Energy News Monitor I Volume III, Issue 5

Towards an Energy Sector Competition Policy in India: Insights from International Practices (P - III) Dr. Samir R. Pradhan®

Dr. Samir R. Pradhan®

 

here are three key imperatives for an energy sector competition policy in India. These are:

1.        Energy Pricing Structure: In India, consumers pay one of the highest prices for energy in purchasing power parity (PPP) terms. For example, in the electricity sector, average tariff on PPP basis in India is 30.8 cents/kWh, while it is 7.7 in the USA, 15.3 in Japan and 20.6 in China (Draft Integrated Energy Policy, Planning Commission). Moreover, the pricing of petro products is not truly market-based, which add to subsidies and inefficient consumption pattern that has long-term negative implications

2.        Huge Investment Requirement: As mentioned earlier, to attain sustainable GDP growth of 8 percent per annum, growth in primary energy supply must increase by 3-4 times over the current consumption, electricity installed capacity should increase by 6-7 times and annual coal requirements by 3 times over the current demand. This calls for huge investment requirement in the energy sector across the value chain, i.e. from prospecting to dispensing.

3.        Energy Security: This is the ultimate objective of the nation for sustainable economic development. Competition policy would infuse competition and provide a level playing field to all the stakeholders, thereby ensuring affordability, and accessibility of energy.

Structure of Energy Industry in India

The coal sector is completely dominated by public sector units (PSUs) (see chart). As per the latest trends (Annual Report, Ministry of Coal, 2004-05), nearly 87 percent of total coal production in the country comes from the collieries of Coal India Ltd. (CIL) and its eight subsidiaries, owned and managed by the Central Government. About 10 percent of the supply comes from another PSU, Singareni Collieries Company Ltd. (SCCL).

 

 

 

 

 

 

 

 

The dominance of PSUs is also evident in the oil and gas sector, though a few numbers of both domestic as well as foreign private companies have entered the sector after the liberalisation and restructuring (see table). In 2004-05, out of 33 million ton total domestic crude production, PSUs account for 87 percent and private sector accounts for the rest 13 percent. The major PSUs are ONGC & OVL, OIL and private companies are Reliance, Cairn, HOEC, Premier Oil, GSPC, etc. In the refining also, of the total 127.36 MTPA refining capacity (2005), 74 percent of refining capacity rests with the PSUS (IOC, IBP, CPCL, BRPL, HPCL, MRPL, OVAL, KRL, NRL) and the rest 26 percent is with the private sectors (RIL, Essar Oil, Shell). Moreover, out of the total retail outlays of 27056 in the country, PSUs account for 98 percent and private only 2 percent.

Table: Oil & Gas Industry Structure in India, 2004-05

The four critical areas of the electricity sector such as generation, transmission, distribution and trading is represented by government as well as private entities. As the electricity sector is in the Concurrent List of the Constitution, the Central as well as the State Governments are both empowered to engage in the generation and supply of power. The total installed capacity in the country has increased from 6367 MW in 1990-91 to 123668 MW in 2005-06. In power generation segment, central generating stating stations, inter-state generators, state utilities and independent power producers (IPPs) are present. Central generating stations accounted for 57 percent of total generation, states account for 32 percent and the rest 11 percent comes from the private sector. The bulk transfer of electricity (voltages over 132 KV) has increased from 1, 70, 800 Ckm in 1990-91 to over 2, 65, 000 Ckm. in 2005-06. While, the Central agencies account for 45 percent of transmission, states account for 55 percent. The overall distribution of power in India is dominated by government (87 percent) and the private sector represents only 13 percent. State electricity boards, unbundled state owned entities and private distribution companies (limited to Delhi, Mumbai, Ahemadabad, Surat, Kolkatta and Noida) are responsible for distribution. The current power trading volume in India is estimated to be 11 bn. kWh, about 3 percent of total generation. Again government (PTC India Ltd. and others) account for almost 70 percent of power trading and the private sector the rest 30 percent.

Competition Issues

The various issues pertaining to competition in the energy sector can be broadly analyzed under three heads, viz. structural, policy and regulatory. The following section attempts to delineate the competition issues in the coal, oil& gas and the electricity sector respectively.

The following table reveals the major developments in the coal sector.

Table: Major developments in Indian Coal Sector, 1973-2006

Source: TERI, 2006

The coal industry is in the midst of an incomplete journey from nationalization to deregulation. The monopolistic nature of the industry has hampered competition. There is absence of level playing field as can be gauged from ‘The Coal Mines (Nationalization) Act of 1973’.

Moreover, ineffective Captive mining policy led to insufficient investment to the sector. Though there is price deregulation, yet there is no price competition. Canalized distribution of coal is again a hurdle for effective competition. The main aim should be competition not regulation alone. The absence of coal regulator has scuttled competition in the sector.

 

(Views are personal)

Russia and International Nuclear Group

(Tatyana Sinitsyna, RIA Novosti commentator)

t first, no one was eager to invite Russia to join a global nuclear energy partnership initiated by the Americans and aimed to promote joint research in six key areas of nuclear energy. But now there seems to have been a change of heart. Washington has at last extended an invitation to Moscow to join the United States, the European Union and ten other member nations of the Generation IV International Forum. Perhaps it was the effect of the St. Petersburg G8 summit.

There are, however, other explanations. First, the "tongue-in-cheek political games" that have been going on since the days of a bipolar world are still going on. No small role is also played by fears of the advantages enjoyed by a powerful rival, which Russia is. But all intrigues, ambitions and fears are pushed aside by the reality that physicists keep telling politicians about: "The end of nuclear energy is not far off." What will we do when the lights suddenly go out?

Nuclear experts, of course, know how this scenario can be pushed back. The main solution was aptly described by Yevgeny Velikhov, full member of the Russian Academy of Sciences and president of the Kurchatov Institute Research Center: "Nuclear energy has no future unless it uses fast breeder reactors." His message is that without them, nuclear energy will be no more than a short episode in history whose only consequence will be the need to find ways of getting rid of all the nuclear materials produced by humankind.

The fast reactor idea is not new: it has simply been on the shelf since the 1930s and has now been dusted off. Its author was the outstanding Hungarian physicist Leo Szilard, who knew the value of the idea and patented it after World War II in 1946. At the very beginning of the nuclear era, physicists already saw the most practicable road for the world's nuclear development. A fast neutron reactor can operate in a closed cycle and be self-sustaining in terms of fuel. This is very important, both for saving uranium resources and for disposing of radioactive waste, since its volume is drastically reduced.

But as nuclear energy advanced, it emerged that water-moderated, water-cooled reactors were more economical and safer for mass construction; and they were given priority. As a result, all countries are now building and operating mainly water-based nuclear facilities.

Russia, however, did not overlook Szilard's idea. First it designed and built a small reactor in Kazakhstan, and in 1980 the Beloyarskaya Nuclear Power Plant in the Urals launched Block No. 3 - the BN-600 sodium-cooled fast reactor - which is in service to this day.

Russia has done the most with this technology. "We have no equals now, we are absolutely competitive," Sergei Kiriyenko, head of the Federal Agency for Nuclear Power, said recently. The Beloyarskaya Nuclear Power Plant is still the world's only commercial nuclear plant with a fast breeder reactor. Drawing on their unique and invaluable experience, Russian designers have developed a more high-powered and advanced reactor, the BN-800, which is being built next to its cousin at Beloyarskaya. Designers are also working on the BN-1800 reactor.

Developing fast-reactor technology has been made a national project, but there are problems that are now in the spotlight of experts' attention. "For the time being the investment component and costs per kWh are higher with these reactors," said the academic supervisor of the TVEL Center for Technologies and Innovation, Mikhail Solonin, member of the Russian Academy of Sciences. "Since we are trying to produce competitive reactors, we should find a trade-off between two key factors: safety and economy. It is also necessary to master the recycling of nuclear material on a pilot scale."

Economical and environmentally safe technologies, such as those used by fast reactors, are the goal of the Generation IV International Forum. Russia has accepted the invitation and agreed to join it as a member. All that remains is for it to sign the Charter, and it will have the right to take part in all political, systemic and project activities. A framework agreement, which has the status of an international treaty and defines the legal force and types of cooperation, will take one more year.

The world, as it becomes increasingly more conscious of the global energy threat, is well aware that it is more worthwhile both materially and intellectually to concentrate its efforts on really vital issues. With a full nuclear cycle and unique experience under its belt, Russia can doubtless become a global partner.

 

 

NEWS BRIEF

OIL & GAS

GAIL offered two blocks in Uzbekistan

July 25, 2006. Domestic gas major, GAIL (India) Limited has informed the petroleum ministry that it has been offered two exploration and production blocks on nomination basis by UzbekNefteGaz (UNG), the national holding company in Uzbekistan. A GAIL team will shortly leave for Uzbekistan for the due diligence of investing in these two blocks. If it is viable, GAIL may also bring along a partner for the development of these blocks.

GAIL said it has also been asked to assist Uztransgaz, a gas distribution subsidiary of UNG, in the development of CNG and city gas distribution in different cities of Uzbekistan—including Tashkent, Samarkand and Bukhara. It has been agreed that Uztransgaz and GAIL would form a joint venture after having formulated a business plan. UNG has also offered GAIL to develop LPG plants of 35,000 to 40,000 tonne per annum capacity in the Ustryurt region gas fields. Setting up of ethane extraction unit (C2/C3) and a 60 KM transportation pipeline are the other offers to GAIL.

