MonitorsPublished on May 31, 2006
Energy News Monitor I Volume II, Issue 50
Economics of a Political Pipeline

iscovery of huge natural gas reserves in Iran’s South Pars fields in 1988 and subsequent efforts by the Iranian government to explore the potential South Asian markets initiated the idea of the India-Iran pipeline.  An MoU was signed between New Delhi and Tehran in 1993 followed by a preliminary agreement in 1995 between Islamabad and Tehran to connect Karachi with the South Pars field.  Bilateral dialogues between India & Iran and Iran & Pakistan have been conducted periodically but the pipeline has not moved beyond paper for a variety of reasons. 

Many options have been suggested for the transit route ranging from expensive offshore routes as well as the relatively cheaper onshore routes. The shallow water option first supported by Russia’s Gazprom as well as the deep sea option from Oman have been more or less abandoned on account of prohibitive costs and unproven technologies involved. The on-land option however survived, on paper, with advantages on both counts. 

Until recently opinion on the Iran-Pakistan-India (IPI) pipeline was predominantly optimistic.  The pipeline was considered to be the most attractive, if not the only, option for the seller and buyer.  Though terrorist attacks on the pipeline was perceived as a serious risk factor, a number of physical, financial and contractual instruments were said to be available to mitigate this risk.  If we now revisit these factors which seemed to making a strong case for the IPI pipeline at that time, things look dramatically different.  Gas is now the answer to global aspirations of cleaner economic growth.  International gas prices have kept up with those aspirations and risen to unanticipated levels. 

Projections for gas demand in India were all made prior to the discovery of large gas reserves in India and had assumed that demand from the power and fertilizer segments would drive demand.  The Asian Development Bank demand projections for the Turkministan-Afganistan-Pakistan-India (TAPI) pipeline refers to two growth scenarios for natural gas in India with the labels ‘High’ and ‘Moderate’.  The Moderate scenario shows a challenging acceleration in the growth rate of gas consumption to 8.1 percent per annum from 2005 to 2015.  This should be compared to the 3.54 percent per annum actually achieved over the last five years. The ‘High’ scenario shows a growth of 9.6 percent per annum from 2005 to 2010. Both show subsequent slower rates of growth for the period 2015 to 2020, 3.0 percent and 3.6 percent in Moderate and High growth scenarios respectively.

Optimistic projections in the Hydrocarbon Vision 2025 document commissioned by the Government of India in 1999 are widely used by analysts to justify gas imports. They are based primarily on projections by the power and fertilizer segments which together consume close to 80 percent of gas supply.  Demand projections in the document use the Central Electricity Authority’s (CEA) Fourth National Power Plan 1997-2012 (proposed thermal plants included coal-based, gas-based and naphtha based power plants) along with the Power Ministry’s list of private power producers. 

Projections beyond 2012 use electricity-GDP elasticity. Per capita requirement of food grains, fertilizers required to attain the necessary production, the share of urea to sustain the yield (excluding imports of 2 MMT through the forecasting period) and consequently the gas required to produce this urea are used as the basis for demand projections in the fertilizer sector.  The document, however, cautions that estimates for additional capacity in the fertilizer segment are based on concerns of food security and that the option of importing fertilizers has not been considered. Demand in other sectors such as industry, commercial and domestic was expected to remain incremental to that of the anchor customers viz. power and fertilizer.  The document assumes that these sectors would not account for more than 20 percent of demand.

The Hydrocarbon Vision document projected a demand of 195 MMCM/D[1] in 2004-05 which is the highest among various forecasts available.  On the supply front the document is rather pessimistic, not expecting production to increase beyond 84 MMCM/D (30 BCM[2]) even by 2025.  It projected a supply of 58 MMCM/D in the Business as Usual case and 64 MMCM/D in the Optimistic Case by 2007. As of March 2006, domestic production has exceeded 87 MMCM/D, including 17 MMCM/D of RLNG.  The total availability of gas in March 2006 was 104 MMCM/D.

Demand for gas may not grow as quickly as expected, because of the uncertainty in the industry concerning pricing and regulation.  Key industry players are unsure on how to proceed in view of the yet largely regulated sector.  The current situation in India is that of a hybrid gas market, where private suppliers sell market priced gas to niche off takers while state owned companies sell subsidised gas to rest of the much larger market.  However the boundary between the two markets is being re-drawn with the subsidised market shrinking and the private market growing because availability of cheap domestic gas is becoming scarce.  There is, however some concern over limits to the growth of the private market, not because of supply constraints but because of the limited ability of the anchor markets - power and fertilizer - to absorb higher priced gas.  

Domestic production accounted for around 90 percent of India’s gas demand in 2004.  The gas was mostly sold at an average regulated rate of about $2.50/mmbtu, including marketing margins, taxes and duties, pipeline transmission fees and a landfall price in the range of $1.16-1.54/mmbtu. This compares with an end-user price of around $4/mmbtu for LNG, after adding shipping, re-gasification and pipeline transmission costs to the FoB price of $2.53/mmbtu for Qatari imports. This price is beyond the reach of most power and fertilizer producers who say that they cannot afford gas higher than $3.00-3.50/mmbtu.  Fertilizer and power producers will continue to rely on low, government-administered prices for supplies from domestic fields, at least as long as it is available, as prices of the end-products are capped. 

Some forecasts[3] suggest that moderate demand growth can be adequately covered until 2015 by a combination of domestic production and planned expansion of four existing/planned LNG terminals. Only in the high demand scenario will additional imports be required from pipeline or new LNG terminals.  Another issue is the implicit assumption that the Indian side seems be making that Iran will be willing to sell gas to India at a price that India demanded and would wait as long as India wanted to be able to do so. 

The gas market is rapidly evolving from a regional market to a global one, thanks to technical advances that are constantly improving the competitiveness of LNG.  With LNG technologies, regional markets which favour pipelines are losing their appeal, especially in the light of the inter-regional political problems and the associated supply risks.   

The USA, the world’s largest consumer of natural gas accounting for 24 percent  of the world total, will exhaust its gas reserves in less than 10 years at current rates of production assuming that no additional resources are discovered.  The production of gas in Canada too is declining and is expected to run out in about 8.8 years.  Overall, the demand for gas in North America is likely to continue increasing given the environmental advantages of gas over coal for power production.  Much of the future natural gas requirements of this region will therefore have to be imported from producers in far away regions in the form of LNG.   Russia and eventually Iran will probably become key suppliers to the North American market. 

Russia is the world leader in the export of gas through pipelines with a supply of 589 BCM in 2004.  With estimated reserves of about 48 TCM of natural gas Russia controls nearly 30 percent of world reserves.  Iran has the second largest reserves in the world estimated at 27.5 TCM.  Together, Russia, Iran & Qatar control nearly 58 percent of the world’s gas reserves.  Any gas importing region of the future, including the United States cannot afford to keep any of these countries out of their suppliers list.   When the North American market opens up, the price of gas will inevitably go up.  The United States went from being a minor importer of oil to a major one in the late 1960s.  Oil prices jumped adding significantly to the oil crisis.  A similar surge in the price of gas when North America enters the Global market will only add to the attractiveness of LNG. 

If US sanctions against gas pipelines from Iran follow the fate of US sanctions against pipelines from the USSR, the possibility of Iranian gas reaching the shores of the US in the form of LNG cannot to rule out.  In the 1980s, the US aggressively pushed for sanctions against gas pipelines from the USSR to Western Europe.  These sanctions achieved little more than hurting US companies and were eventually withdrawn. Today the US has signalled interest in possible Russian gas exports to the US west and east coasts in the form of LNG.   When these large creditworthy markets come into play, gas will consolidate its position as a global commodity.  As a rational actor, Iran would send its gas to this global market rather than wait for Indian minds and markets to mature. 

Views are personal

(Lydia Powell, Director ORF-CRM)



India’s Hydrocarbon Scenario: A Journey from Protected Past to Competitive Future- Part VIII

Dr. Samir Ranjan Pradhan®

The Deregulated Indian Oil and Gas Sector


hough the above analysis reflects the deregulation process in the Indian oil and gas sector, yet an in-depth analysis will reveal the emerging opportunities and challenges in the sector. The section below starts with a brief historical background of deregulation in the Indian oil and gas sector and focuses on various aspects and issues in the deregulated oil and gas regime in India.

Brief Historical Background of Deregulation

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[4]. The committee recommended that ceiling selling prices for bulk refined products should follow the 'import parity principle'[5]. 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)[6]' 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.

Initiatives Prior to Deregulation

 As mentioned in the earlier section of this chapter, exploration bidding rounds to attract private investment started in 1979, but unsuccessful. Private participation in the refining sector in the form of joint ventures with the public sector was announced in 1986. The marketing of lubricant-based stocks was allowed in 1992. The government had allowed parallel marketing of LPG and SKO in 1993, under which the import of these products were decanalised and private parties were allowed to market them at market determined prices.

Rationale for Deregulation

There are various factors that have contributed significantly in initiating and carrying forward the deregulation process. Some of the factors have already been mentioned in chapter. The other main factors can be analyzed 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.

(to be concluded)


Eight States with substantial number of villages to be electrified


Villages to be electrified


Uttar Pradesh






West Bengal


















Source: Ministry of Power

Integrated Energy Policy (part VI)

(Continued from issue no. 47)

(Comments by Shankar Sharma on Planning Commission’s Draft Report)



he country is urgently in need of a paradigm shift as far as priorities are concerned with regard to all the fundamental infrastructures, including energy. We have to clearly differentiate our needs from wants; recognize the fact that fossil fuels are fast running out; improve the energy efficiency a by huge margin; harness the renewable energy sources to the optimum extent; protect the fragile environment with high degree of responsibility to be handed over to the next generations in as good a condition as possible.

1.        In the background of the projections that the domestic sources of fossil fuels identified can last not more than few decades, we should seriously look at energy scenario not just for next 25-30 years, but for our future generations also.  As Mahatma Gandhi said, we should consider ourselves the Trustees of the nature, which we inherited from our ancestors, to hand over the same to the future generations in as pristine a condition as humanly possible. 

