Energy News Monitor I Volume VI, Issue 1

Petroleum Subsidy Removal: A Way-out

Akhilesh Sati, Junior Fellow, Observer Research Foundation

Abstract

By summarizing subsidy & tax structure of four sensitive petroleum products (Domestic LPG and PDS Kerosene, HSD & Kerosene), this paper tries to demonstrate that consumers are paying more for these petroleum products despite the subsidy mechanism of the government that is meant to contain their prices. It then tries to recommend way-out, that provides a step forward in reducing subsides on these petroleum products.

Introduction: Why Petroleum Subsidy Removal?

Subsidies

The system of subsidy for Domestic LPG and PDS Kerosene is an issue of greatest concern not only for the Oil Marketing PSUs but also for the consumers today due to volatile crude oil prices which has been fluctuating from the $45/bbl level to $150/bbl and back to $30 per barrel in last two years. Although, in technical terms, the Government is providing subsidies only for Domestic LPG and PDS Kerosene, it is giving support to Oil Marketing PSUs (OMCs) for other two products namely Petrol (MS) and Diesel (HSD) so that the consumers can be protected from the volatility in the crude prices which, in general, from the perspective of the consumers means a ‘subsidy’ (referred to as under-recoveries’ in the media).

For FY 2008-09, the subsidy contribution of each of the four sensitive petroleum products namely, Domestic LPG, PDS Kerosene, Petrol and Diesel in the total subsidy amount of around Rs 105 thousand crores provided to oil sector are 18 per cent, 28 per cent, 5 per cent and 49 per cent respectively. Subsidy share for both Domestic LPG and PDS Kerosene in FY 2004-05 collectively accounted for around 90 per cent of total subsidies of the mentioned four sensitive products (Rs 22 thousand crores) given to oil sector has now been reduced by around 44 per cent. That reduction does not denote the steps by government towards subsidies reduction but it shows a response of the domestic market to divert huge part of subsidies meant for both of the products i.e. poor man’s fuel- PDS Kerosene and urban middle class fuel- Domestic LPG to other two products- petrol and diesel.

Trends in Subsidy Share of Petro-Products

Source: Petroleum Planning & Analysis Cell (PPAC).

As per the NSS rounds (50th, 55th & 61st), while Kerosene use for cooking in Urban and Rural population has shown a declining tendency, LPG use for cooking has increased significantly. Secondly, the sales/consumption of Kerosene (PDS + free market) during these rounds remained stagnant. This shows that PDS Kerosene diverted to other purposes rather than being used as a poor man’s fuel for cooking and lighting.

Source: NSSO (NSS 50th, 55th and 61st round), Ministry of Statistics and Programme Implementation.

The diesel sales/consumption which were increasing in the range of 2 per cent to 6 per cent each year drastically increased in the last year (2007-08) i.e around 11 per cent. This is again a sign of diversion of this subsidized fuel, which is essentially supposed to be used by agriculture sector or truckers who transport essential goods, to other purposes. All this is due to the compatibility of these products in many common end uses with other petroleum products.

Source: Petroleum Planning & Analysis Cell.

Taxes

The other area of concern is the tax rate on these four petroleum products. Today, there are very miniscule taxes (like Vat, Octroi etc.) or no taxes on Domestic LPG and PDS Kerosene while there are huge taxes on petrol and diesel. For e.g. share of subsidies & taxes/duties in retail price of petrol in Delhi (around Rs 50 per litre during year 2008 including ‘under-recovery’ of around Rs 5 per litre to OMCs) is given below

This implies that about 47 per cent is net tax payable on this particular product excluding the face value price (price without tax).

Therefore, today, due to short term ad-hoc measures (as described under heads-subsidies, taxes- above) of price control and taxation along with cross subsidization policies taken by the government to contain the price of these four petroleum products, the consumers, in reality, ended up to pay high prices for MS & HSD while at the same time consuming the low priced PDS Kerosene & LPG inefficiently with indulgence in adulteration.

Way-out

Although there is a big question mark on the physical ‘availability’ of natural gas, RIL’s D-6 KG basin gas as well as finds of GSPC and ONGC, there is hope that supply will increase in the future. One way-out for Domestic LPG & PDS Kerosene subsidy phase out could be to implement City Gas Distribution (CGD) by choosing high population density areas which will offer greater economies of scale in cities in those states where CGD work is already going on. After providing Piped Natural Gas in a specific area in the chosen city, the LPG connections of the households living in that particular area could be surrendered. The same thing could also be done for PDS Kerosene at least for the cooking purposes at the initial stage.

Today, City Gas Distribution (CGD)- Compressed Natural Gas (CNG) for transport sector and Piped Natural Gas (PNG ) for domestic, commercial & industrial sector- is already started in around 35 cities across India with around 15,000 kms pipeline network. The CNG sales which were around 70 million metric standard cubic meters (MMSCM) in 2000-01 grew by 15 times by 2007-08. In some of the developed economies, CGD share is in the range of 30-40 percent of their total gas consumption while in India it is around 8 per cent. This is almost the same share what natural gas shares (9%) in our primary commercial energy mix.

Source: PPAC and ICRA rating feature, July 2008.

As per media reports on the gas utilization policy, 5 MMSCMD has been allocated for CGD from RIL’s D6 KG basin gas. This amount of gas is equivalent to around 1.5 million tonnes of oil equivalent. For FY 2007-08 our net oil import bill was around Rs 223 thousand crores for 104 million tonnes of oil. Using this allocated share of gas in CGD in transport sector it can not only reduce the carbon emissions but also our oil import bill by Rs 3,000 crores apart from reducing consumption of 1.5 million tonnes of oil (petrol & diesel). The reduced consumption of these dominant transportation fuels can again be a way-out to curtail the subsidies. This will also provide an economic option to consumers, since CNG vehicles have lower operational cost.

This scheme of replacing oil with natural gas can then be expanded to the rest of the country as the pipeline infrastructure catches up. Of course, this can happen more rapidly & efficiently only when the Government comes out with clear cut and transparent Gas Utilization Policy which remains a question mark.

Views are those of the author

You can reach the author at [email protected]

The Case against Government Intervention in Energy Markets (part – IV)

by Richard L. Gordon

Continued from Volume V, Issue No. 52…

n sum, the economic view of oil advocated here holds for the primacy of economic goals, recognizes that oil markets generate vast revenues that may be and indeed often are misused, and acknowledges that the feasible options open to the United States and other major oil consumers are limited to avoiding incentives to rig markets. Given that oil-market behavior is determined by the exporting countries’ perception of what the market will permit, it is fantasy to believe that oil-importing countries can redirect the policies of oil exporting countries. Countries cannot be persuaded to ignore their economic interests. It is equally unrealistic to believe that dialogue will improve these countries’ knowledge of market realities. If anything, their record in market perception far excels that of consuming-country governments. That should not be a surprise. Exporting-country survival depends on realism about markets. Consuming-country governments, in contrast, are essentially bystanders to decisions made by their citizens. These governments thus face little or no pressure to be correct.

A related form of wishful thinking is that consuming-country governments can persuade oil-exporting countries to eliminate the many undesirable ways in which oil money is used. These misuses are broad and real. They include corruption, support of destabilizing activities in other countries, and overinvestment in armaments. Given the strong forces that lead to such excesses, it is futile to expect that external criticism will have any impact.

Import Dangers Revisited

Before dealing with specific issues related to oil imports, various views on the subject require our attention. Among the studies criticized here, the 2006 Council on Foreign Relations Task Force has the clearest and fullest listing of the problems widely believed to be associated with excessive reliance on foreign oil. The task force saw six dangers:

1. “The control over enormous oil revenues gives exporting countries the flexibility to adopt policies that oppose U.S. interests and values.” (p. 26)

2. “Oil dependence causes political realignments that constrain the ability of the United States to form partnerships to achieve common objectives.” (p. 26)

3. “High prices and seemingly scarce supplies create fears—especially evident in Beijing and New Delhi, as well as in European capitals and in Washington—that the current system of open markets is unable to ensure a secure supply.” (p. 27)

4. “Revenues from oil and gas exports can undermine local governance.” (p. 28)

5. “A significant interruption in oil supply will have adverse political and economic consequences in the United States and in other importing countries.” (p. 29)

6. “Some observers see a direct relationship between the dependence of the United States on oil, especially from the Persian Gulf, and the size of the U.S. defense budget.” (p. 29)

This list is characteristically problematic in its failure to distinguish between what is disturbing but uncorrectable and that to which a sensible response is possible. Danger (1) is a much-repeated irrelevance. As noted earlier, there is nothing the United States can do to affect the situation. At best, any strategies that lower oil prices will lessen the power to do mischief. Danger (2) expresses an old concern that others will be more unwise than the United States in seeing and trying to counteract political forces in oil markets. Danger (3) then postulates an unfamiliar proposition that others also will be more errant in perceiving what drives the market. Danger (4) is another example of the untenable belief that the quality of foreign governments matters to and is correctable by, the United States. Danger (5) ignores the fact that supply disruptions would have the same effect on a nation regardless of how much oil it imports. Danger (6) is a strange, unhelpful twist on an old argument. Instead of deploring security costs, we worry that others fear the existence of these security costs. A direct consideration of security costs is preferable.