Third-party audit for every well drilled by ONGC

July 21, 2006. ONGC, which has been receiving flak for deviating from its core business of exploration and production (E&P), has been told by the Petroleum Ministry to consider third-party audit for every well that it drills. At a recent meeting on the company's Business Plan Review, the Ministry is understood to have directed the company to adopt the system of third-party audit in order to avoid instances of high input costs on wells, particularly those that have been termed as dry wells. With rising costs, hitting dry wells could prove to be highly expensive for exploration companies.

This is one issue that every E&P company has to look into, they said, adding that an investment of Rs 25-30 crore ($5.34 mn – $6.41) goes into drilling an onshore well, while drilling an offshore well costs Rs 150-200 crore ($32 mn – 42.7 mn). The Petroleum Secretary, is understood to have said at the meeting that ONGC has to "get its act together" to retain its position as the country's premier oil and gas company and that it would have to perform better in the competitive environment.

OVL signs with Columbian to pick up 50 per cent stake

July 21, 2006. ONGC Videsh (OVL), the overseas investment arm of ONGC, which has signed up with a national oil company of Columbia, is soon set to take up negotiations to acquire at least a 50 per cent stake in a Delaware-US listed company, engaged in exploration and production of oil and gas and pipelines in Columbia. It has been indicated that the US Company, which entered Columbia in 1994 by acquiring a production block, could even sell 100 per cent of the stake if offered the right price.

It is learnt that the OVL consortium are exploring possibilities of buying a 100 per cent stake. The final bid will have to be given in soon. OVL has worked upon a framework for an MoU with Ecopetrol, a national oil company of Columbia, which owns and operates all the refineries. Although there is no confirmation, a tie-up between OVL and Ecopetrol cannot be ruled out.

India to build oil reserves in AP

July 20, 2006. India will start building its first ever strategic crude oil storage facility in January 2007 at Vizag in the southern state of Andhra Pradesh, as part of its plan to build strategic oil reserves. Vizag will have a capacity to store one million tons of crude oil and it will be ready in January 2010. Subsequently, two more crude storage facilities will be built as part of the plan to build strategic crude oil reserves.

A crude storage facility with a capacity of 2.5 million tons will be built at Padru in Karnataka state, while one with a capacity of 1.5 million tons will be built at Mangalore, also in Karnataka. The cost of building the reserves, including the cost of crude totaling five million tonnes, will be 112.7 billion rupees (HK$18.75 billion.)

India's refineries currently have a crude storage capacity of 5.7 million tons - enough to meet domestic demand for oil products for around 19 days. The plan to establish crude reserves stems from India's heavy reliance on the global market for crude oil supplies. The country imports close to 76 percent of its crude requirements, with the current annual domestic consumption of petroleum products estimated around 112 million tons.

Cairn may take up refining project with ONGC

July 25, 2006. Cairn Energy may consider taking up a refining project jointly with the Oil and Natural Gas Corporation. ONGC was also open to having Cairn Energy as its partner in the new 15 mtpa refinery at Mangalore, besides the 7.5 mtpa pit head refinery at Barmer in Rajasthan. Cairn had no plans of selling its Indian assets and would go ahead with its initial public offering (IPO) plans in India sometime this fiscal or the first quarter of the next financial year.

Cairn has already announced plans to spend $1 billion for development of its Rajasthan block, estimated to have 3.5 billion barrels of oil in place reserves. The Scottish company said it has secured a $1 billion loan facility to fund the development of the Rajasthan oil and gas fields. It signed the loan agreement with a team of 14 banks led by the Royal Bank of Scotland, ABN Amro, Citigroup, HSBC Bank PLC, and Standard Chartered Bank.Cairn has already received the final approval of the Indian government to proceed with the development plan of its Rajasthan fields including Mangala, Aishwariya, Saraswati and Raageshwari fields.

HPCL to invest over $192 mn in retail

July 25, 2006. State-owned Hindustan Petroleum Corp Ltd (HPCL) will invest over Rs 900 crore ($192 mn) on expansion and modernisation of its retail network in 2006-07. The company plans to set up 800 new retail outlets (petrol pumps) during 2006-07. HPCL will invest Rs 155 crore in setting up new petrol pumps and Rs 174 crore in modernisation/upgrade of existing outlets. Another Rs 217 crore ($46.4 mn) will be spent on automation of retail outlets, Rs 175 crore ($37.4 mn) on procurement of equipment and Rs 197 crore ($42 mn) on auto LPG and vapour recovery units.

Essar reopens 350 shut petrol pumps

July 24, 2006. Essar Oil Ltd, India's second largest fuel retailer, has reopened about 350 petrol pumps it was forced to shut down due to heavy losses on matching petrol and diesel prices with hugely-subsidised public sector rates. The company has 517 petrol stations, of which about 350 had shut down in April and the Mumbai-based firm temporarily halted commissioning of new outlets. Essar suffered a loss of Rs 2.50 per litre on petrol and Rs 4.50 a litre on diesel, despite pricing them higher by Rs 2.50 per litre as compared to the retail selling price of public sector oil firms - IOC, BPCL and HPCL. The government is making good the losses made by public sector oil firms by issuing oil bonds and asking upstream firms like ONGC and refiners like CPCL and MRPL to bear a part of the burden.

Govt mulls options to crude supplies to NRL, Bongaigaon

July 23, 2006. Pending credible assurance from ONGC and OIL for enhancing crude oil production in Assam and the rest of the North-East, the Union Ministry Of Petroleum and Natural Gas is reviewing alternative routes for ensuring crude availability to Numaligarh Refinery Ltd (NRL) and Bongaigaon Refinery and Petrochemicals Ltd (BRPL). While both suffer from inadequate crude supplies in the region, the initiative will particularly to benefit NRL to help it finalise its capacity expansion plan. Having proposed to expand capacity from three million tonnes (MT) to 4.5 MT, NRL is now taking a final view on the project vis-à-vis concerns in terms of crude availability.

The Ministry is actively considering additional allocation of Assam crude to NRL from the existing allocation to BRPL, which may be offered incentives for sourcing the costlier imported crude. The Ministry is expected to convene a meeting of all concerned on the issue shortly. Having already set up 65-70 outlets, mostly in the North-East and in the Eastern region, the company has decided to go slow on this project. It recently announced plans to set up 125 new outlets.

ONGC preparing ground for Kakinada refinery, SEZ

July 23, 2006. ONGC is going ahead with the preparatory work needed for setting up an port-based refinery and special economic zone and, in spite of the teething troubles in obtaining the land, the corporation is confident of executing the project. ONGC signed a MoU with the State Government for setting up the refinery and the port-based SEZ. Mangalore Refineries and Petrochemicals Ltd and Kakinada Seaports Ltd, which is operating the Kakinada deepwater port are the other consortium members. Two special purpose vehicles have been set up for the two projects - Kakinada SEZ Ltd and Kakinada Refineries and Petro-chemicals Ltd. Steps are being taken to create the necessary infrastructure. Currently, a team of experts is here from TSG Consultants, conducting a survey for the development of infrastructure. Though the Government has notified 8,000 acres as required for the SEZ, finally it might exceed 10,000 acres, as 2,000 acres is needed for the refinery. Till now, 1,800 acres has been acquired in Komaragiri, Moolapeta, Ramanakkapeta, Ponnada and Srirampuram panchayats and 800 acres in Korada, A.V Nagaram and K. Perumallapuram panchayats of Thondangi mandal. Though it is not yet clear where the refinery will be located, it is likely to be in the Kakinada rural mandal, in the vicinity of the port.

Bengal petroleum dealers stop lifting fuel

July 21, 2006. The West Bengal Petroleum Dealers Association (WBPDA), which controls a majority of over 3000 retail outlets in the State, has stopped lifting fuel from the oil marketing companies in protest against irregularities in supplies and demanding increase in commission. While expecting an early solution to the impasse, all the oil companies have confirmed that the bunks have stockpiled to the maximum in preparation and that the State is unlikely to face any supply crunch. West Bengal consumes roughly 100 thousand tonnes of auto-fuel every month. While HPCL and BPCL control a major share of the Kolkata market, IOC is the largest retailer in the rest of the State.

Indianoil Petronas to set up LPG unit at Chennai port

July 19, 2006. Indianoil Petronas Pvt Ltd (IPPL) is finally on its way to set up an LPG terminal at Chennai port. The Rs 300 crore ($64 mn) project is aimed at handling six lakh tonne LPG cargo every year. Apart from imports from Petronas, the project will also offer terminalling services to oil marketing companies (OMCs). IPPL is a 50:50 joint venture between Indian Oil and Petronas of Malaysia. The company currently owns a terminal at Haldia Port. Apart from importing LPG from Petronas and marketing the same to the oil marketing companies, IPPL offers terminalling services to all oil PSUs for both in-country and imported LPG cargo. Terminalling services currently contribute 80 per cent of the company's turnover. IPPL also directly markets LPG for commercial purposes and has decided to set up a bottling plant at an approximate cost of Rs 25 crore at Haldia.

