MonitorsPublished on Aug 23, 2005
Energy News Monitor I Volume II, Issue 9
Energy security in India: Issues and Policy Perspectives (By Dr. Samir R. Pradhan)

Section – II: Issues & Strategies

Broadly, energy security issues and strategies of an energy deficient country can be analyzed under two heads, such as domestic or national and foreign or international. The domestic or national strategies focus on the various institutional, technical, economic, social, political and security aspects of energy scenario within the country concerned and formulation of suitable policy accordingly, specific to a particular energy source or in an integrated manner to ensure security of energy supplies. The international or foreign energy strategy of a deficient country on the other hand incorporates conventional foreign policy instruments along with other techniques such as ‘economic or resource diplomacy’ to secure its energy security in the overseas to address the domestic resource constraints.

Theoretical Approach to Energy Security Strategy

Though there is no particular theoretical approach to energy security as such, yet the vast array of literature on this field and approaches and strategies of most of the energy consuming and importing countries make a viable reference to address the issue theoretically. One of the important strategies or policy perspective is based on the experience of European Union (EU) which can be incorporated while attempting a theoretical approach in the context of India. On the basis of the above theoretical underpinnings, the Energy Security Strategy Quadrant Model (ESSQM) can be constructed, which embodies the matrices of domestic as well as foreign economic and strategic variables to analyze a country’s energy security strategy.

The Energy Security Strategy Quadrant Model (ESSQM)

Text Box: Politics,Text Box: D,Text Box: A,Text Box: B,Text Box: C 














The above model reveals the various alternative policy variables influencing the internal as well as external dimension of a country’s energy security strategy.

At the national level, countries generally, devise and adopt policies with keeping in view certain objectives as determined by the domestic resource constraints:

·          Optimum utilization of available domestic sources of energy by diversifying the domestic energy portfolio, without compromising economic efficiency and competitiveness and environmental imperatives.

·          Energy efficiency and most competitive production process, so that the country can compete and sustain in the globalized economy.

·          Exploration and production of indigenous renwables keeping in view the discrepancy between the technical and economic horizon of this energy sources.

·          Judicious energy mix confirming the economy’s production pattern, etc.

The international or foreign energy strategy of a country involves adoption of different techniques and conventional foreign policy instruments to a country’s energy cause in surplus regions or countries at various levels, unilateral, bilateral, plurilateral, sub-regional, regional, or multilateral level. This envisages various strategies such as:

·          Possessing equity energy resources (oil or gas) abroad through joint venture or through direct investment

·          Clinching preferential energy deals through diplomatic and other means, especially on the basis of bilateral trade and aid, etc.

·          Cross investment in the respective energy sectors

·          Cooperative arrangement among consumers (such as IEA) and suppliers (OPEC) focussing on development, production, trading and other aspects of energy, etc.

·          Establishment of institutional arrangement such as Energy Charter Treaty (ECT) to foster regional energy cooperation

·          Formation of Consumer-producer framework cooperation such as the International Energy Forum Secretariat (IEFS) by Saudi Arabia.

On the basis of the above theoretical background, the succeeding section attempts to analyze the Indian energy scenario. The focus will be on energy issues both at domestic or national level and foreign or international level, and then focus on the various policy or strategic options before India at the respective levels.

Domestic or national Energy Security Issues and Strategies

Though albeit late, energy issues have taken centre stage at the policy planning level in India recently owing to the imminent domestic resource crunch, overwhelming dependence on imports and consequent price vulnerabilities of energy imports and future trends of economic growth; yet energy security issues commend to be articulated comprehensively to delineate pragmatic policy perspectives. It has been remarked by the Indian Parliamentary Committee on Energy, 1997, that, “The major issues in the energy sector are the absence of an integrated long-term policy; inefficiencies in energy supply and utilization; an unsustainable energy mix’; acute scarcity of developmental capital; a lack of rational energy pricing; insufficient environment conditions….”

The energy sector development strategies as proposed in different government publications include increasing the production of coal and electricity, accelerated exploration for hydrocarbons, equity oil and gas abroad, introduction of reforms through restructuring/deregulation of the energy sector to increase efficiency, demand management through introduction of energy efficient technologies/processes and appliances. The process of producing, transporting, consuming and distributing energy has a significant impact on the environment. So pollution abatement processes would form an important aspect of the development of energy sector.

1.        Development of Globally Competitive, Efficient and Environment-friendly Energy Sector

Since independence, the energy sector in India was fully regulated and controlled by the government. More often the sector was also used for achieving certain overriding socio-economic objectives of the population. As a result, the pricing strategy was based on these overriding compulsions rather than on sound market principles, thereby leading to suboptimal utilization and investment decisions. This resulted in glaring inefficiencies and distortions, with unsustainable subsidies burden on the one hand and underdevelopment of the sector to cope with the emerging challenges of the new economy, on the other hand. These imperatives made way for meso-economic reforms in the energy sector, subsequent to the general economic reforms initiated in the country in the year 1990-91. This followed by deregulation, restructuring and entry of private players both domestic as well as foreign into the vast Indian energy sector in a phased manner. Though there are some marked improvement and progress achieved in some sectors after the reforms, especially in hydrocarbons, coal and electricity sectors, yet there are still daunting challenges in order to strengthen domestic/internal energy security. There are certain issues, which need exhaustive inquisition and suitable policy designing to secure India’s energy future:

·          The Imperative of an Integrated National Energy Policy

There is urgent need of integrated energy planning mechanism in India, as the prevailing structure is haphazard and there is no coordination and correlation among different energy sub-sectors and their respective administrative organs, making the reform process asymmetrical.  The reform process in different energy sub-sectors needs to be synergised in order to leverage the mutually inclusive linkages for the overall development of the energy sector. For instance, power sector reform is suffering from slow paced coal sector reforms, while internal coal movement crucially depends on tariff rationalization by the Railways. Thus, the imperative is sequencing and integrating reforms in a comprehensive manner to absorb the cyclic cataclysmic effects and make the sector attractive for more capital infusion. The imperative of an integrated national energy policy vehemently stress the need for designing suitable institutional framework consisting of regulatory agencies, well defined rules and regulations and visionary policy guidelines.

·          Judicious Energy-mix: strategically  positioning the Role of Hydrocarbons (oil and gas)

Developing a judicious energy mix confirming the requirements of the emerging economy based on the mosaic of indigenous resources and imports is of utmost importance. The energy mix pattern should clearly delineate the role of hydrocarbons, as there is inevitable trends of surging demand for these energy sources in the short to the medium term horizon. In this respect, as can be deciphered from policy perspective there is utmost need of accelerating reforms and synergizing policies in the hydrocarbon sector. The major challenge in this regard is to facilitate the adoption of a proper energy mix and transition of the Indian energy portfolio in favour of more competitive and environment friendly energy sources such as, natural gas.

·          Optimal Utilization of Indigenous Coal Grades and adoption of Clean coal Technologies and Zero Emission Technologies (CCT & ZET)

It is a well-conceived fact that India’s vast coal reserves are underdeveloped and underutilized. The need is to harness policies in the coal sector to optimally allocate the energy sources for diversifying the domestic energy portfolio. Though coal is environmentally malignant, yet there are sophisticated technologies such as clean coal technologies that can be adopted for better utilization of coal, especially in electricity generation. In this respect, the Chinese experience can be replicated. Moreover, generating finance for such projects can be done through the “Flexibility Mechanisms” like the Clean Development Mechanism included in the Kyoto Protocol.


·          Increasing Domestic Supply through Accelerated Reserve Accretion and Cent Percent Exploration Coverage

One of the main thrust areas of focus for enhancing internal energy security should be on the complete exploration of Indian sedimentary basins and accelerated reserve accretion. In this regard exploration in new frontiers such as deep sea, ultra-deep sea and other difficult terrain should be undertaken on a priority basis. Moreover, enhance oil recover scheme should be adopted to increase the reserve base of existing fields. Though the efforts of the past few years are paying off handsomely, the challenges are daunting ahead.

·          Self Sufficiency in petroleum products emphasizing on a proper mix and commercial viability of exports

Consistent with increasing trend of petroleum product demand in the coming years, stress should be placed on the refining sector and meeting the current demand and expected incremental demand, particularly from the transportation sector and industrial sector. Though presently, India is self sufficient in products, yet, there are emerging issues such as the global low liquidity of light crude and consequent dependence on heavy crude, which pose challenges in this sector. Emphasis should be placed on refining addition, technical upgradation to handle heavy crude, especially supplies from the Gulf and undertaking exports of products on purely commercial basis to regional countries such as the ASEAN countries.

·          Facilitating investment in oil and gas sector infrastructure to meet the incremental demand and supply

On the basis of current as well as future demand and supply trends in the oil and gas sector, the imminent requirement of infrastructure for distribution poses challenges. There should be coherent policies for attracting investment for building the basic infrastructure such as pipelines, terminals, etc. Policy should provide a level playing field to all stakeholders, viz., PSUs and Private domestic as well as foreign players, both upstream and downstream players.

·          Operational Flexibility to refiners in crude sourcing and risk management through hedging

The imperative is to focus on ‘risk management’ rather than on ‘risk avoidance’. In the present environment of global financial integration, players should strive to use financial instruments and mechanisms such as hedging to insulate against spurious price volatility. In this regard, there should be operational flexibility for independent refiners and other players to manage the risk. It is a fact that India is a victim of the so-called, ‘Asian Premium’, churning out huge sums for its voluminous oil imports, due to the structural and trading rigidities in the Dubai market. Encouragement for the establishment of private sector as well as public sector oil and gas trading firms for better risk management seems to be the right policy perspective.

2.       Establishing Regulatory and Legislative Bodies for reenergize Energy Sector reforms

It is conventional to have regulatory institutions put in place before initiating deregulation of energy sectors. The role of regulatory institutions, rules and legislation become imminent in the case of Indian energy sector, which is in the present phase of ‘identity crisis’, one of the stage characteristics of deregulated sectors worldwide. The role of regulatory body is to facilitate smooth functioning by balancing the roles, functions, and interests of each stakeholder, thereby promoting efficiency and competitiveness for the overall development of that sector. In India, this aspect is in a state of flux, due to the ambiguous nature of operations, functions and management of different energy sub- sectors, without any nodal agency at the apex. This issue needs to be analyzed seriously and decision making should be expedited.

3.       Strategic Stockpiling

Strategic stocks play a crucial role in insulating a country against emergency vulnerabilities. This buffer stock can act as a deterrent at times of higher oil prices as well at times of extra ordinary exigencies by drawing stocks form the reserve. This is also captive reserve. But it involves huge costs to establish, maintain and manage such buffer stockings. Though the Government has given the nod to establish such facilities of 5 million tons of oil equivalent, equivalent to 15 days of the country’s consumption requirement, there is no work initiated yet. It is therefore prudent to maintain the strategic stock, which can act as a real cushion against any adverse eventualities.  As per one estimate, India roughly needs 105 million tonnes of oil per year, with only 30 percent coming from domestic production. At present, companies stock crude oil for 23 days (including 11 days of stocks in transit), petrol for 53 days, kerosene 51 days, cooking gas 19 days and jet fuel for 88 days.

4.       Under-utilization of economically viable domestic energy sources and lack of emphasis on Renewables

India is richly endowed with vast potential economically viable energy sources such as hydropower, nuclear power, captive power, wind power, and other renewables. But the major problem is that these sources of energy are underdeveloped and in many cases under utilized due to faulty policies in the past, resulting in a wide spread between the technical and economic horizon and thereby making these sources inaccessible. The imperative, therefore, is pragmatic policy formulation in order to harness these economically viable energy source to strengthen the energy security quotient.

