MonitorsPublished on Aug 09, 2005
Energy News Monitor I Volume II, Issue 7
Hydrocarbon Sector Governance in India


With the persistent northward movement of global crude oil prices, issues pertaining to the hydrocarbon sector have taken centre stage in the ambit of public discourse every now and then. However, one fundamental aspect that seems to be neglected little bit is the governance issue perplexing the Indian hydrocarbon scenario. Governance issues are at the heart and root of India’s epic energy conundrum, more so, in the deregulated environment, eliciting structural policy dilemma and policy unobtrusiveness.

A complex set of historical, socio-political, commercial and economic factors or set up ascertains the governance of a country’s hydrocarbon sector. Government and concerned ministries, the national oil and gas companies (NOCs), and some specialized government agencies, commissions, etc., operate within and in the ambit of an elaborate set of varied interests, alliances, collaborations and competitive forces. Though all the stakeholders pursue a common overriding national interest, yet this is not the only binding factor behind their operations. Usually a particular policy design and implementation is the end result of congruence of varied interests to arrive at consensus. However, the absence of such congruence or consensus among the stakeholders often leads to either policy paralysis or considerable delay in crucial decision making that may affect the overall functioning of the hydrocarbon sector. This article reflects on the various issues of governance in the Indian hydrocarbon sector and makes some suggestions for coherent policy formulation and steadfast implementation in the emerging scenario.

The Legacy:

Indian hydrocarbon legacy is one of the world’s oldest one, paralleling Colonel Drake’s illustrious discoveries at Titusville. The hydrocarbon sector in India has travelled full circle from the domain of Multinationals to National and again albeit a slow move towards the private domestic as well as multinationals in the current phases of economic globalisation. The post-independence period or the second phase of the Indian oil saga was facilitated by the centrally planned socialistic economic pattern in the pervasive dominance of public sector. Though the system or structure is still ominous, yet the form and contours of operations have transformed over the years. In other words, the Indian hydrocarbon sector witnessed a transition from a state of complete protection to open competition in recent years.

The hydrocarbon sector in India was completely nationalized by the mid-1970s, and the government started the sector as a vehicle to provide subsidies to its population as well as to provide employment. While on the one hand, the sector was straddled with employee numbers far beyond those required and on the other hand there was never a position in these public sector undertakings (PSUs) to generate any substantial internal resources to augment the budgetary support provided to them by the government. Additionally the subsidized energy provision resulted in scant regard being paid to energy efficiency measures by the end user consumers. This resulted in a situation where demand growth always outstripped supply growth, thereby leading to sub-optimal investment choices impairing the overall growth of the sector.

The organizational structure of the hydrocarbon sector thus resulted in the emergence of a governance behemoth, which is composed of the government, PSU oil and gas enterprises, and some independent bodies. Moreover, the policy planning and implementation was not consonant with sound economic and commercial practices, leading to policy deficits. This can be substantiated from the performance of the sector that shows on the one hand the public sector oil and gas undertakings have become cash rich and there is no significant discovery of oil and gas in India after the Bombay High till recent times. Another important aspect is that till date there is no coherent energy policy as such in India, least about one pertaining to the hydrocarbon sector. Nevertheless, the success of the public sector development of the hydrocarbon sector is the present maturing phase of the Indian oil saga.

Recent History, Vibrant Present and Emerging Future:

The crisis driven macroeconomic reforms in the year 1990 followed the meso-economic reforms, i.e., reforms in strategic sectors such as hydrocarbon. The most significant aspect of the sectoral reforms as witnessed in recent years has been accelerated pace of operational flexibility, resulting in some impressive achievements and assertion of status in the global arena. The results have been really remarkable in recent years, from the discovery of giant oil and gas fields both by the private as well as the PSUs, acquiring oil-gas equity abroad, etc. This shows that how incipient competition plays a crucial role in augmenting operational efficiency to sustain and excel in the liberalised regime. However, the immediate adverse trend that has been witnessed is in the governance aspect: had it been taken up seriously, then the situation would have been different. The present hydrocarbon fundamentals reveal an emerging regime full of challenges and threats, therefore makes a case for discussing governance seriously. The unfolding pulls and pressures in the changing hydrocarbon dynamics and the emerging trends make the discussion of governance particularly timely and relevant for India.

Institutional and Functional Paradigm:

Governance of the hydrocarbon sector in a country is facilitated through various institutions and their multifaceted functions. The chief participants in the process are generally, (i) The Government and the Parliament, (ii) The Ministry of Petroleum and Natural Gas (MoPNG), (iii) The public sector Oil Companies, (iv) The Ministry of Finance, the Ministry of External Affairs, and Other Ministries, (v) Specialised independent bodies, such as the Oil Coordination committee, Oil Development Board, Director General of Hydrocarbon (DGH), (vi) Parliamentary Standing Committees and other Sub-Committees and (vii) the Planning Commission.

The hydrocarbon sector has two distinct operational segments such as the up-stream and downstream. Since the production and cost functions of the two segments are radically different from each other, the governance activities can also be different. Since the economic rationale behind operational efficiency in the twin segments is different, there is the need to separate functions clearly. This also calls for assigning functional responsibility, and defining operational jurisdiction clearly for an efficient functioning of the sector. However, as can be witnessed from the current set up, Indian scenario is highly complicated with diverse set of agencies, institutions and multilayered and multilevel of policy planning and decision making, thereby, obstructing the emergence of a coherent integrated policy.

International Model Experiences: The Case of Norway, Malaysia and China:

Though, quite often, the functional and operational jurisdiction of the various participants overlap in governance of the hydrocarbon sector, there are some international experiences, which can make a point of reference for India. The model country experience in this regard is Norway, where the roles are clearly distinct but interconnected, so that the policy formulations, operations and regulation can function efficiently within an integrated system. The illustration of Norway, Malaysia and China as the model country experiences is based on the argument that some policy inputs can be really replicated in the Indian hydrocarbon sector. These points to a combination of institutional structure in Norway, commercialization of NOC in Malaysia and operational independence of Chinese NOCs are worth mentioning.

Compelling Issues and Policy Cardinals:

Looking at the governance structure and trends, it looks imperative to strive for synergizing the functions and operations of various agencies in the Indian hydrocarbon sector. There is also the urgent need for an integrated structure and initiative for the emergence of a public-private partnership to address the emerging requirements and policy formulations. The following compelling issues and consequent policy cardinals in the hydrocarbon sector can be identified:

v  Expediting the setting up of a regulator: the issue is a single regulator for the oil and gas alone or a regulator for the oil, gas, coal and power sector on the basis of their synergies and forward and backward linkages. The later seems to be the imperative.

v  Operational and financial independence for the upstream regulator, the DGH to carry out its functions purely on commercial basis

v  Rationalizing the pricing and duty structure in the downstream to enhance competition and attract investment in a consensual manner among the various participants through a coherent policy

v  Maintaining a judicious balance among the imperatives such as economic, geopolitical, strategic, in acquiring oil-gas equity abroad through appropriate policy consensus among the participants (various ministries such as MoPNG, MEA, MoF, MoD, Oil companies, etc.)

v  Striving to establish a collaborative private-public framework for optimizing various objectives.


With the changing dynamics, the governance of the hydrocarbon sector has become an urgent issue. The operational prowess of the public sector companies in the years and their present inclination to break free from the clutches of the government stronghold has created policy deficits in India. Th imperative is to have a coherent, integrated institutional structure, clearly defining and demarcating the roles, functions, and jurisdictions of all participants in the sector. The need becomes urgent in the liberalized environment, when the country desperately needs private sector players both domestic and foreign and their investment to address its resource curse. This makes the importance of emphasizing governance issues in a renewed vigour, as it will instill credibility among consumers, producers and other stakeholders. Though the last government and the present government at the centre have started consistently working on the diverse modalities of governance in the sector by making changes and taking bold initiatives, yet; at the broader perspective, the governance of the hydrocarbon sector in Indian is still in meddle of conflict of interests leading to policy opacity. The policy makers and participants have to bear in mind that, “this is not the time for ideological histrionics rather hard-nosed commercial decision making that holds the key to survival and sustenance in the globalised hydrocarbon regime”…


1.        3iNetwork, India Infrastructure Report: Governance Issues for Commercialization, New Delhi: Oxford University Press, 2002.

2.        Chemtech Foundation, Translating India’s Hydrocarbon Vision into Reality: Strategy Report, New Delhi: Ernst & Young, 2004.

3.        Gunderson, James L., ‘”Corporate Governance in the Oil, Gas and Energy industries”, OGEL Review, available on line at,>

4.        4Zanoyan, Vahan, “Governance of Hydrocarbon Sector in the Gulf”, PFC Energy Press Bulletin, Fall 2004.

5.        Newspaper Clippings from ET, HT, TOI, FE, BS and HBL.

(Views are personal)


Statewise resources of Indian Coal




Coal Resources in Million Tonnes





A. Pradesh *





A. Pradesh

























M. Pradesh

























U. Pradesh





West Bengal










Source: Ministry of Coal


*Andhra Pradesh

Challenges and Opportunities -

Coal and Lignite Sector Policy issues for consideration

Policy issues for consideration

Efficient and reliable energy supplies are essential for accelerating the growth of Indian economy.  In the overall energy context, the country’s total commercial energy requirement of 256.32 mtoe (million tonnes of oil equivalent) in 1999, Coal accounts for 49%, Lignite 2%, Oil 13%, Natural Gas 9%, Hydro Power 3%, Nuclear Power 1% and the balance 23% is by imports. The Hydrocarbon Vision – 2025 lays down a framework, which could guide the policies of the Hydrocarbon sector for the next 25 years. 

The following Table reveals the perspective planning of fuel options:

Hydrocarbon Vision 2025                                

(All figures in percentages)





































Source: Upto 2011 from Technical Note on Energy, Planning Commission, Govt. of India. (1998-99).  Beyond this period the figures have been extrapolated.

From the figures above, it can be seen that share of coal in future projections is slightly coming down from the current contribution. Coal, which has large available resources, in future, must provide higher contribution to the commercial energy of the country.

Coal is expected to provide long-term energy security to India in future.  It is also one of the most financially viable options for thermal power generation at various locations in the country.  Currently, the share of coal in the commercial energy sector in India is over 60 The coal resources at 248.8 billion tones ( as on 1.1.2005- GSI report) of which the proved coal resources are estimated at 92.9 billion tonnes.

Coal Reserves

No serious attempt has been made to examine the coal resources for working out the technologically feasible and economically viable coal reserves. The above coal resources are up to depth of 1200 hundred meters. On an average current mining depths are not beyond a depth of 300-350 meters. Over 90% of Under Ground operating mines in the country are a loosing proposition and are working on the financial support of the profitable shallower Open Cast mines. Quite a sizable amount of these coal resources are blocked under railway tracks, medium size towns, rivers, reserve forests and below worked out water filled upper seams etc. Some of the studies suggest that India’s Coal reserves would last for about 40 years.

For the purpose realistic future planning, it is very important that country must know the technically feasible and financially viable coal reserves. UNFC is advising the countries to assess their mineral resources on three-axis model. Only a very detailed study can prove with some high level of confidence that viable minable coal reserve (identified coal basin locations) are available for exploitation for at next 50 years.


