MonitorsPublished on Jan 02, 2007
Energy News Monitor I Volume III, Issue 28
Reducing GHG Emissions: A Bottom-up Approach

In Vermont, US, activists want to revive an old water mill to generate electricity. In California, so-called locavores are eating only local food, not food shipped by long-haul trucks. They're part of a bottom-up movement to fix global warming and start adjusting to a post-oil world.

But will it work?

For years, the task of reducing greenhouse-gas emissions was seen as a job mainly for central governments. The result: the 1997 Kyoto Protocols, a top-down effort by most industrial nations to mandate reductions in carbon burning. And indeed, one more reminder of the need to act was issued in a British report that calls for governments to spend up to 3.5 percent of GDP to counter climate change.

But with the major emitters such as the US and China outside the treaty, and with the Kyoto nations failing to meet their 2012 goals, the idea of millions of self- sacrificing individuals taking responsibility for their own energy-excessive lives seems like The Next Best Thing.

The "Relocalization Network," for instance, is one of several groupings of activists trying to swear off fossil fuels. The network has 128 local groups so far, mainly in the US, that create communities for a postcarbon world by such actions as Internet-linked car sharing, buying only local foods, walking and biking more often to destinations and, overall, reducing personal consumption.

This winter, a group called The Climate Project that came out of Al Gore's movie and book, An Inconvenient Truth, plans to train hundreds of "grass-roots messengers" to speak in their communities about the need for action on global warming.

To be sure, much of this activism is meant to pressure governments to impose tougher restrictions on carbon-burning companies, SUV owners, home builders, and the like. And in the US especially, popular will to make the necessary sacrifices to curb global warming has not been strong enough to overcome US objection to Kyoto-like mandates.

Nonetheless, these groups are setting the pace for low-energy lifestyles, taking President Bush at his word that "America is addicted to oil."

They cite not only global warming but a need to start adjusting now to the coming age when oil supplies run out or their alternatives (such as oil sands and nuclear power) prove too burdensome as energy sources.

One step above such personal action is an initiative by a few hundred US mayors, launched last year by the Seattle mayor, to turn their cities into models of "acting locally" to reduce carbon dioxide output. Many of these cities have changed building codes to encourage energy efficiency, and are pushing non-automobile transport, tree planting, rooftop gardens, and biodiesel in city vehicles.

In New York, which produces 2 percent of US carbon emissions, the mayor plans to make his city the leader in this effort. Last year, about half of the cities reported reductions in greenhouse gases.

That's a hopeful sign that Americans are becoming hip to the warning that "we have seen the enemy and he is us." Creating a widespread willingness for a low-carbon lifestyle is essential preparation for what may be strong government action to come.

Courtesy: The Christian Science Monitor (from the November 01, 2006 edition)


World coal reserves & production for 2004 for the top 12 countries




Production (Mill. Tonnes)

Resources (Yrs)




32 YRS













South Africa








































* Mineable Coal Resources

** Assumed Projected Coal Demand @ 1200 Million Tonnes / Annum


Source: The Financial Express, December 11, 2006


Renewable Energy Potential of India: An Overview (part – III)

Peter Meisen, President, GENI

d) Biomass energy

Biomass includes solid biomass (organic, non-fossil material of biological origins), biogas (principally methane and carbon dioxide produced by anaerobic digestion of biomass and combusted to produce heat and/or power), liquid biofuels (bio-based liquid fuel from biomass transformation, mainly used in transportation applications), and municipal waste (wastes produced by the residential, commercial and public services sectors and incinerated in specific installations to produce heat and/or power).

The most successful forms of biomass are sugar cane bagasse in agriculture, pulp and paper residues in forestry and manure in livestock residues. It is argued that biomass can directly substitute fossil fuels, as more effective in decreasing atmospheric CO2 than carbon sequestration in trees. The Kyoto Protocol encourages further use of biomass energy.

Biomass may be used in a number of ways to produce energy. The most common methods are:

[1] Combustion

[1] Gasification

[1] Fermentation

[1] Anaerobic digestion

India is very rich in biomass. It has a potential of 19,500 MW (3,500 MW from bagassebased cogeneration and 16,000 MW from surplus biomass). Currently, India has 537 MW commissioned and 536 MW under construction. The facts reinforce the idea of a commitment by India to develop these resources of power production.

Following is a list of some States with most potential for biomass production:

 Andhra Pradesh (200 MW)

 Bihar (200 MW)

 Gujarat (200 MW)

 Karnataka (300 MW)

 Maharashtra (1,000 MW)

 Punjab (150 MW)

 Tamil Nadu (350 MW)

 Uttar Pradesh (1,000 MW) 

The potential available and the installed capacities for Biomass and Bagasse



Installed Capacity


16,000 MW

222 MW

Bagasse (Cogeneration) in existing sugar mills

3,500 MW

332 MW


III) Forecasts: What are the general forecasts for the next decades?

Around the world, a growing number of nations have recognized the economic, social, and environmental benefits of renewable energy and are enacting tax incentives and other policy measures favorable to renewable technologies. In Germany, Japan, Spain, and a handful of other countries, clear government commitments to renewable energy and strong, effective policies have overcome barriers and created demand for these technologies, leading to dramatic growth in renewable industries and driving down costs.

a) The position of India in the world potential renewable energy


India’s Position in the World

Wind Power


Biomass Power


Small Hydro (up to 25 MW)


Solar Photovoltaic


Source: Ministry of Non-Conventional Sources, Annual Report 2005-2006.

 Thanks to its location and geography, India enjoys abundant potential to all of the renewable energies. 

b) The electricity consumption and generation forecasts of India as part of the emerging economies.

Growth in net electricity consumption is expected to be most rapid among the emerging economies of the world, including India. According to the EIA, the annual average increase will be about 4.0 percent from 2002 to 2025. Emerging economies are projected to more than double their net electricity consumption, from 4,645 billion kilowatt hours in 2002 to 11,554 billion in 2025.

The projected growth in net electricity consumption for emerging market economies is driven in large party by gross domestic product (GDP) and population growth assumption. Because of the links between reliable electricity supply, GDP growth, and living standards, many of the nations with emerging economies are attempting to increase access to reliable electricity supply.

Source: EIA (International Energy Annual & EIA, System for the Analysis of Global Energy Markets, 2005).

c) Projected energy consumption of India for 2030

Currently, 45 percent of households in India do not have access to electricity. New legislation has set a target of electrifying all households by 2010. As in the past, the ongoing challenge in providing electricity is the ability of the poor to pay. India announced plans in March 2005, to continue subsidizing electricity consumption for rural and poor households that use less than 30-kilowatt hours per month.


Estimates of Potential Capacities from Renewable Energy Sources


Approx. Potential (in MW)

Biomass energy    


Solar energy


Wind energy


Small hydropower


Ocean energy


Source: India Ministry of Non-Conventional Energy Sources

The sum of these renewable resource potentials, 152,000 MW, is greater than the current total installed energy generating capacity of India.

(To be continued)

Courtesy: Global Energy Network Institute.






ONGC has largest fleet of drilling rigs

January 2, 2007. ONGC and Reliance Industries (RIL) are in talks to share exploration infrastructure in lucrative deep-sea basins. The shortage of drilling rigs has forced the oil companies to consider using rigs on a time-sharing basis. Besides Deepwater Frontier, RIL operates two deepwater rigs: Actinia managed by Transocean and Deepdriller-1 by Premium Drilling. RIL is in the process of hiring more drills to explore the Krishna-Godavari (KG) and Mahanadi Basins. It has also shortlisted bidders for seven lucrative blocks under the sixth round of the New Exploration & Licensing Policy (NELP-VI) and is expected to intensify its E&P activities in the near future. With 29 rigs currently under operation, ONGC has the largest fleet. It owns 10 rigs — Sagar Bhushan, Sagar Gaurav, Sagar Jyoti, Sagar Kiran, Sagar Pragati, Sagar Ratna, Sagar Samrat, Sagar Shakti, Sagar Uday and Sagar Vijay. All are engaged in drilling activities.

Oil cos draw plans to share rigs

January 2, 2007. Oil companies like ONGC and Reliance Industries (RIL), often pitted against each other, are now drawing up plans to share exploration infrastructure in lucrative deep sea basins. Faced with an acute shortage of drilling rigs, RIL is in talks with ONGC to explore possibilities of sharing rigs which have been on contract with ONGC. What’s more, the proposal to create a common pool of upstream infrastructure, being drawn from existing practices in countries like Norway, is being piloted by the upstream regulator, the Director General of Hydrocarbons. RIL, which is set to kick off production from its KG basin field by June 2008, has been facing a severe shortage of rigs for its deepwater blocks. Despite several attempts to line up almost six deepwater blocks, RIL couldn’t get them as their earlier contractors haven’t released them yet. The idea is to optimally use these rigs on a time-sharing basis between the operators. Other companies that may join the pool include Cairn, GSPC and ENI, all of which have deepwater interests.

NTPC to bid for gas blocks down under

January 1, 2007. The constraints in gas procurement has forced state-run NTPC Ltd to try its luck by bidding for offshore blocks being offered by Australia. Australia has put on offer 36 such blocks in the Commonwealth waters. It will assess all bids using a work programme bidding system and award exploration permits for an initial term of six years. NTPC planned to undertake an exploratory study with Michigan-based Oil Ex. The American company is involved in consulting, drilling, well management and site restoration.

NTPC had no technical capability and would, therefore, rope in other entities with experience in the petroleum sector to bid jointly. The company would continue to look for partners with expertise in exploration and production, and considerable of knowledge the LNG business in Australia and other countries. NTPC will also explore the possibility of tying up with an oil and gas public sector firm. NTPC’s move comes at a time when it is exploring the option of setting up a gas-based power project in Nigeria and has signed an agreement with Sri Lanka for a coal-based project. The company has had to face many hurdles towards buying gas for its various projects, including the ones in Kayamkulam, Kawas and Gandhar. Besids, it is yet to reach an out-of-court settlement with Reliance Industries for supply of gas from the Krishna-Godavari basin.

Petrobras to tie up with ONGC for exploration

December 30, 2006. Brazilian oil major Petrobras could finally be entering India. The company, with expertise in deepwater hydrocarbon exploration, is likely to enter into an agreement with Oil and Natural Gas Corporation (ONGC) to jointly explore and evacuate the latter’s gas from its recent finds in the ultra deepwater block in the Krishna Godavari basin.  Petrobras was widely expected to bid during the last auction of exploration blocks dubbed NELP VI. The Brazilian company now seems to be on the verge of putting its stakes in a proven reserve.  ONGC has discovered a 30 metre gas-bearing zone in the KG basin at a depth of 5,300 metres in the Bay of Bengal.  It is currently drilling another 1,000 metres to ascertain the extent of its gas find. Initial estimates indicate reserves of 22 tcf, the largest in the country so far.  ONGC would be in a position to declare the proven probable gas reserves by the middle of next month. The two companies are expected to sign a wider MoU which will include exploration and evacuation of gas from the KG-DWN-98/2 block. 

