MonitorsPublished on Feb 21, 2006
Energy News Monitor I Volume II, Issue 34-35
India’s Energy Security: Issues, Major Challenges and Policy Suggestions - I

Draft for Comments



oupled with the fast paced economic growth, the pattern of energy consumption in India is witnessing rabid transformations in recent years. The share of commercial energy, especially oil and gas, has become predominant in the country’s primary energy mix. The voluminous growth of oil and gas consumption in the scenario of scarce domestic reserve/production has resulted in surge of oil and gas imports from outside the region. All forecast studies unanimously point to overwhelming oil import dependence in the near to the medium term consequent upon the expected economic buoyancy. Simultaneously, recent events such as northwardly movement of oil prices since 1999 after the 9/11 terrorist strike, the war in Iraq and its impact on the stability of the Middle East,  and stiff competition to secure oil and gas in the global market have resulted in growing concern over India’s imminent energy security threats. Under these circumstances, energy security has become the epicenter of policy deliberations in India.

With the above as a reference, the primary objective of this paper is to analyze various critical issues relating to India’s energy[1] security and assess the current policies. Moreover, attempt has been made to delineate viable short, medium and long run policy options for securing India’s energy future.

Defining the Problem

Growth induced structural changes have precipitated phenomenal increase in the consumption of all forms of energy in India. The resilient growth of the Indian economy in the post liberalization era and the consequent structural transformations of other sectors of the economy can be evident from the energy sector in general and hydrocarbon sector in particular. One important resource implication is that the sustenance of the Indian miracle growth trajectory crucially hinges on the availability and accessibility of adequate and reliable sources of energy.  The study of energy security of an energy deficient and importing country encompasses a complex correlation of domestic as well as international social, political, economic and strategic variables. In the context of energy importing country like India, the concept of energy security can be defined as “the availability of ‘reliable supplies of energy’ at reasonable/affordable prices to satisfy demand at a given time”. Reliability of supplies implies ‘the risk of physical disruption and reasonable/affordable price foresaw the likely negative macroeconomic impact of sudden and substantial increase in energy prices’.

The security aspect, therefore, involves a quantity risk and a price risk, mainly influenced by domestic as well as international economic and strategic variables. Moreover, in a country like India, where vast majority of the population lives below the poverty line, the concept of energy security should also be linked with ‘accessibility and affordability issues’, as the ‘energy burden’ for low income groups could adversely affect the stream of development. This issue has become imminent and pertinent in India’s present energy set up: “where the government is gradually withholding its responsibilities by liberalizing and commercializing various commodities and services in the energy sector in favour of private stakeholders, whose primary objectives are not always in conformity with the socio-economic compulsions of the vast majority”. Thus security of supplies to consumers faces new challenges in the phases of liberalization, government withdrawal and competition in the energy sector owing to the phenomenon known as, ‘energy security externality’, peculiar to a deregulated energy sector. Therefore, the issues pertaining to India’s energy security needs to be comprehensively analyzed in order to devise suitable enabling policy outcomes.

Economic Growth and Energy consumption: The Conjugal Symmetry

In the last decade and half, significant structural reforms helped India become one of the world’s fastest growing economies, boosting living standards and reducing poverty. Economic liberalization and rising income also stimulated rapid growth in trade, FDI inflow, and expansion of high income middle class.  Since the mid 1990s, Indian economic growth pattern has exhibited the features of a “dual economy”. While, highest growth has been concentrated in the ‘new economy’ services sectors like information technology, telecommunications and finance; productivity growth and output growth in many ‘old economy’ sectors such as agriculture, infrastructure, mining and to some extent manufacturing has not been so strong. However, recent years have witnessed growth in manufacturing and other positive developments in the old economy sectors such as agriculture and mining, thereby promising a resilient growth in the future. In fact during the last year 2004-05, the manufacturing sector has registered an impressive growth rate of 9.2 percent. Indian economy has achieved highest ever average growth rate over six per cent per annum, during the nineties and sustaining higher growth rates during 2001-2005. The spectacular growth rate has been achieved in services and it is now contributing more than 50 percent of the country’s gross domestic product (GDP). The rate of inflation has been controlled and brought down from high of 13 percent in 1991-92 to 4 to 5 percent on an average in 2004-05. External debt indicators have been substantially brought down in last decade showing the stability of the Indian economy. The balance of payment (BoP) situation has improved and current account has become surplus for the first time in 2002-03. Market determined exchange rate has been accomplished with considerable finesse and it is reflected in gradual but stable exchange rate depreciation. Export and imports have been increasing more than 20 per cent per annum reflecting the growing Indian economy and its competitiveness in the international market. The financial market, particularly capital market has remained bullish leading to huge FII inflows into India. Growing Indian economy started attracting FDI at higher scale in recent years (on an average 4 to 5 billion dollars for last four years). Moreover, as per the trends of huge forex reserves and positive Bop position, recent years have also witnessed increasing outward flow of FDI from India. Thus, in a nutshell, almost all macro economic fundamentals are looking strong, thanks to continuous efforts of the government towards liberalization.

Thus, a favorable demographic transition, large surpluses on the services and transfer balances, reasonably favorable monsoon, high foreign exchange reserves, increased capital inflows, and improved international factors, etc are the positive developments that help India to achieve higher economic growth. On the whole, India has the inherent strength and the potential to sustain high economic growth and emerge as a leading economy in the world along with China in the near future. In fact, India has the potential to show the fastest growth over the next 30 and 50 years and could emerge among the top three economies in the world by 2041 (Goldman Sachs study, 2003).[2] The overall impressive growth rate and its composition have significant structural implications for all other sub sectors of the Indian economy. One of the most prominent aspects of the growth induced structural changes can be witnessed in the energy sector. The growth induced forward and backward linkages have resulted in excess demand and supply constraints in the energy sector as domestic reserves and production continue to lag behind the demand growth. This has further exacerbated, in a sense, due to the realization of pent up demands of the vast middle class consumers owing to their increasing standard of living.

Economic development results in both qualitative and quantitative increases in the use of energy. The growth of energy consumption is, therefore, a function of the growth in the economy and changes in the lifestyle of households as a result of changes in the income levels enjoyed by them. Economic growth, based on rapid structural change and increased urbanization, is an important factor, which contributed to the increase in energy consumption in India. During the period 1980-95, the commercial energy used increased at an annual average growth rate of 6.5 per cent. In India, energy consumption reflects the energy demand pattern to the extent it is constrained by supply shortages. Although past experience shows that availability consideration rather than price levels are important determinants of energy demand, the energy-GDP elasticity is often used as an indicator for mapping energy consumption response. The declining trend of energy-GDP elasticity during the period 1953-95 is partly due to the structural changes in the economy, the changing pattern of demand, and also the penetration of efficient technology. This elasticity is, however, very high when compared to developed countries, reflecting the fact that India’s per capita commercial energy consumption levels are still very low, and the use of traditional fuels is still being substituted by commercial energy forms.

The significant structural changes in the economy and population growth led to large increases in the consumption of commercial energy. However, the rural population in the country, despite various interventionist policies, continues to depend on traditional fuels (biomass fuels). Even today, these fuels are estimated to account for around 40 per cent of the total energy consumption in rural areas[3] and nearly 30 per cent of total energy supply in India. However the role of commercial fuels have increased over the years as they are substituting traditional fuels in the energy mix, due to the stage of energy transition, which is determined by the level of economic development in the country. Figure 1.1 depicts the trend in growth of commercial energy. As shown in the figure the non-commercial energy consumption is being replaced with various commercial sources of energy. Use of increasing quantities of LPG, and Kerosene for fuel and lighting in rural areas is reflective of the above trend. Currently, coal constitutes about 50 per cent in the energy mix in India and oil and gas account for about 47%. The balance of about 3% is shared by the nuclear, hydro and other sources. The relative consumption of coal, oil & gas, hydro, nuclear and renewable sources are briefly shown in table 1.

Table 1: Share of Future Energy Supply in India (%)



Oil & Gas




























Source: Up to 2011 from Technical Note on Energy, Planning Commission, GOI, 1998-99. Beyond this period the figures have been extrapolated.

Figure 1.1: Growth Trends of Commercial and Non-Commercial Energy Consumption in India

India ranks fifth in the world in terms of energy demand, accounting nearly 4% of world’s primary commercial energy demand in 2004. Although, the commercial energy consumption has grown rapidly over the last two decades, a large part of India’s population does not have access to these sources. At 317 kg of oil equivalent (kgoe), the per capita energy consumption is also low even compared to some of the developing countries.  Primary commercial energy demand in India has grown almost three-fold at an annual rate of 6 percent per year between 1971 and 2001, to reach 314.7 mtoe with corresponding energy elasticity as against GDP of 1.12. Table 2 shows the historical trend in energy consumption growth rates in India.

Table 2: Historical Energy consumption Growth Rates in India


Primary Commercial Energy

GDP Growth Rate

Decadal Growth (%)

1970-71 to 1980-81

4.89 (1.55)


1980-81 to 1990-91

6.36 (1.13)


1990-91 to 2001-02

5.33 (0.96)


Rolling Growth

1970-71 to 1990-91

5.63 (1.28)


1970-71 to 2001-02

5.35 (1.12)


Note: Figures in brackets are the actual elasticity of energy consumption.

Source: Chaturvedi, B.K., ‘Domestic Resourcing of Energy, Gulf and Future of Global Energy’, paper presented at the National seminar on India’s energy Security, JNU, New Delhi, Feb.19-20, 2004.

The industrial sector is the largest consumer of commercial energy in India followed by the transport sector. Together they now account for two-third of the commercial energy consumed in the country. However there has been a marginal fall in their share of the total commercial energy consumption.  Their share was as high as 84 per cent in 1953-54; it declined to 64 per cent in 1996-97. Agricultural sector has, however, registered sharp increase in the consumption of commercial energy, i.e., from 3 per cent in 1970-71 to 9% in 1996-97. During the same period, the share of the household sector in commercial energy consumption has risen to 12 percent. Moreover, it may be observed that the share of coal in total commercial energy consumption has declined steadily over the years; and the share of oil and gas and electricity has steadily increased.

The indigenous production of commercial energy in India increased from 53 mtoe in 1972-73 to about 183 mtoe in 1996-97, registering an average growth rate of about 5.8 per cent per annum. Given the large resources of coal, it is obvious that coal dominates the supply profile. However, coal accounted for as much as 72 per cent of domestically produced energy in 1972-73, its share declined to 65 per cent in 1996-97. In direct contrast to this, the share of oil and gas increased from 16.3 per cent to 27 per cent in the same period.

Despite large coal reserves, it is the share of oil and gas in total primary energy consumption that is increasing. The reasons for this are manifold; the most obvious being that the persistent shortages of coal and power supplies in the past decades have resulted in a switch to petroleum product consumption[4]. This switch took place not as a result of the large supply of petroleum products available domestically, but of the relative ease in importing them. This energy transition is also consonant with universal energy pattern of transition witnessed in the industrial countries, as the economy tries to improve the production base on advanced technology to augment growth and instill efficiency in the production.

Dr. Samir Ranjan Pradhan, Visiting Research Associate

[email protected]

(to be concluded)

The future of Electricity Supply in Karnataka - I

Synopsis: Karnataka, which had been a pioneer in the development of many areas of electricity industry, has been facing electricity shortage continuously since mid 1970s.  The agencies responsible for the supply of electricity have not been able to live up to the public’s expectations. It is rather shocking that even after 57 years of independence the society has not been able to get adequate quantity/quality electricity supply, which is essential for the socio-economic development of all sections.  Addition of generating capacity alone, through mega projects which either submerge large tracts of forests/fertile lands or which burns billions of tonnes of coal/diesel/gas, will not solve the current problems.  Only by the sincere adoption of simple but well-established alternatives, the society can hope not only to provide quality power for all on demand, but also to protect and sustain our fragile environment. 

This article discusses many of the current issues and feasible solutions.  The issues discussed in this article, though focused the lime light on Karnataka, are generally relevant to the entire country.  To be environmentally responsible is the main plank of these discussions.

1.             Introduction:


he state of Karnataka (starting from the erstwhile Mysore state and its predecessors) can proudly be considered a pioneer in the development of many areas of Electricity not only in India but also many parts of Asia.  Starting from one of the first hydro-electric station in Asia at Shivanasamudram in 1902, to the then longest high voltage transmission line in the world between Shivanasamudram and Kolar, to the first state to promote the use of electricity in residences and agriculture in 1960s, to start one of the first co-operative society for electricity distribution in 1969, it had been a story of bold initiatives and adventurous actions.  But it has also been a sad story of power shortages during the last few decades.  

The decade of 1970s was a strange mix of surplus and heavy deficit.  Whereas, there was huge surplus of electricity in early 70s, ever since 1973 Karnataka has been facing power shortage continuously.  While, the state is seeking private investment in manufacturing and services sector, the lack of adequate infrastructure, including electricity, is being quoted by the private investors and financial institutions as the main hurdle in such an investment. Even though the shortage of electricity is not unique to Karnataka, its impact is quite discernible in the state’s socio-economic development.  The green revolution of 60s and 70s, which made India self sufficient in food, has largely been possible because of electric pumps for agricultural purposes. If the society cannot sustain the supply of adequate and quality electricity, not only the agricultural output, but also the industrial output will be seriously affected.

There is no question as to the need for any modern society to be able to supply adequate and quality power to all sections for the socio-economic development.  The need for Karnataka has come to be a pioneer again in devising economical ways and means of bridging the gap between the galloping electricity demand and limited energy resources, without compromising the environmental sustainability.

2.            The recent history:

Starting from a meager generating capacity of 720 KW at Shivanasamudram in 1902 to 891 MW capacity at Sharavathy in early 70s, to micro and mini hydro electric power in early 21st century; super thermal power station at Raichur of capacity1470 MW, to diesel power plant at Yalahanka, to few gas fired stations to captive power generation in private sector, Karnataka has tried to exploit all known the conventional sources of electricity to meet the ever increasing demand.  Whereas, it experienced surplus of power in early 70s, it also had to experience 100% power cut, briefly though, in 1980.  It has undertaken few technological initiatives like synchronous condensers, 400 kV transmission, and banking and wheeling of power.  It has also actively participated in central govt. initiatives like Rural Electrification Corporation (REC), integrated grid operation, Accelerated Power Development and Reform Programme (APDRP) for renovation and modernisation etc.   Per capita consumption in Karnataka has increased from 148.28 kWH per annum in 1980-81 to 389.44 kWH per annum in 2000-01. 

Inspite of all these initiatives there has been continuous shortage of grid-quality electricity (electricity from the integrated network as compared to isolated source like windmills) both during peak hours (known as demand shortage) and energy shortage each year since 1973.  Another disturbing feature of Karnataka’s electricity network has been a considerable level of T&D losses, which is far higher than the international norms.  T& D losses from 1994 to 2002 is indicated in Table 1 below. This level of losses can be attributed as one of the main reasons for the continuous deficit of electricity. 

Table 1: Transmission and Distribution losses in Karnataka










% Loss









Source: Ministry of Power, Govt. of India

Due to various reasons there has not been adequate addition to the installed generating capacity over the years to keep pace with the growth in demand.  The continuous deficit in grid-quality electricity has an adverse impact on socio-economic life of the state.  Karnataka is no more considered to be in the forefront of electricity supply industry today.

