodiesel as Diesel Substitute: Assessing the Potential in Light of India’s Air Quality Goals & Energy Security Imperatives


1. Introduction


resently as many as 53 Indian cities & towns[1] are facing air quality problems where criteria pollutants exceed the minimum limits prescribed by Central Pollution Control Board (CPCB). Vehicular emissions, particularly from diesel vehicles have been identified to be the dominant contributors to deteriorating air quality in many cities. The Indian Auto-Fuel Policy recommended various options for controlling emissions from diesel vehicles and particularly stressed for exploring other alternative and clean fuels[2] like CNG, LPG, electricity/battery, ethanol blends, biodiesel, etc.

Biodiesel appears to be a promising alternative for Indian vehicles and efforts are on to introduce it in near future as a substitute to petrodisel in the form of B20. The emissions, driveability, safety and other aspects of biodiesel have been thoroughly studied and established internationally as well in India through various trial studies. Along with these aspects and other merits, the most important determinant which dictates the policy for a new fuel is the existing air quality scenario in a city. In this paper we attempted to appraise the potential of biodiesel considering existing air quality scenario in various metro cities of India. Effects of biodiesel on the total vehicle emissions inventory for some cities have also been estimated to get the percentage change in emission loads for criteria pollutants. The changes in pollutant loads attributable to biodiesel have then been considered as surrogate fairly influencing air quality concentrations of different pollutants. The analysis indicates that effect of biodiesel on vehicle tail-pipe emissions and on overall vehicular emission load generation is only directionally consistent showing decrease in CO, HC, particulate matter (PM) and marginal increase in NOX. However, the effect or decrease in case of total vehicular emission load for any pollutant with biodiesel fuel is not similar or as high as observed in case of vehicle tail-pipe emissions. For instance, tail-pipe CO reduction with biodiesel is observed to be as high as 38% whereas reduction in total vehicular CO load is only 8%. Nevertheless, under all circumstances biodiesel gives substantial PM reduction. Besides air quality conditions of a place, additional parameters like total population or dominance of substitutable in-use diesel vehicles and the vintage of such vehicles are also found to be very important criteria requiring careful consideration for any policy decision on biodiesel.

2. Biodiesel & Petrodiesel: Historical Perspectives

The historical account on emergence of both biodiesel and petroleum diesel reveals some interesting facts. In-fact fuel derived from biomass feedstocks was in use as early as 1800s and mid-1800s[3] long before diesel fuel from petroleum residues came into the picture. Transesterification of Vegetable oils to distill out glycerin for making soap was a common practice during the mid-1800s and the byproducts of this process are mainly esters which later found use as biodiesel. Interestingly, the first diesel engine developed & demonstrated by Rudolph Diesel in 1898 used peanut oil which is known as the original biodiesel[4]. Since then biodiesel went on to become the preferred fuel for running vehicles and from 1908 onwards Henry Ford started designing his vehicles to run on biodiesel and also set-up a biofuel plant. Vegetable oils were used in diesel engines until 1920s when a petroleum residue gradually found use with some alterations in the engines. This petroleum residue was then known as diesel # 2 which later gained market as diesel fuel[5] or petroleum diesel.

The fossil diesel fuel during that period was very low priced and the producers and distributors aggressively promoted its use for making quick money. The business of petrodiesel gained momentum and found support from both the industrial and political sections[6]. Under this severe circumstances and having no price advantages compared to the extremely low priced petrodiesel, biodiesel venture took backstage and by the 1940s its use started declining substantially. Biodiesel feedstocks during that period were mainly hemp, peanuts, etc. whose use for biodiesel was discouraged on the ground that this may lead to scarcity and diversion of food crops finally causing starvation. This is now considered to be a wrongly canvassed concept for eliminating biodiesel use and this is no more valid now with identification of various non-foods and easily cultivatable biodiesel feedstocks. Biodiesel was also used extensively in the World War-II however, after the war it again failed to come in the forefront facing tough competition from the low priced petrodiesel and other governmental policy barriers. Following the first and the second world oil crisis in 1973 and 1978 respectively, the biodiesel option was seriously considered by many countries for getting rid of their dependence on imported petrodiesel. This is when various countries initiated actions for commercializing biodiesel but even today petrodiesel remains the most dominant automotive fuel. Nevertheless, the world today recognizes the importance of biodiesel as a domestic option for energy security and with the recent escalation of world crude oil price, initiatives for biodiesel gained momentum and appear to have intensified in many parts of the world.

3. Alternative Automotive Fuels: Criteria & Prerequisites

The potential of releasing energy on combustion is not the only criteria for any fuel to qualify as automotive fuels at present. With the adoption of a variety of environmental and safety standards, fuel economy requirements and other regulations, fuels are evaluated and tested for various aspects and socio-economic & technical parameters. Any alternative fuels for consideration as automotive fuels should at least demonstrate and favorably testify to the following minimum parameters:

a.        Safety & environmental aspects,

b.        Driveability & compatibility to automobile system and technology,

c.        Availability, storage, distribution & fuel quality aspects,

d.        Techno-economic viability, 

e.        Social acceptance & other sustainability issues & legal aspects.

Generally a fuel is judged on the above aspects and the one which favorably fits into these finds policy mandate. Ever-increasing energy demands and dependence on oil imports have now compelled us adopting a sustainable and self-reliant policy framework under which the aspects of energy security, renewability and availability are emerging as the most important fuel selection parameters. In this scale of prerequisites, biodiesel possibly stands out to be one of the most, if not the most promising alternative fuel. It is also amongst the most comprehensively studied or tested fuels and there exists substantial evidences and data supporting its technical, environmental, safety & health aspects[7]. Any fuel fulfilling these major criteria is considered viable and fit for application. However, the final decision for mandating an automotive fuel under any environmental policy framework is predominantly governed by the existing air quality status of the concerned city or region. In this context, assessing the air quality scenario in Indian cities juxtaposing with the emission potential of biodiesel is expected to provide better understanding on the efficacy of biodiesel in India. This assessment has been attempted based on CPCB air quality data for major metro cities and various biodiesel vehicle field trials and test results.

….to be continued

Views are personal. Rajesh Debroy, [email protected]

Global Oil Trading: Mechanisms and Lessons for Risk Management

Part – VI

(By Dr. Samir R. Pradhan*)


Use of Derivatives by Firms (Petroleum and Natural Gas) in USA


hough there is little quantitative information available on the extent to which derivative contracts are used by individual firms and utilities in the USA, yet a study by the EIA based on some academic research and empirical evidence on the filings of SEC 10K by firms, the significance of derivatives in the petroleum and natural gas market can be ascertained (see table 1.2 below).

Table 1.2: Use of Derivatives by Large Energy Marketing Firms, 2002

(Million dollars)


Derivative Assets

Derivative Liabilities

Total Assets

Derivative Assets as a fraction of Total Assets






American Electric power





Duke Energy










BP Energy




















El Paso




















Dominion Resources

























Texus Utilities

























Constellation Energy










CMS Marketing





Edison Mission





First Energy





NR: Not reported as a line item on the company’s balance sheet.

Source: Securities and Exchange Commission Form 10K filings, as cited in EIA (2002).

Academic studies carried out in this field though are not definitive due to lack of statistical sampling, yet these studies point out that hedging enables companies to reduce their dependence on capital markets to finance investment projects. They also support the idea that managers hedge to reduce the likelihood that the company will encounter financial distress. Moreover, studies show the various risk management techniques adopted by companies for different aspects of natural gas industry such as cash reserves, storage, diversification, pipelines, etc. The financial reports of large oil and natural gas companies as analyzed by EIA indicate use of derivatives to hedge. This shows that marketing companies use derivatives more than producers and refiners. Also, in a number of cases, several firms indicated that they were vertically integrated and had limited need to hedge.

Asia Pacific Oil Market: Status of Derivatives

The Asia Pacific region has become the major growth area for global energy demand primarily due to the demographic profile and the impressive economic expansion. In the region, the overriding concern has always been the security of supply rather than the price risk. In this environment, the use of energy risk management tools, particularly derivatives have not evolved to any great extent.

Risk avoidance rather than risk management has been the operative word in Asian oil market. However, things have changed substantially in recent years due to deregulation, privatization and concerns of recent high oil price spikes. The business as usual approach no longer works as a sharp increase in oil dependence adds more price uncertainty and undoubtedly more future price volatility.

While futures trading in energy began in 1978 with the NYMEX launch of heating oil futures, it has taken longer than expected for the energy derivatives market to develop in the Asia-Pacific region. Asia Pacific energy derivatives markets are also following a different path from the more mature markets of London and New York. With no viable energy futures contracts, the over-the-counter (OTC) energy derivatives markets are leapfrogging energy futures market development in the Asia Pacific region with many OTC derivative agreements created to meet growing market needs. And while the OTC markets can sometimes evolve into futures contracts, such as 15-day Brent did in Europe, the OTC swaps and options market tend to function like quasi-futures market in the region. These markets are unregulated, global, and both short and long term, and are influencing prices beyond their notional value, i.e., they are influencing price formation in the physical markets.

The emergence of energy commodity markets in the Asia Pacific region has been facilitated due to the underlying developments in the physical market, including new and planned refinery projects, growing petrochemical capacity, rising electricity needs, development of natural gas infrastructure (particularly for LNG), and a movement away from a high degree of government regulation of the energy sector in many countries.

Capital flows to the energy sectors of the Asia Pacific countries will be substantial in the coming decades as greenfield energy projects proliferate. But this move towards deregulation will follow an Asian model and will not be a rapid transition to open markets but a gradual process. In effect, a controlled deregulation is underway in the region. Moreover, Asia’s role continues to rise in importance in world energy markets so that risk management imperatives will be more pronounced in the forthcoming years, for it will be increasingly necessary for oil producers, refiners and consumers to use these instruments.

Moreover, the Asian markets are evolving quite differently on the paper side from the US or Europe. For the Asian paper markets, it seems that many smaller markets for both crude oil and petroleum products will develop rather than one crude oil marker, such as Brent or WTI, or singular benchmark petroleum products. At present, Malaysian Tapis, Oman and Dubai are OTC price markers for crude oil but other paper markets fro crude oils as a viable forward or futures market contract. This will probably be the best solution to the long standing problem of how to hedge the Asian barrel, and was proposed at an APPEC meeting in 1989.


Crude oil trading industry is highly competitive with volatile prices, as it is fraught with uncertain factors because of the OPEC’s decisions on supply. Strategy formulations and implementations are at best jumpy, if not a roller coaster for every tick. Given the political and economic goals of the OPEC, the least hit will be the ones, which are well networked and have large database with good research skills. These apply to both the large and small scale operators.


The Political Economy of Power Sector Reforms:

Introduction to Issues and Expectations (Part-VII)


Re-constituting the social contract.

Finally, the studies make it possible to examine how societies create new contracts between capital, labor and civil society—entities that are integrated into one unit (the SEB) in state-centered systems. Key political and practical difficulties accompany the task of dismantling SEBs that serve not just the functions of production but also a wide array of other key social functions. The list of elements of the social contract is extremely long; to aid in comparison across the cases, analysts focus on just three that are particularly vital in the electric power system.