It is recommended that an official study by GoI should be made to establish technically feasible and financially viable coal reserves on which the future planning of coal utilization in the country is based. There will also be a need of periodic review of this study as the there will be technological advancement and change in viability parameters in future.


There is need for intensification of exploration and up gradation of the coal reserves, looking at the future steep growth of coal demand.


Coal demand and supply


Tenth plan review:


Table below gives the demand projection for coal in the country at different times during the X plan.



IX plan



X plan





MTA Revised



Coal demand

/ Off take (mt)





Coal production






Coal Imports (mt)

a)        Coking Coal

b)        Thermal Coal














Net Gap (mt) in Demand & Supply





NLC Lignite Production (mt)





Gross Power Generation






Coal Production (mt)


Coal India Ltd.


















The following are the thrust areas identified by The Planning Commission for the X Plan

1.        Permitting private participation in non-captive mining through suitable legislative amendments

2.        Revival of loss making coal companies and restructuring of the coal sector by providing autonomy to individual coal producing companies to encourage competition.

3.        Setting up of a regulatory authority for ensuring fair competition in the coal sector.

4.        De blocking of coal blocks held by CIL for offer on bidding basis to public and private parties.

5.        Permitting outsourcing of certain mining operation through appropriate legislative amendments for improving the economics of operations.

6.        Permitting free trade of coal.

7.        Intensification of exploration and gradation of coal.

8.       Rapid development of lignite resources.

XI five year Plan

Central Electricity Authority (CEA) has assessed coal based power generation capacity at 104108 MW at the end of XI plan (2011-12) needing a coal requirement of 469 mills. Tones.  19470 MW is projected to be added in the XI plan period. As per the above projection nearly 4000 MW (as against avg. about 1500 MW/yr. in IX plan) of coal based thermal power generating capacity shall be added on an average each year. 

XII five year Plan

Central Electricity Authority (CEA) has assessed coal based power generation capacity at 134990 MW at the end of XII plan (2016-17) needing a coal requirement of 617 mill. Tones.  30882 MW is projected to be added in the XII plan period.  As per the above projection nearly 6000 MW ( as against 4000 MW/yr. in XI plan) of coal based thermal power generating capacity shall be added on an average each year. 


v  Coordination between the coal consuming sectors and coal supply sector

In most of the past estimates, the demand projected was always found to be grossly over pitched..

To overcome this problem it is suggested that a MOU be entered in to between the coal consuming and coal supply company which should have defined mile stones on either side, achievement of which should trigger agreed action by the concerned parties. The Implementation of MOU terms should be reviewed by a standing group on regular intervals. Such an arrangement shall generate better confidence and enforce timely execution of the planned programme.

v  Fuel supply agreements

In the current liberalized economy this fuel supply must be controlled through legally enforceable fuel supply agreements. The latter are all the more necessary pre-requisite as financing of the coal/power project may not totally from Govt. funds and would involve lending from financial institutions.

All coal need to be supplied through Fuel supply agreements, irrespective of the party, big or small. Abolish all sponsorship linkage and allotment of non-core sector.

v  Quality of coal

India is endowed by nature with coal, which has high percentage of ash. The presence of the high ash in coal brings host of  problems like lower calorific value, large quantities of fly ash generation creating negative commercial and environmental impact, imposing heavy load on transport sector. It is thus very important that all efforts, to extent possible, need to be made to improve quality of coal.

Following policy initiatives are recommended:

·          Coal producers must make all out efforts to improve coal quality at the source it self.

·          The grading of Indian coal should be based on Gross Calorific Value (GCV) in line with international practice and not on the current norm of Useful Heat Value (UHV)

·          The number of grades to be increased and the bandwidth of each grade be reduced to give incentive to coal producer and rational coal price to the consumer.

·          Washing of coal has to be encouraged. All facilities should be made available to entrepreneurs interested in setting up of washeries, including easy availability of coal/ captive mining blocks.

Blending of lower ash coal with higher ash coal to have product mix of coal of less than 34% ash. At consuming points near to the coast, blending of Indian coal with low ash imported coal should be very seriously considered.

… to be continued

 (Courtesy: India Energy Forum)

India’s Reforms in the Hydrocarbon Sector

What Has Been Accomplished?

What Remains to be Done? - XV


…Continued from Volume 2 Issue 6


Reforms in the Downstream Segment: 1995-2005: Refining


Environmental concerns gain significance in the light of three aspects that characterise the Indian energy sector – high-energy intensity, low per capita consumption and potential for rapid economic growth. While energy intensity in developed countries is less than one, India has energy intensities greater than one.  This means that rate of consumption growth of primary energy in India is higher than the rate of growth of its GDP.  Growth in demand for petroleum products over the last 20 years has increased at rates of above 6 per cent which is 4 times the world average. 



Demand in mt

CARG (5 year)

















Source: Sundarrajan, U. 2000. Indian Oil & Gas Restructuring’ India’s Energy: Essays on Sustainable Development. 


For every 1 per cent increase in national income, the consumption of petroleum products has increased by 1.1 per cent.  The per capita oil consumption of India is just 70 Kilograms per oil equivalent (Kgoe) which is one of the lowest in the world.   The small per capita volume base combined with high population levels and substantial increase in income levels would mean that even small growth in per capita consumption will transform into large increases in overall demand.  Likewise in emissions, though per capita emissions are low at present total annual emissions exceed 200 million tones of carbon or about 800 million tonnes of carbon-di-oxide.  Studies[i] estimate that rising fossil fuel use will increase carbon emissions from about 213 in 1995 to 761 million tonnes by 2035.  Though coal consumption in the power sector maintains the highest share of 46 per cent on total emissions, emissions from oil use are expected to rise at a faster rate.   


India has expressed a strong commitment to pursue energy policies, which take due, account of environmental considerations. Adopting the recommendation of the expert committee on auto fuel policy, the country has adopted environmentally benign measures with regard to usage and quality of transportation fuels. Lead phasing-out & benzene reduction in gasoline, sulphur reduction and cetane improvement of diesel are amongst the prominent measures that are under implementation/consideration. Such quality upgradation of fuels will call for adopting latest/state-of-the-art technology requiring huge investments by the refineries of the order of US$ 2500 million by way of providing reformulated gasoline producing units, hydrocrackers, hydro-treaters, hydrodesulphurisers, etc.  


Source: IOC, February 2004


So far reforms introduced in the refining segment have moved towards assuring greater profitability for the industry, creating a level playing field for players from the public and private sectors.  Controls on pricing despite removal of APM and access to distribution still remain barriers to new layers in the industry. However a more significant question that has received insufficient attention is the long-term future of the industry.  Most of the players’ value chain lacks depth to become significant players in the global market.  If the thrust on privatisation continues, participation of large integrated foreign players will become a reality.  Whether or not current players will survive in such an environment and more importantly whether the industry will remain in Indian hands is a question that that has not been debated sufficiently. 




The marketing of petroleum products is currently dominated by Indian Oil Corporation Limited (IOC), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) and IBP.  These companies market the full range of petroleum products catering to demand from the transportation, household, industrial, agricultural and other segments.  Private sector refiners also market some deregulated products.   In line with the policy of dismantling the APM regime, parallel marketing of LPG and SKO to non-subsidised market was allowed and in addition marketing of lubricants was decontrolled totally.  Petrochemicals as well as the fertilizer and power units were allowed to import Naphta without a licence for captive consumption. In 1998 all petroleum products excluding Motor Spirit (MS), High Speed Diesel, Aviation Turbine Fuel, LPG/SKO meant for public distribution. Opening up of the refining segment has also spurred backward and forward integration, which has been beneficial to reforms in the oil & gas sector.  With regard to forward integration with marketing, private refiners have emphasised that refining was only a ‘means’ to achieve the end goal, which was marketing. This is understandable given that refinery margins are about 1/8th of marketing margins.  Without marketing rights private sector players would be at a disadvantage compared to public sector players who have extensive retail networks when negotiating the marketing of their products.  On the other hand public sector players have the burden of ‘social responsibilities’ such as marketing LPG and SKO at subsidised prices, which result in huge under recoveries. 


Diesel and petrol account for more than half of domestic consumption of petroleum products.  3 per cent of petrol and 24 per cent of diesel are sold directly to bulk consumers and the rest if retailed through a network of more than 18,000 retail outlets. The government has recently granted licences to private sector players to set up retail outlets.  Most of the new outlets are expected in highways and small towns.   Guidelines given to new entrants in retailing include prohibition of poaching existing networks, mandatory service on non-remunerative areas 5.6 per cent in remote areas and 5.3 per cent in low service areas. 


Marketing infrastructure of PSUs






Aviation fuel stations





Terminals /Depots





LPG Bottling Plants





LPG Bottling Capacity (mtpa)





Product tankage (m kl)





Retail outlets





LPG dealers





Kerosene Dealers





Source: Crisinfac


… to be continued 

1 Shukla, P.R. 2000. ‘Future Energy Trends & Carbon Mitigation Strategies for India’.  India’s Energy: Essays on Sustainable Development. 





First commercial CBM discovery in India

 August 9, 2005. Reliance Industries Ltd has made the country’s first discovery of coal-bed methane (CBM) gas at Sohagpur in the Shahdol district of Madhya Pradesh. The directorate-general of hydrocarbons (DGH) has certified the presence of 3.75 trillion cubic feet of methane gas at the place where Reliance is drilling. CBM is currently being extracted only on a trial basis by Oil and Natural Gas Corporation and Gail in Raniganj and Jharia, a region also being explored by an American company. CBM is found in coal or lignite bed seams. It has the same use as natural gas but is cheaper to produce because its exploration does not require very deep drilling. RIL has so far invested Rs 40 crore (Rs 400 mn) in drilling in the area and the company will need to invest an additional Rs 100 crore (Rs 1 bn) for further development of the block. 

The company was awarded Sohagpur (West) and Sohagpur (East) CBM blocks after the first coal-bed methane licensing round in 2002. The thickness of the coal seam at Sohagpur (East) is between four and eight metres. At Sohagpur (West), it is between eight and 18 metres. Gas content has been found to be between two and 14 cubic metres per tonne in both the blocks. DGH estimated 49 billion cubic feet of gas in Sohagpur (East) and 36.82 billion cubic feet in Sohagpur (West). During formation of coal from bio conversion of fossilised organic matter, anaerobic conditions lead to generation and trapping of methane in coal seams. The pressure exerted by naturally formed water keeps the methane “absorbed” on internal surfaces of coal. Unlike the reservoirs of oil and natural gas, in coal beds, methane is not compressed in the pore space but physically attached to coal at a molecular level. This gives coal higher gas storage capacity than sands containing petroleum gas. That methane gas exists in coal beds is not new, but India is yet to tap the potential though over the last two decades, coal-bed methane has emerged as a viable energy source. The US produces large quantities of coal-bed methane gas, followed by China and Australia that are emerging as major players in this sector. One estimate puts the potential of coal-bed methane gas at about 1.5 times than the present natural gas production in India, which is capable of generating about 19,000 Mw of electricity. 

RIL to invest $1.5 bn for rigs

 August 9, 2005. RIL has committed to invest nearly Rs 6,500 crore (Rs 65 bn) for setting up two deepwater rigs in the eastern region by June 2005. The investment was aimed at accelerating the pace of exploration in deepwater as well as increasing the reserve accretion. The development said the investment was a part of the Rs 49,000 crore (Rs 490 bn) mega investment by the company. The water rigs were planned for deployment in the north east coast from June 2006 and exploration and production of oil and gas would be a significant revenue earner for the company from 2009-10.