3.            Power Sector Scenario in Karnataka:

An overview of the present power scenario in Karnataka is indicated in the following data tables:

Table 2: Available capacity in MW (mega watts) as on 30.11.2004:

State Sector

4,580.07 MW

Private Sector

  822.30 MW

Share in Central Sector

  674.00 MW


6,076.37 MW

Source: Ministry of Power, Govt. of India

 Table 3A: Electricity Availability, Demand and shortage: 1997-2001

                Energy in million units







(x 1000 MU)





Availability (x 1000 MU)





Deficit (%)





Source: KPTCL website

Table 3B: Electricity Availability, Demand and shortage: 2004 (upto Nov. 04)

Peak Demand Shortage

9.6 %

Energy shortage


Source: Ministry of Power, Govt. of India

Since the completion of Sharavathy Valley Hydro-electric Project in 70s, there has been an addition of about 4,641 MW of generating capacity within the state and 800 MW of Karnataka’s share in Central Sector Power generation.  Recently a High Voltage Direct Current transmission line from Talcher (in Orissa) to Kolar was also commissioned to import surplus electricity from the Eastern region to Southern region.  But the load growth, with the onset of industrialization, pumped irrigation method and All Electric Homes, has been more than the additional availability of power in Karnataka since 1973. 

Each year the demand and supply situation is generally manageable during the monsoon months, but results in chaotic scenes during summer months. During the year 2004 the deficit was estimated as about 9.6 % in peak demand and 4.3 % in energy requirement for the year.  Since 1970s it has been a story of shortages, power cuts, scheduled and unscheduled load shedding, refusal of power supply connections to some category of consumers, protests from rural consumers, reduction in agricultural and industrial output, threat of moving industries to other states etc.

Most of the electricity supply industry in the state is in the control of government agencies, and the private sector participation has been minimum so far.  Due to what is termed as ‘non-remunerative pricing mechanism’ and uncertainty of returns the private sector investment in electricity generation has been very slow.  The time has come for the society to take some urgent actions to do away with the uncertain nature of the electricity supply so that socio-economic revival gets a big boost.

4.            Electricity needs of the future:

With sustained deficit in both peak demand and annual energy for many decades, it is hard to determine the actual demand, and the future rate of growth of demand.  The sub-fifty Hz level of system frequency and restrictions placed on different categories of consumers have added to this difficulty.  What has been possible in this regard is only to compile the restricted demand and supply information.  It may not be incorrect to suggest that the actual demand could be much higher than the various forecasts, which normally take certain logics only into consideration, and not the uncertainties associated with the restrictions mentioned earlier.  There are also wide differences in forecast by different agencies.  For the purpose of this discussion the forecast by Central Electricity Authority (CEA), has been taken.

               Table 4: Load forecast for Karnataka





Peak Demand (MW)




Annual Energy (MU)




Source: 16th Annual Power Survey, CEA

The load growth forecast for Karnataka is expected to be an annualized figure of about 7.8% for the next ten years (as per the press reports attributed to KPTCL, the details of which was not available to the author).  As per the demand projection, in table 4 above, for the year 2011-12 the peak demand could be about double the level of the peak demand of 2003-04, and energy requirement could be more than double the level of the energy demand of 2000-01.  With many more villages to be electrified (refer table 5 below), and the growing aspirations of all sections of the society to have adequate access to quality power, the growth in electricity demand can be expected to be continuously at a high level for many decades to come.  In this regard it is interesting to note that the per capita consumption of electricity in Karnataka (about 389 kWH/annum), is well short of that in some of the developed countries (about 10,000 kWH/annum). 

Though it may not be appropriate to measure the development of a nation in terms of per capita consumption of electricity (in view of the need for energy conservation), the attempt of our policy makers to increase the per capita consumption of electricity in India even to half of that in the developed countries could mean a huge increase in the generation of electricity for the growing population of Karnataka.  This would not only mean increased deficit, unless corrective actions are taken urgently, but also mean a grave and credible threat to our fragile environment because the most of the additional capacity, as per the present trend, may have to come from large hydro electric or thermal power projects. 

Table 5: Status of Village Electrification in Karnataka:

Total inhabited villages (1991 census)


Villages electrified (as on 31.5.2003)


Balance of villages to be electrified


Source: Ministry of Power, Govt. of India

Table 6: Per capita consumption of electricity in Karnataka: 1980 - 2001








Per capita Consumption (kWH/annum)







Source: KPTCL website

The concern that the entire society has to address, as soon as possible, is that how are we going to cater to this huge electricity demand, especially in view of the state’s inability to supply adequate and quality power continuously since 1973.  The deficit in electrical energy so experienced has been in addition to the demand/shortage of other forms of energy like petrol, diesel, cooking gas etc.

Views are personal

Shankar Sharma – Consultant to Electricity Industry

[email protected]

(to be concluded)

Black Coal – Needs Healing Touch


o day, the 19th October – 2005, is a historic day for the Coal Industry. For the first time after India’s Independence in 1947, all sections representing Coal, are here in this Coal- Summit, which is being held under the watchful eyes of our Prime Minister, who has shown serious concern for Coal Industry, specially Coal India. While various issues will be discussed today and tomorrow, it is my privilege to highlight a few important matters, which should be known, and need urgent attention. I may recall SCOPE conference of January 1987, where our Late. Prime Minister Sh. Rajiv Gandhi announced to bring a White Paper for PSUs. I was also involved in its formation but I don’t know about its fate now. It is not fare to compare Coal India with other PSUs. Coal Industry was nationalized along with Insurance and Textiles- etc. – but it was unfortunate to face several misfortunes. Immediately after nationalization in 1973, we lost in a plane-crash, its Leader and Architect Sh. Mohan Kumaramangalam, along with his ideas and action plans. Coal India, therefore, overnight became an Orphan – Leaderless, rudderless and directionless. The Orphan-Infant Coal India was under tremendous pressure to produce more and more coal for the hungry existing and upcoming new industries, but without a healing touch to place it on strong administrative and financial legs. We started in 1985/86 creation of systems and proper records for muster rolls, inventories, equipments, communications and computerizations etc, but it was too late as damage had already been done. In the field of manpower alone – it was noticed that over half of the labour should not have been there. No-one retired (only 0.2% against the average 4%) and stories in the newspapers “Son retired – but father still working”, could not be denied. How much care we take in merger of two companies? But in nationalization of Coal Industry; 214 coking coal mines in 1971and another 711 non-coking coal mines in 1973, were dumped together in One Big Basket. We don’t know – with what care and under whose care? Wisdom is against keeping bad and healthy fish in the same tank. Coal India did not have such good fortune. The most important result, we lost U/G British-European technology – along with our prestige and capacity to mine about 2/3rd of our coal resource – amenable to U/G mining. In 1947 India and China both produced 30 MT. each, India 50 years ahead in U/G technology – China being primitive. Today we have to beg U/G technology even from China.  Good governance is a fashionable word to-day. In private sector – both employees and owner suffer for poor governance. In PSUs however – only common man suffers – who are the real owners. In private sector – owner and management are inseparable. But for Coal India – who is the Owner? What is the chain of command and its continuity? What is the link between the owner and the management? My limited knowledge reveals that (1) From 1995-2005, in last 10 years, Coal India was supervised by 10 Secretaries, God knows with how many supporting subordinate staff. (2) 28 Ministers, supported by some more, provided leadership after take over of Coal Industry. (3) 1973-75 – transition period, Coal has 2 CEOs and since Nov 75 (CILs formation) holding company alone had 16 Chairman. Only one was lucky to serve for +5 years but he was not a mining engineer and 4 for +3 years. We require a computer to find out the exact chain of command – 7/8 subsidiary companies included; if someone decides to exercise his newly given right of information. Coal India is therefore, urgently, in need of a healing touch- psychological treatment – strong top leadership with experienced and knowledgeable secretariat; clear chain of command with industry’s captains with a reasonable continuity. If this has to happen, I feel it must; it is possible only now when our Prime Minister is paying close attention and Dy. Chairman Planning Commission – is present right amongst us today. It is not fair to blame Coal India always. In spite of severe handicaps – CIL has been meeting and often exceeding the set targets. Trouble starts when additional demand arise midstream. Coal Industry’s managers are no less efficient than other PSUs. Out of 3 main organs created by Government of India for Mineral Industry in Mid-fifties – two – N.L.C. and N.M.D.C. are performing extremely well. But we must look back to records. NMDC’s turnaround started in 1970-71 after 14 days violent confrontation with the domineering union, and NLC’s in 1981 after 9 days total shutdown showdown with unions supported by the vested interests both inside and outside. In this effort State Govts and bureaucracy gave full support. Management philosophy is quite simple. Management is the responsibility of managers. Our relation with employees is total i.e. 24X7 – unlike unions and others- which is a business relation of fees and give and take. Outsiders can complain only when management is unfair and exploitative. I have some suggestions for the Coal Industry – specially Coal India which are given in my article “Black Coal – Needs Healing Touch” available on page 59 in the souvenir. In free India, let us talk of only National Sector, not the narrow Pvt. or PSU’s. Coal India over the years unfortunately has become captive and needs to be freed in our national interest. Investments are needed which is possible if the door is opened fully instead of half-baked measures. To improve living conditions of the common man, the real owners of PSU’s, capital invested must generate the required wealth with reasonable return. I humbly request you all to give some consideration to my well meaning suggestions. In the end I refer to Holi Geeta – “The song of life” Lord Krishana’s advice to Arjuna –  “Don’t worry about results (fruits) – do your duty”  (perform your Dharma) we are all Arjunas. If we perform out duties sincerely (the satvic part) and create the environment – results are bound to come”

Views are personal

G L Tandon (Padma Bhusan), former chairman - CIL

Petroleum Pricing in India: Brief History, Current Developments and the Way Forward - I

Dr. Samir Ranjan Pradhan*


It is a fact that appropriate pricing policies remain the key element of any sectoral reforms by emitting clear and coherent market signals to ensue competition through providing level playing field to all stakeholders. However, in the Indian petroleum sector, the major factor obstructing the reforms and competition has been the faulty, adhocist and distortionary pricing policies.

Market driven pricing regime therefore is crucial to India’s energy security. Though the sector has been fully deregulated since April 2002, yet, the policies are stacked in letter only and there are substantial government controls, affecting the interests of all stakeholders and delaying the integrated development of competitive atmosphere in the Indian petroleum sector.

Petroleum pricing in India has traversed through several trajectories over the years, particularly with respect to decision making by the stakeholders such as mainly the government and the oil industry. During the first world oil shock of 1973-74, the Government of India (GoI) almost fully passed the burden of high oil prices on to the consumers.

The result of such policies were instantly felt across the Indian economy with sky rocketing oil fuelled inflation, increase in general price level in the economy affecting the fixed income groups, adverse trade balances and overall major macro disorders. Over the years, various committees have been set up, recommendations made, and policies developed, however, never fully implemented owing to internal politico-bureaucratic rigidities and the result being the inefficient, underdeveloped petroleum sector of today.

The major objective of the paper is to analyze the contours of petroleum pricing in India. Highlighting the pricing policies since 1970s till the present times, the paper intends to assess the outcomes of past policies and reflect upon the loopholes. Attempt has been made to align the assessment to the latest report by the Expert Committee (Rangarajan Committee) submitted to the Ministry of Petroleum and Natural gas (MoPNG).


Brief History

The period after the 1970s saw nationalization of the oil industry, which resulted in the public sector dominance of the oil industry through buying up of private entities. In all public sector undertakings (PSUs), the government of India holds a stake of 51% or more of the paid-up share capital. However, with the restructuring of the Indian economy in the 1990s the process of deregulation started in all sectors and also in the oil and gas sector with a view to transforming it into a vibrant and globally competitive industry. In this regard by April 2002, the sector became fully deregulated.

In the early 1950s, pricing was based on a system of 'valued stock account' (VSA). Under this system, the basic selling prices of major petroleum products were determined as the sum of free on board (fob) Ras Tanura price, ocean freight, insurance, ocean loss, import duty, interest and other charges as well as 10% remuneration. However, the government decided to abandon this system of pricing as it was based on assumed costs rather than actual costs. Consequently, an Oil Price Enquiry Committee was set up in 1960, under the chairmanship of Mr. K R Damle[5]. The committee recommended that ceiling selling prices for bulk refined products should follow the 'import parity principle'[6]. Moreover, by the 1970s, it was felt that the refining capacity of the country was adequate to meet the needs and thus the dependence on imports of petroleum products was less. It was also felt that the West Asian product prices, which were the basis for determining the import parity prices, did not necessarily reflect the actual cost pattern and operations of Indian refiners. Thus the government introduced the 'Administered Pricing Mechanism (APM)[7]' in 1977, which was later modified by the Oil Cost Review Committee in 1984. The Oil Co-ordination Committee was set up in 1975 to manage Oil Pool Accounts and to co-ordinate supply and other matters in the oil and gas sector.  The APM was aimed at ensuring continuous availability of petroleum products to consumers at fairly stable prices and crude to the refiners, while ensuring the socio-economic objectives of the government. However, in April 2002 the government dismantled the APM formula to initiate market determination of prices of petroleum products on import parity basis to get rid of subsidies-the major source of budget deficit.

Rationale for Deregulation

There are various factors that have contributed significantly in initiating and carrying forward the deregulation process. The main factors are as follows:

·          The main reason for the deregulation of the sector was the serious loopholes in the APM mechanism and its unintended effects, which were economically unsustainable. Oil pricing has been used a tool for achievement of objectives of the government of the day, divorced from the basic economic realities. The prices of politically sensitive products do not reflect the economic cost of the producer. Subsidies and cross-subsidies have resulted in wide distortion in consumer prices and consumption pattern of petroleum products which resulted in dieselation of the economy and consequent automobile fleet of the country. In case of highly subsidized products, the low pricing much below its economic value has led to inefficient, wasteful use resulting in sub-optimal inter-fuel substitution. Political compulsions often dictate price administration and pricing system is thus inflexible to changes in global prices. In a country, where more than 50% of the demand is met through imports of crude as well as products, such inflexibility can prove to be hazardous for the economy. The pool deficit became a source of serious concern. The APM provided little incentive for improving efficiency or productivity as returns were guaranteed on the capital employed. Competition was stifled with marketing companies acting as mere distribution companies.

·          Over the last two decades, import of petroleum products soared ten-fold from over 2.2 MTS in 1975 to nearly 18 MTS in 1995. Given the high level of imports in the Indian economy, the APM, which insulated the oil economy from the global market, had lost its utility. Further, it was estimated that during the 9th Plan Period, an investment of about Rs 1, 24,000 crores would be required to create the necessary infrastructure to meet the surging demand, it was recognized that such a scale of investment was not possible to be initiated by the public sector. Participation of the private sector was therefore imperative, as before the APM was not attractive to the private investors.

Views are personal

(to be concluded)





RIL to get Sudan oil blks

February 21, 2006. Reliance Industries Ltd will soon be getting two major contracts for exploration of oil and gas in Sudan, while RITES has been chosen to lay railway infrastructure in the African country. The contracts would be finalised and thereafter signed shortly. 12 PSUs have visited Sudan in the past two months for exploring ties for close economic cooperation.

Oil majors JV for Oman blks

February 20, 2006. Four domestic oil companies, GAIL, Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd and private sector Videocon Industries, in consortium with Australia’s Oilex NL have bid for two blocks in Oman. The consortium has bid together for onshore blocks 56 and 58 located off south Oman salt basin. GAIL, Oilex and Videocon are expected to hold 25 per cent interest each in the block after the acquisition, while Bharat Petroleum and Hindustan Petroleum will have 12.5 per cent each. The government has reserved rights for picking up 20 per cent stake in any block which makes a commercial discovery.

