MonitorsPublished on Jul 12, 2005
Energy News Monitor I Volume II, Issue 3
Oil Price: Where is it Heading?

he ‘Super-spikes’ scenario forecast by Goldman Sachs three months ago predicted that oil prices could go above $ 100 per barrel.  The report said that resilient demand in the United States and China, despite high prices, had forced the firm to revise its forecasts upward, predicting it could take several years of high prices to curb demand and rebuild spare capacity in the tight system. On the other hand, a new report from Morgan Stanley says that slackening global demand, growth of alternative energy sources and market corrections would drive the market towards a crash.  As evidence of weakening demand and ample supply accumulations market would panic and possibly collapse, the Morgan Stanley report predicts!  Which one is nearer reality, if there is one in the oil market?   

The Morgan Stanley report argues that increased efficiency & conservation measures and the viability of alternatives like oil sands and liquefied gas and coal were already undercutting demand for oil and would continue to do so.  It adds that deceleration in the world economy could gather pace in the fourth quarter, causing the oil bubble to burst.  The reports main argument is pinned on China.  In particular it argues that demand from China, which accounted for more than a third of the increase in global demand last year, may have been inflated by an overheating economy. China's total oil imports eased 1.2 percent in the first five months of 2005 and according to the Morgan Stanley report it could fall further next year as new power plants prevent the electricity outages that inflated demand for diesel and fuel oil in 2004. Another reason cited are the gains the US Dollar has made in the past eight months against the Euro.  Last year's fall in the U.S. dollar was shown as a factor behind higher oil prices, since it made fuel less expensive in non-dollar economies.  

While the arguments of Morgan Stanley sound more rational, what must be kept in mind is that both reports are from Investment Banks which may have an interest in talking prices up or down in view of their interest in speculative hedge funds.  Such funds have been increasingly active in commodity markets over the past two years and are often blamed by OPEC for high oil prices.  Another report from Cambridge Energy Research Associates, a consulting firm, appears to agree with the Morgan Stanley Report.  The forecast is based on its field by field assessment of investment already paid for and coming online which suggests that there may be a glut in the oil market.  The report says that by 2010, production capacity may rise to 16m barrels per day (b/d), from roughly 85 m b/d now which would evidently mean a fall in prices.  While such forecasts are for the future what must be explained right now is the two year oil price boom that has extended into the first half of 2005, gaining 28 percent since January to reach nearly $60 a barrel.  OPEC greed, bottlenecks in the refining system in developed countries, unexpected demand growth in China and India, may explain at least part of the increase in oil prices. OPEC spare capacity is also at an all time low with capacity left only with Saudi Arabia.  Without the assurance of spare capacity, even small threats to supply are causing oil traders to demand a risk premium. 

Some reports such as that from the Centre for Global Energy Studies have declared that OPEC has lost credibility as a guarantor of stable oil prices.  After the last OPEC meeting, Saudi Arabia, the cartel's largest producer said that OECD countries' stocks should be allowed to build up. Supply increased, inventories swelled, and prices dropped to $48 a barrel.  But now price of West Texas Intermediate (WTI), a benchmark crude, is close to $60 a barrel.  At the cartel's most recent meeting, in Vienna, the announcement was that output quotas would be raised by 500,000 b/d and a further, similar increase if prices remained above recent levels.  The market did not react to this announcement as it knew that such announcements only legitimize supply of OPEC members who are already producing above quota limits.  Some interpret OPEC's announcement of a second increase in quotas as a signal of an upward shift in the upper bound for the target price of its basket of OPEC crudes which, up to this point, was at about $ 28 per barrel.  OPEC is said to be testing market acceptance of an upper bound of about $ 50 per barrel.

Another factor behind the recent price hikes is the fragmentation of the refining segment, especially in OECD countries, because of increasingly complex environmental standards especially for transportation fuels.  Though refiners have large stocks of refined products, oil prices are not moving down because demand is not for heavy sulphurous crudes available from OPEC members which are costly to refine into cleaner products.  However refining bottlenecks cannot hold up oil prices in the longer term.  Super refiners will eventually upgrade their capacity to handle heavy grades of crude available from OPEC suppliers.  While that will drive down overall oil prices it will reduce the discount at which heavier crudes trade against light sweet crude such as WTI demonstrating the growing power of OPEC in the oil market.   Finally there is the fact that there is an upper bound for oil price beyond which energy efficiency combined with alternative supplies such as that from the oil sands in Canada or even supply extracted from coal will first reduce demand and consequently knock down prices of conventional crudes. Some analysts predict that oil prices have to be much higher, closer to $ 85 per barrel for this to happen. 

So, where are crude prices heading?  While the well informed often stay away from forecasts of oil prices, we are unable to resist the temptation to indulge in forecasting a downward shift by the end of this year! 

Team Energy ORF

Views are personal


Court tells Yukos to return Sibneft shares


July 6, 2005.  A court in Russia's Chukotka peninsula (the Russian easternmost region) has ruled that embattled oil company Yukos must return a 14.5% block of shares in rival Sibneft to its major shareholders.  The arbitration court of the Chukotka autonomous region, whose governor is Sibneft owner Roman Abramovich, upheld the claims of Nimegan Trading Limited (a minority shareholder in Yukos) to invalidate an agreement on swapping 72% of Sibneft shares for 26% of Yukos stock. In March 2004, the court annulled an additional Yukos stock issue to pay for 57.7% of Sibneft shares when the companies announced they were merging. Major Sibneft shareholders have already received their shares back. The court ruling means the owners of Yukos have to return 14.5% of the company's stock to Sibneft's major shareholders and receive in return 8.8% of Yukos shares earlier transferred to Sibneft.

Courtesy: RIA Novosti




“At the outset, I must congratulate your Foundation for bringing out News Letter on regular basis for the benefit of people / officers responsible for energy, economy, security and good governance. I happened to go through one of the issues published by you and found that the news items and articles are very interesting as they focus on India’s Energy Scenario”


Er. A.K. Jain

Superintending Engineer (E)

CPWD – New Delhi


The Gleneagles Communiqué: for a more energy-secured Developing Nations?


(K K Roy Chowdhury, Consultant Energy, ORF)



he United Kingdom assumed the year-long Presidency of the G8 on 1 January 2005. The annual G8 Summit was accordingly hosted at the Gleneagles Hotel in the beautiful Perthshire countryside of Scotland from 6-8 July 2005. The Prime Minister, the Rt Hon Tony Blair MP, selected two key themes for the UK Presidency of the G8 in 2005: “Africa" and “Climate Change”. “Climate change is a global problem that needs addressing now for the sake of future generations. The science is well-established and the dangers are clear. For example, the number of people worldwide at risk of flooding has increased twenty-fold since the 1960s. No country can tackle climate change on its own. But there are actions that we can take together to lessen its impact without altering our essential way of life or jeopardising economic prosperity. It is crucial to every country in the world that we establish a consensus now on the nature of the problem and what actions we can take. Again it is the world's richer, industrialised countries - the G8 - that have to take the lead”, evoked Mr Blair on assuming the G8 Presidency.

On this backdrop, this G8 summit of Gleneagles can be considered a success certainly by the standards of previous G8 summits, having achieved a great deal, despite the disruption caused by the bombings in London. Apart from reaching some substantive deals, such as the Africa aid boost, and making Historic openings to the civil society by involving NGOs in the negotiations for the first time, the achievement on climate change, one of the key Agenda items, represents a gradual movement by the US towards the recognition that global warming is a reality, and caused by human activity. President Bush has said so before. But to sign up with other global leaders to such language is seen as an important first step towards bringing the US into the post-Kyoto process. It was also unlikely that the current US government would reverse its long-standing opposition to emission targets, but the combination of domestic and international pressure could well lead a future US administration to sign up to the next climate change convention. Moreover, this G8 summit continued and strengthened the trend to involve developing nations in the negotiation process. The leaders of seven African nations attended the summit, as did the leaders of the five leading emerging market countries: China, India, Brazil, Mexico, and South Africa. It will be hard not to invite them in future, as they are playing an increasingly important role in the world economy and trade negotiations.

Founded in 1975, the G8 comprises seven of the world’s leading industrialized nations (France, Germany, Italy, Japan, UK, US, Canada) and Russia. With no headquarters, budget or permanent staff, the Group of Eight is an informal but exclusive body whose members set out to tackle global challenges through discussion and action. The presidency of the G8 rotates between the group’s member nations on an annual basis. The next presidency goes to Russia in 2006. The European Union is represented at the G8 by the president of the European Commission, and does not take part in G8 political discussions.

Developing countries’ response:

Participating in the G8 summit at Gleneagles as observers, India, China, Brazil, South Africa and Mexico (the G5) asked the G8 industrialised nations to devise innovative mechanisms for transfer of technology and new additional financial resources to developing countries for clean energy and sustainable development. A declaration adopted after a meeting of the G5, in which Prime Minister Manmohan Singh represented India, proposed a “new paradigm for international cooperation, focussed on the achievement of concrete and properly assessed results, taking fully into account the perspective and needs of developing countries.” Such a paradigm must ensure that technologies with a positive impact on climate change are both accessible and affordable to developing countries and “requires a concerted effort to address questions related to intellectual property rights,” said the 3-page 18-point declaration. In their outreach meeting with the eight industrialised nations (G8) that followed, the G5 made it clear that any action plan of the G8 industrialised nations will have to strike a right balance to protect the environment so that poverty is not perpetuated. Articulating the developing countries’ stand, Dr Manmohan Singh also said, for the action plan to be effective, it should not pose standards diverse from reality. He said, it was imperative that protection of intellectual property rights be relaxed for new technologies and there should be an additional window to induct affordable technology. Dr Singh referred to the tremendous progress made by the G5 countries in research and development, and asked the industrialised nations to explore the possibility of collaborative research similar to the one in agriculture in the sixties that led to the green revolution in many countries. This would also promote South-South cooperation, he added. Stressing on the need to promote environment-friendly energy, Dr Singh said India has embarked upon promoting hydel power in a big way and international community must come forward to extend necessary financial assistance in this regard. Globalisation no doubt provided opportunity but can make developing countries weak and vulnerable unless policies were formulated to ensure that there was greater financial assistance, more open trade and better capital flows. In this connection, he said proper mechanism has to be evolved not only for technology transfer but also to ensure that new technologies are properly diffused to make available its fruits to developing countries. Dr Singh noted that technologies were available for promoting clean environment but the same should percolate down to developing countries by adopting common and differentiated responsibility.

The Gleneagles Communiqué:    

The G8 leaders ended their annual summit last Friday by agreeing that humans are a major cause of global warming and pledging to work towards reducing it, but they did not commit any specific actions or timetables.

The main points in the communiqué are:

·          It describes climate change as a serious long-term challenge.

·          It says human activities contribute in large part to increase in greenhouse gases.

·          It says, “We know enough to act now and put ourselves on a path to slow and, as science justifies, stop and then reverse the growth of greenhouse gases”.

·          It says two billion people lack access to modern energy sources; increasing access is needed in order to support the Millennium Goals.

·          It says that developed nations have the responsibility to act.

The agreement can be seen as re-establishing vital dialogue and cooperation amongst the industrialized countries on the one hand-those which ratified Kyoto and those which did not(in other words the US), and on the other-between the industrialized countries and the developing countries. Everybody understands fully well that with the dangers confronting us, as far as climate is concerned, only a coherent plan of action has a chance of turning things around. The Gleneagles communiqué is strong on helping developing countries build low-carbon economies. It recognizes that their needs to achieve economic growth will require access to sustainable, clean energy. It also states that the UN Framework on Climate Change (UNFCCC)-of which the Kyoto Protocol is the best-known part-is the appropriate forum for negotiating the future of the multilateral regime on climate change.