First, power systems impose large costs on the environment. In state-centered systems environmental policy is internal to the enterprise. If the enterprise is directed—or directs itself— to incorporate environmental norms it can redirect its capital investment and operational decisions. If the new ventures are costly it can rely on specialized capital aloocations or the soft budget constraint to provide room for maneuver. As the firm begins to operate independently of the state, however, it becomes aware of the contest between environment and cost and, at the same, time, highly sensitive to costs. The standard remedy for this problem in market-centered systems is for an outside regulator to apply a tax or other mandate that forces the firm to internalize these environmental costs. But for firms in transition the information needed to construct an environmental policy is lacking.

Second, analysts examine how each country addresses one of the key social benefits of electric power systems: access to electric services. In the advanced industrialized countries, active programs in the first half of the 20th century connected nearly every village and household to the grid. These programs were supported by governments, often acting through the state-controlled enterprises that delivered electric services, as well as rules that encouraged the creation of local electrification cooperatives. Today, all the largest developing countries (like India) face a similar set of tasks. If, at the same time, they are restructuring SEBs, who will pay for and perform the tasks of electrification? Analysts expect that SEBs in the midst of restructuring will be increasingly uninterested in providing electric services that are not economic. Indeed, most rural extensions of the grid to low-income users cost more than they return in revenue. In state-centered systems, analysts would expect that the service of uneconomic electrification would be performed by the SEB itself— with compensation through higher tariffs on other users, soft loans or through some indirect means. In market-centered systems, the firm will demand transparent compensation directly for the service that it would not otherwise supply. They expect that states will either supply these compensations or invent regulatory rules that force the firm to provide electric services. They also expect that the locus of policy-making about electrification to shift away from the SOE itself and into the arena of openly contested politics. In countries where there are powerful forces in favour of electrification programs—for example, rural and farmer dominated parties—a spotlight on the political process of electrification will require transparent decisions about minimum acceptable access to electric services and minimum acceptable quantities of electricity. Those politics are unlikely to accept inequalities and thus seem poised to generate simple answers: complete electrification, and escalating “minimal” amounts. (These “minimal acceptable” amounts can be measured, for example, by looking at “lifeline” tariffs and other concessionary schemes).

Third, analysts ask how industries in the midst of restructuring invest in their own future. In state-centered systems, the acquisition of new ideas and technologies is integrated into the state system of research, development and technology transfer. State-centered systems can (in theory) optimize the entire nation’s policies so as to pursue a long-term innovation strategy. In countries where the base of research and technology is low, the government may focus its strategy on acquiring new ideas and technologies from firms overseas. The government can also support large domestic R&D laboratories independent of the electricity industry as well, although those laboratories may reflect broader social missions, such as employment, and perform poorly in creating new useful technologies without the profit incentive available for selecting superior innovations. The transition to market-centered systems poses great problems for this mode of innovation. In the advanced industrialized countries the evidence suggests that the turmoil of a shift to markets creates uncertainty about the future and induces firms to focus on near-term objectives. As a result, firms and governments alike reduce sharply their investment in alternative technologies. Disintegration of utilities leaves no single entity responsible for the entire system, allowing markets to efficiently work off the surplus in the power system yet ignore the future potentials. Analysts expect to observe similar tensions in these developing countries as market-oriented reforms focus firms on narrower niches, the short term, and easily realized profits. They also expect that state-centered strategies for technology transfer will become less effective as the state relaxes its grip on the power sector and a diversity of firms pursues varied strategies.

Edited and adapted from a paper by Thomas C. Heller and David G. Victor

 (… to be continued)





BP keen on 40 pc stake in ONGC blocks

December 27, 2005. British Petroleum has evinced keen interest in acquiring a 40 per cent stake in ONGC’s deep water oil and gas blocks in Bay of Bengal as well as the western coast near Bombay High. BP has shown interest to take stake in Krishna Godavari, Mahanadi, Bengal, Andaman and Kutch basins. ONGC is handling production in more than 50 deep water blocks in the country, which are mostly in KG, Mahanadi and Bengal basins. In the last four years, ONGC has made 10 significant offshore hydrocarbon discoveries also. Under the New Exploration Licensing Policy ONGC has secured 60 oil blocks, including deep water, off shore and on shore.

ONGC had kick started deep water exploration in Kutch in 2003-04 and over invested Rs 1500 crore ($332 mn) in this region. But the result was not positive as 12 wells became dry. Accordingly ONGC has stalled the exploration in Kutch. Now, ONGC is looking to restart the exploration with the assistance of BP. For deep water oil and gas exploration ONGC is looking for more technical assistance and expertise. BP has proven skill in deep water exploration and production, so the tie-up will benefit both the oil majors. BP, the world’s second largest oil firm by market value, has a reputation for focussing on big impact exploration. BP is controlling some of the assets in and around the international maritime borders near Pakistan. Therefore the oil major can use its technical and geological knowledge base for the exploration in Kutch. BP was earlier in dilagoue with Reliance Industries and ONGC for taking up interests in exploration blocks.

GAIL, Coal India in pact for gasification projects

December 21, 2005. With soaring demand for clean fuels and a tight supply situation, GAIL (India) Ltd has entered into an agreement with Coal India Ltd for its pursuits in the surface coal gasification (SCG) projects. This will help in taking further steps in the area of SCG and harnessing gas from the vast coal reserves in the country on a commercial scale. GAIL is not only actively pursuing SCG opportunities but looking at the two other important routes - coal bed methane (CBM) and underground coal/lignite gasification (UCG). Although other domestic companies are pursuing CBM technology, GAIL is actively pursuing the SCG route for application of this technology for producing synthetic gas. Recently, ONGC has entered into an MoU with CIL for active association in UCG.

For the SCG project, GAIL has identified Talcher in Orissa and Durgapur in West Bengal as suitable locations, based on a feasibility study. The project will involve an estimated investment of $400 mn (Rs 18.07 bn) for generating more than 6 million cubic metres of synthetic gas daily to feed an 858,000-tonnes-per-annum ammonia plant. The company is also planning to set up a `Centre for Clean Coal Gas Technologies' for harnessing gas from coal through the three important routes - CBM, SCG, and UCG. The centre will take up collaborative research and development activities as well as aid commercialisation of technological developments in the three areas. For the purpose, GAIL plans to involve Dr Michael Green, founder of the UCG Partnership in the UK, and other international experts. The Centre will help in unlocking billions of cubic metres of gas from 247 billion tonnes of coal/lignite reserves in the country.

Crude oil production dips 11 pc in Nov

December 22, 2005. Crude oil production during November 2005 stood at 2.56 mt, 11.1 per cent short of the targeted 2.88 mt during November. Total crude oil production during the first eight months this fiscal at 21.395 mt also fell short of the target of 22.744 mt. The shortfall was largely due to loss of production from Bombay High North wells of ONGC and Oil India's Ltd Dikom-15 well in Assam. Natural gas production during November stood at 2671 million cubic meters compared to the target of 2590 MCM. During April-November 2005, natural gas production stood at 21,345 MCM as against the target of 20,645 MCM planned for the month.

ONGC shortlists 15 pilot CBM projects

December 23, 2005. ONGC has identified 15 pilot underground coal gassification (UCG) and surface coal gassification (SCG) projects across the country. These projects are spread from Andaman and Nicobar Islands on the eastern coast to the Gulf of Kutch on the west. Commercial production of coal bed methane (CBM) is expected by the end of the next financial year. India has an estimated 20,000 sq kms of CBM deposits, with recoverable reserves of 800 billion cubic metres with gas production potential of 105 million cubic metres per day. At present, the company is working on 15 coal gassification projects across the country in partnership with various companies. In most of these projects, the equity is held by ONGC. ONGC has tied up with Coal India Limited (CIL) for CBM blocks in the eastern parts of the country and with Gujarat State Petroleum Corporation (GSPC) and Gujarat Mineral Development Corporation for CBM blocks in the western region. Similarly, the company has an agreement with Neyveli Lignite Corporation (NLC) and Singareni Collieries Company Limited (SCCL) for CBM blocks in the southern part of the country.

Schlumberger values Bengal CBM block at Rs 4.43 bn

December 23, 2005. The global energy consultancy giant Schlumberger has valued the coal bed methane block of Great Eastern Energy Corporation at Rs 20,000 crore ($4.43 bn). The French oil field information services company's report on Ranigaunj CBM block estimated a recoverable reserve of 817 billion cubic feet (bcf) over a period of around 20 years. Ideally the recoverable reserve is around 60 per cent of the total gas in place. But sometimes the recoverable reserve could go up to even 70 per cent. The projection of Schlumberger is based upon the calculation that there would be 300 wells in the Ranigaunj CBM block held by the GEEC. The company has 210 square kilometre block in Ranigaunj. It has already completed drilling in 3 wells and would take up drilling in another 20 wells soon. The company is planning to invest Rs 575 crore ($127 mn) over a period of three years for drilling 100 wells. It would start the conversion of CBM to CNG in a pilot basis from February 2006. It had tied up with Kolkata based Calcutta Compression and Liquification Company Ltd for conversion of CBM in to CNG.

GAIL eyes $500 mn E&P company

December 24, 2005. GAIL India is scouting to acquire a mid-sized oil exploration and production (E&P) company worth $500 mn (Rs 22.57 bn), and is in talks with three companies for the purpose. The acquisition is aimed at gaining expertise in areas like reservoir engineering and geophysics, an area where GAIL lacks expertise. GAIL executives are in discussions with companies based in Oman, Malaysia, Australia, Qatar and Abu Dhabi. However, nothing has been finalised yet. GAIL has participation interest in 12 exploration blocks, but is yet to begin work. The company has planned to use its cash surplus to fund the acquisition. The company is bidding for oil and gas blocks in Australia, which will be decided in January. 

L&T eyes deep water projects

December 22, 2005. L&T is gearing up to explore deep water engineering and construction opportunities in Kakinada and Krishna-Godavari basin. The company plans to start physical investment for these projects within the next two years. L&T has recently bagged a Rs 1,300 crore ($288 mn) contract from ONGC for the execution of a BCP-B2 booster compressor platform in the Bassein gas field, 80 km north-west of Mumbai. The company’s foray into deep water projects would be on a standalone basis or through a consortium.

OVL to pre-qualify in Angola bid

December 22, 2005. ONGC Videsh Limited is the only Indian company to pre-qualify as a potential operator, amongst other international oil majors like BP, Chevron, Lundin Petroleum, ENI, Repsol and Statoil, to participate in Angola's current offshore licensing round. Other oil companies like Oil India, IOC and Hindustan petroleum are also keen to participate and may join hands with one of the other global oil firms that have qualified. More than 50 companies have pre-qualified for the license-round bidding. This includes 29 companies as potential operators and 22 as non-operators. These companies will be invited to bid for blocks including 1, 5 and 6, which are located in shallow water on the shelf of the lower Congo and Kwanza basins; blocks 15, 17 and 18 (excluding development areas) in deep water of the lower Congo basin, and block 26, a deep water block in the Benguela sub-basin. All pre-qualified companies have now been invited to submit firm proposals for the concession blocks.

