MonitorsPublished on Jan 16, 2007
Energy News Monitor I Volume III, Issue 30
Sustainable Development through Responsible Management of Electricity Industry (part – II)

4.  Social, environmental and economical impacts of gross inefficiency in the industry

The huge inefficiency prevailing in the electricity industry in Karnataka has lead to many social, environmental and economic issues.

·          Due to high Aggregate Technical & Commercial (AT&C) losses of about 40%, and utilization loss of about 30%, only about 30% of the energy generated is being put to economic or productive uses;

·          At the national level the cycle efficiency of coal conversion to electricity is only about 31%; by the time 1 energy unit of coal is converted into electrical energy, transmitted from remote power stations to load centers, distributed and utilized at the existing level of efficiencies the overall energy usage can only be about 0.1 to 0.15 energy unit.

·          Demand Side Management (DSM), and energy conservation are far from satisfactory;

·          IP sets are being supplied about 37% of the total energy sold almost free of charges, which has led to unsustainable exploitation of ground water resource;

·          Only about 65% of the average cost of supply is being recovered, resulting in annual loss of about Rs. 2,000 Crore in Karnataka and about Rs. 25,000 Crore at the national level;

·          The poor financial performance of the electricity supply companies has resulted in the lack of adequate equity to invest in Renovation, Modernisation, Upgradation (RM&U) and extension of the existing infrastructure;

·          Overall inefficiency of the electricity industry (only about 30 to 50%) is resulting in unsatisfactory level of power supply to various economic activities of the state;

·          In terms of purchasing power parity the power tariffs in India for industry and commerce are among the highest in the world (Source: Planning Commission document).

·          Such inefficiency of the industry is leading to ill-conceived projects at huge societal costs like large dam based hydro power stations in sensitive Western Ghats and coal fired power stations in pristine coastal Karnataka.

·          The fact that Karnataka has no fossil fuel reserve of any kind because of which the pollution issues relating to them are avoidable has been ignored due to pressure to have more generating capacity.

·          The bio-diversity in Western Ghats and coastal Karnataka have been seriously impacted threatening the very survival of species in these regions;

·          A large number of people have already been displaced from their natural habitats by large projects, and the R&R for these people has been far from satisfactory;

·          Large tracts of thick forests and fertile agricultural lands are being acquired to locate power projects;

·          Whereas there are any number of scientific papers cautioning about global warming and climate changes, instead of reducing the emission of Green House Gases our authorities are planning for a large number of coal fired power stations;

·          On one hand the thick forest cover, which is a good natural carbon sink, is being reduced, and on the other hand more CO2 is being emitted from fossil fuel burning;

·          If this scenario is to continue the ecology and environment for our society will fast degenerate into unhealthy levels.

5. Sustainable energy alternatives for Karnataka

In view of these issues of great concern to the society only a good combination of techno-economically viable alternatives like high overall efficiency of the electricity industry, DSM and energy conservation in addition to optimal deployment of renewable energy sources will be able to meet the growing energy needs on a sustainable basis, which are also acceptable to the society from environmental and social angles.  As discussed in the above sections the electricity industry in Karnataka has huge scope to improve in technical and commercial efficiencies, which alone can release about 50% more virtual power capacity, which is hidden in the network. 

6.New and renewable Energy potential in Karnataka

Karnataka has considerable potential in new and renewable energy resources.  Table 4 below provides a conservative estimate of the potential for the benign and renewable energy sources. This is in addition to the considerable potential of wave energy which is not quantified yet.

6.1 The optimal deployment of new and renewable energy sources will have the following benefits:

·          They are inexhaustible sources of energy on a sustainable basis, drastically reducing the need for fossil fuel burning

·          They assist in ensuring energy security, and they are generally environmental friendly

·          Natural resources, flora, fauna and ecology will not be threatened by their use

·          Large scale displacement of people, as in the case of conventional energy sources, will not be required

·          When used as distributed energy sources they will eliminate the issues like T&D losses, large infrastructure requirements, theft of energy etc.

·          They will shift the onus of providing the energy from the State to individuals /communities thereby reducing the societal burden to a large extent; efficiency in energy usage will be maximized;

·          They will enhance the rural employment opportunities; by providing better facilities in rural areas it will help in reducing the migration of rural population.

Table 4:  NCE potential in India/Karnataka



Present Installed



1. Wind energy

12,875 MW (India)

1,200 MW (Karnataka)

> 3,000 MW (India)

>280 MW (Karnataka)

208 potential sites in 13 states including Karnataka

2. Small hydro

15,000 MW (India)

650 MW (Karnataka)

About 1,600 MW (India) 10.75MW (Karnataka)

 4,233 potential sites including Karnataka

3. Solar

Over 5,000 trillion


(2400 Mtoe/year) (India)

About 66 MW

Potential is more than the total energy needs of the country; against 4,500 Billion kWH requirement in 2031

4. Biomass

(Wood and biogas)

640 Mtoe/year (million tonnes of oil equivalent/ear) or about 19,500 MW (India)

141 Mtoe/year or about 500 MW. (For Karnataka 5 % of 19,500 MW assumed)

Huge potential when compared to the total household energy consumption of 135 Mtoe in 1999-2000 for the country.

Source: Ministry of Non-conventional Energy Sources, Govt. of India

6.2 Some common issues with renewable energy sources

Two most common issues raised in case of new and renewable energy sources are that they are not firm power and that their comparable cost with conventional energy sources is high. The reality behind these issues is as follows:

·          Many applications like lighting loads, water pumping for domestic and smaller agricultural needs, water heating for bathing etc. are not heavy and do not require 24 hours supply.  Lighting loads can be adequately met by backup battery systems when the main sources like solar or wind energy is not available. These battery systems can be charged by the respective energy sources.  Applications like solar water heating with adequate capacity water storage facility need not have battery backups.  Solar water pumps for lighter agricultural or domestic loads can be used during the sunlight hours. These can also function much more reliably in conjunction with other renewable energy source of bio-mass, where feasible.

·          Though it is true that the initial cost of these new and renewable energy sources seem to be high as compared to the conventional energy sources, it is only because the society has already invested very heavily for the infrastructure required for the latter.  Also the real cost of recurring fuel cost in case of coal, diesel or natural gas will be avoided. Whereas both the capital cost and energy cost from the conventional energy sources is increasing all the time, the same is opposite in case of new and renewable energy sources. Already the cost of new and renewable energy sources has come down by many times in the last decade.  In addition if we take the environmental costs, social costs, T&D losses and the large infrastructure required for the grid quality conventional energy sources, the distributed energy generation based on new and renewable energy sources will be much cheaper.

·          The benefits of the new and renewable energy sources will be optimum when we consider them as distributed generation sources.  An objective analysis of all the societal costs and real benefits over the duration of the known life cycle of conventional energy sources as compared to that of new and renewable energy sources will reveal that the renewable energy sources are of much higher benefits in most situations.

To be continued

(Shankar Sharma, Consultant to Electricity Industry, Mysore, E-mail: [email protected])

Peak Oil to Peak Gas is a Short Ride

(By Andrew McKillop, Director, Xtran)

Introduction: Decreasing oil supplies and increasing gas supplies are interdependent and interlinked, but this is not a case of “One goes up if the other goes down”. The reason is Peak Oil and a rapid shift away from 'conventional oil' to lighter fossil hydrocarbons in the oil-and-gas mix: around 15% to 20% of world oil is today, in fact, gas-based and gas-related, described by terms such as NGL and condensates, that is natural gas liquids that are condensed, with the gas usually reinjected to maintain reservoir pressure or thrown away by venting or flaring. The old-style or 'traditional' image of oil produced by a land-based wooden derrick is replaced today by massive metallic platform structures in the sea. These always include flare stacks burning off a greasy gas, with black billowing smoke – in fact laden with liquid hydrocarbons and dissolved minerals and metals, most of them highly toxic. The vented gas is of course invisible, but surely not in climate change impacts. Methane, relative to CO2 has a climate change impact about 20 times higher. Around 9% of today's world gas production is lost in the production and transport process. The loss rate is increasing much faster than production (about 7.5% pa for losses and 5% pa for production).

Peak Oil precedes Peak Gas, but the time interval between the two is not 'canonical' or fixed, exactly like the division of 'associated' gas and 'unassociated' or 'stranded' gas – the first being associated with oil production, the second not. How fast we arrive at Peak Gas, or a permanent decline in net total gas production and supply will depend on how gas/oil tradeoffs are made, driven by relative prices and other factors, especially the cost and time needed to build gas gathering and recovery infrastructures for 'associated' gas, and new, almost exclusively LNG or liquefied natural gas infrastructures for 'stranded' gas. Where it is not possible to build these infrastructures, gas will be lost in larger and larger quantities, shortening the time to Peak Gas through a combination of reduced reserves, and insufficient production installations and transport infrastructures. This is the exact dilemma now facing Russia's Gazprom, a 'microcosm' of the world context in which too much delay in recovering the current vast quantities of 'associated' gas that are thrown away can only advance the date of Peak Gas.

Greasy Gas and Precious Oil: World oil is increasingly produced from hot greasy gas, the condensates, with a temperature around 180°C, far above the maximum possible temperature for liquid oil. This hot greasy gas is typically produced at 3000 or 4000 metres below the seabed, which itself can be at 3000 or 4000 metres below the water surface in 'extreme depth offshore' producer regions such as Angola and deep Gulf of Mexico. Depending on the percentage oil in the greasy gas, it is categorised different ways, but what is recovered is 'reformed' or cleaned and condensed, to give liquid oil, and the dissolved contaminants are usually dumped in the sea. Much of the lighter gas is flared: night sky satellite pictures of large offshore production areas, like the North Sea, show a blaze of light similar to any big city, or urban region. In the North Sea, the electric power equivalent of flared gas is likely above 1500 MW. The old-style wooden derrick surely produced some gas in the oil-and-gas stream, but not much. Today's 'unconventional' oil production, on a worldwide average base, is around 1 barrel oil equivalent of gas produced, and reinjected, vented or flared, for every 8 barrels of oil condensed out of the greasy gas and commercialised. In some 'mature' that is old producer regions, where 'conventional' liquid oil production has been in decline for a long time, the ratio is much higher, and more steps are taken to recover the gas, and extract more liquid hydrocarbons (that is “oil”) out of the oil-and-gas stream. This is the case of the USA, where 'conventional' oil production is only about 25% of total, or 1.5 Mbd on a total of about 6 Mbd. This concerns 'associated' gas, associated to oil production, and obviously this is a tail-out phenomenon. Declining oil content in the oil-and-gas stream gives way to essentially gas-only production. When the gas-to-oil ratio gets very high, it is more rational to throw away the oil, or recover only a small part of it, and to concentrate on the gas. This is theory: while oil remains expensive and gas remains relatively cheap (on a unit energy base), gas will be reinjected or flared or dumped, unburnt, in the atmosphere, and the precious oil recovered. Gas gathering from both 'associated' and 'unassociated' or gas-only reserves (the so-called 'stranded' gas reserves) is expensive, as is gas transportation relative to oil. This particularly concerns LNG or liquefied natural gas, putting a heavy brake on LNG production from 'stranded' or 'associated' gas. Reassuring images of the 'Gas Bridge' away from oil to gas, and based on LNG, suffer from the normal defect of technology hype, that is the cost and time constraints for building this 'LNG Gas Bridge'. Taking only the time constraint, increasing world LNG to say 10% of current world oil production in energy terms (producing about 8.6 Mbd oil equivalent of LNG) is likely impossible in less than 15 or 20 years even if unlimited capital spending was given to this quest. Neither the time nor the capital is available for this, making the 'Gas Bridge' a bridge to nowhere, just like the miraculous but inexistent 'Hydrogen Economy'.                                          To be continued

Courtesy: Energy Pulse, Weekly, a service of Energy Central





IOC offered 2 proven oil fields by Nigeria

January 16, 2007. Oil-rich Nigeria has agreed in principle to lease two proven oil fields to Indian Oil Corporation (IOC) in exchange for setting up a 6-million tonnes per annum (mtpa) grassroots refinery project in Edo state. The project has been under discussion since 2004. IOC’s investment in the West African country may go up substantially with Nigeria considering the offer of an additional oil field to the Indian oil major if it invested in an LNG project. The company might have to shell out nearly $2 billion to acquire a substantial stake in the two oil fields offered by Edo state. These fields are estimated to produce 2 lakh barrels of oil a day, with reserves of 1,000 billion barrels over the 15-20 year life of the two wells. An exclusive arrangement is being worked out between Edo state and IOC. The revenue accruing from the sale of crude from the two fields would be used to set up the refinery. There is a proposal to join a consortium of NNPC, Shell and Connoco in an LNG project. A senior-level delegation will shortly leave for Nigeria to take the talks further. IOC was also keen to bid for Port Hartog, a state-owned refinery in Nigeria put up for sale. Nigeria was also seeking investment from Indian companies in exploration and invited companies like Oil India Ltd and GAIL India Ltd to participate in the bidding for about 55 oil blocks.