India, Pak, Iran talks on gas pipeline on Aug 3-4

July 25, 2006. India, Pakistan and Iran will meet on August 3-4 to discuss pricing of natural gas that Tehran wants to sell to the energy-hungry South Asian countries through a tri-nation pipeline. As of now, various issues relating to the Iran-Pakistan-India gas pipeline project are being discussed between the three countries at tripartite secretary-level working group meetings. So far two such meetings have been held. The third meeting is scheduled to be held during August 3-4 at New Delhi.

Cairn Energy to float IPO by March

July 25, 2006. The Edinburgh-based Cairn Energy Plc is firm on its India operations and will float an initial public offering for its Indian business by March-April 2007. It signed a $ 1-billion banking facility to fund its Rajasthan oil field development plan. The company plans to repay $1-billion debt raised for its oilfields by 2010, within 18 months of starting oil commercial production in Rajasthan. The loan repayment is based on earning $40-50 a barrel. Cairn plans to spend a few $100 million more on developing the four fields in Rajasthan. It plans to spend a total of $4 billion of which it would spend about $2 billion on field development and $2 billion on operations.

Cairn has already announced plans to spend $1 billion to help drive exploration plans for its Rajasthan block, which has 3.5 billion barrels of oil in place as per latest estimates. Cairn holds 70 per cent share in the Mangala, Aishwariya, Saraswati and Raageshwari fields and Oil and Natural Gas Corporation (ONGC) holds 30 per cent stake. Of the $1 billion, about $150 million was provided by World Bank's International Finance Corp in the form of a nine-year loan, while the remaining $850 million came from other commercial banks, including ICICI Bank UK Ltd. The loan would be used to develop Mangala, Aishwariya, Saraswati and Raageshwari fields at Block RJ-ON-90/1 in Rajasthan.

Cairn plans to bring Mangala field on stream by fourth quarter of 2008, followed by Bhagyam and Aishwariya a year later. The first commercial production from the Saraswati and Raageshwari fields is planned in the last quarter of 2006. The company also received final approval from the Government for the development plans for the four fields. The Mangala, Bhagyam and Aishwariya fields are expected to yield combined proven and probable reserves of 514 million barrels of oil with up to 685 million barrels of crude ultimately flowing if enhanced oil recovery is implemented.

Under the terms of the production sharing contract the construction of the export system is the responsibility of the Government through its nominated buyer, MRPL, a subsidiary of ONGC. Facilities and engineering design for Mangala is ongoing with a specialist team from Cairn working alongside the contractors, Mustang, in Houston.

Impose cess on ONGC, OIL to fund kerosene, LPG subsidy

July 25, 2006. Energy policy experts have recommended a new cess on production by upstream public sector oil companies like ONGC and OIL. The cess—to be routed through the Budget —will fund subsidies on LPG and kerosene. At present, ONGC and OIL provide subsidies to offset losses incurred by oil marketing companies (OMCs) on sales of these two fuels at below market prices.

In a report submitted to the government a sub-group on energy policy comprising representatives from the petroleum ministry, Ficci, CII and Petrofed, said, this would make the subsidy funding mechanism transparent. Currently, the Budget supports LPG and kerosene subsidies only to the tune of Rs 3,000 crore ($0.64 bn), or 10 per cent of actual subsidies. The balance is met either through contributions by upstream companies or under-recoveries of OMCs. Targeting subsidies at the needy, the sub-group has proposed providing coupons for LPG and cash entitlements for kerosene endorsed on ration cards of below-poverty-line (BPL) families. These entitlements, to be decided by the government, can be used for purchasing anything from ration shops, and not just for kerosene.

For LPG, the sub-group has proposed issuing coupons for eight LPG cylinders a year per family. Each coupon will entitle the targeted consumer to receive a pre-determined subsidy, which can be set periodically. The consumer, therefore, will have to pay the difference in the retail selling price and the announced subsidy as cash payment, and surrender a coupon while taking delivery of a gas cylinder. The coupons will be collected by dealers and then given to oil companies for getting an equivalent amount in cash.

Natural gas catches investors' fancy

July 25, 2006. In the commodity market, the latest love is natural gas. Launched on July 10 on MCX, the Nymex-linked contracts have drawn the attention of investors by virtue of the high degree of price volatility as well as reasonably good liquidity during its brief existence. While market sources expect natural gas contracts to be less volatile in the long run once the initial euphoria is over, there is little doubt that unlike crude oil the underlying conditions now offer adequate scope for speculative as well as arbitrage opportunities in natural gas. Having registered a modest turnover of Rs 39 crore ($8 mn) first day of trade, natural gas has registered an average turnover of Rs 76 crore ($16 mn) during the last week. The average turnover was close to Rs 100 crore ($21 mn) during the greater part of the week between July 17 and July 20.

Throughout the week the contracts were repeatedly on `freezes' indicating volatile price movements. It began the current week with a nine per cent price increase and was subjected to upper freeze soon after opening today. The interest on natural gas reached a new high when someone sold a reasonable quantity at an unexpectedly low price of Rs 330-334 per MBTU (million British thermal unit) on October contract as against the parity price (with Nymex November contract) of Rs 374 per MBTU. The October contract was launched only on the previous day and by selling at such low prices the seller has understandably lost an opportunity to gain a clear Rs 30,000 per lot. While the incident is considered to be a result of lack of knowledge on the part of the seller, only a handful of alert fund managers made the killing. The transaction caught the market on `lower freeze'.

RIL seeks subsidy for losses on sale of petrol, diesel

July 23, 2006. Reliance Industries, India's largest private sector oil firm, has sought government subsidy at par with public sector oil companies to compensate losses suffered by it on sale of petrol and diesel and contended that absence of level-playing field may ease out private retailers. RIL is losing Rs 3.39 per litre on petrol and Rs 5.77 a litre on diesel despite pricing the auto fuels about Rs 2.50 a litre higher than the price charged by PSU firms, who are compensated for the losses through a combination of discounts from upstream companies like ONGC and oil bonds.

The company suggested that Government can either increase the cess on domestic crude and use the revenue to moderate the excise duty on petrol and diesel, so as to place all players at par. "Alternatively, oil bonds and upstream support should be extended to the private companies. Reliance, which has more than 1,250 petrol pumps on ground and another 900 awaiting commissioning, said it lost 12 per cent market share in diesel sales after pricing its product higher than PSU retailers. Role of government is to ensure level playing field especially in terms of uniform pricing policies for all the players, both private and PSU in refining and marketing operations, so that consumers are benefited from open, transparent competition.

GAIL-Ravva group agree on price revision

July 21, 2006. GAIL (India) Ltd and Ravva joint venture partners (ONGC, Cairn Energy, Videocon Petroleum, and Ravva Oil) have agreed to a price revision for the gas supply from Ravva field in the KG Basin as provided in the gas supply contract (GSC), executed in 1997. The GSC has a validity period till 2019. The revised ceiling price has been agreed as $ 3.5 per million British thermal unit (mmBtu) based on good faith negotiations as provided in the GSC. The contract envisages gas supply of about 1.0 million standard cubic metre per day (MMSCMD) and is being predominantly supplied to power and fertiliser companies in Andhra Pradesh under administered pricing mechanism regime.

Centre to set up domestic natural gas regulator – AP Govt

July 19, 2006. Expressing concern over the impact of gas prices on the state power sector, Andhra Pradesh chief minister has reiterated his demand that a market regulator be put in place for domestic natural gas. In view of the shortage of gas and limited players, pricing by an independent regulator, established by the statute, is essential as long as the shortage continues and the production is in the hands of a few monopoly producers. The chief minister also said it was not acceptable if the market being referred to was the international market as gas exploration and production were indigenous efforts. 

In countries which have gas reserves, the price of natural gas produced for the domestic market is not linked to international fuel prices. Further, the international price quoted by the ministry refers to LNG and not to natural gas and the two are not comparable. Requesting the Prime Minister to establish a statutory regulator to cover upstream gas pricing and any increase in gas price would have substantial implications on the price of power in the state resulting in increase in power tariffs.

POWER

GMR to shift power project to Kakinada

July 25, 2006. GMR Infrastructure is planning to shift its barge-mounted 220 MW naphtha-based power project from Mangalore to Kakinada from 2008.  The plant would purchase natural gas from Reliance Industries Limited or from Gujarat State Petroleum Corporation (GSPC) as fuel for power generation.  GMR would sell its power capacity to end consumers in and around Kakinada.  However, lot depends on the availability of gas from the Krishna Godavary basin. RIL and GSPC, both have discovered gas from the KG basin and have plans to begin commercial production in 2008.  GSPC plans to begin commercial production of natural gas from its KG basin block from first half of 2008. RIL and GSPC, both plan to sell their gas first to the local companies in Andhra Pradesh and in the neighbouring regions. 

K`taka plans 6 thermal power projects

July 24, 2006. Karnataka will commission six new thermal power projects over the next four years at a combined investment of Rs 17,000 crore to generate 4,000 MW of power. The power plants will come up at Kudgi in Bijapur district and Kaushika in Hassan district of 1,000 MW each, Raichur, Nandura at Gulbarga district, Chamalapura in Mysore district and Ghataprabha in Belgaum district (500 MW each). On the ongoing power projects, the government is making efforts to secure gas for the 1,400 MW capacity combined cycle power plant proposed at Bidadi on Bangalore’s outskirts. The work on the second unit 500 MW of the Bellary Thermal Power Station and the eighth unit 250 MW at the Raichur Thermal Power Station will commence in a month. The government has planned its ninth unit and tenth unit of the RTPS. The KPCL is in the process of preparing the detailed project reports, which will be forwarded to the government for approval shortly.