5.       Accelerating the Development of Unconventional Energy sources

The feasibility and viability of some unconventional energy sources such as gas hydrates, coal bed methane, hydrogen energy, ocean energy, etc, are scientifically proved and the efforts should be channeled for accelerating the development and utilization of these sources.

6.       Emphasis on Energy Conservation and Efficiency without compromising Economic Competitiveness

According to a World Bank Study, Indian industry has the potential to save 20 to 30 percent of total energy consumption. In fact most of the energy intensive industries and other sectors such as agriculture are grossly energy inefficient. This can be observed from the trends of energy intensity of the Indian economy. The need is therefore to focus on energy conservation and energy efficiency, for which there should be a comprehensive technology policy framework. Moreover, It may be mentioned that, deregulation and privatization in a particular energy sector has led to greater awareness and concern for efficiency and conservation among the people.

7.       Affordability Issues of Energy Security

Fulfilling the energy requirements of the bulging population is really a Herculean task in the coming years. Providing reliable, clean and reasonably priced energy to the whole population requires policies taking cognizance of the socio-economic profile of a vast majority living below the poverty line. In a deregulated scenario, where the free play of market forces control the rule of the game, this section becomes highly vulnerable to the cyclical fluctuations of market fundamentals. Though the government over the years and now have resorted to subsidize certain energy provisions, its task has become onerous and complex in the deregulated scenario, in which, to attract greater flow of investment and instill competition for efficiency, it simply cannot override the socio-political rigidities. The result is usual policy stationery, impairing the efficiency and full-scale development of the energy sector.

8.       Emphasis on Intensive Research, Information Dissemination, Inclusion of Think tanks in policy making

It is acknowledged that the Indian energy sector is under researched and there is no concrete database or extensive study in this sector. There is overwhelming need for providing impetus for intensive research by involving interdisciplinary think tanks in the country as well as outside to disseminate knowledge and information in the public domain to make necessary policy consensus.

(… to be continued)

Knowledge Base: Key to Energy Security


Status of Energy in India: Indian energy sector today is mainly driven by the coal, oil and gas (coal is dominant in them, refer fig. 1). At the end of the year 2003 remaining coal, oil and gas, proved reserves[1] (deposits which can be extracted with probability one) of the country are at 84.4 billion tones, 5.6 billion barrels, and 0.85 trillion cubic metres respectively. So, if we consider the statistics obtained by dividing these reserves by the corresponding productions at the end of the same year then it is clear that at the production level of year 2003 we will have coal remaining for next 230 years, oil remaining for next 19-20 years and gas for next 28-30 years. Also if we look at the projections for the Demand - Consumption gap[2] (based on the range of new policies to address environmental problems) in table 1 (given below) we find that energy sector would be dominated by coal in coming years. For optimizing these gaps India is now vying drastically for acquisitions of energy properties (oil, gas and coal field) in various foreign countries. In case of Renewable energy (such as solar photovoltaics, solar thermal, wind, biomass and waste, small hydro etc.) India has vast potential. Based on these technologies India has harnessed less than 5000 MW[3] (refer fig. 2) up to March 31, 2004 which is only 4 per cent of the total India’s total Installed capacity.


Table: 1

Demand-Consumption Gap: Alternate Scenario



















Fig. 1

Fig. 2

Impact of Knowledge Base on the Energy Sector:

From the prediction of unknown reserves to drilling and exploitation of the existing reserves of the fuels (oil, gas and coal) many domestic energy companies now are using the latest efficient technologies, which require the large applications of Information Technology. The recent steps like e-auction of coal mines and e-bidding for NELP will not only fast track these processes but will also curb the black marketing and reduce the intervention of mafia in the loss making coal mines. Also on the front of reducing Transmission and Distribution losses (T&D losses) India is far behind from the foreign countries. In India T&D losses account for almost 20-22 per cent whereas in US it is below 10 per cent. As the suggestions made by the World Bank report on power sector reforms by highlighting the examples of those countries that established the landmark in different areas of power sector reforms (such as California’s bad and Bolivia’s great experience of privatization of power sector, Brazils rural electrification experiences etc.), government has taken the initiatives like it send a taskforce comprising officials from the National Thermal Power Corporation, Central Electricity Authority, Power Grid Corporation of India Ltd. and Ministry of Power to US, Norway, Canada, UK etc. to study the knowledge base in the power markets in these countries; used the knowledge of US-UK type power reforms in Tamil Nadu. Distribution Reforms, Upgrade and Management (DRUM) project of USTAID which is also utilizing its knowledge base to train the personnel in the energy sector in the different countries including India is another example where knowledge base is more important.


What role  it can play:

Since the resources of fossils fuels (coal, gas and oil) are depleting very rapidly combined with the steep price hike and also the increased awareness on environmental concerns it is uneconomical for India to depend completely on these fossils fuels (i.e. by making investments in different countries for energy security). Instead it is more economical for India to expedite the process of harnessing the renewable potential and also take steps to optimize the Demand-Consumption gap while vying for energy security to some extent in different countries. That is where Knowledge can play a big role.

Since today, India has 2nd place in number of biogas plants, 3rd in Solar photovoltaics technology, 5th in wind energy production, 6th in biomass Installed capacity for power generation worldwide. Considering some facts like

·       Using the new technologies in Exploration & Production (such as Basin modeling in under explored areas, 3D seismic survey and imaging, Enhanced oil discovery techniques, Integrated reservoir studies, Deep offshore drilling etc.) on world wide scale not only the success rate of exploration and delineation wells has improved from 1:10 (25 years ago) to 1:5 or less but also the recovery rate of the oil fields is increased from 15-20 per cent (30 years ago) to 30-50 per cent now. So, India must utilize the knowledge base available around the world for latest E&P technologies and also promote domestic energy sector companies, which have taken some steps in this direction (like ONGC has created a Technology Scouting Cell to know what is happening in field of E&P technology).

·          Using the fact that a high Plant Load Factor (PLF) by itself is not a good measure of efficiency of a power plant. A better measure is Availability (denotes the readiness of a plant to generate power to meet demand) of a power plant. e.g. A plant with PLF 60 per cent, with an availability of 60 per cent, is not as good as a plant with a PLF of 60 per cent with an availability of 80 per cent. Since one per cent increase in PLF load requires about 4 mt more coal so simply by increasing PLF without increasing Availability is wastage of precious fuel.

·       Using wind technology India can save the coal upto 10.6 lakh[4] tons per year and thus reduce the pollution particulates by 2.7 million tones[5]; Efficiency of wind machines is that it can convert 30 to 40 per cent of kinetic wind energy into electricity whereas a coal power plant converts about 30 to 35 per cent of chemical energy in coal into usable electricity; Revlite Energy Solutions has recently developed a technology (Wind Mini Power Stations) for cluster of villages which on an average, costs Rs 5 millions and has the power generating cost of Re 1 per Unit (while the cost for setting up of conventional plant is ranges from Rs 25-100 millions). This technology is not only a low cost eco-friendly technology but can also generate jobs for millions of rural people.

·       Making the process of allowing investments, by developed countries in providing clean and energy efficient technologies, in India easy and fast i.e. taking full advantage of Kyoto-Protocol analyzing knowledge base on the latest technologies available in leader countries (like Germany, Spain, US etc.).

·       Since the projections for India for year 2020 in the website of World Energy Council suggests that under the 3 scenarios, refer table2, [Business as Usual (BAU), Environmentally constrained Scenario (ENV), Energy Efficient Scenario (EEF)] transport, Industry and Households are the main consumers of energy.

Sectoral Energy Requirement in Different Scenarios for India



Sectorwise Consumption











Total Demand
















































































So, 1) To make aware Industries/remote islands  (that one litre of diesel/Kerosene can be saved by using 4kg of biomass which in turn lead to fossil fuel saving, reduced carbon emissions and of course great saving in money for these industries) Govt should promote captive power generation by using biomass (like, many small sector units using bagasse (a by product of sugar cane) based biomass cogeneration, and rice husk based biomass gasifier etc.).

2) To make aware transport sector Govt should boost the steps for promoting biofuels (such as ethanol which is extracted from molasses (it is a by product of sugar and available in surplus), biodiesel (extracted from Jatropha Curcas, Karanje, Honge seeds etc.). They both can be added to petrol/diesel by 3-10 per cent by volume) which again can result reduced carbon emission, low oil import bill. Since as for year’ 99-2000, out of the country’s total geographical area of 329 Million Hectare, unused land area is 70 Mha of which 23 Mha, although is arable, is under non-agricultural uses and a large part of this 23 Mha land is owned by the Indian railways can be utilized for the plantations of these biodiesel seeds which, in turn, not only generate jobs for millions of rural people by engaging in production of these bioseeds but also cut railways needs for diesel (as per Railway department experiments are successful on Jan Shatabadi Express which is running on the 5 to 10 per cent blend of biodiesel).

3) To make aware households government should promote

a)       Gasifier cook stoves (which can be used by women in the rural and remote areas for cooking so that it will reduce the labour and the time of rural women to go far away in search of fuel. It also can be used for the victims of natural calamities like Sunami, earthquakes etc.) which can save more than 25 per cent biomass when compared with conventional burning and produce smokeless fuel gas.


b)       Programs such as promoted by BESCOM to give CFL (Compact Fluorescent Lamp) which is 20 times costlier than a ordinary bulb but can save 70 to 80 per cent of electricity i.e. a 15W CFL gives same amount of light as it is given by 60W bulb and if both are used for four hours a day then CFL will consume 22 units per year while the bulb will consume 88 units per year)[6] to households with a price less than market price and also in monthly instalments which not only result in a monthly savings in electricity bills for households but also result a cut in consumption. Also the issue of power rating of each gadget (electronic and electrical consumer goods) must be urgently implemented which can give each person some knowledge about energy efficiency about the gadgets and thus consecutively can be able to optimise their electricity consumption.

c)        Using e-Chaupals type programmes with the help of Panchayats to make rural persons aware of how to promote and sustain a renewable based power project in their village (i.e. for long term sustainability of any renewable energy project and to make the project viable it is necessary that commercial activity by the villagers must also be there).

India can collate and analyse the experiences related with energy issues available as a knowledge base around the world and can use them to deal with its energy security issues. This, as a one option, can be done by the recently created National Knowledge Commission, headed by the Mr. Sam Pitroda.

(Views are personal)

Akhilesh Sati – Research Asstt. – ORF Energy








CBM output by ‘8: ONGC

August 17, 2005. COAL bed methane (CBM) from ONGC's Bokaro block — held jointly with Indian Oil (20 per cent) — will start flowing in 2008-09. The two major beneficiaries of the find are expected to be SAIL's Bokaro Steel Plant and the Damodar Valley Corporation. Several private players are also interested in the linkage. Although 45.03 bcm reserve potential has been ascertained, spread over 95 sq km, the recoverable reserve and production capacities would be confirmed over time. The company has drilled two exploratory wells, BK1 and BK2, in Bokaro using its own rig. Coal seams have been identified in BK1. In BK2, seven gas-bearing coal seams were found at a depth of 1,067 metres. The wells are currently being tested, following which the company will drill pilot production wells to ascertain the capacity. Meanwhile, ONGC is awarding contracts for exploratory and development drilling in four blocks in Jharkhand. Under the new production plan, ONGC will produce a minimum of 0.3 mcm CBM a day for three years. The first CBM-flow is expected at the Parbatpur block in 2006-07. The director general of hydrocarbons (DGH) has estimated a production of 25  mn standard cubic metre of CBM in the next five years.