Iranian field: ONGC may get stake on same terms as China's Sinopec

February 18, 2006. ONGC expects to get stake in the Yadavaran oil field in Iran on the same terms as is being negotiated by the China Petroleum & Chemical Corp (Sinopec) with Iranian authorities. Sinopec is expected to sign an agreement with Iran on the purchase of liquefied natural gas and the exploration of the Yadavaran oil field soon. It is gathered that negotiations are going on between the Chinese company and the Iranian firms. In October 2004, Iran had signed a MoU with China under which Sinopec would buy 10 mt a year of LNG for 25 years. The deal between the two parties also granted Sinopec the right to exploit the Yadavaran oil field on a buy-back basis in cooperation with a major international oil company. Earlier, Iran had negotiated a $40-bn (Rs 1.77 trillion) deal with India for giving the Indian company a 20 per cent stake in some Iranian oil fields. As part of the deal, India had agreed to buy 7.5 mt of LNG from Iran per annum for 25 years. India also gained a 100 per cent stake in the Jeyfr oil field (estimated at 30,000 barrels a day) through OVL. According to reports, while Sinopec may hold a 51 per cent stake in the Yadavaran oil field project, ONGC is expected to own 29 per cent. The remaining share of the oil field is to be owned by the National Iranian Oil Company. The field is projected to begin production in 2009. Yadavaran field is an oil field located in Khuzestan, Iran. The field is estimated to have reserves of up to 17 billion barrels of oil, with 3 billion barrels considered to be recoverable.

ONGC D-1 field starts production

February 11, 2006. The D-1 field of ONGC’s Bassein and satellite asset located in the deep continental shelf area of Mumbai offshore has started production with the first development well flowing. On completion of other wells, it is expected to produce 9,000 barrels a day. The development of the D-1 field has been planned in two phases. At present, the first phase of development is under implementation, wherein three producers and three injectors are planned for drilling and completion. The second phase also envisages three producers and three injectors after evaluating the production performance of the first phase. The company has also made the first ever notification of a gas discovery to the Directorate General of Hydrocarbons. The discovery has been notified in the two wells DWN-U-1 and DWN-A-2 drilled by it in the Krishna Godavari deepwater block KG-DWN/2.

Bottlenecks cleared in Ratna-R production contract

February 9, 2006. The production-sharing contract involving the Ratna-R series oilfields finally seems to be ready, paving the way for the development of the field, which has been on hold for over a decade. The oilfield is held by a consortium of Essar (50 per cent), ONGC (40 per cent) and Premium Oil of the UK (10 per cent). Essar holds the operating interest in the field, which has an estimated reserve of 500 million barrels. As per the agreed terms and conditions between the three stakeholders, the evacuation should take place either through the Hira-Uran pipeline or tankers. ONGC had placed a counter-offer of paying the current rate of cess (Rs 1,800 per tonne) and royalty (10 per cent of the well head oil price) in exchange for an operating interest in the block. ONGC's offer was higher than the 1996 agreed cess of Rs 900 per tonne and royalty of Rs 528 per tonne.


Govt may tweak petro prices to neutralise crude price burden

February 14, 2006. Chief Economic Advisor Ashok Lahiri said the government is looking at ways to rationalise domestic prices of petroleum products to offset the adverse impact of global crude prices, which are expected to rule high even in the next fiscal. Government is fully seized of how to rationalise petroleum prices, Mr Lahiri said at a conference on energy security organised by Observer Research Foundation. He said that forward contract prices of global crude continued to be high, while the refining margins of Indian oil companies were also high. With global crude prices expected to remain high, there was a strong indication that duties on petroleum products would be revised in the budget to minimise the impact of a possible hike in domestic petrol and diesel prices.

Transportation / Distribution / Trade

GAIL loses race for $5.7 bn Nabucco deal

February 21, 2006. GAIL India is out of the race to pick up a stake in the 3,300-kilometre Nabucco gas pipeline from the Caspian Sea to Central Europe. Twelve companies from North America, Europe and Asia had expressed interest in buying stake in the $5.7 bn (Rs 253 bn) pipeline project. GAIL has been left out as it neither has upstream presence in the Caspian or West Asia nor any downstream activity in the European market, which were the parameters for selecting additional participants for the project. The pipeline will be running from the Georgian-Turkish border and the Iranian Turkish-border to Central Europe via Turkey, Bulgaria, Romania, Hungary and Austria.

India to join TAP pipeline project

February 21, 2006. Ahead of the visit of US President George Bush, India has decided to join the US-backed Turkmenistan-Afghanistan-Pakistan pipeline to import natural gas to meet the fuel needs of its growing economy. India, earlier this month participated for the first time as an "observer" in the 9th meeting of the steering committee of the TAP project and has since decided to join the $3.5 bn (Rs 155 bn) project. Once approved by the Cabinet, the project will be renamed TAPI. The pipeline from Turkmenistan would be more easier to implement than the Iran-Pakistan-India line as it already had the backing of the Asian Development Bank (ADB). Moreover, unlike IPI, the project does not run the risk of being blacklisted for participation by US and European financers and companies. US has been encouraging Pakistan to abandon the IPI project and consider TAP for meeting its gas needs.

GAIL seeks core co status to enjoy tax concessions

February 16, 2006. GAIL (India) Limited, which owns and operate 6,000 km of cross country gas and LPG pipelines, has made a strong case for being awarded the status of an infrastructure company. Its distribution network of pipelines is the same as the distribution network of power, and therefore should be given the same status.

IOC, GAIL eye stake in Pak gas cos

February 12, 2006. GAIL and IOC are keen to participate in the privatisation of the two biggest gas companies in Pakistan — Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Limited (SNGPL). Although the final participation by GAIL and IOC will be subject to political clearance by the government. Pakistan intends to divest 51 per cent government holding along with management control in both SSGCL and SNGPL to qualified strategic investors. The last date to submit EoIs for the two companies is March 11.

Deora for piped gas through out Mumbai by '08

February 12, 2006. Mr Murli Deora, Union Minister of Petroleum and Natural Gas, has directed Mahanagar Gas Ltd (MGL) to expedite the network expansion of natural gas infrastructure in the city and its neighbouring areas and has directed MGL to complete the gasification of Mumbai by 2008. The effort would also serve as a deterrent to the diversion of LPG cylinders, which could be better used in rural areas where piped natural gas (PNG) would take time to reach. Owing to the current distribution of PNG alone, nearly 2.5 mn LPG cylinders per annum were available for redeployment to other smaller towns. MGL currently supplies PNG to over 246,000 homes, 717 small commercial and industrial establishments, and CNG to over 165,000 vehicles in Mumbai, Thane, and Mira-Bhayander through its network of about 200 km of steel and 1,800 km of MDPER pipelines. Established in 1995, MGL is a joint venture between GAIL (India) Ltd, British Gas (UK), and the Maharashtra Government.

Tripura wants Myanmar gas via Mizoram

February 10, 2006. Tripura has mooted an alternative proposal to bring gas from Myanmar fields to India without touching Bangladesh. Bangladesh was yet to give permission to India to build the gas pipeline through its territory. The state suggested that the gas pipeline could enter India in Mizoram and then could be brought to Tripura. The gas could be used for power projects in the region as well as for petrochemicals. Once the power grid is there then the surplus power could be transmitted to other parts of the country. Gail was looking at three options to bring gas from Myanmar. These were onshore pipeline through north-east and Bangladesh, offshore pipeline through Bangladesh or bringing gas as CNG in tankers through land routes via the North-east. On the other hand petroleum retail major Gail India is set to invite expressions of interest to select a firm or consortium through international competitive bidding for transporting CNG from Myanmar to India. Gail India, which is one of the stakeholders in the A1 block in Myanmar, is the preferred buyer for 65 per cent of the gas.

GAIL to use Shell Hazira terminal on toll basis

February 10, 2006. GAIL and Shell will soon sign a comprehensive agreement, which will allow the former to use the Shell Hazira LNG terminal on toll basis to import floating cargo of LNG. Both sides have also agreed to lay down a 13-km long pipeline at a cost of $10 mn (Rs 441 mn), which will connect the Hazira terminal with GAIL’s Dahej-Uran pipeline. Once connected, the Shell Hazira terminal will become a part of GAIL’s national gas grid and facilitate more imports of gas by GAIL. The pipeline connecting Hazira with Dahej will not only reduce the dependence of Shell on Gujarat State Petroleum Corporation to evacuate its gas but also put its Hazira terminal on the national gas grid. Once the Hazira terminal is connected to the Dahej-Uran pipeline, Shell will also be able to deal with GAIL clients. This would also connect the country’s both RLNG (regassified LNG) terminals — the Dahej terminal owned by Petronet LNG and Shell Hazira of Shell — with each other. Once in the national gas grid, Shell will also have an access to the northern markets. In connectivity with the Shell Hazira terminal, GAIL will be able to serve its clients on the Dahej-Uran pipeline more effectively. 

Policy / Performance

Oil sector outlay may go up

February 21, 2006. The government may increase the outlay for the petroleum sector by 22.5 per cent in 2006-07, apart from extending the Jan Kerosene Pariyojana scheme as a measure for preventing diversion and adulteration of the PDS kerosene. This will take the annual outlay to Rs 36,003 crore from Rs 29,403 crore during 2005-06. Much of the investment envisaged is expected in the exploration sector through the sixth phase of the National Exploration Licensing Policy and the third phase of the Coal Bed Methane exploration. The new phases of both programmes are expected to be launched in early 2006. The extended Jan Kerosene Pariyojana will cover the entire country. The scheme was launched in October 2005 as a pilot project and was implemented in 412 blocks of the 4,000 blocks in the country. This scheme is aimed at ensuring that the heavily-subsidised kerosene (subsidy is expected to be as high as Rs 12.96 per litre in the current year) reaches the intended beneficiaries only, thereby checking misuse. The year 2006-07 may also see a push to the exploration and production sector. The exploration and production (E&P) sector may get infrastructure status, thereby qualifying for a 10-year tax holiday. The petroleum ministry has sought infrastructure status for LNG import projects and cross-country pipelines. Moreover, in order to promote domestic exploration and production, Petroleum Minister Murli Deora has also asked for eliminating service tax on survey and exploration of minerals. Budget ’06-07 is likely to announce huge tax sops for refinery sector also. The petroleum ministry has proposed a list of tax incentives for the sector. These would help attract investments in the refinery segment, where large investments are expected to come up in the coming years.

Final exploration bids by Sept 15

February 20, 2006. The petroleum ministry has fixed September 15 as the last date for submission of bids, after recently finalising the pre-bid qualification specifications for the NELP-VI. Among the 55 blocks on offer, 10 blocks are located in the Krishna-Godavari basin, seven each in Mahanadi-NEC basin and the Assam-Arakan basin. The new terms include, the possibility of seismic option alone in the first phase of the exploration period, no minimum expenditure commitment, no signature, discovery or production bonus and an income tax holiday for seven years from start of commercial production. The government will decide on the bids based on the past performance of bidding parties, including track record of companies and court cases against them. The exploration programme will be for maximum of seven years, divided into two phases. However, the first phase cannot exceed four years, but for deepwater blocks it can be of five years. Companies will have the option of terminating the contract at the end of the first phase. In addition, companies will have to give a minimum commitment of one exploratory well in the first phase. The production and development period will be of 20 years, that can be extended by another 10 years with government approval. The contractor will be required to sell the crude in the domestic market until India becomes self-sufficient.

Oil cos may get more freedom in pricing

February 14, 2006. After a gap of almost three years, the oil marketing companies (OMCs) may have more say in fixing the petroleum product pricing. The Rangarajan Committee, which is expected to submit its report, is said to be in favour of providing a larger role to the OMCs in deciding petroleum product pricing, particularly petrol and diesel. After the dismantling of the Administered Pricing Mechanism in April 2002, there have been divergent views on the method of calculating retail prices, which had led to the Government assuming the power to fix retail prices through a Cabinet decision instead of taking inputs from OMCs. This is despite the April 2002 order clearly stating that market determined prices would be fixed by the OMCs. On subsequent occasions, the Government also deferred any price increase, mainly out of political compulsions.

The Rangarajan committee might suggest that retail prices be worked out on the basis of `export-import parity' instead of landed cost (import parity) at present. The export-import parity price would be on a weighted average basis on an 80:20 ratio. The committee, after analysing the experience of import parity system, is said to have found that the existing system unduly soars the retail prices and many of the components for working out prices are notional in nature. The committee is also likely to recommend abolition of the freight equalisation scheme, which means petrol and diesel prices may be slightly higher in the northern sector than those prevailing in places such as Chennai and Mumbai. However, there would be no recommendation on a uniform sales tax policy for petroleum products because of sales tax being a State subject. The committee is also likely to suggest reduction in the custom duties on all major products. The Rangarajan Committee was set up to work out medium to long-term pricing policy, is also likely to recommend a combination of marginal increase in fuel prices issuance of oil bonds and duty cuts. The measures being suggested by the committee are expected to prevent losses suffered by public sector oil companies. It is likely to recommend raising petrol price by Rs 1.25 a litre and diesel by Rs 2.20 per litre and reducing customs duty from 10 per cent to 7.5 per cent. The committee is also likely to suggest dual price for kerosene. For cooking gas, the committee is expected to suggest a hike of Rs 75 per LPG cylinder effective from April 1. Subsequently, an increase of Rs 25 each quarter for above poverty line (APL) families. While for kerosene there would be no change in price for below poverty line families, it is likely to propose a market-determined price for APL.

Draft gas pipeline policy may allow open bidding

February 12, 2006. GAIL (India) Ltd, a dominant player in gas transmission and pipeline projects, may soon face competition from other players, as the Petroleum Ministry's draft gas pipeline policy may seek to allow open bidding for all future pipeline projects. The open-bid mechanism proposed in this policy will allow interested companies to propose and participate in pipeline projects, thus breaking the monopoly of State-owned companies. Currently, most of the gas pipelines are built by GAIL. Although the Government has given its nod to Reliance's plan to set up a gas pipeline, lack of policy direction has deterred other interested players from coming in. To ensure a fair mechanism for bid evaluation, a committee would be constituted. Currently , a mechanism has only been worked out for city gas projects. The pipeline policy, which is expected to be taken up shortly, provides for the regulator to set a ceiling rate for transportation charges. Companies will be free to offer rates at different levels as long as it is under the ceiling. The policy will cover cross-country pipeline operators and city gas distribution companies. The policy is being brought in as several investors have been awaiting a clear policy guideline in this regard. The policy would provide proper linkage between gas sources and market centres, along with inter-connectivity for regions, consumers and producers.

With the Petroleum and Natural Gas Regulatory Board (PNGRB) Bill at an advanced stage of consideration in Parliament, the Petroleum Ministry is set to approach the Cabinet with the draft gas pipeline policy. Since the policy envisages the appointment of a regulator under the PNGRB Bill for regulating the transmission, distribution, supply, and storage system for natural gas/liquefied natural gas and for promoting the development of the sector, the Ministry had decided to wait. The regulator would ensure access to gas pipelines, based on a non-discriminatory common carrier principle for all users. It would also approve the pipeline tariff for the common carrier pipelines. In the gas pipeline policy, the Government is considering the possibility of doing away with the cost-plus approach adopted by pipeline companies for calculating transportation charges. Pipeline transportation charges are important, as they constitute up to 40 per cent of the gas cost in some cases. The proposed ceiling rate will be calculated so as to discourage profiteering. The Tariff Commission, which had gone into the current transportation charges, has raised questions over the existing pipeline tariffs.