2.        While it is unimaginable to go back to the life style of austerity of our ancestors, an earnest attempt to reverse the present trend of energy profligacy should be a fundamental principle of our society for the sake of long term energy security.  Without such a goal, we can never hope to ensure the security of even the life line energy for those who cannot afford to pay the real cost of energy.  As a civilized society, those who can afford to pay must be able to distinguish between our needs, wants and wishes as far as energy, among others, is concerned; and shall be able to restrict, as far as possible, our energy use to needs only so that everyone gets access to a minimum quantum. 

3.        Before utilizing our meager resources in setting up new capacities, the society should ensure that all the existing facilities are optimally put into public use.   For an average citizen it is perplexing that while there is a hidden electrical energy in the form of avoidable losses available for quick use at a small additional cost, we continue to pour thousands of Crores of precious public money into new generation capacities. 

4.        We should consider to shift the burden of supplying energy from the State to individuals. Such a situation would almost be ideal from the point of view of energy security on a sustainable basis.

5.        It is safe to say that for the Indian conditions, which already has a sizeable hydro capacity, building additional large dams for the sake of hydro electricity alone is not essential for the stability of the system.  In view of the fact that the socio-economic-environmental issues associated with hydro-electric projects can threaten the very objective, which is the sustainable development; and since more of hydro-electric projects are not essential from the technical point of view for the power network, there is a clear scope to consider suitable alternatives to them to meet the rising electricity demand.

6.        Similarly, the socio-economic-environmental issues associated with coal based and gas based stations, in addition to non-renewable nature of the energy source, can threaten the very objective, which is the sustainable development; and since more of these projects are not essential from the technical point of view for the power network, there is a clear scope to consider suitable alternatives to them to meet the rising electricity demand.  The huge requirement of fresh water for coal fired stations should be a major consideration in our energy policy.  

7.        Nuclear power, as has been elucidated in the draft report, has a huge potential, but also has a number of technical constraints to overcome before we can hope to meet most of our electricity demand.  However, adequate investment in R&D, and diplomatic efforts to gain the much needed technology should be embarked on to make it fundamental to our future energy security. 

8.       The non-conventional and renewable energy sources on one hand, and energy efficiency, conservation and demand side management on the other hand have tremendous potential to reduce our dependence on fossil fuels to a considerable degree, and to minimise the threats to sustainable development.

9.        We should explore the clear possibilities of increase in capacity and/or efficiency of upto 10 % in the existing generating stations, through effective renovation, modernization and upgradation (R, M &U).

10.     It can be termed as poor management of our energy resources if PLF of all the thermal power stations are not maintained above 75%, since it is feasible.  It is eminently clear that as a developing country, our society cannot afford to ignore the harsh realities of T&D losses any longer.  Similarly the potential for energy efficiency at usage level is also huge.

11.      It is an irony that whereas the peak demand and energy shortages are reported to be about 12 % and 8 % respectively, and it is technically feasible to bring down the existing T&D losses of about 45 % to about 10%, we are happy to continue to experience the deficits.  What our society doing at present is to supply inefficiently derived energy from limited conventional sources at subsidized rates for highly inefficient/wasteful end uses, for which the real subsidy cost will be debited to the account of future generations.

12.     Unless we improve the overall efficiency of conversion of primary energy source to various forms of secondary energy till we use it for productive and economical use, which is only about 20% now, we cannot hope to attain energy security ever.  At the prevailing cost of additional energy generation, it costs a unit of energy about one fourth the cost to save than to produce it with new capacity. To put it in economic terms on a conservative estimate, if the overall efficiency (of the electricity industry only) at present of about 20% is increased to about 50%, the savings to the national economy by adopting the above discussed measures can be in the range of Rs.150,000 to 200,000 Crores in the form of avoided cost of additional capacity.

13.     Effective demand side management both of the peak hour and of annual energy by measures like staggering the peak loads of major industries within the state and across the nation is another urgent need for the electricity sector. Electrical energy conservation itself has a great potential to release a considerable amount of peak demand power and annual energy.

14.     As long as the political patronage of un-metered energy supply to consumers is continuing, there is not hope of achieving adequate level of efficiency.   A suitable tariff regime can play a very crucial role in energy efficiency, conservation and demand side management. 

15.     ‘Polluter pays principle’ is novel idea practiced with desired effects in many parts of the world, and it is best applied at the stage of mining and generating itself.  Suitable incentive also should be admissible for exceeding the targets of reduction in pollution, and efficiency in generation.

16.     In view of the present and future difficulties in getting adequate energy through conventional energy sources, the society has a lot at stake in actively encouraging the increased use of renewable non-conventional sources and in participating in R&D activities to reduce the relevant costs. 

17.     With only initial capital cost and negligible recurring costs, the efficient deployment of distributed generation through Solar power technology will not only eliminate all the issues with conventional energy sources, but also will slowly shift the burden of supplying energy from the State to individuals. 

18.     Non-conventional energy sources in the form of distributed generation sources are best suited for providing electrification of new villages and hamlets.  The economical and technical issues to deal with in the case of electrification of the new villages and hamlets through grid connectivity are very many, and compare poorly with that of distributed generation sources. 

19.     There is a need to come up with a new definition for Per Capita Electricity Consumption to take into account the individual electricity needs of the individual population at homes, schools, streets, agriculture etc. not only to do away with the ill conceived comparison with that of developed countries, but also to get a real picture of our development, and to desist us from moving towards large generation projects only.

20.    Making compulsory the study in schools on the subjects of energy, environment and their importance to our long time survival should be a very important step. Planning Commission should initiate the necessary actions to commission expert but independent study on each of the large dam based projects, which are already commissioned to assess the actual costs and benefits of each of them.

21.     Initiate action plan to mandate effective public consultation at the stage of application registration stage itself on all large projects. 

22.    In order to mobilize adequate funds, and to hasten the efficiency related tasks, the Central generating agencies should be asked to invest 30% of their annual budget in reducing the AT&C losses; and 30% of their annual budget in modernizing the transmission and distribution system in each state till it reaches the international best practice level.

23.    Time bound action plan to bring the legislation for two or three time zones of the country, to take advantage of day-light savings, should be initiated.




Iranian nuclear fuel program: Time to make a choice


ehran has been given several weeks to scrutinize a "far-reaching" package of incentives for Iran to stop its nuclear fuel program. This is how the White House sees the situation.  The paradoxical situation around Iran's nuclear fuel program developed several years ago. Iran as a signatory of the Non-Proliferation Treaty (NPT) has the right to create its own nuclear technologies, and has declared as much. But the West has a number of questions to Iran on the expediency of some elements of its nuclear fuel program, which suggest that Iran wants to create nuclear weapons. The "Iranian knot" can be either untied by substantial mutual concessions, or cut.

However, the White House offered a mixed option combining incentives and sanctions. Washington had adopted a harsh stand on the Iranian question but eventually agreed to certain concessions. In particular, it has accepted the Russian and Chinese proposal to omit from the draft resolution of the UN Security Council any reference to a provision in the UN Charter that permits the use of military force.  If Iran rejects the compromise offer, Washington will have a wide range of sanctions to choose from to push Iran into an economic, technological, financial and diplomatic isolation, allegedly with the wholehearted support of the international community. On the other hand, sanctions were imposed on Iran back in 1979, when the shah was toppled. The probability of a partial or total isolation is a separate issue. What matters now is what Washington has offered to Tehran this time. The incentives should be stronger than the threatened sanctions, but maybe they are at least comparable?

When the international community discussed the package of sticks and carrots for Tehran, a senior fellow of the Washington Brookings Institution (Foreign Policy Studies), who was in Moscow at the time, recalled the "Grand Bargain" negotiated by the Iranian government in 2003.  The current president of Iran will demand that the 2003 package be augmented with the right to nuclear R&D, including in the area of uranium enrichment. This is of vital significance for Iran, and not only because it wants the bomb.

President Bush apparently liked Tehran's initial reaction to the package formulated by the five UN Security Council permanent members and Germany.

(Courtesy: RIA Novosti)





Oilex takes control of Cambay field from Niko

June 6, 2006. The Australia-based Oilex has completed the transfer of operatorship for the Cambay Field onshore Gujarat from Niko Resources Ltd, effective from 1 June 2006. Oilex is the operator responsible for all operations, including production, in the Cambay block. Earlier this year, Oilex acquired a 45 per cent participating interest and the role of Operator in the Cambay production-sharing contract, 15 per cent of which remains subject to the approval of the government of India. Oilex will also become operator of the Sabarmati and Bhandut fields when the approval of the government is received. Current operations on Cambay include completing the planning for the drilling programme and construction of the three well sites for the first phase of drilling, now likely to commence in late June. The ministry of petroleum and natural gas approved the assignment of 30 per cent equity in Cambay Field to Oilex on March 23, 2006. Subsequent to end of quarter, Oilex increased its stake in Cambay Field to 45 per cent as part of a transaction involving two other small fields. 

RIL eyes global exploration opportunities

June 5, 2006. Reliance Industries Ltd was pursuing global opportunities in exploration and production of energy sources like oil and natural gas. According to the company the exploration programme was going on "full throttle" and the signs were very encouraging. RIL has become the first private sector company to cross Rs 9,000 crore ($2 bn) mark in terms of net profit.

Focus Energy hopes to hit more gas in Rajasthan

June 4, 2006. Upbeat over the recent discovery of high quality gas reserves at its fifth exploratory well RJ-ON/6 block near Shahgarh of Rajasthan, Focus Energy Ltd is hopeful of more successful strikes in the block. The company is working towards further exploration and commercial exploitation of discovered gas. It will also drill deeper zones that may have even larger reserves. The reason for that is the first and the second well are in very close proximity to the fifth well.

Adani plans E&P foray

June 1, 2006. Adani Group, which has diversified interests in trading and port infrastructure, has drawn up major plans for oil and gas exploration. The group, which has recently ventured into city gas distribution in several cities of the country, wants to become an energy conglomerate. The company will venture into the upstream sector, both in India and abroad, over the next few years. Bids have already been submitted for overseas blocks. An outlay of around Rs 1,000 crore ($217 mn) has been made for bidding in NELP-VI. The group will set up a separate company to carry out the new business. As a part of the diversification, a group company has already submitted bids for gas blocks in Australia.