IOC may post $4.58 bn loss for ’05-06

August 23, 2005. Indian Oil Corporation is expected to post Rs 20,000 crore (Rs 200 bn) loss this financial year if it is not allowed by the government to raise retail price of petroleum and other petroleum companies agree to share the subsidy burden. This will be first instance of loss in the history of this public sector unit. The loss would, however, come down to Rs 14,000-15,000 crore (Rs 140-150 bn) if other oil companies agree to share the subsidy burden. 

Gujarat to set up LNG terminals

August 19, 2005. The Gujarat government is setting up two LNG terminals along the Kutch coastline in the state. Envisaging a large front-end investment of Rs 1,600-1,700 crore (Rs 16-17 bn) for setting up the terminals at Kutch, the state government has initiated discussions with petroleum majors British Gas and IndianOil to participate in the project. With an initial terminal capacity on 2.5 mmscmd, state government has identified several prospective sites near Mundhra, between the Navinal Island and the Bocha Creek for the project. The government is exploring options for import of natural gas for the proposed LNG terminal. The state government is pursuing discussions with countries like Qatar, Oman, Kuwait, Yemen and Turkmenistan, which have substantially large reserves of natural gas. Currently, the state government is pursuing dialogue with Abu Dhabi Gas Liquification Company (ADGAS), Qatargas and Ras Laffan LNG for proposed LNG project at Kutch. The study also includes the most critical issue of pricing of LNG in the state. According to the agreement on ‘principal terms’ for Oman-India gas pipeline, the base price of gas delivered at Bhachau in Kutch was fixed at $2.4 per mmbtu at crude price of $15 per barrel and $2.6 mmbtu for crude price of $18 per barrel. Based on 10 per cent customs duty, 3 per cent of total investment cost dedicated to operations and maintenance, and expected rate of interest of 16 per cent, the expected price of LNG would be between $3 and $3.5 per mmbtu, prior to regassification.

Cabinet approved KRL merger with BPCL

August 19, 2005. The Cabinet Committee of Economic Affairs approved Kochi Refinery Ltd’s merger with Bharat Petroleum Corporation Ltd. The finance ministry had expressed reservations about the valuation of KRL and had also questioned the petroleum ministry’s proposal to transfer BPCL’s holdings in KRL to a trust once the merger was completed. It had instead suggested that the shares be extinguished. The board of the two companies had approved a swap ratio of 4:9 in January. BPCL holds 54.8 per cent in Kochi Refinery Ltd. Following the merger, the government holding in BPCL will fall to 54.93 per cent from 66.20 per cent. 

IOC to buy Iran firm's stake in Chennai Petro

August 19, 2005. Indian Oil Corporation Ltd is in talks to buy 15 per cent stake of National Iranian Oil Co in Chennai Petroleum Corporation Ltd. IOC would initiate a proposal to merge Chennai Petroleum with itself after acquiring the stake of the Iranian company. IOC is in the process to merge its subsidiaries with itself. The stand-alone refineries to be merged with IOC are Bongaigaon Refinery and Petrochemicals Ltd and Chennai Petroleum. IOC is also in the process to merge IBP Co Ltd, and Indian Oil Blending Ltd with itself. 

RIL hit in ministries' crossfire over excise

August 17, 2005. The dispute between the ministries of finance and petroleum over applicable excise duty on kerosene and LPG refuses to die down with Reliance Industries Ltd receiving a notice from the excise authorities. The private sector refiner has been asked to pay a differential duty of Rs 494.30 crore (Rs 4.94 bn) with equivalent penalty and interest for the period between July 2000 and February 2005 for selling kerosene and LPG to Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum. The situation has arisen since excise duty is being calculated on the transfer price and not on the end price. The transfer price is the one at which petroleum products are sold to oil marketing companies (OMCs) by refiners, and is based on the import parity price. For diesel, petrol, LPG and kerosene, it is higher than the price at which the end consumer buys them. RIL has conveyed to oil companies that if the excise authorities do not rectify the calculation, the liability of any additional excise duty with interest and penalty will have to be borne by the OMCs. Of the Rs 494.30 crore (Rs 4.94 bn) demanded from RIL, IOC’s share comes to Rs 260.12 crore (Rs 2.6 bn). The OMCs have been demanding that since the prices of LPG and kerosene continues to be administered by the government, the determination of the assessable value of these two products should be the same as the one prevalent during the administered price mechanism regime prior to April 1, 2002. 

IOC backs out from bid for Nigerian firms

August 17, 2005. Indian Oil Corporation has withdrawn from the race for acquisition of three Nigerian refineries but has submitted a bid for acquiring Turkey’s national refiner Tupras. Tupras owns four refineries - Izmit, Izmir, Kirikkale and Batman - with a combined capacity of 27.6  mn tonne per annum. With the total processing capacity of all refineries in Turkey amounting to 32 mt a year, Tupras, on its own possesses some 86 per cent of the country’s total refinery capacity. It also owns petrochemical production capacity of 1,53,000 tonne per annum. In November 2003, IOC submitted an expression of interest (EOI) for acquiring 51 per cent or more stake of Nigerian government in each of the three Nigerian refineries - Kaduna Refinery and Petrochemical Complex, Port Harcourt Refinery Complex and Warri Refinery and Petrochemical Complex. IOC has also submitted EOIs for setting up a grassroot refinery in Algeria and modernisation of Aden refinery in Yemen.

Transportation / Distribution / Trade

REL eyes GAIL gas line for UP project

August 23, 2005. Reliance Energy has approached GAIL India for transporting gas for its 4000 MW power plant coming up at Dadri in Uttar Pradesh. GAIL has offered solutions to transport gas from the Krishna-Godvari (KG) basin to Dadri by using a part of the Hazira-Vijaipur-Jagdishpur (HVJ) network. REL was looking at pipeline connectivity of gas for transporting about 20 MMSCMD of natural gas required for the plant by 2008. REL has plans to expand capacity of the Dadri power plant to 8000 MW, thereby, increasing the demand of gas to 40 MMSCMD. GAIL’s proposed pipeline from Kakinada will connect to the HVJ pipeline system at Vijaipur in Madhya Pradesh for supply of the KG basin gas to REL’s power plant at Dadri and other gas markets in North India. 

GAIL to join Turkey to Austria pipeline projects

August 22, 2005. State-run gas transporter GAIL (India) Ltd aims to pick up a stake in a natural gas pipeline project, Nabucco, that will run from Turkey to Austria, as part of India's push to increase its foreign energy interests. If accepted, GAIL will join five other consortium members: state-owned Turkish pipeline company Botas, Bulgaria's Bulgargaz, Romania's Transgaz, Hungary's MOL Natural Gas Transmission Company Ltd and Austria's OMV Gas GmbH. The project, Nabucco Company Pipeline Study GmbH, is expected to cost 4.5 billion euros (Rs 240 bn) and will begin operations in 2011 with a capacity of 4.5 billion to 13 billion cubic meters a year. The pipeline will run 3,300 kilometers and its potential gas suppliers are Iran, Azerbaijan, Kazakhstan, Turkmenistan, Egypt, Iraq and Syria.

GAIL may pick stake in Chinese firms

August 22, 2005. GAIL India Ltd is eyeing stake in two Chinese firms, Beijing Gas Co and Beijing Jianggang Gas, for implementing a project to supply CNG to Beijing by 2008. China has decided to introduce CNG in Beijing and convert entire transport vehicles to gas by 2008. Currently, 20,000 buses and 80,000 taxis run on liquid fuels in Beijing. Beijing Jianggang Gas is a joint venture formed by China Gas Holdings Ltd and Beijing Gas Co for supply of natural gas in the six suburb districts of Beijing. GAIL holds 10 per cent stake in China Gas Holdings, which has a 40 per cent stake in Beijing Jianggag Gas Co. GAIL has also been offered three cities in mainland China - Wuhu city in Anhui province, Huainan and Yichang cities in Hubei provide for CNG projects. The projects would be executed by joint venture between GAIL and China Gas Holding.

Qatar to supply more LNG to India

August 19, 2005. Qatar is planning to supply additional 1.25 mt of liquefied natural gas (LNG) to India on a short-term basis. Qatar has agreed to sign an agreement keeping the windows for price and quantity open. The supply of 1.25 mt of LNG to India on a year-to-year basis will be in addition to the 7.5 mt already contracted from Qatar for supply over a 25-year period. India is currently able to meet only half of its gas requirements, with 65  mn standard cubic metres per day (MMSCMD) of supplies available from domestic sources and about 25 MMSCMD available through regassified LNG. Qatar has been supplying 5  mn tonnes of LNG to India since January 2004 under a 25-year contract, with supplies being received at Dahej, the first LNG terminal to be commissioned in India. In addition, Qatar's RasGas Company Ltd has been contracted to supply 2.5 mt of LNG at the Kochi terminal of Petronet LNG Ltd (PLL), once it is completed by 2009-end. This additional 1.25 mt of supplies from Qatar on a short-term basis will help bridge the gap till the 2.5 mt supplies become available. Moreover, the Dahej terminal is in the process of being expanded to handle 10 mt of LNG re-gassification, which would make available spare handling capacity. The supply of additional LNG is likely to begin from next year and the commercial terms will be negotiated on an annual basis.

5 consultants in fray for Iran pipeline

 August 19, 2005. The government will initiate action on building a pipeline from Iran via Pakistan by selecting financial consultants for the project. Five consultants are in the fray for the multi-billion dollar project after about two dozen bid documents were sold. IOC and GAIL (Ltd) had called for bids for appointment of consultants and the winning bid will be decided next week after the consultants make a presentation to senior petroleum ministry. Once the selection is made, bid prices will be considered. The consultants would be required to suggest project models for the execution of the project, based on which the petroleum ministry would seek Cabinet approval for participation in the project, which is estimated to cost around $7 bn. The time-frame for the consultants is likely to be two to two-and-a-half months. The appointed financial consultants will also try to work out a formula for determining the delivered price of natural gas at India’s border though a final settlement will be reached only after discussions among the state-owned companies. 

Myanmar offers gas at $2.52 per mmbtu

August 17, 2005. The Myanmar government has indicated a well-head price of $2.52 per  mn metric british thermal unit (mmbtu) for gas exports to India. Depending on how it is transported — through a pipeline or the LNG/CNG route — there will be additional processing and transportation costs which will be built into the well-head gas price. The price offered by Myanmar is in line with what it is selling gas to Thailand at. Negotiations will now be carried out with Myanmar considering that the gas being imported to Thailand is rich whereas the block A-1 gas, where both OVL and GAIL (India) Limited have 30 per cent equity, is lean. India will also seek a volume discount while negotiating the final price of gas because the volume of gas exports to Thailand is 10  mn metric standard cubic meters per day (mmscmd) whereas off-take from A1 block (including the Myanmar government’s share) is between 22-28 mmscmd. Three options are being explored to import gas from Myanmar — the north-east pipeline route, sea route to bring the gas in compressed form or the LNG mode.

MoPNG aims for LNG from Egypt

 August 17, 2005. The petroleum ministry (MoPNG) is evaluating an offer to import 1 mtpa of LNG from the Damietta project in Egypt. The offer has been made to the ONGC for an immediate offtake of 1 mtpa of LNG, to be scaled up to 5 mtpa following the completion of the pipeline from Nile Delta to Damietta. The petroleum ministry had asked Petronet LNG Limited (PLL) to jointly pursue the project with ONGC. Currently, PLL has an unutilised capacity of 1.25 mtpa, over the 5 mtpa capacity at Dahej, that can be used for imports from Egypt. The plant at Damietta is considered as one of the world’s largest LNG plants and is owned by Spanish Egyptial Gas Co (SEGAS), a joint venture between the Spansih Union Fenosa and the Italian ENI. SEGAS is the operating company and holds 80 per cent, while the two state owned Egyptian companies — Egyptian Natural Gas Holding Company (EGAS) and the Egyptian General Petroleum Corporation (EGPC) hold 10 per cent each. The complex is presently producing around 5.5 mtpa of LNG, to be expanded by another 5.5 mtpa by 2008. The LNG offer to ONGC was out of the Egyptian government’s share of gas from the project.