ONGC, through its overseas arm ONGC Videsh (OVL) and Petrobras also own an oil block in Brazil’s Campos basin. Shell is operator of the field with a 50 per cent stake, while Petrobras owns 35 per cent and OVL 15 per cent.  Reliance Industries has also found oil and gas in its D-6 offshore block in the area at a depth of 3,580 metres. ONGC’s discovery is almost 3,000 metres deeper.  ONGC already has agreements with steel magnate Lakshmi Mittal, the Hindujas and global energy major Royal Dutch Shell for cooperation all along the hydrocarbon chain. While the agreement with Mittal has resulted in the two jointly picking up oil blocks in Nigeria, the ones with the Hindujas and Shell have not borne fruit so far. 

ONGC may have to return 5 blocks

December 29, 2006. After the euphoria over the recent oil and gas discoveries made by upstream behemoth Oil and Natural Gas Corporation (ONGC), here is the dampener – the state-owned company will have to relinquish five exploration blocks in different parts of the country. Subsequently, these are likely to be auctioned under the seventh round of the New Exploration Licensing Policy (NELP). The five offshore blocks — three in the Krishna-Godavari basin and one each in Kutch and the Kerala-Konkan region — were given to ONGC on a nomination basis in 2000. ONGC has failed to discover hydrocarbon content in these five blocks so far. Under the production sharing agreement with the government, ONGC was permitted to rope in a foreign partner for joint exploration in the blocks. 

Earlier this year, the upstream major had told the petroleum ministry that it wanted to rope in British Gas for the three blocks in the K-G basin and British Petroleum for the block in the Kutch region in Gujarat.  Data from the Directorate General of Hydrocarbons (DGH) show that ONGC had returned another four exploration blocks to the government before, for failing to make hydrocarbon discoveries. This had prompted the DGH to recommend that 12 deepwater blocks not be awarded to ONGC under NELP VI. The DGH had, in September this year, also recommended penalties of $107.39 million on ONGC and $26.54 million on Reliance Industries for default on commitments made by them on oil and gas exploration blocks awarded under NELP. 

OVL may lose Iran`s Jufeyr oilfield to Belarus firm

December 29, 2006. ONGC Videsh, the overseas investment arm of Oil and Natural Gas Corporation, is likely to lose rights to develop Jufeyr oil field in Iran.  Iran’s Petroleum and Engineering Development Co. is holding discussions with Belarusian state-run oil firm Belarusneft for developing the oil field.  ONGC Videsh had signed a memorandum of understanding with NIOC in Jan last year for a 100% right in Jufeyr field and 10% in Yadavaran field in return for buying 5 mn tone per annum of liquefied natural gas from Iran.   

Analysts say it is possible that with the LNG deal with India making no headway, Iran may not find it attractive to offer its oil fields to Indian companies.  In June last year, the two countries had signed a sales and purchase agreement in Tehran for the LNG supply for a period of 25 years at $2.90 per mn British thermal unit.  The deal ran into rough weather after Iran subsequently raised the price, which India refused to pay. However, ONGC Videsh says it is still pursuing Iran to go ahead on the project.  The Jufeyr field, located in the Iran-Iraq border, is likely to produce 30,000 barrels crude oil per day. 

RIL to reach peak gas output from KG basin in 2011

December 29, 2006. Reliance Industries will reach peak output of 80 million standard cubic meters per day of natural gas from its D6 block in Krishna Godavari basin in 2011, three years after beginning production from the prolific block off the east coast. Reliance will start producing natural gas from block KG-DWN-98/3, also known as KG-D6, in June 2008 with initial output of 27.6 mmscmd. The 27.6 mmscmd production rate would be for one year, after which the output will reach 40 mmscmd. This production level would last two years and "plateau rate of 80 mmscmd is scheduled to be achieved by July 1, 2011.

Reliance will invest 8.836 billion dollars in two phases for developing Dhirubhai-1 and 3 gas finds, the first two of the 13 gas discoveries made by the company in block D6. Phase-I investment would be 5.197 billion dollars while the remaining 3.639 billion dollar would be invested in second phase beginning 2008-end. Reliance holds 90 per cent interest in Block D6, where it estimates reserves in excess of 50 trillion cubic feet. Niko Resources of Canada has the remaining 10 per cent. The revised development plan envisaging 8.836 billion dollar investment was approved on December 12; there was no delay in gas production from D6.

The company will drill 22 wells in Phase-1 and 28 wells in Phase-II. In the original development plan, Reliance had proposed to drill 34 wells. The resource base of Dhirubhai 1 and 3 gas finds had been raised since filing of original Field Development Plan. Against the 5.3 Trillion cubic feet proven plus probable reserves, RIL now estimated 11.3 tcf reserves in the two discoveries. The ultimate reserve in the two fields stands at 21 tcf. The life of the field has been estimated at 18 years. After the first 7-8 years, production will decline unless more wells are drilled and new reserves added. The proposed initial development covers only 4.5 per cent of the total block area (7,645 sq km). Considerable upside potential exists in the form of already known discoveries such as Dhirubhai 2, 4, 5, 6, 7, 8 and 16 and other possible discoveries from the large area of the block yet unexplored.

ONGC hopeful of striking oil at Mahanadi basin

December 27, 2006. ONGC is poised for a breakthrough in the Mahanadi basin. The oil & gas exploration company, is currently awaiting test results of a gas find, which are due within the next 7-10 days. If the test results come out positive, the gas discovery would be ONGC’S first major find on the east coast. In the last five decades of its existence, the company has sunk huge funds in exploration jobs on the east coast. If available, part of the gas could also be brought to Haldia.

The well, MDW-2A is located in the block MN-OSN-2000/2 in Mahanadi basin, some 50 km from the temple town of Puri, about 33 km from the Orissa coastline. The well was ‘spudded’ on November 2 at a water depth of 965 metres. Till date it has been drilled down to a depth of 2,064 metres. Initial exploratory drilling of a well is referred to as spudding. ONGC has a 40% share in equity in the block which comes under New Exploration & Licensing Programme (NELP)-II. Other partners are GAIL (India), IOC and Oil India each with a stake of 20%. The importance of the potential find lies in it being a pointer to similar prospects elsewhere in the basin. The country’s largest oil company has a number of blocks in Mahanadi basin, and its top brass are keeping their fingers crossed on more such prospects.

GSPC strikes gas at Deen Dayal block in KG basin

December 27, 2006. Gujarat State Petroleum Corporation (GSPC), the state-owned oil and gas exploration company, has finally struck high pressure gas in the third zone of the fifth well in Deen Dayal block, where it was carrying out tests for gas reserves. The gas discovered in the fifth well is “substantial and commercially viable”. Gas and oil was discovered during the drilling of the fifth well in October and November itself. However, it was not clear then if the findings were commercially viable. The company started testing of the fifth well (KG#15) early this month, but was faced with major setbacks during the testing procedure of the first two zones due to water leakage. The pressure of 8,500 PSI is higher than the pressure encountered in the fourth well (KG#17), which was lower at 8,450 PSI. However, the pressure is markedly lower than the 14,000 PSI which was encountered in the first well KG#8 last year.

The high pressure gas encounter in the fifth well has come after almost a month of starting the testing process. A drill-stem test is a procedure for testing a formation through a drill pipe. It helps in determining the fluid content of a reservoir and its ability to produce hydrocarbons. The discovery will give a boost to the company’s plans to raise funds through the initial public offering and also to appoint a strategic partner to develop the Deen Dayal block. Deen Dayal is part of the 1,800-sq-km KG-OSN-2001/3, which is operated by GSPC with 80% stake. Last year, the company had claimed discovery of 20 tcf gas. Since then, the company has drilled two more wells.


Tapco pact: IOC to approach board

December 30, 2006. IndianOil will approach the company's board next month seeking its approval to enter into shareholders agreement with Trans-Anatolian Pipeline Co (Tapco). ENI of Italy and Calik Enerji of Turkey currently own Tapco on a 50-50 basis. IOC has entered an agreement with Tapco expressing its intention of picking up 12.5 per cent stake in the $1.5 bn oil pipeline from Northern Black Sea city Samsun to the Mediterranean port city Ceyhan. The pipeline will ensure smooth transportation of 1.5 million barrels of crude, primarily from Kazakhstan, everyday. The company had received firm throughput commitment from traders for part of its daily share of 1.87-lakh barrels of crude oil. IndianOil is waiting for a decision from Energy Market Regulatory Authority of Turkey for licence to build the 15-million tonne refinery in Ceyhan before firming up throughput commitment for the rest of its crude oil share. Apart from IOC, three other companies including Kazakh oil company KazmunayGas and Turkish Petrol Office have also bid for setting up the only refinery in Ceyhan. Following award of the licence, the winner company(s) will have to submit the detailed feasibility report to secure a firm licence from the Turkish authority.

RIL plans $1.13 bn lignite gassification

December 28, 2006. Reliance Industries (RIL) is planning to invest Rs 5,000 crore ($1.13 bn) for gassification of lignite in south Gujarat. The project is expected to attract a substantial additional investment by the downstream gas industry.  The project will be a joint venture between RIL and Gujarat Mineral Development Corporation (GMDC). The private sector major is negotiating with GMDC and searching for lignite reserves in south Gujarat.  The company and the government sources confirmed that discussions are in the final stages and it is likely that the company will submit its final draft of the proposal within the next few weeks. 

The company has proposed to set up a project for exploiting deep-sitting lignite by gassification through controlled firing.  The reserves located deep down will be converted into gas by burning lignite. The gas generated from this process will be retrieved through pipes. RIL is planning to invest around Rs 5,000 crore as direct investment in underground coal gassification (UCG) and for product value addition. A substantial additional investment is expected to take place on the gas generation side along with the project. The company will be using technical know-how from Uzbekcoal and Yerostigaz of Uzbekistan for the project. Interestingly, GMDC has signed a memorandum of understanding with Oil & Natural Gas Corporation (ONGC) last year for the pilot project. RIL on its part is pushing hard for the project, apparently to gain an edge over public sector rival ONGC as GMDC is the only lignite producer in the state and RIL has huge investments at stake in Gujarat. 

IOC plans to spend $0.45 bn on retail infrastructure

December 28, 2006. Indian Oil Corporation (IOC) has earmarked an investment of Rs 2,000 crore ($0.45 bn) by March 2007 to improve its retail-marketing infrastructure across the country. The investment would involve the creation of 1,000 fully automated retail outlets (ROs), 200 auto LPG stations and conversion of petrol pumps into branded retail outlets. The oil marketing major has also set a target of creating 2,000 automated ROs by March 2008. To boost its retail infrastructure in West Bengal, IOC has decided to spend Rs 120 crore in the current year, with some Rs 40 crore being spent on adding 20 new ROs and 40 Kisan Seva Kendras in rural areas. Another Rs 11 crore is being spent on a new LPG bottling plant at Haldia. IOC has earmarked a spend of Rs 3,000 crore in the state by 2009. The bulk of the investment, currently under way, is being made on expanding the capacity of IOC’s existing refinery at Haldia from six million tonne to 7.5 million tonne, adding a hydrocracker unit to produce value-added products like Euro IV motor spirit and in setting up a pipeline to transport crude from Paradip to Haldia refinery. 