India, US ink pact for info exchange in HC

February 9, 2006. India and the US inked an "arrangement for exchange of information relating to the hydrocarbon sector" to facilitate sharing of energy data and analysis techniques between the two countries. The objective of cooperation under this arrangement is to establish for mutual benefit, a reasonably balanced exchange of information in the sector. For the US Department of Energy and the Ministry of Petroleum and Natural Gas cooperative activities under this arrangement are to be conducted by the Energy Information Administration and the Petroleum Planning & Analysis Cell, respectively. Information to be exchanged includes annual hydrocarbon sector market statistics relating to production, imports, exports, stocks, bunkers, transformation and demand, and other related data and information concerning fuel characteristics, refining capacity, and reserves. Both countries are also going to sign two more memoranda of understanding. An agreement would be signed between the Directorate General of Hydrocarbons and its US counterpart — Geological Survey — to carry out work in gas hydrates. Another agreement will be signed between Oil Industry Safety Directorate and United States' Mineral Management Services to work together in the safety aspects of the hydrocarbon sector.



Aditya Birla group to foray into power again

February 21, 2006. The Aditya Birla group is foraying into power generation once again. After its aborted attempts to enter power generation with the Rosa and Bina power projects in the 1990s, the group has expressed interest in setting up a 4,000-MW ultra mega-power project after a gap of almost 10 years. The Centre had invited expressions of interest for two of the five proposed ultra mega-power projects on January 31. The group had expressed interest in the Mundra power project. The Power Finance Corporation is the nodal agency for ultra mega-power projects. 

JK Cement to invest in power

February 21, 2006. J K Cement is planning to strengthen is position as a leading player in the northern India cement industry by developing less expensive and reliable captive source of power and by increasing its production capacity. The company proposed installation of 13.2 MW waste heat recovery power plant, installation of 20MW metcoke based captive power plant and replacement of an existing turbine with a new 10 MW turbine.

NBCC to venture into power projects

February 21, 2006. Public sector construction company National Building Construction Corporation Ltd (NBCC) would diversify into new areas of business and would foray into the power sector soon. The company is in talks with state governments of Gujarat and Jammu & Kashmir for 100 to 150 MW small thermal power plants. NBCC was also negotiating with a private company in Ahmedabad for building a captive power plant. Venturing into power was looked as a growth and profitable new area for the company which has tied up with Chinese and Candian companies for equipment in this regard.

Bhoopalapally project gets environmental clearance

February 19, 2006. The Rs 2,077 crore ($468 mn) 500 MW Bhoopalapally project in Andhra Pradesh has received environmental clearance and work is expected to get under way by May this year. The Government is also considering a proposal to set up a 2,100 MW gas-based plant in Karimnagar district instead of the earlier proposal to locate it in Shakarpally, near Hyderabad. The Bhoopalapally project of AP Genco, which is likely to be completed by November 2008, has firmed up 2.13 million tonnes of fuel (coal) supply from the Kakatiya Coal Mine of the State-owned Singareni Collieries Company Ltd. The State has the installed power capacity of 11,100 MW currently, and will go up by about 4,000 MW by 2010. Of the total installed capacity, thermal generation accounts for 2,962 MW, while hydel power contributes 3,586.36 MW; gas plants account for 996.62 MW, and the rest comes through other modes such as wind.

AP to add 4,000 MW of power by ’08

February 17, 2006. The power situation in Andhra Pradesh will improve considerably during the next two or three years as the State is set to add 4,000 MW by 2008 to the present installed capacity of 11,134 MW. Several coal-based projects, including the 2,000 MW plant at Krishnpatnam, were coming up in the state.

Haryana pitches for NTPC nuke plant

February 17, 2006. The Haryana government pitched for a 2,800-MW nuclear power plant, besides seeking a coal-based and a gas-fired plant, of public sector firm NTPC Ltd for mitigating the state’s electricity shortages. The site had been identified and the state government had confirmed the availability of water for the project. Due to uncertainty over coal and gas, the nuclear project needed to be expedited to solve the state’s power woes.

Dabhol phase I to run on naphtha

February 16, 2006. The 740-MW first phase of the Dabhol power project will be restarted this summer. It will be run on naphtha for about three months till it receives natural gas supplies in September. There was no problem in sourcing naphtha as 34,000 tonnes of the fuel was already in stock. This would help the unit to produce electricity for three hours everyday for two-and-a-half months. The pricing of naphtha was yet to be decided. The cost of naphtha, however, is double that of LNG and could push up the cost of electricity generation from the plant. Running the plant on naphtha will help Maharashtra, which is facing a shortage of about 4,500 MW of power, meet its demand in peak summer.

NTPC loses Puttalam project to China

February 14, 2006. NTPC has lost out to China National Machinary Import and Export Corporation (CMEC) in its bid to set up 300 MW coal power plant in Norochcholai in Puttalam in Sri Lanka. However, the Sri Lankan government has offered a new site at Trincomalee (a stronghold of LTTE) for the setting up of two units of 250 MW coal power project. NTPC, which proposes to set up the project on imported coal, would soon submit a detailed proposal in this regard to the Sri Lanka authorities. The project is expected to be developed on build-own-operate basis. The MoU between the Sri Lankan government and NTPC has already been inked for the establishment of coal power plant. The first stage of the Puttalam plant would be completed by end 2008. The Chinese government is expected to provide $300 mn ($13.25 bn) for the construction of a 300 MW coal fired power plant.

Bhel to complete plants of 19,100 MW by 10th Plan-end

February 14, 2006. The state-run Bharat Heavy Electricals Ltd (Bhel) would complete power projects with a total capacity of 19,100 MW by end of 10th Plan. These projects consist of a total capacity addition of 41,000 MW targeted by the power ministry during 2002-07 across the country. Bhel has been engineering procurement construction (EPC) contractor for these projects. Besides, Bhel, which has entered into a technical collaboration with Siemens and Alstom, has indicated that it would be in a position to construct 800 MW of power plants during 11th Plan period. Bhel will also be able to complete captive power plants with a total capacity of 2,710 MW during the same period. It was given a target of completion of power projects with total capacity of 20,380 MW for the 10th Plan.

MahaGenco explores multi-fuel operations at Uran plant

February 13, 2006. MahaGenco is exploring various options of converting its gas-based 852 MW plant situated at Uran near Mumbai into multi-fuel (i.e. naphtha and high speed diesel and furnace oil) project. This was necessitated because of the lack of availability of the contracted gas from Gail India. MahaGenco is forced to run the plant below its capacity for the want of the gas for over a decade. Against its total capacity of 852 MW, MahaGenco is generating around 350 MW, thus leaving the remaining capacity of 502 MW idle.

REL-Alstom may bag Gujarat Inds` mega power deal

February 11, 2006. A consortium of Reliance Energy Ltd. and French company Alstom is likely to get a contract to build a 300 MW power station for Gujarat Industries Power Co. The proposed lignite-based plant will be located in Surat. Gujarat Industries is likely to finalise the contract before the end of February. The new Surat plant is estimated to cost around Rs 1,200 crore ($272 mn). The plant is expected to go on stream by 2009, raising the generation capacity of the company to around 850 MW.

KSEB pushes for new power projects

February 10, 2006. The Kerala State Electricity Board (KSEB) has pushed for new projects to the tune of Rs 760 crore ($172 mn) during 2006-2007. The capacity expansion includes a silent replacement to the controversial Silent Valley hydel project too. The proposal is before the Planning Commisson. As a replacement to the Silent Valley hydel project, the board proposes to set up a 70 MW project at Pathrakadavu in Kunthipuzha outside the Silent Valley National Park. The board also envisages to add hydel power of 132.25 MW within the Tenth Plan period and 547 MW during the Eleventh Plan period. The outlay for power generation is Rs 250 crore ($57 mn). About Rs 218.50 crore ($49.5 mn) and Rs 291.50 crore ($66 mn) for transmission and distribution sectors respectively. About 90 per cent of the total cost of the project would be grants and the remaining 10 per cent soft loan with 5 per cent interest.

PSUs set to join world’s 1st emission-free coal project

February 9, 2006. Public sector companies including BHEL, NTPC and Coal India Limited (CIL) are contemplating being part of the $950 mn (Rs 41.94 bn) FutureGen project of the United States. This project is part of a global public-private initiative for designing, building and operating the world’s first 275 MW coal-fired emission-free power project. The move comes close on the heels of a Chinese energy company-China Huaneneg Group joining the US-led consortium of leading private energy companies including American Electric Power, Southern Company, Consol Energy Inc and BHP Billton. The alliance of these companies has been christened as the FutureGen Industrial Alliance Inc. Around $250 mn (Rs 11.04 bn) is expected to flow in from the private industry coalition, which at present has eight charter members including China. India, however, is yet to join the alliance. At the government level, it has been decided to participate in this project and contribute $8-10 mn (Rs 353-442 mn) over a five year period.

The FutureGen project is divided into two components - one government level participation through GSC and another private company level participation through the alliance. Out of the projected $950 mn investment $250 mn is expected to come from private industry, while the remaining $700 mn (Rs 30.91 bn) is to be provided by the US Federal Government in partnership with states and foreign governments. The FutureGen project is unique as it is for the first time an initiative has been taken to develop clean technology for coal based power projects. For India and China, participation in the project would be important as coal consumption is already high and coal based generation capacities are only to grow further. This is an experimental project where the estimated cost of power will be more than Rs 14 crore ($ 3.17 mn) per mega watt.

Transmission / Distribution / Trade

T&D losses at 32 per cent: Study

February 21, 2006. Power consumption by the agricultural sector in India forms just 18 per cent of the energy available and 26 per cent of the total energy sold. The top 10 states in energy consumption are Gujarat, Andhra Pradesh, Maharashtra, Tamil Nadu, Punjab, Karnataka, Haryana, Madhya Pradesh, Rajasthan and Uttar Pradesh. According to a report released by CARE Advisory, a division of Credit Analysis & Research, only 68 per cent of the energy generated is available for sale as the rest is lost in transmission and distribution (T&D). The average realisation per unit of electricity sold to agriculture on an all-India basis stood at 69 paise. While this is lower than the realisations from other consumer segments, the figure drops to just 35 paise per unit sold when tariff compensation received from state governments is factored in, the report says. Tariff compensation for sales to agriculture sector accounts for around 50 per cent of the agriculture sales booked by the power utilities. On an all-India basis, tariff support provided to agriculture through the power sector exceeded Rs 15,700 crore ($3.54 bn) for 2002-03, with the top 10 states accounting for 96 per cent of this amount. If this figure is adjusted for T&D losses, the support would amount to Rs 23,697 crore ($5.34 bn). 

Mahadiscom offers cash reward for theft leads

February 17, 2006. The Maharashtra Electricity Distribution Company (Mahadiscom) has announced cash incentive scheme for the citizens, including its employees, who would help the company detect power theft. Any citizen or employee who will inform the company about the power theft will be given 5 per cent of the total size of the theft as a cash incentive. After Mahadiscom receives the information, raid would be carried out and if the case of the theft is found out then the citizen or employee will be paid Rs 1,000 immediately and then once the size of the theft is determined, then citizen or employee will be given the remaining amount.

Mahadiscom seeks to rope in IPPs

February 13, 2006. In order to find out a long term solution to the state's power woes, the Maharashtra Electricity Distribution Company (Mahadiscom) has sought permission from the Maharashtra Electricity Regulatory Commission (MERC) to rope in independent power producers (IPPs). The company’s plan is to invite bids to supply as much as 4,000 MW power from IPPs. State power ministry is of the view that the state's demand for power would go up by around 10,000-11,000 MW in the next six to seven years. Maharashtra Electricity Generation Company (Mahagenco) has plans to increase capacity by 7,000 MW and that the company was expecting Ratnagiri Gas & Power (RGPPL) to supply 2,100 MW from the Dabhol plant. The company has signed a MoU with the NTPC for supplying 2,600 MW. Besides, the company was also going to invite bids from IPPs for 4,000 MW power, which includes all the 12 power producers with whom the company had signed MoUs. The move from Mahadiscom to invite bids would help the IPPs to complete their financial closures and move ahead with the construction plans.

Tata finds Tala’s lines to bring in power to Delhi

February 9, 2006. The Delhi Transco Ltd (DTL) has identified Bhutan based Tala power plant’s transmission line, to bring in power to the Capital from its Jojobera plant in Jharkhand. The DTL in cooperation with the Power Grid Corporation of India Ltd (PGCIL) has identified Tala power plant’s northeast transmission line for the purpose. The Tata power in joint venture with the PGCIL’s Power Links, has taken up the project of extending the corridor from the North East region to Mandrola in UP. It is hoped that the transmission through the corridor will start from June.

Policy / Performance

J&K may get separate power budget

February 20, 2006. The Jammu & Kashmir government is contemplating bringing out a separate budget for the power sector on the lines of the separate railway budget, during the upcoming budget session. Such an exercise had become imperative as the power sector consumed a disproportionately huge part of the state’s resources. This not only leads to a phenomenal deficit every year, but also puts stress on other developmental sectors as well. The objective of having a separate budget for the power sector is to ensure a thorough debate in the legislature on the issue, which is emerging as a major concern for the government. The government has already initiated various measures to improve power-tariff recoveries on one hand, and supply position on the other.

Rural power set to get complete duty waiver

February 20, 2006. The government is likely to grant a complete duty waiver to the rural power sector. This will mean that equipment and fuel used for rural power projects would be exempt from customs and excise duties. The exemption will apply to all three segments of the power sector — generation, transmission and distribution. This fiscal package is expected to attract large-scale private investment in the sector. The government plans to electrify 125,000 villages by ’09, and provide electricity to 78 million rural households as part of the Rajiv Gandhi Vidyutikaran Yojna. While imported fuel attracts a 5 per cent customs duty, there is a 16 per cent excise duty on equipment. The power ministry has argued that the real benefit will be possible only when the cost of electricity supply is made cheaper. The government hopes that a duty waiver for rural power will lead to greater private participation through the franchisee system. Private participation will be crucial as the government has slashed budgetary allocation for this programme to a little over Rs 3,000 crore ($677 mn).

CERC clarifies on tariff policy

February 18, 2006. Power distributors involved in projects for which power purchase agreements (PPA) have been signed and approved by the appropriate commission may not have to go in for competitive bidding to procure additional power as stipulated under the tariff policy issued by the government in January. The Central Electricity Regulatory Commission (CERC) has decided that under some special circumstances, distributors could be allowed to procure their additional requirements without going through the bidding process. These special circumstances include cases where PPA has been signed and approved by the appropriate commission and even cases where the commission’s approval is pending. 

Also exempted from competitive bidding are projects where “in-principle” clearance of the project cost and financing plan has been given by the Central Commission, but are subject to approval of the PPA by the appropriate commission. Power projects in which financial closure has been completed will also be exempted from the mandatory clause. Such cases will be clubbed under “firm procurement” under which energy projects will be excused from Clause 5.1 of the tariff policy which necessitates bidding for procurement of additional power. The CERC said the exemptions were being granted as there were some private sector projects which have made considerable progress before announcement of the policy. Therefore, it might not be advisable to discard all such projects and start the process of competitive bidding in view of the prevailing shortages in the country.