OVL signs contracts for Vietnam block

June 2, 2006. ONGC Videsh Ltd, the overseas arm of Oil and Natural Gas Corp, has signed the production sharing contracts with Vietnam Oil and Gas Corp (PetroVietnam) for two offshore blocks in Phu Khanh Basin in Vietnam. OVL would be operator of block 127 and 128 and have a 100 per cent participating interest. In the event of a commercial discovery, PetroVietnam through a wholly owned affiliate has the option of obtaining up to a 20 per cent participating interest in the Blocks. The exploratory phase of both the contracts is seven years, with a firm minimum work programme during the first three years that includes the acquisition of new 3-D seismic data and the drilling of two exploratory wells in block 127 and one exploratory well in block 128. This would be followed by two optional two-year periods during which a well has to be drilled in order to retain the acreage.

Centre okays Cairn`s $1 bn plan

June 1, 2006. The Union government has approved Cairn Energy’s $1 bn (Rs 46.19 bn) development plans for four of the 18 oil discoveries made by the British firm in its Rajasthan block. The fields for development plans are the Mangala, Aishwariya, Saraswati and Raageshwari fields in block RJ-ON-90/1, Rajasthan. Cairn holds a 70 per cent stake in BLOCK RJ-ON-90/1, where it is partnered by state-owned ONGC on 30 per cent. The company hopes to produce close to 1,00,000 barrels of oil per day by 2008-end. 

ONGC to develop oil fields on its own

June 1, 2006. Marking a change in its strategy to scour for oil and gas, the Oil and Natural Gas Corporation has dumped a plan to outsource the development of its marginal fields numbering around 96. Barring isolated fields, it will develop the rest on its own. This means that ONGC will not only look overseas for oil and gas, but will also fully exploit its existing resources by deploying newer technologies. As part of its strategy, the corporation has decided to conduct studies of its fields for a re-estimate of reserves. At present, ONGC has 96 marginal fields with a potential of 200 mt of oil and 120 billion cubic meters of gas. These have not been exploited. Extraction from these fields is viable at low capital cost and overheads. In an attempt to streamline its approach, ONGC plans to divide its offshore fields into three clusters instead of the earlier division of nine. This classification will depend on the geographical location and producers of crude and gas.


‘Fuel price hike not enough’: OMCs

June 6, 2006.  The Union Cabinet has approved a 9.2 per cent hike (Rs 4) in petrol prices and 6.6 per cent (Rs 2) in diesel prices. Oil marketing companies, however, feel it was only a fraction of the increase actually needed to offset the spiraling international oil prices. The hike in petrol and diesel prices would give OMCs only Rs 9,200 crore ($2 bn) as compared to the projected Rs 73,500 crore ($16 bn) revenue loss projected for 2006-07 due to firming up of global crude oil prices. Indian Oil Corpoartion alone has been suffering under-recoveries of Rs 100 crore ($22 mn) a day. IOC would gain approximately Rs 4,000 crore ($873 mn) from fuel price hike. Assuming crude prices to be in level of $70 per barrel, it was estimated that the under recoveries of the Oil marketing companies would exceed Rs 1,00,000 crore ($21.82 bn) for fiscal 2006-07.

Bharat Petroleum Corporation Limited, (BPCL), has been losing Rs 40 crore ($8.73 mn) per day on sale of retail petroleum products below cost. Price hike will help to reduce the under recoveries of BPCL but will not offset the entire loss. All the Oil marketing companies, Hindustan Petoleum Corporation Ltd, Bharat Petroleum Corporation Limited, Indian Oil Corporation, and IBP are losing Rs 160 crore ($35 mn) per day on under recoveries. The Cabinet also approved reduction in customs duty on petrol and diesel from 10 to 7.5 per cent. It has asked upstream oil companies like ONGC GAIL and OIL to contribute Rs 24,000 crore ($5.24 bn) as discount on products and crude as compared to Rs 14,000 cr ($3.05 bn) during 2005-06.


Excise row may up LPG, kerosene price

June 5, 2006. Oil companies like Oil and Natural Gas Corporation and Reliance have been issued notices by the finance ministry for paying excise on the refinery gate prices instead of on the selling price of LPG and Kerosene. The dispute over excise duty payment on these two products has been going on for about a year now and the amount due is threatening to touch Rs 1,000 crore ($219 mn). The disputed excise amount is for the four-year period from 2000 till 2004. After that, both PDS kerosene and domestic cooking gas were exempted from excise. The petroleum ministry is of the view that if the oil companies were wrongly over-charged, the ministry would have no option but to recover the extra outgo from the consumers.

Transportation / Distribution / Trade

Punj Lloyd bags $93 mn order from Ratnagiri

June 6, 2006. Punj Lloyd Ltd along with its joint venture partner, Whessoe UK, has bagged an order worth $93.02 mn (Rs 4.27 bn) from Ratnagiri Gas and Power Pvt Ltd for completing the Dabhol LNG terminal. The order is for EPC (engineering, procurement and construction) which entails the completion of balance works at the LNG terminal and top of the jetty facilities for Ratnagiri (Dabhol) LNG Terminal project. The project is scheduled to be completed within 13 months. Punj Lloyd has a 50:50 joint venture with Whessoe UK, which is engaged in the oil and gas, refining, petrochemical, nuclear, water, power and offshore industries.

MCX to trade mini-Nymex energy contracts

June 6, 2006.  Multi Commodity Exchange of India (MCX) and New York Mercantile Exchange (NYMEX) have entered into an exclusive licensing agreement in India for launching mini-NYMEX energy contracts on MCX. This is further to their alliance formed last year. This agreement will cover WTI light sweet crude oil, natural gas, heating oil, gasoline, RBOB gasoline and propane futures contracts of NYMEX.

The final settlement of these mini-contracts will be done based on the settlement price of reference contracts on NYMEX adjusted for local duties and taxes and in local currency. Both the leading exchanges had earlier entered into an exclusive MoU to explore areas of cooperation that would be mutually beneficial.


ONGC sells 35,000 tonne cargo

June 5, 2006. Oil and Natural Gas Corp has sold a naphtha cargo for late-June loading to Malaysia's state oil firm Petronas. ONGC sold the 35,000 tonne cargo at a premium of $19-$20 a tonne to benchmark Middle East spot quotes, on a free-on-board (FOB) basis, for loading from Hazira on the Indian west coast. Last month, ONGC sold a 35,000 tonne lot for loading from Hazira at a premium of $17 a tonne to the benchmark quotes.

GAIL eyes more LNG supplies

June 3, 2006. After the sale of the first liquefied natural gas spot cargo from Algeria, GAIL is scouting for more LNG cargoes from Southeast Asia, West Asia and North Africa. The company is in talks with major suppliers from these places. GAIL is of the view that the Indian gas market has now attained full maturity despite all speculations. With the successful marketing of spot LNG, the domestic gas market is aligned with the global gas market.

L&T weighs plan to build large reactors

June 2, 2006. Larsen & Toubro (L&T) plans to set up a greenfield facility to manufacture large reactors for oil, gas and fertiliser industries in the West Asian market. The company is also exploring the option of acquiring similar facilities in the region. The strategy of having a manufacturing presence for heavy reactors and other equipment aims at reducing cost and time involved in transporting them from India to West Asia. The company had identified three locations for a fresh facility to manufacture 100 reactors a year. Large reactors weighing 2,000-3,000 tonne are used to convert gas into oil.

NTPC to source gas at daily discovery price

June 2, 2006. The NTPC Ltd has decided to source gas for its requirements through a daily price discovery model. The plan has been taken keeping in mind the volatile crude price conditions in international markets. The company’s original plan was to select a supplier for a nine-month period. The company plans the price discovery for 4 million standard cubic metre a day (mscmd) which will be made on a daily basis. Every day a clutch of companies, including GAIL, Petronet LNG, Oil and Natural Gas Corporation, Gujarat State Petroleum Corporation Ltd and Shell, will compete for supplying 4 mscmd of gas at the lowest price. The company that quotes the lowest price will supply the gas. This arrangement will continue for six months after which it will be reviewed. NTPC has seven power generation plants fuelled by gas or liquid fuel with a commissioned capacity of 3,955 MW. Its commissioned gas plants through joint venture have a capacity of 314 MW. The company has a gas demand of 17 mscmd, of which it is able to get supply of only 13 mscmd.

Policy / Performance

India, Romania to focus on energy ties

June 3, 2006. India and Romania will strive to identify areas of cooperation in the power and energy sectors. The delegation, which has representatives of the power and energy sector, will be coming from Romania to New Delhi. According to Romanian embassy the agenda of the visit, is to identify areas of cooperation with the Indian power and non-conventional energy companies to work together. India and Romania have decided to further enhance cooperation in the oil and gas sector. Last year, both countries agreed to concretise the proposals and projects for cooperation in the energy and power sectors.

India to seek US aid to set up petroleum regions

June 3, 2006. Taking forward the Prime Minister’s initiative to set up petroleum, chemical and petrochemical investment regions (PCPIRs), a high-power delegation will visit the US. The delegation will hold talks with corporate leaders to explain the government’s point of view and invite their suggestions regarding PCPIRs. The government is seeking to develop these regions in collaboration with the private sector and foreign direct investment. The delegation will be interacting with CEOs of global giants like Exxon, Total, BASF, Bayer and Dow Chemical Company. The petroleum, chemical and petrochemical industries had been chosen as growth engines for the proposed special regions as the industry had recorded steady growth over the years. The petrochemical industry is currently worth $30 bn (Rs 1.37 trillion) and constitutes 3 per cent of the GDP, and by 2012 the industry is expected to double its present size.

M’shtra may cut sales tax on petro products

June 2, 2006. Maharashtra is contemplating a cut in sales tax on petroleum products, to cushion the impact of any sharp hike in petrol, diesel and LPG prices on consumers. The state charges 29 per cent sales tax on petrol – the highest in the country – and also levies Re 1 surcharge on every litre of petrol. In case of diesel, sales tax is 31 per cent in addition to a surcharge of Re 1 per litre. Sales tax on petroleum products account for inflows of between Rs 4,000 – 5,000 crore ($874 mn- $1.09 bn) to the state exchequer.