ONGC-CNPC JV acquires Syrian field

December 20, 2005. ONGC and China National Petroleum Corporation have entered into an MoU to form a 50:50 JV Himalaya Energy Syria Limited to be incorporated in Syria for exploration and production activity and for acquisitions there. The JV has already acquired the entire 18.5 per cent stake owned by Petro-Canada in a discovered field in Syria for $750 mn (Rs 33.86 bn). This is the first time an Indian and Chinese company have jointly acquired an oil asset overseas. ONGC and CNPC have a similar MoU for Sudan called the Nile Ganga BV. The two companies are looking at other countries also. Earlier, ONGC and CNPC were working on a joint bid for Petro-Canada’s 38 per cent stake in Syria’s largest oil producer Al Furat Production Company, operated and majority-owned by Royal Dutch Shell. Petroleum minister Mani Shankar Aiyar has been urging Indian and Chinese state-owned oil firms to collaborate so that acquisition cost of global oil assets does not climb artificially. The coming together of India and China in the race for acquiring overseas energy assets is expected to put a check on the spiraling prices of global oil properties. In their bid for oil security, heated contests between Indian and Chinese oil firms have raised the stakes, and prices, of global oil assets. Both have also been partly blamed for the record high in global oil prices this year.

RIL finds oil in KG basin

December 20, 2005. Reliance Industries Ltd had struck oil reserves in Krishna Godavri basin in the Bay of Bengal. The discovery has been made in a block close to Reliance’s gas rich D6 Block in the KG basin. Directorate General of Hydrocarbon (DGH) said that an assessment of commerciality of the discovery can only be made once the find was tested. Reliance struck oil in its Dhirubhai-24 well and oil and gas in Dhirubhai-25 well in block KG-osn-2001/2.


IOC eyes opportunities in Africa

December 26, 2005. IOC is considering participating in a few opportunities in refining and downstream activities, including retailing and equity oil stake, in African nations. The Centre has recently allowed OIL and IOC to acquire exploration and production assets overseas enabling them to get `fast-track' approval from the empowered committee for all future proposals. IOC is also gearing up to place the final bid for Canadian oil major Niko Resource's Indian assets in early January. Company was not looking at participation in the refining sector in Africa on a stand-alone basis as was offered by Nigeria. IOC had previously expressed an interest in setting up a greenfield grassroots refinery in the oil rich Edo state of Nigeria in exchange for equity oil stake on a nomination basis. Though both the countries entered into an MoU in September 2004, Nigeria was yet to offer the equity oil stake to the company.

IOC to sell branded fuel abroad

December 27, 2005. After the success of branded fuels in the domestic market, IOC plans to introduce them through its outfits in Mauritius and Sri Lanka. IOC sells premium petrol under the brand name XtraPremium and diesel as XtraMile. IOC is already marketing low-end petroleum products in Mauritius and Sri Lanka. The company claims that XtraPremium has proven that it can reduce chamber deposits in auto engines because of its octane content. Octane rating is determined by the compression ratio of the engines. Almost all Indian cars require 91 octane only, which is also the minimum octane level required under the BIS specification effective from April 1, 2005. Increase in octane beyond 91 does not contribute to any improvement in vehicle performance emissions, fuel economy, power etc. in India. A large number of cars in the US and European markets run on V6, V8 and V10 engines.

OMCs to meet Bihar's LPG demand: Aiyar

December 24, 2005. The Union Petroleum Minister, Mr Mani Shankar Aiyar, has asked the oil marketing companies to fully meet the genuine demand of LPG in the household sector in Bihar and stressed, if need be, the OMCs should increase supply of LPG to the State. He also requested Bihar to take stringent measures for checking diversion of LPG meant for domestic use to unauthorised and illegal use. The Petroleum Minister pointed out that such diversion is not only illegal but also dangerous as the unscrupulous elements also use these cylinders in taxies/cars and auto rickshaws, which pose a serious danger to the lives of vehicle occupants as also the persons outside.

IOC commissions new unit at Panipat Refinery

December 23, 2005. IOC has completed its Diesel Hydrotreatment Unit at its Panipat refinery in Haryana as part of the capacity expansion plan. The unit is part of the company's plan to double the capacity of the refinery to 12 million metric tonnes per annum from the existing 6 MMTPA. The DHDT is the second major unit under the refinery expansion project to go on stream after the commissioning of the Hydrogen Generation Unit in November. The new unit with a capacity of 3.5 MMTPA is the largest capacity DHDT unit in India licenced by AXENS, France. Larsen & Tubro constructed the unit on turnkey basis, with Engineers India Ltd as project consultants. This plant will enbale Panipat Refinery to maximise the production of diesel conforming to EURO-III norms. The Indian Oil board has already approved further expansion of the refinery to 15 MMTPA. To transform Panipat refinery into one of India's largest refinery-cum-petrochemicals complex, the company is implementing two petrochemical projects at a total investment of about 11,400 crore ($253 bn).

Total, IOC sign agreement for fuel quality improvement

December 22, 2005. French oil major Total and IOC have signed a fuel quality improvement pact whereby the former will cater to the IOC’s requirement of 1,000-tonne of friction-modified fire additives for 2005-06. Total had recently introduced the fuel system cleanliness and friction busters in around 15,000 outlets in Belgium, Netherlands, Germany, France and Spain. Friction busters reduce friction and act as detergents for the automobile fuel system, and are anti corrosion agents. They will be added to the branded petrol being sold by IOC under the brand name XtraPremium. As part of the venture, Total will use IOC’s research and development facility in India. IOC claims to have 37.6 per cent market share with Xtra Premium in the branded petrol segment. They will also collaborate on cost-effective sulphur reduction technologies for diesel and on the improvement in the Cetane diesel number. The other areas of collaboration will include improvement in MFA packages to reduce diesel engine auxiliary system energy loss, optimisation the marine engine fuel and development of cost-effective challenges for future emission standards.

Gujarat is nation`s petro hub: Modi

December 23, 2005. With the country's largest oil refining capacity, the state is all set to have over 60-70 per cent share in total crude refining capacity. Chief minister of the state, Narendra Modi said Gujarat is growing as hydrocarbon hub of the country. The state has IOC's largest refinery with 12.5 mt capacity in Baroda and 33 mt crude refinery of Reliance Industry located in Jamnagar as the largest grass route refinery of the world. With ongoing expansion projects of these two refineries and new capacities coming up in the state like Essar Refinery in Jamnagar with 10.5 mt capacity, the state would be having more than 85 mt of refining capacity within next three to four years time. Natural gas is another area where with nearly 20 trillion cubic feet gas discovery by GSPC in KG basin, Gujarat is all set to become natural gas supplier for the nation. The state is the only one in the country which has natural gas supply network of pipelines set up covering nearly entire state. The state government encouraged farming of Jatropha and jojoba as agro-procue which has not just fetched higher value to the farmers but also helped in producing environment friendly fuel. The state government has also floated a slogan promoting use of jatropha as fuel for automobile saying that "Jhadi ka tel" (oil produced in farms) will replace "Khadi ka tel" (crude oil from gulf).

RIL, Essar gain share in oil retail

December 20, 2005. RIL and Essar Oil are gaining market share in petroleum retailing market at the expense of oil public sector undertakings. RIL’s market share in the retail HSD market has grown from 1.1 per cent in October last year to 7.6 per cent in October 2005. Essar Oil’s share, however, has grown from 0.4 per cent to 0.7 per cent. In comparison, the market share of IOC (including IBP) has declined to 45.6 per cent this October, down from 49.1 per cent in October 2004. Similarly, HPCL and BPCL’s market share has been reduced to 21.6 per cent and 24.4 per cent from 22.5 per cent and 26.9 per cent in October 2004 respectively. RIL has over 900 retail outlets as of now and plans to touch 2,000 outlets by March 2006. Essar Oil has 514 operational petroleum outlets as of now and plans to add another 1,000 outlets by December 2006.

RIL and Essar Oil have gained market share in the MS (gasoline) retail market also in the last one year. RIL market share in the MS category has increased to 2.9 per cent as compared to 0.4 per cent in October 2004. Similarly, Essar Oil has increased its market share to 0.5 per cent from 0.2 per cent in October 2004. IOC and IBP’s combined market share has been reduced to 42.8 per cent as compared to 44 per cent in October 2004. HPCL and BPCL market share has been reduced to 24.5 per cent and 29.2 per cent respectively as compared to 24.9 per cent and 30.5 per cent in October 2004.

Transportation / Distribution / Trade

K`taka may soon have piped gas

December 27, 2005. GAIL (India) Limited and BPCL signed a MoU for the formation of separate joint venture companies for implementing the City Gas Projects in Kerala and Karnataka. The project is aimed at supplying piped natural gas (PNG) to domestic, commercial and industrial consumers and compressed natural gas (CNG) and auto LPG to automobiles. This is the first step towards implementing the City Gas Projects in Kerala and Karnataka. In view of the upcoming LNG terminal at Puthuvype, near Kochi, GAIL has drawn up plans for transporting R-LNG from the Kochi LNG terminal by laying a 900 km long Kochi-Kanjirakode-MangaloreoBangalore pipeline in Kerala and Karnataka at an investment of about Rs 2,000 crore ($442 mn). With the completion of the pipeline project, City Gas Projects shall be taken up in highly polluted and major cities on the route of the pipeline in Kerala and Karnataka. R-LNG shall also be supplied to NTPC, Kayamkulam through a 110 km sub-sea pipeline to be laid at an investment of Rs 450 crore ($99.56 mn). GAIL and BPCL have already formed two joint venture companies, Indraprastha Gas Limited (IGL) and Central U P Gas Limited (CUGL) for implementation of City Gas Projects in Delhi and Kanpur respectively. Apart from the above, another company between GAIL and BPCL is being formed for supplying natural gas in Pune.

ONGC board approves sale of crossholding in IOC & GAIL

December 27, 2005. The board of ONGC has approved offloading the equity investment of the company in IOC and GAIL (India) Limited, either fully or in tranches. The cabinet had already cleared the petroleum ministry’s proposal to allow oil PSUs to sell their cross-holdings. ONGC Videsh Limited is pursuing a host of big investment opportunities for which a huge outlay of funds would be required. Besides opportunities in the international markets, the company was also contemplating investment in various growth opportunities within India, including the enhanced oil recovery schemes. ONGC holds 9.11 per cent in IOC and 4.83 per cent in GAIL, which it purchased in 1999 for Rs 1,617 crore ($358 mn). At current market prices, the holding is worth Rs 6,774 crore ($1.5 bn). The combined market value of crossholdings of ONGC, IOC and GAIL in each other is Rs 27,581 crore ($6.1 bn). ONGC’s holding in IOC is valued at Rs 5,650 crore ($1.25 bn) and in GAIL at Rs 1,124 crore ($249 mn), at current prices.

Mitsui-SCI consortium bags Petronet LNG vessel deal

December 25, 2005. Petronet LNG Ltd has awarded the $700 mn (Rs 31.60 bn) time chartering contract for an LNG vessel to the Mitsui-led consortium of Shipping Corporation of India (SCI), NYK and SK Lines. This 25-year contract is for carrying 2.5 mtpa of LNG from RasGas of Qatar to PLL’s LNG re-gasification terminal at Dahej in Gujarat. Bids for the contract were opened and the Mitsui-led consortium emerged as the lowest bidder, outbidding the Exmar Marine led consortium of Varun Shipping and another consortium of Teekay Shipping and GE Shipping. The Mitsui OSK-SCI consortia will have to deploy one LNG vessel as part of the transportation contract. The LNG vessel can carry about 62,000 tonne of LNG and it takes around nine days for a return trip from Qatar to India. In a year, the LNG ship would make nearly 35 round trips. PLL has already chartered two LNG vessels for carrying 5 mtpa of LNG from Qatar to Dahej. The company has recently decided to expand the capacity of its Dahej LNG terminal to 10 mtpa and has tied up imports of another 2.5 mtpa LNG from RasGas, from the Q1 of 2009. It is for this 2.5 mtpa tranche of LNG that it has awarded the LNG contract to the Mitsui-SCI consortia.