Power regulators to develop info management system

February 17, 2006. Power sector regulators have decided to develop a Regulatory Information Management System (RIMS). This is being done to enable a higher degree of coordination and uniformity of approach among the Regulatory Commissions across the country and to usher in greater regulatory certainty in the power sector. The proposed RIMS seeks to improve the quality of the regulatory decision-making process and to provide a framework for the interface between the regulator and regulated utilities across the country. The Forum of Regulators, constituted under the Electricity Act, 2003, and comprising the chiefs of the Central and State Electricity Regulatory Commissions, has invited quotations for the development of a RIMS. After implementation of RIMS, regulators from across the country could get access to authentic database on power sector performance across the country and also arrive upon a broad-based commonality in decision-making. The proposed RIMS is meant to provide a framework based on which regulators could develop suitable software package.

The RIMS is expected to ensure that a format is developed for obtaining required information from the utilities for use by the regulators during the regulatory process. It also aims at providing access to authentic data on power sector performance in the country, based on uniformly agreed key performance indicators covering areas such as quality of service, tariff issues and policy, strategy and new initiatives. The system will aid the electricity regulators in monitoring and benchmarking the performances of the regulated entities by defining standard definitions of the various benchmark parameters, including aggregate technical and commercial losses, receivable and transmission losses. Also to streamline the regulatory process, the RIMS is likely to include an accounting code for reflecting accounting data which should be maintained at the utility end, and be obtained from the utilities in the above sectors, for example, issues relating to assets, depreciation and loan details. The framework for non-accounting code relating to performance-related measures and business transaction is to be maintained.

States submit power requirement from ultra mega projects

February 16, 2006. Maharashtra, Karnataka and Tamil Nadu were among the states that responded to the power ministry’s invitation and submitted their power requirements from the upcoming five ultra-mega projects of 4,000 MW each. Maharashtra, which is reeling under acute power shortage, sought 2,000 MW from the Ratnagiri-Vijaydurg project, 1,000 MW from the Karnataka project and 800 MW from Mundra, Gujarat. Karnataka sought to purchase 1,500 MW from the coastal Karnataka project and 500 MW from Ratnagir-Vijaydurg project, while Gujarat wanted 1,600 MW from Mundra project. Madhya Pradesh sought 1,200 MW from Sasan and 500 MW from Ratnagiri-Vijaydurg. Tamil Nadu wanted to buy 1,000 MW from Karnataka, while Uttar Pradesh preferred 500 MW from Sasan (MP) and 300 MW from Mundra. Rajasthan desired a total of 1,500 MW from Ratnagir-Vijaydurg, Mundra and Sasan projects, while Punjab said it would need 1,000 MW, Harayana pegged its requirement at 800 MW from Sasan project.

Hydel power capacity to be raised by 10,000 MW: MoP

February 15, 2006. The Power Ministry (MoP) is likely to add about 10,000 MW of hydro-electric generation capacity during the Tenth Plan, the highest ever capacity addition from hydro sector in any Plan period. A capacity of 5,380 MW has already been added in the Tenth Plan so far, and a total of about 10,000 MW from hydro projects would be added during the five-year period. The capacity addition during Seventh, Eighth and Ninth Plan periods were 3,828 MW, 2,428 MW and 4,538 MW respectively, he was quoted as saying in an official release. The Government has accorded high priority for development of hydro projects. Several incentives have been included in the tariff notification for hydro projects, such as rewards for better availability, generation of secondary energy and measures for mitigating hydrological risks during initial years of operation. The Government has put in place a three-stage clearance procedure for speedy sanction of hydel projects to be executed by Central Public Sector Undertakings in consultation with the ministries of Finance and Environment. The Gross Budgetary Support for hydro-power has been increased to Rs 17,511 crore ($3.96 bn) for the Tenth Plan from Rs 9, 284 crore ($2.10 bn) in Ninth Plan.

Hybrid bus soon to rule Indian roads

February 15, 2006. Having launched an electric bicycle, bike and autorickshaw, Ahmedabad based Electrotherm (India) Ltd is all set to unleash the big one from its stable – a hybrid engine bus. The company is developing prototype buses that will run jointly on battery along with diesel or CNG. It would possibly be country's first hybrid engine bus. A hybrid vehicle runs on battery that will be charged through a special type of engine arrangement. These buses are being developed as a city transport vehicle and would be 30-40 per cent economical than the conventional bus. These hybrid buses will also comply with the Euro IV standards and would be very environment friendly. They may even comply with the Euro V standards, the highest pollution standards. 

Rethink on coal pricing: Montek

February 14, 2006. The Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, that the current global crude oil prices should not be viewed as "temporary peak" and hinted that prices may not see a downward correction in the next few years. With India and China wanting to grow, it is going to be very difficult to assume that the high oil prices are going to be reversed, he said in his inaugural address at a national conclave on `India's energy security: Major challenges', organised by Observer Research Foundation.

Indicating that the country would have to take a re-look at its energy policy and with an integrated approach, Mr Ahluwalia said there was the need to focus on coal pricing, as the country had not really done enough of what would make a rational pricing system for coal. He said that whatever we do, coal would remain the largest single source of primary energy. Over a 20-year horizon, if oil prices are going to remain high, on the coal pricing front we need to do some kind of rethink.

Power plants to get big coal mines

February 13, 2006. The Prime Minister’s Energy Coordination Committee has directed the coal ministry to identify mines from the list that is currently reserved for Coal India Ltd. Coal mines with deposits of 10 mt are set to be opened up for captive mining by power plants. The ministry has been given one month for identifying these mines. The process of de-reserving coal blocks held by Coal India Ltd is expected to augment power generation. In fact, largest power producer of the country, National Thermal Power Corporation, which uses coal in 13 of its 20 plants to generate electricity, has ventured into coal mining to ensure timely availability of the fossil fuel.

The Planning Commission had also asked NTPC to venture into coal production in a big way. According to estimates, less than a quarter of 86 coal blocks has been allotted for the captive mining by public sector undertakings (PSUs). The committee also decided to finalise allotment of coal blocks to two of the power ministry’s ambitious ultra mega-power projects. In addition, the finance ministry was likely to increase the external commercial borrowing (ECB) limit on the automatic route for power projects in the coming Budget.

CIL sells 10 mt coal through E-marketing

February 13, 2006. Public sector coal major, Coal India Ltd (cil) has sold 10.21 mt of coal through E-marketing during the April-November 2005 period. Average increase over notified price during the period was 54.2 per cent and a total number of 17,403 bidders took part in the process of which 10,526 were successful. CIL has also released another 10 mt of coal through the E-marketing mode, a system which helps to do away with unscrupulous traders and black marketers.

China agrees to share coal liquefaction tech

Text Box: • China has agreed to exchange information about its coal liquefaction project, scheduled to be completed by 2008
• Cooperation in coal liquefac-tion would be important as India is looking at alternatives to build energy security 

February 13, 2006. China has agreed to share know-how with India for setting up of a coal liquefaction plant. In addition, China is also open to exploring possibilities of joint projects with India in the areas of coal-bed methane (CBM) development and underground coal gasification. The issues pertaining to energy sector cooperation came up for discussion at the 10th session of the India-China Working Group on Coal, held in Shanghai last year. The Chinese side has now agreed to exchange information about its own coal liquefaction project scheduled to be completed by 2008. Cooperation in coal liquefaction, which is basically the technology for converting coal into oil, would be important for India as the country is also looking at alternatives to build energy security. In fact, India has its own coal liquefaction project that has now got delayed in the wake of shortage of coal for it. The proposed project was to be developed as a joint venture between Coal India Limited (CIL) and Oil India Limited at the latter’s plant in Duliajan in Assam.

Maharashtra for power saving measures

February 10, 2006. The Maharashtra Government has asked all energy utilities supplying power to Mumbai region to prepare a plan for power saving measures. The state wants to reduce the power consumption by 20 per cent for next four months, in view of the power crisis in the State. The power load management plan should also be prepared by Tata Power, Reliance Energy Ltd (REL), Brihanmumbai Electric Supply & Transport (BEST) Undertaking and not just by the utilities of State Government. The joint decisions of the power companies and State Government would be communicated to the Maharashtra Electricity Regulatory Commission. BEST Undertaking, a company, said power saving could be done by discontinuing illumination of public buildings and hoardings in the city. Moreover, innovative methods like giving financial incentives for lower use of power and disincentive for excess use of power could also be considered.

Railways set to exceed 280 mt coal traffic target

February 10, 2006. Indian Railways will exceed the targeted coal traffic of 280 million tonnes (mt) in the current fiscal. The Railways was geared to meet the targeted traffic of 403 mt by 2011-12 and 516 mt by 2016-17. This would be possible because of the various measures initiated to improve line capacity, augment the rolling stock and step up the general efficiency.

India`s share of renewable energy is just 6 pc: MNES

February 10, 2006. According to Ministry of non-conventional energy sources (MNES), the total renewable energy in India will be 8,000 MW by the end of March 2008. Vilas MutteMWar, Union minister of state (independent charge), MNES, said that the current share of renewable energy accounts for only 6 per cent of the total installed capacity in the country and by 2032, the end of the 15th Plan period, the total installed capacity of renewable energy would be 15 per cent of the total projected capacity. The minister envisaged a two-stage policy to help support biofuel – one identification of waste lands and two supporting cultivation of plants that yield biofuel. Solar Energy Society of India (Sesi) is of the view that there was a need to bring out a uniform and integrated energy policy on the lines of the Energy Act brought out by Germany in 2000 that envisioned generation of 50 per cent of its total requirement from wind by the year 2030.




KNOC makes new discovery in the East Sea

February 22, 2006. Korean National Oil Corp. (KNOC) has discovered an economically viable natural gas deposit in the East Sea. The Donghae 6-1 sector deposit is estimated to hold 10 bcf of gas, or 220,000 tons, of high-quality LNG. The drilling site is 75 km southeast of Ulsan and was found about 1,700 m below the seabed. It is the third such deposit found on the South Korean continental shelf since 1998. The state-run oil company says the new find was much smaller than the 230 bcf of gas in the Donghae 1 field to the southeast - that field is now in production - but was close enough to the larger field for them to be developed together, by building a pipeline between the wells. The Donghae 1 field produces 50 mmcf/d of gas and 1,200 b/d of crude oil. The new field could reduce the need for imported gas in Korea by about $100 million per year.

Oil field discovery in Australia

February 20, 2006. Avery Resources Inc. announces a new oil field discovery in the Cooper Basin, Australia's most prolific onshore petroleum basin. Wildcat exploration well Toparoa-1 flowed at a rate 1,814 barrels of 42 degree API oil from a six metre oil column in the Hutton Sandstone. The well was drilled to a depth of 1597 meters in 8 days. Avery Resources holds a 35 per cent interest in the prospect. Avery Resources Inc. is an international junior oil and gas exploration company based in Calgary.

Norway seeks boosted energy ties with Russia

February 18, 2006. Norway looked to lucrative investment in Russia's natural gas sector aimed at boosting ties between the two global energy majors. Negotiations between Russia and Norway over the Shtokman field, which has proven reserves of 3.2 tcm of gas, have been complicated by disagreements over their maritime border and fishing grounds in the Barents Sea. Norway has been chasing Russian trawlers out of disputed fisheries in the Barents Sea and clamping down on Russian vessels suspected of fishing above allowed quotas. Strategic cooperation in the oil and gas sectors will be discussed in the context of the G8 and Russia has invited Norway to express its thoughts on this question. Russia and Norway, the world's second- and third-largest oil exporters, both have economies that depend heavily on revenues from oil and gas sales.

Russia to develop Turkmenistan gas fields

February 18, 2006. Russian gas giant Gazprom wanted to develop gas fields in Turkmenistan with the Central Asian state. They discussed new forms of cooperation, not only purchases of Turkmen gas by Gazprom but also the company’s participation in gas production projects. Turkmenistan produces about 60 bcm of natural gas a year and exports two-thirds of that, mostly through an ex-Soviet pipeline that runs to Russia and for which it gets below market prices. Turkmenistan wants to raise output to more than 80 bcm and sees the development of its Dauletabad gas field as key to reviving long-stalled plans to build a pipeline to Pakistan. Turkmenistan announced earlier this month that it planned to raise its gas price to $100 per thousand cubic metres later this year from the current $65.

CNOOC signs PSC for offshore Equatorial Guinea

February 17, 2006. CNOOC Ltd.'s subsidiary, CNOOC Africa Ltd., has signed a production-sharing contract (PSC) for block S with the Ministry of Mines, Industry and Energy, and The National Oil Co. of Equatorial Guinea. Block ‘S’ covers a total area of approximately 2,287 sq km in the south offshore Equatorial Guinea. Water depth of the block ranges from 30 to 1,500 m. The exploration period of the contract is five years and CNOOC Ltd. acts as the technical operator. Under the terms of the contract, the company is committed to conduct seismic data interpretation and drilling exploration wells.

Total, Repsol make new oil find in Libya

February 17, 2006. French energy group Total had made a seventh discovery of oil in the Murzuq Basin in Libya together with partners Repsol YPF, Saga Petro-leum and Austria's OMV. The find, 800 km south of Tripoli in the Sahara desert, was in Block NC 186. It produced 2,300 barrels a day in tests. The exploration block is run by a consortium of European companies and the Libyan National Oil Company. Repsol has a 32 per cent stake in the consortium. Norsk Hydro acquired Saga Petroleum in 1999.

Brazil Petrobras starts production in Santos

February 17, 2006.  Brazil's oil company Petrobras has started production tests at its light oil Golfinho field in the Santos basin and will start commercial output there ahead of schedule in the first half of this year. The deep-water field, which will help the country to reach self-sufficiency in oil this year, is already producing 21,000 barrels per day of 28.5 API grade crude, which is much lighter than the oil normally found in Brazil. A 100,000 bpd vessel-based production rig will be installed at the field in the first half of this year, the company planned to start commercial output at Golfinho toward the end of 2006. Another 100,000 bpd rig will be added in the first half of next year.

After months of delays, Petrobras expects to put online a new 180,000 bpd rig in April at the Albacora Leste field in the Campos basin. It also plans to crank up the 60,000 bpd P-34 rig on the Jubarte field in September, delayed from January. At the start of next year, it should put on line the 180,000 bpd P-54 in Roncador field, and another 180,000 bpd rig, the P-52, also in Roncador, in the second half of 2007.

Domestic oil output of 1.68 million bpd last year still remained below demand of about 1.8 million bpd, despite a steep 13 percent rise in production. This year Petrobras expects to produce 1.91 million bpd, which should exceed projected demand of 1.85 million bpd. Petrobras has to import about 250,000 bpd of light oil to mix with locally produced heavy crude for its refineries to be able to process the mix. These imports can be reduced with the Golfinho oil.

Well discovery in Canada

February 16, 2006. Cabot Oil & Gas Corporation has had a significant discovery from its Hinton prospect. This well, located in northwestern Alberta, was drilled to a depth of 10,690 feet and encountered three productive zones with 118 feet of net pay. Cabot has completed only one zone in a 106 ft. pay section and is preparing to put on production this new pool discovery well, named the Cabot Hinton 11-16-51-16W5M. Although this section flowed naturally, a fracture stimulation was done and the well was tested on a restricted choke at 7.3 mmcf per day at 7,061 pounds flowing tubing pressure. Cabot has a 75 percent working interest in the well and in one offsetting section, along with a 60 percent working interest in 10 additional sections on this play (7,680 gross acres, 4,800 net acres). The Company is in discussions to expand takeaway capacity in this area to over 50 mmcf of gas per day by year-end. Two offset development locations are planned for later this year with further drilling earmarked for 2007 dependent on success.

