MonitorsPublished on Nov 28, 2006
Energy News Monitor I Volume III, Issue 23
Russian Electricity Restructuring

(Ken Silverstein, Editor-in-Chief, EnergyBiz Insider)


ussia's electricity consumption is growing at a 5.3 percent rate. While that is in some part indicative of a growing economy, it is also presenting problems as it relates to the current restructuring of the electricity sector. The goal of liberalization is to attract foreign investment and to rebuild the nation's energy infrastructure. Nuclear generators there must be replaced within 10 years, all to enable the nation to achieve its state objective of doubling its nuclear output by 2020.

The transmission system, meanwhile, has been in decline since the fall of the Soviet Union. But, the democratic process is starting to take root and the economy has been perking up. It's a challenge, although the good news is that Western nations may now have more of an appetite for investment in Russia. Basically, restructuring involves the privatization of RAO Unified Energy System (UES). The company now comprises 72 percent of the installed capacity, 69 percent of power production and 71 percent of customer sales, all in Russia.

RAO UES is now being split into separate generation, transmission and distribution companies. At this time, the government's stake in the state-owned power company is 53 percent. By 2008, however, all non-nuclear plants and all regional distribution systems will be privatized. Meanwhile, the transmission system will remain government-owned and tightly regulated while no single private owner can control more than 35 percent of generating capacity in any price zone. According to RAO UES Co. electricity supplies to multiple regions of Russia including Moscow and St. Petersburg will soon be restricted. Russian power generators may not have the ability to meet this coming winter demand and the company may therefore have to import electricity from such countries as Ukraine, Kazakhstan and Lithuania.

The strain on the current electricity infrastructure in Russia means that foreign investment is urgent. RAO UES has promised to auction its assets in a competitive and transparent manner. Several nations have expressed an interest in acquiring minority shares of generators. The economic doors are open. Russia has reformed its banking systems and recognized capital-driven regulations that would attract market participants. It is also rich with natural resources and has enterprises with investment grade ratings. Clearly, the government there will continue to play an integral role. But, its policies are evolving and allowing for private and foreign ownership in major energy enterprises.

Russia comes to the "West with reasonably open arms," says Greg Vojak, partner in Bracewell & Patterson's Kazakhstan office. "One of the most important things for any company seeking to do business in the former Soviet Union is to look for a good partner." American rules and regulations, by comparison, may have fewer financial impediments that would detract investors. And, for better or worse, those laws are replete with environmental hurdles that can add years of expense, he adds.

No one underestimates the difficulties in restructuring. State subsidized electric prices have not only led to improvidence but it has also rendered RAO UES unable to recover its costs tied to infrastructure and equipment. Estimates are that $100 billion is needed to bring the power structure there up to speed - something which the private sector is thought best suited to provide. At the same time, the country is wary about selling off state-owned assets and especially to foreigners, having been burned in the mid-1990s by similar sales that let a few oligopolies run much of Russia's industry. Meanwhile, Western nations have had mixed results when it comes to deregulation, leading skeptics to question whether Russia's newly-formed democratic institutions can master such a colossal feat.

But the choice to restructure and to allow more private participation is unavoidable, albeit the approach to achieving that goal must be prudent. Restricted foreign investment is expected to result in electricity output shortfalls this winter. Those constraints are anticipated to last until the infrastructure there gets a facelift. Moreover, fresh thinking would usher in new internal processes and systems, all of which would help alleviate the inefficiencies that have produced waste within the organization.

The difficulty in attracting investors to a nascent industry with highly subsidized prices and no concrete path to fully operational open markets is readily apparent. If power producers were to recapture their costs and earn fair returns, prices would likely jump as much as 200 percent -- an unlikely scenario, given the social instability it would cause. In fact, prices for consumers are expected to remain regulated until 2008 while low-income residents will receive additional protections. Russia's investment climate has been harsh. But, the country knows better than to rush headlong into restructuring. A reasoned process that motivates foreign investors while maintaining domestic stability is a good approach. The country needs to increase the efficiencies of both its grid and power plants and can only modernize by opening its borders to the West.

Courtesy: EnergyBiz Insider, a e-newsletter from Energy Central.

The Phenomenon of rising Costs: A Challenge for Producing Countries


he rising cost of projects in various phases of the international oil industry is a source of concern for the producing countries and the companies operating in the industry. It is one of the major factors behind the reconsideration of some planned projects in certain regions of the world, leading either to temporary postponement or total shelving in some cases. Such decisions may hinder OPEC countries' efforts to boost production and refining capacity so as to calm prices and stabilize markets.

The high costs, particularly those relating to engineering, procurement, and construction (EPC), have become a critical issue for the world oil industry-and the gas, petrochemical, and power generation industries-in the last two or three years, in light of the global trend toward implementing projects aimed at adding capacity in all sectors. There are now about 100 exploration and production projects in OPEC countries alone, with a total price tag of about $100 billion.

The increased number of projects has led to shortages of some production factors, expertise, and essential equipment, and high prices for some basic materials, such as iron and cement, for which other construction projects throughout the Middle East are competing. Moreover, development projects in Asian countries with high growth rates, such as China and India, are adding to the pressure on such resources.

All of these factors have pushed up the cost of new projects and inflated their final costs, sometimes to more than double their initial estimate, in most regions of the world, including OAPEC member countries. What has exacerbated the problem in the case of some projects is that the implementation has encountered unforeseen difficulties that were not included in the initial estimates. At the Sakhalin-2 development project in Russia, the costs were initially estimated at about $10 billion, but they have now spiralled to about $20 billion and are predicted to rise further still.

In view of these circumstances, some countries and companies have had to postpone or scrap implementation of some planned or proposed projects. In the US state of Arizona, for example, the idea of building a new refinery has been abandoned mainly on the grounds of cost. Nevertheless, OPEC countries are pursuing with a vengeance the execution of plans to expand their production and refining capacity. Some of them, in particular some OAPEC members, are bearing additional costs as they pay incentives to ensure the prompt completion of projects.

The stability of costs around a project's estimate is one of the challenges facing OPEC countries, and OAPEC members in particular, especially in light of the uncertainty surrounding world demand for oil. What exacerbates the state of uncertainty is the insistence of major consuming nations that OPEC countries boost their investments in additional output capacity, while they are taking measures to cut their dependence on oil, particularly oil from the Arab region. Some petroleum exporting countries have therefore started questioning the efficacy of expanding their production capacity, in light of demand uncertainty caused by industrial countries announcing plans to shift away from oil to other sources and when costs are spiraling ever higher. Nevertheless, OAPEC member countries, out of a sense of responsibility, are proceeding in earnest with their programs to boost production capacity, despite the escalating costs.

OAPEC hope that the steps taken to establish the International Energy Forum in Riyadh will lead to transparency and more reliable reading of demand, so that the investments made now can help achieve the goal of sustainable development.

Courtesy: Organization of Arab Petroleum Exporting Countries Monthly Bulletin (August – September, 2006)


Winner of NELP VI Block


































Cairn India
































Essar Energy/Oil








Adani Enterprises




Source: Business Standard 24th November





ONGC scripts $2 bn Bombay High funding

November 28, 2006. ONGC, the biggest player in the country’s crude oil exploration and production business, is planning to invest around Rs 9,000 crore ($2 bn) in phase two of the redevelopment of Bombay High.  The field produces about 70 per cent of domestic crude oil of close to 3,00,000 barrels per day.  This is in addition to the Rs 3,000 crore that the company is spending on replacing the process platform in Bombay High North that was destroyed in a major fire last year. The new platform is expected to be install by the end of the year.  The plan, expected to be kicked off in 2007, will restrict the declining production from the field by increasing the recoverable reserves to 41 per cent from the present 31 per cent and includes the development of 17 new wells and two new process platforms. The plan worked out by ONGC will lay emphasis on layerwise exploration of hydrocarbons to enhance oil recovery to the tune of 35 per cent from the 32 per cent envisaged for the first phase of the redevelopment plan. 

Under the first phase of the plan, in between 2000 and 2007, the company plans to invest about Rs 8,300 crore in drilling 210 new wells and installing 10 new platforms and two process platforms. A fourth of the production from the field comes from the new wells. ONGC is also planning to invest close to Rs 10,000 crore in developing the 29 marginal fields in the Mumbai High and Bassein area.  These fields are expected to produce 12-15 metric standard cubic metre of natural gas per day (mmscmd) and close to six million tonnes of oil per annum by 2012. 

Cairn yet to find solution for evacuation of Rajasthan crude

November 28, 2006. Cairn India is yet to find a solution for evacuation of its Rajasthan crude scheduled to start flowing in 2009. The company has identified four finds Mangala, Bhagyam, Shakti and Aishwariya with an estimated plateau production capacity of 1,50,000 bpd. Cairn holds 70 per cent stake in the block and the residual stake is held by ONGC. The Centre had earlier nominated Mangalore Refineries and Petrochemicals Ltd (MRPL) an ONGC subsidiary for evacuation of the Rajasthan crude. Though initially planned to set up a grass root refinery at Barmer in Rajasthan, MRPL later developed a cold feet on the project, reportedly due to issues related to returns on investment. The proposal for evacuation of the crude for refining it at MRPL's existing refinery at Mangalore also did not find much headway.

ONGC steps on the gas, eyes UK's Premier Oil

November 25, 2006. India’s largest oil producer, ONGC, may consider making a bid for UK-based Premier Oil to add assets in the oil-rich North Sea and Indonesia to its expanding global portfolio. Premier Oil has been a takeover target for long. Besides ONGC, global oil majors like the Royal Dutch Shell group of companies, a UAE-based company and Mexico’s Pemex are strong contenders to acquire Premier Oil. ONGC has been aggressively scouting for oil assets abroad to build a portfolio of blocks with rich prospects. It has invested about $1.7 billion in Sakhalin with Exxon-Mobil and in Sudan. It is also scouting for opportunities in Nigeria and Africa’s west coast. After the much publicised failure to acquire Kazakh Oil in ’05, OMEL is eager to make an acquisition and is examining the possibility of making an offer. Premier Oil produces oil from North Sea and Indonesia, two regions rich in hydrocarbon reserves. The company could be worth as much as $2 billion. It also has assets in Pakistan which could become a problem for ONGC or any other Indian company if it manages to acquire Premier Oil.

ONGC gets 21 NELP blocks

November 24, 2006. Setting aside the controversial recommendations of the Directorate General of Hydrocarbons (DGH), the Empowered Committee of Secretaries (ECS) decided against penalising upstream major Oil and Natural Gas Corporation for a poor exploration record, choosing to award it 21 blocks.  These will include the 12 deep-water blocks that the DGH sought to deny the company, though it was the highest bidder, citing poor past performance in exploration, as well as the surrender of some blocks.  In a rather unique formula, the DGH had suggested giving away the blocks, auctioned under the just concluded New Exploration Licensing Policy (NELP) VI, to the second highest bidders through a process of negotiation. ONGC’s consortium partners for the deep-water blocks, which would also have been hurt by the decision, include Gujarat State Petroleum Corporation, Hindustan Petroleum, GAIL (India) Ltd, Bharat Petroleum, and Cairn.   