Transportation / Trade

Low gas supply may hit GAIL`s national grid plan

January 1, 2007. Shortage of gas, both in its natural and liquefied form, came up as a major cause of worry before the Parliamentary Committee on Public Undertakings. Low gas supply is preventing full utilisation of GAIL (India) Ltd’s pipelines, which could affect the viability of the proposed national gas grid being planned by the state-owned company.  Replying to the committee’s queries, GAIL said the under-utilisation – only around 63 per cent of the pipelines’ capacity is currently being used – was mainly due to insufficient supply of gas and LPG from the producers of petroleum products. 

The company, however, defended the national gas grid plans by saying the main interstate pipelines were being fully utilised and it was only the smaller networks in Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and Tripura where around 37 per cent capacity was not being utilised.  GAIL also told the committee it was in talks with international players to import gas. The country’s largest owner and operator of gas transmission networks – it operates 5,470 km of pipeline – also said talks were on with other producers of petroleum products to use its pipelines for transporting their products in order to attain full capacity utilisation. The public sector company LPG pipelines were not being utilised by the oil marketing companies, which were transporting the product by rail and road. 

Looking to unburden GAIL of the subsidy sharing expenses, the committee said the Rangarajan Committee recommendations regarding the government bearing the entire cost of the subsidy should be followed. If upstream companies continued to offer discounts on petroleum products they would continue to bleed, harming the country’s energy security in the process. The committee also raised concerns about the rising prices of crude oil. GAIL said that although gas makes up just 8 per cent of the country’s energy consumption – the Planning Commission expects this to go up to 20 per cent in the next 15-20 years – it was in the process of securing long-term supplies of liquefied natural gas.  Besides owning gas blocks in Myanmar, under the New Exploration Licensing Policy (NELP), the company was also actively looking at setting up new LNG terminals and sharing existing ones. 

Policy / Performance

Tax sops for LNG likely to support gas power plants

January 2, 2007. With nearly half of the country’s 13,500 MW of gas-based power generation capacity remaining unutilised, the government may consider duty and tax waivers to increase power production in gas-based plants. The power ministry has suggested duty waivers for liquefied natural gas (LNG) and LNG regassification plants. It has also suggested that tax holidays be extended to independent regassification plants. It has been estimated that the waiver in Customs duty would effect reduction of 6 paise per unit in fuel cost for power generation. The duty waiver will reduce fuel costs by 20% and make the fuel commercially viable for the power sector. As of now, LNG marketed by IOC, BPCL and GAIL.

The cost of fuel for coal-fired stations ranges from 70 paise per kwh to 110 paise per kwh while that for gas-based plants varies between 105 paise per kwh to 200 paise per kwh, depending on the type of gas used and the plant load factor. A duty cut, it argued, would ensure greater parity and price competitiveness. If the duty waiver is given, it could alleviate to some extent peak power shortage of 18,000 MW projected by the Central Electricity Authority at the end of the Tenth Five Year Plan. At present, LNG and natural gas attract a basic Customs duty of 5%. A complete Custom duty waiver would make gas supplies from the spot market a proposition that can be seriously considered. This, in turn, would help address the power shortage. In the current scenario, the landed cost of LNG in the spot market works out to $10 per mmbtu, resulting in a cost of generation exceeding Rs 4 per kwh.

LNG is an imported fuel and is more expensive than gas. If domestic gas sells between $2 and $3 per mmbtu, LNG is being sold at more that $4.50 per mmbtu. However, gas-based power producers, who are having to operate their plants at 50% plant load factor, are left with no other option but to fall back on this expensive fuel to generate power and meet peak demands. In order to mitigate costs, the power ministry has suggested that capital goods for LNG regassification plants should be exempted from Customs duty and countervailing duties (CVD).

RIL to invest $0.56 bn in MP

December 31, 2006. Reliance Industries (RIL) will invest Rs 2,000 crore ($0.45 bn) for laying down methane gas pipelines in Satna, Mahiya and Shehdol in Madhya Pradesh. The company will also invest Rs 500 crore ($0.11 bn) for opening 75 outlets of Reliance Fresh in Madhya Pradesh.  The memorandum of understanding is likely to be signed during the forthcoming two days’ business summit being held on January 15 and 16 at Khajuraho.

Govt may kick off NELP-VII in March

December 30, 2006. The government has drawn up ambitious plans of kicking off the seventh round of the New Exploration Licencing Policy (NELP) — a bidding round where the government invites companies to take up exploration and production of blocks in the country’s hydrocarbon basins — by March 2007 followed by an open acerage offer within 2007-08. This comes even as successful bidders await an approval of the Cabinet Committee on Economic Affairs (CCEA) for the blocks awarded under NELP-VI. The new round of bidding (NELP-VII) would offer about 4,00,000 sq km of area for exploring oil and gas. It is expected that around 60 blocks would be offered under NELP-VII. Under NELP-VI, 55 blocks covering 3,52,000 sq km of area was offered for bidding.

The petroleum ministry is also examining the possibility to introduce open acreage licensing policy (OALP) simultaneously with NELP to start with. OALP allows investors a continuous window of exploration opportunities wherein they would have flexibility to choose the areas, where they intend to carry out exploration. For formulating OALP, various activities such as preparation of maps on different scales, compilation of data in grid form, wherever available, bidding procedure and other exercise are being undertaken. The policy is expected to be in place sometime in the next fiscal.

Energy majors may shell out 0.2 pc cess for national fund

December 29, 2006. Energy majors such as ONGC, IOC, Reliance, Cairn, NTPC and Gail may have to shell out about 0.2% of their turnover towards the National Energy Fund (NEF). The government is considering a proposal to levy a cess to fund research & development (R&D) activities in the energy sector through the NEF. The proposal has been discussed at the PM’s Energy Co-ordination Committee recently and is likely to be included in the forthcoming Budget. Large energy firms would be identified on the basis of their turnover. The cess is proposed to be levied on a firm that has a turnover of Rs 100 crore or more. The cess is expected to raise Rs 1,000-1,200 crore annually. The fund will be over and above the Rs 610 crore provided by the Centre for R&D activities in the nuclear energy sector. While funding the nuclear initiative is significant, there has been no focus on R&D for the long-term energy security. A meager allocation of Rs 70 crore is made to fund other R&D activities in the energy sector.

Even domestic companies are shying away to undertake R&D activities in a big way. A company like NTPC spent only 0.025% of its turnover on R&D in 2005-06 whereas for international companies such as GE, it is as high as 2%. It is also proposed to strengthen the Bureau of Energy Efficiency (BEE) by making it an autonomous body. It is proposed that BEE should widen its scope to look at all energy-efficiency issues. It should be empowered to identify opportunities, set targets and design programmes for various sectors where energy efficiency could be achieved. The energy coordination committee, which is chaired by the prime minister, also includes the finance minister, petroleum minister, power minister and coal minister.

Common pipeline for oil basins soon

December 28, 2006. Companies — such as ONGC, Reliance, Cairn — engaged in exploration and production (E&P) of oil and gas in the Krishna-Godavari (KG) basin and Mahanadi basin may soon have cost-effective and efficient infrastructure to transport (evacuate) gas. The government is considering a proposal to link the two sedimentary basins through a pipeline that would provide a common infrastructure to E&P companies for evacuating natural gas. The two basins have huge potential. A common infrastructure, linking the two would be of great value. The proposal to have a common infrastructure to evacuate gas would be discussed with operators soon. It is expected that the proposed infrastructure would be created either through private investments or through the public-private partnership (PPP). A detail of the project is yet to be prepared. The proposed move will benefit companies operating E&P activities in KG and Mahanadi basins. Recently, ONGC, Gujarat State Petroleum (GSPC) and RIL have claimed to have struck gas reserves in KG basin.

Reliance has already made 12 discoveries since making the first major gas find in its first exploratory well, Dhirubhai 6 (D6), in the KG-DWN-98/3 block. D1 and D3 are being developed in the first phase with gas production beginning from June 2008. Gas output is expected to reach a plateau of 80 mmscmd. GSPC has struck gas in its block located in KG shallow water. The company is yet to submit an appraisal programme for the discovery of gas. ONGC is also to start commercial production at ‘Turputallu’ in KG onland basin (Andhra Pradesh) in 2007-08. The estimated in-place gas reserve in the block is 72.1 million cubic meters. In 2004, RIL found gas in the Mahanadi basin. Recently, ONGC also made a breakthrough as positive signs of gas reserves are found at a block near Puri (Orissa). Reserves are yet to be established. 

IOC may phase out IBP brand after a year

December 27, 2006. Oil major Indian Oil Corporation (IOC) has decided to retain the IBP brand for a year after which the company may phase it out. The boards of IOC and IBP had passed a merger proposal of these two companies in June 2006, but it is yet to be approved by the Company Law Board. The operation synergy between the companies has started. The company is planning to automate 1000 stations in the current financial year. IOC has earmarked Rs 160 crore for this first phase of automation. The company also plans to automate another 1000 stations, having sales volume of 200klpm (kilolitre per month), within the first quarter of the next fiscal. The oil major has also decided on an investment of Rs 2000 crore for opening new retail outlets in the next few years. Regarding oil ministry's directive of blending of 5% ethanol in petrol, the company is in talks with various state governments, like Rajasthan and West Bengal, on the high levy of interstate tax as it becomes a non-viable proposition for IOC. The company may come out with exclusive auto LPG dispensing stations apart from putting up such units in IOC's existing stations. Currently, about 100 petrol stations are having such dispensing units.



AP allows power generation using naphtha

January 2, 2007. Due to the acute power shortage during the ongoing rabi season, the Andhra Pradesh government has decided to allow the private gas power producers to generate close to 300 MW of additional power using naphtha. The electricity thus produced would cost the power utilities close to Rs 6.50 per unit. The 216-MW GVK Power has commenced generation, though for a brief period, using naphtha on one of its turbines, which has been idle due to non-availability of gas. It is learnt that the AP Transco is currently negotiating with Lanco and Spectrum Power for a similar arrangement.  It may be recalled that the four existing independent power producers (IPPs) — GVK, Lanco Kondapally, Spectrum and Reliance — which have a combined installed capacity of 999 MW, are currently producing only around 500 MW of power due to the shortage of gas. The state government has relaxed the alternate fuel clause, which effectively closes the doors on using any expensive fuel such as naphtha in place of gas, to allow the existing gas-based power plants to generate additional power. However, the government at no cost will relax the rule with regard to any new IPPs in the state. 