In contrast, Bohi and Toman’s much more critical survey of the economics of oil imports identifies three relevant policy issues: the potentially reducible effects of higher oil prices, the macroeconomic effects, and the effects on the military budget.⁴⁰ A discussion of each follows below.

World Oil Prices and U.S. Policy

In the early 1970s, both Professor Adelman and the Cabinet Task Force on Oil Import Control concluded that the main concern of the United States when it comes to oil markets is to ensure that there is vigorous competition in those markets. This was precisely what was not being done at the time. The United States had for years protected the domestic oil-producing industry by imposing quotas on oil imports.⁴¹Denied the opportunity to compete for sales in U.S. markets, exporters turned to market-rigging operations.

Notes:

40. Douglas R. Bohi and Michael A. Toman, Energy Security as a Basis for Energy Policy (Boston: Kluwer Academic Publishers, 1995).

41. Disputes arose about what parts of the U.S. industry benefited. Clearly, the small-scale producers were preserved by the combination of import quotas and state regulations favoring output by such smaller scale producers. One issue then is whether the benefits of high prices to larger producers offset the output reductions by large firms inherent in the state favoritism toward smaller producers. A second issue is the impact on companies with substantial foreign operations. Adelman’s 1972 book argues that the policy hurt all but the small producers.

to be continued…

Courtesy: Cato Institute, Policy Analysis No. 628, December 1. 2008

Comments on ORF Policy Brief on “Petroleum Product Pricing Reforms: Now is the Time!¹”

From Dipankar Mukherjee

Ex-Member of Parliament

Secretary, CITU

1. “I had made it clear after the focus group meeting that my views should be treated as a note of dissent to the focus of the meeting which was deregulation and market based pricing. I therefore dissociate again from the tone and tenor of the policy brief circulated by you”.

2. “The last para of the paper is factually wrong and uncalled for. It is not clear as to how “extreme right’ and “extreme left” of political spectrum is being demarcated by ORF on its own. Factually, the elected representatives of the country belonging to all political parties in Parliament have unanimously presented reports in Parliament viz. 9^th Report of Standing Committee on Petroleum & Natural Gas on 15.09.1994 and 6^th Report of Standing Committee on Petroleum & Natural Gas on 04.08.2005 on Pricing Policy of Petroleum Products”.

“In my opinion the policy framework of the Government should be based on the above Parliamentary Committee recommendations and not on the basis of reports commissioned by the Government or a private research group”.

¹available at http://www.orfonline.org/cms/sites/orfonline/images/policy_brief/img_petro_b.jpg

NEWS BRIEF

NATIONAL

OIL & GAS

Upstream

ONGC clarifies on new discoveries

June 23, 2009. Oil & Natural Gas Corp. (ONGC) clarified that the three new hydrocarbon discoveries reported in the media are part of 28 new finds made by the company in the last fiscal year i.e. FY09, and notified to the Directorate General of Hydrocarbons (DGH). The public sector oil & gas giant also said that the size of the discoveries and estimation of reserves as per the media report are not factual. There were reports that ONGC had struck oil & gas in three new blocks viz. Charada structure and Matar Field in Cambay Basin, and YS-5-IA (YSAF) in KG Basin. It further reported that the KG Basin discovery holds significant promise and could have estimated reserves of 10 Trillion Cubic Feet (TCF) of gas.

RIL, ONGC rumoured as 'mystery' bidders in $8 bn Addax sale

June 21, 2009. India's two largest companies, state-run ONGC and Reliance Industries, are being rumoured as the "mystery" bidders for UK-based Addax Petroleum, which could be sold for five billion pounds. While China's state-run Sinopec and Korean National Oil Company are already believed to be in talks with Addax, it is believed that the company has been approached by a third mystery bidder, possibly a national oil company from India. London-based Addax Petroleum has fields in Iraqi Kurdistan and Nigeria and is said to be on the block for up to 5 billion pound (around $ 8.26 billion).

RIL cost of bringing gas from offshore to onshore is $1-3 per mmbtu

June 18, 2009. RIL wrote to the oil regulator Directorate of Hydrocarbons that the post well head cost of the gas - the cost for flowing the fuel from the well through an undersea pipeline network to onshore terminal near Kakinada - worked out to $0.8945 per mmBtu. The per unit cost had been calculated after taking into account the per unit capex of post-well facilities, the production expenditure or opex and interest cost. RIL will pay the government 5 per cent royalty after deducting this post well head cost from the gas sale price. The cost indicated did not include the investment RIL has made in exploration on the Block KG-D6, drilling of wells, well cost and putting up complex sub-sea production facilities. Though RIL has not calculated the per unit cost of the development and production expenditure incurred on the field, rough estimates put the cost at around $2 per mmBtu. This together with the post well head cost would bring the total cost of producing natural gas from the nation's most prolific gas field at around $3 per mmBtu. The post well head cost indicated in the letter to DGH did not include the future capex and opex the company would put in the field in raising production and maintaining the plateau production for a longer period. Reliance Industries has signed contracts to sell KG-D6 gas to 15 urea manufacturing units and 16 power plants at $4.205 per mmBtu price at landfall point at Kakinada.

Deep Inds bags order from ONGC

June 18, 2009. Deep Industries Ltd. has obtained Notification of Award from ONGC, Rajahmundry Asset for charter hiring one work over rig of 100 tons capacity aggregating to a contract value of Rs29.6mn.

‘Price discussions no constraint on production’: Cairn

June 18, 2009. Cairn India Ltd has said that the ongoing price discussion with the Government nominees for its Rajasthan crude is not a ‘constraint’ on production. With the preparation for starting the oil flow from the fields by June end or early July in full swing and no conclusive decision on the crude price, apprehensions were being expressed in certain quarters that the company may delay production. The company said that pricing had to be based on the value of crude, which is driven by the chemistry of crude. Rajasthan crude is low sulphur, medium grade crude and, therefore, should be priced accordingly. The company was looking at pricing its crude close to that of Nigerian bonny light. The company has proposed a three-year average of bonny light as the benchmark price. The bonny light average prices for the calendar year 2008 was $100.9/bbl and for May 2009 – $59.3/bbl. On the issue of allocation of crude to the Government nominees, the company was comfortable with the current allocation as it suits the initial production plan.

Downstream

CALS Refineries signs MOU with BPCL

June 19, 2009. CALS Refineries Ltd has signed a Memorandum of Understanding (MOU) with Bharat Petroleum Corporation Ltd (BPCL) on June 17, 2009 for off-take of part of petroleum products by BPCL from CALS in its first phase which is a 100,000 BPSD crude oil refinery after accounting for the products committed to British Petroleum (BP) and the entire petro products from CALS in the second phase of expansion which is another 100,000 BPSD refinery at Haldia, West Bengal. The product off-take by BPCL will include outputs such as LPG, Propylene, Fuel Oil, Sulphur, Naphtha, Gasoil etc.

Reliance may crude import up 23 pc y/y-trade

June 18, 2009. Reliance Industries imported about 23 percent more crude in May than a year ago, widening its crude slate as it made rare purchases of heavy sour Brazilian grades Roncador 28 and Marlim Light. The refiner mainly imported heavy and medium high-sulphur crudes grades from the Middle East and South America, as its sophisticated plants can handle lower quality, and much more competitive crudes. The supplies were down a hefty 24 percent from April ahead of maintenance at its older 660,000 bpd refinery at Jamnagar in Western Gujarat state, which had initially been planned for May-June and now deferred in July. Reliance's crude imports have risen significantly since it launched a second 580,000 bpd refinery in December which, after full commissioning, expected for September, will turn Jamnagar into the world's largest oil complex.

IOC’s refining margin may go up to $5 a barrel in Q1

June 18, 2009. Inventory gains due to rise in crude prices may push up the refining margin of IndianOil to nearly $5 a barrel during the first quarter of this fiscal, up by nearly $2 a barrel compared with the January-March 2009 quarter. The refining margin contributes nearly a third of IOC’s operating profits. IOC is forced to maintain an unusually high 20-21 days’ inventory of crude oil primarily due to nearly 10 days of system inventory in the 10,000 km of pipeline and intermediate storage tanks catering to the refineries located in the hinterland. In addition, the company maintains inventory at the refinery end. The increase in refining margin coupled with positive marketing margin on diesel (which accounts for nearly 40 per cent of all petroleum product sales) during April and May and lower interest provisioning may help the company to remain cash positive and negate much of the negative impact on account of under-recoveries in petrol, kerosene and domestic LPG during the April-June quarter. IOC may post marketing losses on diesel in June.

HPCL-Mittal refinery to tap IPO route

June 18, 2009. Lakshmi Mittal and Hindustan Petroleum Corp. (HPCL) may raise Rs20bn by selling shares. Mittal, the chairman and chief executive officer of ArcelorMittal,has bought a 49% stake in the Hindustan Petroleum refinery project in June 2007. The shares may be offered to the public by the end of this year, add reports.