DGH lays code of conduct for E&P Cos

June 2, 2006. The directorate general of hydrocarbons has cracked the whip on premature announcements of oil discoveries by upstream oil companies. The regulator has laid down a strict code of conduct to be followed by all oil exploration and production (E&P) companies for announcements on new oil discoveries and gas finds. From now onwards, the companies will have to submit detailed technical information about any new gas find or oil discovery to the respective management committee under the DGH for approval. The management committee will include two members from the DGH, one being the DGH himself and one member from the concerned oil company. As per the guidelines, E&P companies like ONGC, Reliance and Cairn Energy will have to follow four stages to seek approval from the management committee (MC) of the concerned production sharing contract (PSC) for a new oil discovery or gas find.

In the first stage, detailed information about the block name and category, area of the block, name of the location, drilled depth of the well and the number of hydrocarbon interesting zones with geological age/formation among other things will have to be submitted by the contractor to the MC. The first stage is when a new discovery has been made but the potential commercial interest of the discovery has not been established. In the second stage, the contractor will have to furnish similar kind of information after the discovery is found to be commercially viable, for approval by the committee. Thereafter, once the government approves its viability, the contractor will have to write to the committee saying the ‘block is viable and needs development for exploitation of oil and gas’. Finally, once the development plan is approved by the government, information of the same will have to be submitted to the committee in the given format. Apart from guidelines for declaration of new discoveries, the DGH has also drafted a uniform policy on ‘classification of reserves and resources’ to be followed by all E&P companies.

Congestion costs dear on Delhi roads

June 1, 2006. A survey sponsored by the Petroleum Conservation Research Association (PCRA) to work out fuel loss due to delays on account of congestion in certain areas of Delhi reveals an annual fuel loss of Rs 31 mn and time loss of approximately Rs 24 mn. PCRA, an organisation under the Ministry of Petroleum and Natural Gas, entrusted a study to the Central Road Research Institute (CCRI) to work out fuel loss due to delays on account of congestion at Paharganj side of New Delhi Railway Station under the research with regard to pollution and inefficient use of fuel on Delhi roads. The study covered mainly the Chelmsford Road in front of New Delhi Railway Station. Almost 66,000 vehicles pass through this road every day as per estimates. Under the study, PCRA desired to know how much fuel was wasted, which leads to air pollution. It also wanted to know remedial measures to reduce this pollution from fuel wastage. The remedial measures suggested in the survey include road re-engineering, pedestrian facilities, certain modifications in parking methodology and traffic re-engineering.

MRPL bags award for lowest energy consumption

June 1, 2006. Mangalore Refinery and Petrochemicals Ltd, a subsidiary of ONGC, has bagged the Jawaharlal Nehru Centenary award for the lowest energy consumption amongst PSU refineries during 2004-05. The awards are based on the annual performance of the refineries in the area of energy consumption, measured in terms of Specific energy consumption. MRPL is in process of enhancing the capacity of its refinery to 15 MMTPA from the present 9.69 MMTPA.

Core sector grew 6.7 pc in April

May 31, 2006. The infrastructure sector grew by 6.7 per cent during April 2006 as against 6 per cent for the same period a year ago. The growth came largely on the back of a surge in oil refining and cement production, while steel, coal and crude oil production showed a decline. Power too showed improved production levels during the month. Refinery output shot up by 13.5 per cent during April 2006 as compared to a negative growth of 7.7 per cent in the same period a year ago. Electricity generation increased by 5.6 per cent as against 3 per cent in April 2005. Coal production rose by a lower 3.4 per cent from 8.2 per cent a year ago. Crude oil production fell 1.9 per cent during the month under review, as against a decline of 0.4 per cent in April 2005.



Pvt cos keen on hydel projects

June 6, 2006. Hydel power could well emerge as a winner in a country where power stations run on fossil fuel. Private sector interest in hydel power has grown and several new projects are underway. Almost 6,500 MW of hydel power capacity has been added in the past five years - almost double the thermal power capacity commissioned in the same period. Many of the thermal power projects commissioned in the past few years are liquid (naphtha) or natural gas fuelled plants. Prices of these fuels have shot up over the past two years - mirroring the rise in crude oil prices and cost of power from such projects is currently in the range of Rs 7-8/unit. In contrast, while hydel projects have a high capital cost, there is no fuel cost involved and hence little risk of escalation in cost. Unlike coal or gas-based power plants, hydel projects don’t face fuel shortage or fluctuations in price. Most of the large construction companies are moving into hydel power as project developers - since hydel projects involve large construction projects as well. Margins on hydel projects can be as high as 20 per cent, against margins of 7-10 per cent for road projects. The government proposes to set up 50,000 MW of fresh hydel power capacity over the next 15-20 years, about 1.5 times the current installed capacity of 32,000 MW. The estimated investment required for this kind of capacity is in the range of Rs 2 quadrillion ($4.35 trillion). The ministry of power has identified around 162 projects spread across 16 states through out India.

REL to generate nuclear power

June 5, 2006. Reliance Energy Ltd. is set to enter nuclear power generation in a big way. The company is in talks with several domestic and international nuclear reactor builders including General Electric, Russia-based Atom Story Export and state-run Nuclear Power Corporation of India for a possible joint venture. A nuclear power initiative group under VK Chaturvedi, former chairman and managing director of NPCIL has been set up by REL for exploring the possibility of the company’s entry in the nuclear power generation sector. REL said that the techno-economic viability of various advanced reactors of USA, France, Germany and Russia has already been carried out. The viability of the indigenous heavy water reactors has also been checked.

TPC, Siemens, Doosan to bid for power projects

June 2, 2006. Tata Power Company has signed an agreement with Siemens Power Generation, Germany and Doosan Heavy Industries & Construction, Korea to bid for the ultra mega power projects in the country. The engineering procurement and construction (EPC) consortium of Siemens and Doosan Heavy Industries is a formidable one for the design and construction of power plants based on super critical technology required for large-sized units, and will form the basis of the company’s bids for the ultra mega projects. While Siemens is a established player in the Indian power sector, the agreement will give Doosan a foothold in the Indian market. Doosan has large experience with supercritical technology as an EPC contractor with more than 30 plants. Doosan has successfully supplied and completed various types of nuclear, thermal, combined cycle and hydro power projects with total capacity of around 100GW.

UP to add 1,500 MW power

June 1, 2006. Uttar Pradesh, which has not added a single mega watt to its power generation capacity in the last 10 years, is going to add about 1,500 MW by December this year. This addition will come as a relief to the power-starved state, which is looking to attract industrial investment. Of the capacity being added, 420 MW will come from the Paricha plant, 400 MW from Vishnu Prayag, 385 MW from Tehri and 300 MW from Tala. Besides, the mega power plant being set up by REL is also progressing well. The power supply in the state has remained static at the 1996 level even as the demand has increased 8-10 per cent every year. As much as 11,000 MW is required to ensure round-the-clock electricity all over the state. 

Orissa clears 3 power stations

June 1, 2006. The Orissa government’s high level project clearance committee headed by Chief Minister approved setting up of three mega power projects. Vedanta group proposed to set up the smelter plant in Jharsuguda district in Orissa which is also cleared by the state government. The smelter will also have a captive power plant (CPP) and the company will sell the surplus power to the state grid. Of these, Nababharat Private Limited proposed to set up a 1040 MW power plant in Angul district at an estimated cost of Rs 4,875 crore ($1.06 bn). Mahanadi Awan Power Limited proposed to set up a power plant near Talcher. It will establish two units of 515 MW capacity each an investment of Rs 4,527 crore ($0.98 bn). Similarly, the GMR Energy Limited proposed to set up its 1000 MW (500 MW X 2) plant in Dhenkanal district at an investment of Rs 4,200 crore ($0.91 bn). The three companies will have to sell 25 per cent of the power produced by them to the state Government at the rate decided by the OERC. By this, the state government will get 225 MW each from the three power plants. Besides, the companies will pay six paise on every unit of power sold by them outside the state to the Orissa government as royalty for environmental impact assessment. This enable the state government earn Rs 150 crore ($32 mn) from each of the projects.

Essar Power to bid in Indonesia

June 1, 2006. Essar Power is planning to bid for three power projects in Indonesia. The three projects for which the company is bidding include a 500 MW gas-based power plant, and two 1,000 MW coal-based power plants. The company has lost bid for the 600 MW Cerebon power plant in Indonesia and the project is likely to be awarded to the consortium led by Japan’s Marubeni, Kompo Tripatra and Sampatan. The award is being granted to the consortium on the basis of a 3 cent price differential.

Currently, Essar Power runs a 515 MW plant at Hazira and is executing a 355 MW plant at captive gas-based combined cycle power plant at in two phases also at Hazira, which is expected to be commisioned by March 2007, plus a 32 MW coal coal based captive plant at Vishakhapatnam, Andhra Pradesh. The company aims to become a 3,000 MW power producing company along with assets in transmission and distribution. It is planning an investment of Rs 6,000-7,000 crore ($1.3-1.5 bn) in the sector. The company’s ambitious 1,500 MW combined cycle gas plant, also in Hazira, has completed financial closeure is awaiting land acquisition from the Gujarat state government.

REC to fund 500-MW thermal project

May 31, 2006. The Rural Electrification Corporation will fund the Rs 2,077 crore ($449 mn), 500-MW AP Genco thermal project coming up at Chelpur village, in Warangal district. Bharat Heavy Electricals Ltd (BHEL) has been awarded the contract for supply and erection of boiler for the project. The Bhoopalapalli thermal power station, to be completed in 36 months, is being considered as a boon to the drought-prone Telangana region and is expected to generate 3,500 million units per year. The fly-ash generated from this will be used in making bricks and cement.

Tata Power plans two 1000 MW projects

May 31, 2006. Tata Power Company is planning to set up two new 1,000 MW imported coal-based projects near Rewas in Maharashtra. The state government has given approval for the first of the 1,000 MW plants. Environmental clearances for the two Rewas plants are also in place. It will take upto three years for commissioning the plant from the time land acquisition is completed. These power plants are in lieu of the company’s earlier proposal to set up a 1000 MW Vile project which now stands scrapped. The company was considering its own jetty at the plant site to handle the imported coal. The coal for the plant is being imported from Australia and Indonesia. The company also has plans of acquiring coal mines in either of the countries and is in talks with some mine owners.