The government has decided to spend a whopping Rs 1,150 crore on power purchases in addition to the Rs 1,300 crore subsidy committed to the power utilities this year, of which Rs 470 crore is expected to spent exclusively on naphtha-based power during the three-month period up to March 2007.

Power shortage in the Maha rises to 4500MW

January 2, 2007. The peak hour power shortage in Maharashtra has gone up from around 3500 MW to around 4,500 MW over the last few days due to the failure of Mahagenco to implement projects on schedule. Two plants of 250 MW each were to become functional at Mahagenco’s Parali and Paras power stations in 2006. But due to delays, the Parali plant expected to be commissioned at the end of this month, while the Paras plant may become functional only in May. To close the demand and supply gap, the state has to add about 1,000 MW generation capacity.  Another major reason for the power shortage is increasing demand for power from industry as economy is booming and the farm sector. Good monsoon this year is also pushing up the demand for electricity from farmers. However, Mahagenco is blaming Bharat Heavy Electricals Limited (BHEL) for the delay in execution of the projects. BHEL's failure to deliver key components of the power plants on schedule has delayed the commissioning of power plants.

Himachal may pick up stakes in hydro projects

January 2, 2007. The Himachal Pradesh government said hydro power projects of over 100 MW capacity will be allotted through international competitive bidding, and the state would have the right of taking up to 49% equity in such projects. In projects of up to 5 MW, local investors would be given preference. Projects above 5 MW and up to 100 MW capacity would be allotted to independent power producers (IPPs) through MoUs. The government is planning to create an authority that would supervise hydro project safety, quality control and management of water flow and discharge. The state would receive investments to the tune of Rs 80,000 crore from CPSUs, joint ventures and independent power producers. To facilitate this the government had recently created a separate body, the Himachal Pradesh Power Corporation Ltd (HPPCL), which would start functioning soon. The state government would be charging an upfront premium of Rs 10 lakh per MW projects above 100 MW from developers, it would also realise royalty, ranging between 12% and 30%, and the project would revert back to the state after 40 years.

NTPC goes abroad with $0.56 bn Lanka plan

January 1, 2007. Power generation major NTPC is all set to take its first step overseas. NTPC will be setting up a 500-MW coal-based power plant in north-eastern Sri Lanka. The Rs 2,500-crore ($0.56 bn) project will be executed by a joint venture between NTPC and Sri Lanka’s Ceylon Electricity Board. NTPC will hold 50% equity in the proposed joint venture company, while Sri Lankan power utility will hold the remaining 50% stake. The proposed plant will be set up on a build, operate, own (BOO) basis. The project will be funded with a debt to equity ratio of 70:30. The entire 500-MW power plant will be built at one go, rather than in phases. The plant would be run on imported coal. The annual requirement of coal would be roughly 2.5 million tonnes. At current prices, this will cost around Rs 600 crore annually. It is likely that coal for the power plant will be imported from Indonesia through Sri Lanka’s Trincomalee port. Power from the plant will be sold in Sri Lanka.

Singareni to bid 10 blocks for coal mining

December 30, 2006. Singareni Collieries Company Ltd (SCCL) has identified 10 national blocks, eight of them open cast and two underground, which it expects to bid for captive coal mining. Alongside, some seven blocks, which are with the company would be offered to others for mining, of them three would be taken up by AP Genco. The company had set apart a capital expenditure of Rs 570 crore for the year, both for new and existing mines and is on course to achieving the targeted production of 37.5 million tonnes for 2006-2007. While a few old mines have been closed, some new ones have commenced operations. The 10 blocks were located in Orissa, Jharkhand and Chhattisgarh and form part of the 27 to be opened up by the Centre.

Lanco, J’khand sign MoU for 2,640 MW coal-based project

December 29, 2006. Lanco Infratech, which has received a letter of intent from the power ministry for setting up a 4,000-MW ultra mega power project at Sasan in Madhya Pradesh, has signed a memorandum of understanding with the Jharkhand government for a coal-based project with a capacity of 2,640 MW. The upcoming project would be set up in two phases of 1,320 MW each. The Jharkhand government would assist the company in land acquisition, permit drawal of required quantity of water and would also provide other infrastructure facilities. According to the MoU, the Jharkhand government will have the first right of purchase - up to 25% of the power generated from the proposed project. The remaining power can be sold to any other state through competitive bidding. Lanco has selected Jharkhand as the state has about 30% of the coal reserves available in the country and the coal has good clorific value and considerably less ash content. With the upcoming project, the total power generation capacity of Lanco will increase to 12,000 MW. The company is currently operating a 368 MW multi-fuel combined cycle project in Vijaywada, Andhra Pradesh, 119.8 MW gas-based project in Thanjavur, Tamil Nadu. The company is in the midst of setting up a 1,200 MW coal-based project in Korba, Chhatisgarh and it is in the process of establishing hydro-power capacities, totaling 800 MW, in HP, Uttaranchal and Sikkim.

Transmission / Distribution / Trade

Green power has a 7 pc share in grid capacity

January 2, 2007. The contribution of green fuel in the country’s power sector has crossed 7% of the grid power capacity in 2006. The renewable sources of power such as wind and small hydro power projects have contributed to 7.5% of the countries grid power capacity in 2006. Grid-connected power generation capacity through renewable sources of energy has been 9,100 MW during 2006, of which wind alone contributes to about 6,070 MW. India has maintained its 4th position in the world after Germany, Spain and the US in wind power installation capacity. The biomass power projects that were commissioned in 2006 made up 20,06,180 MW of power capacity, making a cumulative achievement of 1,038 MW. This includes the setting up of biomass power projects through direct combustion and biogases cogeneration. About 2,240 remote villages have so far been provided lights through renewable energy sources. During the year, 264 villages and 236 hamlets have been provided lighting or electricity under the Remote Village Electrification Programme. 

GMDC to earn $113 mn for supplying coal to KEVPL

December 29, 2006. With the inking of a long-term fuel supply agreement for supplying coal to KSK Energy Ventures Private Ltd’s (KEVPL) proposed 1,000-MW power project in Chattisgarh, state-owned Gujarat Mineral Development Corporation (GMDC) is all set to rake in big moolah. Going by the 10% margin per month, GMDC is likely to earn close to Rs 500 crore ($113 bn) per annum by supplying coal to KEVPL’s proposed power plant. GMDC will be providing 40 lakh tonne of coal per year for the proposed power project in Chattisgarh and keeping 10% margin per month.

It may be mentioned here that the GMDC has been awarded two coal blocks in Chattisgarh and Jharkhand and the corporation will supply coal from its Morga-II coal block in Chattisgarh. However, GMDC will have to prove coal reserves in Morga block before it starts supply to KSK Energy’s proposed power project. Currently, the mining major is awaiting permission for the detailed exploration of Morga block to established the mineable reserves.

Hyderabad-based KSK Energy Ventures Private Ltd plans to invest around Rs 4,000 crore for setting up 1,000-MW power project in Korba district of Chattisgarh.

14 ultra mega transmission projects in 5 yrs

December 28, 2006. After its success with bids for the Sasan and Mundra ultra mega power projects, each with a generation capacity of 4,000 MW, the power ministry has announced ultra mega transmission projects for private sector participation on a build-own-operate basis. The ministry has identified 14 such projects entailing a total investment of over Rs 22,000 crore. They are likely to be commissioned by 2011-12. Power ministry had appointed Power Finance Corporation (PFC) and Rural Electrifi -cation Corporation (REC) as the nodal agencies to oversee implementation of these projects through shell companies.

The ministry, PFC and REC have already invited expressions of interest (EoIs) for the Rs 4,200-crore evacuation system for the Maithon (1,000 mw), Kodarma (1,000 MW) and Bokaro extension (500 MW) projects. They have also invited EoIs for a project to bring surplus power from the east and northeast to the northern region, entailing an investment of Rs 1,800 crore. Besides, EoIs have also been invited for the evacuation system for North Karanpura (1,980 MW) costing Rs 4,100 crore. Other transmission projects include the southern-western region synchronous inter-connector (Rs 800 crore), as well as evacuation systems for Barh II (1,320 MW, Rs 1,200 crore), Nabinagar (1,000 MW, Rs 800 crore) and Daripally (3,200 MW, of which 800 MW in the 11th plan, Rs 4,000 crore).

Policy / Performance

Govt for bigger pvt sector role in hydro power

January 2, 2007. Having made a significant breakthrough with the ambitious coal based ultra-mega power project initiative, the government is now turning its attention to augmenting the role of the private sector in hydro power generation. The new policy framework, which is up for Cabinet approval, revolves around giving parity to private developers vis-à-vis the public sector in hydro power. Private developers also stand to earn higher margins as they will be allowed to trade up to 15 per cent of the total generation outside of the power purchase agreement.   According to the draft policy for development of hydro projects by the private sector, finalised by Union Power Secretary, the existing system of allocation of projects by states to the public sector, will be extended to the private sector as well. This would imply that state governments in the North-East and other Himalayan states award projects to private companies on the basis of their financial background and infrastructure capability. The selection process would have to be transparent. 

Despite hydro power having been recognised as the most economic and preferred source of energy, the share of hydro power in the total power output has declined from about 50 per cent in 1962 to about 26 per cent now. Of the estimated 1,50,000 MW hydro power potential, only 33,600 MW has been developed so far. The private developers would have to get the detailed project reports prepared on the same lines as central public sector units, get the Central Electricity Authority’s concurrence and seek investment approval from the Central Electricity Regulatory Commission. Long-term power purchase agreements will also be signed between the developer and the buyer of power. 

It will be mandatory for the developers to adopt an international competitive bidding process for awarding the contract for supply of equipment and construction of the project either through a turnkey contract or through a few packages. The tariff of the project would be decided by the Regulatory Commission, and to this extent, the Electricity Tariff Policy of January 2006 will be deemed to modify. With a view to facilitating a competitive electricity market, over a period of time, a maximum of 15 per cent capacity may be allowed to kept outside the long-term PPA for promoting power trading.   

Ministry plans to allocate 38 coal blocks for captive mining

January 2, 2007. It’s a New Year bonanza for power, iron and steel and cement sectors as the coal ministry plans to allocate 38 coal blocks for captive coal mining with the total coal reserves of 62,907.078 million tonnes. These blocks are situated in Jharkhand, West Bengal, Orissa, Madhya Pradesh, Maharashtra and Chhatisgarh. The ministry has asked the interested companies to file their applications by January 12. Preference would be accorded to the power and steel sectors. According to the ministry, within the power sector, priority would be accorded to projects with more than 500 MW capacity. Similarly, in the steel sector, priority would be given to steel plants with more than one million tonnes per annum capacity. The ministry will consider companies registered under the Indian Companies Act, 1956 for the allocation of one or more coal blocks. Of the 38 blocks 15 coal blocks are earmarked for power generation and 23 coal blocks would be available for other specified end users. Coal India has identified in all 136 coal blocks for allocation to power, steel and cement sectors for captive consumption. The ministry has made it clear that the allotment of coal blocks would be done subject to various conditions. The allocatee company would have to submit a bank guarantee equal to one year’s royalty amount based on mine capacity and the weighted average royalty within three months of the date of letter of allotment. Subsequently, upon approval of the mining plan the bank guarantee amount would be modified based on the final peak/rated capacities of the mine. 50% of the bank guarantee would be linked to the milestones set for the development of captive block, and the remaining 50% to the guaranteed production.