BPCL Kochi Refinery develops eco protection tech

June 17, 2009. Bharat Petroleum Corporation Ltd — Kochi Refinery has developed a unique environment protection technology for removing toxic hydrogen sulphide gas produced when crude oil is heated to high temperature. The technology, developed with in-house expertise for desulphurisation of very low pressure off gas generated from Vacuum Distillation Unit, is being commercialised. BPCL has entered in to an agreement with Engineers India Ltd for commercialising the technology.

Transportation / Trade

RIL signs gas sale purchase agreement with Essar Steel, Ispat

June 22, 2009. Reliance Industries signed gas sale agreements with steel makers including Essar Steel and Ispat Industries for supplying 3.75 mmscmd of natural gas from its offshore Krishna Godavari-D6 basin. The agreement, which will be reviewed at the end of five years, will boost profitability of the steel firms who had been buying expensive LNG or naphtha to meet feedstock shortage at their plants. As per the Gas Sales and Purchase Agreements (GSPA), Essar will get 2.86 million standard cubic meters per day (mmcmd) of gas, Ispat 0.53 mmcmd and Vikram Ispat the remaining 0.36 mmcmd at government-approved rate of USD 4.20 per mmBtu.

Shell’s Hazira terminal may get 3 spot LNG cargoes

June 18, 2009. Royal Dutch Shell's LNG terminal in Gujarat, India is believed to receive three spot shipments this month. The Grand Aniva may reach Shell’s Hazira LNG terminal on India's west coast on June 15. The vessel is probably carrying a cargo from the Sakhalin-2 LNG project in Russia. Shell has also received three LNG cargoes in March and probably bought at least two each in April and May, bringing its spot purchases to at least seven this year. Sakhalin may be the biggest supplier of spot supplies to Shell’s LNG terminal in India this year.

Essar Oil hikes petrol, diesel prices

June 17, 2009. Essar Oil has hiked prices of petrol and diesel by Rs1-2.50 per litre and Rs1-2 per litre, respectively on the back of international crude oil prices rising to a seven-month high of US$71 per barrel. Depending on the location of a fuel station, Essar Oil will accordingly sell petrol at between Rs45.85 to Rs47.35, while diesel will be sold at between Rs35.45 to Rs36.45 in Mumbai. However, there will be no hike on fuel retailed in Gujarat owing to proximity to its refinery at Vadinar.

Rising demand necessitates capacity additions in O&G sector

June 17, 2009. Oil and gas account for 41% of India's energy consumption and there is unlikely to be any significant scaling down of dependence on these fuels in the next five to 10 years. New analysis from Frost and Sullivan, Strategic Analysis of Oil & Gas Sector in India, finds that the output of the Indian oil and gas sector was 184.3 million tonnes oil equivalent in 2008 and expects this to reach 339.6mn tonnes oil equivalent in 2015.

A substantial increase in the domestic supply of natural gas and reduced prices of liquefied natural gas (LNG) are likely to encourage gas consumption in power, fertilizer, city gas distribution, and other industrial segments. Owing to the rising consumption of oil and gas, the Government has framed favorable policies to promote exploration and production. This move has caused a quantum leap in domestic natural gas supply. Government policies have also supported the growth of export-oriented refining capacity in the country.

Policy / Performance

Govt to make energy labelling of cars mandatory

June 23, 2009. The government would soon make energy efficiency labelling mandatory for automobiles, in order to help conserve energy. Several automobile makers have made unverified claims of their vehicles offering huge savings in fuel costs. Maruti Suzuki India Ltd, the country's biggest carmaker, has already showed interest in energy labelling of its cars, Power secretary H.S. Brahma said, adding the government would initiate dialogue with auto companies soon.

NTPC open to buying Reliance gas at $4.2 mmBtu

June 23, 2009. India's NTPC Ltd is open to buying Reliance Industries' gas at $4.2 per mn metric British thermal unit (mmBtu) except for the plants under dispute in the court. Reliance and NTPC are tangled in a legal issue over implementation of a gas supply agreement between them in 2005, under which Reliance was to supply 12 mmscmd at $2.34 per mmBtu for the Kawas and Gandhar projects in western Gujarat state.

The government had allocated 2.6 million metric standard cubic metres a day (mmscmd) for projects of NTPC other than the two projects for which the legal battle between NTPC and Reliance was going on.

‘Oil prices linked to world prices’: Montek

June 23, 2009. In the face of rising global crude oil prices, the Planning Commission has said that domestic prices of petrol, diesel and cooking gas should be linked to oil prices in the international market. Noting that the country imports 70 per cent of its crude oil requirement, Ahluwalia said that it is not sustainable to delink domestic prices from import costs. As regards subsidy for the poor, Ahluwalia said that there was a need for a targeted subsidy for the vulnerable population to assure access to essential items like kerosene for the poor, but that can be handled. According to the Petroleum Ministry, India's crude oil import basket has averaged USD 70.49 per barrel in the second fortnight of June against the May average of USD 58.

‘KG basin is govt’s property’: Deora

June 23, 2009. Ten years after the government decided to open the oil and gas sector, the view is veering around to calling oil and gas a government property. The KG basin gas is government’s property and RIL is a mere operator and contractor of this gas said the Petroleum Minister. RIL will have to approach the EGoM once again to inform them of the new pricing before it can go in for any settlement. It was the EGoM that had decided on the $4.20/unit pricing for the RIL gas from Kakinada in September 2007. RIL has been selling to consumers in the fertiliser and power sector at this price. After the Bombay High court verdict, this is third reason why the government is looking at intervening in the case. The first bone of contention was a possible violation of the gas utilisation policy. The second reason, is the government’s fear over losing significant amount of money. The exchequer stands to lose up to Rs 4,000 crore in case Reliance Industries (RIL) sells KG gas to Reliance Natural Resources (RNRL) at $2.34 per unit, as directed by the Bombay High Court. RIL has to pay 5% of its revenues from the KG basin as royalty to the government for seven years.

Govt to relaunch NELP-VIII bidding in August

June 22, 2009. The government is planning to relaunch the eighth phase of bidding for oil and gas blocks under the New Exploration and Licensing Policy (Nelp-VIII) in the second week of August. The round was earlier launched on April 9, but the roadshows for it were stalled after it was felt that clarity on tax holiday was needed prior to the commencement of bidding. The eighth round will offer 70 oil and gas blocks covering an area of 170,000 sq km. This is the highest number of blocks to be offered in any round. The revised roadshow schedule is likely to include Mumbai, Calgary, Perth, Brisbane, London and Perth.

‘Govt of India should act on fuel pricing and subsidy’: Fitch

June 22, 2009. Fitch Ratings has commented on the need for the Government of India (GoI) to act on its fuel pricing and subsidy policy. While the reluctance of the government to fully pass on the increases in crude oil prices - and the discretionary nature of the subsidy-sharing - was always a concern in the financial profile of downstream public sector companies (PSCs), the problem was accentuated in financial year 2009 (FY09) due to the significant increase in crude oil prices during the first half of FY09. This led to unprecedented losses (under-recoveries) for these companies during this period. Under-recoveries significantly declined after the huge reduction in crude oil prices (of over 70% from the peak) in the second half of FY09. The sheer size and timeliness of oil bond issuance and their monetisation created huge spikes in the borrowings of downstream PSCs, and stressed their liquidity.

Govt plans to raise APM gas price by 17 pc

June 22, 2009. The government may hike the price of natural gas produced by ONGC and Oil India Ltd by over 17 per cent and index it to inflation rate to help the two firms cut losses on selling fuel below cost. The Petroleum Ministry has prepared a draft Cabinet note for raising prices of natural gas produced by ONGC from fields given to it on nomination basis to Rs 3,765 per thousand cubic meters (or USD 1.98 per million British thermal unit) from current Rs 3,200 per thousand cubic meter (USD 1.68 per mmBtu). For OIL, the gas price has been proposed at Rs 4,205 per thousand cubic meters. ONGC currently loses about Rs 3,000 crore in revenues annually on selling gas from fields like Bassein and Mumbai High at Government capped price. The price would change by Rs 55 per thousand cubic meter for every 10 points change in Wholesale Price Index (WPI). APM price would be raised to USD 4.20 per mmBtu in stages over the next three years to bring rates at par the sale price of gas produced by Reliance Industries from its giant KG-D6 fields.

Gujarat’s ceramic makers tie up to bid for gas blocks

June 22, 2009. At least 250 Morbi, Gujarat-based, ceramic manufacturers have formed a consortium to bid for natural gas blocks, when they come up for auction in August, in order to reduce their production cost. The consortium is in the process of raising funds from its members and talking to oil companies, including GAIL, to seek technical support required for the bid, said Morbi Ceramic Manufacturers Association. If required, the association could bid jointly with an oil company. The consortium needs to garner Rs 500-1,000 crore to bid for a gas block under NELP. The state government has encouraged the initiative with the assurance that it would lease out the pipelines of Gujarat State Petronet, the state government-owned transporter of natural gas, if the ceramic makers win gas blocks.