Oil discovered by foreign cos to be marketed in India: Aiyar

August 5, 2005. The Minister of Petroleum and Natural Gas, Mr. Mani Shankar Aiyar said that all oil and gas discovered by foreign exploration companies in India would be marketed only inside the country. He also said that India require further investment, technology and managerial experience of overseas companies for the development of oil fields.


Reliance to offer $345 mn discount

August 4, 2005. Reliance Industries has offered discounts worth Rs 1,500 crore (Rs 15 bn) to the companies which buy products from it for retail sale. By offering discounts Reliance, which operates a stand alone refinery in Jamnagar, will lighten the burden of subsidies that the government-owned oil market companies have to shoulder. IOC was negotiating discounts on LPG and kerosene it buys from Reliance to minimise losses due to price freeze.

IOC was negotiating discounts at the refinery gate price of petroleum products, which it buys from Reliance, to minimise losses. This was because it was unable to increase prices at the retail level. The company got a discount of about Rs 150 crore (Rs 1.5 bn) on nearly 3.4-3.5 mt of LPG and kerosene it had bought from Reliance last year. This fiscal IOC wanted the private sector refineries to share at least one-third of the Rs 92 per cylinder loss on LPG and Rs 11 per litre loss on kerosene sale. IOC is likely to buy 1.1 mt of kerosene and 2.6 mt of LPG from RIL this fiscal. 

HPCL, BPCL plan to use more of cheap crude

August 3, 2005. Following in the footsteps of IndianOil, HPCL and BPCL are planning to enhance the usage of heavy high sulphur crude to ensure better refining margin (GRM). While HPCL recently increased its consumption of heavy-sour crude from 35 per cent to 40 per cent at the Visakhapatnam refinery and is discussing means to push it up further, BPCL expects the ratio to go up from 40 to 50 per cent following completion of the capacity expansion project from 9 mt to 12 mt at its Mumbai refinery. The project is expected to be completed next month leading to substantial savings on crude oil. IndianOil, which currently consumes 50 per cent heavy crude, is now gearing up to use 75 per cent heavy-high sulphur crude by 2009 on an expanded refining capacity base. The company's proposed 15 mt refinery at Paradip will run solely on such cheaper crude variety. HPCL had recently appointed a consultant to prepare an investment roadmap to alter its refining process which would be suitable for using more of the cheaper crude. The project is clubbed with the proposed de-bottlenecking and capacity expansion at Vizag refinery and the greenfield project at Bhatinda in Punjab. BPCL, which is currently in the last leg of commissioning its 3 mt expansion programme at Mahul in Mumbai, is also considering adopting the route for its proposed greenfield venture at Bina in Madhya Pradesh. The company was striving to maximise its GRM by using over 50 per cent sulphur crude.

ONGC, GAIL, Reliance allowed to market LPG

August 3, 2005. The Petroleum Ministery has authorised Oil and Natural Gas Corporation, GAIL (India) Ltd and Reliance Industries Ltd (RIL) to market indigenously produced LPG in the country in addition to the public sector oil marketing companies IOC, BPCL, HPCL and IBP. As per the conditions, After April 1, 2006, ONGC, GAIL and RIL have been authorised to market LPG but their sale of bulk (non-domestic) LPG should not exceed 20 per cent of total LPG sales. The remaining 80 per cent is being earmarked for domestic LPG.

MRPL mulls capacity augmentation

August 3, 2005. The Mangalore Refinery and Petrochemicals Limited (MRPL), a subsidiary of ONGC, has initiated a detailed feasibility study for augmenting its refining capacity to 15 mmtpa. Presently its refining capacity is 9 mmtpa feasibility studies for an aromatics complex and an olefins complex have been taken up. A proposal to build an additional 15/18 mmtpa refining capacity is under consideration. ONGC-MRPL has secured approval from the ministry of petroleum and natural gas to develop an export-oriented refinery in Kakinada Special Economic Zone. 

Transportation / Distribution / Trade

GAIL, GSPCL sign fuel supply deals with IFFCO

August 7, 2005. GAIL and Gujarat State Petroleum Corporation Ltd (GSPCL) have signed long term fuel supply agreements with Indian Farmers Fertiliser Cooperative Ltd (IFFCO). Under the agreements signed, GAIL (Gas Authority of India Ltd) and GSPCL will help IFFCO switch over to low cost liquefied natural gas (LNG) from naphtha and fuel oil. As per the deal, GSPCL will supply re-gassified LNG to IFFCO's Kalol unit, and this would lead to a fertiliser subsidy saving of Rs 84 crore (Rs 840 mn). GAIL will supply re-gassified LNG to IFFCO's Phulpur unit through a dedicated pipeline stretching 140 km from Tulendi, which will be completed by the beginning of the next financial year.

India indicates possibility of two pipelines

August 4, 2005. India is expected to join a consortium involving Iran and Pakistan to build the $7.4bn Iran-Pakistan-India gas pipeline, construction of which is targeted to begin in 2007. Indo-Iran Joint Working Group on the pipeline said it would go to the cabinet for approval for joining the project consortium once the three countries decided on the project framework by end of 2005. It said that in all probability two pipelines would be laid, as a single 56-inch line would not be enough to meet the energy demand in India and Pakistan. Pakistan Ministry of Petroleum and Natural Gas, said India and Pakistan will by the month-end or early September appoint separate financial consultants to suggest project structure and address technical, financial, commercial and legal aspects to make the project safe and secure. Iranian Oil Ministry said a project structure – whether the three countries would build separately the parts of the pipeline falling in their country or a consortium of Indian, Pakistani and Iranian companies along with international firms would build and operate the pipeline — would be in place by early November. Once there was agreement on the project structure between the three countries, the trilateral framework agreement would be finalized by the end of the current year. The pipeline which would have a capacity to carry on 120 mmscmd gas would take between three and half years to four years in actual construction. The framework agreement outlining the road map for the India-Pakistan-Iran gas pipeline was likely to be finalised by the end of the year.

Gail-ONGC dilemma

Text Box: •	The petroleum ministry has decided these fields will sell gas to Gail, which will examine the feasibility of taking gas through its planned Dahej-Uran pipeline 
•	Since the fields are not cost-effective, the ministry has decided that ONGC will be allowed to sell gas at market rates 
•	While Gail has been pushing for early monetisation of gas from the fields, there have been reports that ONGC is in talks with private companies to sell gas 

August 8, 2005. Gail (India) Ltd has sought the intervention of the ministry of petroleum and natural gas to work out a commercial arrangement with ONGC for the purchase of natural gas from C-22 and C-24 marginal fields off the west coast. The petroleum ministry had decided these fields would sell gas to the company, which would examine the feasibility of taking gas through its planned Dahej-Uran pipeline. Since the fields were not cost effective, the ministry decided that ONGC would be allowed to sell gas at market rates. Gail had also sought details of technical issues and the unit cost of gas at the landfall point inclusive of offshore transportation charges so that the marketability of gas could be assessed. Gail had made the request about a year back but even after several reminders, ONGC had not furnished the information. While Gail was pushing for early monetisation of gas from the fields, there were reports that ONGC is in talks with private companies to sell gas. ONGC has marginal gas fields of C-22, C-24, C-39, C-23, C-26, B-12 and North Tapti (C-1), which will be sequentially exploited for sustained gas production. It is estimated that these fields will give 2 million standard cubic metres of gas a day for 14 years.

India for alternate route for Myanmar gas

August 5, 2005. The government is planning to dump the option of routing the Myanmar-India gas pipeline via Bangladesh. It is instead looking at two alternatives:- importing gas from Myanmar in compressed form via ships or routing the pipeline through the north-eastern corridor of the country.

Govt may pull up RIL for delay oil pipeline

August 4, 2005. Reliance Industries (RIL) may end up forfeiting the east-west cross-country pipeline project to GAIL if they continue to delay and fail to bring the project on stream. The petroleum ministry is planning to send a notice to RIL asking for an explanation for the delay in the project. RIL, which was given the go ahead almost a year ago by the government, is yet to get the project off the ground. The company, which will be supplying gas from its KG basin fields to NTPC and Reliance Energy, is yet to sign the final supply agreement with the companies. The validity of the approval, which gives them a right of way for the pipeline route, expires in two years’ time. RIL would require 18 to 24 months to complete the project. RIL had bid aggressively and had proposed to build the pipeline at a cost of around 34 cents (1$ = 100 cents) per mmbtu as against GAIL’s offer of 39 cents per mmbtu. The government decided to award the project to RIL primarily on the cost parameter.

Dadri gas supply pact this month

August 3, 2005. Reliance Energy is expected to sign a deal this month to buy gas from Reliance Industries for its upcoming 7,480 MW Dadri power plant in Uttar Pradesh. The over Rs 20,000 crore (Rs 200 bn) Dadri project, touted as the world’s largest gas-based plant, will recieve gas from RIL beginning 2008-09, when the first unit is scheduled for commissioning. RIL will supply gas through a pipeline from Kakinada, the landfall point of Krishna-Godavari gas field.

Policy / Performance

PM reviews energy security

August 6, 2005. Prime Minister Manmohan Singh reviewed India's energy security preparedness at the first meeting of the inter-ministerial Energy Coordination Committee (ECC). The meeting was about how India must have its own security of energy in the short, medium and long term. The meeting reviewed the energy scenario of the country for next 25 years and the policy options needed to bridge the demand-supply gap. The meeting discussed coal and gas shortage in the country and stressed acquisition of coal, oil and gas assets from abroad to meet the fuel shortage in the country. India is likely to have a coal demand of 1.5-2.25 billion tonnes by 2025 and it would require huge amount of imports. Department of Atomic Energy, also stressed on the need for India to import uranium and invest in uranium mining to meet the requirements of nuclear power generation. He drew attention to the fact that the price of domestically mined uranium is four to five times that of imported uranium. The ECC discussed a strategy paper on the energy sector prepared by the Planning Commission and a paper on coal and gas availability for power generation prepared by the Cabinet Secretariat. The Committee was set up last month to enable a systematic approach to policy formulation in area of energy planning and security. The ECC has ministers of finance, power, petroleum, non-conventional energy as well as Planning Commission deputy chairman among others as its members.

Commission may decide on natural gas pricing

August 6, 2005. The pricing of natural gas produced by Oil and Natural Gas Corporation and Oil India is likely to be decided solely by the Tariff Commission, with the Petroleum Ministry unwilling to suggest any mechanism to be adopted for the pricing. The terms of reference for the proposal were still being finalised and that the Ministry would shortly be sending it to the Commission after it receives the views of the companies.  The Ministry might suggest the option of reverting to a cost-plus pricing method. The Government had sometime ago approved a 12 per cent increase in the price of natural gas on an ad hoc basis. As of June, the gas supplied by ONGC was priced at $1.19 per million British thermal unit (mmbtu), while for the North East region, it was supplied at a subsidised rate of $.94 per mmbtu. The price of gas supplied from the joint venture Panna, Mukta and Tapti was at $4.08 per mmbtu. The Tariff Commission is to examine in detail the cost of production and transportation of the gas before fixing a final price. While the oil majors have been seeking market-related price for the gas, the power and fertiliser ministries have opposed the move as it would mean an increase in the input costs of power and fertiliser units, which supply their products at fixed price. Reverting to cost-plus pricing method may not be good news for ONGC, which is being paid only about one-sixth of the market price. The Government, based on the report of the Shankar Committee, had dismantled the cost-plus pricing and decided to align the consumer price of gas to international prices.