The ECS upheld the “clear recommendations” given by the DGH for all the other blocks. Its decision, which has to be ratified by the Cabinet, means that ONGC will walk away with the largest chunk of the blocks on offer under NELP VI. The other large gainer in the round is Reliance Industries, which is set to bag seven blocks. Gas and pipeline major GAIL (India) has a stake in 15 blocks, Oil India, in seven, while Indian Oil and Cairn India have a stake in two blocks each. International companies like Santos, Prize Petroleum, and Naftogaz have also managed to secure stakes in multiple blocks. The production sharing contracts for the blocks are expected to be signed by January 2007. 

Petromin clears 36 blocks in NELP -VI

November 23, 2006. The petroleum ministry has rejected 14 bids under the New Exploration Licensing Policy (NELP-VI) round, including those of Essar Oil, Niko Resources, Finder and M3Nergy in 14 blocks. The first rank bidders recommended for the award of blocks include consortia led by Reliance Industries (RIL), ONGC, Gail, Cairn, Santos, FOCUS, GSPC, Oil India (OIL), Petrogas, Prize Petroleum, Tatas, Adani and Anil Ambani-owned RNRL. As per the recommendation by D-G (hydrocarbons), RIL has consolidated seven blocks on the Krishna-Godavari and Mahanadi deep water basin. While Essar Oil “could not score in technical capability as required in the notice inviting offer (NIO)” in seven blocks, its name is recommended as first rank bidders for two blocks.

The upstream regulator directorate-general of hydrocarbons (DGH) has given clear recommendation for award of 36 blocks (nine deep water, six shallow water and 21 on-land) in favour of first rank bidders. It has, however, recommended negotiations with some bidders where the fiscal package offered is erratic. Negotiations has been recommended for all the seven blocks in which RIL has emerged the first rank bidder. Of the 52 blocks recommended to be awarded, ONGC bagged 20 blocks, it has bid for 36 blocks. It is understood that DGH has not recommended award of 16 blocks (12 deep water and 4 on-land) to first rank bidder ONGC “on grounds of past performance in the deep water blocks, already held by them and other reasons for the on-land blocks.

Seven out of 21 high potential deep water blocks have been recommended for Mukesh Ambani-owned RIL. RIL had submitted bids for 21 deep water blocks as part of its strategy to have a contiguous area of exploration in KG basin and Mahanadi basin. Santos International appeared successful bidder for two deep water blocks as first ranked bidder. The consortium led by Anil Ambani group companies RNRL has been recommended for one on-land block. Its partners are Naftogaz and Geopetrol. Out of bids received for 52 blocks, single bids have been received for 13 blocks. These bids have to be evaluated on the basis of the bid work programme and the fiscal package. The government has invited bids for 55 blocks in the NELP’s sixth round. Total 165 bids were received for 52 blocks, while 39 blocks received multiple bids, single bids were submitted for 13 blocks. 

Hunt for oil in Brahmaputra hits roadblocks

November 22, 2006. India's plans to dig the Brahmaputra river to hunt for new crude oil reserves has hit new roadblocks with several influential pressure groups as well as a separatist outfit in Assam opposing the move. The state-owned Oil India Ltd (OIL) made a whopping $22 million agreement with the Kazakhstan Caspi Shelf, a Kazakhstan based oil exploration firm, to conduct a 2-D seismic survey along a 175 km stretch of the Brahmaputra in Assam. The survey was scheduled to begin this month with the expected completion time of about two years. The project is now unlikely to take off as scheduled with the company yet to get environmental clearance from the union ministry of environment and forests.

The 2,906-km river one of the longest in Asia traverses Tibet, India and Bangladesh before emptying into the Bay of Bengal. India produces about 30 million tonnes of crude oil annually, with Assam accounting for about five million tonnes of the total. Assam has over 1.3 billion tonnes of crude oil and 156 billion cubic meters of natural gas reserves of which about 58 percent of hydrocarbon reserves are yet to be explored. Assam accounts for nearly 50 percent of India's on-shore crude oil production and has the highest success ratio in the world with 70 percent of the exploration sites yielding oil. Assam is home to the world's oldest operating oil refinery, the Digboi Refinery, established in 1901.


RIL to sell cooking gas at 33 pc discount to LPG

November 28, 2006. Reliance Industries is all set to change the rules of domestic cooking gas business. The company, which has applied for gas distribution licences for 100 cities across the country, plans to supply at 33% discount to LPG price. The price of cooking gas is about Rs 300 for a 14.2-kg cylinder. The government is finalising a city gas distribution policy, which will strike a balance between consumer interest and returns to investors. Gas production is likely to start by July 2008 from D6 gas field in the Bay of Bengal, which has in-place reserves of 50 trillion cubic feet (TCF). The company has also revised its estimate of recoverable reserves from Dhirubhai 1 and 3 gas finds to 11.3 TCF from 8.3 TCF. It has already submitted its revised plan to upstream regulator Directorate General of Hydrocarbons earlier this month.

Punj plans refinery in Russia

November 27, 2006. Engineering and construction major Punj Lloyd has evinced interest in setting up a refinery in Russia to tap its vast oil reserves.  Punj Lloyd is exploring possibilities to set up an oil refinery in the Takhtamukai region of Russia.  Punj Lloyd has been working in the oil and gas sector and has been looking for opportunities to participate in new or existing projects in various countries.  The project entails upgradation of existing units and raising the capacity from 1.3 lakh barrels to 1.5 lakh barrels per annum. The company has also bagged an EPC order worth Rs 803.70 crore for the Doha Urban Pipeline Relocations Project from Qatar Petroleum. 

Essar refinery goes on stream

November 25, 2006. Essar Oil has started operations at its long-delayed Vadinar refinery with a trial production of 7.5 million tonnes per annum of crude, which will gradually go up to 10.5 million tonnes per annum. The Rs 10,826-crore project has the capability to produce petrol and diesel for use in India as well as international markets. LPG, naphtha, light diesel oil, aviation turbine fuel and kerosene will also be produced. The project has been designed to handle a diverse range of crudes — from sweet to sour and light to heavy. Globally, the refinery business is going through a super cycle with projects operating at over 98% capacity utilisation. There has been little addition to refining capacities in the past three years and new projects are not expected to come up before the end of ’08.

HPCL refinery contract goes to EIL

November 23, 2006. The long-delayed Bhatinda refinery project of Hindustan Petroleum Corporation (HPCL) crossed another significant milestone, with the award of the project management consultancy contract to Engineers India Ltd (EIL).  The 9-million-tonne greenfield refinery, involving an investment of Rs 13,800 crore, is scheduled to be completed by September 2010. The refinery project is being implemented by HPCL subsidiary floated for the purpose – Guru Gobind Singh Refineries Ltd (GGSRL).  HPCL will invest Rs 3,450 crore to build the crude oil receipt, storage and transfer facilities, which will be completed to coincide with the refinery completion. The refinery has been configured for processing heavy and sour crude, which would enable it to garner the best refinery margins in the country.

Govt may open local LPG tap for vehicles

November 23, 2006. The government may lift restrictions on the supply of indigenously produced liquefied petroleum gas (LPG) for use in automobiles. Companies like Reliance Industries, ONGC, Gail, IOC, BPCL and HPCL may be able to sell domestically-produced LPG for use in automobiles. Currently, indigenously-produced LPG is supplied for domestic consumption only, while imported LPG is used in automobiles. The government may review the policy. Currently, domestic LPG has the first claim on indigenously produced LPG. This puts a restriction on oil marketing companies (OMCs) and on private players in the supply of LPG for use in automobiles. Supplying LPG to automobiles is more profitable to OMCs than supplying LPG to households due to under-pricing.

The review will be done to include it in the Eleventh Five Year Plan starting from April ’07. Experts believe that a liberal policy on the use of indigenously produced LPG may also be indicative of a reduction in the subsidy on domestic LPG. OMCs are still losing Rs 140 per cylinder on cooking gas. Allowing indigenously produced LPG for use in automobiles as fuel will certainly help oil companies, but the government will also have to evolve a mechanism to ensure adequate supply of cooking gas to households. Supply for domestic consumption can be maintained through imported LPG, which will require subsidy to be reduced, if not completely eliminated. The approach paper to the Eleventh Plan projects that gas consumption may go up to about 55 MTOE with imports reaching 20 MTOE, unless the recent finds announced in the KG basin actually start flowing in significant quantities by the terminal year of the Plan. 

EIL, Punj Lloyd bid for Libya refinery

November 22, 2006. Engineers India Ltd (EIL) and Punj Lloyd Ltd have made a $1.6-billion joint bid to upgrade and expand Azzawiya refinery in Libya. EIL, which designs oil refineries and chemical plants, and Punj Lloyd are equal partners in the consortium that bid for the engineering, procurement, construction, and management contract. Libya's National Oil Company owns the Azzawiya refinery, now processing about 100,000 barrels per day. After the upgradation, the capacity at the refinery is likely to go up to 120,000 barrels per day. Azzawiya Oil Refinery Company, a subsidiary of Libyan National Oil Company, is implementing its revamp and modernisation programme.  They are supposed to operate the refinery for a period of six-months after completion of the expansion to stabilise it. The refinery will then be handed back to the Libyan company. This is part of Libya's $3.5-billion programme aimed at modernising its refinery infrastructure over the next five years.

Transportation / Trade

HPCL still open to LNG terminal project plan

November 26, 2006. Hindustan Petroleum Corporation Ltd plans to foray into liquefied natural gas terminal project once it is able to ensure supplies. The company has been mulling setting up a greenfield LNG terminal in Mundra, Gujarat, as part of its plan to enter the business of gas distribution. Besides, it has also been in talks with Shell for acquiring stake at the latter's Hazira terminal. HPCL had entered into a memorandum of understanding with Shell India Pvt Ltd in March 2004 for product infrastructure and facility sharing between both the companies. The MoU envisaged that Shell and its affiliate companies and HPCL would evaluate and work towards an agreement for HPCL to participate in the LNG business in India. As regards plans for developing a five million tonne per annum (MTPA) LNG import terminal at Mundra on its own, the detailed feasibility study had already been completed. The project cost is pegged at around Rs 2,600 crore. The scope of developing the LNG terminal at Mundra also includes associated gas evacuation pipelines from Mundra to Delhi.

Qatar offers LNG for Dabhol

November 25, 2006. Qatar has agreed to supply 1.2 million tonnes per annum of liquefied natural gas (LNG) to fire the Dabhol power plant in Maharashtra, but differences persist over the price. Rasgas has agreed, in principle, to supply 1.2 mmtpa of LNG from March ’07 to early ’09.”  Petronet LNG, which has been contracted by Ratnagiri Gas and Power — the new owner of Dabhol plant, would import 1.25 mmtpa of LNG at its Dahej terminal in Gujarat and supply it to the power plant through the Dahej-Uran pipeline.