Oil cos may have to pay royalty

June 22, 2009. Oil and gas producers could be forced to pay royalties to the government on the basis of sale price in the future rather than the present system of “well-head value”, threatening profits of oil companies, such as ONGC, Reliance Industries and Cairn India. The new method, which is now being examined by the oil ministry, could represent a fundamental overhaul of the system of calculating royalties and boost revenues for the cash-strapped exchequer, weighed down by mounting deficit. Government officials said the directorate general of hydrocarbons (DGH) is likely to move a proposal suggesting the new way to calculate royalty payments. Jettisoning the ‘well-head value’ system, which only takes into account of the total cost of production and does not include transportation costs, could help the government make more by way of royalties from oil and gas companies for the natural resource as the well-head prices of oil and gas are almost always less than their actual sale prices.

Long-term deals in oil proposed

June 20, 2009. Energy transport infrastructure should be financed by international financial institutions such as the World Bank, suggested Mr Jitin Prasada, Minister of State for Petroleum and Natural Gas during the First ASEM Ministerial Conference on Energy Security in Brussels. According to Mr Prasada, World Bank financing energy transport infrastructure would help overcome bilateral and regional complexities. He also proposed that suppliers and buyers should enter into long-term sale and purchase agreements not only for the purpose of supplies, but also for prices to bring stability in oil prices.

HC directs GAIL to maintain status quo in DVPL project tenders

June 18, 2009. The Delhi High Court directed state-run gas firm GAIL to maintain status quo in the tenders invited for its crucial Rs 750-crore Dahej-Vijaipur pipeline (DVPL) project after reserving its order. A division bench comprising Justice Manmohan Singh and Justice Suresh Kait directed GAIL to maintain status quo on three out of the four sections of the project where it had invited 'revised, lower' bids, but was restrained by the court from opening them. Man Industries was the lowest bidder in three sections but GAIL found its price higher than the one bid by Jindal SAW for the fourth section and so invited revised, lower rate bids.

GSPC submits plan to develop KG-8 gas

June 19, 2009. Gujarat State Petroleum Corporation (GSPC) has submitted a $1.7-billion (approximately Rs 8,150 crore) plan for development of KG-8 gas discovery in the western part of the KG basin offshore exploratory asset KG-OSN-2001/3. The plan was submitted for approval of the Directorate-General of Hydrocarbons (DGH). The Gujarat State Government-run company also struck gas at another well KG-19 located on the eastern part of the KG block in deeper water.

Govt may lose Rs 40 bn on RIL gas verdict

June 18, 2009. The Government is reportedly said to lose Rs40bn in royalty payments from Reliance Industries Ltd. if it sells natural gas at lower prices to Reliance Natural Resources Ltd. Reliance Industries will pay royalties at the rate of 5 percent of its revenue from the field. Reliance Industries was ordered on June 15 to sell natural gas from a field off the nation’s east coast to Reliance Natural at US$2.34 per million British thermal units, or 44% less than the government- set price.

Fuel price hike after crude basket breaches $70

June 17, 2009. The Government is unlikely to raise retail prices of petrol and diesel immediately, Petroleum Minister Murli Deora was quoted as saying. The recent spurt in crude oil prices is certainly a matter of concern, but a fuel prices hike will be considered only when the average price of the Indian crude basket breaches US$70 per barrel, Deora said. The average price of crude oil this quarter is around US$57 a barrel, lower than the US$70 a barrel benchmark that would trigger the upward price revision.

POWER

Generation

Power crisis in Orissa to worsen if there's no rain

June 23, 2009. If there is no rain soon, power situation in the state will worsen, officials in Orissa warned. Power generation has already hit an all time low. Orissa requires 2,900 MW of power a day, which come from hydro power stations, thermal power projects, captive plants and central generating stations. Though the capacity of the state's hydro power projects is around 2,085 MW, they are currently generating only 250 MW. Even thermal power units are generating only 500 MW against a projected capacity of 850 MW. The state gets 380 MW from captive plants against the 2,500 MW and out of 1,069 MW of its central share, Orissa gets only 855 MW.

BHEL bags Rs 105 cr order from IOC

June 22, 2009. State-owned Bharat Heavy Electricals Ltd (BHEL) said it has bagged a Rs 105-crore order from Indian Oil Corporation for setting up a captive power plant at the latter’s Barauni Refinery Complex. The order envisages providing Steam Turbine Generator package with gas-fired boiler for the power plant, a statement from BHEL said. BHEL’s scope of work includes design, engineering, manufacturing, supplying, erection and commissioning of the plant. The equipment would be supplied by the company’s plant at Hyderabad, Trichy, Ranipet, Bhopal and electronics division Bangalore.

Lanco Infratech commissions hydro project in HP

June 22, 2009. Lanco Infratech Ltd has announced that Baner-III (5 MW) Small Hydro Project in Dharmshala, (H.P.) was commissioned by Vamshi Hydro Energies Pvt. Ltd, a Subsidiary of the Company and the said project started commercial generation.

NTPC-Talcher units' shutdown triggers power shortage

June 22, 2009. Two major units of the Talcher Thermal Power Station (TTPS), owned by the National Thermal Power Corporation (NTPC), were shut down due to technical snags, pushing the state towards a major power shortage. The operations of one of these two units (the fifth unit) of TTPS have been restored by the officials of the plant. This unit had developed tube leakages from its boiler. However, the sixth unit of TTPS with a capacity of 110 MW has been shut down due to leakage of hydrogen from its turbine. It will take time to repair this unit. The breakdown of the two units of NTPC-TTPS during peak summer had left the officials of NTPC and Grid Corporation of Orissa (Gridco) worried.

NALCO adds 120 MW capacity to power plant

June 21, 2009. State-run National Aluminium Co Ltd (NALCO) has added 120 megawatts capacity at its captive power plant under its ongoing second phase of expansion, the company said. The total capacity of the power plant, located in Angul in Orissa, now stands at 1,080 megawatts, it said. NALCO's power plant is the lifeline of its aluminium smelter plant located close by, where expansion is also underway.

NPCIL embarks on marketing drive for reactors

June 20, 2009. Nuclear Power Corporation of India Ltd (NPCIL) has embarked on a marketing blitz to hard-sell its mainstay 220 MWe and 540 MWe reactors. Heralding the coming of age of the ‘nuclear company with alive technology for small and medium reactors”, the State-owned firm has even put out design aspects of its two Pressurised Heavy Water Reactor (PHWR) models on its Web site to commercially market it. Kazakhstan, South-East Asian countries and African nations are on the nuclear major’s radar. A proposal for reactor sales to Kazakhstan is already on the anvil, with discussions between NPCIL and the central Asian nation’s nuclear utility Kazatomprom at an advanced stage. According to Government sources, while feelers have also been received from South-East Asian countries, Kazakhstan is likely to be the first breakthrough.

Maoists threaten to blow up Balimela hydro-electricity project

June 19, 2009. Maoists have threatened to blow up the Balimela hydro-electricity project if power supply was not provided to the non-electrified villages in Malkangiri district within two months. They have also threatened to blast the dams of Chitrakonda and Sileru projects if their demand was not met. This new power supply related demand came up through posters of naxals pasted at Dalkhai village at a distance of around two kilometers from Chitrakonda town.

Ducon secures FGD order for 3x250 MW power plant from BHEL in India

June 18, 2009. Ducon Technologies Inc, announced that it has secured a prestigious contract from Indian Government owned giant Bharat Heavy Electricals Ltd (BHEL) for a limestone based Flue gas Desulfurization (FGD) system for 3 x 250 MW thermal power plant being set up by Indian power company, National Thermal Power Corporation Ltd.( NTPC) at Bongaigaon in, north east India.

NTPC, RIL to ink separate gas pact

June 17, 2009. NTPC and Reliance Industries are reportedly meeting to sign a separate gas sales purchase agreement for the public sector power generation major's other power units. According to reports, decisions on GSPA for supply of 2.67 million metric standard cubic meters per day (mmscmd) of gas from RIL’s KG basin, at a price of US$4.20 per million metric British thermal unit (mmBtu) will be taken. The Bombay High Court on June 15 directed RIL and Reliance Natural Resources Ltd. (RNRL) to sign a new agreement for supply of gas within a month at a price of US$2.34 per mmBtu, against the government-approved price of US$4.2 per mmBtu

RPower to achieve Dadri financial closure in 8 months

June 17, 2009. The project envisages an investment of about Rs 260bn and the company proposes to develop it in two phases on debt equity ratio of 70:30 or 75:25 depending upon the market conditions.

Reliance Power is reportedly planning to achieve financial closure for the 7,480-MW Dadri power project in Uttar Pradesh in eight months. A large proportion of the gas will be supplied to the Dadri project. The per megawatt project cost is estimated at Rs30mn to Rs35mn. The project envisages an investment of about Rs260bn and the company proposes to develop it in two phases on debt equity ratio of 70:30 or 75:25 depending upon the market conditions.