Policy / Performance

NTPC willing to buy gas from ONGC

August 23, 2005. NTPC, which is having to operate some of its plants at half the capacity, is now willing to pay a premium of 240 per cent to buy additional gas from ONGC. NTPC has asked ONGC for about 6  mn cubic metres of gas at prices up to $4.08 per mmbtu, as against the current gas price of $1.2 per mmbtu. This would result in a huge escalation in power tariffs as higher fuel costs will be a direct pass-through to consumers. As of now, NTPC and other state-run power stations buy gas at highly subsidised rates that are government-controlled. However, given a choice between no power and expensive power, NTPC has decided to opt for the latter. ONGC, in partnership with Reliance and British Gas, is producing around 10 mmscmd of gas from Tapti Panna and Mukta fields. However, most of this this gas is sold at much higher rates as prices are not controlled by the government. Gas prices in the country vary between $1.2 per mmbtu (controlled price) and $4.62 per mmbtu charged by some of the operators. The ONGC-Reliance-BG consortium has been selling almost 6 mmscmd at about $4.08 per mmbtu. NTPC’s willingness to pay this premium price only highlights the desperate state the company is in. Fuel shortages in the gas and coal sectors has led to generation loss and power shortage.

Oil firms to buy bio-diesel from growers: PCRA

 August 23, 2005. A major policy move to buy bio-diesel from growers at the rate of Rs 23 per litre was in the offing as the central government would direct oil companies to purchase it through its outlets in the country. Union petroleum ministry and the oil companies, including IOC, BPL and HP, would sign an agreement and make an official announcement to this effect soon. The bio-diesel’s cost is around Rs 32 per litre after refining, however, the Centre would provide subsidy on it to the oil companies. Indian railways also decided to run freight trains on bio-diesel. The requirement of diesel was expected to grow from over 39  mn metric tonne (mmt) in 2001-2002 to 52 mmt in 2006-07 and about 66 mmt in 2011-12. The domestic supply of crude oil will satisfy only about 22 per cent of this demand and the rest will have to be met from imported crude. Bio-diesel extracted from jatropha plants results in substantial reduction in unburnt hydrocarbons, carbon monoxide and particulate matters.

ONGC mulls counter offer for PetroKazakh

Text Box: • CNPC’s original bid was lower than ONGC-Mittal’s by $200-300 mn
• ONGC had submitted a conditional bid; CNPC’s was unconditional
• CNPC was allowed to revise offer; ONGC-Mittal was neither given a chance to match nor to 
 August 22, 2005. Having been outbid by China National Petroleum Corporation (CNPC) in acquiring the Canadian oil firm PetroKazakhstan, the ONGC-Mittal combine is now evaluating the possibility of submitting a counter offer. CNPC is reported to have raised its offer to $4.18 billion compared to ONGC-Mittal’s bid of $3.98 billion. The deal is not completely over and ONGC can always submit a counter offer like CNOOC did for Unocal. PetroKazakhstan announced the signing of an “arrangement agreement” with CNPC for a transaction value of $4.18 billion. The agreement, however, incorporates a clause which allows the board of directors of PetroKazakhstan to accept and recommend a superior proposal upon payment of a termination fee of $125  mn. Under the agreement, CNPC also holds the right to match any such superior proposal. The original bids for PetroKazakhstan were submitted on August 15, when CNPC trailed the ONGC-LN Mittal duo. While CNPC revised its bid, the ONGC-Mittal combine was neither given a chance to match the bid, nor was it allowed to re-bid. PetroKazakh accounts for about 12 per cent of oil production in Kazakhstan – which has 3.3 per cent of the world’s reserves. It is a vertically integrated, international energy company. The company is engaged in acquisition, exploration, development and production of oil and gas, refining of crude oil and sale of oil and refined products. It has proven and probable crude oil reserves of 550  mn barrels in the South Turgai Basin in the south central part of Kazakhstan and its production averaged 151,102 barrels of oil a day in 2004. 

NTPC to scout abroad for LNG business

 August 21, 2005. National Thermal Power Corporation (NTPC) is moving fast on its plans to enter the LNG business. It is currently engaged in discussions with leading oil and gas companies from Australia, Nigeria and Indonesia for equity participation in the entire LNG value chain. The discussions have also been held with Petronas of Malaysia and a senior-level team from NTPC will shortly leave for Egypt and Iran to discuss investment opportunities in the business. Methanol, Australia, has shown keen interest in NTPC’s participation in their gas fields for exploration and in their future LNG liquefaction venture. Some other well known companies in Australia have indicated that minor equity stakes (up to 10 per cent) in LNG liquefaction ventures can be considered while finalising the terms and conditions in the LNG sale and purchase agreement. Other countries on NTPC’s radar are Oman, Qatar, UAE, Yemen, Saudi Arabia, Myanmar and Libya.

NTPC has seven gas-based power stations with an installed capacity of 4,017 MW. Of these, the 360 MW Kayamkulam project has no access to gas/LNG and is presently fully dependent on costly liquid fuels like naphtha. The gas requirement for the six gas-based power stations is 17.35  mn metric standard cubic metres of gas per day. Against this requirement, the average gas supplies during the current year stand at 10.78 mmscmd leading to a generation loss of around 786 MW.

FinMin rejects LPG, kerosene subsidy hike

August 20, 2005. In a move that may pressure the oil companies to raise prices, the finance ministry shot down the petroleum ministry’s proposal to increase the subsidy available for kerosene and cooking gas to around Rs 18,000 crore (Rs 180 bn) from the present level of Rs 3,644 crore (Rs 36.44 bn). The petroleum ministry had also proposed that the oil subsidy be made available till March 2010. The government is to provide subsidy only till March 2007 following a decision last year to extend the period by two years. 

Under-recovery for OMCs could touch $ 9.2 bn

August 19, 2005. According to Assocham’s report the government’s faulty petro pricing policy will shoot up the under recoveries of oil marketing companies (OMCs) from present level of Rs 15,300 crore (Rs 153 bn) to Rs 40,000 crore (Rs 400 bn) by the end of fiscal 2005-06. The report has warned that if distortions and inadequacies in the petro price mechanism and its existing tax structure are not corrected, the resultant chaos is certain to hurt the long-term health of the Indian economy. It describes that when the petroleum sector was deregulated in 1997, it was decided that subsidy in kerosene for public distribution system supply would be 33 per cent and for LPG would be 15 per cent. Currently the estimated subsidy for kerosene is around 127 per cent and for LPG cyclinder is Rs 92 (32.67 per cent). The taxation structure for petroleum products in terms of customs, excise and state levies comprise 132 per cent of the basic price of the product. Among the developing countries, India has one of the largest share of taxes in the retail selling price. It recommended that domestic price of petroleum products before taxes should as a rule be set at international level. The government should not take the responsibility of shielding the private sector from changes in oil prices. The study suggested domestic exploration and production efforts need to be intensified by applying latest technology in frontier basins. Overseas exploration should be pursued vigorously by targeting at least 15 per cent of crude oil imports through the equity oil route within the next two-three years.

India, China may tie up for oil hunt

 August 19, 2005. Indian petroleum companies are set to join hands with their Chinese counterparts in their hunt for oil and gas globally. Indian Oil Corporation and Oil India Ltd are expected to sign a memorandum of understanding with China Petroleum & Chemical Corporation (Sinopec) for cooperation in the downstream sector, particularly petrochemicals. Oil and Natural Gas Corporation is likely to collaborate with China National Petroleum Corporation (CNPC) along with either Hindustan Petroleum or Bharat Petroleum, while ONGC Videsh Ltd and China National Offshore Oil Corporation Ltd (CNOOC) will work out the areas for cooperation. GAIL (India) has already announced its intention to collaborate with Sinopec for petrochemicals. The collaboration would extend to joint bids for assets in third countries. China and India, the two biggest consumers of oil and gas in Asia and among the top five in the world, are scouting for energy in various parts of the world. A road map for the visit of Petroleum Minister Mani Shankar Aiyar to China later this year will be laid out. There will be exchange of a draft MoU between the two countries for a framework for government level cooperation in the hydrocarbon sector. 

Petro product exports down by 28 per cent

August 17, 2005. India's petroleum product exports may dip 28 per cent to Rs 20,374 crore (Rs 203.74 bn) during the current financial year, Petroleum Minister Mani Shankar Aiyar said. The estimated export of petroleum products during 2005-06 is 13.305 mt. The actual export earnings during the first quarter (April-June) of 2005-06 amounted to Rs 8,962 crore (Rs 89.62 bn). India exported 17.527 mt of products worth Rs 28,372 crore (Rs 283.72 bn) in 2004-05. Country's crude oil import bill is likely to jump by more than 47.5 per cent to Rs 172,326 crore (Rs 1.7 bn) in 2005-06 as against Rs 116,806 crore (Rs 1.2 bn) in 2004-05 fiscal. India is projected to import 98.264 mt of crude oil during current fiscal as compared to 95.857 mt crude imported in 2004-05.

L&T bets on hydrocarbon sector

 August 17, 2005. As a part of its major foray into the hydrocarbon sector and deep water exploration, Larsen & Toubro (L&T) is targeting the acquisition of two engineering firms, either from the US or Europe at a total budget of around $100 mn. The engineering firm is gearing up technologically for availing new business opportunities in deep water exploration and expanding its existing offshore installation through various ways including finding avenues in the M&A space.

Aiyar for potent case for petroleum price hike

August 17, 2005. Petroleum and natural gas minister Mani Shankar Aiyar has made a case for increasing the domestic petroleum prices with the Indian crude oil basket crossing $60 per barrel. The minister also underlined the need for taking all steps to ensure that the burden on the common man is minimal.

HPCL to ensure adequate LPG supply: AP

August 16, 2005. The Andhra Pradesh government has ordered Hindustan Petroleum Corporation to expedite bulk LPG supply to its two sister organisations—Indian Oil and Bharat Petroleum—to enable both the companies to meet demand from domestic customers. This directive comes on the heels of reports that HPCL is comfortably supplying LPG refills to its own customers, while IOC and BPCL customers have to suffer agonising delays in supply.




J&K to harness hydro potential

August 22, 2005. The Jammu and Kashmir state power development corporation is constructing two major hydroelectric projects at Doda and 25 micro projects elsewhere to harness hydroelectric potential of the state. The work on lower Kalani at Doda with a capacity of 50 MW and New Ganderbal in Srinagar with a capacity of 93 MW would also be initiated in a couple of days.

Natpha-Jhakhri units start power generation

August 20, 2005. Three units out of six 250 MW units of Natpha-Jhakhri hydro power project in Himachal Pradesh, which were shut down due to heavy silting, have started normal power generation. He said efforts were on to bring back the fourth unit to normalcy and presently it was operating only during peak hours in morning and evening. To check the problem of silting, the Sutlej Jal Vidut Nigam (SJVN) authorities were considering construction of series of dams on upstream river Sutlej which would also help in slowing down of silting in Govindsagar dam and Pong dam under the Bhakra Beas Management Board. 