CESC to invest $4.26 bn in power project

July 24, 2006. RPG group flagship CESC Ltd is planning to invest Rs 20,000 crore ($4.26 bn) in power over a period of seven years.  Out of Rs 20,000 crore, around Rs 10,000 crore ($2.13 bn) would be earmarked for additional generating capacity in West Bengal. The power utility is also contemplating to float special purpose generating companies for implementing various generation projects in different parts of the country. CESC would set up a 2,000 MW unit at Haldia for around Rs 8,000 crore. It was planning a mega power project in Jharkhand too.  The Haldia project would be built in two phases as three units of 660 MW each, with part of the power generated consumed in West Bengal.  CESC was expecting 400-500 MW additional demand in its Kolkata command area by 2010-11. 

REL gives Orissa a 'powerful' boost

July 22, 2006. Reliance Energy ADAG company, expanded the scope of the mega power project in Orissa it announced a year ago. REL said that the plan would involve an investment of Rs 60,000 crore ($12.85 bn) in Jharsuguda in Orissa to set up the world’s largest pit-head thermal power plant with a capacity of 12,000 MW, to be completed by ’11.  The 12,000 MW coal-fired plant will come up at Hirma in Jharsuguda in three phases each with 4,000 MW capacity. The outlay for the power plant in Jharsuguda would be in excess of Rs 50,000 crore ($10.7 bn), while another Rs 10,000 crore ($2 bn) would be invested for transmission and evacuation of the power generated. This investment will beat the spending plans of South Korean steel giant Posco Rs 52,000 crore ($11 bn) and Mittal Steel Rs 30,000-40,000 crore ($6.4 bn – $8.6 bn), both in Orissa.

Tayal Energy to build power plant in Uttaranchal

July 21, 2006. Tayal Energy, a wholly-owned subsidiary of Mumbai-based KSL Realty and Infrastructure, will build two hydroelectric power plants in Uttaranchal for Rs 550 crore ($0.12 bn). The company has bagged the development rights for setting up plants of 63 MW at Mori-Hanol of Uttarkashi and 7.7 MW at Jimbagad. The Uttaranchal project would be executed on a build-own-operate and transfer (BOOT) basis. TE would finance, construct and operate the projects for a concession period of 45 years. The project development agreement will be signed soon.

The Mori-Hanol power project will be raised over river Tons, a tributary of the Yamuna. The company is in the process of preparing the detailed report on the project. This project would be completed by ‘09. Of the total electricity production, about 50 per cent can be used for the company’s purpose. The state government will buy the remaining output. According to the agreement, if the company is setting up any industrial facilities in Uttaranchal, it can consume the entire production from the plants.

NHDC plans to set up power project in MP

July 21, 2006. Announcing a net profit of Rs 106.10 crore ($23 mn) in 2005-06, Narmada Hydroelectric Development Corporation (NHDC) might venture into setting up of thermal power stations in Madhya Pradesh. Survey and investigations of three other hydroelectric projects in Handia, Bauras and Hoshangabad were being carried out, and the detailed project reports are to be submitted by this year end. The NHDC had recorded a turnover of Rs 335.98 crore ($72 mn) in 2006-07 and registered a net profit of Rs 106.10 crore.

GMR eyes hydel units in Nepal, Uttaranchal

July 21, 2006. The GMR Group is eyeing opportunities in Nepal and Uttaranchal for constructing hydro electric power projects. The group also plans to set up a 450 MW combined gas cycle gas turbine power plant in Bangladesh, driven by gas availability there.  The group also plans to set up a hydroelectric plant in Nepal.  The group believes that the biggest advantage of setting up a project in Nepal is the enabling environment. Nepal has a close geographical proximity to Uttar Pradesh and this may help in the evacuation of power to the state to meet its power demands.

GMR Group plans to set up run of the river projects and is eyeing 480 MW Pali Maneri project in Uttaranchal through a joint venture with Uttaranchal Jal Vidyut Nigam Ltd.  However, the Uttaranchal state government has received around 30 request for qualifications for forming the joint venture and the final selection of the developer is expected to be done by March 2007.  The project may require an investment of around Rs 2,500 crore ($0.53 bn).  While the state government will have a majority stake of 51 per cent in the JV, the remaining share will be with the private developer who will manage the JV. The company is also exploring Arunachal Pradesh, Sikkim and Himachal Pradesh for constructing hydroelectric projects. 

Govt targets 15,000 MW hydel capacity

July 20, 2006. The Centre has set a target of adding about 15,000 MW of hydroelectric capacity during the Eleventh Plan period. Hydro capacity of 5,980 MW has been added during the current plan period so far. The Government has accorded high priority for development of hydro projects in the country.  A number of issues such as timely sanction of projects and speedy environmental clearance, need to be addressed. The Government has approved a three-stage clearance procedure for hydel projects to be executed by public sector companies to reduce time and cost over runs.

LNG scarcity fuels demand for coal

July 21, 2006. High prices and inadequate supply of gas, LNG is causing a massive shift to coal as a fuel for power generation globally. The power ministry is actively discouraging gas/LNG based power plants. Gas-based power plants of 1,500 MW in Andhra Pradesh are lying idle due to lack of gas supply. Also, new technologies cut pollution levels when coal is burnt. India is currently in transition mode. Around a dozen coal-based power projects are under construction with total capacity of 9,065 MW. The ministry is also evaluating 16 coal-fired projects with capacity of around 10,000 MW, and 79 projects with over 20,000 MW.

The Centre has also proposed ultra mega power projects in various states, most of which are currently under the initial bidding stage. Two plants will come up at pithead locations in Chhattisgarh and Madhya Pradesh and will use domestic coal as fuel. Two other ultra mega projects would be at coastal locations in Karnataka and Gujarat and would make use of imported coal or a blend of domestic and imported coal. As per industry estimates, India is expected import over 20MT of coal this year exclusively for the power sector. Because of the rising price, natural gas-based plants want to enter into long-term contract with international suppliers to avoid shortage. Currently, the cost of LNG in the spot market is around $10 per MBTU. Due to higher price and shortage in the gas trade, the power price from the gas plants has gone up to Rs 3- Rs 3.20 per unit in the country.

Goa likely to get power from Maharashtra

July 20, 2006. The Maharashtra government has assured Goa that it would sell 600 MW power to it from the upcoming coal-based power plant at Jaigad in the Ratnagiri district. The Maharashtra government informed hrough a letter that the state was setting up a 1,200 MW power plant, of which 600 MW could be made available to Goa.  If Goa buys power from Maharashtra it could save itself from the pollution caused by coal based power plants.

UP to buy power from Bengal, MP

July 20, 2006. Failing to get additional power from the northern grid, UP has decided to buy power directly from other states through the Power Trading Corporation (PTC).  The UP Power Corporation has signed a deal with the PTC for buying power from West Bengal and Andhra Pradesh to tide over the power crisis from September to December next.  The PTC will levy “wheeling charges” on the total power supplied by it to the UP Power Corporation. The deal for additional power is politically crucial for the state as assembly polls are due in February 2007. 

ONGC in talks with Shell for coal gasification projects

July 25, 2006. Oil and Natural Gas Corporation (ONGC) maintains that negotiations are on with Royal Dutch Shell for the proposed ventures in underground and surface coal gasification as per the MoU signed between both the partners. Shell has proven technology in coal gasification. In January, ONGC had entered into a MoU with Shell Exploration Company BV — a subsidiary of Royal Dutch Shell — highlighting future collaboration across the energy value chain including exploration and production of oil and natural gas and CBM (coal bed methane), coal gasification, oil products, refining and petrochemicals.

ONGC had long-term plans to enter into a joint venture with Shell for setting up coal gasification projects on a commercial scale. The company has proposed a 50:50 joint venture with Coal India Ltd for underground coal gasification projects in technical collaboration with the Stochinsky Institute of Russia. An MoU was also signed with Neyveli Lignite Corporation for taking up these projects. Meanwhile, ONGC's initiative to rope in Shell as a partner in the third round of coal bed methane (CBM-III) did not succeed.

Dabhol completion cost to increase

July 25, 2006. The total cost of revival of Dabhol project, which was earlier estimated at Rs 10,037 crore, is likely to increase further. The petroleum ministry has estimated additional Rs 450 crore ($96 mn) will have to be spent on increasing the number of mooring lines and tension in the lines. This apart, the capital dredging works costing Rs 45 crore ($9.6 mn) will commence on September and would be completed by December. The Centre has asked the petroleum ministry to reexamine the timing of undertaking dredging, based on the final view on the breakwater issue.

The Cabinet has asked the department of economic affairs to take necessary steps in order to tie up funds flow to the Ratnagiri Gas & power Pvt ltd (RGPPL) for a year. RGPPL expects to achieve commercial production by April next year. The construction period for adding more mooring and tension lines is estimated to be 36 months. This was necessitated as the availability of the LNG facility at the plant site would be limited to only 5-10 per cent and hence if import of LNG through ships is to be considered as the option, the Breakwater needs to be constructed. Further, 10 per cent additional availability of LNG facility could be availed by increasing the number of mooring lines and tension in the lines. GAIL India has indicated that the completion of LNG terminal would be completed by June 2007, instead of March 2007 as indicated earlier.