KSA will expand its oil production

February 16, 2006. Saudi Arabia will go forward with plans to expand oil production despite U.S. goals of cutting dependence on crude from the Middle East. Saudi Arabia, the world's top oil exporter, currently pumps around 9.42 million bpd and is the largest Middle Eastern supplier of U.S. oil imports, accounting for about 15 per cent of foreign shipments. U.S. announced last month plans to cut U.S. reliance on Middle East oil by 75 per cent by 2025 as part of efforts to end what he called a U.S. 'addiction' to the region's crude.

The United States, by far the world's biggest oil consumer, imported around 9.9 million bpd in November mostly from Canada, Mexico, Saudi Arabia, Nigeria and Mexico. United States will have trouble reducing dependence on Middle Eastern crude as demand is expected to rise while domestic production wanes.

Exxon Mobil bids to explore Indonesia oil blocks

February 15, 2006. Exxon Mobil Corp. has bid for Indonesia oil exploration blocks in the Makassar Straits, despite a nagging dispute over its role in the Cepu block on Java island. In June last year, Indonesia offered 27 new exploration areas, for which eight contracts were signed in October.

The government had said that for Pasangkayu and Surumana, any oil find would be split 65 per cent for the government and 35 per cent for the contractor. Any gas find would be split 60 per cent for the government and 40 per cent for the contractor. Talks between state oil company Pertamina and Exxon Mobil have been deadlocked over who will operate Cepu, casting uncertainty over one of Exxon's 10 biggest undeveloped oil finds and OPEC-member Indonesia's best hope for stemming declining output. Cepu, Indonesia's biggest oil discovery in decades has estimated recoverable reserves of up to 600 million barrels and is expected to produce ultimately up to 180,000 barrels per day (bpd), boosting the country's production by 20 percent.

Total has new oil strike on block off Angola

February 14, 2006. Total E&P Angola and state-owned Sonangol EP have made another oil discovery on Block 32 off Angola. Mostarda-1, drilled in 1,758 m of water, tested 5,347 b/d of 30° gravity oil from one interval. The discovery lies in the eastern section of the block 14 km south of the 2004 Canela-1 discovery and 15 km southeast of the 2005 Gengibre-1 strike. Complementary technical studies are under way to evaluate the potential of the Mostarda-1 discovery and its possible development with the other Block 32 discoveries.

PetroChina joins Singapore storage project

February 14, 2006. PetroChina has agreed to take a 35 per cent stake in an oil storage facility under construction in Singapore. Hin Leong Trading (Pte.) Ltd. owns the rest. Hin Leong broke ground Jan. 4 for the $455 million Universal Terminal on Singapore's Jurong Island. The facility has a design capacity of 14.5 million bbl and is expected to be operational by the end of 2007. It will be the first independent oil terminal in the region with berths for two very large crude carriers. Singapore's Rotary Engineering Ltd. and Australia's Penta-Ocean/McConnell Dowell joint venture are building the terminal and jetties.

Five contracts let for drilling off India

February 13, 2006. India's Oil & Natural Gas Corp. Ltd. (ONGC) has awarded five 3-year contracts to Transocean Inc. for jack ups to drill off India. Three of the contracts - for the Ron Tappmeyer, Randolph Yost, and Trident XII jack ups already under contract to ONGC -will begin when those contracts expire in November. An existing ONGC contract for the Trident II jack up will expire in May, when the jack up will undergo maintenance for 120 days then begin service under the new contract. The fifth contract, for the J.T. Angel jack up currently operating off Indonesia, is expected to begin following completion of a contract with EMP Kangean Ltd. this month, an estimated 100 days out of service for maintenance, and a 6-month project in Indonesia. Revenue from the contracts is expected to total about $805 million.

Statoil upgrades natural gas reserves in Kvitebjoern

February 10, 2006. In the previous announcement, 29 bcm of natural gas was mistakenly referred to as 29 bcm of natural gas liquids (NGL).In terms of volume, this represents 29 bcm of natural gas and roughly 70 million barrels of condensate. The reason for the adjustment of the reserve estimation is that there is more condensate and gas in the reservoir than assumed. The Kvitebjoern gas is sent ashore for treatment at Kollsnes near Bergen. The dry (sales) gas is sent through the transport network to the European market, while the NGL is sent on to the Vestprosess plant at Mongstad north of Bergen for fractionation to propane, butane and naphtha. This increase in reserves thereby entails more than just extending the lifetime of the Kvitebjoern field. The field has been on stream since the autumn of 2004 and now delivers at peak 20.7 million cubic metres of gas per day from seven wells. Reserves were estimated at that time to be 52 billion cubic metres of gas and 135 million barrels of condensate.

Australian company to search for oil, gas in Jamaica

February 11, 2006. An Australian company was granted a license to search for oil and natural gas off Jamaica's south coast. Finder Exploration Pty. Ltd. will explore a zone about eight kilometers (five miles) south of Jamaica. The Perth, Australia-company was likely to begin work in the coming days. It will cover the US$3 million (euro2.5 million) cost of the operation, which could take several months. If oil or gas is eventually exploited, Finder Exploration will give a 12.5 per cent royalty to Jamaica. Fugro, of Norway, will conduct a series of seismic surveys for Finder.

Rosneft wins auctions for 3 oil and gas deposits

February 9, 2006. Russian state-owned oil major Rosneft won licenses to develop three oil and natural gas deposits in Siberia. Rosneft paid 429 billion rubles (more than $15 billion), 2.1 billion rubles (more than $74) and 2.8 billion rubles (about $100 million) for deposits with estimated recoverable reserves of 23.2 million metric tons, 14.4 million metric tons and 9.7 million metric tons of oil, respectively. The former two deposits, with an area of 678 sq km (about 262 sq mi) and 778 sq km (more than 300 sq mi) are located in the Evenki Autonomous Area in eastern Siberia. The third deposit, with an area of 462 sq km (more than 178 sq mi), is on the border between the Yamal-Nenets and Taimyr autonomous areas in the center of northern Siberia. They are located close to the large Vankor field, which the company began developing in 2003. Commercial production at the field is planned for 2008.


Brazil's Petrobras eyes more US refinery capacity

February 13, 2006. Brazil's state oil company Petrobras is looking for more refinery capacity in or near the United States to add to the 50 per cent stake in a Texas refinery it bought 10 days ago. Petrobras wants the refinery capacity to process exports of its own heavy crude to make products for sale in U.S. markets. Petrobras spent about $370 million to buy a 50 per cent stake in the 100,000 bpd Pasadena Refinery System Inc in early February. Petrobras will upgrade the plant, formerly known as the Crown refinery, to process 70,000 bpd of its heavy Marlin oil. The Brazilian energy giant expects first oil from its 180,000 barrels per day Albacora Leste field in March. Brazil's plans were on track to increase output to 2.3 million bpd in 2010 from 1.684 million bpd in 2005.

BA Energy approves $780 mn upgrading refinery

February 13, 2006. BA Energy Inc. had approved plans to spend C$900 million ($780 million) building an upgrading refinery near Edmonton, Alberta, to convert tar-like bitumen from Canada's oil sands into refinery-ready crude. Scheduled to be complete in early 2008, phase one will be capable of processing 77,500 barrels of bitumen a day. Further expansions will boost capacity to 250,000 barrels a day. Output from companies stripping bitumen from the oil-laden sands of northeastern Alberta is expected to triple over the next decade, to about three million barrels a day.

Transportation / Distribution / Trade

Turkmenistan to supply 3.2 bcf gas per day to Pakistan

February 18, 2006. Turkmenistan will supply 3.2 bcf gas per day to Pakistan for a period of 30 years. A MOU was signed at the conclusion of a two-day ministerial meeting of Turkmenistan-Afghanistan-Pakistan (TAP) in Ashgabat. India, which participated in the meeting as an observer, expressed its willingness to join the TAP. The two-day meeting deliberated upon the key issues of gas availability, security, route, pipeline structure, gas pricing and financial aspects of the project. The meeting expressed satisfaction over the pace of progress on the project and agreed to adopt strategy to implement the project as early as possible for the benefit of the member states and the region as well. The meeting considered the feasibility report presented by the ADB. It was agreed to hold a technical experts meeting followed by TAP Ministerial meeting in Islamabad in April for finalizing the gas pricing agreement. Pakistan will face gas shortfall after 2010 and working on import of gas from Iran, Turkmenistan and Qatar besides LNG fuel to meet the growing energy needs of the country linked with the unprecedented upward trend in economic growth.

First shipment from BTC in May’06

February 16, 2006. The first tanker to lift crude from the Baku-Tbilisi-Ceyhan pipeline will depart the Turkish terminal at Ceyhan in May. The pipeline construction is 99.7 per cent complete. The most time-consuming work, is to test all components of the pipeline, which is now half-full, with a total of 5 million bbl of crude oil pumped in. The oil has reached the second pumping station in Turkey, and the third pumping station is being tested. Some 800 km of the pipeline in Turkey awaits line-fill.

BG Group wins Chile LNG plant bid

February 15, 2006. British gas and oil firm BG Group Plc won a bid to build and supply a liquid natural gas regasification plant on the central Chilean coast. BG committed to invest $350 million in a terminal that will receive LNG shipments, a pipeline, and a plant that will convert the liquefied fuel into natural gas for the Chilean market. The LNG plant is a key piece of Chile's effort to diversify its energy sources. The country produces very little of its own petroleum and natural gas.

BG, Enap, and two major natural gas consumers signed a letter of understanding that gives BG the exclusive right to negotiate the building of the plant. A final contract will be signed before the end of the year. Enap and the natural gas consumers who are committed to buying fuel from the plant will create two companies - one to build the terminal and another to purchase LNG and distribute it to consumers. Under the final contract Chilean power company Endesa Chile and natural gas distributor Metrogas, which supplies natural gas for domestic heating and cooking, will commit to buying from the BG plant. Endesa and Metrogas signed the letter of understanding with BG, but two other natural gas consumers, power companies Colbun and AESGener, opted out of signing but have until the end of March to join the letter.

Chile plans to build the plant on the Quintero bay to reduce its dependence on natural gas supplied by Argentina, which has cut back on shipments to Chile in recent years to meet its own growing demand. The terminal will include a regasification plant with a maximum capacity of 15 million cubic meters a day.

Bayu Undan ships first LNG cargo to Japan - TEPCO

February 15, 2006. A natural gas field situated between Australia and East Timor has shipped its first liquefied natural gas (LNG) cargo. The Timor Sea field, operated by ConocoPhillips, holds 3.4 trillion cubic feet of natural gas and will eventually pump 424 million cubic feet per day via its processing plant at Wickham Point near Darwin in northern Australia. TEPCO and Tokyo Gas Co. agreed to buy Bayu Undan LNG from 2006 to 2022.

S. Korea to buy 3.5 mn bbls oil to boost reserves

February 14, 2006. South Korea, Asia's fourth-largest oil consumer, will add modestly to its government-held oil reserves this year, and may have to delay a target to reach 141 million barrels by 2008. South Korea plans to buy 3.5 million barrels of crude and oil products into strategic stocks, on top of 2 mn barrels it will receive from a lease deal. That will boost government reserves to 78 mn barrels by the end of this year, leaving it far short of its medium-term target just two years away.

Policy / Performance

UAE and Kazakhstan sign accord on cooperation

February 17, 2006. The UAE and the Republic of Kazakhstan signed a joint action plan pledging cooperation in several sectors. The plan involves implementation of energy projects, exploration and processing of minerals, setting up of joint ventures in infrastructure and telecom sectors. Both countries signed the agreement.

China, Iran may finalise oil deal in March

February 17, 2006. China and Iran could sign a multi-billion dollar agreement on developing a major oilfield in Iran as early as next month. A delegation of the National Development and Reform Commission, China's economic-planning body, could go to Iran as early as March, where the two could sign a deal on jointly developing the Yadavaran field in southern Iran.

The deal could be worth as much as $100 billion in gas and oil sales and field development costs, follows a MoU signed in October 2004. Negotiations over Iranian oil projects often drag on for years. Under the terms of the agreement, China, which has repeatedly urged a diplomatic solution to the nuclear crisis, would agree to buy 10 million tonnes of liquefied natural gas (LNG) from Iran each year over the next 25 years in return for the right to develop the field.

It is estimated reserves of about 3 billion barrels and is expected to produce about 300,000 barrels per day (bpd), about the same volume of crude that China imports from Iran. Under the current arrangement, Sinopec would take a 51 per cent stake in the project, and India's Oil and Natural Gas Corp. would own 29 per cent, slightly bigger shares than had been initially agreed. The remaining 20 percent could go to the National Iranian Oil Company. China's initial target of starting to buy natural gas from Iran in 2009 could be over-optimistic.

No interest in Exxon oil venture – Venezuela

February 16, 2006. Venezuela is not interested in pursuing a risk-sharing partnership with Exxon Mobil Corp. to develop the La Ceiba field under current terms.Exxon Mobil confirmed that Venezuela had terminated a $3 billion petrochemicals project initially slated as a 50-50 joint venture between Exxon Mobil and state petrochemicals firm Pequiven. Exxon Mobil in December sold its share of the Quiamare-La Ceiba field, located near the La Ceiba field, avoiding a forced contract migration to state majority joint venture as mandated by the government. Exxon Mobil is also the majority partner of the Cerro Negro heavy crude upgrader, which produces 108,000 barrels per day of synthetic crude from Venezuela's Orinoco Belt.

Bolivia - foreign energy companies ready to deal

February 16, 2006. Bolivia's New Leftist government, elected on pledges to nationalize the gas sector, all the big energy companies active in the country are willing to renegotiate operating contracts. Bolivia has South America's second-biggest reserves of natural gas after Venezuela and, under a June 2005 law that increased taxes on oil companies, the renegotiation of operating contracts is still pending. The renegotiation of the 71 contracts to be completed by a deadline of June 30.

The Morales government has pledged to increase state control of the country's energy resources and revitalize state energy firm YPFB, though it has ruled out expropriating oil company assets. The government would soon announce details of its energy policy, which would determine the future of Bolivian hydrocarbons for the next 30 or 40 years, and begin negotiations over new gas prices with Brazil and Argentina. Foreign companies, including Spain's Repsol YPF, BG Group, Brazil's Petrobras and France's Total, have invested more than $3 billion in Bolivia's energy industry over the last decade. Petrobras, the biggest single investor in Bolivian gas, was the first company to express its willingness to renegotiate its operating contract and Bolivia would sign a cooperation deal with the firm next week.

Total, Repsol make new oil find in Libya

February 16, 2006. French energy group Total it had made a seventh discovery of oil in the Murzuq Basin in Libya together with partners Repsol YPF, Saga Petroleum and Austria's OMV. The find, 800 km (500 miles) south of Tripoli in the Sahara desert, was in Block NC 186. Repsol said it produced 2,300 barrels a day in tests. The exploration block is run by a consortium of European companies and the Libyan National Oil Company. Repsol has a 32 percent stake in the consortium. Norsk Hydro acquired Saga Petroleum in 1999.

Ukraine wants to agree on higher gas supply in Feb

February 15, 2006. Ukraine wants to reach a deal with Russia on securing extra gas deliveries for February to cover demand soaring due to cold weather. Gas consumption in Ukraine rose to record levels in January due to an extremely harsh winter, prompting accusations from Russia that Kiev was taking a share of Russian natural gas bound for Europe, as well as complaints from European customers. The government plans to agree on at least an extra 500 million cubic metres of gas for this month.

US plan to cut oil addiction no threat to Saudi -IEA

February 14, 2006. Saudi Arabia, the world’s largest oil exporter, shouldn’t worry that U. S. will make good on his vow to end the US’s oil addiction. The IEA, in its first publication under a mandate by the G-8 meeting in Gleneagles, Scotland, estimates that renewable energy accounts for just 5.5 per cent of the primary fuel supplies used by its 26-member nations. Hydro-power accounted for 2 per cent of that figure, combustible renewables about 2.9 per cent and other sources such as wind just 0.6 per cent.