Prime Minister Manmohan Singh is reportedly hopeful on the climate change agreement arrived at the Gleneagles, and felt that India’s stress on developing countries be given technological assistance for reducing gas emissions and help in setting up R & D facilities would, in the long run be considered favourably by G8 members. The Chairman of the Intergovernmental Panel on Climate Change, Dr R K Pachauri has welcomed the G8 declaration on climate change, saying it was a step in the right direction. The global problem of climate change has received the attention it deserved, for the first time. The highlight of the Gleneagles Communiqué was that it differentiated in the responsibilities of developed nations from that of developing ones; it also marked the return to fold of the US to the declaration on climate change, Dr Pachauri said. Though the communiqué talked only about the aims and goals of top industrialized nations, India could also use it like a road map for moving into a cleaner and greener future. The communiqué facilitated commercial transfer of new environment-friendly technologies from the developed countries to the developing countries through institutions like the World Bank. The Prime Minister, the Rt Hon Tony Blair MP has said that a new dialogue on climate change will be launched between the richest and the emerging nations for which Britain will host a meeting on November 1. The contracting parties to the UNFCCC will meet in December in Montreal to discuss what should happen when the Kyoto protocol runs out in 2012. The political will shown at this G8 summit at the Gleneagles does at least make us optimistic.

(Views are personal)                                                                                                         


Russian, Kazakh Caspian investments to total $22-23 billion


July 6, 2005. Russian and Kazakh investment into the Kurmangazy oil deposit will total $22-23 billion. Russian profit from this project is assessed at $50 billion after signing bilateral energy-related documents. Kazakh, the project was of global importance, adding that the deposit's reserves stood at one billion tons of oil. The Kazakh Energy Ministry and Russian energy giant RAO UES signed a protocol establishing a joint enterprise using a state regional power plant to settle the debt of Kazakhstanenergo, Kazakhstan's national power grid. The protocol says that settlement of Kazakhstanenergo's debt to RAO UES has been completed. Under the agreement investment into the power industry would total $200-250 million, and that a way to settle debt liabilities had been found.

Courtesy: RIA Novosti

India’s Reforms in the Hydrocarbon Sector

What Has Been Accomplished?

What Remains to be Done? – XII

……continued from issue 2 Vol. II




ELP I & II were successful efforts with Production Sharing Contracts (PSCs) signed for 47 oil and gas exploration blocks including 39 offshore and 8 on-land blocks. The estimated investment in these blocks was about Rs.9300 crores (Rs 93 billion). A total of 16 discoveries were made in the blocks awarded in NELP I.  Significant among these were that of the consortium of Reliance Industries and Niko Resources and Cairn Energy in the KG deepwater blocks.  Three smaller discoveries were made in blocks warded in NELP II.


NELP-III offered investment opportunities in 27 oil blocks, covering 11 on land, 7 shallow water offshore and 9 deep water offshore blocks. The bidding process was transparent with weightages of parameters made public through Notice Inviting Offers (NIO).  Technical capability had a weight of 6 per cent, financial strength 4 per cent, committed work programme 60 per cent and the fiscal package 30 per cent.  The Model PSC for NELP III was revised in consultation with E&P companies and relevant organisations.


The announcement in the 2002-2003 budgets that the income-tax rate for foreign companies was being reduced from 48 to 40 per cent also added to the attractiveness of NELP III.  PSC’s were signed for 23 exploration blocks comprising 9 deepwater, 6 shallow offshore and 8 on land. The large gas discovery announced in June 2005 by the consortium of Gujarat State Petroleum Corporation (GSPC), GeoResources and Jubilant Enpro was in one of the shallow offshore blocks awarded in NELP III.   24 blocks were offered under NELP IV in 2003. Of these, 12 blocks were deepwater, 1 shallow offshore and 11 were on land blocks.  PSC’s were signed for 20 exploration blocks comprising of 10 deepwater and 10 on-land blocks.


While overall fiscal and contractual terms under NELP have remained more or less the same, consultations held with stakeholders at the end of each round results in incorporation of improvements for succeeding rounds. The most significant aspect in NELP IV was that of allowing 100 per cent foreign equity participation. NELP V incorporated new features such as the establishment of a single-window facility in the Ministry of Petroleum & Natural Gas to facilitate investor interaction with other authorities concerned after the PSC is signed. The policy of taking profit gas in cash or kind every year was also altered to once in five years. The norms relating to bank guarantee towards minimum work programme were also relaxed.  Until NELP IV, only companies with a net worth of $1 billion were exempt from furnishing bank guarantees, but this threshold was brought down to $500 million in NELP V. 


NELP V conducted in May 2005 offered 20 exploration blocks located in deep waters, shallow offshore and on land covering 12 sedimentary basins.  The promotional stage of NELP V attracted more than 32 companies including Total, Petronas (Malaysia), Statoil (Norway), ENI (Italy), Talisman (Canada), Petrobars (Brazil) and British Petroleum and data worth a record Rs 20 crores (Rs 200 million) was sold.  69 bids were received from 48 global and domestic majors including foreign bidders such as BP, Carigali of Malaysia, Cairn Energy of Scotland, Niko Resources Ltd of Canada and Suntera Resources Ltd of Russia, Petrobas of Brazil, ENI S.p.a. of Italy, Hunt Oil of the UK, KUFPEC of Kuwait and Zakros Holdings Ltd of Cyprus which bid either on their own or as consortium members.  Out of this, 18 had bid for the first time. The number of foreign companies bidding in this round exceeded the total number during all the previous rounds.  However more than half the blocks in NELP V went to domestic consortium of either Reliance or ONGC which had made the most aggressive bids. 


Noting that domestic players always outbid foreign players, the Minister for Petroleum & Natural Gas Mr Manishankar Aiyer has commented that the ‘the effort of conducting road-shows abroad to convince international oil majors to come and invest in India’s upstream sector seems more of a wasteful exercise’.  Deciding to take a re-look, the Ministry of Pteroleum & Natural Gas has asked Petrofed, a society set up to promote the interest of the petroleum industry, to coordinate a joint exercise with private, international and domestic firms and make recommendations to fine tune NELP.  Another group comprising of Shell India country head and the Joint Secretary Petroleum Ministry has also been constituted to conduct a study on how to get oil majors to invest in India.  

… be continued


World Energy Consumption Shares by Fuel Type percent of total



Natural Gas




























Source: EIA

Jatropha: The New Energy Crop


July 2, 2005. There is a new fuel to energise India that is cheaper than diesel, great for the engine and green. And once enthusiastic customers start accelerating, it could easily become a US$2 bn (Rs 87 bn) revenue earner within the next three years. Bio-diesel or fuel made from seeds of shrubs like jatropha that grow best in parched wastelands is suddenly brilliant business and corporate India is looking sharp. With the sharp rise in oil prices, bio-diesel works out cheaper than ordinary diesel at a price of Rs 24/litre. With seed available at Rs 5/kg and an easy manufacturing process, it could mean huge savings for large diesel consumers like transport and manufacturing sectors. If the government’s proposed comprehensive policy for the use of B20 bio-diesel (20 per cent bio-diesel) is out by August, India can emerge a global sourcing hub for both feedstock and processed bio-diesel. There is no optimum mix of jatropha to diesel, as it can be mixed at anywhere from 2 per cent to 20 per cent of the final fuel. The Planning Commission believes the use of bio-diesel blends will result in saving of Rs 20,000 crore (Rs 200 bn) annually on crude oil import. India can potentially produce 13 mt alternate fuel every year. That would need 11 m hectares land and create 11 mn jobs. Not surprisingly then, there is already plenty of excitement in the air. Funds are pouring in from both overseas and domestic financial institutions. DaimlerChrysler, the German government, and British companies like D1 Oils are all bringing in money through public-private partnerships and joint ventures with Indian companies to assess the viability of converting jatropha oil into fuel and later set up bio-diesel plants. Germany has shelled out Rs 2 crore (Rs 20 mn) to part-finance India’s first bio-diesel plant that is expected to go on-stre am from July next year. Locally, State Bank of India has taken the lead in financing contract farming of jatropha. Others like Andhra Bank are holding talks with interested companies. Bio-diesel needs no separate infrastructure for storage and dispensing and handling it is safer because it is non-inflammable. Corporates are equally excited because there is plenty of opportunity for export. Mohan Breweries, through its JV with D1 Oils, is contracting with farmers in Tamil Nadu to plant up to 40,000 hectares of jatropha. That should give 100,000-120,000 tonnes crude jatropha oil per annum. It aims to plant up to 100,000 hectares jatropha across the country this year. Not willing to be left in the dark, oil PSUs like Indian Oil Corporation and Hindustan Petroleum Corporation are experimenting with various mixes of bio-diesel with diesel in state transport buses in Haryana, Gujarat and Mumbai. IOC has partnered with Indian railways to study the value chain by planting one lakh jatropha saplings on 70 hectares railway land at Surendra Nagar in Gujarat. The railways are already quite charged by initial trials. Bio-diesel on Shatabdi and Jan Shatabdi express trains was so successful that 10 more trains, including Varuna Express, Ganga Gomti Express, Lucknow Allahabad Jan Shatabdi, Neelanchal Express and Lucknow-Banaras intercity express are going to use it next. Bio-diesel itself is not new. But while the EU, the US and Brazil primarily use edible oils like rapeseed and soya to manufacture it, India is experimenting with other trees that produce non-edible oils like Jatropha and Pongamia. Jatropha appears to be the feedstock of choice because the trees are fast-growing, have high seed yield and usually not eaten by animals. Around 1 mn hectares across the country has been identified for Jatropha plantations. What gives jatropha bio-diesel an extra edge is its particularly favourable ignition performance. It also contains no sulphur and is thus a clean, low-emission fuel. Also biodiesel processing cost in India is almost one-third of that in European countries and the US. The bio-diesel value chain is fairly simple. Crude jatropha and pongamia oil, collected by crushing seeds, is put through transesterification for making bio-diesel from oil. This is followed by blending of bio-diesel in diesel for commercial use and transportation of bio-diesel-blended diesel for distribution at retail outlets. 


Asia seeks alternatives to oil power as prices soar


July 6, 2005. From bananas to wind farms, alcohol and the sun, the search for alternative energy sources has taken on a new urgency as oil prices hit record levels. Ideas once seen as the preserve of fringe environmental groups are getting more attention, but flicking most switches in cars, homes or industries in Asia still means tapping into fossil fuels. Some countries, such as Japan and South Korea, have launched major drives to move away from traditional power sources, but the percentage of energy produced remains small apart from the controversial nuclear option. Oil, almost all of it imported, accounts for 52 percent of Japan’s total energy supply, the Agency of Natural Resources and Energy says — down from 80 percent before the first oil price shock of 1973. But oil has been replaced mainly by nuclear energy and natural gas, with "new energy" sources such as solar and wind power accounting for just one percent of the total energy supply. This is despite the fact that Japan is the world’s top producer of solar power generating 48.5 percent of the total followed by Germany, the United States and Australia. Japan aims to increase its total "new energy" output to around three percent by 2010, but complains that the cost is high compared with other power sources and that output is unstable. South Korea, which imports 97 percent of its fossil fuel energy from abroad, has focused on the development of alternative sources but the latest figures show that it accounts for just 1.03 percent of total energy consumption. The main source of alternative energy is from city and industrial waste, which makes up 90 percent of the total alternative energy and is used in 31 cities and more than 500 factories. The second most used source at 3.7 percent is biomass energy, or energy produced when organic wastes including food waste and animal manure decompose.