BHEL may recast oil rig business

January 15, 2007. With increase in oil exploration activity worldwide due to rising price of crude, state-owned engineering major BHEL is considering reviving its oil rigs business and scouting for partners for the venture. BHEL was in rig manufacturing business 25 years ago and had supplied rigs to companies like ONGC and Oil India. The investment for reviving oil rig business was part of its Rs 3,200-crore investment during the 11th five year plan. A team has been constituted by the company to prepare a feasibility report on this and the same would be placed before the board of directors soon. About two years ago, BHEL had signed a memorandum of understanding with Oil India for the refurbishment and upgradation of their land rigs with business opportunity to the tune of Rs 100 crore. BHEL, since the first order for oil rigs in 1977, has manufactured and supplied 84 drilling and well servicing rigs to both ONGC and OIL.

India’s East coast is now world’s hydrocarbon capital

January 15, 2007. India’s east coast is emerging as one of the hydrocarbon hotspots in the world with 100 tcf of gas and two billion barrels of oil in place. The two main basins in the area - Krishna-Godavari and Mahanadi have shown a potential of nearly 18 billion barrels of oil equivalent gas in place (OEGIP). Recently, oil and gas discoveries in the southernmost basin in the area, the Kaveri basin, have been announced by Hardy Oil, a Canadian oil exploration company, while Oil and Natural Gas Corporation (ONGC) and Bharat Petroleum Corporation (BPCL) have chalked out extensive plans to begin drilling in the Kaveri basin.

Govt may offer more onland blocks for exploration

January 12, 2007. The Union Government is likely to offer more on-land blocks for oil and gas exploration in the NELP-VII round. The area to be thrown open for exploration, however, may not see much of an increase. While the total number of offshore blocks to be offered may remain at the same level of NELP-VI, a larger number may be open for exploration in the Kerala-Konkan, Kutch-Saurashtra and Laxmi basins in the west coast. Laxmi basin is located in the north of Mumbai offshore. NELP-VII is likely to be finalised by April 2007. The total number of blocks to be offered may be higher than last year. It may be mentioned that a total number of 55 blocks including 30 offshore and 25 onshore were offered in the last round of bidding held in 2006. Of the offshore blocks 24 were in deepwater. A total 22 blocks including 20 deepwater blocks were located in Cauvery, Krishna-Godavari and Mahanadi basins in the east coast. Responses too were heavily loaded in favour of the east coast.

Mercator Lines to foray into offshore oil exploration

January 11, 2007. Shipping major, Mercator Lines, is planning to expand its business portfolio by foraying into the offshore oil exploration sector. The company is looking for global partners to form a consortium to bid for Indian offshore blocks under the forthcoming round of NELP bids, apart from overseas blocks, including some of the South East Asian and Arabian Gulf blocks. It is in talks with a few European companies. Mercator Lines, which has forayed into offshore support services and is in the process of acquiring a $180 million drilling rig, is aiming at forward integration by getting into the exploration business, which would also give it a captive market for its fleet of rigs and other offshore assets.

ONGC relinquishes four blocks in NELP I/II

January 10, 2006. ONGC has relinquished a total of four blocks (two offshore and two onshore) awarded in NELP-I and NELP II for various reasons. Both offshore blocks in the Kerala-Konkan basin (KK-OSN-2000/1 and KK-OSN-97/3) were fully held by the exploration major. IOC had non-operating stake in the remaining two on-land blocks - one each in Ganga valley (GV-ONN-200/1) and West Bengal (WB-ONN-2000/1). Besides, Niko Resources and OIL have relinquished one block each, and one block has been relinquished by the Reliance-operated consortium. ONGC has not been able to fulfil the minimum work programme within the agreed time schedule in more than one block that was relinquished. The Reliance-run consortium has already made payments towards unfulfilled work in the shallow water MB-OSN- 97/2 block held with Niko. OIL was not granted environmental clearance for initiating work in Cauvery offshore block CY-OSN-97/2. Niko has reportedly completed the prospecting as per the agreed schedule during the time of relinquishment.

Oilex gets govt nod for assignment of interest in 3 fields

January 10, 2007. Oilex Ltd has received approval from the Government for the assignment of 40 per cent participating interests in the Bhandut and Sabarmati Fields and additional 15 per cent net participating interest in the Cambay Field. The interests were acquired from Niko Resources Ltd under an agreement that was made in February 2006, a company release here. Besides, Oilex is investigating the possibility of acquiring a seismic survey over the block in first half of 2007. This survey, together with studies of the potential increase in production capacity of the Sabarmati-1 well, will provide the basis for further drilling, if justified, later this year. Oilex is Operator of Bhandut Field with 40 per cent participating interest. The field is located near to the Lakshmi, Gauri and Hazira Fields, producing gas and oil from reservoir intervals similar to those intersected in the Bhandut wells. Sabarmati field is located on the outskirts of Ahmedabad. 


RIL to set up refinery in Yemen

January 16, 2007. Reliance Industries will set up 50,000 barrels per day refinery in Yemen, where it has already picked up stake in two oil blocks. Reliance will partner local Yemen Company Hood Oil for this refinery. The refinery capacity would be 50,000 barrels per day in the initial phase and can be doubled later. Construction on the project would begin this year and it will take 36 months to complete. RIL will have an obligation to sell products from there refinery in the domestic market for first five months and there after can do exports. The Mukesh Ambani group firm has taken local company Hood Oil as partner in the two Yemen blocks. RIL has been already awarded onshore exploration Blocks 34 and 37 in Yemen, each measuring around 7500-sq km and located on the border with Oman, were among the seven blocks offered by Yemen in its second licensing round. RIL also has exploration blocks in Oman, East Timor and Columbia. The Indian company already partners Hood Oil in producing Block 9, where the two companies hold 25 per cent each. Calvalley Petroleum of Canada is the operator with 50 per cent stake. The block currently produces 7,500 barrels of oil per day and the output will go up to 10,000 barrels this month. GSPC has also been awarded three blocks in Yemen.

ONGC’s downstream units to get priority in Dahej

January 12, 2006. The Dahej SEZ Ltd, a special purpose vehicle (SPV) floated by the Oil and Natural Gas Corporation (ONGC) and the Gujarat Industrial Development Corporation (GIDC), will give priority to downstream units of ONGC in the upcoming petrochemical SEZ at Dahej in Bharuch District. ONGC will set up C2 and C3 extraction plants and petrochemical complex. GIDC said that company’s Dahej SEZ will give priority to big chemical and petrochemicals complexes. Not only that, ONGC’s downstream units are likely to get first priority. It may be mentioned here that the Central government has already notified the Dahej SEZ and both ONGC and GIDC plan to make all the infrastructure facilities available by the end of 2007. This SEZ will come up in an areas of 1,717 hectares. The SPV company will also make arrangement for power generation, transmission and distribution. The SPV will also supply power to industrial units in the SEZ at lower rates. Currently more than 50 players have submitted expression of interest (EoI) for setting up their units at the SEZ.

Transportation / Trade

ONGC, Cairn reach pact on Rajasthan pipeline

January 15, 2007. In a significant development, Oil and Natural Gas Corp and Cairn India have reached an agreement to build a $340-million pipeline to transport crude oil found in Barmer district of Rajasthan to Gujarat. Like the cost for developing Mangala, Bhagyam and Aishwariya fields, the pipeline investment will also be shared between Cairn and ONGC in a 70:30 ratio. Cairn-ONGC will first build a 340-km line to Indian Oil Corp’s (IOC) Viramgam pipeline terminal in Gujarat. Viramgam is connected by pipelines to IOC’s Koyali, Panipat and Mathura refineries, which will be the potential customers of Rajasthan crude. Smaller pipeline can be built to the coast, or Jamnagar where Reliance Industries and Essar Oil have refineries. The pipeline construction will take 12-18 months.

IOC, RIL plan JV for natural gas retail

January 12, 2007. Indian Oil Corporation planned to invest about Rs 2,000 crore in a joint venture with Reliance Industries Limited for retailing natural gas to households and automobiles. RIL is building pipleines from Kakinada in Andhra Pradesh to Chennai, Ahemdabad in the west and Haldia in the east. RIL is talking to both IOC and GAIL (India) for setting up city and local gas marketing projects. The IOC has planned a capital expenditure of Rs 75,000 to 80,000 crore in the fiscal to March 2008 to upgrade its refining and petrochemicals capacity. Most of it will be (spent) on a naphtha cracker at the Panipat refinery and expansion and upgradation of refineries like Haldia and Gujarat, the company’s Panipat refinery in the northern state of Haryana to announce its capacity expansion to 12 million tonnes per year. IOC was open to taking a foreign partner in its Rs 14,000-crore naphtha cracker complex here, which would make raw material for polyester.

Punj Lloyd bags $290 mn order

January 10, 2007. Punj Lloyd, an engineering construction company, along with its offshore engineering arm - PT Sempec Indonesia, a wholly owned subsidiary, has secured its single largest offshore platform project from Oil & Natural Gas Corporation (ONGC). The order is valued at $290 million (Rs 1,290 crore) for the prestigious Heera redevelopment project on an EPC basis. The Heera field is located about 80 km west of Mumbai in the Arabian Sea on the continental shelf. The project scope includes surveys of pre-engineering and pre-construction, design, engineering procurement, fabrication, loadout, tiedown /sea fastening, transportation, installation, hook-up, testing, pre-commissioning and commissioning of four unmanned platforms. The project also include the laying of 70 km of submarine pipeline (rigid & flexible), laying of 25 km of composite cables, modifications of seven existing platforms and installation of a new SBM in Mumbai High South. The work is scheduled to be completed within 16 months.