Transmission / Distribution / Trade

PowerGrid ropes experts for ultra HVDC system

June 6, 2006.  The government has commenced the laying of ultra high voltage direct current (HVDC) transmission lines at 800 kv to carry over 50,000 MW hydro power from the north-east to the rest of the country. The state-run Power Grid Corporation of India Ltd will invest as much as Rs 9,000 crore ($1.96 bn) for its completion by 2011.

Text Box: • Besides India, China, Brazil and South Africa are the upcoming markets for HVDC systems at 800 kv 
• These are economically attractive for bulk power transmission
• Such a system is crucial to meet the sharp increase of power consumption

PowerGrid has roped in nine advisors from the US, the UK, Canada, Brazil and Egypt to guide it in conceptualising, designing, manufacturing and commissioning of the system. Some of these advisors have also been feted for their contribution to the electricity sector. The move to initiate the process for the laying of 800 kv HVDC transmission lines comes at a time when the power ministry has launched the development of six ultra mega power projects with a capacity of 4,000 MW each. The highest voltage double current system in commercial operation today is the Itaipu transmission which has been in service for over 15 years at 600 kv. While 800 kv transmission system can transmit 6,000 MW to over 2,000 km.

REL eyes rural power plans in Orissa

June 5, 2006. Reliance Energy Ltd has completed the work for electrification of 2,500 villages out of 6,715 villages awarded to it for rural electrification in Uttar Pradesh. The company now plans to bid for rural electrification projects in other states as well. It also plans to take up villages in Uttar Pradesh and Orissa to run power distribution networks. Reliance Energy was given the target of completing electrification of 1,400 villages by March 2006. It exceeded the target.

Goa seeks additional power from Centre

June 5, 2006. Goa has sought 60 MW of additional power from the Centre. The state needs 60 to 64 MW of additional power during peak hours. The state intended to become self-sufficient in power sector in the days to come. National hydel power corporation has already conducted a study on the project which will generate 60 MW power. But this power will not be sufficient to meet the entire state's demand.

Asian Electronics bags order from MSEDCL

June 2, 2006. Asian Electronics Ltd has bagged an order worth over Rs 53 crore ($12 mn) from Maharashtra State Electricity Distribution Co Ltd to execute works under the Gaothan Feeder Separation Scheme for Aurangabad. The secured order entails the supply, construction, erection, testing and commissioning of transmission and distribution lines and distribution transformers on turnkey basis. The Feeder Separation Scheme is designed by MSEDCL for 'fast-track' improvements in electricity supply to villages and to reduce the prolonged power cuts.

$11 mn power grant for rural Haryana

June 2, 2006. The Centre has sanctioned Rs. 48.48 crore ($10.60 mn) under the "Rajiv Gandhi Vidytikarn Yojna" of the Rural Electrification Corporation for carrying out various power development works in the Sonipat, Panipat, Rohtak and Karnal districts. The scheme would cover 1,070 villages of these districts. There has been a provision of 90 per cent subsidy on the implementation of various schemes like improvement of power distribution system, installation of distribution transformers, erection of 11 KV and other lines. It has been planed to provide 49198 domestic connections in the villages to the people living below poverty line. The connections would be provided free of cost to the applicants under the scheme and the Nigam would get 100 per cent subsidy for the purpose. All these major development works would be completed in 12 months.

Nathpa-Jhakri surpasses generation targets

June 1, 2006. The 1,500 MW Nathpa-Jhakri power project, which is running at its full capacity for over a month, has surpassed its targeted production of 1,363 million units of power for April and May. The project had not met the target in April due to low discharge of water but did exceedingly well during May by generating over 1,000 million units of energy in the total of 1,456 million units that was produced in two months.

Policy / Performance

MahaVitran for Power franchisee model

Text Box: • Torrent Power will distribute nearly 600 MW daily on MahaVitaran’s behalf to consumers
• It is expected to bring down losses to 14 per cent from 44 per cent in the next 10 years and increase collection to 98 per cent from 62 per cent

June 6, 2006. The power franchisee model will soon be implemented in the powerloom town of Bhiwandi in Maharashtra, which reports over 44 per cent of distribution losses. The board of the Maharashtra State Electricity Distribution Company (MahaVitaran) selected Torrent Power to implement the franchisee model. Torrent Power will distribute nearly 600 MW of power daily on MahaVitaran’s behalf to consumers. The company is expected to bring down transmission and distribution losses to 14 per cent from 44 per cent in the next 10 years and increase collection efficiency to 98 per cent from 62 per cent. In 10 years, MahaVitaran will get additional revenue of Rs 1,500 to 2,000 crore ($327-435 mn). Within the first year itself, it will generate extra revenue of Rs 150 to Rs 180 crore ($33-39 mn). After 10 years, Torrent Power will transfer the assets to MahaVitaran again.

30-yr coal linkages for 4 power projects

June 5, 2006. Power-starved Maharashtra has got a major respite, with the Centre approving coal and railway linkages for 30 years for upcoming coal-based projects with a total generation capacity of 2,000 MW. These include Parli (250 MW), Paras (250 MW), Kharparkheda (500 MW) and Bhusawal (1,000 MW). All these would need nearly 10 mt of coal annually for 30 years since their commissioning. The state-owned Maharashtra State Power Generation Company Ltd (MahaGenco) proposes to commission these projects by 2009-10. MahaGenco would have to purchase the coal at the price fixed by Coal India. The Centre’s approval comes at a time when the state government had given its nod for MahaGenco’s Rs 10,000-crore ($2.19 bn) investment for the proposed projects. MahaGenco will develop them on 80:20 debt-equity ratio.

M’shtra can be power surplus in 5 yrs’

June 5, 2006. The unbundling of the Maharashtra State Electricity Board has helped expedite power sector reforms. MSEB was unbundled into a holding company and three separate companies for generation, transmission and distribution. Political compulsions stopped the government from corporatisation or privatisation. The state, which enjoyed surplus power up to 1995, saw no major capacity addition except phase I of the Dabhol project (740 MW) and Khaparkheda (500 MW). However, the current situation forced a government decision to provide at least Rs 500 crore ($109 mn) annually for the next five years. The Maharashtra State Power Generation Company has already initiated work for capacity addition of 7,500 MW. Of this, it has succeeded in getting the state government’s approval for 2,000 MW. The Centre has also promptly responded to the state government’s plea and has provided coal linkages for projects worth 2,000 MW. MahaDiscom has launched a Rs 12,500-crore ($2.73 bn) plan to strengthen distribution. Meanwhile MahaVitaran’s drive to contain power thefts has started reaping results even in politically sensitive powerloom town Bhiwandi.

NPC may enter into uranium JVs abroad

June 5, 2006. The Nuclear Power Corporation (NPC) may enter into uranium mining in joint venture with companies abroad, to secure supply of the basic raw material for its reactors. It is also looking at the possibility of sourcing critical equipment from other countries. At present, it in the process of preparing itself technically so that it is ready to absorb these equipment once the nuclear deal is through. To begin with it may start sourcing uranium from the open market. A number of companies from uranium producing countries have approached NPC for setting up joint ventures for mining uranium from their deposits. NPC will also be looking at the possibility of building small and medium sized nuclear power plants for countries like Vietnam, Bangladesh, Myanmar, and Indonesia.

PFC may rope in PowerGrid for ultra projects

June 3, 2006. Power Finance Corporation has approached Power Grid Corporation to set up transmission projects for evacuating close to 16,000 MW of power from the four proposed ultra mega power projects. The company had lined up a capital expenditure of Rs 5,100 crore ($1.12 bn) this fiscal. It plans to raise 70 per cent as debt and the rest as equity. The debt will be raised through bonds and long-term and multi-lateral loans. Power Grid will need an indemnification agreement with the project developer before setting up the project. Tentative allocations of power from the ultra mega power projects of 4,000 MW each at Sasan, Mundra, Tadri and Ratnagiri have been drawn up.

CCEA for strengthening northern grid

June 2, 2006. The Cabinet Committee on Economic Affairs approved an investment of Rs 721.25 crore ($158 mn) for the ‘Northern region system strengthening scheme-V’ project. The commissioning schedule of the project is around 36 months from the date of investment. The present grid strengthening scheme in the northern region has been evolved to strengthen the transmission system and wheeling power from the north-eastern region to beneficiary States in the northern region. The CCEA also approved the setting up of National Hydro-electric Power Corporation's 45-MW Nimoo Bazgo and 44-MW Chutak hydel projects in Jammu and Kashmir. The Nimoo Bazgo project would be set up at an estimated cost of Rs 611.01 crore ($134 mn) by reallocating grant earmarked for the 220 kV Srinagar-Leh transmission line to this project. This project is expected to reduce the power shortage in the Ladakh region. Ladakh region is not connected with the northern grid and the entire power generated from the project would be absorbed in the region. The Chutak hydro-electric project would be set up at an estimated cost of Rs 621.26 crore ($136 mn). The project is scheduled for commissioning within a period of 54 months from the date of sanction. The project would enable the Government to reduce the power shortage in the Kargil region of Jammu and Kashmir.

PTC plans SPV to fund equity investments

June 2, 2006. In a first-of-its-kind venture in the field, the Power Trading Corporation of India plans to set up a special purpose vehicle for financing equity investments in power generation projects. The company’s board has approved the proposal and a new entity will be set up by December this year. The proposed company will have an authorised capital of Rs 300 crore ($66 mn). The PTC will have a 51 per cent stake in the new company. The PTC will take around 15 per cent equity stake in upcoming power generation projects via the SPV. Earlier, it had picked up an 11 per cent stake in the 300-MW Lanco Amarkantak project in Chhattisgarh. This move will help the PTC make inroads into the surplus capacity of captive power plants’ base. Using the SPV as a jumping board, the company is exploring possibilities for taking part in group captive-power generation projects as well. 