However, the two sides have not been able to agree on the price of gas. While Rasgas marginally lowered its earlier offer price of about $10 per million british thermal unit (mbtu), the Indian firm was willing to pay no more than $5.5 per mbtu. They are still insisting on a price of $7-8 per mbtu. The Dahej terminal already receives 5 million tonnes per annum of LNG from Rasgas under a separate long-term contract. The terminal has 1.25 million tonnes of spare capacity that would be utilised for imports for Dabhol. LNG will be imported at Dahej as the 5 million tonnes per annum LNG import facility adjacent to the Dabhol power plant, though to be fully completed by March ’07, cannot be operationalised without a breakwater. 

GAIL in talks with Algeria, Nigeria for LNG supplies

November 24, 2006. The state-owned gas transmission and marketing company GAIL (India) Ltd is in discussions with Algeria and Nigeria for five million tonnes long-term LNG supply deals for its Ratnagiri LNG terminal, which is to be commissioned by mid-2007. The company is in talks with both the countries for long-term LNG deals of 2.5 mt each, with supplies beginning from 2009. In the interim period, till long-term supplies become available, GAIL will be using re-gasified LNG supplied by Petronet LNG Ltd (PLL) from Dahej terminal in Gujarat to fuel the power plant of its joint venture Ratnagir Gas and Power Pvt Ltd, formerly Dabhol Power Company. PLL is expected to source 1.2 mt of LNG from Qatar.

The re-gasified LNG from Dahej is to be transported to Ratnagiri terminal via a new Dahej-Uran-Ratnagiri pipeline under construction by GAIL. The pipeline is scheduled to be made operational by March 2007, when the gas will help to revive the 2,140-MW power plant, he said. The power plant has been shut down for last several years except for two months this year (May and June), when one of the three units was made operational using holding stock of naphtha fuel. The re-gasified LNG to be supplied by Petronet will help us generate around 1,000 MW of power. Enthused by the successful trade of LNG bought in spot market and sold in domestic market after re-gasification at Dahej, GAIL is now looking at using its own facility at Ratnagiri for merchant sales of around 2.9 mt of spot cargo after re-gasification.

Great Eastern Energy, IOC in pact

November 22, 2006. Great Eastern Energy Corporation Ltd (GEECL) plans to form joint venture with IOC for marketing and distribution of city gas and compressed natural gas (CNG) in the Durgapur-Asansol industrial belt in West Bengal. The company is exploring coal bed methane (CBM) in Ranigunj block in West Bengal and has recently completed drilling of the first 20 wells resulting in a production of 350 mcfd. Commercial production of CBM is expected beginning June 2007. The estimated gas in place in the block is 1.386 tcf. GEECL is scheduled to drill 100 wells in the block over four years. Since CNG primarily consists of methane, CBM can be converted into CNG by setting up compression facilities. The companies will also join hands in city gas distribution in the area dotted with a number of small towns and cities including Asansol, Raniganj, Durgapur, Kulti, and Barakar.

Policy / Performance

Anil Ambani’s pipeline project put on hold

November 27, 2006. The petroleum ministry has put on hold the Anil Ambani group’s proposed project for laying a natural gas pipeline from the Krishna-Godavari basin of Reliance Industries Ltd (RIL) to its power project in Dadri, Uttar Pradesh. This is because Reliance Natural Resources Ltd (RNRL) is yet to sign a gas sale and purchase agreement (GSPA) with RIL. The ministry has simultaneously asked RIL to clarify “whether it would supply gas to Reliance Fuel Resources Limited (RFRL), a subsidiary of RNRL”. In May, RFRL had applied to the ministry for right of use (RoU) to build a natural gas pipeline from Kakinada to Dadri.

The ministry had earlier rejected the gas pricing formula for sale of gas by RIL to RNRL because it was not derived on the basis of competitive arms-length sale in the region. RIL has, accordingly, been asked to submit a revised formula. RNRL has already submitted the gas supply master agreement signed with RIL on January 12. But the ministry has held the clearance pending a GSPA between the two. “It is only the signing of the GSPA that would ensure a tie-up for gas for the proposed pipeline. The GSPA can be signed only after a gas price formula is submitted by RIL and approved by the government.”

Oil & gas explorers face talent crunch

November 23, 2006. Retaining talent in the exploration and production (E&P) segment has become one of the most challenging tasks in the oil and gas business. The problem has aggravated with the surge in interest among global oil and gas majors in India following major hydrocarbon discoveries in the past four years. India’s largest private sector explorer, Reliance Industries (RIL), has more than doubled the salary of its E&P employees, in a bid to retain talent. State-run ONGC, on the other hand, is attempting to lure back former staffers who joined private firms in India and overseas. Besides attractive remuneration, ONGC is offering them enhancements like profit sharing, periodic incentives and accommodation, amongst others.

Cairn has offered its Indian CEO stock options worth Rs 100 crore and plans to introduce employee stock options plans (ESOPs) for its middle and junior level employees. The company is on a massive recruitment drive to start commercial production from its Rajasthan fields. The company has put out advertisements in the Far-East, Middle-East and India seeking geo-scientists and engineers. Royal Dutch/Shell has hired 75 new employees for its new research and development centre in Bangalore. In the last five years, global giants like BP, Shell, British Gas, Total of France, ENI of Italy and Cairn Energy have shown keen interest in the Indian E&P sector and are hiring Indian professionals for E&P activities in the country.

ONGC not to sell Sakhalin crude in open mkt

November 22, 2006. The country's largest upstream company, Oil and Natural Gas Corporation (ONGC), has ruled out selling its share of crude oil from the rich Sakhalin oilfields in the open market. Instead, it has decided to refine the entire crude at its subsidiary in Mangalore.  The current plan is to bring the entire crude from Sakhalin to Mangalore Refinery and Petrochemicals Ltd (MRPL). ONGC, through its wholly owned subsidiary ONGC Videsh Ltd (OVL), holds a 20 per cent stake in Sakhalin-I, which translates to a share of 50,000 barrels per day at peak production.  This decision, however, could change if the price of crude oil in the international market falls further from the current 18-month lows. 

The first batch of Sakhalin crude will reach MRPL on November 30, 2006, while the second batch is expected by end-December. The first two cargoes will be almost 700,000 barrels each.  Sakhalin-I is one of the six OVL projects which are already under production, out of the 26 projects that it part-owns across 15 countries. The producing assets yielded 6.34 million tonnes of oil equivalent (mtoe) in the last financial year. This is expected to go up to 7.5 mtoe in the current year. Sakahlin crude oil is expected to perk up refining margins at MRPL from the current level of $5 per barrel.



NTPC plans to invest $2 bn in new projects

November 28, 2006. The power major NTPC is giving final touches to a fast-track capacity build-up plan by which the company will pump in almost Rs 9,000-crore ($2 bn) equity capital over the next few years to develop at least two ultra mega power projects totalling 8,000 MW. The total project cost is estimated at Rs 27,000 crore. The company plans are being closely monitored by the power ministry which is working in coordination with the PMO, the ministry of heavy industries and the Central Electricity Authority (CEA).

Along with the two mega power projects, the plan also involves an investment of Rs 5,000 crore for development of captive mines so that the projects do not miss the deadline due to fuel linkages not being in place. NTPC itself has been allocated captive mines linked to its future power capacities. The plan is to work on an enabling mechanism for NTPC to be the key driver of capacity addition in the country over the next five years. According to projections, NTPC, which is the central power utility, will develop at least 45% of the total capacity addition in the next five years and should end up adding 22,000 MW by 2011-12. The power shortage in the country has been identified as one of the major constraints in the growth of the economy. NTPC is likely to rope in equipment major Bhel as its partner for developing the power plants.

NTPC proposal for Lanka power plant

November 27, 2006. State-run power major, NTPC will submit a proposal to the Government of Sri Lanka to set up a 900 MW coal or LNG based power plant in that country. The proposal is still under discussion and NTPC is likely to sign a memorandum of agreement with the Sri Lankan Government shortly.

UP okays capacity hike at Rosa plant

November 27, 2006. The Uttar Pradesh government has approved the Reliance Energy (REL) proposal to double the capacity at the Rosa power project to 1,200MW. Rosa, which has received mega-project status, will require an estimated investment of almost Rs 5,500 crore. REL can sell power at Rs 2.69 per unit to Uttar Pradesh Power Corporation (UPPCL). The state has set 2010 as the deadline for the project, which will generate about 900 crore units annually. The project has got all clearances and land acquisition was completed recently. Construction will start in January 2007. The ministry of coal has granted a long-term fuel supply linkage. Coal will be supplied from Jharkhand’s Ashoka mine owned by Central Coalfields. The railways have also approved the coal transportation agreement for transporting coal to the project site. Water use agreement for the project has also been signed with the state government.

Essar pre-qualifies for $2.5 bn UAE power project

November 27, 2006. Essar Power (EPL) has been pre-qualified in the bidding for the largest greenfield water and power projects in the United Arab Emirates valued at around $2.5billion. EPL is the only Indian firm qualified among 20 international companies for the second project in Fujairah. The request for proposals (RFPs) have been issued and the bids are due on March 29, ’07. The developer will be shortlisted by May 10, ’07. The qualified bidder will set up 2,000-MW gas-based power plant and 130 million gallons per day desalination plant in Fujairah. The project is expected to start power generation in April ’10. Abu Dhabi Water and Electricity Authority (ADWEA) will buy electricity and water from the plants and distribute across the state.

BHEL Trichy to expand capacity

November 24, 2006. Bharat Heavy Electrical Limited (BHEL), Tiruchirapalli is planning to expand its manufacturing capacity from 4,000 MW to 5,800 MW.  The expansion programme, at an outlay of Rs 190 crore, was part of the Rs 1,000 crore expansion plan charted out by BHEL to increase the capacity of its manufacturing units across the country.  The expansion plan had already begun and around 60 per cent of the required machineries had already started arriving at the site.  Orders for the rest of the machineries needed would be placed by December 2007, and the expanded BHEL complex would become operational by December-end, 2007. The unit was also planning another expansion on the heels of the current project, at an outlay of Rs 500-600 crore.  This would enable the unit to have an installed capacity of close to 8,000 MW.

Transmission / Distribution / Trade

Power sector road map focuses on T&D

November 24, 2006. With the government’s promise of power for all by 2012 just five years away, the Planning Commission has in its approach paper to the Eleventh Plan, Towards A Faster And More Inclusive Growth, provided a road map for the sector. Emphasising the often ignored sectors like transmission and distribution, the Panel paper also highlights the need for rehabilitation and renovation of existing plants to improve efficiency.

Ensuring availability of fuel like coal and gas for all new projects is central to this road map. In the current plan, nearly one-third of the 13000 MW gas-based capacity remains unused due to unavailibility of gas. In the same vein, it has suggested consensus on royalty rates for fuel and compensation for host states. Efficient inter-state and intra state transmission system of adequate capacity, that is capable of transferring power from one region to another is another key area. Distribution system that has been an area of concern also finds a mention — an efficient distribution system that alone can ensure financially viable expansion. In keeping with the focus on hydro power, the paper recommends rehabilatation of hydro power plants to yield additional peaking capacity. 