Policy / Performance

India to secure energy at affordable cost

January 16, 2007. India has put in place a multi pronged strategy, including faster exploration and acquisition of oil fields abroad, to secure energy at affordable rates. The distinctive features of the multi-pronged strategy include faster exploration of domestic sedimentary basins to enhance indigenous production of fuel from the existing producing fields, acquisitions abroad to supplement domestic production and development as well as commercialisation of alternative fuels. India has made substantial progress in the restructuring of the petroleum sector with a conscious and determined policy shift to a competitive market economy, including increasing private sector and international participation in all important segments of the industry. The UN-Energy report, which points out that the current availability of energy services fail to meet the needs of the poor, it must emphasised that more focus is needed on sustainable availability of fuels to all section of society at an affordable cost. With a view to make auto fuels environment friendly and to put more income in the hands of farmers the government plans to introduce Ethanol Blended petrol.

This year the Government will implement a 5 per cent Ethanol blend by procuring an estimated 550 million litres of Ethanol. It plans to enhance this programme to 10 per cent blend shortly. The Centre is a willing partner in the achievement of Millennium Development Goals (MDGs) signed by all the United Nations member countries in 2000. Globally natural gas is the fastest growing and most preferred fuel today and is poised to assume the centre stage in the energy map of India. In order to shield the growing economy and the people from adverse impact of oil price hike, the government and the national oil companies are absorbing 87 per cent of the difference between the cost of imports and domestic oil prices. The price of LPG is being maintained at the 2004 level and that of kerosene to the poor and the vulnerable at the 2002 level of 20 cents per litre. The developments of renewable energies need to be accelerated and more thrust on research and development should be given. Renewable energies like - hydro, solar, wind and biomass can supplement the conventional energy and hence, should be encouraged and supported by both public and private sector. The fact that worldwide an estimated 2.4 billion people do not have adequate access to commercial energy resources, this situation can be tackled by scaling up the availability of affordable and sustainable energy. 

IOC in talks with GSPC for joint venture

January 16, 2007. Having already announced a 50:50 joint venture with Reliance Industries Ltd for city gas distribution, Indian Oil Corporation (IOC), is now negotiating with Gujarat State Petroleum Corporation for setting up a joint venture gas marketing company. The discussions were in an advanced stage for the marketing joint venture and negotiations were also under way for stake in Reliance's East-West gas pipeline. Anticipating a fast growth of the gas-marketing sector in view of recent discoveries, IOC is trying to ensure a sizable stake in the sector. IOC has approached almost all the E&P companies, including ONGC with proposals for gas marketing ventures. Meanwhile, IOC expects the Ministry of Company Affairs to approve the merger of IBP as early as next month. The Ministry is currently evaluating the issue. IOC has so far recorded a refining margin of roughly $3.5 a barrel net of discounts for marketing losses in the first nine months of this fiscal. From the movement of crude as well product prices (both in the international and the domestic market) IOC expects to close the year with a refining margin of $3.5 to 4 per barrel. The company has enhanced usage of cheaper high sulphur crude from 38 per cent in 2005-06 to roughly 45 per cent.

Strengthening energy sector is priority: Pranab

January 16, 2007. Energy security was India’s prime policy objective and all efforts were being made to ensure that the country’s high economic growth was not affected by paucity of energy resources. Sustained efforts are being undertaken to strengthen the energy sector with petroleum and natural gas at the forefront of the policy initiatives. The country was intensifying indigenous exploration, bringing in more ‘equity oil’ from overseas and tapping new areas like coal gasification. The government’s policy pertaining to energy and the hydrocarbon sector prioritised the need of an integrated energy policy linked with sustainable development. A bulk of oil and gas potential still “remain locked up” in its basins, invited foreign companies to invest and participate in the sector while emphasising on equitable relations between producers and consumers of hydrocarbon. Bulk of oil and gas potential of the Indian basins still remain locked up. It is also said that “redoubled and sustained” efforts were required to develop new, alternative and renewable sources of energy like nuclear and solar at an affordable cost. The conference of the petroleum ministers of various countries that the ‘India Hydrocarbon Vision-2025’ lays down the framework for strengthening the hydrocarbon sector, with petroleum and natural gas being at the forefront for this. The policy has triggered a more definitive paradigm shift towards free market and competition, with increasing private sector and overseas participation in all important country’s segments hydrocarbon sector.

India ready to pay more for extra Iran LNG

January 15, 2007. India is willing to pay a higher price for extra quantities of liquefied natural gas from Iran if the Islamic nation honours an existing contract for five million tonnes. India in June 2005 signed a deal with Iran to import 5 million tonnes of LNG annually over a 25-year period from 2009, with an option to buy an additional 2.5 million tonnes a year, to help tie up supplies for the energy-starved nation. Iran, last year told New Delhi that its Supreme Economic Council had not approved the five million tonne LNG deal, priced at $3.25 per million British thermal units, after a sharp rise in oil prices, and said it was demanding more. A secretary-level trilateral meeting would take place in Tehran on Jan 20-21 to discuss the pipeline and pricing of gas to be supplied to India and Pakistan through the proposed $7-billion project. 

ECS approves award of 52 oil, gas blocks

January 15, 2007. A panel of petroleum approved awarding 52 oil and gas blocks offered in NELP-VI, including 19 blocks, which received "erratic financial bids". The Empowered Committee of Secretaries, comprising of top officials from petroleum, law and finance ministries, decided awarding blocks offered under sixth round of New Exploration Licensing Policy. State-run Oil and Natural Gas Corp and its partners have emerged as the top winner of NELP-VI with 25 blocks, including 12 deep-sea blocks, while Reliance Industries will get seven deep-sea blocks. Santos will get two deep-sea blocks. Of the six shallow water blocks on offer, ONGC and its partners will walk away with three blocks, while Focus-Newbury, Petronas and Petrogas will get one each. ONGC and its partner are set to get 10 onland blocks while OIL and partners have been recommended for seven blocks. Essar, GSPC and Adani will get two each and Naftogaz-RNRL one. Reliance Industries' top bid for seven prime deep-sea blocks and state-run Oil India Ltd's winning bid for six on-shore blocks had "erratic financial bids" where the government share of profit oil starts from a high of 90 per cent and tapers down to one or two per cent.

Though the bids were technically correct, objections were raised as in some cases the government's share plummets to zero as production increases. Although ECS approved the award of blocks, it is not yet clear whether the government will ask these firms to change the government's share. The blocks under question also include winning bids from Focus-Newbury and Petrogas-GAIL-IOC-GSPC-HPCL consortia for shallow water blocks, Adani's bid for two onland blocks and Naftogaz-RNRL-Geopetrol combines' top bid for another onland block who offered government a profit share as high as 91 per cent in the initial period only to reverse the ratio later. In NELP-VI, more weight is being given to the fiscal package to the government unlike in earlier rounds when the focus was on the work programme. 

India's gas consumption to rise to 400 bcm in 2030

January 15, 2007. India needs to put in place policies, incentives and infrastructure to prepare for rising consumption of natural gas from current 31 bcm per year to 400 bcm in 2030. Assuming that each additional one BCM of gas will cost about $1 billion to develop, this would imply an investment of more than $350 billion till 2030. The green imperative; future of natural gas in India' suggests adoption of net back gas pricing approval based on market replacement of gas, compared with alternative fuels through market determined pricing. 

Hinduja in JV with ONGC for Mangalore project

January 15, 2007. In a bid to enter India’s booming petroleum sector, the Hinduja group has entered into a joint venture agreement with Oil and Natural Gas Corporation to partner in developing the proposed Mangalore petrochemical and petroleum special investment region. The JV will also encompass upstream exploration activities. This will be the group’s first major investment in the Indian oil and gas sector. The largely-privately held group may consider investing up to $4 billion in the Mangalore project. The Mangalore SEZ has been evaluated at $8 billion. The two companies are also planning to rope in the Qatar Gas Company to supply liquefied natural gas (LNG) for the project. A team from both companies had visited Qatar last week and made presentations to the Qatari authorities for the supply of 5 million tonne of LNG for the Mangalore petroleum SEZ.

Qatar, which holds the largest gas reserves in the world has already signed up to supply 7.5 million tonne of LNG to India for Dabhol and other power projects, including NTPC’s Kawas project. The Qataris have also expressed an interest is taking a stake in the Dabhol LNG terminal should the government decide to sell a stake in the terminal. ONGC’s subsidiary Mangalore Refinery and Petrochemical Limited (MRPL) is expected to be the anchor developer in the Mangalore SEZ. ONGC has already announced that the capacity of the MRPL refinery is being ramped up from the current 7.5 million tonne to 12 million tonne. Hinduja group company Gulf Oil already has a tie-up with MRPL for marketing lubricants. The group has also tied up with the Geneva-based Amas Bank to set up a half billion dollar fund for its India projects, including the Mangalore project.

Gas pipelines may get infrastructure status

January 13, 2007. Finance Ministry promises a look at duty structure to bring down prices of petroleum products. Natural gas pipelines may get infrastructure status in the forthcoming Budget. Infrastructure status for pipelines is one of the key recommendations of the petroleum ministry to the finance ministry for the 2007-08 Budget. Such status would exempt them from income tax for a 10-year period. About Rs 20,000 crore of investment is expected in gas pipelines over the next five years. The Gas Pipeline Policy announced in December 2006, by mandating 33 per cent extra capacity per pipeline for use by third parties, makes them a national resource. This strengthened the pitch for grant of infrastructure status. The oil industry was also seeking policy reforms and conducive fiscal measures. The ministry is reported to have called for a cut in customs duty by 5 per cent to reduce the burden of high crude prices on consumers. To offset these losses, it has proposed an increase in excise duty on petroleum products. At present, 5 per cent customs duty is levied on crude oil, while 7.5 per cent duty is charged on petrol and diesel. Aviation turbine fuel (ATF) attracts 10 per cent duty and naphtha, 5 per cent customs duty.

Ministry to review fuel prices end of this month

January 12, 2006. With the Indian basket of crude oil hitting its all time low of $51 a barrel this fiscal, the petroleum ministry is all set to review the domestic prices of petrol and diesel on January 31.The oil companies are already making huge losses on sales of kerosene and cooking gas (LPG). The finance ministry may release some more oil bonds this fiscal but not yet sure how much more will come after the Rs 14,000 crore already released to reduce the fist six month under-recoveries of the state-owned oil marketing companies. At the current levels of crude prices in the international market, it's not possible to effect a downward review of the petroleum prices. There will be no cut if the current average continues. The last revision in the petroleum prices took place in November when the prices of petrol and diesel were cut by Rs 2 and Re 1 a litre respectively after the basket of crude that Indian refiners buy fell to $56.8 per barrel. State-run oil companies are currently incurring a loss of Rs 0.22 per litre on petrol and Rs 1.42 a litre on diesel.

Govt rejects ONGC’s tie-up plans with BG, BP

January 12, 2007. The petroleum ministry has rejected ONGC’s proposals for strategic tie-ups with British Gas (BG) and British Petroleum (BP) in the three KG basin blocks and one block in the Gujarat-Kutch basin, respectively. The ministry maintained its earlier stand on the issue despite a last minute effort by the UK prime minister who had requested his Indian counterpart to re-consider the proposal. Instead, it has decided to club these block under the seventh round of New Exploration Licensing Policy (NELP-VII). Petroleum exploration licences (PELs), granted to ONGC for three blocks in the KG basin (KG-OS-DW-III, KG-OS-DW-Extn- and KG-OS-DW), will expire in May 2007. As no success has been achieved in exploring hydrocarbon by ONGC in the three blocks, the ministry decided to put the block under NELP-VII, which is expected to be announced during April-May 2007. In 2000, the government had granted six deepwater blocks to ONGC on nomination basis. Even as the six blocks were on nomination basis — three located on the east coast in the KG basin, two on the west coast in Kerala-Konkan basin, and one block in west coast of Gujarat’s Kutch basin — ONGC enjoyed NELP terms for them. The government had also permitted the company to join hands with experienced exploration & production (E&P) companies, subject to the approval of the empowered committee of secretaries (ECS). 