Policy / Performance

Govt finds errors in oil and gas regulator Bill

Text Box: •	There is a mistake in clause 46 of chapter IX on offences and punishment 
•	Another mistake is that transportation rate is explained as being fixed by ‘an authorised entity’ in accordance with regulations 
•	The Bill in its final form also left some grey areas 

December 26, 2005. The government has come out with major errata in the Petroleum and Natural Gas Regulatory Board (PNGRB) Bill. Among the mistakes which the errata points out is one relating to punishment for unauthorised activities where the earlier version mentioned both “registration and authorisation”, though it now mentions only registration. Through the Bill, the government plans to change the norms for grant of marketing rights by substituting the present practice of authorisation with a mere registration. Companies which meet the criteria set by the government for entering the marketing business may need to only register themselves with the government. Similar registration procedure would also be put in place for establishment of regasification terminals for liquefied natural gas. The mistake is in clause 46 of chapter IX on offences and punishment. The Bill initially tabled stated: “If any person, being an entity, markets any notified petroleum, petroleum products or natural gas without a valid registration or authorisation as the case may be, such person shall be punishable with imprisonment which may extend to three years or with fine which may extend to Rs 25 crore ($5.54 mn) or both....” Another important mistake is in the first chapter relating to definitions where transportation rate is explained as being fixed by “an authorised entity” in accordance with regulations. The change says, “as may be fixed by regulations” in which case the regulations could be laid down by either the regulator or the government. The Bill in its final form also left some grey areas which are likely to be clarified on in the final rules to be issued once it has been granted presidential approval. Among that is the provision relating to restrictive trade practices and transport charges for which oil and natural gas companies will continue to be covered by the Monopolies and Restrictive Trade Practices Commission/Competition Commission of India. It is not clear whether in case of a dispute it will be the PNGRB or MRTPC/CCI which will have the final say.

Kyrgyz keen to develop oil ties with India

December 23, 2005. A high level government delegation from Kyrgyz republic would visit ministry of petroleum and natural gas, India to discuss opportunities of Indian oil companies in exploring the great oil reserve in the oil rich Kyrgyz republic. The republic has huge reserve of oil and gas and had already invited Indian investments in areas like mining, agro processing and power sector. According to the republic of Kyrgyz, there is a huge investment opportunity in generation of hydro electricity in the country and currently, it is exporting power to some central Asian countries.

Revenue losses of oil PSUs to double: Aiyar

December 22, 2005. According to Minister of Petroleum and Natural Gas, Mani Shankar Aiyar, revenue loss suffered by public sector oil retailing firms on sale of petrol, diesel, LPG and kerosene below their production cost will almost double to Rs 38,154 crore ($8.45 bn) this fiscal. The estimated under-recoveries (on sale of fuel) was Rs 9,274 crore ($2.05 bn) for 2003-04 and Rs 20,146 crore ($4.46 bn) for 2004-05, which is projected to rise to Rs 38,154 crore ($8.45 bn) during the current year. Public sector oil marketing companies– IOC, BPCL and HPCL– have modulated the price increase in petrol and diesel and maintained the prices of subsidised domestic LPG and PDS kerosene despite the steep rise in international prices. This has resulted in huge revenue loss on sale of all these products.

ONGC seeks rationalised subsidy sharing scheme

December 20, 2005. ONGC has indicated that the subsidy sharing mechanism would have a negative impact of around Rs 1,500 crore ($332 mn) in its topline in absolute terms and has told the ministry of petroleum and natural gas to rationalise the mechanism during the remaining part of the current fiscal. The total subsidy borne by ONGC following the ministry’s decision on subsidy sharing scheme for the first half of the current fiscal works out to Rs 5,706 crore ($1.26 bn). The impact of the ministry’s decision on subsidy sharing on ONGC works out to be around $16.72 per barrel. The above subsidy share of ONGC would be 88 per cent of the one- third of the total under-recoveries of oil marketing companies (OMC) on domestic LPG, public distribution scheme kerosene and autofuel.



Indraprastha power plant asked to check pollution

December 27, 2005. The ministry of forest and environment has asked the Delhi government to control the pollution, emanating out of the coal based Indraprastha power plant, or else face closure. The ministry has asked the government to bring down the release of suspended particulate matter (SPM) to 50mg/cubic metre, which is currently at 70mg/cubic metre. SPM is the ash content which is released in the atmosphere due to the burning of coal during power generation. SPM, if released in higher amounts than the permissible limits of 50mg/cubic metre, causes several physical ailments; the most common being acute lung congestion. If the Indraprastha power plant faces closure due to non-compliance with the norms, stipulated by the MoEF, it will rob the already power deprived capital of 300 MW. The Delhi government has appointed Bharat Heavy Electricals Limited (BHEL) to check the working of the power plant and arrest the ash content. Also, the government has written to the Coal India Limited (CIL) to supply coal containing less ash content. This will increase the calorific value of the coal and also reduce the SPM level. Moreover, the state government has also asked Mines and Minerals trading Corporation (MMTC) and State Trading Corporation (STC) for imported coal (with least amount of ash content).

NTPC plans stake in Muzaffarpur power unit

December 26, 2005. National Thermal Power Corporation (NTPC) has signed a memorandum of understanding (MoU) with the government of Bihar and Bihar State Electricity Board (BSEB) for taking over 2x110 MW Muzaffarpur thermal power plant. The power plant would be taken over by a joint venture company, which will be a subsidiary of NTPC. While NTPC will have 51 per cent stake in the JV company, BSEB will hold the remaining 49 per cent.

Dadri getting charged up for Delhi’s needs

December 22, 2005. BSES, the Delhi-based power distribution company of Reliance Energy will float a special purpose vehicle (SPV) for its Dadri gas power plant. Also, Reliance Energy has decided to ramp up the plant’s existing capacity from 3,740 MW to 5,500 MW. The scaling up of the plant will make it the world’s largest gas-based power plant at a single location. Moreover, it will help to meet the demands of approximately 170 million consumers in UP, besides offering succour to the power-strapped Capital.

REL is of the view that every year, Delhi’s power consumption is increasing by 4 per cent. It hopes to meet much of the increasing power demand through its Dadri plant. The plant will hopefully be set up by 2008. In 2007, the discoms will have to source their power requirement on their own, as Delhi Transco Ltd (DTL), which now sources power and distributes it to the discoms, will assume the status of a wheeling company.

RIL to invite bids for power plant

December 21, 2005. Reliance Energy Limited and its group company Maharashtra Energy Generation Ltd would invite bids lfor Phase-I of its proposed 4,000 MW power plant in Maharashtra. MEGL had signed an MoU with Maharashtra government in April 2005 to set up the combined cycle mega plant at Shahapur. The company will invite bids for 1,400 MW, which is the phase - I of the proposed 4,000 MW power plant. The final 4,000 MW capacity of the project would represent more than 25 per cent of the existing total installed capacity in the Maharashtra State.

Transmission / Distribution / Trade

CERC may fix trading margins at 6 paise

December 27, 2005. Power regulator CERC is likely to fix the trading margins at a higher 6 paise per unit of electricity instead of the earlier proposal of 2 paise per unit, following strong opposition from trading companies. The CERC's proposal in September this year to fix margins for reducing the cost of traded power was opposed by companies such as market leader PTC India Ltd, although deficient states such as Delhi, Haryana, Punjab, Maharashtra and Gujarat, who buy electricity through these traders, had welcomed the move. Though the commission has so far given trading licences to 17 companies, only five of them - PTC, NTPC Vidyut Vyapar Nigam, Tata Power Trading, Reliance Energy Trading and Adani Exports Ltd - are currently active. The average trading margins of four firms (excluding Reliance) during 2004-05 was 5 paise per unit. However, the average margins have shot up to 10 paise during the first half of this fiscal.

PowerGrid and REL in transmission JV

December 27, 2005. PowerGrid Corporation and Reliance Energy Ltd would form a joint venture for the development of a Rs 800 crore ($177 mn) transmission line between Koldam and Parbati. REL would hold 74 per cent equity, while the balance 26 per cent would be held by PowerGrid in the proposed JV which would have an equity base of Rs 240 crore ($53.10 mn). The project would be implemented on 70:30 debt equity ratio and would be completed in four years. The balance would be raised as debt from financial institutions. The JV would lay a 400 km transmission line between Koldam project (800 MW) developed by NTPC and Parbati (600 MW implemented by National Hydro-electric Power Corporation) in Himachal Pradesh. This is the second major collaboration of PowerGrid after it formed a joint venture with Tata Power Company (TPC) for the development of the 1,200 km Tala transmission line. PowerGrid Corporation has already received clearance from the cabinet committee on economic affairs.

3 states allow open access

December 23, 2005. Paving the way for an open access regime, electricity regulators of West Bengal, Rajasthan and Himachal Pradesh have approved 7 firms that will be allowed to select their electricity supplier.  The Rajasthan Electricity Board has granted permission to 3 companies including Aditya Cement (Chittorgarh), DCM Sriram and Hindustan Zinc. In West Bengal, Bhushan Ltd, Electrosteel Castings Ltd and Indal Ltd have been allowed open access in distribution while Himachal Pradesh Regulatory Commission has cleared Gujarat Ambuja. In addition, 17 states have issued final regulations on open access and 3 states have issued draft regulations to create enabling environment for open access regime. By issuing the regulations, the State Commissions have already enabled the consumers to exercise their choice to procure power from any source of their choice. States that have issued final regulations specifying the phases and conditions of introduction of open access in distribution include Andhra Pradesh, Chhattisgarh, Delhi, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttaranchal, Uttar Pradesh, West Bengal and Jammu and Kashmir. Assam Kerala and Tripura have issued draft regulations.

The forum of regulators had recently constituted a group to discuss issues relating to functioning of open access in distribution and harnessing of captive generation. The group recommended that in order to encourage captive generation to come to the grid, various charges levied on them should be rationalized. Harnessing surplus captive generation was important for open access consumers as the existing capacity is already tied-up under long-term power purchase agreement. Open Access in distribution has been allowed under the Electricity Act, 2003, which envisages that state commissions form regulations that facilitate introduction of open access for consumers having a usage of more than 1 MW by 2009.