Transmission/ Distribution / Trade

TN allows open access

August 19, 2005. Power producers in Tamil Nadu can now sell the electricity they produce directly to a consumer other than the electricity board. The regulations are in line with the provisions in the Electricity Act, 2003, and it is now up to the Tamil Nadu Electricity Board, the designated State transmission utility, to file a petition before the regulatory commission on the various charges that it proposes to levy for permitting use of its transmission and distribution system. Third-party sale of power is one of the important provisions of the Electricity Act and with regulatory commissions in the States framing regulations on open access, this will become a reality, according to power industry experts. It will help generators, including group captive power plants, by-pass State utilities and sell excess capacity to any other consumer also, according to them. Along with the regulations on intra-State open access, the Tamil Nadu Government has also notified in the gazette regulations on licensing transmission and distribution utilities and the terms and conditions for determining tariff, all in line with the provisions of the Electricity Act.

With the notification on intra-State open access regulations, power generating companies, including those that have established captive generating plants, and electricity traders can use the transmission system either of the State transmission utility or any other transmission licensee to transmit electricity, on payment of charges to be specified by the commission. The generating companies will also be eligible for open access to the distribution system of a licensee on payment of wheeling charges. The regulatory commission has categorised open access customers as those going in for short-term access - one year or less - and long-term customers - those availing themselves of this facility for five years or more. Any company generating electricity through non-conventional sources shall be treated as long-term intra-State open access customers. In the first phase, open access shall be allowed to all existing and new high-tension (HT) consumers with a load of 10 MW and above before six months from the date of these regulations coming into force. In the second phase, open access shall be allowed to all existing HT consumers and new applicants with a load of 5 MW after six months but before 18 months. In the third and final phase, it will be allowed to all existing HT consumers and new applicants with a load of 1 MW and above, after 18 months but before December 30, 2008.

Power distribution losses cut by 6 pc in Kerala

August 18, 2005. Kerala has been able to cut electricity transmission and distribution losses from 32 per cent in 2001 to less than 26 per cent at present. The introduction of a scheme similar to the Central Government's Accelerated Power Development and Reforms Programme (APDRP) can help the State save more power. A scheme ensures that all panchayats in Kerala are covered by the scheme in five years' time. If this target is achieved, the State's electricity transmission and distribution losses can be brought to below 15 per cent.

Policy / Performance

NTPC eyes massive capacity expansion

August 23, 2005. NTPC has significantly hiked capacity expansion plans. It intends to have a capacity of 46,000 MW by 2012, a hike of nearly 50 per cent in its expansion plans for 11th plan. This involves doubling of current capacity in about seven years. A strategic shift to further enhance fuel security is to move beyond thermal-based plants. The company plans to generate more than 5000 MW of power from hydel source to contribute 11 per cent of total power generating capacity by 2012. Projects with a capacity of nearly 2,000 MW are already under various stages of development and the first expected to be commissioned by November 2008. While Hydel power provides cheap and clean source of power, the task of initial project management is almost insurmountable.

Power panel inks power back-up plan

August 23, 2005. The government has called for increased co-ordination between power, petroleum and coal ministries to meet the increasing fuel shortage in the country. Energy co-ordination committee has drawn up a plan to build up adequate energy security to insulate the economy from future shock. Ministries of power, petroleum and natural gas and coal have been asked by the committee to make detailed assessments of the energy situation. The power and coal ministries have been asked to prepare a detailed proposal for levying a cess on domestic coal. The proposed cess will be in the range of 3-5 per cent.

Dabhol tariff may be hiked by 3-4 paise

August 22, 2005. IDBI-led lenders to the Dabhol project have indicated at a per unit tariff increase by three to four paise to Rs 2.33-34 from the currently fixed Rs 2.30. The proposed tariff increase is imminent if the now-unbundled Maharashtra State Electricity Board’s arm Maharashtra Power Development Corporation Ltd (MPDCL) insists on return on equity and dividend. The increase in the per unit tariff of the revived Dabhol project would also be necessitated on account of the heavy fluctuations in global oil prices as it would result in a rise in variable cost.

Green money

 August 22, 2005. The hot new opportunity for making money seems to be trading in carbon. The prices of carbon credits in the international market have trebled in recent months, and companies able to sell them (like Shri Ram Fibres) have seen their share price skyrocket as a result. Carbon prices have gone up in part because of the soaring prices for oil and gas, and in part because of the run-up to the forthcoming meeting of the UN Framework Convention on Climate Change (UNFCCC) in Montreal in November. Though trading in carbon began a couple of years ago, its prices had remained subdued and failed to generate much interest among Indian companies. But both prices as well as traded volumes have shot up, especially in the London market, which has become the hub for carbon trading. About 2 mt of carbon are estimated to have been traded in July at a total transaction value of around £40 mn (over Rs 3 bn). The world has had greenbacks for more than 200 years; now it also has green money.

This novel market for a new commodity is the result of the Kyoto agreement on climate change, inked in 1997. This mandated 37 developed countries to slash their emission of six harmful greenhouse gases (GHGs), including carbon dioxide, to below the 1990 levels. Simultaneously, it mooted the concept of sale and purchase of emission reduction credits, calculated in terms of carbon, to provide an incentive to companies to do their bit in mitigating environmental damage. For this, it set up a clean development mechanism (CDM) executive board to validate the projects entitled to participate in carbon trading and certify carbon emission reduction. Though this protocol applied to all developed economies, barring those like the US which are not signatories, only the European countries have opted to implement it with sincerity. They have already estimated carbon emissions from about 15,000 installations in selected industries and have fixed their GHG emission reduction targets. Under this system, if a firm improves its energy efficiency and reduces emissions below its allocated allowance, it earns carbon credits that it can sell for cash. Conversely, if it is unable to do so, it can buy carbon credits from others, or pay the stipulated fine for every excess tonne of carbon dioxide emitted. 

The recent spurt in global carbon prices is due largely to the approaching UNFCCC meeting, where developed countries will have to report their achievements on this front, and partly because of the soaring oil and gas prices. Companies are forced to buy allowances because alternative fuels, like coal, produce almost double the amount of carbon. Where India is concerned, though the opportunities for cashing in on carbon credits are immense, awareness of the opportunity is still limited. So far, only 90-odd projects have been approved by the environment ministry’s national CDM authority, paving the way for their getting into this business. These are engaged primarily in the production of cement and steel and generation of biomass-based or hydel power. Surely, a large number of other enterprises, including all the public sector hydel power projects, can gainfully exploit this opportunity. Many enterprises technically entitled for CDM status belong to the small and medium categories, and cannot perhaps deal in this trade individually, leave alone bargain for a good price. Some mechanism needs to be evolved to enable them to pool their carbon reduction credits and become big enough players to tap the expanding global carbon bazaar. 

PMs power capacity expansion plan

 August 20, 2005. Concerned over electricity still not reaching all villages, Prime Minister Manmohan Singh set an ambitious target of adding 150,000 MW of electricity generating capacity through coal and hydroelectric power in the next 10-years to overcome acute energy shortage in the country. The Prime Minister said ways would be explored to install at least one community bio-mass plant in every village for generating electricity and providing gas for cooking purpose to the rural masses. He also claimed small hydroelectric projects would be encouraged in hilly areas and emphasis laid on use of bio-fuels. India, which faces a peak energy deficit of about 47 per cent, has an electricity generation capacity of 127,000 MW.

Reliance may get tax waiver on Dadri

 August 20, 2005. The power ministry has suggested that Reliance’s Dadri project could be given the benefit of minimum alternate tax and dividend distribution tax exemption in proportion to the power sold within the Special Economic Zone (SEZ). The plant could be asked to pay the tax on the portion of the power it sells to the domestic tariff area. The 7,480-MW project had not been given a clearance by the revenue department which feared revenue loss on account of non-payment of the two taxes. As per the policy, power plants in SEZs, which are built by the developer and the co-developer of the zones, are exempted from paying Customs, minimum alternate tax and dividend distribution tax. A mega power plant in the domestic tariff area is entitled to only a waiver of Customs. The Uttar Pradesh government is also considering extending sales tax benefits for the facility. 

Power funding consortium on anvil

August 19, 2005. In order to meet the huge funds requirement of the power sector, Power Finance Corporation (PFC) has signed a memorandum of understanding (MoU) with LIC of India and 10 public sector banks for jointly financing power projects as a consortium. The consortium will take up projects with a minimum exposure of about Rs 100 crore (Rs 10 bn) and would have the appetite to undertake projects totalling Rs 60,000-70,000 crore (Rs 600-700 bn). The power sector needs an estimated Rs 8,00,000 crore (Rs 8 trillion) by 2012 to achieve its target of adding 100, 000 MW capacity in the power sector.

This is the first of its kind arrangement which will offer a single window opportunity to sound developers of power projects in accessing competitive line of credit for their projects. This will also be less time consuming and will result in quick disbursals as this consortium will follow single appraisal system, to be carried out by PFC, as against the existing arrangement of multiple appraisals being done by independent agencies for the same project under the consortium funding by banks and financial institutions (FIs).

New CERC norms to aid power projects raise funds

 August 17, 2005. Power project developers can now get a degree of comfort on tariffs before plants get commissioned. The Central Electricity Regulatory Commission (CERC) is amending its regulations to allow for in-principle clearance for project costs, before the construction of the plant. The move is likely to make it easier for power developers, setting up plants under the memorandum of understanding (MoU) route, to tie up finances. The in-principle project cost could be the basis for fixation of the fixed cost component of tariff. The clearance would be subjected to scrutiny once the project was concluded.

The amendment was being introduced after Nagarjuna Power Corporation Ltd, which was setting up a 1,015 MW power plant via the MoU route, near Mangalore, approached the CERC for tariff fixation from September 2008 onwards. The alternative is competitive tariff-based bidding, where the developer bids on the basis of the tariff, at which he expects to supply power. Changes were being introduced in the regulation as fallout of the norms for competitive bidding, for setting up power plants introduced by the ministry of power in February. The guidelines specified that all power projects would not have to go in for tariff-based competitive bidding and that the MoU route would also be accepted. 

Power plants may escape LNG duties

August 17, 2005. The government is considering a proposal to waive customs duty and sales tax on liquefied natural gas used for power plants. While the government has imposed a 5 per cent customs duty on LNG, sales tax on the fuel varies between 12 per cent and 20 per cent.  The power ministry has been directed to move a proposal to the Cabinet seeking changes in the duty rates. The exemption of duties on LNG will immediately reduce input costs for power generation and tariffs in the long run.

As of now, power consumers are unable to buy LNG, as the fuel is far more expensive. Most of the LNG bought in the country is primarily picked up by industrial consumers and some private power and fertiliser companies. The move to provide a duty waiver on LNG is aimed at making the fuel affordable for power consumers. Today, several gas-based power stations, including some major NTPC plants are operating below capacity for want of gas. Petronet LNG, which is the only LNG importer at the moment, however, plans to scale up operations in the next two to three years. While it is planning to expand capacities at Dahej, it is also planning new capacities at Kochi.






Abraxas finds natural gas in West Texas

August 22, 2005. Abraxas Petroleum Corp. its La Escalera #1AH well in the Oates SW Field in West Texas has been completed and it is currently producing at a rate of 5.2 mn cubic feet of natural gas per day. The horizontal well was drilled to a total depth of 16,022 feet, including 2,481 feet of lateral piping. San Antonio-based Abraxas owns a 100 percent working interest in the well. Abraxas' total net production is now currently 30 percent higher than its second-quarter average. Abraxas is a crude oil and natural gas exploration and production company with operations in Texas and Wyoming.

Non-OPEC oil output to rise by 0.6 mbpd: OPEC

August 22, 2005. The output of non-OPEC oil producing countries in the last quarter of 2005 will rise by 600,000 bpd to 51  mn bpd from 50.4  mn bpd in the third quarter of the year.  The members of the Organization for Economic Cooperation and Development (OECD) will produce as many as 20.7  mn bpd in the final quarter of the year, showing an increase of 100,000 bpd compared to their current output.