Transmission / Distribution / Trade

Siemens bags Rs 112 cr order from Vedanta Aluminium

June 22, 2009. Siemens Ltd. has bagged an order from Vedanta Aluminium Ltd. (VAL) to provide high voltage power distribution systems for the second phase of expansion of their Jharsuguda, smelter plant at Orissa.

The Rs 112 crore power augmentation package for Phase II will increase the capacity of the smelter plant from 0.5 million tonnes per annum to 1.75 million tonnes per annum – thus Vedanta's domestic production of aluminum ingots would be three fold for the plant.

Long-term contracts launch on power exchanges hits roadblock

June 18, 2009. Power starved states and consumers will have to cool their heels as the introduction of long-term electricity contracts by Indian Energy Exchange (IEX) and Power Exchange India (PXI) has hit a major roadblock. The Central Electricity Regulatory Authority (CERC) said it would have to study the different price discovery methods submitted by these exchanges.

The power watchdog held hearing in this regard on June 16 and asked both the power bourses to submit details pertaining to the price discovery methods adopted by power exchanges of other countries.

IEX has suggested uniform price for buyer and seller, which will give direction to the market. On the other hand, PXI has suggested pay as bid method in which the lowest seller will get biggest buyer’s price. Buyers will have to pay as they have bided. In such situation, there will number of prices.

Policy / Performance

Govt plan to add 14,000 MW power in FY10

June 23, 2009. The Government plans to add 14,000 megawatts (MW) of electricity generation capacity in the fiscal year 2009-10.

Power purchase agreement signed

June 23, 2009. The Haryana Power Purchase Centre (HPPC) has signed a power purchase agreement to procure 50 MW power from the Baglihar hydro project in Jammu and Kashmir on a long-term basis for 12 years. HPPC will buy power at Rs.3.69 per unit inclusive of all charges through PTC.

Orissa cuts power supply to industries by 50 pc

June 22, 2009. Facing acute shortage of power, the Orissa government has directed the State Load Despatch Centre (SLDC) to effect 50 percent load restriction on industrial users. The state energy department has come out with the required notification in this regard which will remain effective for two weeks or till the situation improves. The notification enforces curbs on power supply to high tension (HT) and extra high tension (EHT) consumers, mostly comprising of industrial units.

Power ministry to meet on capacity addition

June 22, 2009. Power ministry has called a meeting of state power ministers to discuss issues related to the country's 78,700 megawatt capacity addition plan over 2007-2012. Convened by Power Minister Sushilkumar Shinde in New Delhi, the meeting will examine issues concerning rural electrification, strengthening of sub-transmission and distribution system. New and Renewable Energy Minister Farooq Abdullah, Petroleum Minister Murli Deora and deputy chairman of Planning Commission Montek Singh Ahluwalia are also likely to participate.

AJYCP urges PM to scrap hydro projects in Arunachal

June 22, 2009. As a part of the Statewide dharna programme, workers and supporters of the Rangiya Dist Committee of Assam Jatiyabadi Yuba Chatra Parishad (AJYCP) staged a dharna before the office of the SDO (Civil) of Rangiya recently. Nearly 100 members of the student body protested and urged early withdrawal of the proposed construction of hydro-electric project in Arunacahal Pradesh and also towards finding a permanent solution by the concerned Central and State gobernments to the flood and erosion problem in Assam occurring almost every year.

TN seeks higher share from NLC joint venture project

June 21, 2009. The Tamil Nadu Government has demanded that it be given a higher share of the generation of the upcoming NLC Tamilnadu Power Ltd. The company is a joint venture of Tamil Nadu Industrial Development Corporation (TIDCO), part of the Government of Tamil Nadu, and the government of India-owned power utility, Neyveli Lignite Corporation (NLC). NLC Tamil Nadu Power is putting up a 1,000-MW coal-based power project at Tuticorin with an investment of Rs 4,909 crore. TIDCO has 11 per cent stake in the company and as such, Tamil Nadu will get 11 per cent of the generation from the plant. The other 89 per cent is to be divided among the southern States in accordance with the ‘Gadgil formula’. The formula allows a higher share for the ‘host State’. The allocation for Tamil Nadu, according to the formula, comes to 44 per cent. Hence, the State would get 55 per cent of the power from the project. But Tamil Nadu wants 75 per cent.

Hooda keen to set up electrical unit at Sonepat

June 21, 2009. Haryana Chief Minister Bhupinder Singh Hooda said that he has urged Prime Minister, Dr Manmohan Singh to get a heavy electrical equipments manufacturing unit set up at a cost of Rs 6000 crore at Sonepat by Bharat Heavy Electricals Limited and National Thermal Power Corporation.

World Bank to lend $80 mn for 'greener' coal-based power

June 20, 2009. The World Bank will extend a $180-million loan to India for upgrading its polluting coal-fired power plants and bringing down carbon emissions. The government has initiated a National Renovation and Modernisation Program which, over the next decade, aims to rehabilitate old and inefficient power plants with a cumulative capacity of 27,000 MW—almost a fifth of India’s installed power capacity of 145,000 MW. It had sought the World Bank’s help to launch the first phase of the national programme.

NLC wants market prices for its power

June 20, 2009. Public sector Neyveli Lignite Corporation (NLC) Ltd is not too happy with the cost-plus tariff fixation by the Central Electricity Regulatory Commission (CERC), as its depreciated plants fetch tariff that is much lower than what it could get from the market. On an average, NLC gets about Rs 1.75 a unit for the power it generates. (It will vary, albeit slightly, for the year 2009 to 2014 tariff period, for which NLC will soon make an application to the CERC). But if the company were to sell power in the market, it could get prices easily in the upwards of Rs 3. In fact, power exchanges sell power at around Rs 6. Being a central generating station, NLC knows it is not likely to get permission to sell power at market prices.

CCEA implements Tripura gas based power project

June 19, 2009. The Cabinet Committee on Economic Affairs has approved the implementation of the Tripura Gas Based Power Project, 100 MW (Nominal) + 20% in the State of Tripura in the Central Sector by North Eastern Electric Power Corporation Limited (NEEPCO). The estimated cost of the project would be Rs4.21bn including Interest During Construction (IDC) of Rs274.7mn at December, 2008 price level. The project shall be funded with Debt Equity ratio of 70:30.

Govt to mull stake sale in BHEL

June 19, 2009. The Government is considering selling a 10% stake in BHEL. The Government is positive on the disinvestment issue, but a final decision is yet to be taken.

ACT to move SC for scrapping of hydel projects

June 18, 2009. The Affected Citizens of Teesta (ACT), an apolitical organisation spearheading the agitation for scrapping of hydel projects in Sikkim, will move the Supreme Court for cancelling two hydel projects in North Sikkim. Urging the Environment Ministry to review a number of power projects cleared by Central Appraisal Committee (CAC), ACT Vice-President Tseten Lepcha said, his organisation would file a petition in the Apex Court for stopping work on two hydel projects in north Sikkim.

Load-shedding hours in M.P. may be increased

June 18, 2009. With gap between the demand and supply of power widening, the power outages in divisional headquarters in Madhya Pradesh may witness an upward trend. As of now, division headquarters, excluding Bhopal face power cuts for two hours daily. This is likely to increase to three hours.The Madhya Pradesh State Electricity Board (MPSEB, is giving final touches to a new load-shedding plan to be forwarded to the state government for approval.

Faster forest clearances for coal projects

June 18, 2009. The Centre is working on a series of measures to help coal projects clear regulatory and environmental hurdles faster. Over the next three-four weeks, the Union Coal and the Environment Ministries will collate their data to identify forest areas that can be diverted for coal mining. An expedited environmental approval process would speed up development of new coal mines and increase production from older ones.

Karnataka Power Corp begins blending Indonesian coal

June 17, 2009. The State Government-owned power utility Karnataka Power Corporation Ltd has begun blending imported Indonesian coal for its thermal plants. KPCL said that the blending was up to 20 per cent of the coal consumption of the thermal plants.

KPCL currently operates two thermal plants – the 1470-MW Raichur Thermal Power Station (RTPS) and the 500-MW Bellary Thermal Power station (BTPS). The fuel needs of both these plants are estimated at about 12 million tonnes a year of domestic coal, assuming a plant load factor (PLF) of 85 per cent. This was on the basis of fuel consumption from domestic sources that are of inferior quality.

Electricity bill payment at the post office

June 17, 2009. The Tamil Nadu Electricity Board and the postal department have been discussing modalities for about three months now, to introduce the facility of power bill payment at the post office in Chennai.

The facility will be in addition to the other modes of payment - any time payment (ATP) machines and netbanking - as well as payment at TNEB collection centres.

TNEB entering tie-ups for captive coal mines

June 17, 2009. The Tamil Nadu Electricity Board is getting into joint ventures for captive coal mining to enable assured supply of coal for power generation.