NELP-VI may yield $12 bn to govt

January 10, 2007. The government could rake in nearly $12 billion in revenue if oil or gas is discovered in the blocks auctioned under NELP-VI. If crude oil prices are higher than $50 a barrel, the government could end up getting more than the $12 billion estimate since its share in profit petroleum has been calculated taking into account three scenarios for crude oil prices – high, medium and low. The assumption for high prices is of $50 a barrel, medium is of $40 a barrel and low prices are of $30 a barrel. Currently, the Indian basket of crude has fallen to $53-54. As many as 55 blocks were offered under NELP-VI, with only three not receiving any bids. The government's share under the production-sharing contract can come either in the form of money or hydrocarbons. If there were no discovery, nothing would accrue to the government. NELP-VI, unlike the previous rounds of NELP, gives more weightage to fiscal packages than technical capabilities and work programmes of the bidders.

The highest returns to the government are scheduled to come from a shallow water block, CB-OSN-2004/1, in the Cambay basin, recommended to a consortium comprising Indian company Focus Energy and Cyprus-based Newbury Holdings. The government is set to rake in $837.38 million over the four years of the work programme if oil or gas is struck. This is 78.76 per cent of the net present value of the profit petroleum from the block. Another $659.39 million will come in from the deep-water KG-DWN-2004/5 block in the Krishna-Godavari basin, for which Reliance Industries is the top bidder. The upstream regulator has recommended that fiscal packages offered for the blocks be re-negotiated to bring in sustained profits for the government. In fact, the DGH has recommended re-negotiations on fiscal packages for 19 blocks under NELP-VI. 

Cairn, MRPL may appoint arbitrator for crude pricing

January 10, 2007. Cairn India (CIL) and MRPL, the government nominee to offtake its crude from Rajasthan, may appoint an arbitrator to discover the pricing of crude. Cairn and MRPL have locked horns over the pricing of crude, with the later seeking discounts for as much as $10 per barrel for the waxy nature of crude. The two companies are currently in talks with the government on the pricing. Cairn along with its JV partners and the Indian government has arbitration proceedings under the Ravva production-sharing contract. If Cairn and MRPL cannot come to a conclusion on the price, it will have to be settled through an arbitrator. Cairn India is required to sell the crude oil to MRPL, the refinery subsidy of ONGC, which was nominated by the government to buy crude from Rajasthan block in September 2005. Price of crude will be linked to a globally traded crude basket, which is of comparable quality. The oil field would be the delivery point of crude to the nominee MRPL; and CIL would be responsible for all costs only up to the delivery point. The Rajasthan crude is medium sweet, similar to the Indonesian crude (Duri-Widuri), but MRPL is not willing to pay the price as per the PSC, given the high cost of evacuation and is seeking discount as much as $10. The original plan was to set up a refinery. With the ruling out of refinery in Rajasthan, it needs to lay a pipeline to evacuate the crude oil, which would require a capex of $500 million. MRPL is seeking the Mangla crude oil price to be benchmarked to Dubai and a further $5 per barrel discount to recover the capital and the operating cost of the pipeline.

Soft crude price helps oil marketing cos to make profit

January 9, 2007. The softening of crude and product prices in the last few weeks has helped public sector oil marketing companies to finally make a profit on auto fuel sales, especially diesel. The marketing companies have started registering a positive margin of close to 75 paise per litre on diesel and Rs 1.50 per litre on petrol beginning end December. The calculations may go wrong only in case of any sudden volatility on crude as well as product price front during the remaining days of the current fortnight. Sources in the companies are expecting the international diesel prices to stabilise at the current level of around $64 a barrel throughout this month. Diesel prices which had shot up to historic high in 2006 have finally broken the $70 support level and are not showing any sign of firming up for almost a month now. Though the winter demand for gas oil casts a shadow of uncertainty over the future movement of petrol prices, prices hovered between $66-68 a barrel during the last two fortnights. Meanwhile, international prices of LPG prices are firming up and currently ruling at $520 per tonne, up by $70 per tonne. If the price trend continues, under-recoveries in LPG which had come down from Rs 180 to Rs 130 per cylinder in October will once again shoot to approximately Rs 170 per cylinder beginning February. Oil companies follow a monthly pricing cycle in the case of LPG and the last month's average is used as benchmark of the current month.

Lanka IOC signs settlement pact with Lankan Govt

January 9, 2007. Indian Oil Corporation Ltd can breath easy now after getting fully compensated by the Sri Lankan Government for losses incurred due under recoveries on selling petroleum products below the cost price in the island nation. IOC's subsidiary, Lanka IOC Ltd, has signed an agreement with Sri Lanka for compensation of its under-realisation in sale of petroleum products. As per the terms negotiated, a total sum of Sri Lankan Rs 7.41 billion (SLRs 308 crore) was the outstanding under-realisation for the period January 2004 to June 2006, of which a sum of SLRs 2.25 billion (SLRs 93 crore) was received earlier from the Sri Lankan Government. On signing the agreement, the balance amount of SLRs 5.16 billion (SLRs 215 crore) has been settled in full, with Lanka IOC receiving a cheque for SLRs 700 million (SLRs 29.17 crore) and the balance SLRs 4.46 billion (SLRs 185.83 crore) in the form of Government bonds. These bonds are non-tradable in nature, bearing an interest rate of 11 per cent and a maturity period of two years.

At Colombo, Lanka IOC, and Government of Sri Lanka had signed the agreement. Effective July 1, 2006, pricing of petrol and diesel has been de-regulated in Sri Lanka and the players have been allowed to fix the end-prices reckoning market conditions. Consequently, no subsidy is payable to Lanka IOC by the Sri Lankan Government beyond June 30, 2006.



Bhel, Alstom in 10-year power pact

January 16, 2007. Public sector profit-making Navratna Bhel and French company Alstom will together generate 1,50,000 MW power over the next 10 years. The two companies have entered into a technology transfer agreement for super critical plants. As per the agreement, Alstom will help Bhel develop a number of plants in the 800 MW category. India was offering huge opportunities for investment and collaboration for a number of sectors including energy, auto, capital goods, chemicals, services, including insurance and banking, environment, urban development, ports and infrastructure. With India’s isolation in the nuclear sector coming to an end, collaboration in nuclear technology was emerging as a big possibility. The minister lauded French companies for their cutting-edge technology in various sectors. Emerging economies like India require collaboration in technology to fully utilise the excellent infrastructure of the country in order to become competitive in the world market. 

French co keen on setting up 4 power generation plants

January 16, 2007. French utilities group Suez would set up four power generation projects, including two in south India. The company is going in for setting up four different major power projects in India and out of those, two are likely to come up in south India. Suez has plans to bring in mega investments. The government has estimated that the power sector required investments worth $140 billion by 2012. French companies were keen on investing in the power sector and also in the retail sector. BNP Paribas, the third largest French bank, is in talks with retail major Carrefour to give financial muscle to the latter's retail foray. BNP Paribas also expressed interest in entering consumer finance in India. French nuclear energy major Areva has also evinced interest in entering the civilian nuclear sector after the India-US civilian nuclear energy deal is through.

Visa Group to set up $ 1 bn Guj thermal plant

January 15, 2007. Kolkata-based Visa Group has decided to set up a 1,000-MW thermal station on 1,400 acres in Gujarat. The project will entail an investment of Rs 4,500 crore ($1 bn). Visa Power (VPL), the Visa Group special purpose vehicle, will execute the project. GPCL is the state nodal agency for power generation and development in Gujarat. The thermal plant will be located near Bherai village close to Gujarat’s Pipavav port. It will comprise four 250 MW units and use a combination of domestic and imported coal to fire its boilers. The total project cost has been pegged at Rs 4,500 crore and will be financed through a 75:25 debt equity ratio. Power generated will be sold to consumers in Gujarat and other power-deficit states and is likely to cost Rs 2.5 per unit. The power station’s proximity to the port will ensure procurement of imported coal at competitive rates and also offer the option of using domestic coal in case of extreme volatility in imported coal prices. This will allow producing power at economical rates throughout the project lifetime. VPL has started work on its 1,000 MW coal fired mega power venture in Orissa. The plant is being set up at Bhramanbasta in Cuttack. The company has acquired 1,400 acres. VPL has also signed a power purchase agreement with Grid Corp of Orissa.

20 states to develop merchant power plants

January 11, 2007. Nearly 20 states agreed to extend their support for the capacity addition of 10 to 15,000 MW through the development of merchant power plants with generation capacity of 500-1,000 MW in the 11th plan period. These plants would come up at pit head and at load centres and would be developed on the balance sheet of developers. These plants will promote competitive tariff and benefit the state electricity boards, distribution companies and the consumers at large. States demanded that necessary cushion should be provided in transmission planning to meet the requirements of power trading and merchant power plants. The issues relating to the development of merchant power plants would come up for discussion at the developers/investors meet slated for January in New Delhi. The power finance corporation and the central electricity authority, which have been asked to prepare brief feasibility reports for such projects, would be made available to states.

NTPC gives Orissa its due

January 11, 2007. Orissa has finally got its quota from NTPC Ltd's Talcher Super Thermal Power Station (TSTPS) in the state. Orissa will get 200 MW from the 2000 MW expanded plant of the TSTPS. NTPC will sign the power purchase agreement (PPA) with the Orissa government within a week for allocation of 10% of power. The Orissa government had been demanding the host-state share from TSTPS at Kaniha in the Angul district. Power-surplus Orissa had previously refused to take its share from the 2000MW phase II plant. However, with the opening up of the national power market for trading, the state is now interested to source its share from the central sector power plant located in the state. The cost of power from TSTPS Kaniha plant is one of the cheapest in the country. Orissa will get 200MW over and above the 705MW allocation from the central pool.

Maha to add 2,000 MW capacity

January 10, 2007. Maharashtra, which is facing a daily power shortage of over 4,500 MW, may get a respite as the state cabinet gave its approval for the generation capacity addition of 2,000 MW by the state-run Maharashtra State Power Development Corporation (MahaGenco). The projects will come at Parli (250 MW), Paras (250 MW), Khaparkheda (500 MW) and Bhusawal (1,000 MW) with a total investment of over Rs 8,000 crore. The coal production from the Mahanadi coalfields alloted by the Centre to Maharashtra and Gujarat will help partially meet coal requirement for these upcoming projects. Besides, the company would also seek coal linkage from the coal ministry. State government's decision comes at a time when the state has to carry out a daily load shedding of over 4,500 MW mainly due to ever increasing mismatch between demand and supply and lack of substantial capacity addition during a decade.

Coal unit to build power plant at Korba

January 10, 2007. A tripartite agreement has been signed between ST-CLI, Chhattisgarh State Electricity Board (CSEB) and energy department of the Chhattisgarh government for setting up of a 50 MW thermal power station at Korba. The power plant will come up with an estimated project cost of Rs 220 crore. They signed the MoU. Under the agreement, ST-CLI would be building on its expertise in the coal washeries sector and invest about Rs220 crore for setting the thermal power plant. The construction work of the plant would start soon and production was likely to start in 18 months time from the start of the project work.