The third most useful alternative source, at 2.6 percent, is solar energy, which provides hot water to thousands of homes and is used for street lighting in some areas. With geography and climate playing a large part in the exploitation of alternative energy sources, a new government study in New Zealand has shown that wind energy could supply around 35 percent of the country’s future electricity demand. Energy minister Trevor Mallard said wind power would combine well with another renewable source — hydroelectric power, which now provides over 60 percent of electricity output. Wind is also being tapped in the Philippines where in mid-June Southeast Asia’s largest wind farm was inaugurated on a sparsely populated stretch of coastline near the northern town of Bangui on the South China Sea coast of the main island of Luzon. However, the privately run 24.75-megawatt project comprising 15 towers can only serve half the needs of Ilocos Norte, one of the country’s 75 provinces. The government is also trying to convince Filipino motorists without much success to mix biodegradable diesel fuel extracted from coconut oil in the tanks of vehicles with diesel engines. Coconut oil is the Philippines’ top farm product export. Similar moves are afoot in Australia, where scientists have created an electricity generator fuelled by decomposing bananas and are working on plans for a full-scale, fruit-fired power station. University of Queensland engineering lecturer Bill Clarke said he hit upon the unusual power source when Australian banana growers approached him looking for ways to make use of vast quantities of waste bananas.

Caspian oil and gas deposit estimated at 1 billion metric tons

July 6, 2005.  The anticipated recoverable reserves of a Caspian Sea oil and gas deposit are estimated at 1 billion metric tons. Kazakhstan and Russian oil firm Rosneft signed a production-sharing agreement on the development of the Kurmangazy field. Under the agreement, contractors will assess the ecological impact of prospecting and drill two exploratory wells. Participants will pay a bonus to the budget of Kazakhstan for signing the agreement and a commercial discovery bonus if prospecting is successful. Payments to Kazakhstan's budget may total $31 billion.                                    Courtesy: RIA Novosti





GSPC locates more wells in KG basin

July 11, 2005. The Gujarat State Petroleum Corporation (GSPC) will hire another rig and drill three more wells in the Krishna-Godavari basin as it has located four fault blocks from the site where it found a large quantity of gas last month. GSPC will be acquiring three-dimensional siesmic data for another 500 square km in the eastern region that was left out earlier. The hiring of the rigs could cost more than one lakh dollars per day.

GSPC to begin exploration overseas

July 9, 2005. GSPC is set to go overseas for exploration and production of oil and gas.  The corporation recently discovered over 20 trillion cubic feet of natural gas, valued at approximately Rs 200,000 crore (Rs 2 trillion), in the Krishana-Godavari basin. GSPC is initially eyeing Libya, Oman and Qatar to commence operations. It is also examining extending its operations outside the country with strategic alliances with overseas petroleum companies. It has already identified a consortium of international companies in the Gulf region for the purpose and talks are on to seal the deal. GSPC is planning to be an operator with a major share in oil and gas exploration and production in the region. It plans to bring the gas into India in liquefied (LNG) form. GSPC, which owns 21 blocks and fields for exploration, development and production of oil and natural gas, eyes to get four more block in the fifth bidding round under the new exploration and licensing policy (NELP-5).

GSPC production at Dholka well by July end

July 9, 2005. GSPC is set to start commercial production from the PK#2 well at Dholka under the Ahmedabad exploration block by the end of this month. The company plans to start production at the rate of 1,500 barrels of oil per day for the next 10 years. GSPC will sell crude oil to IOC and use ONGC's storage tank at Navagam CTF for storing crude oil for onward transportation to IOC's Gujarat Refinery at Vadodara. The company has prepared a draft of the crude oil off-take and sales agreement (COSA) to be executed between GSPC, ONGC and IOC. This block was awarded to the GSPC-GAIL India consortium under production sharing contract. GSPC will also drilling at least a dozen wells Tarapur, Dholka and Krishana-Godavari basin. Its discovery in Tarapur Block (CB-ON-2), which has been appraised, delineated and additional wells will be drilled to start the commercial production as soon as field development plan has is approved by Directorate General of Hydrocarbons (DGH). 

Cairn plans oil production in Rajasthan

July 8, 2005. Cairn Energy, which had discovered huge oilfields in Rajasthan, last year, will begin production from the fields within a year. The UK-based energy firm is planning to produce up to 5,000 barrels of oil per day from two of the 12 discoveries made in Barmer district of Rajasthan by mid-2006. The company had submitted a development plan for Saraswati and Raageshwari filed which lie in the centre and south of the Rajasthan block, to authorities in May, and is anticipating approval by mid-September. Cairn had also submitted a $1 bn investment plan to put to production the largest discoveries in the block - Mangala and Aishwariya - with a target of beginning production by end-2007. While Mangala is expected to produce 100,000-110,000 barrels per day, Aishwariya may produce 5,000-15,000 barrels per day. Also, Cairn would submit the development plan for the Bhagyam discovery in August/September, and the well could produce 15,000-30,000 barrels per day. The peak production from the Rajasthan fields, where Cairn estimates one billion barrels of oil reserves, is expected to be 150,000 barrels per day (7.5 million tonne per annum).


IOTL plans terminal facility in South

July 10, 2005. Indian Oiltanking Ltd(IOTL), a 50:50 joint venture between Indian Oil and Oiltanking GmbH of Germany, is setting up a Rs 600-crore(Rs 6 bn) terminal facility for crude oil and refined petroleum products in South India. The project will support the proposed 6 mt refinery of Nagarjuna Oil Corporation at Cuddalore, Tamil Nadu, in which IOTL will have a minority stake. The board of IOTL had already approved the project and is awaiting the financial closure of the refinery, which is expected shortly.

BG aims big in India

July 8, 2005. Britain’s BG Group is keen to commit further major investment to India. BG has invested nearly $800 million in India and is prepared to spend more to launch new city gas distribution projects, pump gas from India’s east coast and use its expertise to drill in deep-sea areas. BG has a 30 per cent stake in the Pana, Mukta and Tapti oil and gas fields, which have an estimated output of 22,000 barrels of oil equivalent a day. Output from the fields, in which Reliance Industries and state-run Oil and Natural Gas Corporation also have equity, is expected to double in five years. According to BG India’s gas sales, about 70 million cubic metres a day, are expected to rise as Reliance Industries is scheduled to pump 40 million cubic metres a day by 2008, while Gujarat State Petroleum Corp. hopes to supply a similar amount by 2007.

In addition, India plans to double imports of liquefied natural gas to 15 mt a year by 2010. Higher availability would feed gas-starved power and fertiliser plants and allow city gas distribution projects in congested cities. BG has a 49.75 per cent share in Mahanagar Gas Ltd, a joint venture that supplies compressed natural gas to vehicles and natural gas to industries and domestic customers in Mumbai and its suburbs. State-run gas transporter GAIL India Ltd is an equal partner in the company, while the Maharashtra government holds the rest.

IOC to set up two LPG outlets in Indore

July 7, 2005. Indian Oil Corporation plans to open two more LPG dispensing units in the city. The capacity of the new units would be 10,000 litre each, and about 2,500-3,000 litres are expected to be dispensed from each unit initially. An increase in demand has prompted the company to open more LPG outlets in the city. On an average, about 8-10 vehicles in the city are installing LPG kits daily. There are about 2,000 vehicles in the city that have authorised LPG kits. Out of these, 20 per cent use domestic gas. 

IOC, HPCL plan refineries in Rajasthan

July 7, 2005. While the government is working on a policy for encouraging export-oriented refineries in the country, especially at coastal locations, the petroleum ministry has received three proposals from Indian Oil Corporation, Hindustan Petroleum Corporation Ltd and Oil and Natural Gas Corporation for setting up refineries in Rajasthan. In a separate proposal, Shell India was also looking at setting up a petroleum refinery in the country. ONGC has submitted its proposal for a refinery in Rajasthan along with the UK-based Cairn Energy which struck oil in block RJ/ON-90/1 in the Barmer district of the state. ONGC holds 30 per cent participatory interest in the block. The government also had the right to lift crude oil from the block under a production-sharing agreement. The three proposals are looking at setting up a refinery with an annual crude oil processing capacity of 4-5 mt.

RIL to double Jamnagar capacity

July 7, 2005. Reliance Industries has chalked out plans to double the capacity of its mega project, the Jamnagar refinery. The company will invest between Rs 15,000 crore (Rs 150 bn) and Rs 20,000 crore (Rs 200 bn) in doubling the capacity of the refinery from 30 mtpa to 60 mtpa and the expansion project is likely to be completed by August 2006. The expansion, the Jamnagar refinery will in most likelihood, become the world’s largest single location refinery. Reliance recorded a 100 per cent capacity utilisation at its Jamnagar Refinery. The refinery processed about 30 mt of crude during the 2004-05 fiscal. Exports of refining products during the past fiscal year were 10.2 mt in comparison, exports for 2003-04 stood at 7.5 mt. 

BPCL losses $275 in Q1

July 7, 2005. Bharat Petroleum Corporation Ltd lost Rs 1,200 crore (Rs 12 bn) in the first quarter of the current fiscal due to selling petrol, diesel, LPG and kerosene below cost price. The company plans to add 800-1000 retail outlets this fiscal and would increase the capacity of Mumbai refinery to 12 mtpa from the current 6.9 mtpa by January 2006.

Transportation / Distribution / Trade

GSPC to sell ANG to Orient Glaze

July 12, 2005. GSPC has entered an agreement with Orient Glaze to sell associated natural gas (ANG) at the rate of 10,000 standard cubic meters per day (SCMD) available from field located at Dholka for the next 10 years. Orient Glaze is expected use this gas for its ceramics plant to be set up near Dholka. Orient Glaze is expected to pay between Rs 5-6 per SCMD for 10,000 SCMD of gas for the next 10 years. 

Numaligarh Refinery evacuating petro products through barges

July 11, 2005. Numaligarh Refinery Ltd in Assam has started evacuating petroleum products by the river route that passes through Bangladesh. The first consignment of 1,450 tonnes of diesel by barge arrived a few days ago at the Budge Budge oil jetty of the Kolkata Dock System. Vivada, the local barge operator, transported the consignment from Silghat on the bank of the Brhamaputra River to Budge Budge. Numaligarh Refinery is believed to be also exploring the possibility of exporting petroleum products by barge to Bangladesh.

ONGC mulls gas supply to Tata Power

July 10, 2005. ONGC is considering supply of gas from offshore marginal fields to Tata Power Company's Trombay plant and laying of a sub-sea pipeline for it. A committee has been formed to validate the viability and establish technical feasibility of supply from C series fields to TPS. The marginal gas fields C-22, C-24, C-39, C-23, C-26, B-12 and North Tapti (C-1) would be sequentially exploited for a sustained gas production. The quantity of gas estimates provided by Western Offshore Basin is estimated to be 2 metric million standard cubic meters per day MMSCMD up to 14 years or 2.5 MMSCMD for 11 years.