RIL's mega investment

 August 7, 2005. According to the investment plan, RIL would invest Rs 49,000 crore (Rs 490 bn), which includes doubling of the petroleum refining capacity at its Jamnagar plant at an investment of Rs 25,000 crore (Rs 250 bn). The raising of Jamnagar’s crude throughput to 1.2 million barrels per day (b/d) would be complete by the second half of the financial year ending March 2009. Rs 17,600 crore (Rs 176 bn) will be spent on upstream oil and gas over the next few years. Full-year gas production from the Krishna Godavari basin will begin from FY09-10. About Rs 6,500 crore (Rs 65 bn) will be invested in downstream businesses. RIL would invest Rs 2,500 crore (Rs 25 bn) to build a new 280,000-tonne-per-year polypropylene plant. Another Rs 3,000 crore (Rs 30 bn) would be invested to scale up RIL’s polyester production capacity and Rs 1,000 crore (Rs 10 bn) would be spent on Nocil and Dyechem. Currently, the Jamnagar refinery has the capacity to refine 33  million tones of crude per annum (mtpa). This will be increased to 60 mtpa or 1.2 million barrels per day (b/d). The raising of Jamnagar’s crude throughput would be complete by the second half of the financial year ending March 2009. The additional output will be primarily for exports. The investment would help make the Jamnagar unit the world’s single-largest oil refinery.

India to explore energy cooperation with China

August 5, 2005. India would look at joining hands with China for acquiring oil and gas properties in third countries, particularly in the Caspian region, Central Asia, Africa and Latin America. Till now the two countries have been competing with each other for acquiring properties abroad. A high-level delegation will visit China next week to explore opportunities for cooperation in their pursuit of securing energy security. Oil strategy of India and China were similar, with both having similar concerns of energy security. Both countries are acquiring energy assets abroad. Besides, they countries have substantive exploration programmes within their respective countries and are engaged in trans-national pipeline construction. Cooperation in exploration and production of oil and gas in the respective countries and related downstream activities such as refining and natural gas would also be explored.

Govt asked to cut petro taxes

 August 5, 2005. The Standing Committee on Energy has urged the government to reduce its reliance on petro-taxes. Besides seeking a review of central tax rates, it has also suggested a slew of measures, which, if implemented, will pare the profits of companies like ONGC and Reliance. With regard to crude oil, which accounts for 90-95 per cent of the retail price, the committee has suggested reduction in the price realised by ONGC, which accounts for 30 per cent of domestic requirements, to ‘actuals’. At present, the oil producer splits the gains from notional components like freight, insurance, etc, which account for 10 per cent of crude costs, with the refiners.

The committee has also taken strong objection to the government providing export incentives to refiners at a time when global refinery margins are ruling firm. With regard to refining, which accounts for 5-10 per cent of the retail price, the committee has suggested a ceiling that should be made applicable to private refiners as well. Strangely, rather than suggesting a reduction in the subsidies being borne by the PSU oil companies by raising retail prices of petro-products or higher subsidy allocation by the exchequer, the committee has suggested widening the pool of constituents who share the burden to include stand-alone refiners, both in the public and private domain like KRL, CPCL, MRPL and RIL. On the taxation front, the committee has made a specific proposal to plug a legislative loophole that allows the finance ministry to channel funds collected as ‘cess’ to other sectors.

Make ATF, but what about kerosene?: Govt

 August 4, 2005. The ministry of petroleum and natural gas has raised the issue of kerosene production while processing the Oil and Natural Gas Corporation’s application for grant of marketing rights for the aviation turbine fuel (ATF). The company plans to produce and sell 20,000 kilo litre (171,62 tonnes) of ATF from its Hazira unit in Gujarat. The quality of ATF to be produced would be Jet-A1 grade. ONGC had also sought the permission of the Director General of Civil Aviation for production, storage and delivery of ATF. While the issues of kerosene availability and ATF marketing rights were independent of each other, the criteria relating to restriction on kerosene production applicable to stand alone refineries would be applicable to ONGC. 

10,000 free LPG connections for poor

August 3, 2005. Kerala government announced that 10,000 families coming under the below poverty line category would be sanctioned free LPG (cooking gas) connections soon. This was part of welfare measures for the benefit of women.

Under-recoveries by oil cos may exceed $9.2 bn: Aiyar

August 2, 2005. The Petroleum Minister, Mr Mani Shankar Aiyar, has said that if the current trend of huge under-recoveries leading to losses suffered by the oil companies continues, the under-recoveries for the year 2005-06 are likely to exceed Rs 40,000 crore (Rs 400 bn). The Ministry is now trying to direct the upstream companies to make to offset or, at least, minimise the losses being suffered by the oil marketing companies (OMCs). The Ministry was continuously monitoring the price situation, as India is highly dependent on oil imports, with about 76 per cent of crude processed in Indian refineries being imported. Therefore, the international oil prices impact domestic crude prices, and domestic retail product prices.



CESC plans projects in WB and Orissa

 August 9, 2005. RPG Group company CESC has turned ambitious - the private power utility plans to set up a 1000 MW power plant in West Bengal and another 2000 MW unit in Orissa. The 1000MW plant in West Bengal was likely to be set up at Katwa. The project had already received the Centre's approval. CESC was awaiting a formal letter from the West Bengal government and hoped the work on the project would begin in the current year. He said the total cost of the plant would be in the region of Rs 4000 crore (Rs 40 bn) which would be funded through a debt-equity ratio of 1:2.3. The new plant would be in addition to the company's already announced plan for adding another 250 MW unit to its existing 500 MW Budge Budge plant on the outskirts of Kolkata. The work on both the plants should begin within six months. CESC was negotiating with the Orissa government for setting up a 2000 MW power plant in that state and the details were being worked out.

Bhakra Beas plans new units in HP, Uttaranchal

August 4, 2005. The Bhakra Beas Management Board (BBMB), which runs the hydroelectric power stations in the Bhakra-Nangal dam project, has proposed setting up new hydel projects in Himachal Pradesh and Uttaranchal through a special purpose vehicle (SPV). BBMB, the country's second largest hydropower organisation with a total installed capacity of 2,866 MW, has sent a proposal to the Union Power Ministry and the Punjab and Himachal Pradesh governments. It has proposed an SPV for undertaking more hydro projects in Himachal and Uttaranchal. The partner states such as Punjab and Himachal could have an equal equity stake in the SPV. The proposed SPV would have a debt-equity ratio of 70:30 and the debt could be met through financial institutions such as the Power Finance Corporation.

Andhra plans 3,187 MW of power

August 4, 2005. The Andhra Pradesh Government, through Andhra Pradesh Generation Corporation (AP Genco), has drawn up plans to add about 3,187 MW of power, investing about Rs 14,951 crore (Rs 149.51 bn) within five years. All these projects are proposed to be completed by 2010 with funding from agencies such as Power Finance Corporation and Rural Electrification Corporation. While a significant part of this proposed expansion covers coal-based stations, about 284 MW of this would be through hydel plants at Jurala and the Nagarjunasgar tail pond dam. For all the expansion projects, the financing has been tied up. The estimated peak demand, by the Electric Power Survey report of Central Electricity Authority, at the end of XI Plan period (March 2012) is 15,213 MW. The total capacity required by 2012, including 29 per cent reserve margin, is estimated at 19,625 MW. As per the Transco load forecast, the demand is likely to be about 14,334 MW. Given the present installed capacity of 11,134 MW, the State would be able to meet such a requirement through this additional capacity. The hydel power generation has gone up significantly now to 2,218 MW against 400 MW during the same period last year.

Vizag sugar factories plan to start co-generation

August 3, 2005. Two more sugar factories in Visakhapatnam district - Tummapala and Tandava - are planning to take up co-generation of 5 MW and 4 MW respectively with the assistance of the Non-Conventional Energy Development Corporation of Andhra Pradesh Ltd (NEDCAP). Already, two sugar factories - Govada and Etikoppaka - had started co-generation. Govada is generating 14 MW, of which 6 MW is being used internally and the rest being supplied to the grid. At Etikoppaka, 6 MW of power is being generated out of bagasse. The corporation would encourage more sugar factories to take up co-generation.

Transmission/ Distribution / Trade

KPCL plans JV for supply of gas to Bidadi

 August 9, 2005. The Karnataka Power Corporation Limited (KPCL) is mulling adopting the joint venture route to secure gas for its 1,400 MW power plant at Bidadi. This option is being considered after KPCL failed to get any bids in the tendering process for selecting the gas supplier. The company has initiated talks with Reliance for this project to source gas from Reliance’s Krishna-Godavari Basin gas find and added that Reliance was a strong contender for this JV. 

Mescom urged to sign pact with Nagarjuna Power

August 7, 2005. The Jaya Sri Krishna Parisara Premi Samiti, a NGO based in Udupi district, has urged the Mangalore Electricity Supply Company (Mescom) to sign an agreement with the Nagarjuna Power Company Ltd (NPCL) for purchasing 350 MW from the latter. Such an agreement would help tide over the power shortage in Dakshina Kannada and Udupi districts. The Karnataka Cabinet had already given `in-principle' clearance for the power purchase agreement (PPA) between the Karnataka Government and NPCL. The company plans to set up a 1,015-MW thermal plant at Padubidri in Udupi district. More than 60 per cent of small-scale industrial units have been forced to close in the two districts due to the power scarcity, and thus has affected investments in these districts. If Mescom agrees to buy additional 350 MW of power from NPCL, it will help tide over the problem in these districts.

Delhi may see reduction in power losses

August 7, 2005. The growing use of tamper proof distribution and metering system in Delhi may reduce the current distribution loss, occurring due to theft and technical reasons. It’s estimated that as high as 825 MW of power, which is nearly 40 per cent of the total annual power availability in Delhi, is lost in transaction. The state government had set a target of reducing the transaction loss of electricity by 12 per cent in the next two years. In the last three years, such losses have come down from 52 per cent to 40 per cent. In fact, the privatisation of power distribution in Delhi has started giving dividends, and with the use of better technology and better monitoring, such losses will come down to 28 per cent in the next couple of years. And that will finally lead to a reduction of tariff as well.

7 SEBs reduce cash losses

August 6, 2005. State electricity boards (SEBs) have begun a clean-up of their balance sheets and have managed to partially plug the leak. Led by West Bengal, Gujarat and Andhra Pradesh, the distribution utilities of seven States have managed to collectively reduce cash losses over the last two financial years. Most States have managed to bring about loss reduction by ramping up metering efforts and increasing collection efficiency. While Haryana and West Bengal have intensified their metering efforts over the last three years, Andhra Pradesh and Rajasthan have brought in more accountability into the revenue collection exercise by splitting up their utilities. Under the matching grant component of the Centre's Accelerated Power Development and Reforms Programme (APDRP) scheme, the seven SEBs are entitled to Rs 1,471.33 crore (Rs 14.71 bn) against a cash loss reduction of Rs 2,942.66 crore (Rs 29.43 bn). Under APDRP, SEBs are entitled to receive 50 per cent of the losses reduced by them in a year from the Centre in the form of a grant. Among the seven forward-looking SEBs, the West Bengal distribution utility has taken the lead followed by Gujarat, Andhra, Maharashtra, Rajasthan and Haryana. While the distribution utilities of Bihar and Uttar Pradesh have not managed to stem the losses.