Fin Min to review Manarchak power project

July 22, 2006. The union finance ministry has convened a high-level meeting to review the status of the 280 MW Manarchak power project in West Tripura district. Representatives of ministry of Power, Petroleum and Natural gas and North Eastern Electric Power Corporation (NEEPCO) are expected to attend the meeting on the gas-based power project.

Full re-funding for ultra mega power projects

July 21, 2006. Wiser from the Dabhol experience, banks and financial institutions have decided to organise the entire lending in rupees instead of foreign currencies for the ambitious Rs 96,000-crore ($21 bn) plan to set up seven ultra mega-power projects. The projects are being planned in Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Orissa. Thus far, 13 developers have qualified for bidding for the Sasan (Madhya Pradesh) and Mundra (Gujarat) projects.

The Indian lenders  - SBI, ICICI Bank, LIC, IDBI, IDFC and Power Finance Corporation have proposed to raise funds from the market for financing the debt component of these projects. Though power projects have a 70:30 debt-equity ratio, it can vary from project to project. The $2.9-billion Dabhol project had a foreign lending of $350 million or 18 per cent of a debt component of $2 billion. Though payments were tied to the US dollar and hence not influenced by fluctuations in the currency market, a power purchase agreement had transferred the currency risk from Dabhol Power Company to the Maharashtra State Electricity Board.

Power ministry to modify national electricity plan

July 21, 2006.  The power ministry plans to modify the National Electricity Plan (NEP) in order to present realistic facts and figures pertaining to capacity addition, deletion of projects for want of fuel and development of national grid. The ministry asked the Central Electricity Authority (CEA) to incorporate the necessary changes in the document, including incorporating new demand projections, relative share of various power consumers, more accurate plant load factor (PLF) and other critical inputs in the form of technical and conceptual aspects. The NEP would also be linked with the revised transmission plan.

Ministry said that with projected GDP growth of 9 per cent, capacity requirement of 66,000 MWfor the 12th Plan appears to be underestimated. For making the capacity projections, possible decline in PLF is required to be factored in due to elimination of peaking shortage and the need to increase share by thermal generation to follow the load curve. In view of this, there is a need to incorporate these factors in demand projections and thus in capacity addition plans.

CEA has argued that only those projects should be included in the list where preparedness is such that with a reasonable degree of certainty, it could be said that identified projects would be commissioned in the 11th Plan. Power ministry would include those hydro projects, in which techno-economic clearance has been made available by June 2006 and letter of approval placement is expected by March 2007. CEA would take a call on the deletion of certain projects which may not come in the 11th plan or be included in the 12 plan due to uncertainty in availability and price of gas. Such projects would have to be replaced by more coal based projects.

CERC issues consultation paper on power exchange

July 21, 2006. The Central Electricity Regulatory Commission (CERC) released a consultation paper to develop a power exchange for electricity trading in the country. The exchange, a common platform for power trading, would help in streamlining power trading, standardise electricity as a tradable product, provide a payment security mechanism to buyers and sellers and increase business confidence in the power sector.

The regulator has suggested that as the amount of tradable power is low at present, a power exchange on regional basis may not be viable and only one exchange could be conceived at the national level. With electricity supply far short of demand and tradeable quantity negligible at just two per cent of the total generation, the regulator said the right time to launch a power exchange should to be debated. The CERC has suggested that instead of waiting till aggregate demand and supply streams are more or less balanced on all India basis, it may be prudent to launch such an exchange in the near future to send the right signal to investors and consumers about transparent market development.

Natural gas for power generation `not feasible option' - NTPC

July 19, 2006. The setting up of power stations based on domestic natural gas "is not a feasible option". The dependence on natural gas as an alternative fuel may be considered only when new gas fields are discovered with substantial proven reserve of gas. The use of natural gas as a fuel for power generation in the country began only in late 80s with the commissioning of the Hazira-Bijapur-Jagdishpur pipeline by GAIL (India).

However, the modest proven reserves of natural gas of 927 billion cubic metres were expected to last for about 29 years only at the current production rate of about 70 MMSCMD. Incidentally, the potential for coal bed methane (CBM) was proved to be the largest among non-conventional domestic fuel sources, although studies are still under progress for its economic extraction and exploitation. Methane gas from gas hydrates was found to be the other promising sources of energy of the future.

In India, basins in the Andaman-Nicobar offshore and the Kerala-Konkan offshore were considered to be the potential sources of gas hydrates. It would be quite some time before it could be considered as a viable fuel for power generation on commercial scale. The installation of large-size thermal stations in the vicinity of coal mines was the most economical method of power generation and hence most preferred long-term option for large-scale thermal capacity addition. There was no other fuel, either domestic or imported, which could compete with domestic coal for thermal power stations.

The domestic fuel supply (coal, gas) was likely to fall short of requirement for power generation in the short to medium term and some amount of imports of fuels seems inevitable. Import of fuel might get limited by a number of factors such as pricing, exchange rate variations, fuel security, international market conditions, capacity of handling and transportation infrastructure.

Essar keen on developing power project at Vile

July 19, 2006. The Tata Power Company (TPC), which proposed a capacity addition of around 2,650 MW in Maharashtra and other parts of country and is one of the qualified bidders for the Sasan ultra mega power project, has dropped its plan to set up a 1,000 MW imported coal-based power plant at Vile in Raigad district of Maharashtra. Essar has signed an MoU with the government in this regard.

TPC, which had estimated an investment close to Rs 4,000 crore ($0.9 bn) has cited logistical problems for its decision to withdraw from the project development. It has, instead, decided to develop 1,000 MW project on imported coal at Bhal in Raigad district. The company proposes to make an investment close to Rs 4,000 crore ($0.9 bn) and construct jetty for the unloading of imported coal required for the project. Tata Power Company had conveyed its decision to drop the project development at Vile and pursue project of equivalent capacity at Bhal.

MoUs inked for Sasan, Mundra power projects

July 19, 2006. Special purpose vehicles (SPVs) launched for the fast-track ultra mega power projects at Sasan (Madhya Pradesh) and Mundra (Gujarat), have signed memorandum of understanding with power distribution companies. There are eight such power projects in the country. However, MoUs between the other six SPVs and distribution companies are yet to be inked. 

The SPVs have received authorisation from distribution companies and licensees for carrying out the bid process on their behalf. The MoUs also specify the quantum of power to be procured by or on behalf of each discom, authorisation to the SPVs to carry out the bid process. on their behalf and acceptance of the proposed payment security mechanism by procurer and the agency having a charge on revenues. Allocations have already been decided for the 4,000 MW ultra-mega power projects at Tadri (Karnataka), Sasan, Mundra and Girye (Maharashtra). Out of the demand of 27,400 MW for 13 states, the power ministry had allocated 16,000 MW. 

The Central Electricity Regulatory Commission had earlier asked the power ministry to clarify the position of the Power Finance Corporation (PFC) on execution of the eight ultra mega power projects.  It had said that under the Electricity Act 2003, only those who want to procure power or their agents are entitled to invite bids. 

OIL & GAS

ExxonMobil, Petronas seek stake in India

July 25, 2006. Malaysia's Petronas and 11 other major oil companies including ExxonMobil have shown interest in taking a stake in Gujarat State Petroleum Corp's gas field off India's Andhra Pradesh coast. The companies have submitted non-binding bids for development of the Krishna Godavari basin gas and oil discovery block. The other companies bidding for the gas block include Royal Dutch Shell, BP plc, the UK's BG Group PLC, France's Total SA, Brazil's Petrobras and Italy's ENI. Interest also came from Statoil of Norway, Spain's Repsol YPF, U.S.-based Anadarko Petroleum Corp, Canada-based Husky Energy Inc and Crescent Petroleum of the United Arab Emirates. GSPC found new reserves of high quality oil and gas in the block where the company plans to invest 369.9 mn USD for further exploration. GSPC is interested in selling 20 to 30 pct of its 80 pct participating interest in the block. UBS is the financial adviser for GSPC on the proposed sale of the stake in the block.

Russia Gazprom to get blocking stake in Yamal

July 25, 2006. Russia's gas monopoly Gazprom is in talks to acquire a blocking stake in Yamal LNG, a firm with estimated reserves of 1.2 tcf of gas. Gazprom's banking arm Gazprombank would acquire the blocking stake of 25 percent plus one share from Nikolai Bogachev, who controls Yamal LNG. Yamal LNG has a licence to operate one of the biggest gas fields in Russia, Yuzhno-Tambeiskoye, in northern Russia.

Gazprom, the world's biggest producer of natural gas and which supplies a quarter of Europe's needs, has been pushing to consolidate its hold on domestic gas supplies by seeking deals with the few independent players in Russia to shore up its stagnating reserves. Gazprom is expanding into the booming liquefied natural gas (LNG) market, having already launched a huge Arctic project that it hopes will one day make it the dominant U.S. supplier. Entering LNG will free Gazprom from its static pipeline network and allow it to ship gas globally for the first time, giving the export monopoly more bargaining power as it seeks to expand downstream into European markets.