The policy note of the energy department for 2009-10 tabled in the Assembly states that the electricity board faces a shortfall of about two million tonnes of coal on an annual requirement of 15 million tonnes to fuel four thermal plants that generate 2,970 MW.

The TNEB manages to bridge the shortfall through imports. But as a permanent measure, the TNEB has decided to go in for captive coal mines. It has been allotted two coal blocks - Gare Pelma Sector II coal block in Chhattisgarh along with Maharashtra State Mining Corporation; and the Mandakini B coal block in Orissa along with the State mining corporations of Orissa, Assam and Meghalaya.

INTERNATIONAL

OIL & GAS

Upstream

Chevron taps first oil from Frade field offshore Brazil

June 23, 2009. Chevron's subsidiary Chevron Brasil Upstream Frade Ltda. has commenced crude oil production from the Frade Field, the company's first operated deepwater development in Brazil. The estimated $3 billion project, with continuing development drilling, is expected to achieve peak production of 90,000 barrels of crude oil and natural gas liquids per day in 2011.

Small North Sea oil discovery could realize Visund North devt

June 23, 2009. A small oil discovery has been made by StatoilHydro in the Titan prospect directly east of northern Visund in the Tampen area of the Norwegian North Sea.

Nitro petroleum purchases working interest in Bigoray project

June 22, 2009. Nitro Petroleum has finalized the purchase of a working interest in two gas wells in the Bigoray area of West Central Alberta.

On June 18th, Nitro Petroleum announced that they were in final negotiations for this project, which was expected to produce about 570,000 cubic feet per day or approximately 100 barrels of oil equivalent per day.

The operator based this estimate on the fact that the first well went on line at 400,000 cubic feet per day and the B well would produce approximately 200,000 cubic feet day.

PGNiG, Orlen to jointly complete extraction project in Poland

June 22, 2009. On June 22, 2009, PGNiG and Orlen concluded an agreement on the joint completion of an exploratory and extraction project, located in northwest Poland. The project is the continuation of initial exploration work completed by PGNiG on the Niż Polski. The proposed area for cooperation is located in the most promising region for hydrocarbon exploration in Poland.

The initially recognised, collection of crude oil in the area of the Sieraków deposit is located near the largest discoveries of crude oil deposits made in recent years by PGNiG in Poland.

Apache barrels out more oil from UK North Sea's Forties field

June 22, 2009. Apache confirmed that its Forties Charlie 6-3 well has commenced production at a rate of 10,500 barrels of oil per day. The well is the seventh development well brought on production at Forties in 2009; its initial production rate is the field's highest since 1994. These new wells are contributing to the field's current strong production of more than 70,000 barrels per day.

Petrobras' national oil production climbs 6.7 pc in May

June 19, 2009. Brazilian BasinsPetrobras' average oil and gas production in Brazil, in May, topped out at 2,310,012 barrels of oil equivalent per day (boed), 6.7% more than a year ago (2,165,430 boed) and 1.1% above last month's mark.

Afghanistan to launch O&G exploration in Northern region

June 17, 2009. The Ministry of Mines and Industries says it will sign agreements with some companies on extraction of oil and gas from three blocks in the north of Afghanistan in near future. So far 11 domestic, foreign and international companies have submitted applications and agreement will be signed with an eligible company after processing the applications.

Downstream

CNPC Dushanzi refining project expects to go onstream in August

June 23, 2009. China's largest state-run oil firm China National Petroleum Corp. (CNPC) announced on June 19 that eight cracking furnaces with capacity of 150,000 tons, which will be used for the 1 million-ton ethylene project of its subsidiary Dushanzi Petrochemical Co., have been delivered. The annual crude oil processing capacity of Dushanzi Petrochemical will top 16 million tons. But after the operating of the atmospheric and vacuum distillation unit, whose annual capacity is 10 million tons, an old atmospheric vacuum unit with capacity of six tons will be overhauled.

Japan may end $1.5 bn Venezuela loan on seizures

June 23, 2009. Japan may cancel a planned $1.5 billion loan for Venezuela’s El Palito and Puerto La Cruz oil refineries after the South American nation seized Japanese company assets. The Japan Bank for International Cooperation, or JBIC, is reviewing loans for the upgrades after Venezuela took over Japanese iron and chemicals assets and fell behind on payments to oil-service contractors. The refineries have a combined 327,000 barrels-a-day of capacity.

CNOOC to provide 7 million tons products for Southern China

June 22, 2009. CNOOC Refinery Ltd., Co. will provide annually seven million tons of petrol, kerosene and diesel and four million tons of other petrochemical products to southern China once its refinery project in Southern China's Huizhou is completed.

The refinery project to be opened in Huizhou will have an annual output of approximately 12 million tons of petrochemical products. CNOOC Refinery is a subsidiary of China National Offshore Oil Corporation (CNOOC), China's largest offshore oil producer. CNOOC is the parent of CNOOC Limited.

Petrobras clarifies on news concerning Ceara, Maranhao refineries

June 19, 2009. Petrobras, in response to written notice received from the Securities and Exchange Commission of Brazil, has clarified that its Downstream Officer did not announce investment figures for the Maranhao and Ceara refineries. These projects were included in the 2009-2013 Business Plan, but in the current analysis phase it is not possible to determine the investment amount and the Company just announced the aggregate investment in downstream segment.

Angola, Senegal invest in new refineries

June 18, 2009. Senegal and Angola have commissioned new oil refining projects to increase petroleum capacity and tap into regional demand. Angola, which imports 70% of its gasoline needs from the US, is to build a $8bn, 200,000 barrels a day facility near the port of Lobito.

The plant is due for commissioning by the end of 2013. About 90% of the refinery's output will be sold domestically and in neighbouring countries with the remainder exported to other regions. Oil is Angola's lifeblood, accounting for 95% of its export revenues and 40% of GDP.

In September last year Angola overtook Nigeria to become Africa's largest and the world's eighth-largest oil producer. Its reserves are estimated at around 20bn barrels. Senegal, meanwhile, has entered into an agreement with Iran's national oil refining company to increase the capacity of its petroleum processing facility from 25,000 barrels a day to 64,000. A further Iranian-built refinery and petrochemical complex in Senegal is on the cards.

‘U.S. fuel demand for May falls to lowest in 10 years’: API

June 17, 2009. U.S. fuel demand in May dropped more than 4 percent to the lowest level for the month in a decade as the recession curtailed freight transport and air travel, the American Petroleum Institute (API) said. Deliveries of petroleum products, a measure of consumption, averaged 18.89 million barrels a day in May, 4.3 percent less than during the same period in 2008, according to a report from the industry-funded API. Gasoline consumption rose 0.6 percent from a year earlier to an average 9.27 million barrels a day, the API said. Deliveries of distillate fuel, a category that includes heating oil and diesel, dropped 7 percent in the period to an average 3.66 million barrels a day, according to the report. Jet-fuel consumption fell 8.8 percent to an average 1.43 million barrels a day.

Transportation / Trade

LA terminal gets first LNG shipment

June 23, 2009. Sempra Energy received its first shipment of liquefied natural gas at its new terminal near Lake Charles, LA, making it the fourth LNG terminal opened in the U.S. in a little over a year. The 945-foot-long tanker British Diamond carried the approximately 4.8 million cubic feet of LNG from a liquefaction plant in Trinidad. A second shipment is expected later this month as part of the initial "cool-down" of the $900 million facility.

The ups and downs of diesel

June 23, 2009. Last summer, as Americans strained to pay $4 for gasoline, truck drivers and other users of diesel fuel were paying nearly $5 per gallon to fill their tanks, and the price gap between the two fuels appeared to be widening. Not so anymore. Recently, the nationwide average diesel price fell below that of gasoline for the first time in nearly two years as global economic headwinds gutted demand for goods moved by diesel-powered trucks, ships and trains and manufacturing activity declined. But diesel prices in recent weeks have been rising again with crude's rally to $70 a barrel.

S. Korea, Russia eye pipeline amid N. Korea tensions

June 23, 2009. South Korean and Russian officials held talks on a natural gas deal, which could involve plans to build a pipeline across North Korea amid heightened regional tensions. Officials of Korea Gas Corp. or KOGAS, said Alexey Miller, chairman of the management committee of Russia's state-run OAO Gazprom arrived for talks on shipping details. Gazprom has agreed to export 10 billion cubic meters of gas a year to South Korea beginning the 2015-2017 period, the official said on condition of anonymity.

Enbridge to develop pipeline system for Kearl Oil sands project

June 22, 2009. Enbridge has entered into an agreement with Imperial Oil Resources Ventures Limited and ExxonMobil Canada Properties to provide for the transportation of blended bitumen from the Kearl project in the Athabasca Oil Sands region of northern Alberta to the Edmonton, Alberta area.

Sino-Myanmar crude pipeline memo signed

June 19, 2009. CNPC and Myanmar Energy Ministry signed a memo on the development, operation and management of the Sino-Myanmar crude oil pipeline in Beijing, suggesting the pipeline's construction is entering full swing.