Mescom launches `dedicated power' scheme

August 4, 2005. The Mangalore Electricity Supply Company (Mescom) has come out with a scheme for consumers in Karnataka to provide ‘dedicated power’, if the consumer is ready to consume 25 per cent more power than the previous financial year. The scheme may benefit those industrial consumers having three-phase power connection but who do not get power all the time. Under the scheme, Mescom would estimate the infrastructure development cost for dedicated power supply to customers. Depending on the location of the consumer, it would invest from 50 per cent to 70 per cent of the cost. However, the consumer would have to invest 25 per cent of the infrastructure development cost. The investment would depend on total value in real terms. Mescom had submitted a Rs 300-crore (Rs 3 bn) proposal to the Union Government under the Rajiv Gandhi Grameen Vidyutikaran Yojna, to create rural electricity infrastructure in five districts under its jurisdiction.

Policy / Performance

PoM seeks hike in allocation for electrification

August 5, 2005. The Power Ministry has sent a proposal to the Ministry of Finance seeking a 130 per cent hike in the allocation for the Rajiv Gandhi Grameen Vidyutikaran Yojana for the current fiscal. As against Rs 1,100 crore (Rs 11 bn) earmarked for the programme during 2005-06, the Power Ministry has sought an allocation of Rs 2,500 crore (Rs 25 bn). The scheme, aiming at completing household electrification in the rural areas, was launched in July this year. The scheme has met with enthusiastic response from States, most of whom have already started work on the projects to be taken up.

The Government is aiming to meet the National Common Minimum Programme of completing the household electrification in next five years and modernising the rural electricity infrastructure through the scheme. The new programme could provide access to electricity to about 78 mn rural households in five years. The scheme is being implemented by the state-owned Rural Electrification Corporation, which is providing 90 per cent of the capital cost of the programme on behalf of the Centre as grant for creating rural electricity distribution backbone with at least one 33/11 kV (or 66/11 kV) substation in each block. Also, the scheme aims to set up village electrification infrastructure with at least one distribution transformer in each village and a system of decentralised distributed generation systems where grid supply is not feasible or cost-effective. The scheme would provide free connections to all rural households living below poverty line.

Stricter Electricity Act likely

Text Box: •	Wording of the Act may not be changed, but it may be stricter 
•	Controversy over whether the regulator has to be “in conformity with” or “guided by” the provisions of the Electricity Policy
•	Finance ministry and Planning Commission are opposed to certain amendments, saying it will impinge on regulatory freedom

August 5, 2005. The wording of the Electricity Act may be kept unchanged after the controversy surrounding the power ministry's proposal to amend it. However, some legal experts are of the view that more stringent control could be imposed on the regulator even with the existing wording. The power ministry is holding discussions with the law ministry over the controversial amendments to the Electricity Act. The power ministry had proposed amendments to the Act to say that regulator would have to be 'in conformity with' provisions of the Electricity Policy and Tariff Policy. The Act currently, requires the regulator to be 'guided by' policy. The finance ministry and Planning Commission had opposed the power ministry's proposal to amend certain sections of the Electricity Act, saying that it would impinge on regulatory freedom.

Dabhol revival may get tax sops, mega status

 August 4, 2005. The empowered group of ministers (EGoM) on the Dabhol power project will consider a “mega power plant” status to Dabhol facility and granting it tax benefits available for infrastructure companies under the proposed liquefied natural gas policy. The facility would not be given specific benefits as demanded by its new owners but the sops available under various policies would be made available to the project. The government is keen on ensuring that the request for benefits, once approved by the EGoM headed by Defence Minister Pranab Mukherjee, is sent to the Cabinet Committee on Economic Affairs to help in the early start of the project. The benefits will ensure that cost of power is kept around Rs 2.30 a unit. In a note to the EGoM, the Indian lenders to the project had also sought that the Centre waive excise duty on naphtha in case the project used the fuel for the initial three-six months after the restart of the 714 MW first phase to make it economically viable. In addition to waiving all Customs duty for capital goods, they had also sought a refund of Rs 324 crore (Rs 3.24 bn) import duty paid on equipment, some of which are in the possession of the revenue department. A mega power plant status will entitle Ratnagiri Gas and Power Pvt Ltd to import equipment duty-free. To avail of the status, the company will have to ink power purchase agreements with more than one state. At present, only the Maharashtra government has agreed to purchase power from the company.

TPC to invest $4.3 bn on new plants

August 4, 2005. Tata Power Company (TPC) would invest Rs 18,500 crore (Rs 185 bn) over the next five years for new projects including some abroad, even as it is planning a 500 MW plant in South Africa at an investment of Rs 2,000 crore (Rs 20 bn). South Africa, which was earlier surplus in power, is facing some power shortage and there is move to seek private sector power in good terms.

e-trading in coal likely

 August 4, 2005. The government will decide whether to adopt e-auction for coal after studying results of e-auctions conducted on trial basis by coal companies. Ministry of State for Coal said e-auction was introduced because consumers of coal, who could not get linkage, were being forced to buy coal from the black market. It said that the reasons for coal shortage in power stations included unloading constraints which lead to congestion in rail movement, and “delayed release of payment” by plants for coal and railway freight. Ministry said power stations often consumed more coal than the quantity allocated by the standing linkage committee. 

Coal Ministry seeks nod for capacity expansion

August 3, 2005. In an effort to address the demand-supply gap in coal, the Union Coal Ministry has readied for the Cabinet Committee on Economic Affairs (CCEA), a note for creating an additional capacity of 70 mt in the next seven to eight years. In-principle nod would be sought from the CCEA for the proposed capacity enhancement programme in 16 mines spread all over the country. While some of these are new mines, two mines are in the project stage (which means that necessary approvals have been obtained pertaining to a certain capacity). Production has already commenced in the remaining mines and an approval was needed for raising capacity mid-way. The mines are located in the Central Coalfields in Jharkhand, Mahanadi Coalfields (Orissa), South Eastern Coalfields (Chhatisgarh) and Northern Coalfields (Uttar Pradesh). The move is seen as part of Coal India's (CIL), the holding company for these coal-producing subsidiaries, plan to jack up production so as to narrow down the demand - supply gap, which according to CIL's estimates would be of the order of about 85 mt in 2011-12. Production stood at 324 mt in 2004-05, which was 7.5 mt higher than estimates. In the current fiscal, the coal companies are chasing a target of 330.5 mt, even as they hope to produce about 345 mt.

Centre to locate new power plants along coast

August 2, 2005. Shortage of coal has forced the Centre to rethink its thermal generation strategy in favour of locating future coal-fired projects near the coastline and using a blend of imported and domestic coal as feedstock. Hitherto, the Central power utilities such as NTPC and State sector projects have focussed on setting up pithead-based plants and using only domestic coal as fuel. The move is aimed at the twin-pronged benefits of extending the life span of the country's coal reserve, expected to last another 50 years or so, while also optimising the generation efficiency of thermal stations by mixing high-calorific imported coal with the low grade domestic coal. Also, mixing domestic coal with the more expensive imported coal would ensure that the generation tariffs are kept under check. The move to shift to a mix of domestic and imported coal comes in the wake of the ongoing coal shortage projected to continue till 2008-09.

Coal import opportunities are being explored in South Africa, Indonesia, Australia and China, where the coal quality is better with gross calorific value generally around 5,300-6,000 kilo calories/kg, while the calorific value of domestic coal is only around 3,000 kcal/kg. The calorific value of blended coal is higher at 4,500-4,800 kcal/kg. Besides the higher calorific value, the blended coal is superior due to its lower ash content as compared to domestic fuel. This fiscal alone, power majors including NTPC, Reliance Energy, several of the SEBs and private generators will import over 13.45 mt of coal to tide over the shortages. NTPC will import 3.98 mt of coal and has already mandated MMTC to import the fuel.




EnerGulf signs Nigerian Joint Venture

August 4, 2005. Venezuela's state oil company signed a series of deals with eight private oil companies, obtaining a majority stake in oil fields where crude had been pumped independently under contract. The move to set up joint ventures with the companies is one of many recent steps by the Venezuelan government to exert more control over the industry and generate more revenue amid high oil prices. Venezuela has ordered 22 oil companies to convert their contracts into joint ventures with state-owned Petroleos de Venezuela S.A., or PDVSA, by the end of this year. The joint venture includes Houston-based Harvest Natural Resources, which Venezuela recently hit with a $94 million unpaid tax claim. The Venezuelan will consider international arbitration if necessary in the dispute. The eight companies control a combined 13 oil fields, which pump roughly 200,000 barrels of crude a day. The agreements will be valid until the National Assembly approves definitive guidelines for joint ventures with PDVSA, which are to determine how much managerial control companies will retain.

Indonesia awards oil blocks to Conoco, 8 others

August 4, 2005. ConocoPhillips and eight mostly local firms have been awarded oil and gas exploration rights in Indonesia as the OPEC-member embarks on an investment drive to reverse declining output. Conoco, the No. 3 U.S. oil company, has won the Amborip VI (Arafura Sea) block offshore Papua, one of 13 areas being offered by the government under the so-called direct-offer process. Another 14 areas offered under a tender process are expected to be awarded by the end of year. The government does not have reserve estimates for the blocks on offer.

The total investment commitment by the nine winners is $102.5 million over the first three years. Two-thirds of that sum is reserved for drilling 27 exploration wells. Conoco is one of several big oil and gas firms operating in Indonesia with several working areas, including in South Sumatra, West Natuna and in North Sumatra's Aceh province. Indonesia, OPEC's second-smallest member, is offering new exploration rights and financial incentives on marginal fields in a bid to stem a steady decline in production that has threatened its status as a net crude oil exporter.

Total withdraws offer to buy Novatek stake

August 4, 2005. Total SA has decided to withdraw its offer to buy a 25 percent stake in Russian gas company Novatek, citing numerous delays since the French oil major filed its application for the acquisition. As a result of the numerous delays, which are difficult to understand, that have occurred since the filing of the application in September 2004, Total has just informed the Russian anti-trust authorities of its decision to withdraw its application concerning the acquisition of 25 percent plus one share of Novatek.

Russia's Sakhalin-2 oil output plans delayed

August 3, 2005. Peak oil production from Russia's giant Sakhalin-2 project will be delayed until 2008. Shell said the previously announced delay to startup of liquefied natural gas (LNG) production would also mean delays to plans to effectively quadruple oil output. Plans to allow an existing platform to produce during the winter months have now been pushed back from 2006 to 2007, while the planned startup of a second platform has been pushed back from the first quarter of 2007 to 2008. Sakhalin-2 currently produces over 70,000 barrels of crude per day from the Molikpaq offshore platform, for around 180 days a year. Production stops during the winter when the sea freezes over, but will continue year-round after Shell constructs an undersea pipeline as part of Phase II, which also includes start up of LNG production. Ramp up of The Piltun-Astokhskoye-B platform is expected to take production to between 150,000 and 155,000 barrels of crude per day. Shell did not say when in 2008 Piltun-Astokhskoye-B was now scheduled to commence production. Mitsubishi Corp. a stakeholder in the project off Russia's eastern coast, said there was a high possibility of delay but added he had no idea how long it might be. Shell announced in mid-July that the second phase of the Sakhalin-2 project would cost twice its $10 billion estimate and delay exports of the super-cooled compressed natural gas. Its statement did not mention a delay to winter crude production.