Tech transfer pacts may clinch power projects

November 24, 2006. Access to new technology, along with tariff, may emerge as the determining factor for the 4000MW ultra mega power projects. Taking a cue from BHEL, which has argued on the importance of accessing supercritical technology for India, foreign power equipment manufacturers like Mitsubishi and Doosan have entered into technology transfer agreements with Indian manufacturers/power developers. Even though the ultra mega power projects will be awarded through tariff-based competitive bidding, this development may help improve the prospect of some of the power developers bidding for these projects. Consider this, L&T, which is bidding for both Sasan and Mundra power projects, doesn’t have the expertise to manufacture even in sub-critical turbines. But, its technology transfer agreement with Mitsubishi may place it in a better position. Tata’s tie up with South Korea’s Doosan will have a similar beneficial impact.

L&T has been manufacturing only boilers. For the UMPPs, it will need to straightaway start production of supercritical turbines. However, companies like BHEL do have this kind of expertise and technology, which simply need to be upgraded to super critical. Similarly, Korean power equipment manufacturer Doosan has tied up with Tatas for jointly bidding for the UMPPs. The real impact of this trend will be felt by BHEL. The Indian power equipment manufacturing major has been in talks with NTPC for eight to 10 of the power generating major’s projects on a negotiated basis. BHEL has argued that the award of eight to 10 projects on a negotiated basis will help the technology transfer process. This would help the country acquire the much-required 800MW super critical technology. It has argued that assured projects from NTPC on a negotiated basis are crucial for developing the country’s technology base BHEL has a technology transfer agreement for the 800MW supercritical technology with Alstom and Siemens.However, with other Indian power equipment manufacturers signing technology transfer agreements, BHEL’s argument seems to lose some steam. 

Siemens India bags another Qatar contract

November 23, 2006. EPC major Siemens India has won a repeat order worth Rs 4,000 crore from Qatar General Electricity and Water for the development of power transmission network in that country. The order was awarded to a consortium of Siemens India and Siemens Germany. This is the largest order won by the Siemens power transmission and distribution businesses worldwide. Under the contract, Siemens will supply 25 new fully automated unmanned substations of varying voltages as well as extend 14 substations and renovate 10 older substations. The project is expected to be completed in 22 months.

PGCIL to set up transmission lines for Sasan, Mundra

November 23, 2006. The state-owned transmission major will be setting up the power evacuation system for the Sasan and Mundra ultra mega power projects. The transmission system for these two projects will cost Rs 10,000 crore. Some 22 lines costing Rs 8,000 crore will be set up in the western region, while another nine lines costing Rs 2,000 crore will be set up in the North. The transmission charges for the Sasan and Mundra systems will be borne by the northern and western regions. The charges will be split as a ratio of their allocation from the Sasan and Mundra plants and pooled into the regional transmission charges of the respective regions. Himachal Pradesh, which will not draw from these projects, has asked that the recovery mechanism for tranmsission charges should be such that states that do not draw power from the project are insulated from the charges. A state like Uttaranchal, which will draw 400MW from the two projects, has said that that the total northern region component should not be put in the northern region pooled transmission charges.

Delhi, Maharashtra, Uttar Pradesh and Punjab have emerged as big buyers of power from the 4000MW projects at Sasan (MP) and Mundra (Gujarat). That is besides the host states of Madhya Pradesh and Gujarat. For Sasan project, MP has committed to an offtake of 1200MW, while Punjab will buy 600MW, Delhi and Uttar Pradesh will buy 500MW each. Uttaranchal, Haryana, Rajasthan are among the other states that will buy power from this project. In the case of Mundra, Gujarat will buy 1600MW, Maharashtra 800MW, Punjab 500MW while UP will buy 300MW. Rajasthan and Haryana will buy 400MW each. 

Policy / Performance

Govt to announce new hydel power policy

November 28, 2006. Government will soon announce a new power policy for the development of hydel power sector and assured the House that full transparency will be maintained in allocating projects to either private developers or PSUs. The House that matter has been taken with the state government for reimbursement of costs incurred by NHPC for the preparation of Detailed Project Reports (DPRs) of two particular projects. Members had expressed concern over Arunachal Pardesh government's decision to handover two hydel projects to private developers for which state-owned NHPC had conducted survey spending close to Rs 100 crore. Arunchal Pradesh Government had handed over two projects, namely 1000 MW Siang Middle (Siyom) and 1600 MW Siang Lower to two private developers Jai Prakash Associates and Reliance Energy.

TN gets proposals from 15 cos for power project

November 26, 2006. Reliance Energy Ltd, National Thermal Power Corporation Ltd and Essar Power are some of the companies that have shown interest in setting up power projects in Tamil Nadu. The Tamil Nadu Government has received proposals for about 28,725 MW of capacity from 15 companies. The proposals include a 4,000 MW ultra mega power project, which the State Government wanted the Centre to be located in Tamil Nadu. Apart from the two projects it has announced in Tamil Nadu, the NTPC is also looking at a 4,000 MW power project in Nagapattinam district.

Chinese power firm plans $1bn Indian facility

November 25, 2006. The $8 billion Chinese thermal power plant equipment manufacturing major, Shanghai Electric, is planning to set up a manufacturing base in India to supply equipment to domestic thermal power plants.  The company is in talks with Reliance Energy, Tata Power, Larsen & Toubro and the Jindal group for an alliance.  The investment for a full fledged thermal power plant equipment is estimated at over $1 billion.  Shanghai Electric's Power Generation Group has already signed a equipment sourcing deal worth $400 million with Reliance Energy (for 2X300 mw thermal power plant) and the Jindal group (for its 2X300 mw thermal power plant). Power Generation Group is in advanced stage of talks for concluding equipment sourcing deal with Reliance Energy for its three projects including Hissar, Tata Power and Essar Power. The estimated value of these three projects is around $1 billion.  

HPL to invest $179.5 mn by ’08

November 24, 2006. Haldia Petrochemicals Ltd (HPL) would invest Rs 800 crore ($179.5 mn) by March 2008 for revamping its existing plant and ramp up capacity by about 28 per cent. Besides capacity building HPL is also evaluating the possibility to switch over to a coal-fired power plant from the existing naphtha-based unit to reduce the cost of energy by around Rs 140-160 crore per annum. The second plant is likely to be ready by 2011-12. The company board has recently decided on a detailed feasibility study, for another major expansion, including a second plant the feasibility report would be ready in a year. HPL has already started working internally on the study, but would later hire an external consultant for the finalization. The company is also looking into cost reduction measures including energy and logistics as the cost of naphtha-based power is very high. HPL has a 75 MW naphtha power plant, HPL Cogeneration Company, to meet its current needs. The plant is managed by a 51:49 joint venture, between Larsen & Tubro and HPL.

NTPC to spend $1.3 bn on coal block

November 24, 2006. NTPC Ltd plans investments to the tune of around Rs 6,000 crore ($1.3 bn) for developing its 15-million-tonnes per annum Pakri Barwadih captive mine — the first of a series of eight mining blocks allotted to power major. The company plans to start the first `box-cut' — a trench made in the mining area to expose a portion of the coal seam — by December 2007 and is hopeful of starting coal production by around May 2008. In the first year of production, the mine is likely to have a capacity of up to 1.5 MT, which will be ramped up to around five MT over the subsequent two years. The company hopes to achieve the full 15 MT capacity four years into production.

The mining plan capacity from the block is the largest-ever approved by the Centre till date for the first phase of mining. The company has also received the environment clearance for its first phase of production and land acquisition formalities are in progress for the Pakri Barwadih block. Besides this, the company has bagged seven blocks, including two to be operated through a 50:50 joint venture with Coal India Ltd. NTPC has firmed up plans to produce around 50 MT of coal by the year 2017 to meet close to 25 per cent of its total coal requirement from its captive mines.

STC applies for allotment of Baitarni coal block in Orissa

November 24, 2006. The State Trading Corporation (STC) has sought the allocation of Baitarni west coal block in the Talcher Coalfied of Orissa. The company has filed an application to the coal ministry for this purpose under the Government Dispensation Scheme. Under this scheme, coal ministry can allot available coal blocks to central and state government PSUs for augmenting the coal production and power generation in the country. STC has already taken a decision at its board level to explore a coal deposit, develop the mine and take up mining for value addition through beneficiation and generation of power. The company has already received iron ore block in Karnataka for the mining purpose. This is for the first time the company has applied for the allotment of coal block.

The Baitarni West coal block has already been identified by the coal ministry for allocation to government companies and permitted end-users. It is intended that the coal from this block would be beneficiated and used for generation of power through a pit-head power generation plant of 500 MW initial capacity. The capacity of the power plant would be increased to 2,000 MW in stages. According to the Centre’s notification, any coal in excess of power plant requirement would be beneficiated and sold to other generating companies in the country. STC is currently engaged primarily in trading of various commodities in bulk including thermal coal, coking coal, coke. STC has been supplying thermal coal to various state electricity boards and the NTPC Ltd on a regular basis.

Nuke power to be predominant form of energy: CEA

November 23, 2006. Nuclear energy will be the predominant form of energy in the next five decades and account for up to 35% of total power generated in the country by 2050. Nuclear energy will constitute about 30 to 35% of total electricity produced in the country, which will amount to around three lakh MW of electricity. The total energy requirement for India in 2050 in the integrated energy policy is 11 to 12 lakh MW. However, this enormous energy requirement has many challenges like availability of land, water transmission line infrastructure, fuel and equipment and transportation facilities.

Tata Steel signs JV with TPC

November 22, 2006. Tata Steel Ltd has signed a joint venture (JV) agreement with Tata Power Company (TPC) to set up captive power plants in Chattisgarh, Orissa and Jharkhand. This joint venture aims to meet the power and steam requirements to support the expansion plans of the company in the above states. Tata Steel will hold 26% equity in the venture, with TPC holding 74% equity. Under this agreement, the company will consume the power generated from these plants, thus meeting the requirements of captive plant norms stipulated by the Centre’s Captive Power Plant Policy.

As a part of this initiative, TPC would initially set up a 120 MW captive power plant for Tata Steel in Jamshedpur, based on utilising the waste gases from the steel-making process. This apart, the company has not specified the captive capacities to be developed in Orissa and Jharkhand. Tata Steel will set up a greenfield integrated steel plant in Bastar region of Chhattisgarh with a manufacturing capacity of 5 million tonne per annum. The project will be developed in two phases with two million tonne per annum in the first phase. The project also includes development of captive iron ore mines.

In Orissa, Tata Steel had already inked an (MoU) with the Orissa government way back in November 2004 for the establishment of a 6 million tonne per annum integrated steel plant in Kalinganagar industrial complex, with an investment of Rs 15,400 crore. In Jharkhand, the company will set up a 12 million tonne per annum greenfield integrated steel plant in two phases, with an investment of Rs 40,000 crore

Uranium supply big plus of nuclear deal

November 22, 2006. India’s power generation capacity is 1,27,055MW; of this, 68,988 MW is from coal-based power plants and 3900 MW is nuclear, which accounts for barely 3% of India’s energy basket. With India’s energy needs requiring a power generation capacity of 8,00,000 MW by 2031-32, it becomes imperative that all possible sources for power generation be tapped. In this context, the Indo-US civilian nuclear deal is almost in the bag provides India with the option of diversifying its energy basket in a significant manner. The decision on whether to pursue the large capacity addition programme based on nuclear power will now be determined by economics. India’s biggest drawback has been limited availability of uranium. Experts say this has forced India to operate miniscule nuclear generation capacity at load factors below what are technically possible. The deal will remove sanctions by the nuclear suppliers’ group and open up imports of nuclear fuels and power plants. The Integrated Energy Policy argues that “nuclear energy theoretically offers India the most potent means to long-term energy security.” The policy argued that nuclear power must be pursued as a strategic option; now with the Indo-US deal almost done, the decision to pursue it is economic.