Indo-Myanmar pipeline planned

July 7, 2005. India and Myanmar decided to pursue the options of an on-shore gas pipeline bypassing Bangladesh or of importing natural gas from Myanmar in liquefied form. These options were considered following bilateral issues raised by the Bangladesh government for letting a pipeline cross its territory.  The Indian government also took a decision to extend a $20 mn credit to the government of Myanmar for renovation of the Thanlyin refinery. The techno-commercial working committee, set up by India, Bangladesh and Myanmar in January, will consider the two options. The on-land option bypassing Bangladesh will be for gas delivered at Sittwe and at the Myanmar-India border. The responsibility of natural gas seller, which was Myanmar, would end at the delivery point. 

Policy / Performance

Panel rejects plan for oil PSU merger

July 12, 2005.  Nixing the petroleum ministry’s proposal for the creation of a single public sector oil company, the Synergy in Energy panel led by V Krishnamurthy suggested transferring the government holding in blue-chip PSUs into a trust. The proposed National Shareholding Trust, on the same lines as Temasek in Singapore and Khazanah in Malaysia, will pool in the government holding in the navratna and mini-ratna oil PSUs to ensure that they are professionally managed with enhanced autonomy. A similar proposal was discussed during the previous government’s tenure. The panel also proposed a merger of stand-alone subsidiaries, except Numaligarh Refinery Ltd, with the parent companies, unbundling the supply and transport services of Gail (India) Ltd and the creation of new entities for inter-state transmission of gas and other activities like fertiliser and power. The advisory committee recommended that Oil India Ltd take the lead in setting up Oil India Videsh Ltd (OIVL) with a consortium approach to further India’s hunt for oil globally. While ONGC Videsh should focus on large assets with production of over 2 million tonnes of oil equivalent (mtoe) annually, the new entity should work in other demarcated areas. Over the next three years, overseas ventures should meet at least 15 per cent of the crude oil import needs. For greater flexibility, the committee proposed an enhancement in OVL’s investment limit from Rs 300 crore (Rs 3 bn) to Rs 2,000 crore (Rs 20 bn), while OIVL should have powers to invest up to Rs 1,000 crore (Rs 10 bn). It said, the government should look at strengthening the existing structure of oil PSUs through policy measures. These included setting up of a separate energy ministry and a Cabinet committee on energy headed by the prime minister and a unified energy ministry in the long run. 

LPG for marine engines

July 10, 2005. The locally developed marine LPG kit from Surya's Marine LPG Kit Co., Aluva, spells good news for fishermen. The new application of LPG for use in fishing vessels using outboard engines is being gradually launched across Kerala state although it has been in use for about a year in select pockets such as Andhakaranazhi, near Cherthala, on an experimental basis. The new application of LPG would help the fishermen make considerable savings. In the meanwhile, Surya's marine LPG kit, promises to help make savings in fuel when compared to the conventional outboard engines run on petrol or kerosene.

Norms for oil, gas exploration cos in the pipeline

July 10, 2005. The Directorate-General of Hydrocarbons (DGH) is expected to come out, within a month, with a new set of disclosure guidelines for oil and gas exploration companies operating in India. In the recent past, some of the companies active in this field have come out with claims of oil and gas finds and this is seen as an attempt to influence existing or potential investors. While making such announcements some of the companies have taken shelter in the norms prescribed in the countries they belong too. Also the product sharing contract (PSC), which they enter into with Indian or multinational companies, gives them the leverage of announcing the discoveries made by them. However, the PSC does not allow them to announce the commercial aspect of the discovery. The new norms are likely to allow them to announce the discovery, but with a caveat that the companies will have to state that `commerciality of the find is yet to be proven'. This may bring in more transparency. The Government has initiated the process of streamlining the existing norms for market-sensitive announcements made by the oil and gas companies, which even now are required to get a certification from the DGH. However, the companies were seen to be making the claims without waiting for the DGH certification. In fact, the DGH is understood to have taken up the issue with SEBI. According to a senior Petroleum Ministry, the market regulator should ensure that the companies make correct disclosures. The purpose behind the exercise is that each stakeholder sticks to his commitment as well as the process is made more investor-friendly, so that an average investor knows the exact status of the find.

Lack of foreign interest mulls new exploration policy: Aiyar

July 7, 2005. The government has decided to take a relook at its present oil and gas exploration policy. Offering blocks under various rounds of the New Exploration and Licensing Policy (Nelp) has not attracted sufficient foreign capital. Moreover, the policy has been in existence for eight years and petroleum minister Mani Shankar Aiyar wants to fine tune it to attract foreign companies in much bigger numbers. Mr Aiyar said he was not happy with the news flow from the director general of hydrocarbons that not many foreign companies will be awarded blocks under the fifth round of the New Exploration and Licensing Policy (Nelp-5). Despite an excellent reponse from foreign oil and gas companies in the fifth round of Nelp, one hears that domestic companies are outbidding most of the foreign players. The minister said the entire effort of conducting roadshows abroad to convince international oil majors to come and invest in India’s upstream sector seems more of a wasteful exercise. He said that the whole idea to get foreign companies was to get newer technologies and more capital in exploring oil and gas in India. In addition, Mr Aiyar constituted another group comprising Shell India and Petroleum Ministry for conducting a study on how to get oil majors invest in India’s upstream and midstream sectors.

Choice of carrier allowed for LNG imports

July 7, 2005. Prime Minister Manmohan Singh has ordered a change in LNG shipping policy to allow the liquefied natural gas purchaser the choice of carrier. At present, the shipping ministry restricts LNG imports only on an Indian flag vessel - Indian company holding a minimum of 26 per cent ownership of the carrier. This would benefit companies like Royal Dutch/Shell which want to import LNG on their own carriers.

RIL to share oil burden

July 7, 2005. The government is likely to ask Reliance Industries Limited (RIL) to chip in Rs 700 crore (Rs 7 bn) to ease the burden on oil marketing companies which have piled up under-recoveries to the tune of Rs 9,500 crore (Rs 95 bn) in the first quarter of the current fiscal. Other stand-alone refineries including MRPL, Chennai Petroleum and Kochi Refineries have also been asked to contribute about Rs 700 crore (Rs 7 bn). The huge under-recoveries are on account of OMCs selling petroleum products below the cost price. ONGC’s share in the new subsidy sharing scheme will be the highest at Rs 3,500 crore (Rs 35 bn). GAIL and OIL may have to foot a bill of around Rs 400 crore (Rs 4 bn).

Share gas losses: ONGC

July 7, 2005. Oil and Natural Gas Corporation has urged the government that the under-recoveries it suffered on the sale of natural gas be made a part of the subsidy pool. The under-recovery can be benchmarked to the market price of gas being sold by private or joint venture producers, or being sold as regasified natural gas. ONGC was suffering a Rs 2,800-crore (Rs 28 bn) annual loss on account of selling natural gas at unremunerative prices prior to July 1, 2005. The gas price has since been revised to Rs 3,200 from Rs 2,850 per thousand cubic metre but it is still about 40-50 per cent less than the price at which gas is being sold by other companies. While ONGC demanded this, Hindustan Petroleum Corporation, one of the four marketing companies bearing the brunt of non-revision of petroleum prices, suggested that the share of upstream companies, including ONGC, should be revised to 50 per cent of the total loss incurred on the sale of subsidised kerosene and domestic LPG as also petrol and diesel. Upstream companies, ONGC, Gail India and Oil India, were sharing one-third of the subsidy loss during 2003-04 and 2004-05. Another one-third was borne by oil marketing companies and the remaining one-third was built into the price of petrol and diesel. The non-revision of petroleum prices this year has resulted in the oil marketing companies suffering negative margins on petrol and diesel as well, though till last year, the losses were only on LPG and kerosene. The suggestions are in response to discussions among oil companies on evolving a subsidy-sharing mechanism for the current year. The upstream company’s under-recovery share is decided on a quarterly basis. In a letter to the ministry of petroleum, the ONGC management maintained that the share of the government in subsidy losses had consistently declined between 2002-2005. In view of the temporary increase of ONGC profits, which rose due to a spurt in international oil prices, the company demanded that the sale of domestic LPG and kerosene should be on the net-back price. This will ensure 100 per cent absorption of under-recoveries in the hands of producers. The company also said that any other formulation will result in transfer of profit from ONGC to those refineries, including private sector refineries, which do not share the under-recoveries. The under-recoveries on account of retail sales of the four petroleum products were Rs 9,370 crore (Rs 93.70 bn) in 2003-04. They rose to more than 100 per cent to Rs 19,910 crore (Rs 199.10 bn) in 2004-05 and are projected to rise to Rs 42,700 crore (Rs 427 bn) during 2005-06. 

State to undertake gas exploration

July 6, 2005. The Andhra Pradesh Government has decided to go in for direct exploration of natural gas, ending the monopoly by four companies over the vast reserves available in the Krishna-Godavari basin. The State will participate in tenders in July 2006 when the Union Government poses the rest of the blocks in the basin for competitive bidding. It will float a new undertaking or a joint venture with private participation or simply get the job done by the recently-constituted Andhra Pradesh Infrastructure Corporation to lay pipelines for the gas tapped by the four companies. A natural gas development council headed by the Chief Minister will be formed as the first step in this direction in line with recommendations of the Gas Utilisation Committee. The State's entry into the arena, with distinct locational advantage, is expected to change the gas scenario drastically, adding a new dimension to the fledgling gas grid concept and the emerging gas economy. This is likely to influence the national gas policy as well contemplated by the Centre.



TPL for power plant in UP

July 10, 2005. Tata Power Ltd (TPL) has decided to set up a 600 MW hydel power plant in UP at Shrinagar as part of its plan to augment its generation capacity by 3,600 MW over the next few years. Other projects being considered are—a 1,000 MW thermal power plant in Delhi, a 1,000 MW thermal power plant on the coastal belt of Mumbai and another 1,000 MW unit at Maithon in collaboration with Damodar Valley Corporation. The total cost of the UP hydel power project including rehabilitation, land and expenses on building a dam is expected to be around Rs 1,500 crore (Rs 15 bn). At present, TPL has a total generation capacity of 2,300 MW and 430 MW in Jojobera in Jamshedpur. 

MP guarantee to power project

July 7, 2005. The MP government has offered a conditional counter-guarantee to revive the 400 MW Shree Maheshwar hydel power project. For this, the Cabinet has decided to offer a conditional counter-gurantee of Rs 400 crore (Rs 4 bn) in favour of the Power Finance Corporation, which is offering a guarantee on optionally convertible bonds proposed by Shree Maheshwar Hydel Power Ltd. The government has put a condition on the guarantee that the company will have to repay the dues of the Madhya Pradesh State Industrial Development Corporation, which have reached Rs 39 crore (Rs 390 mn). The state government is in a dilemma since it can neither abandon it nor hand it over to the Narmada Hydroelectric Development Corporation (NHDC, a joint venture of the National Hydroelectric Power Corporation and the Madhya Pradesh government) since a “huge amount of the company” has already been invested in the project. The work on the project has been stalled after its foreign partner Ogden pulled out though it had promised an equity participation of Rs 330 crore (Rs 3.3 bn).

Siemens to build power plant for Torrent

July 6, 2005. German engineering conglomerate Siemens has won an order worth 2075 crore ($477 mn) to build a power plant in India for Torrent Group. 

CIL to diversify into power generation

July 6, 2005. State-owned Coal India Ltd (CIL) has decided to make a foray into power generation and the company is in talks with Neyveli Lignite Corporation (NLC) to set up a 2000MW pithead power plant at its subsidiary Mahanadi Coalfields Ltd. The CIL board has given in principle approval for the new project. The board has been asked to prepare the draft of the MoU. According to CIL, it wants to give finished products to the country and the power produced by the new company will be cheaper. CIL and NLC would have 50:50 equity in the new project which would cost about Rs 8,000 crore (Rs 80 bn). CIL was also considering setting up another one of 500 MW capacity under SECL.