The plan to transport oil onshore has faced opposition from environmentalists who fear the pipelines will endanger the survival of the threatened grey whale population. An environmental study made at the request of the Sakhalin Energy Investment Co. (SEIC), the Shell-led company operating the project, found in February that it should consider suspending the huge project pending a bigger study on the impact on the rare grey whales that feed near the area. 

CNOOC withdraws $18.4B bid for Unocal

August 3, 2005. Building anti-Chinese sentiment in Washington the key reason cited by Chinese oil company CNOOC for withdrawing its $18.4 billion offer for Unocal augers poorly for future economic ties between the two powers. Government-controlled CNOOC dropped its bid for Unocal Corp. citing a political uproar in Washington as the main obstacle for the deal. That cleared the way for Chevron Corp., the second-largest U.S. oil company, to complete its acquisition of Unocal next week, although its offer was worth $700 million less. CNOOC's defeat followed a decision by appliance maker Haier Group Ltd., just two weeks earlier, to abandon an offer of $1.28 billion for rival Maytag Corp. CNOOC's defeat came amid an unprecedented upswell of opposition in Washington toward China that might deter future takeover attempts and could even complicate broader relations. China did not immediately issue any public comment. Its Foreign Ministry issued a statement saying that Foreign Minister Li Zhaoxing had exchanged opinions on bilateral relations in a phone call to U.S. Secretary of State Condoleezza Rice. It gave no details.  The news came at an awkward time for senior officials holding the two governments' first-ever "strategic dialogue" in Beijing this week that touched on a wide range of issues, from energy to terrorism. Ultimately, CNOOC's offer succumbed to an upsurge in antagonism in Washington, despite ever-closer economic ties with China. Tensions have already risen amid U.S. complaints about the rampant product piracy and the cheap Chinese textiles that have flooded the U.S. after global textile quotes expired at the beginning of the year. And before China moved to revalue its currency on July 21, some U.S. politicians lambasted Beijing for keeping the yuan artificially low, saying its exporters were reaping an unfair trade advantage. Even then, the currency move was seen in Washington as far too small. Chevron's bid was helped by the backing of U.S. lawmakers who questioned if American economic and national security interests would be threatened if a company 70-percent owned by China's communist government were to buy El Segundo, Calif.-based Unocal, the world's ninth-largest oil company. Chevron had regulatory clearance for the deal and the support of the Unocal board, factors that apparently neutralized CNOOC's efforts to sway opinion through advertising and hiring top-notch U.S. professional help. Chinese corporations, many of which are controlled by the government, have been boosting investments overseas, seeking to boost their international competitiveness, gain access to strategic resources like oil and minerals and expand markets for their products. Like Japan in decades past, Chinese companies hope to use such investments to blunt criticism over China's trade surplus with the United States, which hit a record $162 billion last year.

South Korean know-how for Iraq oil sector

August 5, 2005. South Korea, the world's fourth-biggest crude oil buyer, will provide Iraq with oil development technology to boost its chances of getting a slice of lucrative oil projects. Energy-deficient South Korea, which has to import all of its crude needs, is keen to boost its foreign energy assets to secure stable sources of energy and make its manufacturing-driven economy less sensitive to oil prices. Oil was trading at $60.80 a barrel in Asia, just off a record $62.50.  Korea National Oil Corporation (KNOC) signed a memorandum of understanding with Iraq's oil ministry to provide the latest oil development technology and undertake joint studies into promising oil blocks. South Korea reached a preliminary agreement in May last year with British construction and engineering services firm Amec to co-operate in upstream oil projects in Iraq. KNOC, which spearheads South Korea's overseas energy projects, is engaged in projects in countries including Yemen, Indonesia, Vietnam and Peru, but it does not hold oil-related contracts in Iraq.

OPEC oil output highest since ’79

August 6, 2005.  OPEC oil production rose 290,000 barrels per day in July to the highest level since December 1979 as Iraq boosted exports and the UAE restored output at oilfields after maintenance. Record crude oil prices have encouraged the Organization of the Petroleum Exporting Countries to push output to near 26-year highs. But opening the taps has had little effect on prices. U.S. light crude CLc1 hit a fresh record of $62.50 a barrel. Prices have rallied to records this year on concern that a stretched global refining system would struggle to meet rapidly growing fuel demand. Total July OPEC output came to 30.24 million b/d, according to the survey of consultants, shippers, industry and OPEC sources. That was up 290,000b/d from revised June output of 29.95 million b/d.

Iraq saw the largest increase in output at 160,000 b/d, as it boosted sales of exports from storage in Turkey in July. The Iraqi export rise was unlikely to be sustained, consultants said, as there have been few exports through the pipeline since. The line has mostly been idled by sabotage attacks since the U.S.-led invasion of Iraq in 2003. Output from OPEC’s 10 members excluding Iraq, which is exempt from quotas, was at 28.21 million b/d in July, up from revised output of 29.09 million b/d in June. Opec-10 production was 210,000b/d above the target of 28 million b/d, which came into effect on July 1 after OPEC raised the ceiling 0.5 million b/d at its meeting in June in a bid to dampen prices. The UAE’s output rose around 80,000 b/d to 2.44 million b/d in July from a revised figure of 2.36 million b/d in June as it brought its Umm Shaif and Lower Zakum fields back on line after work and offered buyers extra volumes of crude.July figures were revised down, as its biggest oilfield, Murban, took a little longer to return from maintenance in June than expected. Exports are set to increase further in coming months as the UAE boosts export capacity at its biggest Murban field by 200,000b/d to 1.5 million b/d by early 2006.

Iraq set to boost oil output

 August 4, 2005. Iraq plans to start clearing mines from its southern oil fields this year to help increase output to pre-war levels. The southern oil fields, which produce more than 1 million barrels of oil a day, have been surveyed to locate areas where the operations should start. Production from fields such as southern Rumila could rise after the mines are cleared. Iraq has struggled since March 2003 to reach a pre-war oil production level of 2.6 million barrels a day because of attacks on oil sites and years of improper field management.

Iran second major OPEC oil producer

August 8, 2005. The Islamic Republic of Iran's 20-year Outlook Plan recognizes the country as the second major OPEC oil supplier with a share of seven percent in the world crude production. Iran is also expected to emerge the first major producer of petrochemicals in the region in terms of value and the third major gas supplier in the world with an eight to 10 percent share in the world trade of gas and gas derivatives on a 20-year horizon. Iran will under the plan reserve the first rank in the oil and gas technology in the region as well. The Islamic Republic of Iran is expected to produce seven million barrels of oil, liquefied gas and gas condensates a day and about 1.3 billion cubic meters of gas a day on the average by the next decade. Based on the 20-Year Outlook Plan, Iranian refineries will also refine 2,500,000 b/d oil, especially gas condensates and highly heavy crude, on a 10-year horizon under more than $50 billion investment. Under the 20-Year Outlook Plan about $50 billion investment would also be made in the gas upstream sector and more than $20 billion in the downstream sector by the next ten years. Furthermore, about $30 billion investment is needed in the petrochemical sector by the next 10 years. Overall, more than $150 billion investment is predicted to be made in the oil industry in the 2006-2015 period. More than 75 percent of the investment will be met out of the domestic as well as the foreign sources.

China’s crude oil output increases 30m barrels

August 7, 2005. China's crude oil production in the first half of this year grew more than 30 million barrels from the same period last year, hitting a record high since 2000. The output of China's crude oil reached 89.797 million tons in the first half of this year, a year-on-year increase of 4.8 percent, 2.9 percentage points higher than a year earlier. China's natural gas output reached 23.85 billion cubic meters, up 19.7 percent year on year, 4.8 percentage points higher than a year earlier. The total imported crude oil amounted to 63.552 million ton, only increasing 4.1 percent year on year, decelerating by 35.2 percent than the same period of 2004. Due to the big price gap between domestic and overseas-refined oil, China's refined oil import slumped while exports soared.  In the first six months this year, China imported 15.73 million tons of refined oil, down 20.9 percent year on year. Meanwhile China's gasoline exports reached 3.35 million tons, up 31.6 percent, and diesel oil exports reached 631,000 tons, jumping 143.7 percent.

Transportation / Trade

Iran to pay penalty for LNG delayed

August 6, 2005. Iran will pay India $50 mn (Rs bn) in compensation if it is unable to begin work on export of liquefied natural gas (LNG) by next year. India included penalty clause in the $22 bn deal it signed with Iran June this year for import of 5 mt of LNG for 25 years so that it reaches its shores as per the committed schedule of 2009-10. Iran, which has world’s second largest gas reserves, is banking on French and German LNG technology.

Ohio board approves gas pipeline project

August 4, 2005. The Ohio Power sitting Board approved a 25-mile natural gas pipeline through Delaware and Franklin counties. Columbia Gas of Ohio will use the pipeline to provide natural gas to customers in northern Columbus. The pipeline will also serve residents in southern Delaware County, the fastest-growing county in Ohio. The pipeline will cost about $40.8 million, although Columbia Gas did not give a timetable for when it would begin construction. Columbia provides natural gas for most of Central Ohio and is a subsidiary of Merrillville, Ind.-based NiSource Inc.

Iran proposes MoU to India for gas pipeline

August 4, 2005. Iran proposed signing a memorandum of understanding (MoU) with India for setting a timeframe for implementation of the $7.4 billion Iran-Pakistan-India gas pipeline project. Tehran proposed the MoU at the beginning of a two-day meeting of special Joint Working Group on the pipeline. It is similar to that signed with Pakistan last month and sets a clear timeframe. Iran wants the project structure to be in place by December end and implementation mechanism and project financing model by April next year so as to begin work on the pipeline feeding energy to India and Pakistan by second half of 2006. India wants the project structure to be developed in a manner that addressed all its concerns of safety of pipeline and safe delivery of gas.

Kerr-McGee to sell North Sea oil fields

August 8, 2005.  U.S. oil and gas producer Kerr-McGee Corp. has agreed to sell all of its British North Sea oil and gas interests to help pay for a share buyback designed to fend off a challenge from corporate raider Carl Icahn. Kerr-McGee sold the bulk of its UK interests 10 oil fields with a current production of some 60,000 barrels of oil equivalent per day (BOEPD), a number of smaller oil and gas discoveries and an exploration portfolio to Denmark's A.P. Moeller-Maersk for $2.95 billion in cash. Separately, it sold its stakes in four fields to UK utility Centrica for $567 million. The deal will add about 1.1 billion therms of gas and 11 million barrels of oil to Centrica's total reserves.