Oil production by West European states will also rise by 200,000 bpd in the last quarter of the year, reaching 5.9  mn bpd. Based on the report, the crude production capacity of the developing states will increase by 300,000 bpd to 12.8  mn bpd in the last quarter of 2005. OPEC also estimates the output of the North American states to stand at 14.3  mn bpd, that of the former Soviet republics at 11.9  mn bpd, that of the Pacific states at 0.5  mn bpd and that of China at 3.6  mn bpd in the last quarter of the year.

China in Central Asia oil deal

August 22, 2005. State-owned Chinese oil company CNPC has agreed to buy PetroKazakhstan Inc. for $4.18 billion in China's largest foreign takeover, beating rival bidders including top Indian oil firm ONGC. The parent of PetroChina, the world's fifth-largest listed oil company, will pay $55 a share in cash, a 21.1 percent premium. The deal, if it goes through, would be China's first successful takeover of a foreign listed energy firm and highlights Beijing's scramble to secure supply security for the world's second-largest oil consuming nation and the world's fastest-growing major economy.

NICOC to yield 310m cm of gas by 4th plan

August 22, 2005. National Iranian Central Oilfields Company will yield as many as 310 mn cubic meters of gas and 225,000 bpd oil by the Fourth Five-Year Economic Development Plan (2005-10). NICOC, to meet the goal it started executive operations for development of Varavi, Shanol and Homa gas fields, setting up Parsian-2 gas refinery.

The projects aim daily production of 37,500,000 cubic meters of gas from the fields and injection of 35,500,000 cubic meters of gas from Parsian-2 refinery to nationwide gas network. The executive operations are underway for development of Tang-e Bijar and Kamankuh gas fields for daily yield of 10  mn cubic meters of gas and 8,000 bpd gas condensates a day. There were 60,000 meters drilling work in 19 detailed and 14 repair wells, including 18,500-meter drill work on five wells in Shanol gas field and an additional 16,000-meter on eight wells in the Varavi and Homa gas fields last year. More than 29  mn barrels of oil were obtained from nine oil fields. It said that in the period, the fields yielded 70.69 billion cubic meters of gas and 17.67  mn barrels of gas condensates.

Venezuela to study Orinoco reserves

August 20, 2005. Venezuela's state-oil company Petroleos de Venezuela S.A. will conduct a two-year survey to certify the total reserves held in the oil-rich Orinoco tar belt. The survey will begin this year and examine each of the 27 oil blocks in the area, a needed step before the government decides which companies will develop them in coming years. The state oil firm, commonly known as PDVSA, plans to conduct reserve surveys on its own to study 14 blocks, while the rest will be examined by foreign companies.

The companies include Brazil's Petrobras, India's Oil & Natural Gas Corp., China National Petroleum Corp., Iran's Petropers, Russia's Lukoil and Gazprom, as well as Spain's Repsol YPF. So far no decision has been made as to which companies will develop the various fields. Venezuela now has four heavy crude upgrading projects in the Orinoco region which produce as much as 600,000 barrels a day of synthetic crude. The Orinoco projects are run by joint ventures of PDVSA with France's Total S.A., and Norway's Statoil ASA, as well as Exxon Mobil Corp., ConocoPhillips, Chevron Corp. and BP PLC. Venezuela claims the Orinoco holds 235 billion barrels of oil reserves, and plans to add those extra-heavy crude reserves to its 78 billion barrels of conventional oil reserves. With those unconventional reserves included, Venezuela would surpass Saudi Arabia as the nation with the world's largest reserves.

N. Hydro won three blocks in Gulf of Mexico

August 19, 2005. Norwegian energy and metals group Norsk Hydro applied for and won three operator ships of oil and gas exploration blocks in the Gulf of Mexico. The blocks, in the Keathley Canyon and nearby areas, were awarded by the U.S. Minerals Management Service in New Orleans. Hydro planned seismic surveys of the areas.Non-OPEC oil production to rise by 600,000 bpd - 2005

Petrobras won 53 Gulf of Mexico blocks

August 19, 2005. Brazil's state oil giant Petrobras has won exploration rights for 53 blocks in the U.S. part of the Gulf of Mexico, paying over $30  mn, and plans to start drilling next year. Petroleo Brasileiro SA had bid for 57 blocks in an auction held by the U.S. Minerals Management Service. Petrobras planned to invest $150  mn in 2005 and some $1.7 billion up to 2010 to reach an output target of over 100,000 barrels per day in the Gulf of Mexico in five years. Petrobras singled out the deep-water Garden Banks area as one of the most promising. It won a new block there close to its Cottonwood reported oil find, production may start as soon as in 2007.

Russia’s oil output 10-mln bpd in ‘08

August 17, 2005. Russia's optimistic forecast for oil output growth, saying production should reach 10 mn barrels per day in 2008 despite a big slowdown in growth over the past year. Its macro-economic report it expected the world's second largest oil exporter to produce between 9.64 and 9.78 mn bpd in 2006, 9.80-9.94 mn bpd in 2007, rising to 9.94-10.10 mn bpd in 2008. Russia has boosted oil output by over 50 percent since 1999 to the current level of over 9.4  mn bpd.

Output grew by 9 percent in 2004 and by a record 11 percent in 2003, but the growth has slowed to a mere 3 percent in the first half of 2005. It also reiterated the oil production forecast of 474  mn tonnes (9.52  mn bpd) for 2005, which many experts say is no longer feasible since production in January-July averaged only 9.35  mn bpd. Crude oil exports, which stand at over 5.5  mn bpd, should also increase with the construction of new pipelines and reach up to 5.9  mn bpd in 2008.

Gazprom borrows big to buy

August 17, 2005. Gazprom, Russia's state-controlled natural gas producer plans to buy Roman Abramovich's Sibneft and is borrowing $10 billion to fund what would be the country's largest takeover. ABN Amro Holding and Dresdner Kleinwort Wasserstein are negotiating the record financing to pay for Gazprom to take a controlling stake of the oil company, who declined to be identified. More banks will be picked in coming days to help arrange the loans and bonds for the company. Gazprom, the world's biggest natural gas producer, which supplies about a quarter of Europe's gas, is expanding into oil after the government raised its stake to a majority in June, when Rosneft bought 10.7 percent of the company. That came six months after Rosneft snapped up Yuganskneftegaz to become almost as large as Chevron Corp., the second-largest U.S. oil producer.

BD, UK firm sign deal to explore oil, gas

August 17, 2005. The Cairn Energy PLC, based in Edinburgh, Scotland, signed a deal with Bangladesh government to explore oil and gas from the nation’s offshore facilities. The deal was struck in Bangladesh’s capital, Dhaka, after getting positive results from initial seismic surveys in three prospective offshore plants. Cairn is already a major player in Bangladesh’s energy sector and involved in producing gas from the Sangu plant in the Bay of Bengal since 1998. They have a plan to start drilling well in Hatia, one of the three prospective plants, early next year. Other two plants, Magnama and Monpura, were not disclosed immediately.

TNK-BP to develop Verkhnechonsk field

August 17, 2005. The board of Russian-British oil giant TNK-BP has decided to allocate $270 to bring the Verkhnechonsk (Irkutsk region, Siberia) oil and gas field into experimental-industrial production. The experimental-industrial production project will continue up until 2008. It involves developing infrastructure on the site and boring 20 wells into the ground, 13 of which will be used for pumping oil out of the reservoir and the other seven for pumping water, steam, or gas mixtures into the reservoir to raise reservoir pressure and aid extraction. This project has been made possible by the Russian government's decision at the end of last year to begin building a pipeline from eastern Siberia to the Pacific Ocean. TNK-BP considers its main goal to be to synchronize preparations of the Verkhnechonsk oil and gas field with Transneft's plans for constructing the first stage of a pipeline to Skovorodino (on the Chinese border). This will allow for supply of eastern Siberian oil to Russian consumers by 2008-2009, as well as to countries in the Asia-Pacific region.


Venezuela will build three new oil refineries

August 19, 2005. Venezuelan state oil company plans to build three new oil refineries in coming years, and government would be willing to discuss establishing a new OPEC price band for world oil prices. Two new refineries will have a capacity to run 50,000 barrels a day each, and a third would process as much as 400,000 barrels a day. Venezuela also plans to expand other refineries such as the one in Puerto La Cruz, and El Palito so they can process heavy crude. Venezuela, the world's fifth-largest oil exporting country, holds the largest conventional oil reserves outside the Middle East.

New oil refinery in the pipeline for KZN

August 18, 2005. Six hundred hectares of sugar and commercial plantations between Empangeni and Richards Bay could make way for a multi- mn-rand new-generation oil refinery. Rumours of this massive development for the uMhlathuze region, boosting the city's already healthy economy, have turned into a serious proposal put to the government, organised business and the local council. A "cautiously optimistic" Mayor of uMhlathuze, Denny Moffatt, the proposal for a $4-billion (about R25.8 billion), 300 000-barrels-a-day refinery had a long way to go, with "a lot of environmental issues and planning that still need to be done".

Citgo cancels Texas refinery diesel project

August 16, 2005. Citgo Petroleum Corp. has cancelled plans for a $194 mn, ultra-low-sulfur diesel project at its 156,000 barrel-per-day (bpd) refinery in Corpus Christi, Texas, according to a report filed with the U.S. Securities and Exchange Commission. The project was part of 10-year, $828 mn expansion plan for the Corpus Christi refinery. The ultra-low-sulfur diesel project was not part of a 2004 agreement with the U.S. Environmental Protection Agency for pollution reductions at Citgo's refineries. The SEC filing, Citgo took a $22  mn charge for cancelling the project. Citgo is a wholly owned subsidiary of Venezuela's state oil company, Petroleos de Venezuela S.A.

Transportation / Trade

Gazprom begins North-European pipeline construction

August 22, 2005. Gazprom, Russia's natural gas monopoly began construction on the North-European natural gas pipeline (NEG) and plans to complete the first 100km through the Boksitogorsky area in the Leningrad region in six months. With an estimated 55- mn-metric-ton annual capacity, Gazprom will open a direct under sea route for Russian gas exports to Europe, which would allow it more flexible pricing and avoid long-term and fixed-priced intermediary contracts.

Gazprom is seeking independent operation in Europe under short-term contracts. It recently bought underground storage facilities in Britain, along with leasing storage facilities in several European countries, since it believes that NEG construction would guarantee increasing gas supply. Gazprom intends to complete construction on the project in 2008. However, project success depends on the development of the South Russian gas field in the Yamal Peninsula in West Siberia, with its estimated 688-billion-cubic-meter natural gas deposits and 35-45-billion-cubic-meter annual production capacity. The gas field is going to be the main supplier of gas for the North European gas pipeline. The company has already conducted exploration drilling in the area.

The NEG project is estimated at $7.8 billion, of which $5.7 billion is to be allocated for the development of the South Russian natural gas field. Experts believe Gazprom will most probably try to finance construction by issuing loans. It will also lobby for help from one of its assets, Gazprombank, though it has yet to attract more investment into gas field development.

Venezuela to lend Ecuador crude oil

August 21, 2005. Venezuela will lend Ecuador crude oil cost-free to cover exports crippled by protests against Ecuador’s state-owned oil company. Venezuela gave no details on the amount of crude involved in announcing the deal. Disturbances and attacks on pipelines in oil fields in the Amazon provinces of Sucumbios and Orellana forced Ecuador to declare a state of emergency last week and state-owned Petroecuador had to shut down production.