The memo said CNPC would be responsible for design, construction, operation and management of the crude oil pipeline.

New oil pipeline to begin operating in Colombia

June 19, 2009. Canadian Energy Company Pacific Rubiales plans to put into operation an oil pipeline in Colombia with an initial capacity of 60,000 barrels per day, the company's vice president of projects.

The new 235-kilometer (145-mile) pipeline will carry crude from fields the company jointly operates with Colombian state oil company Ecopetrol in Rubiales, in the central province of Meta, to a pumping station in Monterrey, a municipality in the eastern province of Casnare.

Lukoil to supply 3 million tons of oil to Sinopec

June 18, 2009. Lukoil and Sinopec have signed a frame agreement on oil supplies. The agreement calls for Russian export of 3 million tons of oil blend and/or YK blend of oil produced from the Yuzhnoye Khylchiyu Field, Nenets Autonomous Okrug. This being the case, the actual export volumes will be dependent on public arbitration and price rates.

Adnoc delays pipe on $10 bn gas devt; schedule uncertain

June 17, 2009. Abu Dhabi National Oil Co., or Adnoc, delayed plans to invite bids for the world's longest sulfur pipeline, casting doubts over the schedule of its crucial $10 billion Shah sour gas field development, people familiar with the project said.

Policy / Performance

‘Kuwait’s crude output in line with OPEC quota’: Oil Minister

June 23, 2009. Kuwait’s crude production is in line with the country’s OPEC quota, Oil Minister Sheikh Ahmed al- Abdullah al-Sabah said. Kuwait is producing ‘what it is assigned by OPEC’ Sheikh Ahmed said.

Ford, AFTC investigate DME fuel system

June 23, 2009. Alternative Fuel Technologies (AFTC) announced that after the signing of a contract in 2008 with Ford Motor Company to supply them with a DME fuel system for a single cylinder alternative fuels/emissions research project, the Company is on schedule to make delivery of the DME Fuel System in August of this year. AFTC is using a Ford Land Rover 4-cylinder diesel engine that will fire only on one cylinder. The Company is testing this system now and all tests currently are on track for shipping. If successful, Ford has stated that they will do a full engine and car demonstration.

Australia raises ’10 oil price forecast to $70 on recovery

June 23, 2009. Crude oil prices may average $70 a barrel in 2010, higher than predicted in March, on the expectation of a recovery in the global economy, the Australian government’s commodities forecaster said. West Texas Intermediate, the U.S. benchmark crude variety, is expected to average $70 a barrel as demand improves and inventories decline, Canberra-based Australian Bureau of Agricultural and Resource Economics said in a report today. This compares to its forecast of $51 a barrel on March 3.

Iraq will delay Nassiriyah decision until after licensing round

June 23, 2009. Iraq, holder of the world’s third- largest oil reserves, said talks with producers including Eni SpA to develop the Nassiriyah field will take a backseat until after the country’s first crude licensing round ends this month. Iraq aims to attract foreign investors to help boost oil production after six years of conflict and prior sanctions destroyed its infrastructure. The government, running two bidding rounds for oil and gas field development rights, plans to boost output to about 6 million barrels a day by 2015.

PetroChina to invest in Scottish refinery

June 22, 2009. PetroChina Co. plans to invest in a Scottish refinery owned by Ineos Group Holding Plc, the largest chemical group in the U.K. The investment in Ineos' Grangemouth Refinery is an opportunity for the Chinese company to step into the U.K. energy market as well as the North Sea oil exploration field. Grangemouth Refinery has oil processing capacity of about 200,000 barrels per day.

Nippon oil may cut crude oil processing by 25 pc in July

June 19, 2009. Nippon Oil Corp. is considering slashing its crude oil processing in July by 25 percent from a year earlier to 3.3 million kiloliters due to flagging demand for oil products amid the recession. Nippon Oil plans to suspend the operation of one of two facilities at its Mizushima plant in Kurashiki, Okayama Prefecture, to continue its output cut for gasoline and other oil products implemented last November.

POWER

Generation

Mitsubishi signs carbon capture power plant accord in Australia

June 23, 2009. Mitsubishi Heavy Industries Limited signed an agreement with Australia’s Queensland state government to study a project to build a cleaner-burning, next-generation coal-fired power plant. The Japanese companies said that under the accord, Mitsubishi Heavy, Mitsubishi Corporation and ZeroGen Private Limited, owned by the Queensland government will study the feasibility of a 530 MW coal-fired power station to start operations in 2015.

TNB is looking to start 1^st nuclear plant in Malaysia by ’25

June 22, 2009. The nation’s largest power supplier Tenaga Nasional Bhd (TNB) is looking towards starting its first nuclear power plant by 2025 once it gets the go-ahead from the government.

Saudi Electricity gets $1.09 bn loan for GE turbines

June 22, 2009. The Saudi Electricity Company said it had secured a 4.1 billion riyal ($1.09 billion) loan from the U.S. Export-Import Bank and Canada's Export Development Credit to finance the purchase of power generation units. The 12-year loan is to fund the purchase of 23 turbines made by U.S. giant General Electric. The units will help boost power generation capacity in Riyadh, the Saudi capital, as well as in some areas in the eastern part of the country by about 2,900 megawatts.

US nuclear plant to appeal drill assessment

June 21, 2009. The operator of a northeastern Pennsylvania nuclear power plant says it plans to appeal an assessment by the U.S. Nuclear Regulatory Commission following a security exercise in March. Incidents at nuclear plants are graded on a color-coded scale from green to red, and anything other than green results in increased NRC oversight such as increased inspections. The agency releases little information about security issues, saying it could be used in an attack.

Nuclear nations rush to lock in uranium deals

Jun 18, 2009. A global shift toward nuclear power is prompting countries to rush to lock in long-term access to tight supplies of uranium, and China and India look to be the next players to get in on the action. A tie-up between Rosatom, the Russian state-owned producer, Rosatom and Canada-based miner Uranium One is just the latest in a series of moves on the part of Asian and European countries to lock in uranium supply to fuel construction of dozens of new reactors over the next decade. Rosatom secured a 17 percent stake in Uranium One and a long-term supply deal in exchange for a half stake in the Karatau mine in Kazakhstan. Uranium One is also trying to close a C$270 million ($240 million) 20 percent share sale and supply agreement with Japan's Toshiba Corp, Toyko Electric Power Co, and Japan Bank for international Cooperation, while uranium miner Denison Mines recently agreed to sell 20 percent of itself to Korea Electric Power Corp.

Duke Energy to build nuclear plant in Ohio

June 18, 2009. Duke Energy Corp. and French nuclear group Areva SA propose to build a 1,650-megawatt nuclear plant in southern Ohio. The plant will be part of what officials are calling the Southern Ohio Clean Energy Park. The 3,700-acre site is a former enrichment site for weapons-grade material in Piketon, Ohio. The town is about 65 miles south of Columbus.

Transmission / Distribution / Trade

FERC orders on transmission projects

Jun 23, 2009. NorthWestern Energy plans to conduct "Open Seasons" as planned for two major transmission projects following the Federal Energy Regulatory Commission's (FERC) recent action on the company's petitions. FERC affirmed its support of the company's efforts to build new transmission on congested pathways.

Record high electricity consumption in Texas

June 23, 2009. Record high electricity consumption is expected for the power grid that serves most Texans, after two consecutive days in which the record for peak June demand was smashed. With 100-degree-plus temperatures forecast for Dallas-Fort Worth, AARP Texas and state Rep. Sylvester Turner, D-Houston, called on the Texas Public Utility Commission to prevent "dangerous" power disconnections for people unable to pay their electric bills.

Nigeria-Russia set to sign nuclear deal

June 20, 2009. Nigeria and Russia are to sign a nuclear energy cooperation accord when President Dmitry Medvedev becomes the first Kremlin leader to visit Nigeria. A joint venture between Russian oil and gas giant Gasprom and Nigerian National Petroleum Corporation (NNPC) will also be signed during the one day visit.

ABB wins $52 mn power order in Brazil

June 17, 2009. ABB, the leading power and automation technology group, has secured a US$52mn order from Spanish technology company Abengoa to supply transformers and shunt reactors for projects to interconnect the grids in Brazil's northern and southern regions. ABB’s equipment will serve three projects under construction for Manaus Transmissora de Energia, one of Brazil’s leading energy transmission companies.

Policy / Performance

Nigeria to standardise electricity accounting

June 22, 2009. AS part of efforts aimed at eas ing the transition of the electricity sector to a private sector initiative driven industry, the Nigerian Electricity Regulatory Commission (NERC) and the Nigerian Accounting Standards Board (NASB) have announced plans to evolve a new set of accounting standards for companies operating in the sector.

UAE, S.Korea sign nuclear cooperation pact

June 22, 2009. The United Arab Emirates signed a nuclear cooperation agreement with South Korea on to allow the transfer of technology and equipment to the Gulf Arab state. The agreement will allow South Korean firms to compete with U.S. and French rivals for contracts under the UAE nuclear energy programme. The deal was signed during a visit by South Korean Prime Minister Han Seung-soo.