Gazprom LNG deal with Shtokman

August 8, 2005. Russian gas monopoly Gazprom moved closer to the booming liquefied natural gas business by clinching its first LNG swap deal and naming nine possible partners for a giant field. Gazprom's British-based Marketing and Trading had bought an LNG cargo from BG Group to deliver it to a receiving terminal at the U.S. Cove Point (Maryland) where Royal Dutch/Shell holds regasification capacity. With this first LNG cargo delivery into the United States, Gazprom has taken the first step towards becoming a leading LNG supply, shipping, and marketing company. Gazprom is now focusing on its strategic goal to expand its LNG marketing and trading activities in the coming months and years in preparation for the first availability of Russian-produced LNG in a few years time. The first cargo will be delivered at the beginning of September on an ex-ship basis. Gazprom, the world's largest gas producer which supplies Europe with a quarter of its gas needs via major pipelines, is keen to supply gas to U.S. markets, but as yet has no LNG facility to super-cool its gas for tanker shipment. By 2009, Gazprom wants to have its own LNG terminal in the Baltic port of Ust Luga near St Petersburg, which could receive output from existing pipelines. It also wants to buy 25 percent in the Shell-led Sakhalin-2 project near Japan, which will begin massive LNG shipments in mid-2008.

Policy / Performance

Venezuela: Harvest is a longtime tax evader

August 3, 2005. Houston-based oil company Harvest Natural Resources has been evading Venezuelan taxes for years and must pay a $94 million claim or face legal repercussions. The tax agency sent the company the $94 million claim on July 25 for taxes that went unpaid from 2001 to 2004, including a 10 percent penalty. Harvest pumps 21,000 barrels a day at Venezuela's South Monagas oil fields, the company's only source of income. Harvest says it has 15 working days from July 25 to pay the claim or dispute it. The tax agency has not received a request for international arbitration from Harvest, but Vielma Mora said his office is prepared for a "tax war." Harvest was the second of 22 oil companies with operating contracts to get retroactive bills. But Vielma Mora did not say if the first, Royal Dutch Shell, would pay its $131 million claim. Venezuela awarded the contracts in the 1990s in a bid to raise production at older fields.

Russia urged to reduce fuel tax

August 5, 2005. Russia should reduce tax pressure on its oil sector, including by cutting fuel oil export duties, to revive oil production and support economic growth. The government should in the autumn consider cutting sky-high export duties and overhaul the mineral extraction tax to create incentives to produce more crude from depleted or difficult fields. The idea comes a year after Russia hiked oil sector taxes on the orders of President Vladimir Putin, who said private companies should share their profits with the state to help double the size of the economy by next decade. But many experts say high marginal taxes, combined with the lack of new major export pipelines and the Kremlin-led demise of oil major YUKOS, were the main factors behind a slowdown in output growth at the world's No 2 crude exporter.

Russian oil output growth slowed to a mere three per cent in the first half of 2005 compared to 9pc in the whole of 2004 and a record 11pc in 2003. Production has risen by more than 50pc since 1999 to 9.4 million barrels per day. The slowdown could jeopardise Putin's strategic goal of doubling GDP over a decade - which would require annual economic growth of over 7 percent.

China to look to energy areas closed to U.S.

August 4, 2005. The Chinese National Overseas Oil Company's blundered bid for California-based Unocal Corp. is likely to refocus China's attention on promising energy assets in countries in which the U.S. is unable or unwilling to compete. Since U.S. lawmakers have made it clear to CNOOC Ltd. that American oil assets are unavailable, China faces better odds wooing countries hostile or unaligned with U.S. interests. By 2025, the Energy Information Administration, the statistical arm of the U.S. Department of Energy, expects China to import more than 5 million barrels of oil a day from Organization of the Petroleum Exporting Countries located in the Persian Gulf region, which have the greatest oil reserves. Another roughly 3 million barrels are expected to come from OPEC nations located outside the Persian Gulf area and non-OPEC nations. China will also need to import higher levels of finished petroleum products to satisfy its growing demand. This growth in Chinese demand, along with a similar trend in India, may pull gasoline being exported from Korea and Taiwan away from the U.S. West Coast, further impacting either supply or price to West Coast consumers, the new refinery capacity is likely to be clustered in the Far East and Middle East regions.Despite a rampant effort to gobble up oil assets, China's overseas energy investments contribute less than 300,000 barrels a day in 2005.

India may invest in gas pipeline project from Iran

August 6, 2005. The prospects of Iran-India gas pipeline project looked particularly bright when Iran and Pakistan – through which the pipeline would be constructed to India - signed a basic agreement over the project last month. After the conclusion of the two-day meeting of the Indo-Iran Joint Working Group that India's involvement in the project would also help to ensure the security of the pipeline. India and Pakistan are expected to appoint financial consultants by the end of the month to outline the project structure. This could involve the three countries laying the pipeline separately in their territory or having a consortium of Indian, Pakistani and Iranian companies along with international firms, which would build and operate the pipeline. At the end of the meeting, a statement issued said that as soon as an agreement on the project structure was reached, the trilateral framework accord would be finalized by the year-end. An Indian technical team will visit Teheran in the third week of this month to review the pre-feasibility report prepared jointly by the National Iranian Gas Export Company (NIGEC) and BHP Billiton.

Iran hikes price for additional LNG to India

 August 2, 2005. Close on the heels of its $22 billion deal with India for sale of 5 million tonne per annum (mtpa) of LNG, Iran is now seeking substantially higher price for selling additional 2.5 mtpa of liquified gas. In contrast to its earlier ceiling of $3.22 per million metric British thermal unit (mmbtu) at $31 per barrel of Brent crude (for 5 mtpa), Iran is now seeking $3.54 per mmbtu at $40 per barrel Brent with a 1.5 per cent annual increase in the ceiling price for the full contract term of 25 years. This, as per officials, will translate into a FOB price of $4.1 per mmbtu at a Brent price of $50 a barrel and $4.5 per mmbtu for a price of $57 a barrel. After adding the customs duty element ($0.18 per mmbtu), re-gassification cost ($0.35 per mmbtu) and transportation cost ($0.30 per mmbtu), the delivered price of LNG will then vary between $4.93 per mmbtu to $5.33 per mmbtu.

As against this, the delivered LNG price under the existing 5-mtpa LNG deal with Iran comes to $ 4.05 per mmbtu. That’s not all. Iran has also proposed changes in two major commercial terms for selling this 2.5 mtpa LNG to India. This relates to the take-or-pay liability for 98 per cent of the contracted quantity (as against 95 per cent for the signed contract) and equity participation of only upto 5 per cent (as against the earlier 10 per cent) to the buyers in the LNG liquefaction company. A team of Indian officials, who visited Tehran last week, to finalise the tie-up of 2.5 mtpa LNG failed to break the deadlock on the price front. The offer of $3.54 per mmbtu at $40 a barrel of Brent was also valid only till July 26. With no headway in talks, Iran’s offer remains at $3.6 per mmbtu at $40 per barrel of Brent, with a 2 per cent annual increase.

US more than Asia blamed for surging oil prices

August 4, 2005. Rampant demand for crude oil in the United States is a bigger factor behind sky-high prices than strong demand from China and other fast-growing Asian economies. US crude oil spiked up to new records above $62 a barrel after the death of Saudi Arabia’s King Fahd this week raised worries about world supplies. Many oil analysts and traders have recently blamed the rocketing cost of crude oil on higher demand from China and India, where economic growth has taken off in recent years. But the numbers show a different picture. Chinese demand for crude oil in 2002, 2003 and 2004 was 6.4 percent, 7.1 percent and 7.8 percent of total daily demand of 77.9, 79.4 and 82.3 million barrels a day respectively. The IEA expects Chinese demand in 2005 and 2006 to rise to 8.1 and 8.5 percent of world demand respectively. Asian demand is forecast at about 19 percent in 2006, up from 18.6 percent this year and 18.1 percent in 2004. In comparison, the United States has used up more than 30 percent of world supplies over the last three years, and the IEA sees that figure holding steady this year and next.

Russia to study plan to hike Sakhalin cost to $20 billion

 August 4, 2005. The Russian government will examine Royal Dutch Shell Plc’s plans to double to $20 billion the cost of a liquefied natural gas project in Russia’s Far East.  Shell announced the possible cost increase on July 14 and also said deliveries of liquefied natural gas, or LNG, will start in the summer of 2008, about eight months behind schedule. Sakhalin Energy Investment Co, in which Shell holds a 55 per cent share, is tapping oil and gas fields in the Sakhalin region. Sakhalin-2, the world’s largest oil and gas project, is the centerpiece of Shell’s efforts to revive production and increase reserves by drilling new wells, rather than through acquisitions. Shell is trying to regain investor confidence after Shell, Europe’s second-largest oil company, overstated its oil and gas reserves by 41 per cent. Shell talks on Sakhalin with Russian authorities and the project’ partners will take at least a couple of months. Sakhalin Energy will still have to complete an "internal evaluation" of the cost increase and provide details to shareholders. The final study will be submitted to the Russian government for approval.

TEPCO and Tokyo Gas LNG sales agreement

August 8, 2005. Tokyo Electric Power Co. and Tokyo Gas Co., Ltd. signed a LNG purchase agreement with Darwin LNG Pty Ltd., the LNG seller, for the LNG project in Darwin, Northern Territory, Australia for 17 years starting from January 2006. The contract has been in negotiation based on a basic agreement signed on March 11th, 2002. The agreement is flexible and economical, permitting expansion of LNG transportation destinations beyond the companies' terminals under certain conditions and allowing FOB as the delivery condition. This will allow the companies to adapt to changes in the business environment such as deregulations in the energy market. Contract volume is reported at 2 million ton per year (average year) for TEPCO, and 1 million ton per year (average year) for Tokyo Gas Co., Ltd. Both companies will arrange for transport using their own LNG ships.

Both companies are participants in the Darwin LNG Project, which includes gas field development and production operations, gas pipeline business and gas liquefying plant operations, and believe that consuming LNG produced by gas fields (Bayu-Undan Gas Field) in this project will enable them to construct an integrated LNG value chain, which will make acquisition of fuel and raw materials more stable and economical.

Repsol to invest $325 mn in Peru LNG venture

August 8, 2005. Spanish oil and gas group Repsol YPF would invest $325 million in its previously announced venture to develop a liquefied natural gas project in Peru. Repsol and its partners, Texas-based Hunt Oil and South Korea's SK Corp. will build, own and operate a natural gas liquefaction plant to supply the United States and Central America. It was first announced in June and signed last week. The Peru deal should help Repsol make up for plans to export gas from Bolivia that were abandoned because of political turmoil there. Repsol will own 20 percent of the joint venture Peru LNG, which will build and operate the Pampa Melchorita liquefied natural gas plant, set to go into production in 2009. It will also acquire 10 percent of two exploration blocks in the Camisea gas field of Peru. The plant will have a capacity of 4 million tonnes of liquefied natural gas per year.



Three more power plants for Kranchi

August 6, 2005. Installation of at least three power plants capable of generating over 730 MW on a daily basis will begin here next year. The Karachi Electric Supply Corporation would install a 350 MW power plant in Korangi. A 148 MW power plant, which would become operational within 15 months, would be set up by a foreign company, Western Electric. One of the power plants gifted by the United Arab Emirates to Pakistan would be installed in Karachi. The plant, to be set up in the city by the ministry of water and power would generate 240 MW; the other plant capable of generating 148 MW would be installed in Faisalabad. The government had taken a policy decision under which electricity development projects for Karachi would be initiated and completed independently of the KESC privatization process. There would be increased foreign investment in power projects in the city in particular and in the country in general. The government had organized two road shows for investment in the country’s power sector in Dubai and London. A direct link between the KESC and the Hub Power plant would be in place by March 2006, giving the electricity-strapped KESC an additional 1,000 MW.