Nerolac`s Kanpur plant saves on power

December 22, 2005. After a sustained effort over the past three years towards energy conservation, Goodlass Nerolac Paints Ltd (GNPL) has managed to save Rs 2.472 mn towards its power bill. The company reduced power consumption by 13 per cent at its Jainpur plant in Kanpur. This got it the National Energy Conservation Award 2005 recently. A special energy conservation team was set up under the company to identify the steps required for saving power. Recommendations were implemented within the time frame and the decided budget. In 2002-03, the company managed to save Rs 2.5 mn on power cost by spending Rs 0.6 mn only. It invested Rs 0.14 mn in 2003-04, and saved Rs 3.5 mn. In 2004-05, Rs 5.5 mn was saved against an investment of Rs 0.12 mn. The company focused on two major aspects— fuel and power conservation.  For fuel conservation, fuel magnetisers have been installed in thermic fluid heater, steam boiler and high speed diesel (HSD) fired chillers, which resulted in saving power to the tune of 3-4 per cent of the total fuel consumption amounting to Rs 0.76 mn. The manual air-fuel ratio modulator was replaced with an advanced automatic motorised modulator. This has ensured an optimum air-fuel ratio all the time, resulting in savings of Rs 0.2 mn. The company started using fuel additives in high speed diesel, which were not being used previously. It consulted companies like Thermax, Oilon, Castrol and Indian Oil before going for it. This has resulted in savings of 1 per cent of the total fuel consumption worth about Rs 0.54 mn.

Energy award for ITC paper units

December 21, 2005. The paperboards unit operated by ITC Ltd in Bhadrachalam, Andhra Pradesh, has won the first prize while its specialty paper unit at Tribeni in West Bengal has won the third prize at the National Energy Conservation awards presented by the Union ministry of power and bureau of energy efficiency. The awards were given away by the President of India, Dr APJ Abdul Kalam. The Bhadrachalam unit had bagged awards six times earlier as one of the most energy-efficient units in its category in the world with a consumption of 33.3 Giga Joules of energy per tonne of paperboard produced. The international benchmark for structurally similar mills was 32-41 Giga Joules of energy per tonne of paperboard produced.

Policy / Performance

MIDC plans power units in SEZ

December 27, 2005. The Maharashtra Industrial Development Corporation (MIDC) has thought up a novel concept for encouraging power generation in the state.  It plans to forward a proposal to the Union commerce ministry seeking permission for setting up power generation plants as special economic zone (SEZ) units. The SEZ units are planned for Chandrapur and Usar near Raigad. A consultancy firm, Fortress, is preparing the project report for the SEZs. The Chandrapur SEZ will have a coal-fired plant while the Usar SEZ will be a gas-fired plant. All plant equipment, raw materials and production will be exempt from customs, excise and other duties and hence the cost of production will be lower. The SEZ plants will be able to sell power to SEZs and export-oriented units. MIDC has only been the facilitator in identifying the vendor to supply power to MIDC areas at competitive rates. The MIDC has decided to give loans to the power distribution company for converting rural feeders into express feeders for industrial units and where the cost involved is less than Rs 500000. Earlier, the loans were given only to projects above Rs 500000.

Centre to boost pvt sector role in hydro power

December 25, 2005. In a bid to promote private sector participation in capacity addition through hydro power projects, the Centre has proposed a slew of financial incentives. To make the quick fund flow available to developers, financial institutions would like sale of power to be tied up with power purchase agreements (PPA), covering the full tenure of the loan so that it not only ensures full repayment of debt to lenders but also facilitate availability of cheaper power to consumers. FIs would now evaluate projects on the basis of tariffs of the project and ability of the developer to bring in the required equity and technical expertise for completing the project on time. The power ministry has issued new guidelines in this regard and sought suggestions from the concerned parties. This apart, the state-run Power Finance Corporation has developed special schemes for funding hydro projects with tenures of up to 25 years to address the issue of back ending of tariff.

A special requirement of hydel projects is the availability of long term funding at reasonable interest rates for back ending of tariffs so that the cost of power during the initial years is reasonable. FIs perceive a lower payment security risk if the first year tariff is reasonable and are reluctant to fund projects with high first year tariff even it is demonstrated that the tariff would be reasonable in the later years. In order to give further comfort to private developers, the ministry envisages involvement of PowerGrid Corporation, a central transmission utility, for evacuation of power from large projects involving inter state sale of power. India is endowed with a large economically exploitable hydro potential assessed at 84,000 mw at 60 per cent load factor equivalent to a probable installed capacity of 1,47,700 mw.

PM moots CMs’ panel for power reforms

December 24, 2005. Prime Minister Manmohan Singh proposed setting up an Empowered Committee of chief ministers to expedite power sector reforms. Expressing concern over the anticipated slippage on 12,000 MWs of new power generation capacity, the Prime Minister stressed upon improving distribution systems and cutting thefts and losses. He said, there should be competitive supply and better revenue collection mechanisms in the power sector.

Cabinet approval for new power tariff policy

December 24, 2005. The Cabinet Committee on Economic Affairs has approved the tariff policy on electricity, which will enable the state regulators to regulate power tariffs. The new tariff policy provides for setting up a contingency reserve fund to help distribution. It also aims to promote non-conventional energy sources and projects with lower greenhouse gas emissions. Besides, it will guide the direction of investments in the power sector. The policy will curtail surcharges on captive generators to make their power competitive to other producers. The price of power will be differentiated with variable costs with reasonable compensation provided for fixed costs.  The public sector undertakings (PSUs) will continue to charge regulator-approved tariffs that are cost-based. This is to ensure lower power purchase costs for the state distribution utilities. The policy allows consumers (1 mega watt and above) to select their suppliers. The Central Electricity Regulatory Commission (CERC) had recommended a power-trading margin of 2 paise per unit. The commission supports the regulation of power trading. But the power surplus states of Orissa and West Bengal are not in the favour of the new policy as the rates at which power trading will take place will now be capped.

Chip makers to get free power

December 23, 2005. The government is in the process of drafting a national semi-conductor policy as more and more proposals are pouring in for setting up semi-conductor facilities across India. The policy would be modelled on the framework in Taiwan and China. Adapting a policy akin to that of China and Taiwan means that infrastructure facilities, like power, water and land, required for setting up a project will be provided to the promoters free of cost. Taiwan has about 40 chip plants and China has 39 fabrication facilities. A “fab city” requires about 60 MW power and about 50 million gallons of water per day once it is fully operational.

A few companies including SemIndia are asking for such concessions. At present, there was hardly any policy guidelines to support projects like the fab city and with non-resident Indians like the consortiums promoting SemIndia and Indian Equipment Manufacturing Company wanting to set up fabrication projects, a policy framework was required.

PowerGrid optimistic on cross-border trading

December 23, 2005. Powergrid Corporation of India Ltd is finding renewed hope of cross-country power transmission in the proposed Indo-ASEAN free trade agreement (FTA). The corporation had previously mooted cross-country transmission network for power barter with Pakistan and Bangladesh in 1998. Both the proposals, however, were later dropped because of political opposition in some countries. India currently has a cross-country transmission network only with Bhutan and is also the largest investor in that country's power sector. The transmission network is used to import power from the Himalayan kingdom. PGCIL is of the view that power will soon be an internationally traded commodity in the sub-continent. The company had set a target of expanding the inter-regional grid capacity from the existing 9500 MW to 37,200 MW by the end of the 11th Plan in 2012. The project will require a total investment of Rs 71,000 crore ($15.74 bn), 20-25 per cent of which would be raised through private participation. The grid capacity will increase to 11,500 MW in this fiscal with the commissioning of Tala (Bhutan)-Delhi transmission network by the Tala Delhi Transmission Ltd (TDTL).

PowerGrid may enter generation through management contracts

December 21, 2005. Powergrid Corporation of India Ltd is considering an indirect entry into generation through management contracts. The business may be done through a special purpose vehicle. PGCIL, a declared Central transmission utility, is not allowed direct entry into generation. PGCIL is considering taking up renovation and modernisation and distribution and transmission system management for other companies on contract basis. PowerGrid had previously decided to participate in joint ventures with generation companies for taking up related transmission systems jobs. To this effect, the company has entered into joint ventures with five companies, including ONGC, Essar and the Jaiprakash group.

NTPC-CIL venture to get 7 coal blocks

December 21, 2005. NTPC’s joint venture with Coal India Ltd will be allocated 7 coal blocks. The government has in principle decided to allocate coal blocks of Kerandari and Chatti Bariatu in North Karanpura, Chattrasal in Singrauli, Dulanga in IB Valley, Talaipalli, Brahmini and Chichro Patsimal. The 7 coal blocks will have a combined capacity of 4,102 mt. The decision will ensure provision of regular supplies of coal to NTPC’s power units as it plans to expand electricity generation capacity.

No coal shortage for Power sector: CIL

December 21, 2005. Coal India Ltd lashed out at the thermal power sector for crying foul on coal shortage and said that it was time when the latter did some introspection to figure out the reasons ailing it. CIL said that with the bountiful monsoon leading to a higher yield in hydel power generation there has been perceptible slackening of demand for coal from the power sector resulting in the pithead stocks of CIL touching an unprecedented high of 17 mt this month, which is about 6 mt more compared to same period last year. It said the southern power plants like Tamil Nadu Electricity Board and APGENCO were not lifting coal as per the existing linkages.




Gazprom, Kyrgyzstan to set up joint venture

December 26, 2005. Kyrgyzstan and Russian energy giant Gazprom will set up a joint venture to develop new natural gas fields in the Central Asian republic. The new joint venture will focus on the geological survey, attracting investments in the republic's oil and natural gas sector and reconstructing the existing facilities. The development of new fields will boost natural gas production in Kyrgyzstan. Gazprom and Kyrgyzstan signed a 25-year agreement on cooperation in the gas sector in May 2003.  The confirmed natural gas reserves in Kyrgyzstan are valued at 6 bcm. The Central Asian republic produces about 30 mcm of natural gas annually, a figure expected to growth to 40 million cu m by 2010. Kyrgyzstan consumes 700 mcm per year, a demand currently satisfied by imports from Uzbekistan.

Gas production begins from Iran

December 24, 2005. The Islamic state’s first gas production begins from the North Sea as part of a joint venture with BP. The Rhum field is the UK’s largest undeveloped gas deposit. Production began with 130 mcf a day and is expected to rise to 300 mcf a day. The field was developed jointly by BP and a subsidiary of the state-run National Iranian Oil Company (NIOC), at a cost of £350m. Each company holds a 50pc stake. Based on today’s international gas market price, the gas deposit is worth around $4 billion. The two companies signed a Production Service Association (PSA) contract making them partners in production and revenue.

Hungary's oil company to join exploration in West Siberia

December 23, 2005. Hungary's oil and gas company MOL will join the Russian North-West Oil Group (SNZG) in the exploration of Surgutskiy-7 oil field in west Siberia. The Russian has endorsed the establishment of a joint venture by the two companies for the exploration activities. They had gained approval from the Russian authorities before launching practical cooperation next year.   The Surgutskiy-7 oil field is estimated to have some 6 million tons of oil reserves, and drillings of the first wells are scheduled for 2007. The negotiations were underway with the SZNG on the joint work next year and the company was also looking for other projects in the region. SZNG won the right for oil exploration and production last April, and has already started geological work at the site in the Khanty-Mansiyskiy autonomous region.

N. Hydro drops oilfield plan in Gulf of Mexico

December 23, 2005. Norwegian energy and metals group Norsk Hydro has dropped a plan to develop the Telemark deep-water oilfield in the Gulf of Mexico because of high costs of extracting marginal reserves. That factors including high costs of drilling in waters about 4,300 feet (1,311 metres) deep, a lack of drilling rigs and marginal oil reserves had led to the decision. Earlier, Oslo-based oil and gas weekly Upstream reported that Hydro's board had voted to give up the plans for the field, reckoning that oil reserves of 40-70 million barrels were too hard to develop even though oil prices are high. Hydro was still considering what to do but declined to speculate about whether the company might try to find a cheaper solution, or might sell its stake. Hydro acquired the operatorship of the field, previously known as Champlain, in January 2005. It has a 70 percent stake with the other 30 percent held by a unit of Cal Dive International.