China for gas pipeline projects in Pak

August 20, 2005. Pakistan’s oil and gas sector has opened for local and foreign investors and invited China Petroleum Engineering and Construction Corporation (CPECC) to participate in the upcoming cross border gas pipeline projects, construction of gas storages and exploration activities for mutual advantage. China Petroleum had already participated in the construction of PARCO White Oil Pipeline (WOPP) from Karachi to Mehmood Kot (Muzaffargarh) and also offered in the biddings for construction of oil pipeline from Lahore to Taro Jabba near Peshawar. Pakistan welcomed Chinese participation in the oil and gas development activities and hoped it would open up new avenues of bilateral cooperation between the two friendly countries.

Indonesia power firm signs gas deal with PetroChina

August 19, 2005.  Indonesian state electricity firm PT Perusahaan Listrik Negara has signed an initial natural gas supply deal with PetroChina as the country aims to cut the use of oil for generation. The Chinese company will supply between five  mn and seven  mn cubic feet per day of gas to a 20 MW PLN power plant in East Java for about six years starting in 2006. PetroChina will supply the gas from the Tuban block on East Java.  Energy demand in Indonesia has outstripped supply amid a lack of fresh investment in the oil and gas sector and an antiquated power grid. Power to tens of  mns of people in Java and Bali islands was disrupted.

BOC Canada wins industrial gas supply deal

August 18, 2005. Industrial gas supplier BOC Canada has won a supply contract for Canadian Natural Resources Ltd.'s Horizon oilsands project in northern Alberta. Under the contract, BOC will supply Canadian Natural with packaged gases and materials needed for welding and building the massive infrastructure required to extract the oil. Once the project about 80 kilometres northeast of Fort McMurray, Alta. begins producing sweet, synthetic crude oil in a few years, BOC said it will be well positioned to continue supplying gases during the operations phase.

Turkey: An energy corridor in North-South

August 18, 2005. The first step to make Turkey an energy corridor in North-South line has been taken. The pipeline coming from Cairo will enter Turkey from Kilis (a southern province in Turkey) and the Egyptian natural gas will be carried to Europe via Turkey.

They decided to form a powerful consortium, especially for the construction of the nearly 240-km line, gas will be taken from Egypt first in March 2007 and then in July 2007. Natural gas coming from Egypt will diversify Turkey's resources and Turkey will, in a sense; function as an energy corridor for Europe's need of gas. Turkey will have a very important position in this equation of energy. The government and ministry were making tremendous efforts to pursue this goal. Europe is waiting for the gas coming from Turkey. Turkey has signed an agreement with Greece. Turkey is trying to take one branch of the gas to Italy via Greece and the other branch to Austria and Hungary.

Iran - Oil, gas exports at $1.710b in four months

August 18, 2005. Oil products and gas condensates worth about $1.710m were exported during the first four months of the current year (March 21 through July 22, 2005). Some 825  mn dollars of the figure was spent on the purchases of the products and commodities required by the country during the period. Also, the Central Bank of Iran (CBI) has deposited about 13,088  mn dollars of the crude oil revenues into the Forex Reserve Fund (FRF) during the first four months of the year. If the trend in the oil exports and the prices remain the same during the next coming months, the budget envisaged from the oil sales would be realized, and there would be no further need to make deposit in the FRF during the next six remaining months of the year (ends March 20, 2006).

Kinder Morgan, Sempra to develop gas pipeline

August 17, 2005. Kinder Morgan Energy Partners LP and Sempra Pipelines & Storage have signed an agreement to jointly develop a new $3 billion natural gas pipeline linking producing areas in the Rocky Mountain region to the upper Midwest and Eastern United States. The proposed pipeline would have capacity to move up to 2 billion cubic feet of natural gas per day. The preliminary route of the 1,500-mile pipeline would originate at the Wamsutter Hub in Wyoming and extend to eastern Ohio with an ultimate route to be selected based on shipper interest. If built, the pipeline would maximize the value of growing Rockies production by creating unprecedented access by one pipeline to multiple markets and storage, while providing markets in the upper Midwest and Eastern U.S. with direct access to reliable, long-lived domestic natural gas supplies to meet growing demand. The pipeline is projected to be staged into service beginning in the latter part of 2008 and continuing through 2009.

Ghana to become energy hub for West Africa

August 17, 2005. Ghana Energy Foundation, thinks Ghana can become a supplier of oil to West African countries, despite not having any of it's own oil fields. Ghana's ability to pump refined oil through the recently constructed Buipe Bolgatanga pipeline from Tema to Burkina Faso. Once fully commissioned later this year, the pipeline is expected to carry oil from the refinery at Tema, a distance of approximately 80km to the Volta Lake. It is also expected that the oil will continue its journey North by barge across the lake. At the Northern tip of the lake, the oil reenters the pipeline for a further 300km until it reaches Burkina Faso, where storage facilities are already in place. From indications, it is clear that a structure like this will place Ghana in a strong position within the West African sub-region. Ghana's electricity generation would be independent of oil by the year 2007, thus reducing the cost, as has been one of the challenges facing the nation. This will be possible after the completion of the West African Gas pipeline project in the same year. The two existing oil fired power plants in Ghana, will be converted to gas power stations at little cost, since this was anticipated during the design stage of the plants and so already planned for.

Gazprom plans to buy Sibneft

August 17, 2005. OAO Gazprom, the world’s biggest natural-gas producer, plans to buy control of OAO Sibneft and will borrow $10 billion to fund the acquisition from billionaire Roman Abramovich, bankers. ABN Amro Holding NV and Dresdner Kleinwort Wasserstein are negotiating loans and bonds for state-controlled Gazprom. More lenders will be picked over coming days to help arrange the financing for the Moscow-based company.

Gazprom, which supplies about a quarter of Europe’s gas, is expanding into oil after the government raised its stake to a majority in June, when state oil company OAO Rosneft bought 10.7 per cent of the company. That came six months after Rosneft snapped up Yuganskneftegaz to become almost as large as Chevron Corp, the second-largest US oil producer. Yugansk was the biggest production unit of OAO Yukos Oil Co., which was dismantled by Putin’s government during the past two years.

Policy / Performance

‘China may change oil price-setting formula’

August 21, 2005.  China is considering a new method for setting domestic oil product prices that could lead to more frequent adjustments aimed at easing the sort of shortages that have hit the south of the country. China has raised retail prices of diesel and gasoline three times this year, but the increases have fallen far short of the spike in global prices. This has made it difficult for China’s refiners to turn a profit and has encouraged them to boost exports at the expense of domestic sales. The result has been widespread shortages recently in the south, with drivers queuing for hours for petrol.

To tackle the problem, top planners at the energy policy-setting National Development and Reform Commission (NDRC) called in oil firm executives on Aug. 13, to discuss the future of its pricing system. The reform measures are to gradually relax the power to set oil product prices, moving from a lagging set price to a real-time price by reducing the time span from a one-month tracking method to two weeks or even less.

China, B’desh ink pact for oil, gas

 August 20, 2005. Sino-Bangladesh relations entered a new phase with both sides signing Memorandums of Understanding to develop natural gas and petroleum as well as water resources in Bangladesh. China and Bangladesh signed two agreements, three Memorandums of Understanding (MoUs) and one exchange of letter to bolster bilateral ties in various fields, including natural gas resources, tourism and water management between the two countries. The MoUs were signed on developing natural gas and petroleum resources in Bangladesh, cooperation in the field of water resources, and on facilitation of group travels by Chinese tourists to Bangladesh, while the exchange of letter was for Sino-Bangladesh friendship exhibition centre in Dhaka.  

Venezuela: companies out of gas project

August 19, 2005. Royal Dutch Shell PLC and Exxon Mobil Corp. will no longer participate in Venezuela's Mariscal Sucre natural gas project. Venezuela will begin to develop the project's initial two fields on its own. Venezuela had been in talks with the two companies for the project but had reached no agreement. Venezuela's decision turned in part on a desire to develop gas for the local market first. Venezuela has long argued that producing gas for the local market is an important part of the Mariscal Sucre project. Producing for the local market, however, would mean selling the gas at a lower price than could be obtained in the export market for liquefied natural gas.

The Mariscal Sucre project includes four different fields including Rio Caribe, Mejillones, Patao and Dragon, the first two of which will be developed by the Venezuelan government. Shell hopes to be involved in developing the latter two. Venezuela's announcement that Shell will no longer participate in the project comes two weeks after Shell said it would contest a US$130  mn (euro107  mn) retroactive tax bill for its operations in the country from 2001 to 2004. Meanwhile, the state oil company Petroleos de Venezuela S.A. also plans to overhaul refineries and build three new ones as part of its investment plans. The project will cost US$10 billion (euro8.2 billion) and will take until 2012 to complete.

Syrian signs exploration contract with Canada &Kuwait

August 19, 2005. Syria signed a contact for oil and gas exploration with a Canadian and Kuwaiti companies in the west of Palmyra old city among the territories stretching between the Homs and Hama governorates, central Syria. The Syrian company for petroleum inked the contract with the Canadian Stratic Energy Corporation as well the Kuwaiti Foreign Petroleum Explorations Company. The contract will end in 25 years starting from the first commercial production date to be extended for 5 years at the two company’s request and the Syrian Company for Petroleum approval. The contract says there are two extension periods during which the two companies will spend $ 92,000,000 for 48 months and 36 months and two wells will be digged. Shares will be divided by allocating 12,5  per cent of the whole drilled petrol to the Syrian government.

Australia's Baraka petroleum deal approved in Mauritania

August 19, 2005. The new Mauritanian government has approved a farm-out agreement between Perth-based junior explorer Baraka Petroleum and China's largest oil and gas company, China National Petroleum Corporation. The new government came into power earlier this month via a military coup. Under the agreement China National Petroleum Corporation (CNPC) will become operator of Baraka's Block 20 in Mauritania's petrolific Coastal Basin. The deal was announced in late June and CNPC will acquire a 65 per cent operating interest in Block 20 by funding $US8.6  mn of exploration.

Mexico could invest $5 bln with Shell

August 16, 2005. Mexico is considering investing up to $5 billion in a joint venture with Royal Dutch Shell to explore an oil field in U.S. waters in the Gulf of Mexico. Mexican state oil monopoly Pemex would like to circumvent rules barring it from working with foreign companies domestically by exploring an oil-rich zone just outside the country's Mexican border. A new venture with Shell would mark a strategic shift for Pemex, which has always limited major production activities to its home country due to its tight investment budget. Pemex is already involved in a 340,000 barrel a day refinery venture with Shell in Deep Park, Texas. Deer Park refines Mexican crude exported by Pemex.



Iranian to build substations for Yemeni power plant

August 17, 2995. A contract on construction of power transfer substations for Marb power plant of Yemen was signed between the Power Ministry of Yemen and the Iranian Parsian Company in Sana’a. The total cost for implementing this project is estimated at $45m, which will be provided by the government of Yemen and Arab Fund for Economic and Social Development. The project involves the construction of four substations by the Parsian company. Two of them, from Marb reroute to Sana’a, will transfer 400 KV and 1,200 MVA of electricity and the other two, located in Rahban and Haziz regions in the vicinity of the capital Sana’a, will be constructed with the capacity of 33,132 KV and 248 MVA correspondingly.

Transmission / Distribution / Trade

AEP signs power supply deal with Ohio

August 22, 2005. American Electric Power has signed a three-year wholesale power supply agreement with the City of Lebanon, Ohio. According to the terms of the contract, AEP began supplying Lebanon's load in the Midwest ISO July 1, 2005. Lebanon has a peak load in excess of 40 MW. Lebanon plans to transfer its load to PJM Interconnection beginning Jan. 1, 2007, and AEP will continue supplying Lebanon's load in PJM. AEP was selected through a competitive bid process to serve Lebanon's load. Pricing details are not being announced for competitive reasons.