The Paris-based adviser to 26 oil importing nations estimates its members have spent $27.4 billion on renewable research and development budgets in the past 30 years to generate a total of about 500 giga-watts of installed electric generation capacity. About 62 per cent of research and development spending came from just three nations, the US, Germany and Japan. Annual pending on renewable research and development peaked at about $2 billion in 1980 and has been cut in half since.

Pakistan grants three blocks to OGDC

February 13, 2006. Pakistan has granted three onshore petroleum exploration licenses to state-owned Oil & Gas Development Co. Ltd. for Blocks 2769-14 (Tegani) in Zone III, 2769-15 (Thal) in Zone III, and 2567-11 (Tano Beg) in Zone II. A minimum firm investment of more than $ 24.1 million will be made in the three blocks. During the first phase of the initial term of these license agreements, OGDC plans to conduct geophysical and geological studies and field work, shoot 2D and 3D seismic surveys, and drill four exploration wells.

BP enters 20-year deal with Brass LNG

February 13, 2006. BP PLC has agreed to buy 2 million tonnes/year of LNG from Brass LNG in Nigeria for 20 years, starting in 2010. The deal targets "growth markets" in the UK and US but might also supply existing Atlantic basin markets and terminals it and partners propose in New Jersey, Texas, and Rosignano, Italy.

China Jan oil product imports down 22 per cent

February 13, 2006. China’s oil product imports in January fell by 21.8 per cent from a year earlier, confirming market expectations of a weak start for the world’s number-two oil consumer. Total imports of products, which normally include naphtha, kerosene, diesel, fuel oil and liquefied petroleum gas (LPG), were at 2.62 million tones.

Top refiner Sinopec Corp. has since November shied away from imports of the petrochemical feedstock naphtha, and has instead depended on rising domestic output to meet growing demand from its new crackers. The Chinese refiner also kept January diesel imports low around 36,000 tonnes, bought via a rare tender, to replenish stocks ahead of the Lunar New Year in southern Guangdong province, the largest consuming region. The volume was just about a third of the year-ago level. Net imports of refined oil products fell 34 percent last year, while net crude imports rose only 1.2 per cent at about 2.38 million barrels per day.

China’s oil consumption set to hit 7 per cent in 2006

February 12, 2006. China’s oil consumption this year would rise by 5.4 per cent to hit 7 per cent, with the auto sector guzzling 75 per cent of petroleum products. Given the global oil price at a high level of $55 to $65 per barrel, the transport sector would consume 75 per cent of the oil since auto consumption has entered a reasonable and stable-growth phase. China’s two major oil producers, Sinopec and Petro China, have pulled out all stops. However, the country still needs a refining capacity of 17 million tonnes to meet the demand. China’s crude oil imports bill surged 40.7 percent last year to $47.72 billion due to the rising global prices. China paid 47.72 billion last year for 126.8 million tonnes of crude, a rise of 3.3 per cent.

China Petroleum and Chemical Corporation or Sinopec drilled 1.7 per cent more crude to 278.82 million barrels last year. Petro China co produced 1.5 per cent more oil to 842 million barrels in the same period. China’s exports of oil products including gasoline and diesel rose 22.2 per cent last year to 14 million tonnes. The value jumped 61.9 per cent to $6.4 billion.

Russia may become No. 3 energy exporter to US

February 12, 2006. Russia may become the third-largest exporter of energy to the US before the end of the decade as companies such as OAO Gazprom start supplying the market. The portion of Russian energy resources on the US market rose over the past two years. In the next three to four years Russia could reach a level where Russian fuel supplies will occupy third or fourth spot. The US, which accounts for about a quarter of the world’s energy consumption, is seeking to diversify its energy imports away from the Middle East by taping reserves in the former Soviet Union.

G8 calls for stable energy supplies

February 11, 2006. Finance ministers of the world’s wealthiest nations complained about high oil prices at talks in Russia but said they nonetheless believed economic growth would be good again this year. At the G8+4 finance minister from India made it clear that New Delhi would not accept any settlement that goes against its rural sector, it would look for effective safeguards for its farmers. The G8 finance ministers kicked off their talks with their opposite numbers from some of the rising stars of the world economy - China, India, Brazil and South Africa. The meeting in icy Moscow marked Russia’s first turn as G8 president and focussed primarily on concern over the cost and reliability of supplies of oil and gas. It is one of the world’s biggest suppliers but a recent row with Ukraine, in which it closed the gas taps, has triggered ill-ease among several countries of the G8, which comprises the United States, Japan, Canada, Germany, Italy, Britain and France.

Japan urges Russia to ensure energy security

February 11, 2006. Japan says that there was no sign costly oil was directly hitting the world's major economies, but called on Russia to work on ensuring stable energy supplies. It says it was unfortunate a decades-long territorial feud between Russia and Japan was showing no signs of a solution. A group of eight finance ministers met in the Russian capital and sounded the alarm over the cost of energy, urging greater international cooperation to ensure stable supplies.

Bahrain still dependent on petroleum industry

February 11, 2006. The financial services sector rather than oil is the main contributor of the gross domestic product. Nonetheless, the latest available statistics indicate that Bahrain's economy remains heavily dependent on the petroleum sector. Crude oil and natural gas together accounted for merely 13 per cent of Bahrain's GDP at constant prices, as of 2004. By contrast, the financial services sector comprised almost a quarter of the GDP. Certainly, these figures suggest that the petroleum sector is not utterly significant to the country's economy. Still, there are other elements that must be considered about role of oil. The refining activity is accounted as part of the manufacturing sector, in turn comprising more than 12 per cent of the GDP. It is believed almost half of this figure relates to the refining activity.

Export receipt of the petroleum sector amounted to $5.5 billion, thereby accounting for 74 per cent of total exports in 2004. By comparison, sale of oil and gas represented some 70 per cent of total exports in 2003. The change reflects firmer oil prices in international markets. Sadly, this development makes Bahrain's economy only more vulnerable to developments in the international oil sector. Bahrain is not a member of Opec by virtue of being a small producer. Bahrain's daily exports amounted to 249,181 barrels in 2005, up from 241,046 barrels in 2004.

Also, oil plays a significant role in Bahrain's import bill. Import of crude oil accounted for 43 per cent of total imports in 2004, up from 37 per cent in 2003. Bahrain buys crude oil from neighbouring Saudi Arabia for processing at the country's sole refinery in Sitra. If anything, imported oil is on the rise. In 2005, raw oil imports from Saudi Arabia soared by 5.5 per cent to top 83.85 million barrels (or 229,726 barrels per day).

Still, the petroleum sector continues to be the main source of revenue for the treasury. In 2004, oil and gas accounted for $2.5 billion or 73 per cent of total state income in 2004, up from 61 per cent in the projected budgeted. Sale of gas accounted for 7 per cent of total revenue from the petroleum sector. Outturn figures for 2005 are not yet released. Still, for fiscal year 2006, the petroleum sector is projected to stand at $2.4 billion, thereby comprising a hefty 70 per cent of total income.

Final statistics would most likely be higher, as the budget has assumed oil price of $30 per barrel, considerably below prevailing market rates. Bahrain's daily output from the sole inshore Bahrain Field at 36,569 in 2005. Bahrain has a separate arrangement with Saudi Arabia regarding sale of oil. In effect, Bahrain imports crude oil via a submarine pipeline, amounting to nearly 230,000 per day in 2005. The imported crude plus supply from the local field are processed into petroleum products at the refinery in Sitra, east of the country. Some 8 per cent of oil by-products are consumed locally, with the balance bound for exports. Besides diesel, the refinery produces gasoline, naphta, kerosene, sulphur and asphalt.

Opec oil capacity to climb as demand gains - IEA

February 10, 2006. Opec’s crude oil production capacity will rise this year, helping to balance a rebound in demand growth from the US and China. The Organisation of Petroleum Exporting Countries will boost output capacity by 1 million barrels a day, with non-Opec supply adding 1.2 million barrels. The increases will be more than enough to accommodate world demand growth of 1.78 million barrels a day, 2.1 percent.

Oil prices surged as high as $69.20 a barrel in January because of tensions surrounding Iran’s nuclear program and supply disruptions in Nigeria. Cold weather in Russia and storms near Iraqi ports also crimped supply, though mild winter temperatures in the US have helped moderate prices. The agency made only ‘marginal’ changes to its previous demand projections from a month ago, cutting its 2006 world demand estimate by 100,000 barrels a day. It raised its expectations for non-Opec oil supply for the third and fourth quarters by the same amount. Total 2006 consumption is expected to be 85.1 million barrels a day, unchanged from the prediction in last month’s report. The changes meant it reduced the expected demand for Opec’s oil during the third and fourth quarters of this year by between 100,000 and 200,000 barrels a day, with the largest reduction for the fourth-quarter.

The so-called call on Opec, or demand for Opec crude, will be 27.2 million barrels a day in the second quarter, rising to 29.5 million barrels a day in the fourth quarter. That compares with January OPEC production of 29.21 million barrels a day. For 2006, the call on Opec crude will be 28.6 million barrels a day, unchanged from the January estimate.

Even as demand increases, Saudi Arabia and some other Opec producers typically keep some of their output untapped, to help control prices. Some international oil companies are drawing up plans for new refineries, or are upgrading existing plants to enable them to process growing quantities of heavy Middle East crude oil. Saudi Arabia, Nigeria and the United Arab Emirates are among Opec nations increasing output capacity this year, and the extra oil will include some ‘‘sweet,’’ or low-sulfur crude, which refiners prefer.



AES to build $450 mn power plant in El Salvador

February 14, 2006.  U.S. utility company AES Corp. will invest $450 million to build a coal-fueled power plant in El Salvador. Construction will begin this year and the plant should be complete by 2009, AES. AES owns four of El Salvador's five electricity distribution companies and has a 78 per cent share of the market. The 250 MW plant will be the first in El Salvador to rely on coal.

U.S. wants to build nuclear power plants

February 17, 2006. U.S. wants the United States to consider nuclear power to generate more of the country's electricity. U.S. wants new power plants to be under construction by the end of the decade because nuclear plants generate "large amount of low-cost electricity without emitting air pollution or greenhouse gases." Currently about 20 per cent of U.S. electricity is generated in nuclear plants.

U.S. also wants to establish a Global Nuclear Energy Partnership, in which countries that have "advanced civilian nuclear energy programs" develop power plants to recycle spent nuclear fuel, lessening the amount of material that could be stolen and used by terrorists in weapons. By working with other nations under the Global Nuclear Energy Partnership, U.S. can provide the cheap, safe and clean energy that growing economies need, while reducing the risk of nuclear proliferation.

Russia ready to build nuclear power plants in Vietnam

February 15, 2006. Russia is ready to build nuclear power plants in Vietnam. Vietnam had already approved a program for the construction of nuclear power stations through 2020. Russia hopes that Vietnam will announce a tender for the construction of power stations soon. Russia is ready not only to build atomic power stations but also train personnel for them. A tender for the construction in Vietnam of the largest hydroelectric power station will be completed in the first half of this year.

Turkey to build first nuclear plant on Black Sea

February 15, 2006. Turkey has decided to build its first nuclear power plant at Sinop on the Black Sea coast. Sinop is located in the central stretch of Turkey's lengthy Black Sea coast. The country has no nuclear power plants at present, but a preliminary study envisages the construction of between three and five plants with a total capacity of 5,000 MW.

Oil and natural gas imports, along with coal and hydro-electric power, account for most of Turkey's current energy needs. Turkey is also suffering from record high global oil prices. Previous efforts to build a nuclear power plant in Turkey stretching back 30 years have failed due to cost and opposition from environmental groups. Turkey aims to put its nuclear power plants into service in 2012 under energy ministry projections. It has begun talks with leading nuclear power producers such as the United States, Britain, China and Japan on technology transfer and the costs.

AES plans thermal power plant in Vietnam

February 13, 2006. U.S. utility firm AES Corp is planning to build a 1,000 MW coal-fired power plant in northern Vietnam at an estimated cost of $1 billion. AES Corp would invest up to 90 per cent of the estimated cost while state-run coal mine operator Vinacomin would contribute the remaining 10 per cent. Construction of the plant, in the country's coal mine hub of Quang Ninh province, is scheduled to begin in July next year. An increase in the number of private businesses and a rise in disposable incomes have resulted in electricity demand growth averaging 15 per cent a year, driving the communist government to plan 60 additional power plants by 2020.

Two power plants to be built in Iran

February 12, 2006. Given the expected 100 percent increase for electricity demand in the western parts of the country, two power plants are to be built in these regions within the next 10 years. Accounting for about 51 per cent of the power consumption in the industrial sector, the west Iranian provinces of Markazi, Hamedan and Lorestan are located within the domain of the company and therefore, the building of four 63-kilowatt electricity posts in Khomein, Mahallat, Shazand and Saveh is on the agenda. Currently, the 1000 MW power plant in Hamedan and a 50 MW power station in Dorud in conjunction with the 1300 MW power plant now operational in Shazand are generating the electricity demands of the three provinces. However, the current production level will not address the increasing growth in the industrial and household uses.

China’s three Gorges generates 100b kwh

February 12, 2006. The China Yangtze River Three Gorges Project Development Corporation, its power plant has cumulatively generated 100 billion Kwh of electricity by February 10 of this year. The Three Gorges Power Plant, where turbo-generators with a combined installed capacity of 9.8 million Kw are now operational, along with the Gezhouba Power Plant downstream of the Three Gorges power plant, are capable of generating between 240 million Kwh and 250 million Kwh of electricity daily, equivalent to 5 per cent of the country's actual daily power consumption.

The gigantic, multi-functional Three Gorges Project is estimated to cost 180 billion yuan (approximately 21.7 billion U.S. dollars) and will have a combined generating capacity of 18.2 million kw. The Three Gorges Project will be able to generate 84.7 billion kwh of electric power annually when it is completed in 2009.

Transmission / Distribution / Trade

Japan Electric power companies move into gas supply

February 16, 2006. Electric power companies are expanding into natural gas supply, with the ambitious goal of making it their second largest pillar of revenue. The move, which follows intensive campaigns for all-electric homes and condominiums, are turning up the competitive heat on traditional gas retailers and wholesalers.

Regional electric utilities, which purchase natural gas for thermal power generation, have been selling surplus gas to commercial facilities and city gas retailers. With many businesses switching from petroleum to clean-burning natural gas, electricity suppliers are aiming to gain larger shares of the market. Tokyo Electric Power Co. plans to increase its revenue from natural gas sales to 25 billion yen in fiscal 2006, up 60 percent from the current fiscal year.

In terms of volume, sales are estimated to grow to 500,000 tons, up 140,000 tons from fiscal 2005. Much of the increase, or 80,000 tons, is expected to come from a new contract with Keiyo Gas Corp., a city gas retailer that services homes and companies mainly in Ichikawa, Chiba Prefecture. TEPCO started supplying Keiyo Gas on a trial basis in January. In the past, major gas utilities, such as Tokyo Gas, dominated the wholesale market.