NPC, NTPC may tie up for nuke power plant

June 1, 2006. A group of experts reviewing the power ministry’s and Central Electricity Authority’s report on the restructuring of NTPC Ltd has recommended that the power PSU enter into a joint venture with the Nuclear Power Corporation for setting up a nuclear power plant. The group has also recommended the creation of new departments for coal mining and washery as well as the creation of director-level posts in the company.  The group favours the formation of a JV, keeping in mind the present favourable scenario of cooperation in nuclear fuel supply and technology transfer with developed countries, that may further facilitate such an initiative. 

NPCIL`s new power units to get bigger reactors

May 31, 2006. In a strategic shift, the Nuclear Power Corporation of India Ltd (NPCIL) has decided to shift to bigger reactors for new power plants. It is also planning to upgrade existing reactor complexes to multiple reactor parks. The new reactors will be in the 700-1,000 MW range. The average size at present is 200 MW. Of the eight reactors to be set up by 2012, Jaitapur 1 and 2 (in Maharashtra) and Kudankulam 3 and 4 (Tamil Nadu) will be 1,000 MW each. While both plants will use lightwater technology, the Jaitapur reactor will be imported. NPCIL is in discussions with suppliers in Russia, France, the UK and the US. The other large reactors of 700 MW each will be at Rawatbhata (formerly known as Rajasthan Atomic Power Project), RAPP 7 and 8 and two at Kakrapar near Surat. The prototype fast breeder reactor (PFBR) coming up at Kalpakkam, near Chennai, is a 500 MW large reactor. Plans are on the anvil to develop indigenous reactors of up to 1,100 MW capacity. NPCIL has already developed the technology to upgrade its new 540MW reactors to 700MW. Both Tarapur 3 and 4 will be upgraded to 700 MW in the future. 




NIOC to start development of Kish gas field soon

June 6, 2006. The National Iranian Oil Company (NIOC) announced here launching of the development project of Kish gas field in the near future.  Having a capacity of 48 tcf, Kish gas field is considered as an economical project. The development projects of different phases of South Pars, calling them significantly important as far as meeting the domestic needs and exporting products are concerned. The development project of North Pars Gas Filed is atop NIOC’s agenda.

Nigeria to boost output by 1.5 mn bpd by ’07

June 5, 2006. Nigeria will increase its oil output by 1.5 million bpd by next year, contributing to OPEC's spare capacity. The Organization of the Petroleum Exporting Countries agreed to leave oil output unchanged near its full capacity, news that failed to soothe oil markets. A greater volume of spare capacity could help OPEC stem an over three-year oil price rally, fuelled in part by fears that producers and refiners would be unable to compensate supplies in the case of any sudden, unexpected outages. Over the past year Nigeria, the biggest oil producer in Africa, has begun pumping oil from Royal Dutch Shell's 225,000 bpd Bonga field and ExxonMobil's 150,000 bpd field, with more developments led by Total and Chevron expected to follow over the next two years. The offshore fields have typically been immune to the kind of militant attacks that have shut in 550,000 bpd of onshore production in the Niger Delta, a quarter of Nigeria's total.

UK needs 20 new oil and gas fields every year

June 5, 2006. More than 20 new oil and gas fields will have to be developed in British waters each year to help keep pace with the current rate of production. A new study warns that while remaining reserves are large, the industry's future prosperity will depend on the successful exploitation of large number of small oil and gas fields and enhanced recovery schemes which will be more costly to develop.

The report says that a "striking feature" of the prospects for undeveloped fields was their relatively small size, with the average size of the probable and possible fields estimated at under 15 million barrels of oil equivalent. The long-term future of the UKCS depends on the successful development of large numbers of small fields and enhanced oil and gas recovery schemes. The remaining reserves are large but they are mostly located in relatively small accumulations.

The study's economic modelling suggested total production, which stood at 3.35 million barrels of oil last year, could reach the industry's target of maintaining production at a level of three million barrels in 2010, perhaps reach two million barrels by 2020 and one million barrels in 2030, despite the dwindling role of production from major North Sea platforms.

Between now and 2030 a cumulative total of 25 billion barrels of oil could be produced, compared with the 35.4 billion already extracted from the UKCS since the first North Sea oil find. These figures depend on a high rate of new field development requiring on average over 20 new field developments per year. This is because the average size of new field is likely to be quite small - less than 20 million barrels of oil equivalent.

China Gas makes upstream move

June 5, 2006. China Gas Holdings, a leading distributor in the mainland, has acquired a 38.69 percent stake in Chongqing Ding Fat Industries for 62.15 mn yuan (HK$60.16 million). The acquisition is its first attempt to participate in upstream natural gas supply operations. Ding Fat Industries owns 40 wells with annual production capacity of 150 million cubic meters in Dianjiang County, Chongqing. China Gas has exclusive rights to supply pipelines in 49 cities and regions. Currently, it has more than 720,000 household users and nearly 1,300 industrial and commercial users. Ding Fat holds exploration rights for natural gas in Dianjiang. It has also signed a deal with China National Gas Petroleum under which it will get 500 million cubic meters of gas per year.The recent surge in demand for energy in China has prompted gas distributors to expand upstream in order to secure more sources of natural gas.

Marathon awarded Indonesian offshore exploration block

June 2, 2006. Marathon Oil Corporation has been awarded a 70 per cent interest and operatorship in the Pasangkayu Block offshore Indonesia as part of Indonesia's 2005 Talisman (Asia) Ltd, was awarded the remaining 30 percent interest. The 4,707.63 sq. km. block is located predominantly offshore the island of Sulawesi in the Makassar Strait, directly east of the prolific Kutei Basin oil and gas production region. Water depth of the block ranges from 100 meters (328 feet) to just over 2,000 meters (6,562 feet). Marathon expects to enter into a Production Sharing Contract with the Indonesian Government by the end of 2006. Current exploration plans call for acquisition of 3-D seismic, followed by initial drilling.

Canadian firm to invest $230mn in energy sector

June 2, 2006. The Frontier Holdings limited, of Canada plans to invest $230 mn in Pakistan‘s energy sector in collaboration with a local company M/s Petroleum Exploration limited (PEL). The joint venture had drawn up plans to invest $120 million in oil and gas sector. They will drill 25 exploratory and development wells in three years in addition to undertaking over 650 km of seismic acquisition. The two sides will also collaborate on the establishment of a 120 MW plant, utilising the natural gas of Kandra gas field. This alone entails an additional joint investment of over $110 mn. The Canadian company in Pakistan‘s oil and gas sector would help attract other multi-national oil companies, thus having a far-reaching effect on the national economy in particular in the growth of the petroleum sector.

Venezuela aims to tap natural gas reserves

May 31, 2006. Venezuela moved to obtain more foreign investment to tap its largely untouched natural gas reserves, turning to petroleum-rich nations with deep pockets. Venezuela will sign an agreement with Algeria allowing the North African country to explore for and produce gas. Venezuela is also seeking Iran's help to develop offshore natural gas fields, aiming to export it to neighboring Colombia within four years. Investments by Algeria, Iran and Qatar in Venezuela's petroleum production and export chain would fit with Venezuela’s tendency to favor new investment by governments and state-owned oil companies beyond traditional funding by privately owned multinational firms. Venezuela has the largest natural gas reserves in South America, but the country actually imports gas now, which is used by companies that inject it into the ground to extract oil. While private companies have expressed interest in tapping the country's gas, Venezuela hasn't responded to offers amid an overall push to increase its cooperation with foreign state-owned oil companies. The deal with Algeria would allow its state-controlled Sonatrach to explore for natural gas and extract it off Venezuela's coast.


Venezuela proposes new oil refineries

Jun. 6, 2006. Venezuelan state-run energy firm PDVSA is considering the construction of three new refineries. The proposed refineries, which would be located in Cabruta, Caripito and Barinas, would be built at a projected cost of $10.5 bn and produce some 700,000 bpd.

LUKOIL mulls building fifth Russian refinery

June 5, 2006. Russia's top oil producer LUKOIL may build a fifth refinery in Russia as it believes that exports of refined products will long remain more profitable than crude exports. The company was also considering expanding its downstream portfolio in Europe. LUKOIL produces 1.8 mn barrels of crude oil per day and has four refineries in Russia, which are capable of processing a total of 750,000 bpd. Outside Russia, it owns the Odessa refinery on Ukraine's Black Sea coast, the Burgas plant in Bulgaria and Ploiesti in southeast Romania, with total refining capacity of 200,000 bpd.

Refinery industry needs $20bn a year

June 5, 2006. More than $20 billion a year investment in the refinery industry is required between now and 2030 to meet capacity targets. Worldwide oil demand is expected to increase by about 1.5 per cent this year; much of this growth is fuelled by demand from China, India, Latin America and the Middle East. However, adding refinery capacity globally has not increased in line with demand; low or negative margins have prevented most refiners from investing in new plants, while environmental regulations in the US and Europe have effectively barred any new refineries from being built. Oil companies and investors are looking to China, India and the Middle East, with the last-mentioned taking advantage of the oil boom and high liquidity levels. Leading the way is Saudi Arabia, where Saudi Aramco is moving ahead with two 400,000 bpd export refinery projects and further integrated refining and petrochemicals projects. Kuwait National Petroleum Corporation (KNPC) is working on the world’s biggest refinery, the 650,000 bpd Ras al-Zour facility.

Iran to build new refinery

June 1, 2006. Iran is set to build a 120,000 bpd refinery by 2009 to process its low-quality sour Sorush and Noruz crude as the OPEC member works to double refining capacity by 2011. A plan by the Oil Products Export Development Fund of Iran to oversee construction of the refinery has been approved by the government.

Iran has been struggling to find takers for the heavy-sour crude produced at its Sorush and Noruz fields, which pump up to 190,000 bpd of heavy-sour crude with a high-sulfur content and yielding lower-quality products. The fields came on stream over the past two years, but the national oil company has been forced to charter tankers to store the oil due to a dearth of buyers. The Fund of Iran is a consortium of 61 oil products producing and exporting companies from the private sector.

Iran plans to almost double its refining capacity by 2011 in an attempt to sate fast-growing local fuel demand and curb gasoline imports. Iran is a major importer of gasoline, burning through about 60 million liters of the auto fuel a day, almost half of which is imported. Iran hoped to expand its refining capacity to 2.126 million bpd by 2011 through an ambitious $13.7 billion program. The current capacity is 1.122 million bpd, although others peg it closer to 1.5 million bpd.