Alamatti Dam powerhouse unit synchronised grid

July 6, 2005. Karnataka Power Corporation Ltd. successfully synchronised the fifth unit of the 290-MW Alamatti Dam Powerhouse. The unit is being run much below its installed capacity of 55 MW. The first four units — one with a capacity of 15 MW and three units of 55 MW each — have already been commissioned. Only the commissioning of sixth unit (55 MW) of powerhouse is remaining under the project and will be synchronised with the power grid in the first week of August. Apart from Alamatti Dam Powerhouse, Bellary power station’s first 500 MW unit will be ready by August, around three months ahead of schedule. Construction work on the second unit will be taken up in September. This project will cost Rs. 2,100 crores (Rs 21 bn).

Neepco gets 750 MW project

July 6, 2005. The union power ministry is likely to hand over the ownership of 750 MW, Rs 3,750 crore (Rs 37.50 bn) combined gas-based power project in Tripura to North Eastern Electric Power Corporation (Neepco) because of its core competency in operating power plants in the region. ONGC was also eyeing a stake in the same project because it has agreed to supply gas to the plant. Bharat Heavy Electrical Ltd has emerged the only bidder for the project and has quoted Rs 5 per MW for its three 250 MW units. Neepco was also looking at the possibility of supplying surplus power to Bangladesh. The north east based power company would supply power generated in Monarchak to Punjab, Delhi, Haryana and West Bengal besides Tripura through the national grid. A transmission line (400 KV) from the National Grid would be extended from Southern Assam. 

CESC starts second round restructuring

July 6, 2005. Kolkata’s power utility, CESC Ltd, has embarked on its second round of financial restructuring exercise and has firmed up plans of adding 250MW capacity. It has decided to raise a total Rs 1000 crore (Rs 10 bn) from financial institutions and banks. The company has also entered into talks with its foreign lenders for receiving funds in form of terms loans. CESC was considering raising a portion of this loan as foreign currency assistance, or either fund and non-fund based working capital facilities. CESC has raised close to Rs 700 crore (Rs 7 bn) from financial institutions including Power Finance Corporation, Infrastructure Development Finance Ltd, UCO Bank, Yes Bank and Andhra Bank as refinance loans.

Transmission/ Distribution / Trade

NTPC okays $115 mn investment in RGPL

July 11, 2005. National Thermal Power Corporation (NTPC) board has approved an investment of up to Rs 500 crore (Rs 5 bn) as share application money in the equity capital of Ratnagiri Gas and Power (RGPL). The investment is subject to approval by the Cabinet Committee on India Economic Affairs or relaxation of power granted by Government of to NTPC for the purpose of acquisition of assets and investment in JVC. The GAIL board, too, has approved the investment of Rs. 500 crore (Rs 5 bn) in the equity of RGPL.

Karnataka signed PPA with NPCL

July 10, 2005. The Karnataka Government has signed a power purchase agreement (PPA) with the Nagarjuna Power Corporation Ltd (NPCL), for purchasing power from its proposed coal-based thermal power plant of 1,015 MW at Padubidri in Udupi district. The Union Government has given all clearances to the project. The company intends to supply power at Rs 2.10 a unit in the first year of production.

Dhaka to buy 500 MW power from Tata

July 8, 2005. The second round negotiation between the government and the Indian Tata Group on its proposed US$2.5 billion investment plan in Bangladesh ended with both sides apparently having agreed on two major issues with regard to land allocation and power purchase. Tata had in principle agreed to take nearly 2,000 acres of land offered by the government at Bheramara for their proposed steel mills. The government on its part also agreed to purchase 500 MW of electricity from Tata's proposed power plant to be set up near Barapukuria coal mine. Other issues like price of gas and tenure of gas supply and the fiscal incentives for Tata's proposed investment were not discussed in the second round negotiation. The third round negotiation will take place by the end of July where these issues will come up for discussion.

TN to share NTPC power with southern states

July 7, 2005. The National Thermal Power Corporation will soon enter into power purchase agreements (PPAs) with the state electricity boards (SEBs) of two southern states and the Union territory of Pondicherry to share power from the NTPC-Tamil Nadu Energy Company Ltd, its 1,000 MW coal-fired power project slated to come up in Ennore in Tamil Nadu in association with the Tamil Nadu Electricity Board. This is expected to go a long way in enhancing energy supply for the power-strapped states of Karnataka, Kerala and Andhra Pradesh. The project is expected to be completed during the 11th Plan period. The public sector thermal power utility is in the process of PPAs with the SEBs of Karnataka, Kerala and the Union territory of Pondicherry for the supply of upto 25 per cent power from its proposed 1,000 MW Ennore power station.

Power tariff up from July 15

July 7, 2005. The Delhi Electricity Regulatory Commission (DERC) announced an average 10 per cent hike in power tariff for consumers. This hike means an additional Rs 150-Rs 200 in monthly electricity bill. Almost no one has been spared. Fixed charges for the domestic consumer have gone up by 20 per cent from Rs 50 to Rs 60 for those with a power load of up to 5 kW, and between Rs 10 and Rs 12 per kW for those with loads above 5 kw. Energy charges are up 10 per cent, so residents with a monthly consumption of 300 units will shell out Rs 930 instead of Rs 850 so far. This tariff is applicable from July 15. For commercial consumers, tariff is up by about 42 per cent, with fixed charges increased from Rs 35 to Rs 50 for low-tension consumers (small industries and offices). Energy charges, too, have been increased from Rs 5.20 per unit to 5.35 per unit. The fixed charge for high-tension consumers, that is large corporate offices, has been retained though their energy charges have been increased.

REL may fail to transmit

July 7, 2005. Reliance Energy’s plans to foray into the power transmission business on its own are in a limbo. Power Grid Corporation of India Ltd (PGCIL) has decided to form joint ventures for power transmission on the same routes as proposed by Reliance Energy. PGCIL, the central transmission utility, has called for joint venture partners for the 20 lines to be laid in the western region. But 13 sub-stations in the region will be built by PGCIL on its own. Reliance Energy was among the 20 companies that had expressed interest in participating in the joint ventures with the public sector firm. The others include Tata Power, Crompton Greaves, Kalpataru, Gammon and Areva. The company will call for competitive bids and partners will be selected based on the tariffs they quote. Reliance Energy had sought licences from the Central Electricity Regulatory Commission (CERC) to set up 100 per cent private transmission projects. The CEA had divided 21 lines, to be built under the western region system strengthening (WRSS), into four packages and had said two packages with high-voltage lines, which were critical, could be undertaken by PGCIL. In the other two packages, which did not require the same level of technical expertise, competitive bids could be invited.  

Policy / Performance

BHEL, GE tie up on gas turbines

July 12, 2005. Bharat Heavy Electricals Ltd (BHEL) will soon start manufacturing gas turbines run by 'source codes', which ensures that the operation of the plant depends on software available with the manufacturer. The technology was first put in place by equipment manufacturers to ensure that they had bargainin power with electricity plant operators after the plants were set up. This is the same technology which General Electric (GE) used in the Dabhol power plant and which is why GE's cooperation was crucial to revival of the plant. Bhel and GE will also support NTPC in reviving the Dabhol power plant. Bhel sources technology for gas turbines from GE and its collaboration agreement with the global power equipment major is being expanded to cover the 256 MW 'advanced class gas turbines', which would be used in large gas based plants like National Thermal Power Corporation's (NTPC's) Kawas and Gandhar plants. The advanced class gas turbines — large size gas turbines of the type used in the Dabhol power plant — will be manufactured in India for future projects like the Kawas and Gandhar plants. The move is part of the company's strategy to increase its product profile and range of products offered to customers. 

Bechtel to pay $286,000 to MPCB

July 11, 2005. To resolve the Dabhol problem, Bechtel has agreed to pay a penalty of Rs 1.25 crore ($286,000) to Maharashtra Pollution Control Board (MPCB) in a case of polluting water sources around the Dabhol project. MPCB was to issue a show cause notice Bechtel for taking action against the pollution caused to the water sources situated near Dabhol project during the construction. However, it was decided that MPCB would not pursue the same as Bechtel has agreed to pay the penalty. In view of this the agreement between GoI and Bechtel will be inked in a day or two.

Power cross-subsidy to continue

July 10, 2005. The United Progressive Alliance government has circulated a Cabinet note to amend the Electricity Act, 2003 to allow for continuation of cross-subsidisation of power tariffs. According to the UPA elimination of cross-subsidies is only a theoretical issue. Total elimination is not possible in a country like India, where poverty is a serious problem. Even in countries like the United States, cross-subsidisation exists for rural electrification in the form of preference power. The Electricity Act says that cross-subsidisation will be reduced gradually, and eliminated eventually. But the Left parties had objected to the provision on elimination. The Centre has also agreed to the Left's demand not to shift the onus of rural electrification on states. The amendments to the Electricity Act specify that rural electrification will be the joint responsibility of the Centre and states. The Bill to amend the Electricity Act is expected to be introduced during the monsoon session of Parliament.

Last year, the Left parties had asked the Centre to review the Electricity Act, 2003, saying that public ownership and control were desirable in the power sector as electricity supply was a utility service whose control could not be dictated by market forces in a developing country like India. They had said the Act made a distinction between rural and urban areas. They had also said this, along with the mandate to eliminate subsidies and cross-subsidies, would have serious implications for agriculture, powerlooms, streetlights, water works and 75 per cent of the rural population. And thus the Act, if not amended, would divide the masses in rural and urban areas.

Haryana plans power for all

July 10, 2005. A tripartite agreement to implement `Rajiv Gandhi Gramin Vidyutikaran Yojna' for providing electricity to all households in Haryana was signed by the Rural Electrification Corporation, the Haryana Government and the Haryana Power Utilities. The scheme, initiated by the Union Government, is aimed at developing rural electrification infrastructure and household electrification for which 90 per cent capital subsidy would be provided by the Centre. Under this scheme, 100 per cent grant will be provided for electrification of households living below poverty line. Similar agreements have already been signed with West Bengal, Uttaranchal, Chhattisgarh and Rajasthan to enable them to participate in this programme.

MoP moots transparent tariff policy

July 10, 2005. In a bid to attract private investment in the areas of power distribution, transmission and generation, the Union Ministry of Power has decided to introduce a transparent national tariff policy indicating the likely cost of power in each State. According to the Union Ministry of Power the rate of return in the electricity sector should be such that it allows generation of reasonable surplus for growth of the sector. Power Ministry was committed to ensuring that 100 per cent requirement of quality power to all consumers is met by 2012, while efforts are on to provide electricity to all households in the country within the next five years. Moreover, per capita availability over 1,000 units would be ensured, and to achieve this target by 2012, an additional capacity of about 1,00,000 MW needs to be created, entailing in investment of about Rs 9,00,000 crore (Rs 9 trillion). It said that the role of private participation in generation, transmission, and distribution would become increasingly critical in view of the rapidly growing investment needs of the sector. Ministry wants the Centre and State Governments to develop workable and successful models for public-private partnership. It said that under the new National Electricity Policy, priority would be given to hydel power generation as well as generation based on renewable energy sources such as wind and biomass. Nuclear power projects would be set up only to maintain base load. It said that the Government would encourage setting up of thermal power plants at coal pit-heads, as transportation of power would be less expensive than transportation of coal to long-distance power stations. Ministry was of the view that the level of subsidisation could be decided by the State Government keeping in view the relevant aspects, but the draft tariff policy has emphasised that provision of free power is not desirable, as it will encourage wasteful consumption besides, in most cases, resulting in lowering of water level. This, in turn, may lead to avoidable rapid water shortage for irrigation and drinking purposes.