The company had already purchased 180 acres for setting up the plant and was waiting for environment and forest department clearances. Under the agreement, the company would provide five per cent of the power to the state government at variable cost where as the state would have the first right to purchase 30 per cent of the power generated from the plant. The power will be purchased as per the price fixed by the state electricity regulatory commission. The company would be using the latest fluidized bed boiler technology for the proposed power plant. The plant was expected to be the first in the country to use this advanced technology. The agreement for using the technology was signed between the energy ministry of India and the US energy department during the Prime Minister's visit to the United States last year. The plant would use rejected coal dumped outside the washeries for generating power. ST-CLI started its coal washery project at Korba in 1999 with a capacity of 3 million tones per annum. Using American technology, the production increased to seven million tonne in 2003. The washery had coal rejects dump of 2 million tonnes as of now. 

Transmission / Distribution / Trade

ABB India bags $42 mn deal from Karnataka Power Transmission

January 16, 2007. ABB India has won a contract for a turnkey project worth Rs 186 crore ($42 mn) from the Karnataka Power Transmission Corporation Ltd (KPTCL) to implement an integrated Network Manager SCADA/ EMS/DMS solution. The scope of the KPTCL project includes design, engineering, supply, installation, testing and commissioning and is scheduled for completion in about 24 months. The system will monitor and control 830 main transmission and distribution substations spread across the state.

Bidding process begins for transmission projects

January 11, 2007. In a bid to attract private sector participation in the power transmission sector, the Centre has kicked off a tariff-based competitive bidding process for 14 large transmission projects entailing a total investment of about Rs 20,000 crore. The projects are to be awarded to developers on a Build-Own-Operate (BOO) basis and the Power Ministry has appointed Power Finance Corporation and Rural Electrification Corporation as nodal agencies for doing the initial groundwork for these projects. The two State-owned lenders will set up special purpose vehicles (SPVs) for each of the transmission projects, similar to the manner of conducting the bidding for the Ultra Mega Power projects. The SPVs would look into issues such as carrying out initial and detailed surveys and feasibility reports, obtaining transmission licence, obtaining right of way, site identification and land compensation, prior to the award of these projects to developers.

PFC has been entrusted with transmission systems associated with the Maithon project (1,000 MW), Kodarma (1,000 MW), Mejia (1,000 MW) and Bokaro project (500 MW). REC will act as the nodal agency for transmission projects associated with the North Karanpura project and other links, including the Lucknow-Bareilly line, Agra-Gurgaon line and the Sipat/Korba pooling project.

Policy / Performance

AP gears to meet power demand

January 16, 2007. To meet the increased demand for power, the Andhra Pradesh Government is gearing up to step up hydel generation and also power purchase from Central and other generating stations. The State was fully geared to meet the growing demand for electricity, which is likely to go up further over the next two to three months. It was purchasing 5.4 million units of power daily and has also encouraged the gas-based power projects to generate power using naphtha fuel. Releasing the schedule of release of water from reservoirs to step up hydel power generation during the next three months, power generation is likely to be stepped up from both at the Srisailam and Nargarjunasagar hydel projects. With the additional power generation from hydel units, the State is likely to add about 700 MW during February and this would to a large extent be able to meet the increased demand, particularly to support the ongoing rabi crop season. It is estimated that against the current demand of 155 million units a day, this is likely to go up to 170-180 million units by March 2007. As per estimates, the State was faced with a shortage due to lower generation from gas-based plants. To meet the enhanced demand, the State is poised to add about 459 MW from Rayalaseema units II and III and from Jurala projects. It is likely that additional 1167 MW would be added to the State electricity generation capacity by 2008, thereby, significantly easing up the demand-supply situation.

Dabhol project hangs fire again

January 16, 2007. The Ratnagiri power project, formerly Dabhol, is heading for another closure if the ministries of power, petroleum and natural gas, the Maharashtra government, Maharashtra State Electricity Distribution Company (MahaVitaran) and Ratnagiri Gas & Power Pvt Ltd (RGPPL) fail to resolve crucial issues relating to tariff and availability of 2.2 million tonne gas/LNG a year for the 2,150 mw project. Since the per unit tariff is expected to be well over Rs 4 if RGPPL is able to run the two blocks of 740 MW each from April onwards, keeping one block of 740 MW idle for want of fuel. At present, MahaVitaran draws 740 MW from RGPPL at Rs 5.10 a unit since the project is run on naphtha. This was only an ad hoc arrangement that would expire in March. GAIL India, which holds 28.3% equity in RGPPL, has so far, succeeded in securing only 1.2 million tonne a year from Petronet LNG, which is just about half of the requirement. The LNG price could be $5.6 per million british thermal unit which itself would add Rs 2 a unit to the tariff.

Since one third of the capacity will remain idle, the fixed cost per unit will increase from 96 paise to more than Rs 1.40 per unit. With this, per unit tariff will become Rs 3.40. If the cost of regasification and jetty is loaded, per unit tariff would go beyond Rs 4 per unit. This is in sharp contrast with the recent bid the power ministry received from Tata Power Company for the 4,000 MW imported coal-based ultra mega project at Mundra, Gujarat, where the first year’s tariff is estimated at Rs 1.90.

Committee set up to rejig production of coal

January 16, 2007. With the energy coordination committee expressing concern on inadequate output by Coal India Limited (CIL), the coal ministry has formed a high-level panel to empower the PSU to enable it meet requirements to enhance the energy security in the country. Coal demand in the country would shoot up to 2,555 mt by 2031-32 against the current demand of 437 mt, while CIL's production target for the current fiscal was only 363 mt. The integrated energy policy suggests that the country would be heavily dependent on coal supply for energy security till 2031-32 and even beyond, and so we are keen to ensure CIL's contribution in that connection. Centre was particularly concerned that the PSU's production level would peak to 669 mt by 2019, following which it would start declining as the Coal Mines Planning and Development Institute has made it clear that quantum of coal reserves in the blocks to be explored was not very encouraging. The ministry has asked the CIL and its subsidiaries to introduce washed coal supply as it saved transportation cost and reduce the burden of ash removal. Another dismal scenario revealed during a review meeting on CIL was that the nation required around 210 mt of washed coal, while it had the capacity of only 125 mt. The Coal Vision 2025 envisages an investment of around Rs 16,000 crore for coal washing and the CIL has proposed to invest certain sum of money, but the dry details were yet to be worked out. CIL has formulated an emergency production plan to meet enhanced demand from power sector, yet concrete measures were needed to ensure its long-term potential to meet the demand from all and sundry.

Chhattisgarh signs for 7 power plants

January 12, 2007. Chhattisgarh government and Chhattisgarh State Electricity Board have inked a tripartite MoU with seven industrial houses and power utilities for setting up of thermal power plants in the state. The seven plants, to be set up with an estimated investment of Rs 21,800 crore would produce 4990 MW power after commissioning. The Ispat Industries will be setting up a 600 MW pit head thermal power plant with an investment of Rs.2500 crore while Bhusan Power and Steel Limited (BPSL) will bring up a 1000 MW power plant, investing about Rs 4000 crore for the project. The Lenko Amarkantak Power Limited (LAPL), the Hyderabad based company which is setting up a 300 MW power plant in the state, signed a MoU for setting up another 600 MW power plant with an investment of Rs 3550 crore. Similarly, Bhopal based D. B Power Limited (DBPL) will be setting 600 MW power plant with an investment of Rs.2500 crore. Essar Power Limited will enter into power production in Chhattisgarh and has inked the agreement for setting a 1050 MW power plant with an investment of Rs.4600 crore while the Raipur-based Raipur Alloys and Steel Limited (RASL) has signed the deal to bring up 600 MW power plant with investment of Rs 2520 crore. Patni Projects Pvt Limited (PPPL) will be investing Rs 2150 crore for establishing a 540 MW thermal power station. The companies have been asked to submit the implementation scheme in 60 days, and completion of site selection and feasibility report within six months. The extension of MoU period beyond one year would be executed depending upon the project progress while the state will have the first right on refusal on 30 per cent power and 7.5-5 per cent of power to state at variable cost.

CCEA clears Rampur hydel project

January 12, 2007. The Cabinet Committee on Economic Affairs gave its approval for the setting up of 412 MW Rampur Hydroelectric project in Himachal Pradesh. The project is to be executed by Satluj Jal Vidyut Nigam Ltd at an estimated cost of Rs 2,047.03 crore, including interest during construction and financing charges of Rs 260.41 crore and Rs 1.46 crore respectively at March 2006 price levels. The setting up of the project would reduce shortages in the northern region and benefits are expected by the year 2011-2012.

J'khand ultra mega plant award by July-end

January 11, 2007. The government plans to award the fourth ultra mega power project (UMPP) at Tilaiya in Jharkhand by July-end, about three months after the third UMPP at Krishnapatnam in Andhra Pradesh is scheduled to be awarded. The first two of these projects of 4,000 MW each at Sasan (Madhya Pradesh) and Mundra (Gujarat) were awarded last month to Lanco and Tata Power, respectively. The ministry of power has asked the Power Finance Corporation (PFC) to work out the timelines for Request for Qualification and Request for Participation (RFQ/RFP) for Tilaiya, with a view to choosing the final developer by the middle of the year. It has asked the PFC to obtain the necessary environmental clearances. Under the rules framed for UMPPs, the shell company being set up by PFC has to obtain most of the clearances.

CIL to switch to GCV-based pricing system

January 11, 2007. Coal India Ltd (CIL) has decided to supply only washed coal to all categories of consumers other than pithead power plants, and will work out the implementation schedule soon. At the same time, CIL will also switch to a pricing system based on gross calorific value (GCV) from the UHV or useful heat value method followed at present. This change will be in place from April 1, 2007. The Coal Vision 2025 document sees an investment potential of over Rs 8000 crore in coal beneficiation by 2025. CIL will set up washeries under the build and operate concept in partnership with private companies with core competence in coal washing. At present, washed coal accounts for only 56 million tonne of CIL's total supplies.

Plan panel to lighten power sector with $1.8 bn GBS

January 10, 2007. Even as the total annual plan budgetary support to central power PSUs and schemes of the power ministry is expected to be slashed by nearly Rs 6,000 crore for 2007-08, the Planning Commission has agreed to extend a Rs 8,000 crore ($1.8 bn) gross budgetary support (GBS) for the implementation of Rajeev Gandhi Vidyutikaran Yojana (RGVY).

In a recent meeting held at the Planning Commission, it was felt that the targets for Bharat Nirman under rural electrification must not change. This is because this was the government's flagship programme and the completition of the goals set under the scheme by 2009 is a commitment made publically by the Prime Minister at a review meeting of the scheme on September 19. There is a sharp reduction in the GBS to central power PSUs for the fiscal 2007-08 and as against the earlier GBS of Rs 2,434 crore proposed for central power PSUs, only Rs 706 crore is expected. The total GBS for the entire power sector including central PSUs and schemes like APDRP and RGVY stands at Rs 9,228.51 crore against the earlier Rs 15,094.27 crore. Regarding the APDRP scheme, the revised scheme proposed to be implemented from the first year of the 11th plan would initially have loan component only and there would be moratorium on the interest accruing on loan in the first three to four years of this scheme. Thereafter, depending upon the improvement in the identifies parameters, upto 50% of the loan is to be converted into grant. This revised scheme is under the approval of the Cabinet. In respect of APDRP scheme, at present two actions are required to be taken.