Ministry pushes for power JVs

January 1, 2007. The power ministry has urged the finance ministry to spare CPSEs under its administrative control from the requirement of the Cabinet’s and the Public Private Partnership-Appraisal Committee’s (PPP-AC) nods for JVs with the private sector. Although the proposal aims to cover all such JV projects of the power CPSEs, PowerGrid Corporation (PGCIL), which has planned a number of PPP projects in the transmission sector, will benefit the most, if the finance ministry accepts the proposal. PGCIL has estimated that the transmission sector will witness investments of some $150 billion in the next 10 years, to establish a national grid. The power ministry’s stand is that since CPSEs qualify for varying degrees of financial autonomy under Navaratna and Miniratna tags and otherwise, there is no need to subject them to lengthy and often tortuous approval procedures involving the PPP-AC and the Cabinet. Besides, the PPP-AC may not have domain expertise to assess the viability of projects in transmission sector, etc.

It may be noted that under pressure from NHAI and the shipping ministry, the finance ministry has already circulated a Cabinet note, proposing to cut down the PPP project approval mechanism by raising the threshold for projects requiring the twin approvals of PPP-AC — which is under the department of economic affairs — and doing away with the need for Cabinet nod for all. A finance ministry source said the ministry was all for removing avoidable hassles for PPP applicants. But, since the PPP projects create assets in the private sector, the government will have to ensure that they are created at the right price.

CEA gets 82 hydel project proposals for techno-eco clearance

December 29, 2006. The Central Electricity Authority (CEA) has received 82 hydro-electric (HE) schemes, with a total installed capacity of 30,617.6 MW, for techno-economic clearance/concurrence. This is at a time when the Centre is in the midst of releasing a new hydro policy, offering incentives to the private sector, in order to tap the hydro-power potential in the north-east and the eastern region of the country.

Of 82 schemes, 45 schemes with a total installation capacity of 16,967 MW have already been cleared/concurred by CEA during the Tenth Plan and previous Plans. Of these, two schemes, with an installed capacity of 590 MW, have been commissioned and 22 schemes, with an installed capacity of 8,381 MW, are in the implementation phase. Twenty-one HE schemes, with a total installed capacity of 7,996 MW, cleared/concurred by CEA, are awaiting investment approval by the concerned government or financial closure.

During the current and previous Five Year Plans, 82 hydro electric schemes with an aggregate installed capacity of 30,617.6 MW were received by CEA for techno-economic clearance/concurrence. The total power generation capacity of hydel projects in the country as on October 31 has reached 33,599.77 MW, against the potential of 1,50,000 MW. The 37 hydro-electric schemes, with an aggregate installed capacity of 13,650.6 MW, were returned to project authorities for resubmission after tying up all inputs/clearances and compliance of comments from CEA, Central Water Commission and Geological Survey of India. The project authorities have not resubmitted these schemes to CEA for further clearance/concurrence.

Private power projects to get delayed by two years

December 29, 2006. As Maharashtra Electricity Regulatory Commission’s (MERC) decision to partially allow the Maharashtra State Electricity Distribution Company Limited’s (MSEDCL) application to invite the competitive bids for power purchase, has given much needed boost for completion of private power projects in the state. But still the projects will be delayed by two years.  The power regulator partially allowing MSEDCL’s application given the discom clearance to invite the bids for 2,000 MW and asked to submit details regarding future demand projections and availability of power from its sister concern Mahagenco.  In 2005 and 2006 state government signed MoUs with many private players for generation of nearly 10,000 MW of electricity.  This includes Reliance Energy Limited, Tatas, Jindals, Essar and Ispat Industries. One important condition in the MoU was that, all these companies have to complete their financial closure within one year of signing the MoU.  However, nothing moved since then was the perception as no activity was seen on the ground. 

Maharashtra to hand over 4 new circles to pvt cos

December 28, 2006. Maharashtra State Electricity Distribution Co Ltd (MSEDCL) is planning to fork out four more loss-making power distribution circles to private companies. MSEDCL has identified Nanded, Parbhani and Beed circles in the State, which are reeling under power distribution losses of more than 50 per cent, for handing over to private distribution companies. While the Beed circle has reported a loss of 59.1 per cent, Nanded and Parbhani circles are down with 55.8 per cent and 52.5 per cent losses, respectively.

The fourth circle that may go into the hands of a private power distribution company is yet to be identified. These circles have been spawning losses for MSEDCL due to a variety of reasons, including increasing power thefts, non-payment of dues and messy political interferences. Handing over these circles to a private company for power distribution is expected to reverse this trend. The feasibility study for handing over these circles is under way and the proposal will be firmed up by June 2007. On an average, MSEDCL supplies 108 million units per year to Beed circle, its average annual revenue from here being Rs 60 crore and collection efficiency 59 per cent.

Decks cleared for BHPV-BHEL merger

December 27, 2006. Decks have been cleared for the merger of Visakhapatnam-based loss-making public sector undertaking Bharat Heavy Plate and Vessels Limited (BHPV) with state- owned Bharat Heavy Electricals Limited (BHEL). The takeover company and the government would clear BHPV's accumulated losses and loans. Besides, BHPV workshops would be upgraded with huge investments. Initially, Delhi-based Engineers India Limited and Hindustan Petroleum Corporation expressed their willingness to take over BHPV but later BHEL evinced interest. 

The company’s accumulated losses and loans from financial institutions and government now have crossed more than Rs 600 crore.  This forced the company to gradually trim its staff from about 4,500 to 1,500. On the other hand, the company’s order position showed some improvement for the last two-three years on account of better industrial growth.  At present, BHPV has Rs 400 crore worth of orders on hand, but it is not in a position to complete it on schedule due to lack of working capital. These orders have also not attracted financial institutions because of accumulated losses and old loans. 

Hydro projects may get Customs duty waiver

December 27, 2006. With the government turning its attention to hydro power as a source of clean and cheap power, it is now considering measures to bring down the cost of setting up hydro power projects. The government is considering a customs duty waiver on construction equipment as well as cement and steel used. While the proposed 100% customs duty exemption for construction equipment is geared specifically for hydro projects, the concessional customs duty on cement and steel used in setting up or expansion of projects is fuel neutral. For a hydro project, duty waivers for equipment cement and steel could mean a reduction of anywhere up to 10% reduction in costs. At a rate of Rs 5 crore per MW, a 10% duty waiver could mean a susbstantial reduction in costs. The government is, therefore, considering a customs duty exemption on import of construction equipment like tunnel burrowing machines, cable cranes, concrete pumps and heavy earth-moving equipment for hydro power projects. This proposal is in line with the exemption for equipment used in National Highways Authority of India (NHAI) road projects. It is also considering concessional customs duty on cement and steel, both of which make for the bulk of the civil works cost of a hydro project.

Power tariff may heat up with shift in coal royalty

December 27, 2006. Power tariffs are likely to go up further as the government is planning to revise royalty rates on coal, shifting it from the current specific rate to ad valorem system. It is also considering a proposal to allow states to levy up to 5% cess on coal over and above the royalty charges. Once implemented, the proposals may push the overall coal prices by up to 25%, much to the discomfort of the power sector, the prime consumers of coal. It would, however, swell the states kitty by over Rs 500 crore. The government is considering shifting to the new system of royalty where rates may be fixed between 20 and 22% of coal prices, that a note from the coal ministry specifying the changes would be put up before the cabinet for approval soon. It is understood that a change in government’s proposal in favour of ad valorem royalty rates has come in the wake of strong support from the Energy Coordination Committee (ECC) headed by Prime Minister Manmohan Singh. A coal ministry committee on coal and lignite royalty had earlier suggested shifting royalty rates on coal to a mix of specific and ad valorem duties.

A report of Economic Advisory Council (EAC) of the Prime Minister headed by C Rangarajan had also favoured the move. Under pressure from states, the ECC at its recent meeting also favoured advancing implementation of internationally-acceptable ad valorem royalty rates. The coal ministry would now revise the cabinet note to include both the options on royalty (mixed rate as well as ad valorem rate). It will now be up to the Cabinet to finalise the most appropriate option. It is understood that Centre may also permit states to levy a cess over and above the royalty with a permissible limit of 5%. Already states like West Bengal levy cess on coal. The proposal on cess would be implemented after a favourable opinion is given by the law ministry. The courts have already upheld states’ powers to levy cess over and above the royalty payable to them. At present, the Centre fixes the rate of royalty on coal on per tonne basis for three years, which is payable to the state governments. As the rates were last revised in September 2002, a revision was due last year.




More gas discovered in Myanmar

December 31, 2006. Impoverished Myanmar, working with Thailand’s state oil firm, has discovered more potentially rich offshore gas deposits in the southwestern Gulf of Martaban. Myanmar Oil and Gas Enterprise and Thailand’s PTT Exploration and Production (PTTEP) had discovered an estimated 2.5 trillion cubic feet (75 billion square metres) of natural gas in block M-9. Myanmar, one of the world’s poorest countries and under US and European economic sanctions over human rights abuses and suppression of democracy, is increasingly reliant on revenue from its oil and gas deposits. With the new discovery, block M-9 is estimated to contain 8.0 trillion cubic feet of gas. Myanmar Oil and Gas Enterprise and PTTEP, Thailand’s largest exploration firm, began drilling in early December in block M-9 in the Gulf of Martaban, which opens out into the Andaman Sea.

Despite international condemnation and growing frustration at Myanmar’s military regime, its neighbors have been jostling to take advantage of the country’s abundant natural resources. Natural gas from Myanmar currently accounts for some 20 percent of Thailand’s supply. That gas comes mainly from the Yetagun field operated by Malaysia’s Petronas, Japan’s Nippon Oil and PTTEP and the Yadana field run by France’s Total, US firm Unocal and PTTEP. Both fields are in the Gulf of Martaban. Myanmar’s oil and gas production has become the largest source of foreign currency earning.

Statoil finds gas in exploration off Venezuela

December 29, 2006. Norwegian state-controlled oil and gas group Statoil found dry gas in an exploration well off Venezuela. Statoil has completed the drilling of Cocuina-2X, as part of a three-well exploration campaign in Block 4 of Plataforma Deltana, off eastern Venezuela. The well was the first of three planned in the block. The well, located 240 kilometres (150 miles) from the Orinoco Delta, was drilled to a total depth of 3,406 metres (11,170 ft). A total of three intervals were tested in which dry gas was confirmed. The true potential of Block 4 cannot be confirmed until the whole exploration programme has been completed. Statoil is operator with a 51 percent share in Plataforma Deltana Block 4 and Total has 49 percent.