Gazprom to build underground gas storage in China

December 22, 2005. Russian energy giant Gazprom has signed a contract for the construction of an underground natural gas storage facility in China. The design of the storage facility will be done by Gazprom's research center. Gazprom and state-owned China National Petroleum Corporation (CNPC), one of the world's largest companies in the sphere and which incorporates prospecting companies, producers, transporters, refineries and storage facilities, held meetings to look into the implementation of their strategic cooperation agreement signed in October 2004. CNPC supplies 79 per cent of China's oil demand, controls 95 per cent of the domestic natural gas market and 40 per cent of the oil products market. It is party to 27 projects being implemented abroad.

Gazprom develops oil & gas field in East Siberia

December 21, 2005. Russian energy giant Gazprom won a tender to geologically prospect and develop an oil and gas field in East Siberia. Gazprom purchased the field in the south of the Evenkia autonomous area in the Krasnoyarsk Territory for 568 million rubles (about $20 million). There were five bidders in the tender, including leading Russian oil company Surgutneftegaz. The tender's starting price was 80 million rubles (about $2.8 million). The oil and gas field could yield 86.1 million metric tons of oil and 129.2 billion cu m of gas.

Russia buys Sakhalin field from TNK-BP

December 21, 2005. Russia's No. 5 oil company Sibneft, which is owned by gas monopoly Gazprom has bought a firm with an oil licence on Russia's Sakhalin island from oil major TNK-BP. Sibneft had bought a 75 per cent stake in TNK-Sakhalin, which has the rights to explore the Lopukhov field with estimated reserves of around 100 million tonnes of oil equivalent (733 million barrels). Gazprom has been recently trying hard to get a foothold on Sakhalin after having missed out on all licensing opportunities in the last decade to rivals such as ExxonMobil.

The island is set to become Russia's key source of supplies for new markets in Asia and the United States as oil majors are developing two large oil projects on the island alongside the world's largest liquefied natural gas (LNG) plants.

Chevron finds oil in Gulf of Mexico

December 20, 2005.  Oil major Chevron Corp had discovered oil in the deepest well ever drilled in the U.S. Gulf of Mexico region, in Green Canyon block 512 about 170 miles southeast of New Orleans. The Knotty Head No. 1 well, which hit 600 feet of net pay oil sand, was drilled to a depth of just over 34,000 feet in about 3,500 feet of water. It would drill further to determine the full extent of the find. Chevron owns 25 per cent of the block, which is operated by Nexen Petroleum Offshore USA Inc.

Brunei’s oil discovery at Seria Field

December 20, 2005. Brunei Shell Petroleum Company Sdn Bhd (BSP) has another successive oil discovery at the Seria Shallow Marine North Flank. It was drilled in October 2005 into a new structure to the east of earlier discoveries in the area. The discoveries were made at the northern   flank of the Seria Structure in an area with water depth ranging from four to 10 meters. In total, more than 100 meters of net oil sands were found. The well will be completed in 2006, to provide early production from the Seria North Flank area. Evaluation work is under way to better determine the size of the discovery and production could possibly commence two to three years from now.


Egypt plans to build oil refinery

December 24, 2005. Egypt is to build oil refinery in conjunction with Arab investors. The refinery will have a capacity of 500,000 barrels per day.  High oil prices have recently highlighted the world's shortage of refining capacity for crude oil. With an output of 500,000 barrels per day, the new refinery would greatly increase Egypt's capacity for processing crude. The country''s largest refinery, el-Nasr at the Red Sea port of Suez, has a maximum capacity of 146,300 barrels per day.

Repsol bids for Royal Shell’s LPG business

December 23, 2005. Repsol YPF SA of Spain made a bid for Royal Dutch Shell Plc’s liquefied petroleum-gas unit, a plan that will create the world’s largest supplier of the heating and cooking fuel. The unit is estimated to be worth 2.5 billion euros ($3 billion). Taking over Shell’s operations would double the Spanish company’s LPG business, which now sells 3.4 million metric tons of the gas annually. 

PetroChina expands refinery for Russian crude

December 22, 2005. PetroChina is doubling the capacity of a refinery in northeast China geared to processing Russian crude, counting on new supply via a major pipeline project that is still far from certain. Liaoyang Petrochemical Corp, in the land-locked Liaoyang city, has started building a 100,000 bpd crude unit that would boost its capacity to 200,000 bpd when completed in late 2006. But the expanded plant may not run at full capacity if crude from China's neighbour to the north does not materialise. If the Russian oil comes later than expected, Liaoyang may have to mothball the old crude unit, which is aged anyway.

The upgrade, which also includes a 1.2 million tonne-per-year diesel hydrotreating facility, is the second refinery project the top Chinese oil and gas firm has launched to process Russian crude via a planned but controversial Siberian pipeline. As domestic crude reserves dwindle, energy-hungry China has set its eyes on resource-rich Russia and Kazakhstan for future oil supply. PetroChina has raised capacity at its refining hub Dalian, the largest port in the rustbelt northeast China, to 400,000 bpd to take Russian oil.

The Liaoyang plant runs Chinese crude from the nearby Liaohe Oilfield. If the Siberian crude falls short or behind schedule, the land-locked plant would have to pay a high price for imported seaborne crude. The new unit is being built to take advantage of a new 1.6 million bpd pipeline that state-owned Russian monopoly Transneft plans to build in two stages, with the first leg reaching near the Chinese border in 2008.

It is still unclear where the $11.5 billion line will terminate, with Japan pushing for an extension to the Pacific coast while China wants it to head south into the country's industrial north. Russia has indicated that both are possible. The massive ex-Siberian pipeline has already enraged environmental activists who object to the route around Lake Baikal that holds a fifth of the world's fresh water. Chinese oil firms plan to build or expand more than a dozen refineries by 2010, more than 2 million bpd capacity, or nearly a third of the country's current capacity, to fuel robust demand from the world's No. 2 energy consumer.

Transportation / Distribution / Trade

El Paso, BG Group, Shell in LNG deals

December 21, 2005. El Paso Corp. would spend $850 mn to expand the storage capacity of its Elba Island liquefied natural gas terminal and build a new gas pipeline in Georgia. The full Elba Island expansion will take the storage capacity of the facility to a total of 15.7 billion cubic feet. BG Group Plc and Royal Dutch Shell have committed to long-term deals for the extra storage from the expansion. El Paso would submit applications to the Federal Energy Regulatory Commission for the two projects in the third quarter of 2006.

Chiyoda, Technip win $4 bn Qatar LNG deal

December 21, 2005. A joint venture of French firm Technip and Japan's Chiyoda won a $4 billion contract to build two LNG trains in Qatar. The trains would each have a production capacity of 7.8 million tonnes a year and their output will be primarily sold in U.S. markets. Under this contract, the Technip-Chiyoda joint venture will carry out the engineering, procurement and construction of Trains 6 and 7 at the Qatargas plant in Ras Laffan. Qatargas 3, a joint venture between QP, ConcoPhillips and Mitsui, owns train 6 which will start production in 2009.  Qatargas 4, a joint venture between QP and Royal Dutch Shell will own train 7 and commence at the end of 2010. OPEC producer Qatar, with the world's third-biggest natural gas reserves, is expected to supply an annual 77 million tonnes of liquefied natural gas per year by 2012.

Venezuela exports 5.5-mn barrels oil to Singapore, China

December 25, 2005. Venezuela sent more than 5.35 million barrels of oil to Singapore and China in December in an effort to expand further into Asian markets. It shipped 3.45 million barrels of fuel oil to Singapore and 1.9 million barrels of crude to China in three supertankers on Dec. 12 and 13. The shipments were "part of a commercial policy of market diversification.

Venezuela, the world's fifth-largest oil exporter, has sought to reduce its dependency on the United States as the leading buyer of its oil and expand into new markets, particularly in Asia. Venezuela hopes to more than double that to 300,000 barrels a day. Venezuela also plans to expand its fleet of oil tankers wants to build pipelines with access to the Pacific Ocean so that it can ship more oil and gas to Asian countries.

China to build 2nd west-east gas pipeline

December 23, 2005. The country is planning to build a second natural gas pipeline from its western regions to the southern province of Guangdong in a bid to reduce its reliance on coal and oil. The pipeline, which is expected to connect the gas-rich Xinjiang region to energy-guzzling Guangzhou, capital of prosperous Guangdong Province, is expected to carry over twice the amount of gas compared with existing west-to-east pipeline. The government and companies were in the preliminary stages of studying the pipeline project. Construction will start in 2020.

The new pipeline will have capacity of 26 billion cubic meters (bcm) a year, more than double that of the current line that connects Xinjiang with the eastern coastal metropolis Shanghai. Costs for the new project are expected to surpass the US$5.2 billion spent on the existing pipeline. The first line, the West-East Gas Pipeline, has a designed annual capacity to pump 12 bcm of natural gas from the Tarim Basin of Xinjiang to Shanghai. It began operating last year. PetroChina, builder of the first pipeline, is also considering constructing the new line. Together with the existing pipeline, the new project underlines China's long-term strategy to replace the polluting energy sources of coal and oil with cleaner natural gas.

The government aims to increase gas use to 10 percent of total energy use by 2010, up from the current 3 percent. The gas for the new pipeline as well as the existing pipeline could also come from Russia or Kazakhstan, as the reserves in Xinjiang may prove insufficient to meet soaring demand. China's booming economy has created a sharp rise in demand for energy. Its annual consumption of gas is estimated to reach 100 to 125 bcm by 2010.

Russia to supply gas to Azerbaijan at $110 in ‘06

December 22, 2005. Russian energy giant Gazprom will supply up to 4.5 bcm of natural gas to Azerbaijan in 2006 at $110 per 1,000 cu m. A contract for 2006 natural gas supplies was signed between Gazprom and the State Oil Corporation of Azerbaijan.  Azerbaijan's annual demand for gas is 9.5-10 bcm. Gas accounts for about 45 per cent of the country's fuel consumption.

Azerbaijan has been producing about 5.5 bcm of gas annually in recent years. The country intends to increase gas production in 2006 following the launch of its Shakh-Deniz gas deposit. Gazprom began supplying natural gas to Azerbaijan on January 1 2004 under a five-year contract signed in December 2003. The contract stipulates the supply of up to 4.5 bcm of gas annually.

Policy / Performance

Ukraine rejects Gazprom offer natural gas for pipelines

December 27, 2005. Ukraine rejected Russian state natural-gas exporter OAO Gazprom’s offer to guarantee supplies of the fuel in exchange for a stake in the country’s pipeline network. Ukraine will not sell its gas pipeline system. Ukraine, which gets about of a quarter of its gas from Gazprom, has been resisting demands to pay $230 per 1,000 cubic meters of natural gas, more than quadruple the $50 the country pays now. Gazprom, which supplies about a quarter of western Europe’s, mainly via Ukraine, plans to cut deliveries to the country on Jan. 1 if no agreement is reached. Gazprom will continue to negotiate with Ukraine until then.