Coal Ministry plans focus on underground mining

January 10, 2007. In order to work out an action plan for the coal sector in line with the recommendations of the expert committee as spelt out in the Integrated Energy Policy, the Ministry of Coal has convened a meeting of the heads of all coal companies. The meeting would also discuss the difficulties faced in acquiring land and the problems associated with tribal lands that limits open cast mining. The focus would be on making full utilisation of underground resources by stressing on underground mining and the investment needed. The meeting would examine the role to be played by the domestic coal sector to achieve energy security if the current coal-dominated situation continues, as well as the role to be played by the coal sector in an ideal situation where alternative and non-conventional energy generation pick up as per expectations.

It would also explore ways of acquiring overseas coal properties by Indian companies. This is particularly important because the idea of floating an international subsidiary - Coal Videsh - to explore alternative ways has not taken off. Also, the meeting would try to identify reasons for the current low performance of Coal India Ltd (CIL) washeries and the role of CIL in promoting coal benefication. Another area of concern for the Government are certain steps initiated by the CMDs of various CIL subsidiaries that has caused it loss of face in Parliament as well leading to condemnation by the Supreme Court. The e-auction initiated by Bharat Coking Coal Ltd (BCCL) was completely cartelised and backed by a section of company and that the entire auction process was controlled by a handful of people. The new process of quantity-based bidding, as planned by the CIL authorities, may be termed discriminatory as it imposes 20-30 per cent premium on the consumers who will participate in the auction process going by the SC verdict that banned the earlier e-auction process.

NHPC plans ten-fold capacity hike by 2012

January 10, 2007. National Hydro Power Corporation (NHPC) is aiming at, as it draws up plans to be a 10,000 MW by 2012. While it built less than 4,000 MW of capacity over its 30-year existence - averaging a paltry 130 MW a year - it wants to add over 6,000 MW over the next five years. And it is already talking of “over 20,000 MW” by 2017. NHPC is one of the four government-owned companies which are seeking funds from the public. The parent ministry wanted these companies - NHPC, PFC, REC and PGCIL - to complete the issue by the close of the financial year in March. The other upside for NHPC is that it has “100 per cent collection efficiency” for a business which tends to be seasonal, and for the first time, it is also planning to stake a claim to carbon credits. Meanwhile, the company is mulling an entry into other businesses like thermal power, power trading, power distribution and tidal power, though the core competence will continue to be hydro.

Assam cautious on hydel options

January 10, 2007. Assam has called for a prudent approach vis-a-vis hydro-power generation in the North-East, given its effects on the states' economy. It stressed the need to explore other modes of power generation, especially coal bed methane which is available in abundance in Upper Assam. Too many hydro-power projects in the upper reaches of the Brahmaputra is being viewed with apprehension in the state. Excessive emphasis on hydro-power would mean more hydro-power projects in the upper reaches of the Brahmaputra and in Arunachal Pradesh. Of late, coal bed methane, or other fuel gases obtained from coal mines, is being considered as a viable and unconventional source of energy; and many countries have initiated research programmes on it. Global coal bed methane reserves are presumed to be several times more than the total reserves of all the known conventional gas fields.




China's CNPC to invest $3.6 bn in Iran gas block

January 16, 2007. China National Petroleum Corp, the country's biggest oil producer, will invest 3.6 billion dollars to develop a block in Iran's offshore gas field. CNPC is still negotiating with Iran over the details of the project expected to lead to a seven-year deal to develop Block 14 of the South Pars gas field. The company will invest 1.8 billion dollars on exploration of the block, which is reported to have natural gas reserves of 370 billion cubic meters (1.3 trillion cubic feet). Another 1.8 billion dollars will be used to build a LNG plant with an annual output of 4.5 million tons. China has ratcheted up a global search for energy over the past few years as the nation seeks to secure resources that can power the world's fastest growing major economy.

Syria to open new zones for oil, gas exploration

January 13, 2007. Syria plans to open new zones for exploration of oil and gas resources in a bid to boost its dwindling energy output. The new zones would be open to all international firms, as part of efforts to halt the decline in Syria's production which has fallen from 600,000 barrels a day in 1996 to the current level of 400,000. Syria signed 20-year oil exploration contracts on October with the oil major Shell for the northeastern region of Deir Ezzor and for Palmyra in central Syria. The contracts can be extended by 10 years.

CNPC buys EnCana's Chad operations for $202.5 mn

January 12, 2007. EnCana Corp.has agreed to sell its oil-exploration assets in the African country of Chad to China National Petroleum Corp. for $202.5 million. EnCana said CNPC International is acquiring the Canadian company's 50 percent stake in what it termed a Convention and Permit H, which includes properties in seven sedimentary basins. Permit H covers 54 million acres of exploration lands. EnCana has been selling international operations as it focuses on North American natural gas and oil sands production. The sale of the Chad properties is EnCana's second to CNPC. Last year the Canadian firm sold its oil properties in Ecuador to Andes Petroleum Co., a consortium of Chinese oil companies led by CNPC, the parent of PetroChina Co. for $1.42 billion.

S.Korea near $2 bn N.America oil field deal

January 11, 2007. South Korea is on the brink of a $2 billion deal to buy into an already-producing North American oil field, its biggest overseas energy investment yet. The deal, nearing the scale of those secured by more aggressive rivals China and India, would also mark its first major purchase of an asset that is already in production. Asia's fourth-largest oil consumer, competing for reserves with other energy-hungry Asian countries, plans to step up its search for overseas oil and gas assets in 2007 as it aims to improve its energy security. Seoul has set a target of producing 18 percent of South Korea's oil needs from Korean-owned oil fields by 2013, against its current 4 percent production. South Korea consumes about 2.2 million barrel per day of oil, about a third as much as China. It has also invested in oil fields in Cambodia and East Timor together with refiner GS Caltex and LG International Corp., respectively.

The country's biggest overseas energy investment so far has been two offshore oil blocks in Nigeria, 321 and 323, for which it bid $310 million for exploration rights, although it paid less than that after promising major infrastructure investments. The $2 billion North American deal would still be dwarfed by China's top overseas purchases, led by China National Petroleum Corp.'s $4.2 billion acquisition of PetroKazakhstan last year.

Talisman energy plans to redevelop Yme Field in Norway

January 11, 2007. Talisman Energy Norge AS, a wholly owned subsidiary of Talisman Energy Inc. has announced plans to redevelop the Yme field on the Norwegian Continental Shelf. The Yme field was discovered and originally developed by Statoil and produced from 1996 to 2001. The field was abandoned in a time of low oil prices after having produced 51 million barrels of oil. Total development capital for the project is expected to be approximately C$770 million, the bulk of which will be for wells and subsea equipment. Talisman has selected a leased mobile production unit with storage as the preferred production facility. The development is expected to produce approximately 70 million barrels of proved plus probable reserves over its life. The facilities may also host future production from other discoveries in the Egersund Basin. First oil is scheduled for early 2009 and the field is expected to produce approximately 26,000 bbls/d net to Talisman in 2009. Drilling for the first phase of the development will be conducted using the Maersk Giant. The plan includes a total of 12 production and injection wells, of which five will be completed subsea.

Peru selects 18 new oil/gas blocks for roadshow

January 9, 2007. Government agency Perupetro SA has selected the 18 new oil and gas blocks it plans to promote in the U.S., Canada and London over the next few months. The government's aim is to carry out the bidding in mid-2007 for the different blocks. The blocks will be awarded to the companies that offer the government the highest royalties and present the best work plan. One block is located in northern Peru near Piura and there are several offshore blocks in the area north of the capital city of Lima. Another group of blocks lies in northeastern Peru and there are two blocks in southern Peru. The government has made a concerted effort to drum up interest in Peru's flagging oil sector in recent years and has managed to attract significant investment after making contracts more flexible and attractive.


Venezuela to build Nicaraguan refinery

January 13, 2007. Venezuela will build an oil refinery in Nicaragua to process up to 150,000 barrels of oil per day to help Daniel Ortega. The plant would end Nicaragua's energy shortage. The plan was first announced last year by Nicaragua's new energy company Albanic, a joint venture between Venezuela, the world's fifth largest oil exporter, and municipalities then in the hands of former Marxist rebel leader Ortega's Sandinista Party. The gas from a pipeline being built between Venezuela and Colombia and which he plans to expand to Panama, should also be available to Nicaragua. Nicaragua, one of Latin America's poorest countries, generates 80 percent of its electricity from oil-derived fuel, and high world oil prices have caused an energy crisis that frequently blacks out large parts of the country. The refinery project is one of a string of deals has made with friendly nations across Latin America and the Caribbean to counter US influence in the region.

Shell says may sell French refineries

January 11, 2007. Royal Dutch Shell Plc. may sell its three French refineries and other refining and petrochemicals assets after receiving bid approaches. BP Plc over the past two years, also taken advantage of a resurgence in the refining and petrochemical industries to sell facilities and whittle down their exposure to these often-troubled businesses. The review of Shell's downstream portfolio will also include the Yabucoa petrochemical feedstock plant in Puerto Rico, which has a capacity of 79,000 barrels per day of fuels and ethylene feedstock.

CB&I win $75 mn Caribbean refinery contract

January 10, 2007. Chicago Bridge & Iron Co. NV or CB&I, won a contract worth more than $75 mn to upgrade a Caribbean refinery. The project, which includes the revamp and expansion of the refinery's fluid catalytic cracking unit and the addition of a new liquefied petroleum gas unit, is scheduled to take 23 months to complete the mechanical work and require more than 1,000 workers.

Transportation / Trade

EU needs gas pipeline network: German Chancellor

January 16, 2007. German Chancellor called for a European gas pipeline network to help guarantee the EU’s energy security. He said ‘we need to ensure that a network of gas pipelines is created, working along the same lines as the energy grid,’ which channels electricity between European countries.’ ‘Overall, it’s a question of creating the largest possible number of opportunities for cooperation (in the gas sector) within the European Union.’ Poland has also refused to participate in a project by German firms BASF and E.ON and Russian state-owned energy giant Gazprom to build a pipeline under the Baltic Sea. The pipeline is set to become operational in 2010. Poland and the neighboring Baltic states were angry about being left out of the gas pipeline talks with Russia. They had wanted the pipeline to pass across their territory to ensure that Russia would not apply an energy blockade against them or try to manipulate prices. The 27-nation EU relies heavily on both gas and oil from Russia, and concern increased after Russia halted oil deliveries through the Druzhba pipeline, cutting off supplies to five EU countries including Germany and Poland. The temporary freeze on oil supplies was part of a dispute between Russia and neighboring Belarus.

BJ wins contract for Indonesian pipeline project

January 12, 2007. BJ Process and Pipeline Services (BJ PPS) announced it has been awarded a major contract to provide pipeline pre-commissioning services by Nippon Steel Engineering Corporation on Phase 1 of the South Sumatra-West Java Gas Pipeline Project, an extensive underwater pipeline project in Indonesia. The 105-kilometer offshore pipeline stretches from Labuhan Sumatra to Cilegon, West Java. Once completed the SSWJ 1 will have a capacity of 250 million cubic feet per day (mmcfd) transporting gas from Pertamina's Pagardewa field to industry and household users in the West Java area.

The contract calls for BJ PPS to provide flooding, hydrotesting, dewatering, swabbing, vacuum drying, nitrogen packing and purging, and calliper pigging services. This work will be carried out on a combined 105 km of pipeline. This pipeline pre-commissioning operation is being managed by BJ PPS from its operations base in Singapore. Operations commenced in November and are scheduled for completion in early 2007.