Dr Kirit Parikh says that India will continue to depend on coal as the primary source for its power plants, but if the nuclear option is pursued it could mean another viable source of power. The option of pursuing nuclear power opens up a whole new trajectory. The NPCIL has been designing its own reactors, power equipment manufacturer BHEL has the capability to provide for the convention part of the plant. It has also manufactured some components of the reactor. India will now have to import machinery, definitely for the nuclear reactor, and depending on the number of projects the conventional plant as well. It is here that the issue of cost will come up. On an average, a coal plant incurs a cost of Rs 4 crore per mw, while the nuclear plant would cost Rs 8 crore per mw. However, nuclear plants cost very little to run. India’s ability to strike technology transfer arrangements and indigenise technology would go a long way in cutting costs. However, experts say that levelised tariff would work out to Rs 2 per unit. However to ensure that nuclear power remains viable, economies of scale will have to be relied on so the preference would be to set up large plants of 1000MW or more, such as the Koodamkulam plant being built with Russian help in Tamil Nadu. Also players would need to rely on proven technology with shorter gestation period, say three years or so.




Saudi Arabia finds gas field

November 28, 2006. Saudi Arabia has discovered a gas field in the south of the Kingdom that yielded 30 million cubic feet per day. The well is 30 km south of Ghawar and has an estimated production capacity that may exceed 60 million cubic feet daily. Saudi Arabia, the world’s top oil exporter, has gas reserves of 242 trillion cubic feet, making it the world’s fifth largest holder of proven gas reserves. It faces increasing demand for natural gas from its rapidly growing population and new petrochemical and industrial projects. The Kingdom plans to expand its gas exploration program to add 50 trillion cubic feet of non-associated gas reserves by 2016.

ConocoPhillips, Anadarko start up Nanuq field

November 27, 2006. Oil giant ConocoPhillips and Anadarko Petroleum they had successfully started production at the Nanuq oil field, the second satellite field to their Alpine site in Alaska's North Slope. Output from Nanuq is expected to peak at about 15,000 barrels per day in 2008. The companies have approved plans to drill about 19 wells at the field. Production from Nanuq and the another satellite field, Fiord, will be processed through the existing Alpine facilities. Those two fields together represented about $675 million in capital spending and are expected to hit a peak production of 35,000 barrels of oil per day in 2008.

Hydro finds oil in Oseberg field

November 27, 2006. Norwegian oil and aluminium producer Norsk Hydro had made a new oil find near its Oseberg platform in the North Sea. The new find may contain about 30 million barrels of oil and Hydro aims to start production from it by the end of 2007. Hydro is the operator of the Oseberg unit with an ownership stake of 34 percent. Norway's Petoro holds 33.6 percent and Norway's Statoil 15.3 percent, while France's Total holds 10.0 percent, ExxonMobil holds 4.7 percent and ConocoPhillips 2.4 percent. Oseberg had 26.2 million square cubic metres of oil and 84.4 billion square cubic metres of gas remaining at the end of 2005. The field produces 112,000 barrels of oil per day.

Pearl, Partners win acreage offshore Thailand

November 27, 2006. Pearl Energy Limited, along with partners, Horizon Oil (Thailand) Ltd and Tana Oil & Gas (Thailand) Ltd, has been conditionally awarded the petroleum contract for Block G10/48 in the Gulf of Thailand. Pearl Oil (Thailand) Limited (Pearl Thailand) will hold 50% interest in Block G10/48 and will be the operator. The remaining 50% interest will be shared equally between Horizon and Tana. Block G10/48 covers the southern extension of the Pattani Basin, which is the main producing basin in the Gulf of Thailand. The block covers an area of 18,780 sq. km.

Iran finds new oil, gas reserves in Ahvaz Field

November 26, 2006. Iran has discovered new onshore oil and natural gas reserves in the oil-rich southwestern province of Khuzestan with an estimated value of $7.3 billion. The new gas reserves have been discovered at the Khami layer of the Ahvaz oil field. The Khami layer of the Ahvaz oil field is around 60 kilometers southwest of the city of Ahvaz, capital of Khuzestan province. The value of the new natural gas and oil discovered in the Khami layer has been put at around $7.3 billion based on oil at $35 a barrel, condensate at $40 a barrel, and natural gas at 2.5 cents a cubic meter. Khami is one of the highest pressure and deepest natural gas reserves in the world with an in-place gas reserve of up to 7.4 trillion cubic feet of which more than half could be extracted. The gas field is expected to yield gas at 150 million cubic feet a day and oil and condensates at 37,000 b/d by the end of the first-phase of development. The significance of the new gas discovery is that it can be used for injection into the surrounding oil fields to improve their yields.

Brazil Petrobras to study ethanol output in northeast

November 24, 2006. Brazil's state-run oil company Petrobras will study the production of cane-based ethanol in Brazil's northeast region. The study, which is being undertaken jointly with Codevasf, a government-linked development company for the Sao Francisco and Parnaiba region in the northeast, will look at the viability of producing cane-based ethanol, vegetable oil-based biodiesel and energy from bagasse in the region. Petrobras, which holds a virtual monopoly on oil refining in Latin America's largest country, reaffirmed it is not interested in investing in ethanol production per se. The study could lay the groundwork for its offering domestic and export infrastructure to potential private sector producers that are considering new distillation ventures in the region. Petrobras has already negotiated export deals in ethanol with Venezuela and Nigeria on the government level and exporters are concerned over the trading activities of the state giant, which is also working on a big ethanol supply deal with Japan.

Saudi gas search goes nationwide

November 23, 2006. Saudi Arabia plans to expand its gas exploration programme to add 50 tcf of non-associated gas reserves by 2016 but will have to compile adequate data before considering a new concession round. The kingdom, the world’s top oil exporter, has gas reserves of 242 tcf, making it the world’s fifth largest holder of proven gas reserves. Saudi Arabia opened its gas fields to international firms to meet rising demand for gas from its growing population and expanding industrial and petrochemical sectors. The upstream oil sector remains off-limits. Four consortia of European, Russian and Chinese firms were awarded gas exploration blocs in the Empty Quarter in 2003 and 2004.

OPEC’s rivals set to pump more oil in 2007

November 23, 2006. A rise in oil production from the Caspian, Africa and North America will ease OPEC’s burden in meeting world oil demand in 2007, but an anticipated supply surge may not materialise. Producers outside OPEC may pump enough new oil next year to meet growth in world demand, unlike this year or in 2005. OPEC is going to be challenged in 2007 by the fact that high oil prices have created an environment that encourages more supply and less demand. A jump in output may ease oil prices that at $60 a barrel, triple those in early 2002, are too high for consuming countries. But setbacks, from rig shortages to hurricanes in the Gulf of Mexico, have delayed new supply in recent years.Countries outside OPEC, including second-largest exporter Russia, pump about 60 percent of the world’s supply but hold only a quarter of its proven reserves. When output lags, the pressure falls on the Organization of the Petroleum Exporting Countries, which sets supply limits for 10 members, to meet global demand of about 85 million bpd.

Expectations of non-OPEC growth in 2007 vary widely. Top of the range are the IEA and OPEC with forecasts of at least 1.7 million barrels per day, enough to supply Spain. Barclays Capital predicts growth of just 150,000 bpd. Even so, the IEA, an adviser to 26 industrialised countries, warns that supply can undershoot its estimate by 300,000 bpd to 400,000 bpd a year enough to tighten the world market. Supply risks are rising as companies such as Royal Dutch Shell Plc and BP Plc tap oil in tougher places, like offshore Sakhalin Island in Russia’s Far East and in the Gulf of Mexico.

CNPC to help develop Turkmen gas field

November 22, 2006. Turkmenistan has invited China National Petroleum Corp. to participate in the exploration of a newly discovered giant natural gas field in the resource-rich ex-Soviet state. President signed a decree that envisages CNPC's participation in the exploration and development of the southeastern Iolotan field, which was discovered earlier this month. The field contained an estimated 7 trillion cubic meters of natural gas, adding to the Central Asian state's proven commercial reserves of 2.8 trillion cubic meters. Within the next three years, CNPC would drill 12 wells up to 5,000 meters (16,400 feet) deep for gas worth a total of US$152 million (euro119 million).

Turkmenistan possesses the second-biggest gas reserves among all ex-Soviet republics, after Russia, and its resources are playing an increasingly important role in regional geopolitics. Turkmenistan concluded an agreement to build a gas pipeline to China. Currently Russia's state gas giant Gazprom controls the only transit route for Turkmen gas exports. The agreement with Turkmenistan was the latest in the series of multibillion-dollar (multibillion-euro) deals concluded by energy-hungry China. Neighboring Kazakhstan launched a pipeline to deliver oil to China in December. In March, Russia announced it would build another pipeline to transport gas to China and affirmed its commitment to building an oil pipeline.

Maurel & Prom Enters Syria

November 22, 2006. The Syrian Petroleum Company, the Petroleum Ministry and Maurel & Prom signed an exploration permit covering block XI, called Alasi, in Syria. This block covers an area of 8,426 square kilometers and marks Maurel & Prom's entry into the Middle East.

Beach Petroleum begins production from Callawonga-1

November 21, 2006. Beach Petroleum commenced production from the Callawonga-1 well. The Callawonga-1 well is located in PEL 92, in the South Australian portion of the Eromanga Basin, approximately 90 km northwest of Moomba and 7 km north of the Christies oil field. It was drilled in July 2006, encountered 8 meters of net oil pay in the Namur Sandstone and flowed oil on drill stem test at a rate of approximately 2,400 barrels of   oil per day. Oil is being primarily transported by truck to Tantanna and by pipeline from there to Moomba. Beach assesses P50 recoverable oil reserves in the Callawonga Field to be 1.5 million barrels (Beach Share 1.1 million barrels).

Callawonga-1 is the most westerly oil production achieved to date in the Cooper/Eromanga region and demonstrates the high oil prospectivity of PEL 92, particularly in the area west and north of the Christies Field. The PEL 92 Joint Venture has recently acquired a 3D seismic survey in this region, the results of which will be used to better delineate Callawonga and identify prospects for drilling in 2007.

Russia to raise gas output to 860 bcm a year by 2015

November 21, 2006. Russia's largest independent natural gas producer Novatek said that the country's gas output will rise to 860 billion cubic meters per year by 2015, 26% more than the 2005 level. The gas production in 2010 will hit 750 bcm. Gazprom will produce 570 bcm, or 76 per cent of the total, and by 2015 the state-controlled giant will raise its output to 618 bcm. Independent companies could account for 24 per cent of total production in 2010, extracting 180 bcm of natural gas annually. In 2015, their share could expand to 27.9 per cent.