CNOOC sees 16 new projects coming onstream in 2007

December 29, 2006. China National Offshore Oil Corp, the country's largest offshore oil and gas producer, plans to bring 16 new projects onstream in 2007, up from 13 this year. The company expects to pursue 60 projects over the medium term, both in the upstream and downstream sectors. CNOOC's focus will be in deepwater exploration for oil and gas in Oil and Gas Exploration and Production - Reserves, Costs, Contracts the South China Sea in 2007. Earlier this month, CNOOC signed production-sharing contracts with Devon Energy Corp for deepwater blocks 64/18 and 53/30, located in the South China Sea's Qiong Dong Nan Basin and the Pearl River Mouth Basin. CNOOC Ltd, the listed unit of CNOOC, said in a separate statement that the company will focus on slowing down the depletion of aging oil fields and developing new oil and gas fields. CNOOC controls Xijiang oil field in the South China Sea, Pinghu oil and gas field in the East China Sea and Wenchang oil field in Zhanjiang in Southern China.

Gazprom gets gas, oil-prospecting license in Tajikistan

December 29, 2006.Gazprom has been granted two licenses by the government of Tajikistan for the geological prospecting of natural gas and oil fields in the Central Asian republic. The licenses were issued under a strategic cooperation agreement signed between Gazprom and the Tajik government May 15, 2003. The Rengan gas field is located 20 kilometers (12 miles) south of the republic's capital, Dushanbe, with probable natural gas reserves of 35 billion cubic meters. The Sargazon field is based in the Dangarin district of the Khatlon region, 150 (90 miles) kilometers southeast of Dushanbe, with probable gas reserves of 30 billion cubic meters. By now, 12 oil and gas fields have been discovered in Tajikistan, of which two gas and five oil deposits are being developed. The republic needs over 1.2 billion cubic meters of natural gas a year. In 2005, Tajikistan produced 29.4 million cubic meters of gas.

Shell declares Brazil Santos basin finds commercial

December 28, 2006. Royal Dutch Shell Plc had declared two oil finds commercially viable at its Brazilian BS-4 block in the Santos basin off the coast of Rio de Janeiro state. Shell had until the end of the year to decide whether to relinquish the block to the government's National Petroleum Agency or keep it, and it will now proceed with further evaluations of the discoveries and define the development concept at the deepwater block in the next few months. The BS-4 block showed 1.6 billion barrels of total in-place heavy oil accumulations. The crude is 14 API grade and the wellhead is at a water depth of 1,550 meters (5,100 feet). Most of the oil found in Brazil recently is heavy and located at great depths, which makes extraction costly. Shell is the operator with a 40 percent stake, while Brazil state oil company Petrobras owns another 40 percent of the concession and U.S. oil firm Chevron Corp. has a 20 percent stake. Shell is one of a handful of foreign companies already producing oil in Brazil and it is in the development phase at another block in the Campos basin. It also produces natural gas at the Merluza field jointly with Petrobras.

Sinopec discovers offshore oil, gas field in east

December 28, 2006. China Petroleum & Chemical Corp. (SNP), known as Sinopec, discovered an offshore oil and gas field in eastern China. The Xinbei field is located north of the mouth of Huanghe River, with proven reserves of 6.88 million metric tons, or 50.4 million barrels, of crude oil and 482 million cubic meters of natural gas. Sinopec plans to build a platform capable of producing 600,000 tons a year, or 12,049 b/d, of crude by 2010 in the Xinbei field. Sinopec, the country's second largest oil producer by output, is actively exploring new reserves around the aged Shengli field, which is the country's second largest field after Daqing. Shengli Oilfield Co. produced 13.57 million metric tons, or 546,528 b/d, of crude oil in the first half of the year, up 2.5% from the corresponding period of last year.

Egyptian, Chinese companies to build rigs in Egypt

December 27, 2006. Meeting in Cairo, three Egyptian and one Chinese companies in the oil and gas sector signed a contract to set up a joint venture to manufacture oil rigs in Egypt. The joint venture had a total capital of US$30 million, which would be equally shared between the three Egyptian companies and China's Honghuang Oil Equipment Co., based in southwestern province of Sichuan. The three Egyptian companies are Petroleum Projects and Technical Consultations Co. (PETROJET), Enppi and Tharwa. The joint company is expected to manufacture three oil rigs by the end of 2007, then eight oil rigs in 2008, 10 in 2009, 15 in 2010 and 20 in 2011. The joint company will help provide the needs of the oil sector and address the shortage of oil rigs, that this is the start of a new stage in the oil sector, especially with the expansion of oil and natural gas exploration.

Anadarko to sell Louisiana gas fields for $1.6 bn

December 26, 2006. Anadarko Petroleum Corp. agreed to sell two gas fields in Louisiana to EXCO Resources Inc. for $1.6 billion in cash. Independent oil and gas producer Anadarko is selling off assets to cut debt after spending $22.5 billion to buy peers Kerr-McGee Corp. and Western Gas Resources earlier this year.  It has set a goal of trimming its debt to $12 billion by the end of 2007 from $26 billion at the end of the third quarter of this year. The fields produced 192 million cubic feet equivalent per day from about 350 wells on 66,000 net acres as of Nov. 1. Six drilling rigs and four work-over rigs are active in the fields. EXCO expects the sale to close in March 2007.

Gazprom wins offshore Libya acreage

December 26, 2006. On December 20 Gazprom was declared as the hydrocarbon exploration & development tender winner for Block 19 situated in Libya's Mediterranean Sea offshore. With 45 bidders involved, the Libyan National Oil Corporation (NOC) organized the tender. Gazprom will receive an up to 30-year upstream license for the Block. The project is planned to be funded with over US$ 200 million to be used for geological exploration purposes including for drilling 6 exploration wells. The fourth-largest in Africa after Algeria, Nigeria and Egypt, Libya's proven natural gas reserves account for some 1.49 tcm. The country's gas potential is practically not utilized: annual production stands at 7 bcm, with 83 percent consumed domestically and the remaining 17 percent exported. Libya is the first African and fifth OPEC (preceded by Saudi Arabia, Kuwait, UAE and Iraq) country in terms of the proven reserves of light sweet crude oil (5 billion t). Libya's explored oil reserves are valued at 7 billion t. In 2005 the country produced more than 80 million t of oil. Founded in 1970, the Libyan National Oil Corporation (NOC) is currently engaged in hydrocarbon exploration and production on the territory of Libya. NOC owns a petrochemicals compound in Ras Lanuf and a string of refineries. Developing Block 19 in the Mediterranean Sea offshore will be Gazprom's second-largest project in Libya. The first project will be executed under a framework asset swap agreement between Gazprom and BASF. Under the agreement, the Russian side will receive a 49-percent stake in Wintershall Holding that annually recovers some 5 million t of oil in Libya.

Transportation / Trade

Iran, Pak to bypass India, US on gasline

December 30, 2006. Gas starved Pakistan and keen seller Iran are poised to proceed expeditiously on the pipeline project by neither waiting for reluctant co-buyer India nor bothering the US, which is opposed to anything Iranian. The Iranian envoy in Pakistan has conveyed a message to the Pakistani authorities for an early ministerial level meeting on the bilateral gas pipeline. The two Presidents had agreed to accelerate the work on the bilateral project irrespective of the pace on the trilateral one. After the top-level contact between the two countries especially over this project the pricing issue of the Iranian gas was no more an impediment in the way of Pak-Iran gasline project. The two Presidents during the telephone conversation had understood to sort out the lack of agreement on the tariff in order to proceed on. The sources hinted at signing, early next month, a Pak-Iran agreement to cement their already signed Memorandum of Understanding and also the renewed once. The agreement most likely to be signed by the two ministers would be followed by technical-level talks in order to reach the kick-start phase in the first quarter of the next year.

In order to avoid any pressure from the US, the governments of Pakistan and Iran would opt for linking the independent infrastructure at the borders. Therefore, they would do the construction work independently but in close collaboration as well as coordination with each other. In this manner, the sources observed, this project would not fall prey to the recently slapped sanctions against Iran. It has also the potential to keep going even in the event of further embargoes in future. Once a gas pipeline link between Iran and Pakistan is established, it would easily be extendable to India at any time even in the same manner of independent infrastructure ownership, the sources maintained. Even in the event of India not coming in to buy the Iranian gas Pakistan would lead it up to Gwadar for onward export after treatment as well as development at the planned petroleum city.

Thai to open oil, gas tender

December 28, 2006. Thailand plans to open a new round of bidding for oil and gas exploration rights next year with incentives to lure investors from other more attractive fields. About 60 onshore and offshore blocks, including those shunned in previous tenders, will be offered in the 20th round. The last round, which put up 82 blocks for tender, ended in June and attracted only 19 bidders for 25 blocks. The Energy Ministry awarded rights to explore and produce 10 onshore and offshore blocks to eight bidders earlier this year. It planned to sign concession pacts with the winners of four other blocks on January 8. The government planned to charge a lower royalty fee to enable Thailand to compete better against other fossil- fuel-rich Southeast Asian nations like Malaysia or Indonesia. Under the amended royalty law, expected to be passed by parliament in the first half of 2007, the current 5 to 15 percent fee based on production size would be cut to 1 percent for very small blocks yielding less than 10 barrels a day. The revised law would apply to new and existing producers. Firms that share exploration and production facilities in the same area would also get a tax break.

Chevron Corp, which has bought blocks from smaller firms in Thailand, was the only oil major to win concessions in the last round of bidding. Among the 10 blocks granted earlier this year, a Chevron subsidiary won one block in the Gulf of Thailand and its joint venture with PTTEP (Thailand) won another in the Gulf. PTTEP Siam won three onshore blocks, while JSX Energy (Thailand) and Apico LLC each won single onshore blocks.

LNG import to begin next year - Pak

December 26, 2006. As gas consumption surges to new heights, Pakistan is expected to receive first shipment of liquefied natural gas (LNG) sometime in the third quarter of 2007. AG, which earlier this year signed an agreement with Excelerate Energy of the US to hire its floating storage and re-gasification unit (FSRU) for LNG, plans to import 200 million cubic feet of gas per day (mmcfd) in the initial phase. Import of LNG by way of FSRU is the quickest option to make available gas for growing power requirement of the country that is struggling to contain usage of expensive furnace oil for electricity generation. A conventional re-gasification plant located at a port site requires huge investment and time for construction whereas FSRU works as a mother ship with onboard re-gasification and storage facility. Sui Southern Gas Company (SSGC), which is facilitating the Mashal LNG import project on standard lines, has already submitted a framework to the Oil and Gas Regulatory Authority (OGRA) for verification. This $500 million project, expected to come online in the year 2010, is considered the second best option to import gas after transnational pipelines. However, experts say two Asian giants - China and India - are aggressively pursuing exporters to secure long-term LNG import contracts. On the other hand, countries like Japan and South Korea will create stiff competition in spot purchase market. AG plans to increase gas supply by a further 200 mmcfd in 12 months after the first shipment arrives later next year.