DPC’s local lenders, foreign creditors sign deal

July 10, 2005. The Dabhol settlement process entered another crucial phase with the Indian lenders signing a settlement with the offshore lenders to Dabhol Power Company (DPC), and paying $229 mn (Rs 9.987 bn). The Indian lenders are expected to reach a settlement with the Overseas Private Investment Corporation (Opic) and pay $220 mn (Rs 9.594 bn), which is inclusive of the political risk insurance (PRI) claim and its debt participation as a secured lender. The Indian lenders and Bechtel have already arrived at a figure of $160 mn (Rs 6.978 bn) payment, but a couple of issues regarding tax payment and third party claims are yet to be resolved. The newly formed special purpose vehicle, Ratnagiri Gas & Power (RGPPL), will take over the debt from offshore lenders into its books. The Government of India will not be part of any of the deals currently being signed between Indian lenders and other stakeholders. Instead, MSEB and MPDCL will sign these documents.

EPL for financial closure of Gujarat project

July 8, 2005. Essar Power Ltd (EPL) is in the last leg of achieving financial closure for its 1500 MW gas-based power project in Gujarat. The company has tied up most of the debt component of Rs 3,068 crore (Rs 30.68 bn) and is presently in talks with the US Exim Bank for the remaining Rs 500 crore (Rs 5 bn). The total cost of the project is Rs 4,048 crore (Rs 40.48 bn) with Power Finance Corporation (PFC) as the lead financier to the project. PFC has already sanctioned Rs 576 crore (Rs 5.76 bn) to the company. Targeting financial closure of this project by end-September, the company has already signed a memorandum of understanding (MoU) with the Power Trading Corporation for evacuation of power.

The power purchase agreement (PPA) is currently under discussion with the developers. It will be a long term contract for 25 years and the likely beneficiary states will be Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Delhi. The preliminary study for power evacuation has been carried out by Power Grid Corporation of India Ltd (PGCIL). The gas supply agreement for the project has been signed with Gujarat state Petroleum Corporation (GSPC) and the project has been asigned a “in-principle” mega project status. Essar Power is currently generating 515 MW at its power project in Gujarat. Out of this 215 MW is being consumed as captive power (for its steel plant at Hazira) and around 300 MW is being sold to Gujarat Electricity Board (GSEB). Essar Power’s fully owned subisdiary-Bhander Power is producing another 100 MW and is being expanded to 355 MW by 2006.

Power, coal ministry chart plan to deal with coal shortage

July 7, 2005. The ministries of power and coal have agreed on a detailed roadmap to deal with the existing shortages of coal for power plants. According to the roadmap while coal supplies, in the short term, will be augmented by imports (around 13.45 mt coal imports have been planned for 2005-06), all future coal linkages will be provided based on the performance of the power stations. For the country as a whole, the overall linkage will correspond to 80 per cent plant load factor (PLF) of power stations. For power stations of NTPC and many state electricity boards (SEBs), the coal linkage will be related to 95 per cent PLF. While all coal companies will be asked to step-up production, it has also been considered in the roadmap that the expansion projects of existing coal mines will be cleared soon. It also suggested that around 9,000 MW capacity based on coal is scheduled for commissioning during 2006-07 and the coal demand in this period is 367 mt. Given the current availability, there is a gap of over 30 mt. By 2007-08, at least 25-30 mt additional production should come through captive mines and this should go up to 50 mt by 2009-10. Even captive mine developers of power sector have been asked to ensure timely development of coal blocks alloted to them. In case the captive mine developers are not moving as per schedule, their allotments will be cancelled.

Genco likely to import coal

July 6, 2005. The Andhra Pradesh Power Generation Corporation (APGenco) is contemplating purchase of coal from Australia, South Africa or Indonesia after inviting international bids. This follows the advice by the Union Government to import coal for Vijayawada Thermal Power Station as it is likely to face a shortage of 400,000 tonnes annually as per the present indications.

Free power for Punjab farmers

July 6, 2005. The Punjab government would give free power to farmers despite Prime Minister Manmohan Singh's stand that free power and power subsidies should be done away with. Incidentally, Punjab Chief Minister, Amarinder Singh, owns hundreds of acres of agricultural land in the state like scores of other politicians and influential landlords. The free power scheme would put a burden of Rs 3oo crore (Rs 3 bn) on Punjab.

WBSEB gets sops under APDRP

July 6, 2005. The West Bengal State Electricity Board (WBSEB) has received Rs 302 crore (Rs 3.02 bn) incentive for the 2003-04 fiscal under the Accelerated Power Development and Reform Programme (APDRP). This is the highest-ever incentive received by any state electricity board (SEB) of the country since the introduction of the programme in 2001. Under APDRP, the ministry provides incentive in the form of a grant which is 50 per cent of the loss reduced by a SEB in a fiscal. In 2003-04, the power utility reduced its loss by Rs 605 crore (Rs 6.05 bn) to earn its first-ever operating surplus of Rs 150 crore (Rs 1.5 bn) on a revenue of Rs 4,300 crore (Rs 43 bn).

In the fiscal 2002-03, it earned an incentive of Rs 73 crore (Rs 730 mn). During 2004-05, WBSEB sold around 11,000 MU of electricity. Although the power utility is yet to finalise the accounts for the fiscal, sources indicated that it would be able to make over Rs 300 crore (Rs 3 bn) operating surplus on a revenue of over Rs 4,800 crore (Rs 48 bn) and the loss reduction would be around Rs 450 crore (Rs 4.5 bn).




Global oil giants want to dig into ONGC’s deep water blocks

July 12, 2005. At least six leading global oil majors, including British Petroleum (UK), British Gas (UK), Petronas (Malaysia), Petrobras (Brazil), BHP Billiton (Australia) and Andarko (Canada), have put in their expression of interest for partnering ONGC in its deepwater exploration projects. This signals the beginning of large investments in India’s exploration and production business, which till now had failed to attract the big guys. ONGC plans to partner these firms in deepwater exploration projects which had been put up for bidding under the open acreage systems. These firms can come in as majority partners in the project and can even take up operatorship of the exploration blocks. ONGC had put up at least five deepwater exploration fields on the block. These exploration fields have been given to ONGC on a nomination basis by the government. At least three of these blocks belong to the gas-rich KG Basin. While ONGC had invited bids for five blocks, expressions of interest have been submitted for four blocks. The fifth block, which is in the Kerala-Konkan region, has failed to evoke any interest. This is a part of the new open acreage system which allows ONGC and other upstream companies to offer equity to other oil companies and take them as partners on existing projects. Although these blocks have been given to ONGC on nomination basis, the projects will enjoy all the incentives provided under the new exploration licensing policy.

Statoil plans to develop new oil field

July 11, 2005. Statoil ASA plans to develop a new oil and natural gas field called Tyrihans in the Norwegian Sea. The project partners submitted plans to the oil ministry for approval of the 14 billion kroner ($2.1 billion) project, due to begin production in 2009 up to 80,000-barrel-of-oil per-day. The project is one of the biggest currently planned for Norwegian waters. Norway's offshore oil fields have a capacity of about 3 million barrels per day, making the Nordic country the world's third largest oil exporter after Saudi Arabia and Russia. However, with production expected to decline at older fields, the government has encouraged oil companies to move ahead with projects that would shore up supplies. The field has estimated reserves of 189 million barrels of oil and 1.23 trillion cubic feet of natural gas. It is to be developed with infrastructure on the ocean floor, called sub-sea wells, that will be remotely controlled from Statoil's existing Kristin platform, about 20 miles away. The project also includes an underwater pipeline, connecting Tyrihans to the Kristin platform that will be electrically heated to prevent the formation of hydrates, a kind of hydrocarbon ice that could clog the line.

Dolphin Energy secures four bn $ for gas project

July 9, 2005. Regional operator Dolphin Energy Ltd secured four billion dollars in financing commitments for its mega-project to develop and transfer offshore natural gas from Qatar to the United Arab Emirates. The "binding financing commitments" came from 25 national, Islamic and international financing institutions. Dolphin will accept approximately 3.5 billion dollars of the four-year commitments offered, which will cover the construction costs of the project in line with its scheduled completion in late 2006. The conventional lending facility amounts to 2.45 billion dollars and the Islamic financing is expected to be one billion dollars. Dolphin is building a regional network to export gas via a submerged pipeline from Qatar, which has the world's third-largest gas reserves, to Abu Dhabi, and then on to Dubai, Oman and eventually Pakistan. The project is expected to come on line in 2006.

Pakistan opens gas project

July 7, 2005. By opening Rs600 million gas line project for Murree hills, Pakistan would meet its growing energy requirements for fast-paced progress both through exploitation of indigenous resources and imports from regional countries. Pakistan was strategizing its energy requirements and working on import of natural gas from Qatar, Iran and Turkmenistan and electricity from Tajikistan and Kyrgyzstan.

Russia, Kazakhstan to invest $23bn in gas project

July 7, 2005. Russia and Kazakhstan will invest from $22 billion to $23 billion in the Kurmangazy gas project on the Caspian Sea. Kazakhstan’s total revenue from the project over the entire 55 year period could amount to $31 billion. Kurmangazy field will be developed by subsidiaries of Kazakhstan’s national oil and gas company KazMunaiGaz’s and Russia’s Rosneft. Rosneft has a 25 percent stake in the project, and KazMunaiGaz has 50 percent. Russia’s Zarubezhneft secured an option to buy the remaining 25 percent. Kurmangazy’s recoverable oil reserves are estimated at about 1 billion tons of oil. Exploration is expected to take two years, assessment and preparation for commercial use will take an estimated three years, and it would take another four to five years to begin production, which is projected to reach 60 million tons a year.

Petronas-Shell gas discovery in Malaysia

July 6, 2005. A joint venture between Royal Dutch/Shell Group and Malaysia's state oil firm Petronas has made its fifth gas discovery off peninsular Malaysia. CS Mutiara Petroleum Sdn Bhd said more studies were needed to determine the volume of gas available from the latest find, but said exploration of the field off northeast peninsular Malaysia had proven a major success.


Russian gas stations in US market

July 10, 2005. Lukoil, Russia's largest oil company has launched a marketing offensive to put its name on gas stations across the U.S. and become as well known here as it is at home. Over the last five years, OAO Lukoil - pronounced luke-oil - has entered the U.S. market by acquiring about 1,300 Getty gas stations and 800 Mobil locations in the Northeast. It is converting them to its brand and recently launched advertising to introduce itself to consumers in 13 states. The company plans to keep acquiring assets in the U.S., the world's biggest consumer of oil. The Moscow-based conglomerate is the largest oil producer, refiner and distributor in Russia and second in the world in proven oil and natural gas reserves behind ExxonMobil.

Exxon, Aramco sign refinery deal in China

July 8, 2005. Exxon Mobil Corp., Saudi Aramco and top Asian refiner Sinopec signed a $3.5 billion deal to expand a refinery in south China, sealing what they called the country's largest oil project. The deal gives Exxon, the world's top oil firm, and Middle Eastern giant Aramco a foothold in China's insular 6.2 million barrel-a-day (bpd) refining sector, now dominated by state giants Sinopec and PetroChina. China, the world's number two oil consumer, is trying to raise its refining capacity to feed a racing economy that grew 9.4 percent in the first quarter after expanding 9.5 percent in 2004.