Transportation / Distribution / Trade

Inpex seeks $6 bn Australian gas project

June 6, 2006. Inpex Holdings Inc., Japan's largest exploration company, seeking investors including utilities in Japan to join a $6 bn LNG project in Australia. Gas and power companies would gain assured supplies of LNG by taking part in Inpex's Ichthys project. Inpex will also seek participation by global oil and gas companies. Japan's gas utilities and trading houses are stepping up field acquisitions after earning record profits in recent years because of rising energy prices. Demand for LNG is gaining as power producers switch to the fuel because it's cleaner-burning than oil or coal. Ichthys holds an estimated 9.5 tcf of gas, enough to supply Japan for three and a half years. The utilities look keen to take part, not only in the Ichthys project, but also in other oil and gas projects abroad. Inpex started seeking environmental approval for the venture under which it will tap the Ichthys offshore field, located in WA-285-P Block of the Browse Basin, 850 kilometer west from Darwin.

CenterPoint, Duke in deal for new gas pipeline

June 1, 2006. Chinese People Gas, a privately owned mainland piped-gas distributor, would develop an oil field in northeast China with PetroChina, marking the first time in the country that a private company has permission to produce oil from an entire oil block. The company paid HK$30 million to buy a 50 per cent stake of Hua Xin Oil Exploration, a gas producer and seller in northeastern Yanji city, from the city government.

Hua Xin is partnered with PetroChina Daqing Oilfield, a unit of PetroChina, the country's biggest oil producer, in developing Yanji Basin, a 1,600-square-kilometer oil field, with an expected production of 121 million tonnes of crude oil in 20 years. Hua Xin will take 90 per cent of the income on oil sales, and the other 10 per cent will go to PetroChina Daqing. China allows only state-owned PetroChina to develop oil from entire oil blocks across the nation, while small private companies are permitted to operate only single oil wells. The basin's reserves are estimated at 121.6 million tonnes, calculated by a method known as basin analog, or 50 million tonnes as calculated by PetroChina in second resource evaluation.

Ecuador to tender oil areas

May 30, 2006. Ecuador plans to tender oil areas totaling more than 1 billion barrels in reserves through December. South America's fifth-largest oil producer plans to tender areas located in the oil-rich Amazon region and in the Pacific Ocean. Spain's Repsol-YPF is interested in investing in Ecuador's Ishpingo-Tambococha-Tuputini (ITT) heavy crude project. The ITT field are located in the Amazon, 375 kilometers east of Quito, requires an investment of around $3 billion. Repsol will be willing to renegotiate its contract with the Andean country to comply with the new oil reform law if Ecuador extends the contract for at least ten years.

Indonesia to build $180 mn gas pipeline

May 30, 2006. Indonesian state oil firm Pertamina will tender next year to build a $180 million gas pipeline aimed at reducing oil use for industries and power plants. Indonesia's downstream oil and gas watchdog BPH MIGAS has awarded Pertamina rights to operate and have built a 258 km (161-mile) long pipeline from Gresik in East Java to Semarang in Central Java. Indonesia, the Asia-Pacific's only OPEC member, is pushing alternative sources of energy including the use of natural gas for power generation and other industries to cut its oil consumption amid soaring prices and dwindling reserves. It is estimated the project will cost around $180 million. The gas will come from fields in East Java, including from Cepu block.

Policy / Performance

Gazprom seeks law on exports

June 6, 2006. The State Duma will vote in June whether to grant gas monopoly Gazprom the exclusive right to export gas despite Moscow's pledge to the European Union to gradually liberalize its gas markets. Gazprom's top lobbyists in the parliament, have submitted a bill on gas exports that stipulates that Gazprom and its export arm, Gazexport, be granted exclusive gas export rights. The draft says gas should be considered a strategic material and therefore should be exported only by Gazprom to protect national interests.  The Duma has in the past backed measures sought by Gazprom, and the measure is therefore likely to go through, as long as there are no objections from the Kremlin. Gazprom has always fiercely defended its gas export monopoly, and it has been appointed state coordinator for gas projects in Eastern Siberia, a setback for the hopes of BP's Russian vehicle, TNK-BP, to export gas to China. This is the first time that the idea of fixing its monopoly status has been put forward in the form of a law. The bill allows for only two exceptions to the law: the production-sharing agreements on the far eastern island of Sakhalin of ExxonMobil and Royal Dutch Shell, as their terms cannot be changed.

EU seeks alternatives to Russian gas

Jun. 6, 2006. The European Commission and EU foreign policy want the European Union to find alternatives to Russian natural gas. In a jointly produced paper on energy policy the two parties urge a commercial relationship with the Kremlin, which runs Russian energy companies, but also says it is imperative to promote pipelines bypassing Russia. Ideas in the paper reflect the EU's reflection on a Russian natural gas cutoff last January. EU leaders, who import about a quarter of their oil and natural gas from Russia, are to discuss the paper during a summit next meeting.

OPEC calls for stable oil prices

June 6, 2006. The Organization of Petroleum Exporting Countries (OPEC) called for concerted efforts by both oil producers and importers to stabilize prices. Oil prices have soared to more than $60 a barrel this year from the $40-$50 range last year as demand from China and other rapidly growing economies sapped output and caused reserves to dwindle. The meetings between South Korea and oil executives and policymakers are expected to strengthen ties on energy matters between South Korea and the global oil organization, and permit Seoul to voice its views on efforts to stabilize oil prices.

Demand dip leads to Saudi output cut

June 6, 2006.  Saudi Arabia cut oil production to 9.1 mn bpd in April due to a drop in refinery demand, not a desire to lower stock levels. After the OPEC meeting in Caracas, having trouble finding buyers for all their crude at a time when global storage is near full and many refiners have closed for routine maintenance. Saudi Arabia was easing up on production because of concern about a build-up of inventories in the United States and other importing countries, suggesting producers will sell all the oil they can at $70 a barrel. Despite healthy US stock levels, OPEC agreed to keep output levels steady in hopes of eventually taming high prices they fear could stunt global economic growth and damage long-term oil markets by making alternatives more affordable. Saudi Arabia pumped 9.1 mn bpd in April lower than many observers had initially estimated suggesting the kingdom has more spare capacity to deal with peak summer demand or meet unexpected outages.

Gazprom rejects EU demands on pipeline

May 31, 2006. Gazprom has rejected European Union demands for Russia’s state-controlled gas monopoly to open its pipeline network to access by independent producers and other countries.  Gazprom also derided plans to bypass Russia with a gas pipeline from Kazakhstan to Europe as “unrealistic”.  The planned Trans-Caspian pipeline has strong backing from the EU, which is seeking ways to loosen Russia’s stranglehold on gas supplies from Central Asia. The EU gets a quarter of its gas from Russia, the country with the biggest reserves in the world. However, fears over its reliability as a supplier were prompted by an interruption on January 1 after a spat with Ukraine over gas prices. The EU has called on Russia to ratify the Energy Charter and the Transit Protocol, which would open Gazprom’s sprawling pipeline network to independent companies and other gas-producing nations such as Kazakhstan and Turkmenistan. 



Eskom to spend R65bn on power generation

June 5, 2006. Eskom will spend R65 billion on power generation projects over the next five years to meet rising demand. The projects, which form part of a R97-billion capital expenditure program by Eskom, will add 7 579 MW to the utility's current capacity of 37 500 MW. The plans include "provision of a coal-fired power station code-named Project Alpha, which is expected to add 2 100 MW to the total power available by 2012 and a pump storage project code-named Project Hotel, which will also be ready in 2012 and which will provide a further 1300 MW. Almost R11 billion will be spent on expanding and improving electricity transmission and R15 billion on distribution. South Africa also plans to build several small nuclear plants, known as pebble bed modular reactors, to supply affordable electricity to areas located far from gas and coal deposits. The plants "use uranium in small quantities with the resulting advantages in waste management”. The government and state-owned companies will spend a total of R360 billion on infrastructure over the next five to seven years, and about one-third of that will be driven by Eskom and Transnet, the state-owned transport company.

Duke files to build 2 coal units in North Carolina

Jun 2, 2006. U.S. power company Duke Energy Corp. filed an application to build two 800 MW base load coal units on the site of its Cliffside Steam Station plant in North Carolina. The Duke Energy Carolinas unit filed an application with the North Carolina Utilities Commission for a certificate of public convenience and necessity for the project. Under Duke's plan for the Cliffside site, it would also retire four existing units and install emissions controls at the plant. It said it could invest about $2 bn on the project. Duke filed for air permits for the proposed new units with the North Carolina Department of Environment and Natural Resources in December. The company hopes to receive approval for the project by early- to mid-2007. It said the initial unit could be operational as early as 2011.

Brazil planning a third nuclear plant

June 2, 2006. Brazil is planning to build a third nuclear power plant starting next year. The project is expected to have the green light by this time in 2007. The new facility will meet the country's rapidly growing energy needs. Brazilian nuclear energy last month inaugurated the country's first nuclear enrichment facility for fueling the nation's power plants.

Los Angeles’s Cavico begin construction Hydropower project

June 1, 2006. The Van Chan Hydropower project has begun initial work processing. The project, located in Suoi Quyen village, Van Chan district, Yen Bai province, 210 kilometers (130 miles) north of Hanoi Capital, was made possible by investments following the BOO (Building-Owner-Operating) model structure. The Van Chan Hydropower project will produce 36 Mega Watts of power when completed. Total project cost is estimated to be 648 billion VND (US$ 43.2 million equivalent).

Cavico Infrastructure Construction Company is a major contractor in the EPC (Engineering Procurement Contract), having participated in the building of main assembly levels, dams, power house, tunnel works, surge tank and service roads. Cavico projects completion of the project in 2008, at which time the Van Chan Hydropower Company will join the national power network and begin officially delivering electric power.