Gazprom to supply gas to Moldova at $170 per 1,000 cu m

December 26, 2006. Gazprom and Moldova have agreed on Russian natural gas deliveries to Moldova at $170 per 1,000 cubic meters in 2007. The parties will sign a relevant contract by the end of the year. As of 2008, the gas price will gradually rise to reach average European rates of $250 per 1,000 cubic meters by 2011. The Moldovan government and Gazprom will soon sign a protocol defining the terms of Russia-Moldova cooperation in the gas sector. In particular, it will fix the parties' agreement to increase Gazprom's share in Moldovagaz and gas-distributing enterprises in the republic. Russia will have delivered some 2.5 bcm of natural gas to Moldova in 2006. In 2005 it supplied 2.82 bcm of natural gas to Moldova. Earlier this year, Russia supplied natural gas to Moldova at $110 per 1,000 cubic meters, then raised the price to $160 per 1,000 cubic meters in July.

Policy / Performance

Belarus signs gas contract with Russia

January 1, 2007. Belarus signed a new price deal for Russian gas supplies two minutes before a midnight New Year’s eve deadline, narrowly averting a threatened supply cut on Monday that would likely have hit deliveries to western Europe. A new contract includes a roughly fourfold increase in the price of Russian gas supplies to Belarus over the next five years, which coupled with a massive hike in Russian oil import duties could prove a crushing blow to the economy of Belarus, traditionally one of Moscow’s closest allies. Gazprom had warned that it would cut off its exports to Belarus unless the country accepted a new gas supply deal at higher prices. Belarus had threatened to disrupt Russian supplies to Europe which pass through its territory. This had caused concern in the European Union, which imports five percent of its gas supplies through Belarus from Russia, and revived memories of gas shortages this time last year caused by a dispute between Ukraine and Russia.

As part of the deal signed, Belarus agreed to sell 50 percent of its gas pipeline operator Beltransgaz to Russian gas monopoly Gazprom, according to a breakdown of the deal provided by the Russian company. In recent years the Belarussian government has strenuously resisted such a sale. Under deal, Belarus will pay 100 dollars per 1,000 cubic meters of gas in 2007, just below the 105 dollars earlier demanded by Russia, but far higher than the 45 dollars charged under the previous contract. Over the five years covered by the contract, the price of gas will climb annually to reach the ‘market price’ charged to western European customers. Most of Gazprom’s EU customers pay over 200 dollars per 1,000 cubic meters of Russian gas.

Coming in the wake of a recently announced hike in Russian duties on oil exports to Belarus, deal appears to mark the end of an era of cheap energy supplies from Russia that have subsidized the Belarussian economy since the collapse of the Soviet Union in 1991. As part of the deal, Russia will pay 2.5 billion dollars for the 50 percent stake in Beltransgaz over the next four years, while the transit price for Russian gas supplies across Belarus would be roughly doubled. Western governments gave strong diplomatic backing to Ukraine’s pro-Western president, Viktor Yushchenko, during the gas row at the start of 2006, but have been less vocal in defending Lukashenko, a political pariah in Europe and the United States. Gazprom, a state-owned giant that produces a third of the world’s gas, has mounted a tough campaign to end Soviet-era subsidies to neighboring countries, as well as expand ownership of infrastructure and other energy businesses throughout Europe. Critics, including many in western Europe, fear the Kremlin seeks to use Gazprom as a tool to reimpose part of its dominance lost at the time of the collapse of the Soviet Union in 1991.

World Bank calls Pak for studying new energy options

December 30, 2006. The World Bank has advised Pakistan to explore new options for generating additional electricity in order to avoid a countrywide load shedding. The bank suggested to the government to explore renewable sources of energy, such as wind, biomass and solar energy to meet power requirements. Islamabad was also advised to drastically improve its infrastructure that invariably created problems for industrial, commercial and domestic electricity users. The consumption of electricity is generally regarded as an index of economic prosperity of a country. The present per capita electricity consumption in Pakistan is about one-tenth of the world average. Therefore, a lot more was required to be done in the field of power generation. The government has informed the donor agencies that Pakistan has indigenous source of power in the form of big reserves of coal, but due to constraints on mechanised coal mining ability, the resource utilisation is minimal at this stage. However, it believed that renewable sources with the exception of wind energy, which too has site dependent characteristics cannot generate power on large scale. The government also informed the donor agencies that future load forecast had been prepared so as to plan adequate facilities for generation, transmission and distribution of the electric power in an orderly manner, the latest forecast demand of 16,2590MW till the year 2030 had been firmed up and various projects were being finalised accordingly, to be completed with the financial support of the World Bank and the Asian Development Bank (ADB).

Major electric power needs are presently met through the National Grid. Even though the network encompasses most of the country, there are remote areas that are yet to be connected to the national grid. The donor agencies did not believe in the government’s ability to fulfill its promise of providing electricity across the country by December 2007 particularly due to the crumbling power infrastructure, corruption and line loses.

At present, the country is generating 19,547MW which, when compared to the future demand forecast, clearly showed the requirement of extensive addition to the power generation capacity. The government had also informed the donors that concerned organisations were identifying gas fields currently offering limited gas supplies for limited periods. In this regard, the government believed that the screening could be done to short-list five to 10 promising gas fields from where either the gas could be pooled at a nearby site for power generation or where small-scale power project could be independently set-up, further studies would be carried out to ascertain the best option for utilisation of gas from these fields for power generation. As such, viability will be ascertained to develop either a medium to large-scale power project based on gas pooled at some central place or small-scale portable power projects to utilise the available gas to the maximum and shift these power plants to other similar sites. The power produced from such plants, can either be fed to the national grid or be used in isolation for the specific area, depending upon the site.

US committee to review Iran and China gas deal

December 30, 2006. A US congressional committee will review a Chinese-Iranian deal to determine if US sanctions are called for against the Chinese company involved in the $16 billion gas deal. Congress recently extended and strengthened the Iran Sanctions Act, as part of legislation which I co-sponsored, and China needs to be warned of the serious penalties it may incur if it pursues implementation of this agreement. On December 21, China's top energy firm, PetroChina, confirmed for the first time that Iran will supply liquefied natural gas (LNG) in a major deal announced by Iranian state Press earlier this month.

Earlier in December, the National Iranian Gas Exports Company (NIGEC) would sell China three million tonnes of gas from the Pars LNG project over 25 years, beginning in 2011. China's booming economy is forcing the country into a global search for energy resources to secure its future growth, and Iran, with its rich gas and oil fields, is one target. Iran and China's biggest offshore oil producer, CNOOC, signed a preliminary $16bn deal to develop a giant natural gas field. The deal is aimed at developing Iran's northern Pars gas field and building plants to produce liquefied natural gas, with each party taking 50 per cent of the produced LNG.The investment, however, will come from the Chinese side: $5bn for exploration and production, and $11bn for downstream activities. The Pars LNG project, which teams up the National Iranian Oil Company, French Total and Malaysian Petronas, is one of three LNG-producing consortia in Iran.

Pakistan, Iran discuss cooperation in oil, gas

December 29, 2006. Pakistan and Iran has said that Iran- Pakistan-India (IPI) gas pipeline project is in the final stage of process and its expeditious implementation will not only prosper the entire region, but also help overcome growing energy needs of the countries in the region. Pak said both the countries were endowed with vast copper, coal, iron-ore and other mineral deposits and could benefit from each other’s experience for the mutual advantage. The government would welcome the Iranian company’s participation in oil refinery, LPG, LNG, coal gasification projects, besides oil, gas and mineral exploration activities in a level-playing field to the investors in the country.

To focus on new oil, gas finds: Pak MoPN

December 28, 2006. The Pakistan Ministry of Petroleum and Natural Resources has been ordered to focus on new oil and gas finds to maintain the momentum of national economic growth and cater to the increasing domestic energy demand. The Senate body specifically urged the provincial governments (as coal and minerals are a provincial subject) to pay special attention towards development of coal reserves, particularly in Sindh and Balochistan, enabling the natural resource to be used for enhance power generation capacity. The committee also directed the Oil and gas Regulatory Authority (Ogra) to check rising LPG prices and noted that it was rapidly becoming the fuel of choice in areas without gas distribution network, especially in Azad Kashmir and the Northern Areas. The committee also expressed concern over reports about storage of LPG cylinders in residential areas and its unsafe use in motor rickshaws. The committee recommended that the LPG companies be asked to ensure a supply of at least 10 per cent of their total production to Balochistan and seven per cent to Azad Kashmir and the Northern Areas. The committee also welcomed the $3 billion to $4 billion UAE investments for setting up an oil refinery near Karachi, which will be export-oriented. The committee urged the ministry to ensure that there was no loadshedding of gas in Balochistan; especially in gas producing areas.

S Korea wants to become oil hub by 2010

December 28, 2006. South Korea aims to become the oil storage and transshipment hub of choice for North Asian consumers by the end of the decade, taking advantage of growing demand and trade in the Pacific. Burgeoning import demand from China, expanding crude exports from eastern Russia and the expansion of South Korea and Japan's refining systems to tap global markets are increasing demand for storage and blending tanks in North Asia. The Korea National Oil Corp, which manages the country's strategic oil reserves and leases out some tanks on a commercial basis, may consider giving users a five-year break on tariffs in an effort to encourage more use. KNOC aims to expand its total capacity to 146 million barrels by 2010, up from 121 million barrels. It currently rents out 27 million barrels of capacity to oil companies such as Total and Statoil, top producer nations like Kuwait and Algeria as well as trading houses such as Swiss- based Glencore and Chinaoil.

It hopes to expand such joint storage deals - where South Korea gets pre-emptive rights to buy the crude in case of emergency - to 40 million barrels by 2010. Demand for storage facilities has surged this year as most markets have remained in contango, where prompt prices are cheaper than forward rates, paying for the cost of storage. Growing oil import demand has also fed the trend. The four leading consumers - China, Japan, Taiwan and South Korea - in the region consumed 15 million barrels per day in 2005. That is expected to rise to 19.3 million bpd by 2015, with China's demand alone rising by 93 percent. South Korea could play a key role in transshipping oil exports from Russia's giant Sakhalin Island projects, from the oil sands of Canada or from South America to China, India, Singapore and the Middle East through hosting storage facilities.

Russian govt. raises forecast of oil prices for 2007-09

December 28, 2006. Russia's government has decided to raise its forecast of oil prices for 2007-2009. Under the Russian financial plan for 2007-2009, which was approved at session of the governmental budget planning commission, the forecast of oil prices for 2007 will remain at $61 per barrel, and was increased to $56 per barrel for 2008 (as compared to the previous forecast of $54), and $52 for 2009 (as compared to $48).