S. Korea buys Canada oil sands mine for $270 mn

July 24, 2006. South Korea has made its first oil sands investment with the $270 million takeover of a mine in Canada as the world's fourth-largest crude importer seeks to boost its oil self-sufficiency. Korea National Oil Corp. signed a deal to buy the 100 percent stake of the BlackGold mine from U.S. mining giant Newmont Mining Corp., which has a 250 million-barrel crude oil capacity. The mine in Alberta is set to begin building a facility in 2008. Full-scale operations, expected to produce 35,000 bpd of crude or 30 percent of total daily production of Korea's current crude assets abroad will start from 2010.

Oil sands are deposits of bitumen trapped in a mixture of clay, sand and water. Normally more costly to develop than conventional oil, record-high crude prices are making oil sands projects economically viable. The ministry expects that once production begins, it could raise the country's oil output self-sufficiency level by around 1.2 percentage point. The country wants to raise the self-sufficiency level to 18 percent in 2013 from 4.1 percent at present. South Korea currently produces 115,000 bpd from overseas oilfields of which state-run KNOC accounts for almost 35 percent.

Saudi Arabia and Venezuela to pull Opec output down

July 25, 2006. Opec oil output will fall by 200,000 barrels per day in July because of lower production from top world exporter Saudi Arabia and from Venezuela. It is estimated that the Organisation of the Petroleum Exporting Countries is pumping 29.9 million bpd in July, down from a revised 30.1 million bpd in June. The estimate suggests supply from Saudi Arabia has yet to rebound after the kingdom cut output in April as refinery maintenance and rising inventories curbed demand. Most Opec members were pumping near full tilt earlier this year to cool prices. The estimate indicates output by the 10 Opec members bound by formal supply limits, all except Iraq, remained below their 28 million bpd target.

Woodside begins Enfield production

July 25, 2006. Australia's Woodside Petroleum Ltd. had started production at its Enfield oil project offshore Western Australia. Woodside was ramping output up towards capacity rates at the 100,000 bpd field, boosting the company's total production and adding competition to the region's small, heavy and medium sweet crude market. Woodside operates the Enfield project with a 60 per cent share, with the remainder held by Japan's Mitsui & Co. Enfield crude, from the second-largest development in the Asia-Pacific market this year after Russia's Sakhalin-1, is a heavy sweet crude, similar to Indonesian Duri grade in terms of gravity but with a better products yield.

OMV makes second oil and gas find in Tunisia

July 22, 2006. OMV, Central Europe's leading oil and gas group partly owned by Abu Dhabi's IPIC, a discovered and successful tested of oil and gas in its Nawara 1 exploration well in the Jenein Sud Exploration Permit in Southern Tunisia. This is the second discovery in the permit within a year and shows the high potential of this block, which is operated by OMV (Tunesien) Exploration GmbH, a 100 per cent subsidiary of OMV. The exploration well reached a total depth of 3,970 metres and encountered a total of 25 metre net oil and gas/condensate pay in several layers at depths of 3,600 to 3,900 metre. The combined flow rate of all layers tested by the Nawara 1 well amounts to 5,970 barrels per day of oil.

KPRL to build gas storage facility

July 21, 2006. The Kenya Petroleum Refineries Limited (KPRL) will construct a multi-million shilling liquefied petroleum gas reception, storage and distribution plant in Mombasa. The facility would have storage capacity of 4,700 tonnes. The refinery has engaged Nutek Solutions to conduct an environmental impact assessment before the project is implemented.

BG gets first gas from Dolphin field

July 19, 2006. British gas producer BG Group had delivered the first gas with its partner Chevron Corp from its Dolphin Deep development, on the coast of Trinidad and Tobago. BG said gas production from its two wells was expected to reach a maximum rate of 250 million standard cubic feet per day.

New Zealand urged to boost exploration for gas fields

July 19, 2006. New Zealand should have enough gas to meet demand until 2016. The rapid depletion of the Maui gasfield meant New Zealand would be running out of natural gas by 2012. The country was now at a "critical juncture," and market and policy signals were not yet sufficient to entice exploration investment to do the work. The discovery that Maui was running out had shaken the energy sector and the Government, resulting in increased investment and several finds, but it was not enough.

In the past, companies had shown little interest in exploration outside Taranaki. But new frontiers were opening off Canterbury and the North Island's east coast and there had been limited drilling off Wairarapa and western Southland. Disincentives included increased costs for exploration and a drop in prospective profit if it took a company too long to get into the energy system.

 

China approves Sinopec, Kuwait refinery

July 25, 2006.  The Chinese government has approved the construction of a joint venture refinery by China Petrochemical Corp. and Kuwait Petroleum Corp. in southern China. The investment for the planned refinery is expected to total $8 billion, of which $5 billion may be from KPC. The project is likely to be the largest joint venture petrochemical project by investment in China, superseding a $4.3-billion petrochemical complex in southern China by China National Offshore Oil Corp. and Royal Dutch Shell PLC.

The refinery is expected to have an annual processing capacity of around 15 million tons of crude, or 300,000 bpd. Construction is likely to start late this year is expected to be completed by 2010. It will be located in the Nansha district in Guangzhou city. The refinery will mark Kuwait's first large-scale investment in China's petrochemical sector. The Middle Eastern oil producer has been seeking investment opportunities in China, the world's fastest-rising energy consumer.

When completed, the refinery will help ease the shortage of oil products in Guangdong, a strong economic growth region in China, which consumes about 20 million tons of oil products each year. Although China's largest refiner Sinopec has three major refineries in Guangdong - Guangzhou Petrochemical, Maoming Petrochemical and Zhanjiang Dongxing Refinery - which together have a processing capacity of 28.5 million tons a year, these refineries also supply products to the southwestern region and Hainan island.

China National Petroleum Corp. the country's second-largest refiner, doesn't have any refineries in Guangdong, but transports oil products from its refineries in the north. CNOOC is also constructing its first refinery in Huizhou city, Guangdong. The refinery is expected to be operational by late June 2008, and will have a refining capacity of 12 million tons a year, or 240,000 bpd.

Suncor plant starts producing cleaner diesel fuel

July 25, 2006. Suncor Energy Inc. has started producing ultra low sulfur diesel fuel from a new unit at its refinery in Sarnia. The diesel desulfurization unit is the first part of an C$800 million ($702 million) investment in Suncor's 70,000 barrel a day plant. All diesel sold at Canadian retail outlets as of Sept. 1 must meet the sulfur threshold of 22 parts per million. After 2006, that will drop to 15 parts per million. The next phase involves upgrading equipment that will allow the refinery to run more of Suncor's synthetic crude from its oil sands operations. Suncor is also commissioning the C$120 million St. Clair ethanol plant near Sarnia, which will produce 200 million litres (53 million U.S. gallons) of the fuel additive a year.

Magellan Midstream to spend $12 mn on expansion plans

July 20, 2006. Magellan Midstream Partners L.P. plans to spend about $12 million to expand its refined petroleum products pipeline capabilities into the Denver, Colorado market. It would increase the capacity of the pipeline segment and construct storage tanks, which are expected to be fully functional by June 2007.

MoU signed for $6bn Nigerian LNG project

July 25, 2006. State company Nigerian National Petroleum Corp and three foreign oil and gas majors have signed a MoU to formalise the $6 bn Olokola LNG project. The four-train Olokola, which will have a total capacity of 22 million tonnes per year, is expected to start its first two trains in 2011. Together with other projects, Olokola would make Nigeria one of the world's biggest producers of LNG, being touted as the fuel of the future. Nigeria is looking to LNG, a gas which has been cooled into liquid form for easy transport by tankers, as a way to make better commercial use of its huge gas reserves, in addition to crude oil.

A large proportion of Nigerian natural gas is currently flared because of a lack of infrastructure to exploit it commercially, which in the process causes major environmental damage to the oil-producing Niger Delta. Chevron was originally a partner in the $5 billion Brass project until it pulled out in March to focus on Olokola instead. The firm has since then been replaced by French oil major Total. Other partners in Brass are ConocoPhillips, ENI and NNPC.

The Brass plant will be built off the coast of Bayelsa state in the Niger Delta near the Brass oil export terminal. It is expected to produce an initial 10 million tonnes of LNG and 2.5 million tonnes of liquefied petroleum gas per year. Nigeria's first LNG plant located on Bonny Island in southeastern Rivers state, also in the Niger Delta, is expected to raise production to 22 million tonnes per annum when its sixth train starts up in 2007.

Colombia to sell up to 20 pct of Ecopetrol

July 25, 2006. Colombia will privatize up to 20 per cent of state oil company Ecopetrol in a bid to draw investment needed to modernize the country's ailing petroleum sector. It marks Ecopetrol's first opening to private investors, and comes as other Latin American countries like Venezuela, Bolivia and Ecuador are wresting control of their natural resources from foreign companies. The government issued a statement saying it would prefer to sell the stake to Colombian pension and employee funds.The Andean country wants to find new oil fields before its 1.5 billion barrels in reserves dry up. In bucking the Andean trend toward state control over the energy sector, Colombia is looking for partners to share the risk of exploring for oil in a country where Marxist rebels often attack pipelines and other energy installations.