Beijing also has to address surging imports, now exceeding 40 percent of its crude oil demand, prompting it to tie up with producing nations such as Saudi Arabia. The agreement will triple the capacity of a refinery in Fujian province to 12 million tonnes per year (tpy) the equivalent of 230,000 barrels per day and add an 800,000-tpy ethylene cracker, the companies said in a statement. Several downstream facilities would be built as part of the deal, including a 650,000-tpy polyethylene plant, a 400,000-tpy polypropylene unit and a 1 million tpy aromatics plant. Polyethylene and polypropylene are commonly used to produce plastics, while aromatics are used as blending agents in the production of gasoline. The agreement also gives the foreign partners access to China's protected retail sector, where rivals such as Royal Dutch/Shell Group, BP and France's Total are already active.

Venezuela seeks to double petchem output

July 8, 2005. Venezuela plans to more than double petrochemical production over the next seven years with a $10 billion investment, half from state company Pequiven and the rest from foreign investors. Venezuela is going to increase production from 11.4 million tonnes per year to 25 million tonnes per year. Venezuela hopes to complete the projects by 2012. Growth will come from expansions of old plants and proposed new plants on the western Paraguana pennisula and in the eastern city of Jose, where U.S. oil major Exxon Mobil has proposed a $3 billion plant. The OPEC nation currently sells much of its petrochemical products as raw materials to other countries, where they are made into final products. Venezuela, the world's No. 5 crude exporter, is seeking to increase output from its petrochemical and natural gas industries to help decrease its reliance on oil sales, which currently account for about half of government revenues.

Transportation / Trade

Russia will increase oil exports

July 10, 2005. Russia will increase its oil exports, promised at the summit of G-8 leaders, and said that energy policy would be a key theme of the nation's G-8 presidency in 2006. At present, Russia produces about 470 million metric tons, of which 230 million metric tons are exported. This figure would rise to between 250 and 270 million metric tons. Russia will increase supply of crude and work to develop nuclear energy. Russia's capacity to export its abundant oil and natural gas supplies has been hobbled by its limited and obsolete pipeline system. To boost that capacity, it will have to invest in infrastructure upgrades, in particular in the area of liquefied gas transport and completion of oil pipelines to terminals where large tankers could be accommodated.

EUR 50 million support for clean energy gas supplies in Egypt

July 8, 2005. Under its Facility for Euro-Mediterranean Investment and Partnership (FEMIP), the European Investment Bank (EIB) is lending EUR 50 million to the Egyptian Natural Gas Company (GASCO) for two gas pipelines of a combined length of 152 km in Egypt. The pipelines form part of the national gas transmission system that transports natural gas from Egyptian offshore and onshore gas production fields to destinations throughout the country. The objective is to bring Egyptian natural gas to major power plants, industries and domestic consumers, and strengthen the gas transmission system in view of the increasing gas demand.

The project, which includes the design, construction, commissioning and commercial operation of the two gas pipelines, will help reduce power generation costs by replacing oil with gas at existing power stations. Additionally, the new combined cycle plants will raise the overall efficiency of the power system, increase supply of electricity to meet demand growth and diversify energy supplies. Egyptian industry will also benefit from lower cost electricity and will be able over time to adopt internationally competitive gas based technologies. At the same time this conversion will have beneficial effects on the environment as it will significantly reduce polluting emissions.

IPI Pipeline work from April next year

July 7, 2005. Pakistan and Iran agreed to start construction of $4.16 billion Iran-Pakistan-India (IPI) gas pipeline by April 2006 and decided to invite India for trilateral talks. At the conclusion of two-day Pakistan-Iran talks on gas pipeline, all the paperwork about the project would be completed by all the parties concerned before April next. They also signed a memorandum of understanding, under the MoU, Iran would provide to Pakistan a comprehensive data sheet about the price, and quality and quantity of the gas it would reserve for the pipeline. They were talking to reporters after the signing of the MoU. After a 10-year period, the dream of exporting gas to Pakistan and India through pipeline would become a reality. Iran will be able to ink the final contract with Pakistan for exporting its gas by April.

Both the countries had agreed that the project’s technical issues would be solved in the remaining 10 months so that Iran could make the final contract to sell its gas. By 2010, Pakistan would start experiencing gas shortages and in the meanwhile it would be able to import gas from Iran. Pakistan needed gas from Turkmenistan, Qatar and Iran to maintain its GDP growth, which was unprecedented in its history.

China, Nigeria sign oil supply pact

July 7, 2005. PetroChina International and the Nigerian National Petroleum Corporation (NNPC) signed in Abuja an oil supply pact, with the latter selling 30,000 barrels of crude a day to the former. The contract is for a period of one year and is also at the prevailing cost of crude at the international market. China is considering building a hydro-station in Mambilla and has already expressed interest to take over the Kaduna Refinery and Petrochemicals as core investors in the event of privatization. The contact which is renewable after one year will fetch the NNPC about US$800 million. Nigeria will continue to offer China opportunity to meet its high demand of energy. Nigeria has approved four oil blocks to China aimed at assisting it to secure more crude to meet the needs of its expanding economy.

Pakistan signs agreement on gas pipeline project with Iran

July 7, 2005. Pakistan signed an agreement with Iran for a gas pipeline project with gas supply from Iran expected to begin within three years. The two sides have agreed to the terms and conditions of the project; hope to start receiving gas from Iran within the next three years. By the year 2010 Pakistan will be facing shortage of gas for which Pakistan has started planning. Pakistan is very keen about Iran-Pakistan gas pipeline project and would like it to start as soon as possible. The key is speed and transparency. The 2,600-kilometre (1,600-mile) overland gas pipeline project, with an estimated cost of about 4.5 billion dollars, has been strongly opposed by the United States because of its concerns about Tehran's nuclear programme.

Iran’s gas exports to China start in 2009

July 6, 2005. Iran will annually export 10 million tons of natural gas to China beginning in 2009. The contract to export Iran’s natural gas to China has been already finalized and it is expected that 10 million tons of LNG will be exported to that country per annum, starting from 2009. The amount of the exported gas would be realized after completion of two giant projects being developed by the international companies Shell and Total.

The Kazakhstan-China pipeline operational this year

July 6, 2005. The Atasau-Alashankou pipeline, which is to transport oil from Kazakhstan to China, is to be operational as of December 2005. Contractors are hard at work and have promised that the pipeline will be ready by December 16th 2005. Negotiations are under way between KazMunaiGas - Kazakhstan's national oil and Gas Company - and the Chinese National Petroleum Corporation on the construction of such a gas pipeline.

This pipeline would open the Chinese market to Kazakh natural gas suppliers. This market is in constant growth: according to Chinese experts, the country's requirements in natural gas supply will grow beyond the 200 billion cubic metres by 2020 - representing a yearly growth of between 11 and 13%.

Iran's tech pact with Linde clears hiccup in LNG deal

July 5, 2005. The technical hiccup on expertise for liquefaction of natural gas may not be an obstacle for Iran-India LNG deal any longer. A national oil company of Iran has tied up with a European hydrocarbon major, Linde, for sourcing the technology. Concerns were raised about Iran's ability to convert natural gas into liquid form so that its transportation could become easier. Iran is confident of sticking to the deadline of June 2009 for the gas delivery to India. The technology for liquefaction of gas is vested with some US and European companies. Neither the Indian companies nor their Iranian counterparts have this technology at present. Besides, the threat of sanctions from the US was said to be a deterrent for these European and American companies from offering this technology to Iran. Attempts were made by the stakeholders in this project to procure this liquefaction technology. Iran has tied up with one of the licensees of the technology, Linde. Further, the Ministry of Petroleum and Natural Gas was weighing with the option of asking the Indian firms such as Engineers India Ltd and Indian Oil Corporation Ltd to negotiate the terms for adopting the liquefaction process. Recently a technical team from Iran was in the Capital to discuss the project.

India and Iran have entered into a $20-billion LNG deal. As per the deal, National Iranian Gas Export Company would export LNG to India for 25 years from the end of June 2009. The exports would start at four million tonnes and then build up to five million tonnes over the first year of contract. The Indian partners in the deal would be Indian Oil Corporation and GAIL (India) Ltd. On the concerns being expressed on the Iran-Pakistan-India gas pipeline project, Pakistan has been stating that it will reach a final decision on it by December 31. A Pakistani team is expected on July 11-12 to discuss the same.  The project would be beneficial for both India and Pakistan as common consumers of gas.

Policy / Performance

Russia prioritizes China over Japan for oil

July 10, 2005. Russia will prioritize China over Japan as the recipient of oil supplies from a pipeline project linking eastern Siberia with the Russian Far East. Both Japan and China have tried to convince Russia to favor it in planning the pipeline's route. Russia had at one point last year agreed to build a 4180-km pipeline from Taishet near Lake Baikal to Nakhodka on Russia's Sea of Japan coast, Japan's preferred route. Tokyo has offered to extend some $12 billion to help finance the project. China, which had initially inked the deal for a pipeline from the Siberian oil fields to Daqing, later offered Moscow more than $13 billion. In April, Moscow issued an order for the pipeline to be built from Taishet to the halfway point at Skovorodino near the Russian-China border, triggering worries in Tokyo that oil supplies would go to China first. When complete, the pipeline is expected to funnel 80 million tons of oil a year.

Ukraine raises rent for oil and gas condensate production

July 8, 2005. Ukraine has raised the oil and gas condensate production rent by 83 percent to USD108.9 per ton, which is set forth in the law on amendments to the Ukrainian budget for 2005, adopted by the country's parliament. With oil output forecasted at 1.234m tons for August through December, the budget revenue from oil production is to be increased by USD61.6m. Gas condensate output is forecasted at 448.3 thousand tons, and budget revenue will grow by USD22.1m. Prices for oil and gas condensate extracted in Ukraine went up against prices underlying the budget, and this resulted in an increase in the profitability of oil and gas producing enterprises.

Negative refining margins cloud Asia demand

July 7, 2005. Asia’s simple refining margins have turned negative and may slide further, a sign that the region may struggle to deliver another year of dramatic demand growth. Margins for export-oriented refiners in Singapore and South Korea tipped into the red as much as a month ago, despite the perception that voracious demand for oil products from Asia is partly responsible for $60-plus crude. The negative margins, which have so far surfaced only in Asia, show weakness in top- and bottom-of-the-barrel products is dragging down strong profits for diesel and heating oil. The front-month fuel oil crack spread to Middle East Dubai crude has fallen to around minus $11 to minus $12 a barrel from around minus $6 in May, while the naphtha-Dubai crack was at a discount of $4.70 a barrel versus plus $5 in April. Complex refiners who can extract more light products from each barrel of crude were still making a profit of $5-$6 a barrel last week, half the peak in April but illustrating the growing gap as global specifications are tightened.

The picture is most marked in China, where many refiners are cutting runs by about 4 per cent this month due to a combination of reduced consumption and low, government controlled retail prices, which ensure refineres run in the red. China’s largest refiner, Sinopec, has even opted to resell millions of barrels of imported crude rather than keep the oil in storage for processing later. South Korean refiners have ramped up runs after returning from maintenance in July, but some have opted not to return to maximum operations due to the poor margins, traders say. Traders said the poor margins are also largely due to high Dubai crude prices, which hit record levels at above $53.97 a barrel on June 28. Dubai was around $44.50 since May. Despite negative margins, Singapore’s upgraded refineries are still running at above 90 per cent.