Russia, Egypt agree on joint oil, gas exploration projects

December 27, 2006. Russia's energy giant Gazprom has reached an agreement with two Egyptian companies on joint prospecting and exploration of oil and natural gas in Egypt. They agreed to form working groups on prospecting, exploration, transportation and sales of Egyptian oil and gas, including liquefied natural gas. The sides also discussed sales of Russian oil-and-gas equipment to Egypt. The third-largest in Africa after Algeria and Nigeria, Egypt's proven natural gas reserves account for about 1.89 trillion cubic meters. The total length of the country's gas pipelines is 4,700 kilometers (about 3,000 miles).



First imported coal-based power plant in Pak

December 30, 2006. AES Corporation of US and Mitsui Group of Japan have been short-listed to prepare two separate feasibility reports for Pakistan’s first power plant that would use imported coal as fuel. Both firms will shortly be issued approval letters to start assessing the cost and other aspects of the whole project that envisages setting up a 1,000 MW power plant near Karachi. In the wake of increasing reliance on imported furnace oil for power generation, Private Power Infrastructure Board (PPIB) in August this year invited foreign companies to set up a coal-fired power plant. Furnace or fuel oil, which is being blamed for increasing country’s current account deficit, is relatively costlier but strong demand for coal has also pushed up its price in recent years. The two firms will take at least a year after issuance of letter to complete their studies on the project that is estimated to cost between $1.3 and $1.4 billion. Project includes construction of jetty, coal storage facility and a power plant. There is even a possibility that government might allow both the companies to set up two separate power plants of 1000mw capacity each.

Guodian to build coal mine

December 29, 2006. China Guodian Corp, one of the mainland's five biggest power companies, and its partner agreed to invest 22 billion yuan (HK$21.87 billion) to build a coal mine and power plant in the northeastern province of Heilongjiang. China Guodian's northeastern subsidiary and Heilongjiang Longxing International Resource Development Group will jointly construct a 4,000 MW power plant and a coal mine able to produce more than 20 million tonnes a year at Shuangyashan.

The power plant will cost 17 billion yuan, with the remaining 5 billion yuan going to the coal mine. The companies plan to start building the project next year. Guodian signed initial agreements with the two other northeastern provinces, Liaoning and Jilin, to invest in possible power generation and water treatment projects. China, the world's biggest coal producer and consumer, uses the fuel to generate two-thirds of its power and mining companies are increasing capacity to meet demand from utilities. Total investment including the purchase of mining rights will amount to 3 billion yuan, according to Datong Coal, which will own 60 percent of the mine. The Dongzhouyao mine has recoverable coal reserves of 1.4 billion tonnes and will be operational for 96.8 years.

BG to buy U.S. power plant for $685 mn

December 28, 2006. British gas producer BG Group Plc has agreed to buy the Lake Road power plant in Connecticut, United States, for $685 million to strengthen its position in the New England power market. BG was buying the 805 MW gas and oil fired plant from a consortium of financial investors. Lake Road is BG's second power plant purchase in New England. In October, it bought the 170 MW Dighton plant in Massachusetts. BG expects to close the deal in the first quarter of next year, following U.S. regulatory approvals.

Bulgaria to build second nuclear plant

December 26, 2006. Bulgaria will employ about 10,000 people in the construction of its second nuclear power plant at Belene, on the Danube River bank. Tsvetko Tsvetkov, governor of the Pleven municipality south of Belene, said once the first reactor of the nuclear plant is completed in 6 1/2 years and put into operation, about 5,000 people will be full-time employees. Russia's Atomstroyexport company is to built the Belene nuclear plant, whose two 1,000 MW, light-water reactors will cost $5 billion. The second reactor is to be put in operation one year after the first reactor.

Transmission / Distribution / Trade

Aquila signs power purchase agreements

December 30, 2006. Unable to purchase a Missouri natural gas-fired power plant, Aquila Inc. has contracted power purchases with multiple suppliers to meet energy needs for the summer 2007. Aquila was outbid in its effort to buy the 580 MW Aries Energy Center in Pleasant Hill, Mo. The power plant, owned by Calpine Corp., eventually was sold to Kelson Energy LLC, a Baltimore-based power plant management firm, through an auction completed Dec. 5.

Policy / Performance

Mitsubishi plans GE nuclear power pact

December 31, 2006. Japan's Mitsubishi Heavy Industries plans to work with US conglomerate General Electric on nuclear and wind power generation ventures. Under the plan, the two firms will jointly bid for a $300 million project to boost capacity by 20 per cent at the 1.36m kilowatt Laguna Verde nuclear plant in Mexico. If their bid is accepted, General Electric intends to supply peripheral reactor equipment while Mitsubishi Heavy will supply steam turbines. General Electric has already agreed to work with Mitsubishi's rival Hitachi on nuclear power projects amid growing interest worldwide in nuclear energy, particularly in the US. Mitsubishi Heavy also plans to supply General Electric with step-up gears, a key wind turbine component, as early as 2008 in a bid to lower production costs and increase its market share in the wind power industry. General Electric holds the number two spot in the global wind power industry, while Mitsubishi Heavy ranks about 10th.

Russia sees civil nuclear deal with U.S. in 2007

December 27, 2006. Russia and the United States could sign next year a civil atomic energy deal that would increase nuclear cooperation between the former Cold War foes. U.S. President and Russian President agreed at the Group of Eight summit of industrialised countries in July to begin work on reaching a deal on the peaceful use of nuclear energy. In the first quarter of 2007 or maximum by the summer of 2007, some sort of agreement will be signed between Russia and the United States. Tenex, Russia's main uranium trader wants U.S. anti-dumping measures against Russian nuclear fuel imports ended. Russia and the United States, which during the Cold War spent enormous sums spying on each other's nuclear capabilities, are seeking closer cooperation on the trade of nuclear materials and the creation of nuclear enrichment centres. Moscow and Washington are mulling projects such as the development of small and medium capacity reactors, fast-neutron reactors, new types of nuclear fuel for fast reactors and new methods to guarantee non-proliferation.

Under a programme known as 'megatons to megawatts,' the United States imports uranium recovered from dismantled Russian nuclear weapons. The uranium is sold through U.S. uranium trader USEC Inc. Russia wants to get more for that uranium to reflect soaring world prices. It also wants to be able to sell to other U.S. companies with plans to build more nuclear power plants.

Renewable Energy Trends


Biomass units seek bigger role in AP power sector

December 31, 2006. The Indian Wind Power Association has offered to partly bridge the huge demand supply power mismatch in the State at a levellised tariff of Rs 3.37 per unit for a span of 20 years, if allowed to take part in the State power generation. The current problem in the State could be tackled by encouraging wind power since the State has huge potential. Besides the tariff fixed by the State Regulatory Commission is also quite encouraging for the investors seeking to set up wind mills. Besides, the State Regulatory Commission has also fixed the minimum quantum of wind power to be procured by the Transmission companies.

Despite these friendly policies, the investors of biomass plants are wary of investing in the State, as there is some apprehension about the feasibility and the impact of these plants on other generating stations. Drawing up from Tamil Nadu experience, which has benefited from wind power, Tamil Nadu today has more than 3,000 MW of installed capacity of wind power. However, when wind energy sector approached AP Transco with a proposal to establish about 150 MW year on year and wanted them to sign up power purchase agreements, as per the levellised tariff determined by the Andhra Pradesh State Electricity Regulatory Commission, the proposal was rejected for no justifiable reason. The association has called upon the Government and the regulator to explore wind energy option, which is characterised by low gestation period (which is less than six months) for commissioning a 100 MW worth plants.

Karnataka Bank pact with Sun Technics

December 28, 2006. Karnataka Bank Ltd has entered into a memorandum of understanding (MoU) with Sun Technics Energy Pvt Ltd for financing the purchase of solar water heating and home light systems. The finance would be extended to customers under `KBL Ravikiran' scheme. Sun Technics Energy is a manufacturer of solar equipment such as solar photovoltaic systems, solar water heating systems, solar lanterns, and bio energy and wind energy systems, having technical collaboration with the Indian Institute of Science, Bangalore.

Chhattisgarh builds on lead in bio-diesel

December 27, 2006. After Indian Oil Corporation (IOC), oil giant Hindustan Petroleum Corporation Limited had come forward to join hands with the Chhattisgarh government for the commercial production of bio-diesel. The entry of another major oil player in the bio-fuel production is seen as another step forward in the Chhattisgarh government's move to promote bio-diesel at the national level and carve the state as a role model. The state government and the IOC had reached an agreement to set up a high-level committee that would workout an action plan before proceeding with the project.  The IOC discussed about the possibilities of joint venture in bio-diesel production and signing Memorandum of Understanding (MoU) with the State government for extraction of bio-diesel from Jatropha seeds. 

As part of the first step of the project, the IOC had submitted a proposal to the state government-seeking one lakh hectare of land for its project. Under the deal with the IOC, the state government and the company had agreed to constitute a working group comprising senior officers of the Chhattisgarh government and the IOC to prepare an action plan for the project.  The group will have one member each from state's forest Department and Chhattisgarh Renewable Energy Development Agency (CREDA) and senior officers of Indian Oil Corporation.  The state government will provide land to the IOC, which will extract bio-diesel from jatropha and sell it through its outlets in the state. The authority is at present producing 3000 litres bio-diesel in the state and had cultivated jatropha, the plant yielding the highest amount of bio-fuel, over 88,000 hectare of land across the sixteen districts of the state. 

Dear Reader,


You may have received complimentary copies of the ORF Energy News Monitor. Our objective in bringing out the newsletter is to provide a platform for focused debate on India’s energy future. You could be a partner in this effort by becoming a subscriber. You could also contribute recommendations for India’s energy future in the form of brief insightful articles.


We look forward to receiving your patronage and support.


ORF Centre for Resources Management




Subscription Form

Please fill in BLOCK LETTERS

Subscription rate slabs for Commercial entries, Research Institutes, Academics and Individuals will be provided o request. The subscription can be made for soft copy or for hard copy or for both. Selected ORF publications as well as advertising space in one issue of the ORF Energy News Monitor are offered as introductory free gifts for Commercial Sector only.

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



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


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


ORF Centre for Resources Management


20 Rouse Avenue

New Delhi - 110 002

Phone +91.11.4352 0020 extn 2120 (Janardan Mistry)

Fax: +91.11.4352 0003

E-mail: [email protected]


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


Published on behalf of Observer Research Foundation, 20 Rouse Avenue, New Delhi–110 002 and printed at Times Press, 910 Jatwara Street, Daryaganj, New Delhi–110 002.


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


Publisher: Baljit Kapoor                               Editor: Lydia Powell

Production team: Akhilesh Sati, Janardan Mistry & Sabita Agrawal.

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