Natural gas pipeline proposed to link US, Canada

July 25, 2006. Alliance Pipeline, Duke Energy Gas Transmission and NJR Pipeline Co. proposed a natural gas pipeline to connect Canadian natural gas supplies to U.S. Northeast markets and regional storage. The three companies signed a MoU to construct the Lebanon Connector from either the Alliance Pipeline in Joliet, Illinois or from an interconnect with the Vector Pipeline near Springville, Indiana. The new pipeline would connect to DEGT's Texas Eastern's existing Lebanon Lateral at Gas City, Indiana, where natural gas could then be transported to Lebanon, Ohio. Gas also could be moved from the emerging Lebanon hub to regional storage fields using the planned bi-directional capabilities of the Lebanon Connector.

Enbridge to build $350 million pipeline extension

July 25, 2006. Enbridge Inc. will begin construction of a $350-million southern access pipeline, which will extend its crude oil mainline from Flanagan, Illinois, south to the hub at Patoka, Illinois. Enbridge, which will start work on the project immediately the new project could come into service as early as 2009 with initial capacity of 400,000 barrels a day. It said the line could be expanded to 800,000 barrels a day at low cost. The company said the extension will consist of 286 kilometres (179 miles) of 36-inch diameter pipe.

Kazakhstan seeks European oil market access

July 25, 2006. Kazakhstan wants to obtain a controlling stake in the Latvian oil transit company Ventspils Nafta in order to gain access to the European market. Russia, for its part, complains that efforts to expand from being just a supplier to distribution activities in Western Europe are facing resistance from governments that fear Moscow's newfound strength. The Russian government has not hesitated to use energy supplies to its advantage, halting gas shipments to Ukraine in January for example amid a dispute that had a knock-on effect as far away as Italy.

Former Soviet republics like Kazakhstan are trying to maintain their own share of major energy markets around the world.  The Kazakh state-owned energy group Kazmunaigaz was a front-runner in bidding for a majority stake in the Mazeikiu Nafta oil complex in Latvia's southern neighbor Lithuania. The Latvian state plans to sell its 38.62-percent stake in Ventspils Nafta, the biggest oil transit company in the Baltic state, at auction later this year. It hopes to raise 70 million lats ($127 million) through the sale. Latvijas Naftas Tranzits owns 48.89 percent of the shares in Ventspils Nafta while private investors own 12.49 percent, but none have expressed an interest in selling their stakes.

Exxon keen on sending Sakhalin gas to China, Japan

July 21, 2006. Exxon Mobil Corp. is still keen on supplying gas from the Sakhalin-1 field by pipeline to North East Asian markets like China and Japan, despite India's interest in bring its share to back home through LNG. Still, Exxon is exploring all "reasonable opportunities to maximize the value" of Russia's Sakhalin-1 gas project.

UAE's IPIC plans domestic crude oil pipeline

July 21, 2006. Abu Dhabi has awarded a feasibility study for a crude oil pipeline linking the Gulf emirate's Habshan oilfields with the port of Fujairah in the United Arab Emirates. Abu Dhabi's investment arm IPIC and US ConocoPhillips they have signed deals to build a 500,000 barrels per day oil refinery in Fujairah and to cooperate on Middle East energy projects. The cost of the export-orientated refinery was not disclosed, but neighbouring Saudi Arabia plans to build two 400,000 bpd refineries at a cost of $6 billion each.

International Petroleum Investment Co (IPIC) asked Tebodin Middle East to carry out the engineering feasibility study for the planned 350 km pipeline. It said the project, to be wholly funded by IPIC, would include other facilities. The pipeline would link state oil firm Abu Dhabi National Oil Co's Habshan oilfields to Fujairah emirate. IPIC is owned by the government of Abu Dhabi, the capital of OPEC-member UAE, which holds most of the Gulf state's oil wealth.

Indonesia utility in gas supply deal with Amerada

July 24, 2006. Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN) has signed an agreement with state oil company PT Pertamina and U.S. firm Amerada Hess to supply natural gas to a power plant in central Sumatra. Under the agreement which comes into effect in 2008, Pertamina and Amerada Hess will jointly supply 80 million cubic feet of gas per day to PLN's 90 MT Jambi power plant for 12 years. The gas will be supplied from the Jambi Merang block operated by Pertamina and Amerada.

PLN, the monopoly power generator in Indonesia, wants to cut its use of oil products such as diesel and fuel oil in power plants to 22 percent in 2006 from 30 percent amid higher global oil prices. It plans to move to other sources such as natural gas and coal, of which Indonesia has abundant supplies. BP also signed a final agreement with local fertiliser firm PT Pupuk Kujang to supply 60 million cubic feet per day of gas for 10 years.   BP will supply the gas from its field offshore West Java from 2007.

China Gas expects to triple sales

July 25, 2006. China Gas Holdings, a Hong Kong- listed piped-gas distributor in the mainland, aims to triple its sales of piped natural gas to 500 million cubic meters this year, as demand from industrial users continues to grow. Demand for natural gas is expected to outstrip supply for the next five years as the economy keeps growing rapidly and also as the government continues to promote the use of cleaner energy. Natural gas supply in the mainland will increase at a rate of 17 percent every year for the next five years, while demand will grow at between 26 percent and 28 percent.

The company sold 172 million cubic meters of piped natural gas last year, up 365 percent compared with a year ago. China Gas hopes to complete 10 city gas projects this year, bringing the total number of gas distribution projects to 60 cities and doubling its connected residential customers to two million.

Opec does not want high oil prices

July 24, 2006. Top world oil exporter Saudi Arabia said that Opec producers want to avoid high oil prices that may harm global economic growth. The Organisation of the Petroleum Exporting Countries had spare production capacity of more than 2 million barrels per day available if required. Opec, supplier of more than a third of the world’s oil, said this month that oil markets are well supplied and that it has no influence over geopolitical tensions that are driving oil prices. The price rally has also been fuelled by worries over oil supply from Nigeria and the row over Iran’s nuclear programme.

Moldova and Gazprom to sign long-term gas contract

July 24, 2006. The Molovan government and Gazprom have agreed to sign a long-term agreement on natural gas supplies to the republic before 1 October 2006. The key problem in the negotiations was the gas price formula. Russia’s Gazprom insists on tying the price of gas to “the oil basket.” The government of Moldova wanted to keep the price at the current level of $160 per 1,000 cubic meters for the long term.

Moldova and Gazprom planned to sign a long-term contract, for three to five years, on Russian gas supplies to the republic before the end of this year, presumably in the fourth quarter. Moldova and Gazprom currently cooperate on the basis of quarterly contracts. From 1 July 2006, Moldova buys Russian gas from Gazprom at $160 per 1,000 cubic meters. Fees for the transportation of Russian gas through Moldovan territory remain at $2.5 per 1,000 cubic meters/100km. In the first and second quarters of this year, Moldova paid $110 per 1,000 for Russian gas.

In 2005 Gazprom supplied 2.82 billion cubic meters to Moldova. According to Gazprom, Moldova owes Russia $687.13 million for gas supplies. The Moldovan government approved a bill on measures to protect the republic’s household consumers from increased prices for Russian gas. The compensation will be 50 percent of the difference between new gas prices and prices applied as of 1 July 2006, for 30 cubic meters of gas a month. The number of household consumers using 30 cubic meters of gas stood at 262,400 people as of 1 July 2006.

Uzbekistan cuts off gas to Tajikistan

July 20, 2006. Uzbekistan cut off natural gas deliveries to Tajikistan's capital and several major factories because of unpaid debts, prompting Tajikistan to block the transit of Uzbek gas across its territory. The supplies were stopped after "repeated warnings" over what they said was Tajikistan's $7.3 million debt for gas delivered this year. Both sides said that after the gas cut, Tajikistan blocked the gas pipeline that goes through a stretch of Tajik land to deliver gas to eastern Uzbek regions. Uztransgaz said the move was illegal and demanded the transit be resumed.

The energy infrastructure in Central Asia was built in Soviet times, when borders between the now-independent countries were virtually meaningless. That created a complex system of interlocking dependencies, which is still in place 15 years after the fall of the Soviet Union. Central Asian countries frequently cut off energy supplies to each other because of alleged nonpayment or withholding of resources.

Tajikistan, one of the poorest post-Soviet countries, heavily depends on Uzbek gas deliveries. Under a $40 million contract between the two ex-Soviet republics Uzbekistan is to supply Tajikistan with 730 million cubic meters of natural gas in 2006.Uztransgaz said it already delivered to Tajikistan nearly a half of that amount but has been paid only $11.5 million.

Russia ministry to submit oil product exchange draft by Sept.

July 19, 2006. Russia's Economic Development and Trade Ministry would submit a draft resolution on an oil product exchange to the government by September. The ministry said government procurement companies from the Defense Ministry, agriculture and the thermal power sector would possibly have to purchase petroleum products on the exchange as early as from January 1, 2007.

At the first stage, they will purchase 20 per cent of the total volume of fuel on the exchange. After that, volumes will be increased, taking into account experimental trading. But they will hardly reach 100 per cent on the exchange. The exchange will not absorb the entire market - the government will continue to make purchases at tenders and auctions. The ministry said oil product exchanges could be created in several large regions at the first stage and the list of these bourses could be expanded afterward but the rules of trading should be unified. The ministry also said oil product exchanges could subsequently develop derivatives in the form of futures and options.