The domestic gas prices could rise from the current $45.3 to $110-$120 per 1,000 cu m in 2010 and to $130-$140 in 2015. The country's second largest gas company, produces most of its gas in Western Siberia's Yamalo-Nenets Autonomous Region. The ministry said gas demand from the Russian economy currently stands at 729.9 bcm, exceeding supply by 4.2 bn. The ministry says the deficit will continue growing in coming years. Russia, which has the world's largest natural gas reserves, is also a leading gas exporter, supplying more than 20 per cent of Europe's demand. The country, which owes much of its recent economic growth to high energy prices on world markets, has moved to reassure consumers that it is a reliable supplier.


Japan firms join $800 mn Qatar refinery project

November 27, 2006. Four Japanese companies led by oil refiners Idemitsu Kosan Co. and Cosmo Oil Co. they had agreed to take a stake in a new Qatari refinery project expected to cost $800 million. Japan's third and fourth-ranked Idemitsu and Cosmo Oil will each take a 10 percent stake in state-run Qatar Petroleum's Laffan Refinery, which plans to build a 146,000 barrels per day plant in Ras Raffan Industrial City in the Middle East Gulf nation. Japanese trading houses Mitsui & Co. and Marubeni Corp. will each take 4.5 percent, reducing Qatar Petroleum's holding to 51 percent. U.S major Exxon Mobil and French oil giant Total hold 10 percent each. Idemitsu would pay 10 billion yen ($86 million) for its stake, while the other three did not disclose their investment. The new refinery is expected to come onstream in 2008 and use condensate as a feedstock.

Tanzania to build new oil refinery

November 27, 2006. Tanzania has announced plans to construct a modern oil refinery in Dar es Salaam. A memorandum of understanding for the construction of a 1,200km oil pipeline has been signed with Noor Oil of Qatar. The pipeline will run from Dar es Salaam to Mwanza. The project ownership structure details are still being worked out. The Planning ministry, Energy, Foreign Affairs, Justice and Constitutional Affairs, Tanzania Investment Centre, and the Tanzania Petroleum Development Corporation are involved in planning for the new oil refinery. Tanzania’s refinery was closed down in mid 1990s. Tanzania and Italian Petroleum Refinery (Tiper) stopped production after operating since 1969. Tiper had a refining capacity of 875 kilo tonnes per annum, but was it was operating at 60 per cent of its total capacity by the time of closure.

Shell Canada mulls new heavy oil refinery

November 23, 2006. Shell Canada is assessing the viability of a new heavy oil refinery near Sarnia, Ontario, with a capacity of 150,000 to 250,000 barrels a day. Shell Canada, the country's No. 3 oil producer and refiner, would spend about C$50 million ($44 million) next year for pre-development and front-end engineering for the proposal. The decision to proceed would be made in the next two to three years.

Private sector to build oil refinery in Iran

November 22, 2006. Iran’s private sector will start the construction of an oil refinery in the northern province of Mazandaran in the near future. The refinery is to be built between the cities of Neka and Behshahr, while explaining that the feasibility studies of the project plus tank(s) design have finished. Site selection operations have been completed, and environmental assessments are currently underway. The crude oil required for the refinery will be supplied from Azerbaijan Republic, as previously signed Baku contract mandates. Iranian embassy in Baku has facilitated the signing of the contract. Also, a MoU has been inked with German Siemens on establishment of a joint venture for the refinery.

Gas supply to CNG outlets restored

November 22, 2006. CNG Station Owners Association of Pakistan (CSOAP) has said that the supply of gas has been restored to 60 CNG stations out of 77, and supply to two more stations would be allowed. The Oil and Gas Regulatory Authority (Ogra) had issued orders in the second week of this month to two gas utilities for suspending supply to 77 stations all over the country after finding that these stations were using defective cylinders for storage of CNG at their stations. Chairman, CNG Dealers Association of Pakistan confirmed that the gas supply had been restored to 60 CNG stations after they replaced the defective cylinders.

Transportation / Trade

Petrofac wins gas plant contract in Egypt

November 27, 2006. Petrofac, the international oil & gas facilities service provider, has been awarded an additional lump sum engineering, procurement and construction (EPC) scope by Khalda Petroleum Company (KPC) to build its fourth gas processing train at Salam area in Egypt's Western Desert. This second consecutive train, awarded to Petrofac by KPC during November, increases the Khalda contract from US$200 million to a total of US$375 million. KPC is the joint venture company between Apache Corporation and Egyptian General Petroleum Corporation (EGPC). The project, scheduled for completion by the end of 2008, will also be utilizing the services and expertise of local construction and fabrication company Petrojet. The project scope covers the execution of project management, detailed design, procurement, construction, pre-commissioning, commissioning, start-up, performance testing and initial operations. KPC will be adding this fourth gas processing train to its existing and recently awarded similar gas facilities in the Salam area, to process gas produced from its new discoveries.

Acergy S.A. awarded pipelay contract in Norway

November 24, 2006. Acergy S.A. had been awarded a contract by ConocoPhillips for the installation of an oil transportation pipeline between the Ekofisk and Eldfisk platforms in the Norwegian section of the North Sea. The contract, valued at approximately $60 million, is for the installation and tie-in of a 9.4 kilometre, 24 inch diameter pipeline. The installation will be undertaken by the Acergy Piper commencing in November 2006 with the tie-in work scheduled for the third quarter of 2007 by the Acergy Osprey.

Russia agrees with Ukraine on increased oil transit in 2007

November 24, 2006. Russia's state pipeline operator Transneft has agreed with Ukrainian state-owned pipeline company Ukrtransnafta to increase the volume of oil transiting through Ukraine in 2007. The Russian company, agreed with the Ukrainian company, to increase Ukraine's annual oil transit primarily via the Brody-Odessa and Druzhba oil pipelines, particularly by 5 million tons (36.75 million barrels) via the Odessa-Brody pipeline. The European Union, which imports more than a quarter of its oil and natural gas from Russia via Ukrainian pipelines, faced a brief disruption last winter when Moscow suspended gas deliveries to Ukraine over a price dispute, sparking doubts over Russia's reliability as a supplier. Ukrtransnafta was established in June 2001 to manage and operate the transportation of oil by pipelines throughout Ukraine. It operates three main oil pipeline systems in Ukraine, namely the Druzhba Main Oil Pipeline, the Prydniprovski Main Oil Pipeline and Brody-Odessa Pipeline.

Qatar considers selling more LNG to Korea Gas

November 23, 2006. Qatar was in talks to increase liquefied natural gas supplies to South Korea by 28 percent, as rising demand in Asia heightens competition for the fuel. Qatar, the biggest producer of liquid natural gas in the Middle East, may sell 2 million metric tons of the gas a year to Korea Gas, in addition to the extra 2.1 million tons it agreed to ship starting in January. South Korea now imports 4.92 million tons a year on contract from Qatar. South Korea is competing with China and Japan for liquid natural gas, a cleaner alternative to coal and crude oil, as energy prices climb. The price of Qatari liquid natural gas to Japan rose 33 percent to $8.36 per million British thermal units in September from a year earlier.

They have gained 26 percent this year, more than the 2.9 percent increase in the benchmark Kospi index. Qatar plans to quadruple output to 77 million tons a year by 2010, to make the nation the world's biggest producer, and all the fuel is taken up. Korea Gas, the world's biggest single buyer of liquefied natural gas, and Qatar's Ras Laffan Liquefied Natural Gas, signed an initial agreement for the 2.1 million tons. Rasgas, a Qatar Petroleum venture with Exxon Mobil, will supply the gas for 20 years. Qatar was the largest liquid natural gas supplier to South Korea at the end of October, supplying 27 percent of South Korean demand. Oman and Malaysia are the second- and third-largest suppliers of the gas to South Korea.

Policy / Performance

Iran invites China to sign $100 bn oil deal

November 27, 2006. Iran and China moved a step closer to signing an energy deal worth as much as $100bn, with the Islamic republic saying it had invited China Petrochemical’s MD to Tehran to sign an accord. The contract, drawn up in 2004, for Sinopec Group, as China Petrochemical is known, to develop Iran’s Yadavaran oilfield and secure oil and gas supplies over 25 years, was ready to be signed. Iran, under US economic sanctions and at odds with the US and the European Union over its nuclear activities, seeks friendlier markets. China and Russia said on October 26 they would oppose a draft resolution imposing United Nations sanctions on Iran for its nuclear programme. No resolution has been passed since. Under the initial deal signed by Sinopec, China would pay Iran as much as $100bn over 25 years for the oil and gas purchases and for a 51% stake in the Yadavaran oil field, in Khuzestan province near the border with Iraq. The deal would allow China to buy 150000 barrels of Iranian crude a day at market rates for 25 years, as well as 250-million tons of liquefied natural gas.

Royal Dutch/Shell, which has worked, as a technical consultant for Sinopec on the Yadavaran oil field, will participate in the field’s development. The company is seeking a 20% stake in the field. Iran is negotiating with several other Chinese companies to develop its energy sector and is holding talks with Cnooc, China’s biggest offshore oil producer, about developing the North Pars gas field in the Persian Gulf. In exchange for developing the field, Cnooc may be able to sell liquefied natural gas from two of the field’s four phases over 25 years. State-owned China Power Investment, one of the country’s top five electricity groups, was close to signing a $1,8bn deal to build gas-fired power plants in Iran. Yadavaran, with reserves of 3-billion barrels, would produce 300000 barrels a day — about the same volume China imports from Iran.

Rosneft and BP Sign Sakhalin Cooperation Pact

November 26, 2006. Rosneft and BP have signed shareholder and operating agreements for joint activity on the East-Schmidt (Sakhalin-5) and the West-Schmidt (Sakhalin-4) license blocks. Projects are implemented under the effective legal framework between Rosneft (51%) and BP (49%). Operational management of the projects will be conducted by CJSC Elvary Neftegas established in 2003 for exploration on the Kaigansko-Vasuykansky license block (Sakhalin-5). It is planned that exploration activities on both blocks including drilling of 6 wells will be financed by BP until commerciality is confirmed; following commercial discovery the expenses will be reimbursed from Rosneft's share of production.

Exploration on the blocks and design of the joint development strategy on Sakhalin-4 and Sakhalin-5 are being conducted by the parties. Set up of joint production and transportation infrastructure will allow optimization of the projects' capex and may support the creation of the island's biggest oil and gas complex in the North Sakhalin. Management of the companies believes BP's considerable offshore knowledge combined with more than 75 years of Rosneft's experience in Sakhalin would allow the most effective use of modern technologies and compliance with health, safety, security and environmental requirements.