Ukraine imports about 80 per cent of its oil gas, mostly from Russia and Central Asia. The former Soviet state receives gas from Russia as payment for shipping supplies to Europe. Gazprom is also demanding that Ukraine return 1.63 billion cubic meters of gas.

China to increase natural gas prices

December 27, 2005. The government has decided to phase out its current practice of pricing natural gas, with an aim to form a market-oriented price mechanism in the sector. Pressured by top oil and gas producers PetroChina and Sinopec, the National Development and Reform Commission also decided to increase natural gas prices by an average of 5-15 per cent - the biggest price adjustment since 1997 to make up for their production costs.  The commission said that prices of gas used for industrial or urban utility would rise by 0.05 to 0.15 yuan (0.6-1.8 US cents) per cubic metre, while the price of gas used for fertilizer production would rise 0.05 to 0.10 yuan (0.6-1.2 US cents).

Sub-committee for gas exploration to be formed – B’desh

December 27, 2005. The B’desh Cabinet meeting decided to form a cabinet sub-committee for further scrutiny of the draft policy on the third round bidding for gas exploration in the country’s offshore. Once the policy is endorsed by the Cabinet, is expected to first go for conducting a survey in the offshore to determine the hydrocarbon potentials by appointing an international expert firm. Earlier, the ministry planned to seek expression of interests (EOIs) from international firms to conduct seismic survey in the 106,500-square kilometre area in the Bay of Bengal. But now it has become uncertain since the policy was not approved by the Cabinet.

The main objective of the planned survey was to have a concrete picture of the hydrocarbon potentials in the country’s deep sea up to 200 nautical miles into the Bay of Bengal. On completion of the seismic survey, the Energy Ministry will invite international oil companies (IOCs) to participate in the bidding. Meanwhile, the Cabinet ratified the modalities for SAFTA to facilitate free trade in the SAARC region from January 1. The modalities have been finalised at the 12th meeting of the Committee of Experts (COE) on South Asian Free Trade Agreement (SAFTA) in Kathmandu during November 29 to December 1.

To kick off the free trade in the region, other member states will have to do the same and notify their respective governments’ approval to the modalities agreed by the negotiators in the meeting. The Kathmandu meeting negotiated the unresolved issues of SAFTA negotiations in a major breakthrough to facilitate free trade in the SAARC region from next month.

OPEC to decide output cut in Jan

December 26, 2005. Oil cartel OPEC is likely to decide in January to cut production from the second quarter of 2006 as it expects the call on its crude to decline by 2 million barrels per day.  OPEC president expect the call on OPEC crude to decline in the second quarter to 27.8 million bpd from almost 29.8 million bpd now.

Russia will become global energy leader: Putin

December 23, 2005. Russia must become a global energy leader to benefit the international community without compromising its national interests and diversify export of its energy resources. The country has natural and technological capabilities for taking more prominent positions on the energy market, including nuclear power and becoming a global energy leader.

Moscow was willing to open new gas and oil pipelines to reach the Asian markets to create new energy set-up in the world to avoid conflicts among future generations over energy resources. Russia values its reputation as a respectable, reliable, and responsible partner on the energy market. The country has emerged as the leading natural gas exporter and the second largest supplier of oil. Besides building oil pipelines for export of crude to the Asian-Pacific region Russia could also lay gas pipelines in the east to boost export of hydrocarbons to the energy-hungry part of the world.

Azerbaijan to cut production costs in ‘06

December 22, 2005. Foreign companies working in Azerbaijan plan to cut costs and increase hydrocarbon production at the same time. Earnings for Baku from the contracts will increase. AIOC costs to drop 0.3 per cent Azerbaijan International Operating Company (AIOC), operator of the Azeri-Chirag-Gunashli offshore project, is targeting costs to edge down 0.3 per cent to $2.896 bn in 2006. Capital costs will be $2.552 bn, and operating costs $344 mn in 2006, compared with a forecast $2.711 bn and $193 mn respectively in 2005.  The capital costs were $400 mn over budget and operating costs $40 mn over in 2005 due to an additional workload, faster schedule and growth in equipment and input costs.

Expenditure on the development of the Shah Deniz field in 2006 will amount to $865 mn, which is 33.4 per cent less than forecast expenditure in 2005. Oil production from the platform in western Azeri will begin in January. Work to install the platform at sea is nearly complete and startup work is 90 per cent  complete. The pace of work has enabled the company to significantly accelerate production of the first oil and the company expects to start production from the platform in January.

Five pre-drilled wells would be hooked into the platform first and average annual production from the platform in 2006 would be 75,000 barrels of oil a day. During maximum production from the 48-well platform, the company will produce 340,000 barrels a day. Production was initially set to begin in the second quarter of 2006.  AIOC plans to increase average daily oil production by 70 per cent in 2006 to 439,000 barrels.

Oil production from Chirag is forecast at 138,000 barrels a day in 2006, production from Central Azeri is planned at 226,000 barrels, up 80 per cent and production from Western Azeri will be 75,000 barrels (none in 2005).  Production of condensate at Shah Deniz would reach 19,000 barrels a day. Oil and condensate production under the Azeri-Chirag-Gunashli and Shah Deniz projects in 2006 will total 458,000 barrels a day.

Nexus singed gas contract with Santosh

December 22, 2005. Nexus Energy Ltd. signed a conditional contract with Santos Ltd. for gas from Nexus' Longtom field in Bass Strait to be processed through Santos's Patricia-Baleen plant near Orbost in East Gippsland, Victoria. Santos will purchase the processed sales gas for injection into the main Longford-to-Sydney East Gippsland pipeline.

The agreement, which provides for processing of up to 350 petajoules of gas over 10 years, is conditional on sufficient reserves being proved at Longtom with appraisal drilling in mid-2006. Longtom was originally found by Esso and BHP in 1995 but was relinquished because the Bass Strait partnership had abundant gas reserves in other fields.

A Longtom-3 appraisal well is now earmarked for mid-2006. If the new well confirms the potential, first gas could be brought on stream via the Patricia-Baleen system in 2008. The dry gas would suit the configuration as Patricia-Baleen field gas located some 20 km northeast of Longtom is also dry. Longtom gas would be sent via a 14 km undersea pipeline to intersect the Patricia-Baleen to shore trunkline.

Husky to spend $2.85 bn in energy

December 22, 2005. Husky Energy Inc. has allocated $2.85 billion (Can.) for capital expenditures in 2006. Of $2.2 billion for upstream projects, $1.5 billion is for work in Western Canada other than oil sands operations, for which the budget is $230 million. The Western Canada work includes gas exploration in Alberta and British Columbia, further heavy oil development in Alberta and Saskatchewan, and the drilling of two wells to appraise the Summit Creek B-44 oil discovery and to test a prospect in the Northwest Territories.

Oil sands spending will include $145 million to complete construction of the 30,000 b/d Tucker Oil Sands Project, which will begin production by yearend 2006. The company has allocated $60 million for initial development at the 200,000 b/d Sunrise Oil Sands Project near Fort McMurray, which received regulatory approval earlier this month.

Husky earmarked $350 million to drill and complete a fourth production well in White Rose oil field off eastern Canada, which could boost production to an estimated peak of 100,000 b/d by mid-2006. And it plans a delineation well of the nearby North Avalon pool. As part of an international budget of $140 million, Husky plans to spend $75 million on engineering and development plans for Madura BD gas field off Indonesia.

Midstream and refined product activities, budgeted for a combined $600 million, will include completion of debottlenecking work at the Lloydminster upgrader, which will increase throughput to 82,000 b/d from 77,000 b/d. And $90 million will be used to expand the related heavy oil pipeline system in a project that includes construction of a connection to the Tucker project near Cold Lake, Alta.

Husky also will upgrade the 10,000 b/d Prince George refinery to enable it to produce ultra low-sulfur diesel and to raise capacity to 12,000 b/d by mid-2006. Husky will spend $120 million to build a 130-million l./year ethanol facility at Minnedosa, Manitoba.

Next year, Husky expects to produce 360,000-390,000 boe/d of oil and gas, including 103,000-116,000 b/d of light oil and NGL, 29,000-32,000 b/d of medium oil, 115,000-120,000 b/d of heavy oil, and 680-730 mmcfd of natural gas.

New Zealand Govt signs deal to secure gas supplies

December 22, 2005. The Northern Territory Government has signed a deal which could secure gas supplies for at least the next two decades. Under the preliminary agreement with oil company ENI, Power and Water will buy gas from the Blacktip field in the Bonaparte Gulf for up to 25 years. The Government has been under pressure to find new supplies of gas for the Territory, with current supplies from the Amadeus Basin in Central Australia due to run out by 2009.

OPEC seeks to boost China fuel market share

December 22, 2005. OPEC countries, which produce 40 per cent of the world's oil, are stepping up efforts to secure their market share in China, as the group competes with Russia to supply the world's fastest-growing energy market. OPEC, including Saudi Arabia and Kuwait plan investments in Chinese refinery projects worth more than US$8 billion to increase their share of China's fuel market. Oil prices have tripled since 2001 as the Chinese economy expanded at more than 9 per cent a year, straining global supply. Russia, China's largest non-OPEC supplier, may build a pipeline to feed Siberian oil to China and will raise rail shipments 50 per cent next year. Saudi Arabia has used oil refinery investments to ensure sales in Japan and South Korea.

China, the world's second-largest energy market, imported about 800,000 barrels a day from Saudi Arabia, Iran and Indonesia, its largest OPEC suppliers. Russia, Angola, Oman and Sudan are the biggest non-OPEC exporters to the country. China will need to import more than 3 million barrels a day next year.

Saudi Aramco, the world's largest oil company by production, agreed in 2001 to expand a refinery in Fujian Province jointly owned with China Petroleum & Chemical Corp, or Sinopec, and Exxon Mobil Corp at a cost of US$3.5 billion. Aramco may also build a second joint venture plant with Sinopec in the northern city of Qingdao. The company also plans refinery investments in Saudi Arabia, the US and South Korea.

Kuwait and China have agreed to develop a refinery complex near Guangzhou in the south of the country with the capacity to produce between 200,000 and 400,000 barrels a day of gasoline and other fuels. That project, which would use Kuwait oil supplies, may cost as much as US$5 billion.

Russia to cut oil loadings from Butinge in Jan

December 21, 2005. Russia plans to cut January oil loadings via the Baltic Sea port of Butinge by more than 30 per cent versus December in another sign of pressure on Lithuania ahead of a key refinery sale. Pipeline monopoly Transneft has allocated a preliminary 468,000 tonnes (111,000 barrels per day) for exports via the outlet, down from 682,000 tonnes in December. Final schedules are due to be signed later this or early next week. Transneft's shipping schedule for the first quarter of 2006 showed that Butinge will receive only 1.36 million tonnes or 110,000 bpd compared with 2.0 million tonnes in the fourth quarter of this year, a 30 percent cut. And other supplies to Lithuania, which mainly go to the Mazeikiu refinery, will fall by 42 percent to 960,000 tonnes in the first quarter or 78,000 bpd from 1.7 million tonnes in the fourth quarter.