Subsoil use bill hinges on freeing foreign investment

July 19, 2006. Work on drafting a law on subsoil use is directly dependent on the lifting of restrictions on foreign investor access to Russia's strategic sectors. President of said, Russia planned to impose restrictions on access to large deposits of mineral resources, but did not mean to deny foreign companies access to them. Restrictions did not mean foreign companies would have no access to deposits that could be classified as "strategic," but that the state should have greater control over them. Foreign companies are currently allowed to hold no more than 49.5 per cent in projects involving "strategic" deposits - primarily in the energy sphere, but also including metals such as gold and copper.

The list of the deposits, which is yet to be completed, is part of a bill currently being considered on Russia's mineral reserves. The bill says the state has the sole right to sell or transfer subsoil exploration licenses and that exploration rights should be sold primarily through auctions. It also includes provisions establishing bond security and transferability of rights mechanisms, and limiting subsoil contract rights in favor of Russian companies.

The definition of volumes of strategic deposits should be adjusted downwards from the proposed levels, which stand at 75 billion cubic meters for natural gas, and 150 million metric tons for oil. Ministry suggested making the starting point for strategic oil deposits 70 million tons, whereas the figures for natural gas and gold should be 50 billion cubic meters and 50 tons, respectively.

Power

KPLC looking for power producer

July 21, 2006. Kenya Power and Lighting Company is searching for an independent power producer (IPP) to supply the national grid with 80 MW of power. The bidding process had started, and that the IPP would be operational in 2008. KPLC is taking a proactive action to ensure availability of supply to existing and future customers and one of the actions is by entering into a power purchase agreement with a new supplier. The winning bidder would convert generating machines from using heavy fuel oil, to run on the cheaper liquefied natural gas. The winning bidder will be required to install and operate the plant for 20 years and then transfer the plant to KPLC, in an arrangement referred to as build, own, operate, transfer (Boot).

CMS Energy unit sells Michigan power plant stake

July 25, 2006. Michigan utility Consumers Energy, a unit of CMS Energy Corp. has reached an agreement to sell its holding in the 1,500 MW Midland Cogeneration Venture to investors GSO Capital Partners and Rockland Capital Energy Investments for $60.5 million. Proceeds from the sale of the interest in the facility in Midland, Michigan, will be used to reduce debt. Consumers Energy said it owned 49 percent of the MCV Partnership, which leases and operates the facility, and indirectly owns 35 percent of the facility.

France imports power in heatwave

July 19, 2006. France has urged firms to use less electricity as a heatwave across Europe triggers high demand for power supplies. French firm EDF had to purchase 2,000 MW of electricity from abroad to make up for its shortfall. Meanwhile Britain turned to expensive oil-fired stations to meet demand but said enough supplies were available. Increased use of air conditioners and refrigerators, coupled with lower power output at hydro-electric and nuclear power stations in France, contributed to the squeeze for demand. The 2,000 MW France was forced to import was the equivalent capacity of two large nuclear stations. The firm plans to invest 20bn euros (£13.6bn) in distribution, transport and production.

Spain ready to defy EU on energy takeovers

July 21, 2006. Spain is willing to block foreign takeovers in its energy sector to safeguard the country’s supplies. Spanish companies have led a series of European takeovers in the past couple of years, including some of Britain’s largest companies. Santander, the Spanish bank, bought Abbey National in 2004 for £9.5 billion. The telecoms giant Telefónica bought O2 last year for £17.7 billion. And Ferroviál bought BAA, the airports operator, for just over £10 billion this year. In all, Spanish companies spent more than £33 billion acquiring foreign companies in the first half of this year. However, Spain has not always welcomed foreign companies wishing to buy its own companies. The Government has opposed a €29 billion (£20 billion) bid by Germany’s E.ON to buy Endesa, the biggest Spanish power company, backing a rival tie-up with Spain’s Gas Natural instead. The Spanish Government’s stance has brought it into conflict with Neelie Kroes, the EU’s Competition Commissioner, who is determined to prise open Europe’s energy sector. The Commission has warned Spain not to obstruct the takeover.

BD needs $10bn to ease power woes

July 20, 2006. Impoverished Bangladesh needs 10 billion dollars in investment over the next 10 years to alleviate its massive power shortage. The nation faces an average daily shortfall of 700 to 800 MW as demand rises due to fast economic growth. This shortfall can peak as high as 2,000 MW when ageing plants are shut for maintenance.

The bank announced a 275-million-dollar soft loan for construction of a gas-fired power plant near the capital. The plant, to be run by an international power company, would add 300 MW of power. The estimate of the country’s power investment needs followed a recent World Bank mission visit to discuss ways to finance the sector.

Suzlon to set up wind farm K’taka

July 24, 2006. Suzlon Energy Ltd has decided to set up a 100 MW farm project near Udupi in Karnataka. The board of director of the company has approved Rs 1,500 crore ($0.32 bn) investment for the proposed wind farm and associated integrated facility project of the company which will be ready by 2007. As part of the project the facilities are being planned at strategic locations close to ports for manufacturing of wind turbines with an aggregate capacity of 1,500 MW and vertical integration through foundry, forging and machining units (FFM). 

Nandan Bio to set up 8 bio-diesel plants in Gujarat

July 24, 2006. Hyderabad-based Nandan Biomatrix plans to set up eight bio-diesel refinery plants in Gujarat in three years. Each Rs 8 crore ($1.7 mn) refinery would produce 10,000 MT diesel per annum using jatropha seeds.  The company, at present, is looking forward to increasing its jatropha acreage to one lakh acres. The company plans to start farming on 35,000 to 40,000 acre by March 2007, which will be increased to 70,000 acre by March 2008. In March 2009, around one lakh acre in Gujarat would be cultivated with the crop.  After the phased cultivation, the company will start setting up its refineries for converting the seeds of Jatropha to diesel.  The company would also set up an R&D unit in Gujarat. 

Jalgaon set to become geothermal power hub

July 21, 2006. The Maharashtra government has identified Jalgaon district as the country’s first geothermal power hub.  The state government has identified areas such as Raver, Bhusawal and Savda in the district along the Madhya Pradesh border for the purpose. According to preliminary estimates the area may have the potential of generating around 2,000 MW of power. Geothermal energy can be produced in two ways: by using the steam coming out of hot water springs or by pumping water into the hot earth crust and then using the resulting steam to generate power. The state is looking at the second option for generating power as the area has no hot springs.  The geothermal power technology is a proven technology and effectively used in countries like Iceland, New Zealand, etc. At Rs 4.5-5 crore per MW, it is also cost-efficient, which is similar to the conventional thermal power plants.

China pact to develop biodiesel

July 25, 2006. China's third largest oil company China National Offshore Oil Corp inked a MoU with a Malaysian firm to develop palm oil-based biodiesel in a shift towards renewable energy sources. The pact was signed between its subsidiary, CNOOC Oil Base Group Ltd, with Bio Sweet Sdn Bhd, which specialises in biotech and palm diesel research and development. Under the MoU, CNOOC will build a plant in Hainan Island in 12 months with a capacity of 120,000 tonnes. It will also set up a joint venture called CNOOC (M) Biofuel Sdn Bhd with a view of a listing in Malaysia eventually.

Mini refineries boom in American backyards

July 24, 2006. A growing number of Americans are setting up mini-refineries in their homes to produce biodiesel, a fuel made from waste cooking oil which is cleaner and cheaper than the petrol sold in gas stations.

Malaysia, Indonesia set aside 40 per cent CPO for biodiesel

July 21, 2006. The world’s top palm oil producers, Malaysia and Indonesia, have decided to set aside nearly 40 per cent of their crude palm oil output for biodiesel production. Both countries agreed to commit a targeted amount of six million tonnes of crude palm oil each annually as feedstock for the production of biofuels and biodiesel. Companies setting up biodiesel plants had worked out the cost of palm oil at RM1,500 to RM1,600 a tonne to be viable for making biofuel. The whole economics of palm as raw material for biofuel will change.

Evergreen Solar wins $200 mn sales agreement

July 19, 2006. Evergreen Solar Inc. agreed to ship about $200 million of photovoltaic modules to SunEdison LLC over the next five years. The maker of solar power products said agreement with SunEdison was its fifth major contract secured since November 2005. The value of these five contracts totals more than $600 mn over the next five years.

Morocco pushes renewables as oil prices soar

July 19, 2006. Morocco hopes to generate a fifth of its power from renewable sources by 2012 to reduce its reliance on costly energy imports. Import subsidies to make fuel more affordable for industry and the Moroccan people take a $1.5 billion slice out of the national budget every year. The value of energy imports rose 29 percent in the first quarter of 2006, causing its trade deficit to widen by 17.3 percent from the same quarter of 2005 and, with world oil prices touching records, there is little relief in sight. The government is redoubling efforts to find oil and end Morocco's status as the only North African country with no fossil fuel production of its own.

But for now it hopes to better exploit the potential of its mountain rivers, blustery Atlantic and Mediterranean coastline and sun-drenched interior. Excluding hydro-electric dams, the goal is 10 percent. The kingdom generates 7.6 percent of its energy needs using renewable sources including hydro-electric, wind and solar power and biomass. The vast majority is generated by fossil-fuel power stations. The government says Morocco could potentially generate 6,000 MW of electricity from wind turbines. Total installed production capacity last year was 5,250 MW.

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