AEP is one of the nation's largest wholesale suppliers of generation to municipal utilities and cooperatives. AEP provides approximately 3,297 MW of load to 53 municipal utilities and 25 electric cooperatives in the United States. The City of Lebanon is located between Dayton and Cincinnati. Lebanon owns and maintains a distribution and transmission system and a generating plant to provide electrical service to more than 17,000 customers.

Thai tender for post-2010 power supply next year: Govt

August 19, 2005. Thailand will launch next year a major tender to buy much-needed electricity supplies for five years from 2011, providing a fresh opening to foreign investors in the fast-growing sector. The tender, for electricity supplies from up to 12,000 MW of generating capacity, would guarantee independent power producers (IPP) the sales contracts they need to warrant building new power plants. State-run Electricity Generating Authority of Thailand (EGAT) would remain the sole buyer of the power due to be supplied during 2011 to 2015.

The winners would be made known by end next year by a new market regulator replacing EGAT, which would give up its market-watchdog duty and keep its role as Thailand's sole power purchaser.

The Thai electricity market, which held its first and only major tender 12 years ago, is attractive to foreign investors because the country's power demand is strong and the government provides lucrative long-term power purchasing agreements. Other countries such as Indonesia, India and the Philippines are suffering chronic power shortages, but foreign investors are reluctant to invest there because of regulatory or political concerns, or because contracts have been violated in the past.

Kenya to increase power supply

August 19, 2005. Kenya plans to increase its electricity generation capacity by about 40 per cent to cope with growing demand due to an improved economy. The additional 423 MW of capacity is expected to be installed in the period between July 2006 and July 2008. Kenya, which has an installed generation capacity of 1,032 MW, has seen peak demand for electricity increase by 17.2 per cent in the last two years. The growing power demand is consistent with the economic recovery as evidenced by the 4.3 per cent GDP (gross domestic product) growth rate registered in 2004, and which is projected to rise to 5 per cent this year. The state-owned Kenya Electricity Generating Company (KenGen) is expected to install new gas turbine, geothermal and hydro capacity to generate 278 MW and an extra 30 MW of wind power. Independent power producers will install capacity to produce an additional 115 MW.

Policy / Performance

Ontario to spend C$985 mln on Niagara power output

August 18, 2005. Ontario Power Generation will spend C$985  mn ($807  mn) to build a tunnel that will supply more water from Niagara Falls to a nearby power generator. OPG, which is owned by the Ontario provincial government, expects the tunnel project to increase energy output at the Sir Adam Beck Generating complex by an average of about 1.6 terawatt hours a year. OPG, which owns and operates nuclear, coal-fired and hydroelectric power stations in Ontario, said the project is expected to produce new clean electricity for the province's market by late 2009. The new energy will be available several months after the provincial government plans to shut the last of its coal-fired plants in early 2009.

Strabag AG, a large construction group based in Austria, has been awarded a C$600  mn contract to design and build the 10.4 km tunnel. The company will be supported by fellow Austrian-based ILF Beratende Ingenieure, two other Ontario-based firms, Morrison Hershfield and Dufferin Construction, as well as other subcontractors. The remaining C$385  mn will be used for items including remedial work at other generating systems and interest and insurance costs. Construction is expected to start in September.

ENB moves on power source

August 17, 2005. High power costs and its negative impact on businesses have forced businesses in East New Britain to find an alternative power source to PNG Power. East New Britain Chamber of Commerce, PNG Power depended on internal combustion engines using diesel to produce electricity and with the increase in oil and fuel prices, the cost of electricity has impacted negatively on businesses. This was not good for the economy and urged politicians to push for geothermal or biomass plants to be set up to produce cheap, reliable power.

Renewable Energy Trends



RIL for bio-diesel farming

Text Box: •	Jatropha has got global recognition as a high quality bio-diesel crop 
•	A jatropha seed contains 31 to 37 per cent extractable oil 
•	A plantation of 100,000 hectares of jatropha is expected to yield 250,000-300,000 tonnes of crude jatropha oil per annum 
•	The initial 100,000 hectare jatropha farm may yield revenues of $100 mn a year 

August 23, 2005. Reliance Industries Ltd is planning to enter the bio-fuel segment in a big way. To begin with, the company has earmarked 200 acres of land at Kakinada in Andhra Pradesh to cultivate jatropha, which can yield high quality bio-diesel. The area of cultivation will be increased to many thousands of acres depending on the progress of the project.

The project is being implemented by Reliance Life Sciences, a subsidiary of RIL. Jatropha has got global recognition as a high-quality bio-diesel crop. It is a perennial crop that can be grown in arid regions. The oil extracted from the Jatropha seed has the same characteristics as diesel and can be used “neat” or mixed with conventional diesel in even the most sophisticated internal combustion diesel engines. Reliance is in consultation with the Bhavnagar-based Central Salt & Marine Chemicals Research Institute (CSMCRI) for getting the right crop to grow and for fuel extraction technology. Several smaller Indian companies are already working towards developing bio-diesel. Companies like Nandan Bioagro and Labland Biotech have tied up with British oil company DI Oils to produce jatropha and trade in it.

The company will encourage hundreds of farmers to cultivate the crop under an arrangement with the company. Reliance Life Sciences will supply the know-how, saplings and fertilisers for farmers to cultivate the crop. The company is looking at the option of making bio-diesel out of jatropha seeds and trading the fuel along with conventional diesel, which the company specialises in. CSMCRI is the only institute in the country that has pioneered the growing of jatropha in India. The institute has also devised technologies to extract fuel from the jatropha seed. A jatropha seed contains 31 to 37 per cent extractable oil. A jatropha plantation over 100,000 hectares is expected to yield 250,000-300,000 tonnes of crude jatropha oil per annum. It is estimated that an initial 100,000-hectare jatropha farm will yield revenues of $100  mn per annum.

BHEL sets up solar plants

August 20, 2005. Bharat Heavy Electricals Ltd has commissioned solar power plants of ratings ranging from 2-5 KW in the tribal schools at various places in Jharkhand. The solar lights installed in schools at Tamad, Bundu, Amanburu, Simdega and many more places in the state have helped improve the academic performance of these tribal students. The initiative to make the most of the alternative energy source was undertaken by BHEL and Jharkhand State Tribal Development Corporation. The solar power plant is equipped with solar photovoltaic panels, battery banks and state-of-the-art power conditioning units for generating electricity using sunlight.

BHEL had earlier commissioned solar power plants in Andhra Pradesh, L akshadweep, West Bengal, New Delhi, Andaman & Nicobar, Jharkhan, Chattisgarh, Karnataka and Kerala. It has also commissioned solar power systems for various applications in rural areas for water pumping, police stations and banks. BHEL has also exported its solar cells and modules to various countries including Germany, Italy, Australia, Korea and Thailand.

Nod for panchayat windmill

August 18, 2005. The Levingipuram panchayat in Tirunelveli district in Tamil Nadu is set to become the first civic body in the State to own a windmill and generate electricity. The panchayat plans to establish a 225-KW windmill at a cost of Rs 9.5 mn. The project has been approved by the District Rural Development Agency. This project will help meet the power requirements of the panchayat that has been paying Rs 937,000 towards electricity bill every year. While the panchayat will meet 25 per cent of the cost, the balance will be extended as a loan by State Bank of India. The panchayat, besides meeting its power requirements, is likely to get Rs.740, 000 revenue through sale of electricity to the Tamil Nadu Electricity Board at Rs 2.70 per unit.


California for world’s largest solar farm

August 18, 2005. Stirling Energy Systems Inc. and Southern California Edison have entered into an agreement that would create a 7-square-mile solar farm in Southern California that by 2011 could power nearly 280,000 homes a year. Construction cost is estimated between $2 billion and $3 billion. The solar farm is slated to produce 500 MWs of power from 20,000 25-kilowatt Stirling solar dishes that are 38 feet tall. The project includes an option where the farm could be expanded to 850 MWs and 34,000 dishes.

Stirling's concentrated solar dish unlike photovoltaic panels that collect sunlight on a much smaller scale - harnesses heat from the sun with 82 mirrors and reflects it toward a series of hydrogen-filled tubes that expand when heated. The expanding gas cycles back and forth from cold to hot, and its movement powers a piston that creates up to 25 kilowatts of power.

Enbridge, Suncor to build Alberta wind power plant

August 17, 2005. Enbridge Inc. a subsidiary of Suncor Energy Inc. and a unit of Spain's Acciona group have teamed up to build their second wind power plant in southern Alberta. The C$60  mn ($50  mn), 30 MW Chin Chute wind project is expected to produce enough electricity to power 14,000 homes and comes at a time when Ottawa is urging greater use of non-polluting sources of energy. The project will start being built next month near the town of Taber, some 266 km (165 miles) southeast of Calgary. Construction is scheduled to start in September with service beginning in late 2006.

Enbridge, Canada's second largest energy pipeline company will fund a third of the cost of the venture, which includes Suncor Energy Products and EHN Wind Power Canada as partners. Another 30 MW venture owned by the same consortium is based in the nearby town of Magrath.

Alternative energy sources stressed by Pak

August 17, 2005. Pak government was working on a strategy to meet the growing energy needs and provide electricity to all by 2007. The government would enhance power generation and encourage use of alternative energy resources. The strategy aimed at intensive exploration of gas in the country to sustain the momentum of economic growth. The government was looking for alternative energy sources through solar and windmill for the areas where electricity was difficult to provide through Wapda.

The government was committed to providing electricity to every village by 2007 and that under the Khushal Pakistan Programme resources would be provided to meet the target. The 9,467 villages had already been electrified and the rest would be provided with electricity by 2007. The allocation policy for provision of gas had been reviewed to ensure uninterrupted supply for industrial and domestic use and added that the new policy would be announced soon. Private and public sector investment would be encouraged for setting up new projects both in hydel and thermal electricity generation.




Subscription Form

Please fill in BLOCK LETTERS

Subscription Terms


Subscription Rates for Corporates: Rs. 15,000/- per annum. This includes one hard copy as well as soft copies to staff of the subscriber. Selected ORF publications as well as advertising space in one issue of the ORF Energy News Monitor are offered as introductory free gifts. Substantial discounts available for NGOs, Research Institutes, Libraries, Educational Institutes, Industry Associations & Chambers, Individuals & Students.


Yes! I/we would like to receive copies of the weekly ORF Energy News Monitor for a period of ______year(s).  I/we shall be entitled to one hard copy along with the option of soft copies to a list of e-mail addresses provided by me/us for the period of subscription.  I/we also note that I/we shall get select ORF publications brought out during the period of subscription free. 






Please find enclosed cheque/Bank Draft No.........................dated …………………drawn at New Delhi for Rs.........……….favouring ‘Observer Research Foundation


Please fill in this form and mail it with your remittance to


ORF Centre for Resources Management


20 Rouse Avenue

New Delhi - 110 002

Phone +91.11.3022 0020 extn 2120 (Janardan Mistry)

Fax: +91.11.3022 0003

E-mail: [email protected]



Registered with the Registrar of News Paper for India under No. DELENG / 2004 / 13485


Published on behalf of Observer Research Foundation, 20 Rouse Avenue, New Delhi–110 002 and printed at Times Press, 910 Jatwara Street, Daryaganj, New Delhi–110 002. Publisher: Baljit Kapoor, Editor: Lydia Powell


Disclaimer: Information in this newsletter is for educational purposes only and has been compiled, adapted and edited from reliable sources.  ORF does not accept any liability for errors therein.  News material belongs to respective owners and is provided here for wider dissemination only.  Sources will be provided on request.


[1] BP statistical review of world energy 2004.

[2] World Energy Outlook 2004 (by International Energy Agency)

[3] Based on the technologies for electricity generation.

[4] Estimated by using the statistics from


[5] Ibid

[6] Studied by Prayas Energy group.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.