Pak to step up nuclear power generation

August 5, 2005. In the light of recent Indo-US deal on civilian atomic energy development, Pakistan has approved plans to increase its nuclear power generation from the present 430 MW to 8,800 MW by 2030. The National Economic Council (ECNEC) has approved a 2.5 billion project to improve the design, fuel and fabrication facilities of the laboratories of Pakistan Institute of Nuclear Sciences and Technology (PINSTECH). The project aims to increase the plant manufacturing capacity to 1,000 MW. Under the new energy security plan, Pakistan will enhance its nuclear generation from 437 MW at present to 8800 MW in 2030. Nuclear energy from plants at Karachi and Chashma contributes one per cent of the total power consumption and the new plans would increase it by eight per cent by 2030.

Transmission / Distribution / Trade

BPZ energy awards EPC contract

August 3, 2005. BPZ Energy, Inc. has awarded the turnkey contract for the engineering, procurement and construction (EPC) of its power plant project in northwest Peru to BTEC Turbines LP of Houston. The contract was awarded following a comprehensive six-month bidding process that included field visits by all of the bidders. Under the EPC contract, the final terms of which are being negotiated, BTEC will supply two General Electric Frame 7 simple-cycle gas-fired turbines. BTEC will also act as the main contractor for the transportation of all equipment, construction, startup and commissioning of the power plant, which is to be located at Caleta Cruz, approximately 10 miles southwest of the city of Tumbes, Peru. First power generation from the BPZ Energy power plant is planned for July 2006.

China - power supply expected to meet demand by 2007

August 8, 2005. China is expected to see a balance of electricity supply and demand with somewhat of a surplus China saw a newly installed power capacity of over 50 million KW in 2004, and the figure will remain at 70 million KW annually from 2005 to 2007. By the end of 2007, China will boast an installed power capacity of 650 million KW, by which time the electricity supply and demand of the country will be basically balanced, and will even have some surpluses. China is the second largest installed power capacity owner and the second largest power generator in the world next to the U.S. An annual installed power capacity of 70 million KW means an annual investment of nearly 350 billion yuan (43.2 billion US dollars). China has become one of the largest power markets in the world.

Policy / Performance

Pak Power sector unlikely to get new WB loan

August 7, 2005. The World Bank has raised serious questions about Pakistan’s power sector reforms and may not extend new loan for power sector during the current fiscal. In a recently concluded visit of Pakistan, a high-level team of the WB informed Pakistani authorities that in the WB’s view things had not moved an inch during the last one year. Although the bank did not take a strong position on these reforms it made it very clear that it would not be funding anything in the power sector during the current fiscal year. If the reforms move forward, WB funding may start from next fiscal year. In view of this development, the plans pertaining to improvement of distribution companies (DCs) of Wapda, which were based on the assumption of WB financing, hang in balance. These DCs had estimated Rs4-6 billion each for their improvement during the current financial year. The WB team informed the government side that there was no clear cut strategy or movement towards completion of the power sector reforms and corporatisation of Wapda. One of the most important conditions for $350 million structural adjustment credit from the WB was separate tariff for each company. This step has so far not been taken and two different tariff determinations towards this end have not been implemented by the government.

Shell plans to sell three power plants

August 4, 2005. Oil group Royal Dutch Shell Plc planned to sell three power plants belonging to its InterGen power generation joint venture to Kelson Holding LLC, a unit of Harbert Management Corporation. The group was selling three InterGen plants in Turkey to its local partner construction firm Enka Insaat. With the sales still pending, Shell is not disclosing any financial details

Oil-for-food probe may accuse UN director

 August 8, 2005. An investigation into the UN oil-for-food program will accuse for the first time the director of the defunct $67 billion operation of getting cash from oil deals. A UN-established Independent Inquiry Committee, led by former US Federal Reserve chairman Paul Volcker, plans to release on Monday its third interim report on allegations of corruption in the humanitarian program for Iraq, which began in 1996 and ended in 2003.

Benon Sevan, the executive director of the program, is to be accused of getting a kickback for steering Iraqi oil contracts to an Egyptian trader and of refusing to cooperate with the Volcker panel, his attorney Eric Lewis said. Sevan, a Cypriot with a distinguished 40-year career in the United Nations, is alleged to have taken bribes “in concert with” the brother-in-law of former Secretary-General Boutros Boutros-Ghali, Lewis said. Nadler is the brother of Leia Boutros-Ghali, wife of the former secretary-general. Abdelnour, the owner of AMEP, is a cousin of Boutros-Ghali, U.N. chief from 1992 to 1996. Boutros-Ghali himself has been questioned by the panel but is not linked to the bribe allegations. The Volcker committee, in its Feb. 3 interim report, expressed suspicion about four payments, amounting to $160,000, that Sevan had declared to the United Nations as funds from his now-deceased aunt.  AMEP earned some $1.5 million from oil allocations that the panel says Sevan steered to the Egyptian trading firm. Lewis said Sevan was being made a scapegoat to deflect criticism of Secretary-General Kofi Annan, whose son Kojo worked for the Swiss inspection firm Cotecna, which was awarded a lucrative U.N. contract in Iraq.

SNGPL plans coal gasification plant

August 6, 2005.  Karanchi, State-run Sui Northern Gas Pipeline Ltd (SNGPL) is planning to carry out pre-feasibility study for establishing Coal Gasification Plant at Bhakkar. The SNGPL was going for coal gasification with a view to tapping source of gas supply. Catalytic coal gasification was developed as a more efficient and less costly process to produce gas from coal. Methanol or synthetic gas can be produced from Thar coal at the coalfield and can easily be transported by pipeline throughout the demand centres. The SNGPL has recently invited proposals from reputed international consultancy firms to carry out the pre-feasibility study for establishing coal gasification plant at Bhakkar. The consultant’s scope of services include review of available data on coal mines in Pakistan, coal sample collection and testing for chemical and gasification properties and selection of appropriate location of plant. The Pak government had announced that a coal gasification plant was to be set up at Bhakkar, Punjab that would produce three million cubic feet of gas per day, consume 800,000 tonnes per day of coal and produce around 350,000 tonnes of coke. The estimated cost of the coal gasification plant is around Rs250 million ($4.198 million) and will produce gas by adopting the "vertical retort destructive distillation process."

Renewable Energy Trends


Exploiting solar energy to the optimum: NEST

Text Box: •	Solar lamps can bring qualitative change in the lives of people 
•	Kerosene or `killer fuel' not only pollutes but also leads to fire accidents 
•	The company introduces micro-finance credit schemes to enable villagers to buy solar lamps
August 5, 2005. According to Noble Energyes Solar Technologies (NEST) nearly 2.5 mn people suffer burns due to hazardous lighting of kerosene lamps in the country every year. These include some 35,000 children. The situation will not be so gloomy if only the poverty-ridden urban or rural populace switch over to use of solar lamps spending just as much they would to buy kerosene in a year. Indeed, solar energy can bring a qualitative change in the lives of the poor, more so for students. It is now on a mission to bring solar lamps to Government schools and is also planning to visit more than 92,000 schools in Andhra Pradesh to expose people to solar technology for basic lighting purposes and popularise solar lamps. To make lives of the villagers easy, the NEST has introduced micro-finance credit schemes. Micro-finance credit schemes with Grameena Bank will help villagers buy the lantern. The NEST, which handled 50,000 orders in the country for this year, is working on other projects like solar heating systems, solar pumps and solar streetlights.

ISMA signs pact with oil cos for ethanol supply

August 4, 2005. The Indian Oil Corporation Ltd (IOC), on behalf of all State-owned oil-marketing companies (OMCs), signed an agreement with the Indian Sugar Mills Association (ISMA) for sustained offtake of ethanol for blending it with petrol. Under the MoU, it has agreed to buy 434,000 kilolitres (kl) of ethanol from ISMA at a rate of Rs 19 a litre. Of the total quantity, initially 74,000 kl is being contracted for Uttar Pradesh. With this, the Petroleum Ministry was hopeful of rolling out petrol-blended with five per cent ethanol, which is a green fuel used in several countries such as Brazil, Australia and the US.

India had introduced blended petrol using ethanol derived from sugarcane three years back. But due to erratic supplies and issues of pricing, the OMCs had gradually petered off the scheme of introducing ethanol-blended petrol across the country in phases. Initially, under the programme supplying ethanol blended petrol is being revived in the nine sugarcane-producing states and four union territories including Maharashtra, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, Gujarat, Goa, Uttranchal, Haryana and Punjab.

Mysore-based firm to supply bio-crude to Britain

 August 4, 2005. Mysore-based Labland Biotechs has firmed up two long-term contracts with a UK-based firm for the supply of tissue cultured jatropha plants and jatropha seed-derived crude oil respectively. A global player in the field of plant biotechnology, Labland has its customer base in India, Australia, UK, France, Spain, Israel, Korea and Canada. Presently, it is diversifying its operations into the area of biodiesel. Under the long-term contract with the UK-based global firm, D1 Oils, Labland will supply one crore (10 mn) jatropha plants produced through tissue culture every year for the next 10 years for global distribution. It will also supply 10,000-50,000 tonnes of jatropha crude oil every year for the next 15 years. The British company will refine the crude and make it available globally as biodiesel. To meet the contractual obligations, the plant technology company is roping in farmers from different parts of Karnataka as well as from the neighbouring states under its contract-farming programme. With this, Labland proposes to add 65,000 acres of in the state every year for the next five years for jatropha cultivation, taking the total area under its cultivation to 325,000 acres by 2010. Labland, has R&D unit which is recognised by the Ministry of Science and Technology, Government of India. The company is looking for a tie-up with the Railways, apart from local customers, for the supply of biodiesel.

Solar traffic signals to be installed

August 2, 2005. Various campaign programmes will be conducted on the Rajiv Gandhi Akshaya Energy Day on August 20 for popularising renewal energy resources. On the occasion the Agency for Non-Conventional Energy and Rural Technology envisaged that a solar mobile phone charging facility would be opened at the Collectorate as part of the programme. Plans were also afoot to install solar traffic signal systems at important junctions in the town.


Rooftop plan for solar power production in China

August 8, 2005. A government-funded project, to turn the city's roofs into sites for solar-energy production, will soon be submitted for final approval. If the project becomes operational, 100,000 of the 6 million roofs in Shanghai, a city plagued by chronic power shortages, will be used to supply solar energy to local residents. The selected roofs will be equipped with a system that is able to convert sunlight into electricity by the end of 2015. Crystalline silicon solar cells inset onto large boards, that turn sunlight into solar energy, will be linked to the buildings' cables, which will then transmit electricity to the power grid. It is estimated that the 100,000 roofs will be able to generate at least 430 million kilowatt hours (kwhs) of electricity every year, enough to supply the city for nearly two days. All of the current 200-million-square-metres of rooftops could produce more than 28.6 billion kwhs of power, as each square metre is capable of giving out 143 kwhs every year.  This is equal to one-fourth of the city's power consumption for a year. The roof areas will expand as the city is constructing more houses, malls and factories. It costs at least 150,000 yuan (US$18,496) just to set up one roof. Currently, only some big enterprises in the city are using the 6.2 million kwhs of electricity generated by wind or sunlight. It is about two times that of the usual power price.



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[i] Shukla, P.R. 2000. ‘Future Energy Trends & Carbon Mitigation Strategies for India’.  India’s Energy: Essays on Sustainable Development. 

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