Ecuador and Venezuela agree to oil exchange deal

January 10, 2007. Ecuador has agreed to ship heavy crude oil to Venezuela in the first half of this year in exchange for diesel. Petroecuador agreed to send the first batch of 36,000 barrels per day of Napo heavy crude oil extracted from the fields once operated by U.S.-based Occidental Petroleum starting in March. In exchange, Ecuador will receive 220,000 barrels of diesel from Venezuela by the end of February in what Ecuadorean will save the country millions of dollars by shunning intermediaries. A Petroecuador and Venezuelan state oil company PDVSA joint commission will analyze the final details of the swap depending on market prices to determine the exact volume to be exchanged during the one year-long pact. Ecuador has the option of asking Venezuela for more refined products and delivering a larger quantity of crude, which could top 75,000 bpd depending on domestic demand. Ecuador, the fifth-largest oil producer in South America, lacks sufficient crude refining capacity and spends billions every year importing refined products from abroad. The Andean country expects to spend $2.4 billion on imports this year.

PetroChina in talks with Qatar, Iran, Australia on LNG supply

January 10, 2007. PetroChina Co, the nation’s largest oil company, is in talks with liquefied natural gas suppliers in Australia, Iran and Qatar to feed its proposed terminal in the northeastern port city of Dalian. PetroChina is building gas import terminals as demand for cleaner-burning fuels increases in the world’s fastest-growing major economy. China wants natural gas to account for 8% of total energy needs by 2010 from about 3% now, to cut pollution and reliance on crude oil. PetroChina is awaiting the final approval from the National Development and Reform Commission to build the Dalian terminal, after the company obtained the commission's initial go-ahead a year ago. PetroChina International arranges overseas LNG sourcing for the oil company. PetroChina is planning three LNG terminals in Rudong in Jiangsu province, Dalian in Liaoning and Tangshan in Hebei. The company aims to complete construction of the first phase of these three projects by 2010, with the Tangshan terminal equipped to handle 4mn tons a year of LNG, the Rudong terminal 3.5mn tonnes, and Dalian terminal 3mn tonnes, Su Yun. The second phase will be completed by 2015.

Policy / Performance

China cut petrol, jet fuel charges

January 15, 2007. The central government has cut domestic gasoline and jet fuel prices for the second time in five years, in response to the recent decline in world oil prices. The move will help airlines and transporters' earnings but oil refinery giants might feel the pinch. The price of domestic gasoline will be cut by about 4 percent to 220 yuan (HK$220) per tonne. The price of jet fuel will be cut by around 2 percent to 90 yuan, in response to a decline in world oil prices. The new prices took effect immediately.

Lukoil set to revive $4bn Saddam oil deal

January 14, 2007. Lukoil, the Russian oil company, is poised to resurrect the $4bn (£2bn) contract it signed with Saddam Hussein's regime to develop one of Iraq's largest oil fields. The company's US rival Conoco-Phillips will also benefit as it has a stake in the joint venture with Lukoil to develop the West Qurna-2 field, which holds up to 16 billion barrels of oil. Iraq's long-awaited hydrocarbon law, which will soon be put before the Iraqi parliament, contains a provision that states that existing contracts to develop the country's 115 billion barrels of reserves remain valid, subject to revision. Lukoil's president plans to visit Iraq in the next few weeks as the company continues negotiations with the Iraqi oil ministry. The Russian firm may have to bring in other partners because of the size of the field, which experts say will cost $4bn to develop.

Chevron and Gazprom JV to tap oil in West Siberia

January 11, 2007. A new joint venture between U.S. oil major Chevron and the oil arm of Russia's gas monopoly Gazprom will focus on producing hydrocarbons in West Siberia. Gazprom's oil unit, Gazprom Neft, revealed the creation of the Northern Taiga NefteGaz JV in a regulatory filing on Wednesday, but gave no details other than saying it would hold 30 percent of the equity. Through the JV, the companies will develop and produce hydrocarbon reserves in the Yamalo-Nenets region.

According to a memorandum signed by the two companies in 2006, it would increase its share in the JV to "over 50 percent" in future. At present, as Chevron is going to make the most of investment in projects at earlier stages, Gazprom Neft's share in the joint venture's charter capital is 30 percent. Chevron, which was among five foreign companies rejected by Gazprom last year as possible partners in developing the huge Shtokman gas field in Russia's north, said it was pleased with the progress, but did not elaborate on possible joint projects. Moscow has blocked Chevron's plans to double the pipeline's capacity, complaining about the profitability of CPC, which has to pay back billions of dollars in loans from its private shareholders before sharing profits with its state owners. Chevron leads the project with 15 percent, while Russia has a 24 percent stake as a host state. Other shareholders include Kazakhstan and Oman and a number of oil companies.Russia wants the consortium to pay lower interest on the loans and charge higher fees, which experts say could drive oil flows towards competing routes.

Iran-China gas deal on track

January 11, 2007. Iran will hold talks with China next month to finalise a $16 bn gas agreement despite a US warning that the Chinese partner could become subject to sanctionsay. Negotiating teams will be set up for four rounds of talks and signing a contract depends on when the talks are concluded. Iran and China's biggest offshore oil producer, CNOOC, announced having signed on December a preliminary deal to develop Iran's offshore North Pars gas field located in Gulf waters. Days later, a US congressional committee was set up to review the deal to determine if US sanctions should be slapped on CNOOC. Under the deal, the two parties will work on developing the gas field for the production of liquefied natural gas, with each party taking 50 per cent of any gas recovered. The investment, however, will come from the Chinese side, $5bn for exploration and production, and $11bn for downstream activities.

Gazprom Neft and Chevron Neftegaz form JV

January 11, 2007. In April 2006 Gazprom Neft and Chevron Neftegaz signed a Memorandum of Understanding that paved the way for formation of a joint venture Northern Taiga Neftegas Ltd. in November 2006 for the purpose of combining efforts to undertake oil field developments. Under the MoU Gazprom Neft will control more than 50% of Northern Taiga Neftegas Ltd. Given that Chevron will initially provide most financing for the projects, Gazprom Neft currently holds a 30% equity interest in the joint venture.

Transmeridian finalizes long-term deal in Kazakhstan

January 11, 2007. Transmeridian Exploration Incorporated made a 25-year production contract for the South Alibek field has been signed and registered by the governmental authorities in Kazakhstan. The contract initially covers the approved 3,500-acre commercial area within the 14,000-acre South Alibek license area. All of the Company's 72.9 million barrels of proved net reserves identified in its December 31, 2005 reserve report, as well as approximately half of the additional 108.2 million barrels of probable net resources, are located within the 3,500 acre commercial area. Under the Company's exploration contract, which extends through April 2009, the Company has the right to continue exploration activities within the license area and increase the size of the commercial area subject to the long-term production contract. Transmeridian Exploration Incorporated is an independent energy company established to acquire and develop oil reserves in the Caspian Sea region of the former Soviet Union. The company primarily targets fields with proved or probable reserves and significant upside reserve potential. Transmeridian Exploration currently has projects in Kazakhstan and southern Russia and is pursuing additional projects in the Caspian Sea region.


Policy / Performance

Asia pushes energy security

January 16, 2007. The Philippines and its Asian neighbors jumpstarted a regionwide energy security program with the signing of an agreement calling for large-scale investments in biofuels and other renewable energy sources. The "Cebu Declaration on East Asian Energy Security," signed by the Association of Southeast Asian Nations (ASEAN) together with Australia, China, India, Japan, New Zealand and South Korea, aims to reduce the region’s dependence on the more expensive and environmentally harmful fossil fuels. Japanese Prime Minister announced a $2-billion aid package to help Asian nations develop energy-saving technology and ease their dependence on oil. In signing the agreement, the leaders cited the unstable world prices of oil, the worsening fossil fuel-related environment and health problems, and the urgent need to address global warming and climate change. Aside from biofuel or ethanol, other renewable energy sources are hydropower, geothermal, solar, wind, and nuclear.

They said energy needs are growing rapidly and will necessitate large-scale investments in the coming decades. Renewable energy and nuclear power will represent an increasing share of global supply. The leaders agreed to ensure a stable energy supply through investments in regional energy infrastructure such as the ASEAN Power Grid and the Trans ASEAN Gas Pipeline. The agreement also seeks to initiate more effective power conservation programs and "innovative" financing schemes for research and development in biofuels. China has been seeking greater influence over key energy markets while striving to ease worries over its huge and growing appetite for oil.

Indonesia challenging Australia in thermal coal exports

January 12, 2007. Indonesia has quietly become the world's second-largest exporter of coal used to generate electricity and could potentially challenge Australia for the top spot this year. But growing domestic demand for energy in Indonesia and stagnating foreign investment have cast doubt on the country's ability to take advantage of expanding demand for coal in its export markets. Draft laws that could give foreign investors more control over their local ventures are key to whether Indonesian growth can keep pace with that of other big exporters, such as Colombia. Thermal coal is used mainly in power stations to produce high-pressure steam, which then drives turbines to generate electricity.

Indonesian coal is exported around the globe, including to the European Union, the U.S., Japan, India and China, which itself is a major coal producer but imports coal to feed domestic industries. Indonesia's coal production has risen 20-fold since 1990 to an estimated 167 million tons in 2006 — 73 percent of which is exported. With large potential coal reserves and growing domestic and export demand, Indonesia has the potential to capitalize on that strong market. But restrictive laws and perceived political risk have halted new investments and exploration by major foreign mining and energy firms in Indonesia. At current levels of known mineable reserves, Indonesia's coal exports may grow to 170 million tons by 2009, but could drop to 160 million tons in 2010.

Venezuela plans nationalizing entire power sector

January 11, 2007. Venezuela plans to nationalize the whole electricity sector, including the country's No. 1 power company Electricidad de Caracas majority owned by U.S.-based AES Corp. The company that operates in the capital would be included in the nationalization drive, the whole industry would be taken over. The entire electricity sector is included because it is a strategic element for the development of the national economy.

MoU signed for study on power project in Pak

January 11, 2007. The Sindh government is considering launching a 1,000 MW a coal-fired electric generation company, in partnership with private investors. Estimated to cost about two billion dollars, the Hasan Associates plans to set up coal-liquefaction and coal-gasification plant in the second phase. It will also carry out study to find out suitable quantity and quality of coal, which could be equally mined, transported and handled to meet the plant requirement. After the signing of the MoU, the Sindh government shall grant exploration licence for a period of one year for the identified area within 30 days. On completion of bankable feasibility study and commencement of the execution of the project, the Sindh government will grant lining lease of the identified delineated area to the company for an initial period of 30 years, which is extendable by 20 years with mutual agreement.

Japan denies policy change on nuclear India

January 11, 2007. A short-range surface-to-surface Agni ballistic missile is paraded through New Delhi during a Republic Day parade in India. Japan will recognize India as a nuclear power even though the South Asian nation is not a signatory to the Nuclear Nonproliferation Treaty. Japan will continue to urge India to join the nuclear Non-Proliferation Treaty (NPT). Tokyo will announce its support for a landmark deal between the United States and India offering access to US civilian nuclear technology. Japanese firms will be able to participate in the construction of nuclear power stations in India.

India in 1998 declared itself a nuclear weapons power and has refused to sign the NPT, which acknowledges only five nations - Britain, China, France, Russia and the United States - as nuclear-weapon states. In December, Tokyo agreed to start talks with India on a free-trade pact but declined to extend support to the nuclear deal between India and the United States. The US-India deal stipulates that India must put its civilian-use atomic reactors under the International Atomic Energy Agency's scanner.