East-Schmidt (11,800 square km) and West-Schmidt (9,400 square km) blocks are located in the north offshore Sakhalin in the harsh climate with complex ice conditions and sea depths from 100 to 200 m. There are over 22 prospective structures identified on the blocks. Considerable scope of exploration activities has been recently conducted on the blocks. Joint investment to date exceeds $80 million. Future investment is planned to reach $700 million. Exploration program specified by the license agreements includes 2D and 3D seismic acquisition on each block as well as drilling of 3 exploratory wells. 2D seismic data re-interpretation and 3D seismic acquisition covering about 3000 km2 were conducted on the blocks in 2005. Site — survey data from 2005 has been processed in 2006; in 2006 OSJC Dalmorneftegephysica (a contractor) has acquired 3D data from more than 3000 km2 on the East-Schmidt block. Drilling of one exploratory well on each block is planned for next year.

No deal between Bolivia and Brazil over natural gas

November 23, 2006. Talks between Brazilian state-controlled energy company Petrobras and its Bolivian counterpart YPFB over the price Brazil pays for Bolivian natural gas concluded. YPFB and Petrobras have been negotiating since early June, when the Bolivian government announced it wanted to increase the price energy-hungry Brazil pays for Bolivian natural gas by as much as 75 percent. Brazil has a contract to buy up to 30 million cubic meters of gas per day from impoverished Bolivia and it currently pays $4 per million British Thermal Units (BTU) for the fuel. In June, Argentina agreed to pay a 50 percent hike in prices. But Brazil, whose booming economy depends heavily on Bolivian natural gas, is reluctant to pay more. Bolivia has the second-largest natural gas reserves in South America after Venezuela, but it is the continent's poorest country. Morales swept to power in a December 2005 election on pledges to nationalize the country's energy industry and use the extra revenue to alleviate poverty.

Gas tariff to be cut by 10-12 pc in Pakistan

November 23, 2006. The gas tariff is likely to be reduced by 10 to 12 per cent on an average for all consumers from Jan 1, 2007, after the Oil and Gas Regulatory Authority (Ogra) moved to cut revenue requirements of the two gas utilities - SSGCL and SNGPL -- for the current year. The finance ministry had been unwilling to reduce natural gas tariff for consumers to partially ‘bridge budget deficit’, but the petroleum ministry was seeking to implement the reduced gas rates as determined by Ogra. A final decision would be made by the prime minister soon. Ogra had sent its determination to the federal government seeking its advice. The determination envisaged a reduction of about 10 per cent in the prescribed prices for Sui Southern Gas Company (SSGCL) and 14 per cent for Sui Northern Gas Pipelines Limited (SNGPL) in the last week of September this year had already become effective early this month since the government did not advise any change.

Gazprom to cut natural gas exports to Azerbaijan in 2007

November 22, 2006. Gazprom, Russia's energy giant, intended to reduce natural gas exports to Azerbaijan in 2007 by 66.7 per cent, to 1.5 bcm, against 4.5 bcm in 2006. This volume will fully meet Azerbaijan's demand for imported natural gas, taking into account the price increase for Russian natural gas imports and the natural gas production increase in Azerbaijan. Azerbaijan has been in talks on deliveries of natural gas to Georgia, which last week rejected purchases of Russian gas due to the price increase. According to agreements between Georgia and Gazprom, the gas price in 2006 was $110 per 1,000 cubic meters. Gazprom recently suggested that Georgia pay $230 per 1,000 cubic meters of Russian natural gas as of 2007. The Georgian leader said the price hike for Russian natural gas was politically motivated and that the move amounts to an economic blockade of Georgia, which now buys all of its gas from Gazprom.

Russia's domestic gas price may double by 2010

November 22, 2006. Russia's wholesale gas price for domestic consumers could more than double in four years' time. The domestic wholesale gas customers in Russia might have to pay $90 per 1,000 cubic meters by 2010. The current gas price is $40. By the end of this decade, the domestic price might reach $90 per 1,000 cu m of gas. The new technologies would be worth introducing in the gas sector if the gas price reached at least $60 per 1,000 cu m. Russia wants wholesale prices to reach European levels, but it is impossible at the moment because it would require the current price to be quadrupled and the price would be high enough by 2010-2012. Russian gas producers need to know definite price parameters for the period so that they can make long-term investments in new deposits.



FG invests $2.3 bn on power plants

November 27, 2006. The Nigeria federal government was investing a fresh $2.3 billion on 7 gas turbine power plants. Another $1.6 billion would be spent on associated investments for downstream gas and another $1.8 billion on upstream gas. The federal government plan for investment in the power sector showed that in the next 15 months, there would be an additional $ 2 billion expenditure on the Mambila and Zungeru Hydro Projects.

Clean coal power plant planned for 2011 in Norway

November 27, 2006. An international group of companies launched a plan to build a novel coal-fired power plant in Norway by 2011 that would curb global warming by capturing 95 percent of all greenhouse gases emitted. Many countries are trying to find ways to clean up emissions from coal, among the dirtiest of fossil fuels and a big source of gases blamed for heating the planet, in a race likely to yield billions of dollars for the best technology.  The group, including France's Eramet, U.S. Alcan and Norway's Norsk Hydro, said it would seek bids from construction firms for a 400 MW coal-fired plant in west Norway for about 4.5 billion crowns ($700 million). The plant would use a new technology, developed by Norwegian clean energy group Sargas, that is meant to capture more than 95 percent of carbon dioxide, the main greenhouse gas, as well as noxious nitrous oxide, in coal fumes from the plant's chimneys.

The planned Norwegian plant would strip out 2.6 million tonnes of carbon dioxide a year. The gas could then be piped or shipped to offshore oil or gas fields, where it could be buried deep below the seabed. Norway has one of the world's few commercial carbon capture systems in operation at the Sleipner gas field, where about a million tonnes of carbon dioxide a year is buried below the seabed. However, a coal-fired power plant would be a radical departure in Norway where almost all electricity is generated from non-polluting hydroelectric power. The bid for delivering the plant could be ready in 2007, a go-ahead ready in 2008, and production could start in 2011. Most industrial countries have agreed to cap their emissions of carbon dioxide under the U.N. Kyoto Protocol as a first step to slow the feared effects of climate change such as more floods, heat waves and droughts, and rising sea levels.

China Power plans $1.8 bn gas-fired plants in Iran

November 25, 2006. State-owned China Power Investment Corp., one of China's top five electricity groups, will soon sign a $1.8 billion deal to build gas-fired power plants in Iran. The two stations will have a total installed capacity of 3 gigawatts. The contract would cover plants in Iran but the executives declined to comment on when construction would start or which year they might come on-line. Iran has abundant natural gas reserves and already produces around 75 percent of its electricity from the fuel. Its total installed capacity is under 50 gigawatts, and the Chinese project would mark an increase of around 7 percent if it goes ahead.

Beijing, increasingly dependent on imported oil and gas to fuel its economy, has been boosting ties with oil producers in recent years and stood by Tehran as its relations with western nations deteriorated. A deal for oil major Sinopec to develop Iran's giant Yadavaran field is being finalized for signing.

RWE to build power plants in Germany

November 23, 2006. RWE, the second-biggest power producer in Germany planned to invest 2.5 bn euros in two new German electricity generators. The biggest chunk of the money would be spent on the construction of a 1,600 MW coal-fired generator at its existing site in Ensdorf in the Saar region. The plant is due to come onstream in 2012. A further 500 million euros would then be invested in an 876 MW combined-cycle plant in Lingen.

Nigeria wants nuclear power plants by 2015

November 23, 2006. Nigeria plans to build nuclear power plants to meet a major part of the West African country's electricity demand by 2015. A meeting of the cabinet chaired by President set a target for the country to generate 40 000 MW of electricity within the next decade, with a significant part coming from nuclear energy. Nigeria runs two nuclear research centres, one in the northern town of Zaria and another outside the capital, Abuja, set up under the supervision of the International Atomic Energy Agency, the United Nations nuclear regulatory body. It currently has no nuclear power plant.

Nigeria is Africa's leading oil and gas producer and the world's eighth-biggest oil exporter, but remains a low electricity generator and consumer. The country runs on less than half of national capacity of 6 000 MW of electricity, with power cuts frequent and the electricity infrastructure run down by years of corruption and mismanagement.

Great River Energy to power Plant

November 22, 2006. Great River Energy has decided to pursue building its own peaking power plant to meet the need for peaking resources by 2009. Great River Energy proposes building a 160 MW simple-cycle combustion turbine at its Elk River site. The project was selected based on its cost, its access to the transmission system and its access to a natural gas supply. Great River Energy anticipates seeking board approval in February 2007 for the project. The natural gas peaking plant would begin operation in spring 2009, pending permitting and other processes.

Transmission / Distribution / Trade

Azerbaijan, Iran to have parallel power grid regimes

November 27, 2006. Azerbaijan and Iran have agreed on mutual power supplies in their alternating consumption peak seasons from December 1. Under the arrangement, Azerbaijan will receive power from its southern neighbor in the peak consumption hours in winter, and relay the energy in summer when Iran's demand is at its highest. The two Caspian nations had agreed to build two hydropower plants on both sides of the border river Araz, with capacity of 36 MW each. Iran is currently under international scrutiny over its refusal to stop a controversial nuclear program, and may face international sanctions.

Russia to tender multibillion-dollar hydro deals

November 22, 2006. As millions of Russians brace for winter power shortages, Russian electricity reforms moved up a gear with word of a first multi-billion tender to build new hydroelectric power stations. The landmark tender, to build hydro-power stations in the Far East at an estimated cost of up to $15 billion, is planned for early 2007 and will be a major test of investor appetite for Europe's fastest-growing electricity market.

The tender would be to build the Yuzhno-Yakutsk hydropower complex with an installed capacity of 8.5 gigawatts at an estimated cost of $12-$14 billion, and the Nizhnye-Zeyskaya and Nizhnye-Bureyskaya stations, with combined installed capacity of 600 MW at a cost of $1 billion. It will announce the public tender at the beginning of 2007 and will decide in the first quarter of next year. It is expected to start construction in greenfield investments probably in the summer of 2007.

Policy / Performance

Queensland to ban nuclear power plants

November 27, 2006. The Queensland Government will introduce legislation into Parliament this week to prohibit the building of nuclear power facilities in Queensland. A report released that suggests there could be 25 nuclear reactors across Australia within 50 years. If the Federal Government wants to build nuclear reactors in this state or have dumping of nuclear material here, they will have to overrule this legislation.

Indonesian firm seeks to fund power plants

November 27, 2006. Indonesia's PT BumiGas Energi plans to raise US$308 million (euro256 million) by selling bonds to finance the building of two geothermal power plants. BumiGas will build a 120 MW plant in Deing, central Java, and a 180 MW facility in Patuha, west Java, at a total cost of US$400 million (euro333 million) over four years. BumiGas has formed a special purpose vehicle to develop, build and operate the plants, in which Transmit Nanyang holds a 60 percent stake, BumiGas 30 percent and Australia's Prime International 10 percent. At the end of BumiGas's 15-year concession, the plants will be transferred to PT Geodipa Energi which is a joint venture between PT Pertamina and PT Perusahaan Listrik Negara, two of Indonesia's biggest state-owned companies.