TEPCO is one of the world's largest purchasers of liquefied natural gas (LNG), with annual imports of about 16 million tons. TEPCO started supplying gas wholesale in 2001 and entered the retail market in 2004, leasing pipelines from Tokyo Gas. The company serves eight companies, including Mitsubishi Corp. and Nakano Sunplaza, a Tokyo commercial complex that houses a concert hall. It expects five more customers, including East Japan Railway Co., by the end of 2006.  To expand its capacity, TEPCO is building a 20-kilometer undersea gas pipeline across Tokyo Bay, connecting its two LNG terminals in Futtsu, Chiba Prefecture, and Kawasaki. The pipeline is scheduled to start operations in March 2009. TEPCO aims to increase gas sales to factories in the industrial belt stretching between Tokyo and Yokohama along Tokyo Bay. Electric utilities are campaigning for homes that use only electricity for hot water and heating.

But at factories and hotels, which use large amounts of hot water, demand for gas-fed cogeneration systems is strong. The systems, which produce both steam and electricity, are more energy-efficient. When burned, natural gas emits less carbon dioxide, a greenhouse gas, than does petroleum. Other regional electric utilities are also on the offensive. In January, Kansai Electric Power Co. opened a new LNG terminal in Sakai, Osaka Prefecture, to meet growing natural gas demand. The company sold 240,000 tons of natural gas in the six months through September, up 26 percent from the same period the previous year.

TransAlta signs five-year power deal with Ontario

February 15, 2006. Almost three years after TransAlta Corp. commissioned its $490 million gas-fired power plant in the southern Ontario city of Sarnia, the company has secured a long-term contract with the Ontario Power Authority. The five-year deal will see Calgary-based TransAlta supply an average of 400 MW of electricity to the Ontario market, which has been wrestling with power shortages in recent years.

The Sarnia plant currently supplies steam and electricity to a series of industrial uses in the area, including Dow Chemical Canada Inc., Nova Chemicals Ltd. and Suncor Energy Products. For the first few years of its operating life, the Sarnia plant was only functioning at about one- quarter of its 575 MW capacity because it was not worthwhile for TransAlta to produce more power in the spot market that was capped by Ontario's former Conservative government.

Policy / Performance

$260mn for Egyptian power plant

February 19, 2006. The World Bank has approved the setting up of an Egyptian power project at a cost of $260 million. The bank will finance the El-Tebbin power project by issuing a fixed spread loan (FSL) to the Egyptian government with a 20-year maturity, including a five-year grace period. The loan will be issued by the International Bank for Recon-struction and Development, an arm of the World Bank. Through the El-Tebbin power project, the WB is aiming to support the Egyptian government's effort in providing sustainable energy to the country. The project involves the construction of a 700 MW power plant comprising two units of 350 MW steam turbines and boilers using natural gas as fuel. The project is expected to generate considerable employment opportunities both during the construction phase and during the operation period.

UAE to invest in power sector

February 18, 2006. The government of United Arab Emirates (UAE) has shown interest to invest in power sector in Pakistan. The minister offered to conduct survey and feasibility studies of projects by NESPAK as per requirement of the UAE. The delegation was informed by the Pakistani side that Pakistan government has simplified the procedure to facilitate the foreign investors. The power sector has a great potential and viable future for making profitable investment in Pakistan as the growing demand of power has been registered as 10 to 12 per cent in the country.

The government is following policy of privatisation and deregulation and stated that 96 per cent work of re-structuring of WAPDA has been completed. Pakistan has old and cordial relations with UAE and the visit of the UAE energy minister to Pakistan would further boost the trade and economic ties between the two countries. The UAE minister assured that two power plants would soon be sent to Pakistan for Lahore and Karachi which would improve the power and transmission system of WAPDA.

China’s piped-gas firm in coal conversion venture

February 17, 2006. Xinao Gas Holdings, China's largest privately owned piped-gas distributor, will invest in a US$99 million (HK$772.2 million) coal conversion project in Inner Mongolia with its controlling shareholder to diversify into the energy chemical industry.  Hebei-based Xinao will invest US$14.85 million and take a 15 per cent stake in a new joint venture - Xinneng Chemical. With registered capital of US$99 million, Xinneng will produce methanol and dimethyl ether as an alternative to diesel fuel. Methanol is widely used in various industries as antifreeze, an additive to feed, an organic industrial chemical, organic solvent and a clean vehicle fuel substitute.

The project enables the company to secure a stable backup energy source which can substitute natural gas as an alternative for customers, as well as to make use of the mainland's massive coal deposits. The control of upstream gas resources will enable Xinao to take an active role in its future development and generate new income. Xinneng is expected to receive a business license in six months and commercial production will start about three years after the license is issued. The total investment for the whole project is expected to increase to 1.578 billion yuan, but the company does not have any further commitment to invest in the project as additional investment will be funded by loans.

A year on, Kyoto climate backers urge US action

February 17, 2006. Backers of the UN’s Kyoto Protocol renewed their pleas to the United States to do more to fight global warming, even though their own records are patchy in the year since the pact went into force. Many experts said that time to slow a rise in temperatures widely blamed on burning fossil fuels was running out. A British report said the nation might resemble the tropics by 3000, with rising seas from melting ice swamping the coasts. The United Nations, the European Commission and many environmental groups all urged tougher action beyond Kyoto, which entered into force on February 16, 2005 and runs to 2012.

The world needed to strengthen action to contain global warming or would ‘‘run out of time to contain climate change.’’ Most scientists say warming will bring a more chaotic climate with more heatwaves, droughts and floods. NASA has said that 2005 was the warmest year at the earth’s surface since records began in the 1860s. Another recent study showed that concentrations of greenhouse gases were at the highest in 650,000 years.

US pulled out of Kyoto in 2001, saying it would cost US jobs and wrongly excluded developing nations from an overall goal of cutting industrialised nations’ emissions by 5.2 per cent below 1990 levels by 2008-12. US emissions of greenhouse gases, released mainly by burning fossil fuels, were about 16 per cent above 1990 levels in 2004. But Kyoto signatories Spain, Portugal, Greece, Ireland and Canada are all doing even worse.

Countries are not on track to reach even their modest Kyoto targets, despite growing recognition that we are already facing dramatic consequences as a result of climate change. And Kyoto’s backers agreed to talks about what to do after a first period runs out in 2012. The UN said this week that Kyoto nations were on target to cut emissions by 3.5 per cent compared with 1990 levels by 2012 and could reach the 5.2 per cent goal by introducing extra measures.

By 3000, it historically chilly Britain could resemble the tropics. Seas could be 11.4 meters higher due to melting polar ice, swamping cities like London. After snubbing Kyoto, Bush has stressed promoting new technologies, such as wind and solar power, to break what he has called a US addiction to oil. Some experts say Bush’s plan lacks a spur to force industry to cut down and say that markets for trading carbon dioxide, the main greenhouse gas, are the best way to encourage cuts. In the European Union, carbon dioxide in a market for industrial pollution allowances traded at 26.9 euros ($31.96) per tonne, reflecting growing belief in the scheme, and up from about 7 euros a year ago.

Renewable Energy Trends


BHEL sets up solar-diesel plant in Lakshadweep

February 20, 2006. The Bangalore-based Electronics Division of Bharat Heavy Electricals Ltd has commissioned the country's largest solar-diesel hybrid power plant at Lakshadweep's tourist island of Bangaram. This will considerably reduce the consumption of high-speed diesel and conserve the ecology of the island that attracts a large number of tourists for energy-intensive water sports activities.

Until now the island administration was totally dependent on diesel power plants which posed air and ground water pollution threat to the island. The Electricity Department started with a 10-KW solar power plant and upgraded it to a 50-KW hybrid plant to ensure 24-hour supply. It now wants to replicate the system in all other islands. BHEL has set up solar plants in eight other islands and have added over 1 MW to the total capacity there.

Wind mobile charger

February 18, 2006. Wind mobile charger is a very small hand-held windmill which starts operating when a draft of wind, induced either by blowing wind or when travelling in a vehicle, starts charging a mobile phone. It can also be used to charge laptops. The charger costs Rs 150.

SCCL to set up machinery to produce bio-diesel

February 17, 2006. Singareni Collieries Company Limited (SCCL) is keen on installing a transesterification machinery in Bhupalpalli and Kothagudem coal mines to encourage bio-diesel production. The company plans to use bio-diesel, thus produced on experimental basis, in its coal transportation vehicles. The esterification process involves separation of glyserine and bio-diesel from bio-diesel seeds of Pongamia Pinneta, Jetropha and Simaruba plants. SCCL plans to use ethanol and potassium hydroxide for processing bio-diesel through the esterification process. The company, which consumes 5 to 5.4 million litre of diesel every month in the 12 mining areas of the SCCL limits, is spending about Rs 200 crore ($45 mn) on transportation fuel. Groaning under the weight of growing diesel prices very often, SCCL has chalked out a plan to rely on bio-diesel. The company was planning to raise 500,000 plants every year and process 30,000 quintals of seeds. It expects to produce 1 million litres of bio-diesel and cut almost 50 per cent of the cost on fuel. 

Alternate energy fund launched

February 17, 2006. A Rs 418 crore ($94 mn) fund for the promotion of non-conventional energy sources in Maharashtra was officially formed. The fund will be utilised for encouraging power generation through, solar energy, wind energy, energy through garbage, mini-hydro electrical plants, installation of energy saving lamps on large scale, baggas-based (sugarcane residues) energy generation plants etc. The state Cabinet had given clearance for the fund two months ago. The state minister for non-conventional energy will be the Chairman. The state government will contribute Rs 218 crore ($49 mn) to the fund over next three years, raised through the electricity duty. The state government is seeking partnerships with financial institutions that would contribute Rs 200 crore ($45 mn) to the fund, and will have to raise another Rs 2,120 crore ($478 mn) from the market.

BEIL sets up biogas plant

February 16, 2006. Bharuch Enviro Industries Ltd (BEIL) has established a biogas plant which runs on vegetable waste bearing in mind that the state based farmers churn out about 40 per cent of waste of their total agriculture produce. The new biogas plant which is under construction is estimated to cost Rs 3 crore ($0.68 mn). This plant will be a replica of biogas plant constructed at Baba Atomic Energy Plant which is used for cooking. The company is ready to establish such biogas plants wherever required in the country.  The company also takes the responsibility to maintain the units.

SREI unveils loan scheme for solar heaters

February 15, 2006. SREI Renewable Energy Unit, promoted by SREI Infrastructure Finance, launched, on a test basis, in Bangalore, its `Retail Finance Scheme for Solar Water Heating Systems'. Under the scheme, a low subsidised interest rate is offered, to promote "accelerated development and deployment of solar water heating systems in domestic, industrial and commercial sectors". The company would finance up to 85 per cent of the system's cost. Based on the response in Bangalore, the scheme would be introduced across southern India and subsequently in Pune and Delhi.

The introduction of such financing schemes by Srei was in line with the Group's commitment towards empowerment of the nation through usage of solar power and recognition of the fact that "India is potentially the largest single market for renewable energy in the world". Srei has already registered a presence through such schemes for promotion of renewable energy market in the country in Haryana, Jammu and Kashmir, Maharashtra and Uttaranchal, besides playing a key role in the electrification of Sunderbans (Bengal) and the Kargil regions.


Norway firm plans world's biggest Wind Park

February 21, 2006. A Norwegian firm has applied for a concession for the world's biggest wind power development off western Norway with total capacity of 1500 MW produced by hundreds of turbines. The world's biggest wind power parks are now off Denmark, the leading wind energy nation, which has two parks with capacity of around 160 MW each. Big wind projects are also on the drawing board elsewhere, such as off Britain. Privately owned Havgul estimated total investments to carry out the development at 16 billion Norwegian crowns ($3.58 billion), and it expected big industrial groups to take over the project from the construction phase.

In the basic plan, the parks would have a total of 334 turbines of 4.5 MW each, but the number of turbines could vary from 188 to 500 if a bigger or smaller turbine is chosen. The construction will start in 2009 or 2010 and it could be in operation in 2010 or 2011.

Pak plan to produce power from biogas

February 18, 2006. Pak has given final approval to the installation of a plant in the Cattle Colony in Pak to produce biogas and electricity from cow dung. The project would be completed at a cost of $0.2 million with New Zealand’s assistance. The city government is expected to earn an income of millions of rupees from this project. The city government will provide land at the Cattle Colony for the project, which would be completed in one-and-a-half to two years period by Empower Consultants Ltd. About eight million kilograms of cow dung was produced at the Cattle Colony, which was not being utilized, and the same was causing cleanliness problems as well as a foul smell, creating pollution.

Microfield Group plans new wind project

February 14, 2006. Microfield Group has contracted with PPM Energy to provide the Electrical Collection system for the Big Horn Wind Farm project near Bickleton, Washington. The project consists of trenching and laying approximately 25 miles of electrical and fiber optic cable and the connection to the individual turbine transformers. It will generate approximately 200 MW of electrical energy enough clean, renewable electricity to serve more than 60,000 homes. The project started in February, and is scheduled to be completed during the 2nd quarter of this year. Total current value of the contract to CE is approximately $9 million.

Edison, BP plan $1 bn Calif. hydrogen power plant

February 10, 2006. BP and Edison International plan to team up on a $1 billion hydrogen-fueled power plant in southern California. The plant, near the BP refinery in Carson 20 miles (32 km) south of Los Angeles, would come online by 2011 and generate 500 MW of electricity, about enough to power 325,000 homes. The plant would be the first in America to use a new process that uses a chemical process to produce clean-burning hydrogen from petroleum coke, a residue from refining crude oil.

The hydrogen is burned to fuel the power plant. Meanwhile, carbon dioxide produced in the process of extracting hydrogen from coke is caught and stored. Rather than being released into the air, about 90 per cent of the gas would be trapped and injected into a natural reservoir thousands of feet underground, where it would stimulate additional oil production. BP plans to spend $8 billion over the next 10 years developing low and zero carbon energy plants, including facilities utilizing solar and wind energy.

The Carson plant will require governmental financial incentives to be economically viable, and a final investment decision on the project is expected by 2008. The project will partly depend on receiving incentives for advanced technologies as outlined by last year's Energy Policy Act.

“India’s Energy Security: Major Challenges” will be continued in the next issue.



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[1] In this paper the main focus is on issues relating to the Hydrocarbon sector, though references to other sub sectors have been made when felt necessary.

[2] Goldman Sachs, 2003, “Dreaming with BRICs: The path to 2050”, Global Economics Paper,  No. 99.

[3] The Energy  and Resources Institute (TERI), 20001-02, TERI Energy Data and Directory Year Book, (New Delhi: TERI).

[4] Srivastava, Leena, and R. Goswami, 1999, “The Indian Oil Experience: A Case Study”, in, ECSSR ed., Privatisation and Deregulation in the Gulf Energy Industry, (UAE: ECSSR,), pp.55-68.

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


[5] See Mehta, Balraj, India and the World Oil Crisis, (New Delhi: Sterling Publishers Private Ltd., 1974), pp.93-100.

[6] For detail understanding of the principle of 'import parity', refer Horsenell, Paul, Op. cit; and also see, International Trade Centre UNCTAD/WTO, International Procurement of Crude Oil and Petroleum Products, (Guide No. 24, UNCTAD/WTO (Import Management), 1995).

[7] The APM essentially constituted a cost-plus pricing regime wherein costs were reimbursed as per standards laid out with respect to throughputs, yield pattern, fuel and loss, operating cost, capital employed, etc. companies were allowed a 12% post-tax return on their net-worth and reimbursed their borrowing costs. For a clear understanding of the mechanism of APM and OPA and its different components, see Rao, Saudamini, "The Indian Oil and Gas Sector Bracing for Deregulation", Oil Asia Journal, Mumbai, January-April-June 2001, pp. 25-54.

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