1.3 per cent rise in Oman petroleum products

July 6, 2005. Production of petroleum products in Oman registered a marginal increase of 1.3 percent in the first three months of 2005, with crude oil refined at Oman Refinery Company touching 7.64 million barrels compared to 7.53 million barrels in the same period last year. Production of excellent grade petrol declined by 14.2 percent, totaling 963,000 barrels compared to 1.2 million barrels during the same period last year while ordinary grade petrol increased by 18.35 per cent, totaling 3.4 million barrels compared to 2.9 million barrels. Jet fuel production witnessed a rise of 53.1 per cent from 3.04 million barrels in 2004 to 4.66 million barrels this year. Production of diesel marginally decreased by 0.9 percent, touching 1.69 million barrels compared to 1.70 million barrels last year.

EU to urge OPEC to pump more to boost economy

July 6, 2005. The European Union will urge the OPEC next week to boost production to prevent oil prices from doing more harm to Europe’s economy. The EU will also seek to help European energy companies such as London-based BP Plc raise investments in oil-producing nations when the 25-member bloc meets OPEC for the first time at a June 9 gathering in Brussels. Europe wants to deepen ties with foreign suppliers after a price rise to more than $50 a barrel prompted economists to cut growth forecasts for the region. Western investment could help OPEC members, who supply about 40 per cent of the world’s oil and are producing close to capacity. Imports account for about four-fifths of EU oil consumption. Crude-oil production by OPEC fell in May for the first time since January. Average daily output last month fell 10,000 barrels to 29.92m barrels, according to the survey of oil producers, companies and analysts.



Russia builds 20 nuclear power stations in Iran

July 11, 2005. Russia is a likely partner in a plan envisaging construction of 20 nuclear power stations in Iran. A plan has been approved in parliament obliging the government to study the possibility of building 20 nuclear power stations. Russia is constructing Iran's first nuclear reactor at Bushehr, part of a technological cooperation agreement with Tehran in 2002 that opened the way for construction of up to five reactors over the coming 10 years. Iran intends to continue cooperation with Russia in the nuclear energy sector.

Iran’s Karun 3 fourth power plant commissioned

July 6, 2005. The fourth unit of the Karun 3 Dam power plant, with the production capacity of 250 MW, was commissioned. Karun 3 power plant is the largest hydroelectric power plant across the country, enjoying the capacity of generating 2,000 MW electricity. With the water filling of Karun 3 Dam in October 2004, 1000 MW electricity started flowing into the power grid, fulfilling the expected output for the first summer after the commissioning of the reservoir. The supply and flow of electricity by four units of Karun 3 into the national grid have so far alleviated the concern over increasing consumption in the summer. Four other units of the said power plant are planned to be commissioned by the next summer. Over 650 million Watts of electricity per hour has been so far produced since commissioning the first unit of Karun 3 in early 2005.

Transmission/ Distribution / Trade

Work set to begin on GCC power grid

July 12, 2005. The six-nation Gulf Cooperation Council (GCC) will begin the construction work on the first phase of the multi-billion riyal GCC power grid in September. When finished, it will interconnect Saudi Arabia, Kuwait, Bahrain and Qatar.  These four Gulf States will be interconnected by the year 2008; the whole grid project will be completed by 2010. The huge power-grid linkage project will save the Gulf States billions of dollars, as it will reduce the cost of generating power. The Kingdom’s appointment of a panel to supervise the GCC power grid project was the final step toward project implementation, and that means a big step forward for economic integration throughout the Gulf region.  The GCC Power Grid Authority, made up of representatives from all Gulf countries, is based in Dammam. The move to set up a central power grid is significant because the cost of linking the GCC power grids will be less than setting up multiple power generation plants in the region. The project will ensure regular power supply to the thousands of industrial units operating in the Gulf countries, thus helping to boost their productivity.

This project will also allow GCC countries to sell their surplus power to one another. The project will also address the problems of power shortage because electricity consumption is surging in the Gulf States. In Saudi Arabia alone, the total number of electricity subscribers exceeds 3.4 million. More than 7,100 cities and villages in Saudi Arabia have so far been provided electricity. The Kingdom’s power requirement is growing at a rate of 5.5 percent annually. The Kingdom will still need to invest SR140 billion within the next twenty years to cope with an increase in power consumption.

Policy / Performance

UES, RUSAL agree to complete 1980s power plant

July 10, 2005. Russia’s power monopoly and the country’s biggest aluminium producer agreed to finish building a Siberian hydroelectric plant after years of squabbling. Unified Energy System and RUSAL, the world’s No.3 aluminium company, signed an agreement to finish construction of the Boguchansk hydro plant, started in 1980 when Soviet leader Leonid Brezhnev was in power, but never completed. A joint company will own UES’s and RUSAL’s stakes in the plant totalling about 90 per cent and all the shares in an aluminium plant that will be built nearby. Finishing the power station will cost about $1.2 billion and building the aluminium factory will cost about the same. Construction of the plant may start in 2006 if all the necessary paperwork is finished in time. The hydro-plant, a grand Soviet project, has cost billions of dollars in upkeep since the project was initially approved in 1976.

China seeks Canadian uranium to meet future power needs

July 5, 2005. Chinese officials and investors have been scouting for uranium in Canada, the largest producer in the world, to power new nuclear power plants. Canada has already delivered fuel to China for use in its two Canadian-built CANDU nuclear reactors purchased in the 1990s, but the United States remains its primary customer, receiving half of the annual 11,600 tonnes of uranium produced here each year. Now, China is planning to spend billions of dollars to build 40 more nuclear reactors by 2020 to generate electricity and feed its booming economy while reducing its reliance on coal currently nuclear power represents only one percent of its energy supply compared to coal at 66 percent. And so it is meeting with suppliers in Canada, Australia and Kazakhstan, looking to buy raw materials or participate in joint mining ventures.

A global uranium shortage of 45,000 tonnes is expected over the next decade, according to a May report by the Asia Pacific Foundation of Canada funded by Canada's foreign affairs department, largely due to growing Chinese demand, prompting fierce competition recently among nations in this area. Canada and China have a history of successful collaboration in the nuclear energy sector... The two countries will encourage Canadian and Chinese enterprises to expand commercial partnerships in this sector, and will conduct research on the development of advanced nuclear energy technologies and related issues to improve the cost and safety of nuclear energy systems.


Renewable Energy Trends


Bio-diesel plant in Raipur

July 12, 2005. Chhattisgarh is planning to opt for bio-diesel vehicles. The first bio-diesel plant of the state will be ready in Raipur in one and a half months. The state government has launched the jatropha (a plant locally known as ratanjot) cultivation programme on 2 mn hectares of barren land, jatropha being a bio-diesel plant. The state said that low-cost bio-diesel plants would be set up at block headquarters, at just Rs 110,000. It also said bio-diesel extraction techniques were simple and cheap, enabling farmers to do the job at home. The state government has plans to set up forest committees and self-help groups to collect jatropha seeds. Moreover, private investors will be assisted in cultivating jatropha.

Call for national bio-fuel policy

July 6, 2005. Foreign exchange worth Rs 20,000 crore (Rs 200 bn) could be saved if the National Policy on Bio- Fuels is adopted. The policy, which envisages replacement of 10 per cent of the petroleum products requirement of the country with bio-fuels by 2012, was proposed by Dr S.K. Chopra, Senior Advisor, Ministry of Non-Conventional Energy Sources (MNES). He said that petroleum products import would go up drastically by 2020 and therefore, called for immediate constitution of the policy. National Bio Fuel Policy as well as Bio Fuel Development Board would shortly be set up following the recommendations from MNES and the Planning Commission. MNES is also proposing to undertake plantation of Jatropha in 400,000 hectare degraded and non-degraded land to generate seeds, the extraction of which will produce a substantial quantity of bio fuels to meet the country's energy requirements. This will be a major step towards achieving energy security for the country. As many as 12 varieties of plants in India could be grown to produce bio-fuels. So far only the Jatropha plant has been exploited for the purpose. Various research institutions were conducting serious tests for plantation of other oil bearing trees for which definite estimates would come after the research work is completed.

Urban centres lagging in tapping renewable energy: TEDA


July 10, 2005. The Tamil Nadu Energy Development Agency is now targeting the urban local bodies to tap the unlimited renewable energy to overcome power shortage in the State, reduce pollution and save depleting natural resources. Tamil Nadu stood first in the country in using renewable energy. The State was producing one-third of the total renewable energy in the country. Besides, 2040 MW of windmill power was being produced in the four districts of Tirunelveli, Kanyakumari, Coimbatore and Erode, as against the 3800 MW windmill power generated in the country. In order to create awareness among the end-users of power, the TEDA has been conducting meetings in various districts. Over 4500 solar streetlamps have been installed in the State, mostly in 600 rural local bodies. According to TEDA at a time when the Tamil Nadu Electricity Board has framed strict regulations to provide new streetlights in the extension areas, the municipalities and corporations should go in for solar streetlamps. The local bodies could save huge sums of money that goes towards monthly electricity charges, even though the initial investment is high. It also urged to the representatives of urban local bodies to go in for power-generation by using solid waste generated in their areas. The local bodies could get Rs.2 crores (Rs 20 mn) to Rs. 4.5 crores (Rs 45 mn) as subsidy for such power generation plants with a capacity of one megawatt. In the state it has been made mandatory to install solar water heaters in hostels, hospitals, hotels, lodges and marriage halls and residential buildings above 5,000 square feet while seeking approval for construction in urban areas.


PSC approves wind farm near Horicon Marsh

July 8, 2005. The Public Service Commission of Wisconsin has approved construction of a 133-turbine wind farm on more than 32,000 acres near the Horicon Marsh. The PSC decision gives the go-ahead for the largest clean energy project ever in Wisconsin. The 200-megawatt wind farm, the state's largest, is being developed by Forward Energy, a subsidiary of Chicago-based Invenergy Wind L.L.C. The wind farm will generate enough electricity to power 72,000 households. The Forward Energy wind farm will be located predominately on farmland near Brownsville, within the towns of Byron, LeRoy, Lomira and Oakfield in Fond du Lac and Dodge counties. The new wind farm will expand wind power capacity in the state four-fold. Wisconsin now has nearly 53 megawatts of wind power capacity.

Energy giant signs deal with Shetland to build huge wind farm

July 7, 2005. The power giant Scottish and Southern Energy signed a historic agreement to build Europe's largest community-backed wind farm on Shetland, in a major boost for the economy of the Northern Isles. The deal will lead to the development of 200-turbine wind farm capable of generating 600 MW of electricity, making the scheme the most productive renewable energy development in Europe. The final go-ahead for the £500 million development, however, will hinge on Scottish Executive approval for the collaborative venture and the construction of a £400 million undersea cable, linking the islands' electricity network to the Scottish mainland for the first time. The wind farm at Muckle Moor will be capable of generating enough electricity to power 125,000 homes.

Calgary's Enmax to build C$140 mln wind farm

July 5, 2005. Enmax Corp., the city of Calgary's electric utility plans to build a C$140 million ($113 million) wind farm in southern Alberta, its second such power project in the region. The development, near the town of Taber, 265 km (165 miles) southeast of Calgary, will include 37 Enercon wind turbines with total output of more than 80 MW. All the power from the 100-percent-owned facility will be sold to the city of Calgary under a 20-year contract. Construction is slated to begin during the fourth quarter, with start-up of the wind far scheduled for late 2006. Enmax is a 50-50 partner with TransAlta Corp. in the 75 MW McBride Lake, Alberta, wind farm, Canada's largest. That facility started up in 2003.



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