IAEA approves Pakistan nuke power plant

November 25, 2006. The International Atomic Energy Agency has approved an agreement with Pakistan for application of its safeguards to the Chashma Nuclear Power Plant Unit-2 (Chasnupp-2), being built by Pakistan with Chinese assistance. Chasnupp-1, also built with Chinese assistance, has been placed under such safeguards earlier. Pakistan had already placed two research reactors and two nuclear power plants under IAEA safeguards. Pakistan is one of the only three non-NPT member states that concluded such an agreement. The approval of the agreement also signifies the differentiated nature of the IAEA's safeguards system. The cooperation includes hydro power, coal fired generation and new alternative sources of energy. China and Pakistan have already developed very close cooperation in the development of the Chasma nuclear power plant.

Green group rejects nuclear power push

November 24, 2006. The Sunshine Coast Environment Council says it would be crazy to replace coal-generated electricity with nuclear power. The cost of establishing nuclear power is huge, both financially and environmentally, and overall it will do little to reduce greenhouse emissions.

35 nations agree to deny Iran in building nuclear reactor

November 22, 2006. Thirty-five nations agreed to deny Iran's request for technical help in building a plutonium-producing reactor — at least for now — but left room for Tehran to renew its request. Two diplomats said a committee of the International Atomic Energy Agency would forward a summary of its three days of deliberations on hundreds of requests for technical aid from member countries to board meeting noting that "no decision was taken" on Tehran's call for aid for its Arak reactor.

Australia ponders building nuclear plants

November 22, 2006. An Australian government inquiry has found that 25 nuclear reactors could supply one-third of the nation's electricity needs by 2050. The report, commissioned by Prime Minister said the reactors would cost about $2.3 billion each. But, the report declared, nuclear power would not be a viable economic alternative to fossil fuel unless existing electricity producers were made to pay for their greenhouse gas emissions. The nuclear review came amid the debate in Australia on some form of price on coal pollution in the efforts to fight climate change. Ministry for Industry meanwhile, warned consumers they can expect a major increase in their utilities bill if nuclear power or clean coal technologies are adopted.

Countries sign pact for nuclear fusion in Paris

November 21, 2006.An international agreement to build the world's first fusion power reactor, known by the acronym ITER, has been signed in Paris. Russia, the United States, Japan, the European Union, China, South Korea and India signed the document in Paris. The $12.1 billion project will be launched in January 2007 and is designed to demonstrate the scientific and technological potential of nuclear fusion amid concerns over growing energy consumption and the impact of conventional fossil fuels on the environment. The International Thermonuclear Experimental Reactor (ITER) project is expected to produce clean and safe energy by 2016 for 20 years in Caradache, in the south of France.

The idea of ITER began when the Soviet Union suggested that the four most advanced nuclear nations - the U.S.S.R., the U.S., Europe and Japan - create a "tokamak" reactor, a doughnut-shaped chamber to confine in a magnetic field incandescent plasma that no material can withstand. Thermonuclear fusion of the hydrogen isotopes deuterium and tritium then proceeds in the plasma.

Renewable Energy Trends


No tax sops for biodiesel: Govt

November 28, 2006. Biodiesel is not in favour, at least when it comes to tax breaks. Greens may not like the idea, but the revenue department had indicated that it would not favour biodiesel in Budget 2007. Rejecting recommendations from other wings of the government, the revenue department — which is seeking to contain sectoral tax exemptions — has said that there was no rationale to extend tax sops for investments made to produce the eco-friendly fuel.

The department are in the process of shaping broad contours of Budget 2007.The biodiesel sector was seeking concession on both the direct and indirect tax front to attract investments in plantation, collection, milling, processing and blending of items such as ethanol to produce biodiesel. Similarly, tax sops were sought for distribution of the product on the lines of concessions given to special category states in the north-east as well as Himachal Pradesh and Uttaranchal.

The revenue department — which is grappling with large-scale exemptions impacting its tax collections — does not find justification in extending tax concession to any new sector of the economy. The department’s contention is that in the present regime of moderate taxes, there was a need to review the existing tax concessions.

The sectoral concessions not only lead to revenue loss but also create distortions in allocation of scarce resources that result in sub-optimal economic growth, sources said. The government had, in fact, withdrawn the 68% exemption on Central excise count, 8% on Customs and 6% on direct tax count. With the government wanting to prune tax exemptions to enhance the tax base, it is unlikely that it will be willing to add more sectors. 

Govts need to push green fuels to match demand

November 26, 2006. Bio-fuel production needs more investments and policy support from governments to help meet the growing demand for energy, a study done by the US-based International Food Policy Research Institute (IFPRI) has recommended. It said that bio-fuel production would make “a difference in the lives of the poor as both energy producers and consumers.” 

IFPRI researchers have used their International Model for Policy Analysis of Agricultural Commodities and Trade (IMPACT) to determine how a scenario of aggressive growth in bio-fuel production could effect food availability and consumption at global and regional levels. The IFPRI model considered three possibilities and found food-versus-fuel trade-off would be possible only in cases where innovations and technology investment would be largely absent and where trade and subsidies would be flawed. The situation changes considerably when technological advances in bio-fuels and crop production are considered.

However, in the first scenario of aggressive growth in bio-ethanol and bio-diesel production shows significant increases in world prices for various feedstock crops. If cassava is aggressively used as a feedstock, its prices will rise significantly causing sizable welfare losses to the major consumers of this crop in sub-Saharan Africa. In the second possible scenario, the IFPRI model suggests that if cellulosic bio-fuel technologies which rely on by-products of food and feed and feedstock produced for non-food purposes on marginal lands, becomes commercially viable and widely adopted in about a decade, the impact on markets and food systems could be significantly mitigated.

The third possible scenario suggested by the IFPRI, consumer-level impact can be mitigated through crop technology innovation at the farm level and investment in the bio-fuel industry and agriculture sector. The study assumes that rapid growth in demand for bio-ethanol all over the world and for bio-diesel in Europe together with continued high oil prices and rapid breakthrough in bio-fuel technology.

It considered potential feedstock crops for bio-ethanol —maize, sugarcane, sugar beet, and wheat and for bio-diesel crops like oil seeds, including soybeans. According to the study, bio-fuels will account for 10% of transport fuel production by 2010, 15% by 2015 and 20% by 2020 in most parts of the world, except for adjustments in line with other projections for Brazil, the European Union and US.

The projection for bio-diesel were limited in Europe because the EU-15 countries represent almost 90% of the world production by volume. The second generation cellulosic conversion technologies may come on line for large scale production by 2015 and this would help bio-fuel production from crops grown for non-food purposes on marginal lands.

Suzlon to set up 2nd facility in Coimbatore

November 25, 2006. Suzlon Energy will set up an energy engineering facility over a 250-acre plot about 20 km west of Coimbatore. This could be the largest corporate facility of its kind so far in the southern city of Tamil Nadu.  The upcoming project was, among other things, expected to house a wind turbine components manufacturing and testing facility for rotor blades, without going into specifics of the investments involved.   

Suzlon, which had already completed the purchase of the required land, was in “advanced stages” of talks with the Tamil Nadu government. The company had submitted documents pertaining to the land purchase procedures of the facility a few days ago, prior to the physical inspection of the proposed site. Following the physical inspection and approval by state and local authorities, the commerce ministry was expected to give its final go-ahead by mid-December. And then, Suzlon was expected to start construction work on the facility by January next year.


ENDESA to build a new wind farm in France

November 27, 2006. The wind farm, located in Brittany, entails an investment of Euro 13.4 million and will have installed capacity of 10 MW. This wind farm will result in environmental benefits in the form of annual savings of approximately 22,000 tonnes of CO2 emissions. Construction of this wind complex falls under the umbrella of ENDESA's Strategic Plan, which envisages bringing on line 200 MW of additional wind power in France via SNET in the next two years.

SNET, has begun construction of the 10 MW capacity Ambon wind farm, situated in the gulf of Morbihan in the region of Brittany. This complex will entail investment of Euro 13.4 million and will consist of 6 wind turbines, each with capacity of 1.67 MW. The site has a wind power potential of approximately 2,217 equivalent hours per annum at full throttle.

China plans largest solar power station

November 23, 2006. Energy hungry China has rolled out plans to build the world's largest solar power station to produce 100 mw of power. The move indicates a strong determination to look for alternative and less polluting sources of energy in China, which has already opted for a large scale application of enthonal produced from sugar canes. The new solar plant would come up in Dunhuang city of the backward Gansu province in northwest of the country. This would be far bigger than the biggest solar station in the world today, which is a 5mw powerhouse in Leipzig, Germany.

The project would cost $765 million and would take five years to complete. The Dunhuang city government has signed a letter of intent with the Zhonghao New Energy Investment (Beijing) Co Ltd for implementing the project on a area of 31,200 square meters. The choice of Dunhuang is due to the fact that the city has longer sunlit hours than many other places in China. It receives almost 3,362 hours of sunshine every year.

Suntech to supply world's largest solar power plant

November 22, 2006. Suntech Power Holdings Co., Ltd. one of the world's leading manufacturers of photovoltaic (PV) cells and modules, has announced it has recently entered into a solar module supply contract with Atersa, a subsidiary of Elecnor Group, one of Spain's leading project planning and integrated management and infrastructure development companies. In one of its largest and most sophisticated projects to date, Suntech will supply solar modules with an aggregate output of 23.2MW to Atersa for installation in the Photovoltaic Grid Connection Park in the Extremadura region of Spain. It is expected that these solar modules will be supplied within the first half of 2007.

The Photovoltaic Park will cover an area of 65 hectares and have more than 120,000 solar modules. When completed, it will be the largest such power plant in the world, generating over three times more energy than the next largest installation. Suntech's sales in Spain have already grown to account for nearly 12% of total revenue in the third quarter of 2006 and this project will greatly increase the Company's presence in this market.

Brazil's Petrobras to spend $780 mn on renewable

November 22, 2006. Brazil's state-run oil company Petrobras plans to spend US$780 million (€605 million) from 2007 to 2011 to develop renewable energy. Most of the spending will go toward biofuels, while the remainder will be used for the production of electricity from solar, wind and small Qantas Airways approached by Australian-U.S. private equity groupBrazil already is a leader in alternative fuel with ethanol, which is largely distributed by Petrobras.

The country's biodiesel industry is still in its infancy, but is growing fast. Petrobras plans to spend US$136 million (€105 million) on new biodiesel plants, and US$140 million (€108 million) for investments in the production of its new H-Bio diesel fuel. H-Bio, developed by Petrobras, has vegetable oils blended into it at the refinery. The company had said it will start to produce H-Bio on an industrial scale in December. In 2008, Petrobras plans to use 425 million liters (112 million gallons) of vegetable oils a year — mostly from soy — to produce H-Bio.

Petrobras plans to spend US$170 million (€132 million) on the construction of an ethanol-only pipeline from producing areas in western Brazil and Sao Paulo state to the coast. The company hopes to export 3.5 billion liters (920 million gallons) of ethanol a year. Petrobras also plans to invest US$104 million (€80.7 million) in wind power in the five-year period, US$123 million (€95.4 million) in small hydroelectric power plants, and US$10 million (€7.7 million) in solar energy. Brazil's enormous potential for wind and solar energy so far is mostly untapped.

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