Tajik approves plan for Iran to construct power plant

January 11, 2007. The Tajikistani Parliament approved a MoU between Iran and Tajikistan containing the construction of a power plant in the central Asian country by an Iranian contractor. The details of the MoU added that the agreement on the joint venture on investment and construction of Sangtudeh 2 Power Plant in cooperation with Iran was inked on June 2005. The final agreement which was approved by the Tajik Parliament included specifying a timetable and payment of Tajikistan's $40 million share in the project. After signing the MoU, another agreement was signed between Tajikistan's Electricity Company and Iranian Sangab Company last year to boost the legal status in the implementation of Sangtudeh 2 project. Iran and Tajikistan will invest $180 mn and $40 mn in the project respectively.

Kenya Power project gets Sh3b funding boost

January 10, 2007. The Government has received a Sh3.341 billion loan from Japan to finance ongoing the Sondu Miriu hydropower Project. The amount includes Sh3.3 billion to be spent on phase 3 of the Sondu Miriu hydropower Project and a Sh41 million grant aid for the improvement of district hospitals in Western Kenya region. Kenya and Japan, signed the exchange notes for the two projects. The Sang’oro Power plant project brings the cumulative amount of Japanese loan to Kenya to Sh111.5 billion, while the funding for Western Kenya improvement project stands at Sh51.3 billion. Upon construction and completion, the Sang’oro Power Project will be expected to inject an additional 21.2 MW of electricity to the national grid. The Phase one of the Sondu Miriu hydropower project completed in 2003 and was financed through a loan of Sh4 billion borrowed from the Overseas economic Cooperation fund of Japan, which has since been renamed Japanese Bank for International Co-operation (JBIC). Similarly, phase 2 of the project, currently ongoing, was also financed by the bank at a cost of Sh6.2 billion and is expected to inject 60 MW to the national grid. The project is set for commissioning in November this year. The current Sh3.3 billion financing for Phase 3 brings to Sh13.5 billion total investments in the Sondu Miriu Power project by the Japanese government.

Renewable Energy Trends


Ispat-Jharkhand sign pact for 2.8m tonne greenfield plant

January 12, 2007. Ispat Industries Ltd signed a MoU with the Jharkhand government for a 2.8 million tonne per annum (mtpa) greenfield steel plant in the state, initially. The capacity of the plant will later go up to 5 mtpa. While investment for the initial 2.8-mtpa plant will be in the range of Rs 6,750-Rs 7,000 crore, the entire project will require around 2,500 acres of land to come up. The company has indicated to the state that it would commence work on the project within 12 months from today provided it got the land and other support like water, power, etc, timely. Jharkhand has yet to announce its rehabilitation & resettlement (R&R) policy. Most of the big greenfield steel projects in the state, including that of Tata Steel, Jindal Steel & Power Ltd, Essar Steel, etc, have not made much progress so for due to the state delaying announcement of its R&R policy, even though the MoUs related to the projects were signed in either 2004 or 2005.

Fall in crude prices may affect bio-fuel industry

January 12, 2007. A steep fall in crude oil prices in the last few days and concerns over extremely limited prospects of a major spike anytime soon have unnerved investors in the biofuels industry. A significant part of the investment in the biofuels sector is premised on continuing high prices of mineral oils. Many entrepreneurs and investors have been re-assessing the decision since then. Currently, in the US alone, there are over 100 bioethanol plants and 33 are under various stages of completion, based almost entirely on corn. Around the world nearly 65 biodiesel plants are said to be under construction. Vegetable oils — rapeseed oil, soyabean oil and palm oil — are the preferred raw materials. The crude price decline has surely shocked many as it was widely anticipated that oil producers would not allow prices to plunge. On the other hand, demand for energy products has been quite healthy, prompted by rising consumption needs in Asia to fuel economic growth.

The WTI front month settled well below the key $55 a barrel level. With prices touching 19-month low, there is reason to believe that the move down in crude oil prices has now become pronounced enough to leave the short-term movement more dominated than usual by technical outlooks. There obviously are risks to the downside even from current levels of the crude market. Some analysts see the market declining to as low as $45 a barrel. Whether it will be realised or not and how long current prices would sustain are of course tough to predict. This makes for a strong likelihood of a serious reassessment of investment decision in what are called cleaner-fuels. A majority of the new projects across the world have come up presumably on expectation of continuing high mineral oil prices and of course some Governmental support.

If crude prices continue to sustain well below $60 a barrel, there would a strong negative impact on global vegetable oil and sugar markets. In particular, vegetable oil market may see a major price correction. Over the last year or so, traditional food and feed products corn or maize, sugar (via sugarcane) and vegetable oil have been increasingly perceived as energy products. A large diversion of vegetable oil for biodiesel purposes has led to prices escalating by 25-30 per cent in recent months. Corn prices, too, have gone through the roof because of its utilisation for bioethanol production, especially in the US. After hitting record highs in mid-2006, sugar prices corrected down in the wake of excess of supply over demand this year. All the three markets — corn, sugar and vegetable oil — could come under strain soon. While this would prove negative for producers, consumers would have reason to feel relieved.


BP says to build 5 wind projects in U.S.

January 12, 2007. BP Plc expects to begin construction of five wind power generation projects in the United States in 2007. The projects, located in California, Colorado, North Dakota and Texas, are expected to deliver a combined generation capacity of some 550 MW. When completed, these projects will exceed the company's previously announced target to build 450 MW by end of 2008. BP is one of the world's largest energy companies, with interests in more than 100 countries and over 96,000 employees. BP Alternative Energy North America Inc. is one of the leading wind-power developers in the United States and has portfolios in Europe, Asia & Latin America.

PetroChina plans to develop 2nd-generation biofuels

January 12, 2007. China's largest oil producer PetroChina, plans to produce second-generation biofuels, made from starchy low-input feed stocks such as woodchips or straw, together with the State Forestry Administration. By 2010, it hopes to have capacity to produce over 2 million tonnes of non-grain based ethanol a year. A growing appetite for bioethanol, driven by high energy prices and worries about energy security and global warming, has recently helped push up grain prices worldwide. Food security concerns and a shortage of arable land are likely to limit the amount of ethanol that can be made from grains even as demand grows, but cellulosic ethanol could make larger-scale substitution for gasoline viable. PetroChina hopes to become a leader in the biofuels field, and also plans a 200,000 tonne per year plant for biodiesel made from forestry products.

Canada's largest solar research park launched

January 11, 2007. The University of Toronto, ARISE Technologies and The Portlands Energy Centre (PEC) have joined forces to create Canada's largest solar research facility, which will be located on the PEC site on Toronto's waterfront. This project will establish Toronto and Ontario as a world leader in solar energy research and development and education. Solar and other forms of renewable energy are an important part of Ontario's energy future. When completed, the facility will harvest enough solar energy to power up to 1,000 homes. The community will be able to participate through a community based share offering. Under the agreement, PEC will provide land worth about $2.4 million. ARISE will design and install a photo power system utilizing high efficiency photovoltaic (PV) cell technology developed by ARISE and U of T. The solar park will create between 500 kilowatts and 1 MW, representing an investment between $5 to $8 million. U of T students and staff at ARISE will use the facility to conduct research on renewable energy systems and technologies. This will help develop the utilization of PV systems for commercial and utility scale systems. The project is expected to be installed in late 2008 or early 2009.

EU plans to use 20 pc renewable power by 2020

January 11, 2007. The European Union announced plans to lower energy consumption, develop renewable sources such as wind power and biofuels and increase research into cutting carbon emissions from fuels already in use, particularly coal. The ambitious proposals seek to deter growing dependence on oil and gas imports and curb the emissions blamed for climate change. Those proposals have taken on new urgency as Europe has seen its oil and gas supplies disrupted by disputes between Russia — which provides one quarter of its natural gas — and the nations the supplies pass through on their way to Germany, Poland and other countries. The package reflects a renewed sense of purpose evident in the EU during the past year, after a period of disarray caused by the rejection of the bloc's proposed constitution by French and Dutch voters in 2005.

The United States has refused to sign the Kyoto Protocol, which requires industrial nations to cut their global-warming gases by an average 5% below 1990 levels by 2012. The Bush administration contends that would slow its economy, and the accord should have required cuts by poorer but fast-growing nations, such as China and India. The EU is currently the world's largest importer of oil and gas. It buys 82% of its oil and 57% of its gas from third-party states. This is projected to rise to 93% of its oil and 84% of its gas over the next quarter-century. Russia is a large supplier, but concerns about the reliability of those supplies were underscored this week when shipments of Russian oil via a pipeline running through Belarus were disrupted by a trade dispute between the two former Soviet republics. Surging world demand for limited stocks of oil and gas is likely to send prices — and the EU's energy import costs — spiraling in future decades. The EU is proposing that 20% of all its energy should come from renewable power by 2020, and a tenth of vehicle fuel from biofuels. It calls for greenhouse gas emissions to be cut by at least 20% below 1990 levels by 2020 to limit global warming and prevent serious damage caused by climate change. The EU wants to set binding targets for the first time, suggesting a massive boost in low-carbon, homegrown power such as wind and solar energy to cut reliance of imported fossil fuels. The European Commission will invest $1.3 billion over the next six years for research into renewable energies. It will increase research into cleaning up coal-burning power plants and developing technologies prevent carbon dioxide from escaping into the atmosphere. Priority will be given to improving energy efficiency so that vehicles, appliances, homes, and factories burn less fuel — using methods ranging from improved insulation to cleaner engines. The EU hopes that plan alone can ensure it burns 13% less energy by 2020, with annual savings of $130 billion and around 860 million tons of carbon dioxide.

Indonesia, China firms in US$5.5 bn biofuel deal

January 10, 2007. Palm oil producer PT SMART Tbk announced a US$5.5 bn biofuel deal with China oil major CNOOC and a Hong Kong energy firm, a major boost for both nations. Thought to be one of the biggest single biofuel investments worldwide, the deal will see SMART, state-owned China National Offshore Oil Co and Hong Kong Energy Ltd spend US$5.5 bn in three phases over eight years to develop crude palm oil-based biodiesel and sugarcane or cassava-based bioethanol. The deal consolidates CNOOC’s position at the forefront of China’s efforts to ease its rapidly growing dependence on imported crude oil and offset use of dirty coal. It will also help Indonesia, the world’s second largest palm oil producer, tap more of its own crop resources to offset declining production from the Opec member’s oil fields, easing its hefty oil subsidy bill in the process. The investment is on a par with the roughly US$5bn Tangguh LNG project being developed by BP in Papua, and supercedes China’s biggest overseas oil acquisition, the US$4.2bn purchase of PetroKazakhstan last year.

Enel to build wind farms in U.S. and Canada

January 9, 2007. Enel, Italy’s biggest power company, agreed to develop a 250 MW wind farm in the United States and a 27 MW wind farm in Canada. Through its North American subsidiary, Enel North America Inc., it would develop the 250 MW Smoky Hills project with Tradewind Energy LLC in multiple phases with the first 100.8 MW phase expected to enter service by the end of 2007. Enel North America has a turbine procurement contract with Vestas Wind Systems AS, of Denmark, for the delivery of 56 V80 wind turbines for Smoky Hills. Each turbine has a capacity of 1.8 MW. Two power companies have agreed to buy some of the power from Smoky Hills - Sunflower Electric Power Corp. (50.4 MW) and Kansas City Board of Public Utilities (25.2 MW). In Canada, NeWind Group Inc., a subsidiary of Enel North America, signed a power purchase agreement with province owned Newfoundland and Labrador Hydro to build, operate and sell power from the 27 MW St Lawrence wind project. Enel expects the St Lawrence project to enter service by the end of 2008.

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