China to build two new nuclear plants

December 27, 2005. China next year will begin building two nuclear plants which contain two reactors each, in Northeast China's Liaoning Province and East China's Shandong Province. The Liaoning plant, consisting of two 1,080-MW reactors, will cost US$2.8 billion. It will be the first nuclear base in Northeast China, located at Hongyanhe, the coastal city of Dalian. CGNPG plans to begin infrastructure construction and design at the Dalian plant within this month and the plant is scheduled to generate electricity in 2011.

For the new project in Dalian, CGNPG and China Power Investment Corp (CPI) will each control a 45 per cent stake. The remaining 10 per cent will be equally divided between local companies Liaoning Energy Investment Group and Dalian Construction Investment Co. For the plant in Shandong Province, CPI has reached an initial agreement with the country's biggest nuclear plant constructor, China National Nuclear Corp (CNNC), to jointly build a nuclear plant at Haiyang.  The Haiyang plant, which contains two 1,000-MW reactors, will process at the same pace as the Dalian plant.

The Chinese Government has included both projects at Dalian and Haiyang in the country's 11th Five-Year Plan (2006-2011). The new reactors at the Dalian plant are expected to cost US$1,300 per kilowatt, compared with the US$1,500 per kilowatt for the Ling'ao phase II, which launched construction earlier this month and contains two 1,000-MW reactors. Coal-fired plants, which installed desulphurization facilities, sell their electricity to grid companies at 0.347 yuan (4.28 US cents) per kilowatt-hour in Dalian.

In order to cut pollution caused by the burning of coal, which fuels more than 70 per cent of the country's electricity generators, the government ordered all the installation of desulphurization equipment in China's coal-fired plants to eliminate sulphur pollutants. Currently, only CNNC and CGNPG are authorized to build nuclear plants in China. Other power companies, including CPI, will only be allowed a stake in the nuclear plant if they intend to participate in the nuclear sector.

Iran to be built power plant in Chabahar

December 22, 2005. A gas fueled power station with the capacity of 315 MW will be established by Iran’s Electricity Development Organization in Chabahar. Given the ever-increasing electricity demands in Sistan and Baluchestan region’s commercial and industrial units, construction of the 6,000-MW power station is mainly aimed at stabilizing the power voltage in this southern province. The report, the power station will be constructed in the east of Chabahar Township adjacent to the road to Iranshahr and the currently existing 230-KW electricity substation. The station will be comprised of two units, 157.5 MW each, capable of being extended to four units with combined cyclical conversion at 630 MW. The project costs have been estimated to be about 1,300 billion rials and the first unit of the plant would come on stream by March 2008.

Transmission / Distribution / Trade

SNGPL stops supply to 118 captive power units

December 22, 2005. The Pak Sui Northern Gas Pipelines Limited (SNGPL) stopped supply of gas to 111 captive power plants in the Lahore region (Sheikhupura and Bhai Phero) and seven in the Gujranwala region for an indefinite period, forcing closure of export-oriented industrial units, especially textile mills. It said the gas supply to the captive power units had been curtailed in accordance with the agreement signed by each unit. The textile manufacturers and exporters said that the SNGPL action to stop supply of gas to their units would severely hit the industry and exports.

Policy / Performance

China to boost investment in Pak power sector

December 27, 2005. China is likely to increase its investment in nuclear power, hydropower and renewable resources to meet the energy requirements   sector of Pakistan next year, as part of the ongoing efforts to develop a comprehensive mutually beneficial economic partnership. The Chinese side has already expressed its intention to provide financial and technical support for Pakistan to develop important projects like Chashma Power Plant, Neelum Jhelum Hydropower Project and Thar Coal.

There are other joint ventures like Jinnah Hydropower Project (96 MW), Golan Gol Hydropower Project (106 MW) and Muzaffargarh-Kati Grid and Transmission Line construction project. The two countries could also focus their attention on development of renewable energy resources in the coming years. Some Chinese companies had offered to provide technical assistance to Pakistan for developing cheap electricity through solar energy. A delegation of technical experts has already visited Pakistan for undertaking joint ventures to develop these tubes as well as other methods of producing thermal solar energy.

China is engaged in developing various new and renewable energy resources focusing on hydropower, solar, wind, geothermal and tidal sources, hoping to make up for the declining production of traditional energy sources.

China  to halt coal production from coal mines

December 20, 2005. China, the world’s largest coal producer, plans to halt production at 8,648 coal mines in 25 provinces by the end of this year, about 1,000 more than estimated in August, to boost competitiveness and safety. The government wants to reduce the number of small mines operating with outdated equipment and increase use of coal gas to cut the risk of accidents during mining, the National Development and Reform Commission.

The nation’s death toll from major coal mine accidents rose 71 per cent in the first 11 months of this year as production was stepped up to meet fuel demand. The number of miners killed in major accidents reached 1,544, up from 904 a year earlier.

Renewable Energy Trends


Bengal power units to use bio-diesel

December 27, 2005. The West Bengal government may use bio-diesel in a big way to fire the thermal power units of West Bengal State Electricity Board (WBSEB) using diesel or furnace oil. Several companies had expressed willingness to produce bio-diesel from jatropha plant in Bengal. WBSEB could buy a part of their production for running its diesel stations. West Bengal Renewable Energy Development Agency (Webreda) is likely to act as a facilitator for ensuring forward and backward linkages for the bio-diesel producers in the state. Two companies called Purulia Cement and Biodiesel have already approached the WBSEB for technical consultancy for bio-diesel projects. The Board want to develop technical expertise in the new field so that the state becomes a bio-diesel hub.

Webreda has estimated 1100 MW could be generated from non-conventional energy sources in the state. The maximum potential of around 450 MW is from wind energy, while the rest is mainly from mini hydel, biomass and solid waste. Webreda generated 47 MW from non-conventional sources in non-grid areas like Sunderbans, and parts of Darjeeling, West Midnapore and Bankura districts. The state has targeted 100 MW from non-conventional sources by 2010 in the state. Biomass would be the second biggest source of non-conventional energy in the state. Several corporate entities started biomass based power projects in the state with a combined capacity of 30 MW.

Nahar plans cogeneration power unit

December 26, 2005. Nahar Industrial Enterprises Ltd, the Ludhiana-based company, plans to put up 53 MWs co-generation power project costing Rs 800 crore ($177 mn). The board of directors of the company resolved to expand its spinning, weaving, fabric processing facilities and retail stores. To partly finance the proposed expansion plans, the company plans to raise up to $40 mn (Rs 1.8 bn) through issue of foreign currency convertible bonds/Global Depository Receipts. The implementation of these projects will be in phases and is expected to extend up to financial year 2007-08.

Reliance may set up bio-diesel plant in AP

December 22, 2005. The RIL is contemplating implementation of a bio-diesel production plan. In the first phase, it proposes to create 100,000 tonnes of bio-diesel production capacity at Kakinada by 2011, while establishing captive Jatropha plantations through contract farming across 100,000 hectares in the State. The state offered land for raising bio-diesel plantations and suggested the company to jointly take it up under the public-private partnership model through A.P. Forest Development Corporation.

Sugar mills start ethanol delivery

December 21, 2005. The programme to supply ethanol-doped petrol, gasohol, is finally picking up with sugar mills starting delivery to IOC. Of the three oil marketing companies, IOC alone has started purchasing ethanol. This is a major relief to the sugar mills — in Tamil Nadu five units are involved in the programme — with each of them having invested over Rs 5 crore ($1.11 mn) in ethanol production at their distilleries. Three oil companies — IOC, BPCL and HPCL — have contracted to buy about 18.5 million litres of ethanol per year from the sugar mills. But only IOC has started picking up ethanol and it has placed orders for about two months' requirement.

Birla to set up wind energy farm

December 21, 2005. S K Birla group is planning to enter into generation of power from wind energy in a big way. XPRO India Ltd (XIL) of the group would set up wind power project through a strategic tie up with a leading global player in the area of wind power. The company was eyeing 100 MW power generation in the first phase which even by conservative estimates would require an investment of over Rs 500 crore ($111 mn). The project could well be one of the biggest of its kind in the country. The S K Birla group currently holds 36 per cent in XPRO through investment outfits. The company might pick an international consultant for the wind power foray. Suzlon Energy and NEPC Micon were the national leaders in the field of wind energy. Suzlon was also one of the global leaders in this field. 


OG&E Energy to purchase Oklahoma wind farm

December 22, 2005. OG&E Energy plans to purchase a 120 MW wind farm to be constructed in northwestern Oklahoma. Invenergy Wind LLC would develop the wind farm to be owned and operated by OG&E Electric Services. The wind farm is expected to cost $180 million plus the cost of transmission connections.  The project, which needs various approvals, could be producing electricity by the end of 2006. OG&E has about 744,000 electricity customers in Oklahoma and western Arkansas. It also owns a natural gas pipeline business in Oklahoma.

Hydrogen station to be built in Shanghai

December 22, 2005. Shell Hydrogen BV and Shell (China) Ltd. signed an agreement with Tongji University in Shanghai to build Shanghai's first hydrogen filling station for fuel-cell vehicles. The station, expected to be completed by year-end 2006, is part of a Ministry of Science and Technology program to develop electric vehicles. The city of Shanghai expects 1,000 fuel-cell vehicles to be in operation by 2010, including buses sponsored through a United Nations development program. Tongji University will develop and operate the hydrogen station. Shell will contribute technical advice and funding.

Windmill power plant proposed in Pak

December 22, 2005. The Pak government plans to initiate the Rs 816 million project for laying transmission system to disperse electricity of 100 MW to be generated by wind mill power plant at Mirpur Sakro, Sindh. Under the proposed project, the electric power from the wind power plant will be transmitted to the National Grid System and will help meet future requirement of power. It will also cover power demand-supply gap in the Wapda system beyond the year 2007-08 to some extent, thus reducing the extent of load shedding in the country in future years.

The project is to be executed by the NTDC (National Electric Dispatch Company) in 18 months and will be operated and maintained by Hyderabad Electric Supply Company (HESCO). The project envisages construction of 132 KV double circuit transmission line (60 kilometre) from wind plant to existing Thatta grid station and other 132 kv line of 15 km single circuit transmission line from wind plant to existing Mirpur Sakro grid station with necessary protection equipment, line bays etc for dispersal of 100 MW of power to be generated by the wind mill power plant.

Carmanah to build Canada’s largest solar power system

December 21, 2005. Carmanah Technologies Corporation has received a letter of intent confirming a forth-coming contract in the amount of $1,000,196 from the City of Toronto for a 100 kW solar power system to be installed on the roof of the Horse Palace at Exhibition Place. Carmanah will install a state-of-the-art 100 kW solar power system on Exhibition Place that is tied to the conventional electricity grid. It is estimated this system will reduce the annual carbon dioxide emissions of this facility by approximately 94.7 tonnes per year.




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[1] Source: National Air Quality Status & Trends, CPCB Publication, 2004.

[2] Recommendation of the Indian Auto-Fuel Policy Report, 2003 (


[3] GGCSI - Global Change Strategies International Inc. - Critical Review on Biodiesel, 1998.

[4] Peterson-1986.

[5] NREL/TP-580-24772-Overview on Biodiesel & Petrodiesel.

[6] Source:


[7] EPA review on Biodiesel.

* Visiting Research Associate at RIS, New Delhi. Views are personal. Can be contacted at, [email protected].

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