AEP's SWEPCO unit plans $1.4 bn of power projects

May 31, 2006. Utility American Electric Power, its Southwestern Electric Power Co. (SWEPCO) unit plans to add $1.4 billion of new power generation projects in Arkansas, Louisiana and Texas. AEP expects to file for approvals to build and recover costs for the power projects with utility regulators in the three states in June. The company has included the $1.4 bn in its previous capital projections. SWEPCO will build up to 480 MW of natural gas-fired peaking generation in Tontitown near Fayetteville, Arkansas, and will sign firm contracts with power suppliers for up to 450 MW to meet electricity needs for 2007 to 2009. It also plans to build a 480 MW combined-cycle gas-fired plant at its Arsenal Hill Power Plant in Shreveport, Louisiana, to meet demand growth through 2010 and beyond.

The AEP unit also plans a new coal- or lignite-fueled power station by 2011 and is considering two sites an existing plant in Hallsville, Texas, and a site near Fulton in Hempstead County, Arkansas. The company is considering two cleaner-coal combustion technologies for the plant integrated gasification combined cycle and ultra-super critical pulverized coal.

Russia to build two power plant in China

May 31, 2006. Atomstroiexport, a state-run company that builds nuclear facilities overseas will start negotiations this year with China on construction of two more reactors at the Tianwan nuclear power plant. The project estimated cost is $1.5 bn. The first power unit at the Tianwan plant was connected to the Chinese power grid in mid-May. It is running at 30 per cent capacity and is expected to be put into commercial operation in fall. Atomstroiexport has been building the Tianwan NPP, which uses improved VVER-1000 reactors and K-100-6/3000 turbogenerators, under a Russian-Chinese agreement signed in 1992.

Atomstroiexport is Russia's leading company implementing intergovernmental agreements on building nuclear facilities overseas, and the world's only company building five power units for NPPs in China, India and Iran. Atomstroiexport and the state-owned Russian bank Vnesheconombank signed an agreement on basic principles for financing nuclear energy project overseas.

GE Energy to build Spain, Latvia gas power plants

May 30, 2006. General Electric Co.'s energy unit will build a gas-fired power plant for Spain's Iberdrola and another for Latvia's Latvenergo. The Spanish power station, Castellon 4, will be a combined cycle gas turbine plant (CCGT) of 858 MW capacity. It is due to begin commercial operation in February 2008 at Castellon, north of Valencia. Complementing one already operational CCGT and another which is due to begin commercial operation in November 2006, Castellon 4 was GE's third Spanish CCGT order from Iberdrola. Iberdrola also teamed up with GE as lead contractor for a new 400 MW gas-fired power station due to be built by GE at Latvia's biggest power plant in Riga. This unit would begin commercial operation by June 2008. The state-owned Riga power plant supplies district heating to Riga as well as electricity for Latvian and Baltic regions. GE Energy, a $17 billion unit of the GE industrial, finance and media conglomerate competes with other power equipment giants.

Policy / Performance

China, Arab aim to double trade & energy

June 1, 2006. China and the Arab world will target the energy sector as they seek to double their trade volumes over the next few years. An agreement signed on the final day of the China-Arab Cooperation Forum that Beijing and the 22 Arab League members would hold their first meeting on oil issues over the next three years. The two sides attach importance to energy cooperation, particularly the cooperation in the sectors of oil, natural gas and renewable energy. Trade between China and the 22 member states of the Arab League last year totalled 51.3 billion dollars.

U.S. AES plans $325 mn investment in CO2 market

May 31, 2006. U.S. utility AES Corp. will invest $325 million over the next five years in a joint venture with London-listed AgCert, eying what it views as a potentially lucrative global carbon market. The Kyoto Protocol obliges 35 rich nations to cut greenhouse gas emissions by at least 5.2 per cent below 1990 levels by 2008-12, but allows them to buy emission cuts from other countries, therefore establishing a carbon market. AES wants to invest now in pollution cuts which it hopes to sell to Kyoto countries  including Canada, Japan and the European Union as they near the start of their target deadline in 2008. Carbon trades in units per tonne of carbon dioxide (CO2) emission cuts.

AES has power installations in Europe which face emissions caps under Europe's carbon trading scheme, which is the EU's main tool for meeting its international Kyoto goals. The AES joint venture will use technology developed by Dublin-based AgCert to destroy emissions of methane a powerful greenhouse gas from agricultural and animal waste in countries in Asia, Europe and North Africa. Because methane is 21 times more potent a greenhouse gas than CO2, investment in such projects can potentially yield bigger profit margins on sales of pollution cuts. It is expected that the joint venture will achieve by 2012 annual greenhouse gas emission cuts of 20 million tonnes.

Renewable Energy Trends


Japan may import ethanol from India

June 6, 2006. Japan is expected to explore India as a possible sugar and ethanol supplier as imports from Brazil are expected to fall owing to its ethanol production demand. Japan already imports roughly 60 per cent of its sugar. The possibility of Japan’s import from India stems from its need to meet its domestic ethanol demand. Though there are not any concrete moves in this direction, the possibility is high given the fact that supplies are most likely to decline from Brazil.

Imported ethanol costs roughly Y20 to Y40 ($1 = Y 116) more than gasoline in terms of calories (the calories per liter of gasoline is equivalent to 1.7 liters of ethanol). Ethanol blends are estimated to cost Y0.6 higher per liter than regular gasoline. Japan began importing notable amounts of ethanol in 2001, roughly 472 million liters. Since that time, the volume has grown to 509 million liters, including roughly 359 million liters from Brazil.

GOCL to set up bio-diesel unit in Andhra

June 6, 2006. Ankleshwar-based bio-diesel company, Gujarat Oleo Chemicals (GOCL), will be setting up its second largest bio-diesel manufacturing unit in Andhra Pradesh after it secured Rs 100 crore ($22 mn) bio-diesel supply order from Andhra Pradesh State Road Transport Corporation (APSRTC).  The unit will set up at Kakinada with a capacity of 50 tonne per day.

GOCL will be investing Rs 30 crore ($6.53 mn) for this unit. The reason behind to set up the new unit is that the transportion cost of bio-diesel from Ankleshwar unit to AP raises bio-diesel cost by Rs 2 to Rs 3 per litre. The current production capacity of GOCL is 10 tonne per day at its Ankleshwar unit in Gujarat. The company will commence its commercial production in its new upcoming bio-diesel unit at Kakinada by 2007-08.


M’shtra energy body to focus on alternative energy

June 1, 2006. Maharashtra Energy Development Agency has triggered the process of identifying innovative ideas that can be converted into commercial ventures to encourage entrepreneurship in the field of non-conventional energy. The effort is part of the agency's on-going programmes to encourage generation and application of energy from non-conventional sources. The encouragement to the prospective entrepreneurs will come in the form of mentoring and to some extent in the form of capital assistance. Meda had received response from prospective entrepreneurs and over 200 concept notes have been submitted.

The proposals will be examined by an expert committee. The approach will be to select smaller projects so that many of them can be accommodated. The proposals selected by the committee would be converted into detailed project reports so that the ideas could be converted into commercial ventures. MEDA, along with the ministry of non-conventional energy sources has planned to set up district level advisory committees to look for ways to propagate use of renewable energy across the state.

VSP unveils renewable energy policy

May 31, 2006. Visakhapatnam Steel Plant has earmarked about Rs 100 crore ($22 mn) for generating 12 MW power through renewable energy sources. The steel plant has drawn up a renewable energy policy to fulfil its vision of becoming a world-class energy efficient unit. VSP would substitute 5 per cent of its total electrical energy and petro-fuel requirements through renewable energy sources. As part of this, it has proposed to generate about 12 MW of electricity from non-conventional energy sources, regardless of cost, to realise its goal of achieving energy independence. VSP proposes to generate about 0.4 MW from solar energy sources, 0.9 MW from bio diesel plants, 0.4 MW from urban waste and about 10 MW of wind energy.

As part of its initiative to generate power from bio-diesel plants, VSP has launched plantation of 'jatropha' and 'pongamia' varieties and aims at raising the two varieties of plants in 1,140 acres by 2008. By 2011-12, the steel plant expects to produce 2,550 tonnes of bio-diesel plants. Apart from this, it proposes to install solar lighting system to illuminate parks, steel plant and township. The launch of the renewable energy policy at VSP is the first of its kind in any steel plant in the country. 


World’s largest solar power plant in Portugal

June 6, 2006. Construction of the world’s largest solar energy plant has started in Portugal’s southern Alentejo region. General Electric will invest $75 mn to build the photovoltaic power plant, which will cover 60 hectares (150 acres) of gently rolling hills with solar panels. The panels, which will be raised around 2 metres off the ground in an area dotted with olive groves, will produce 11 MW of electricity, (8,000 homes).

The plant is expected to be ready in January 2007 and will have 52,000 photovoltaic modules. It is near the town of Serpa, 200 Km southeast of Lisbon and in the heart of Portugal’s Alentejo, an overwhelmingly poor agricultural region and one of the sunniest spots in Europe. The scheme fits into Portugal’s plans of reducing its reliance on imported energy and cutting output of greenhouse gases that feed global warming. Portugal’s emissions have surged about 37 per cent since 1990, one of the highest increases in the world.

GE Energy sells wind turbines to LADWP

June 5, 2006. GE Energy will sell 80 wind turbines each capable of producing 1.5 MW of electricity to the Los Angeles Department of Water and Power (LADWP), the largest U.S. municipal utility. The project is to be completed by the end of 2007. LADWP will construct a new transmission line and substation to connect the Pine Tree project site to a high-voltage transmission line running up the east side of the Sierra Nevada mountains.

Belgium plans first renewable energy Antarctic base

May 31, 2006. Belgium will build the first polar station powered solely by renewable sources of energy at a site in the Antarctic that will study climate change. The base will be constructed from November 2007 to March 2008 at a cost of 6.4 million euros ($8.2 million).

The station will open during International Polar Year, which extends over two years from March 2007 to March 2009, when scientific effort on the continent will accelerate. Britain and Germany also have plans to rebuild their stations then, while France and Italy will convert a temporary base into a permanent one.




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Editorial team: Lydia Powell, Akhilesh Sati and Janardan Mistry.

[1] Metric Million Standard Cubic Meters per Day

[2] Billion Cubic Meters

[3] Exclusive forecasts by the Observer Research Foundation

® Visiting Research Associate, RIS, New Delhi. E Mail: [email protected].

[4] See Mehta, Balraj, op. Cit., pp.93-100.

[5] 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).

[6] 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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