Bangladesh begins an hour earlier to save electricity

June 21, 2009. Grappling with a power crisis, Bangladesh has decided to begin its days an hour earlier in a move to save electricity by utilising daylight. The country switched to Daylight Saving Time (DST) on Saturday, moving away from the Greenwich Mean Time (GMT), by utilising the daylight. Offices, educational institutions, hospitals and government and non-government organisations also opened at the new time with the exception of a handful of double-shift schools. The official Bangladesh Standard Time is now GMT+7.

UK sale of nuclear clean-up authority attracts 13 bidders

June 21, 2009.The sale of the United Kingdom Atomic Energy Authority (UKAEA), the Government-owned nuclear clean-up business, has attracted 13 bids. However, the bids are thought to be around the £30m-40m mark, when adviser Greenhill had hoped for closer to £50m. Bidders are understood to be frustrated by what they claim is a prolonged sale process. They believe that there has been insufficient information on the overall timetable. However, they are keen on UKAEA because of the shortage of engineers in the sector at a time when the Government is embarking on a roll-out programme.

Japan to help other countries develop nuclear power

June 19, 2009. Japan has launched an organisation to help other countries promote nuclear power generation which is increasingly in demand in the age of global warming. The new body, the International Nuclear Energy Cooperation Council, comprises representatives from government branches, power utilities, nuclear power plant makers and research organisations. It will help the makers' overseas expansion while there are requests from Asian and Middle East countries for Japan's help in the field.

Higher electricity tax added to US senate plan

June 18, 2009. Senate leaders have added a tax increase on electricity to a long-marinating tax reform plan they presented to House budget. The Senate tax proposal, which has to yet to be put into the form of a bill, would lower the sales, income and corporate tax rates while applying the sales tax to a variety of services currently not taxed and closing some loopholes. Senators introduced the plan in April.

US electricity industry to scan grid for spies

June 18, 2009. The electric-utility industry is planning a pilot initiative to see whether Chinese spies have infiltrated computer networks running the power grid, according to people familiar with the effort. Officials of the North American Electric Reliability Corp., an industry regulatory group, are negotiating with a defense contractor for the job of searching for breaches by cyberspies, according to people familiar with the plans.

Renewable Energy Trends

National

Youth camp on climate change to be held in Delhi

June 22, 2009. Ever imagined wind power plants rotating on top of city buildings? Did you think a backpack with solar panels attached to the top flap was science fiction? Coordinators of the Indian Youth Climate Network (IYCN) don’t think so. In fact, such innovations to combat climate change at the individual level are what is needed in today’s world. This was the message sent out by the ‘Agents of Change Conclave – Road to Copenhagen’ held at the American Centre. The IYCN’s Agents of Change programme also intends to send a delegation of Indian youth to the United Nations’ 15th annual Conference of Parties (CoP 15) to be held in Copenhagen, Denmark, in December this year. This conference’s most important agenda this year would be to chalk out a successor to the Kyoto Protocol (KP) that expires in 2012.

EU sees potential for renewable energy tie-ups

June 21, 2009. With the European Union charting out a strategy to ensure 20 per cent of its energy requirement comes from renewable energy sources by 2020, opportunities for cooperation in wind and photovoltaic power generation segments are set to grow. A decision to ensure that there is increased contribution from renewable energy sources was taken in late 2008. This presents opportunities for vendors to explore opportunities, according to senior officials from the European Commission.

Suzlon looks to cut manufacturing costs for REpower

June 20, 2009. Suzlon Energy Ltd, which now controls about 91 per cent of REpower Systems AG of Germany, plans to reduce costs for the German wind turbine manufacturer by sourcing parts from low cost manufacturing centres. In a presentation to investors, Suzlon has said it will accelerate REpower’s volumes and improve margins through its supply chain linkages – supply of rotor blades, gear box, generator, control panel, forging and casting parts, and converters.

Neyveli Lignite to enter hydel, wind power sectors

June 20, 2009. Mining-cum-power company Neyveli Lignite Corp (NLC) is planning to enter hydel, wind and nuclear power generation. NLC may buy around 30 windmills for the project. The company had decided to enter into the nuclear sector as well, but it would take one more year to finalise plans. NLC is planning expand its power generation capacity to 10,000 MW by the end of 12th plan period at an investment of Rs.40,000 crore.

ADB to invest $2 bn a year in clean energy

June 19, 2009. The Asian Development Bank (ADB) has announced it is to double its annual spending on clean energy investments in Asia-Pacific to $2bn (£1.2bn). The increase, which forms part of ADB's Energy Efficiency Initiative, will take effect from 2013. Since last year the bank has budgeted $1bn a year to finance clean energy projects in developing member countries. However, investments in 2008 exceeded the allotted amount, totalling $1.6bn, and now the bank has moved to formally endorse future increases in clean tech investments.

Full support for renewable energy sector assured

June 19, 2009. The Ministry of New and Renewable Energy was for the continuation of existing incentives to the wind energy sector even after the introduction of generation-based incentives, said the Union Minister for New and Renewable Energy, Dr Farooq Abdullah. Dr Abdullah asserted that his Ministry was for the continuation of accelerated depreciation benefits to wind energy generators even after the new incentive was introduced. This would ensure that the existing investors who had set up wind farms would not be affected while new entrants were encouraged.

RRB Energy to invest Rs 100 cr for expansion

June 19, 2009. Wind turbine manufacturer RRB Energy India Ltd will invest Rs 100 crore in the next 18 months to expand its production capacity. The company had just concluded its investments of Rs 65 crore. Its present capacity was about 500 turbines a year of 600 kW each and the blades required for these machines. Besides, it has also set up laboratories to test higher capacity wind turbines. The proposed investment of Rs 100 crore will take the capacity to 900 turbines of 600 kW and the related blades. Besides, it will also have capacity to make 300 blade sets for larger turbines. The company recently developed a turbine with 1.8 MW capacity which is currently being tested. The launch of the new turbine has been put off to early next year due to the slowdown in economy affecting the funds availability.

Capital subsidy sought for units making solar PV products

June 19, 2009. The Indian Semiconductor Association (ISA) has recommended that incentives in the form of capital subsidy on the lines specified under the Semiconductor Policy be made available to larger number of units engaged in solar Photovoltaic (PV) manufacturing. Domestic companies are finding it difficult to compete in the export market in the backdrop of global economic slowdown and fall in the prices of the products of their competitors. Higher duty structures are compounding the concerns of the local companies. The Government can also float tax saving ‘Renewable Energy Bonds’, like infrastructure bonds, to collect low-cost funds from the general public. Entrepreneurs can avail themselves of the funds to reduce their cost of capital for manufacturing solar PV products, the ISA said in its wishlist for the Union Budget.

Indowind to invest Rs 100 cr this fiscal

June 18, 2009. Chennai-based Indowind Energy Ltd has proposed to invest Rs 100 crore to generate 30 MW of wind energy in the financial year 2009-10. The company has added 20.25 MW to its current capacity of 7.59 MW entailing an investment of Rs 160 crore last fiscal. In a bid to raise fund for expansion plans, the company has proposed to increase its authorised capital to Rs 200 crore from Rs 65 crore by conversion of foreign currency convertible bonds (FCCB), qualified institutional placement, preferential allotment to promoters and employees stock option.

Mandatory solar power purchase proposed

June 18, 2009. Electricity regulators are considering mandating the purchase of a certain percentage of solar power within the scope of the ‘renewable energy obligation’ to encourage the development of solar power. At least 15 State Electricity Regulatory Commissions have set minimum standards to ensure that a portion of power purchased by the State electricity boards is from renewable energy sources. But the focus has been largely on wind energy generation and solar energy is yet to be tapped to significant levels. The main constraint is the wide variation in estimates of cost of solar energy.

Global

For sale: Americas largest biodiesel plant

June 23, 2009. GreenHunter Energy said it is exploring a possible sale of its massive biodiesel refinery at the Houston Ship Channel as it works to improve its balance sheet and struggles with a tough market for the alternative fuel. The Grapevine-based firm also said it has struck an agreement with lenders to delay some loan payments until November and waive any events that may put the company in default before then. GreenHunter hired an investment banking firm to look for a potential buyer for the 105 million gallon per year plant, the nation's largest.

Queensland, Australia set to be solar powerhouse

June 22, 2009. The Queensland government will launch a $1 million feasibility study for a large scale solar power plant that could potentially power up to 300,000 homes as part of its renewable energy plan. The Queensland Renewable Energy Plan could generate $3.5 billion in new investment and create up to 3,500 jobs while reducing greenhouse gas emissions over the next 10 years.

ICE to evaluate new generations biofuels technology

June 22, 2009. Renewable fuels provider New Generation Biofuels Holdings Inc. has signed a Letter of Intent (LOI) with Instituto Costarricense de Electricidad (ICE), an autonomous institution of the Government of Costa Rica. Under the terms of the LOI, ICE will evaluate NGBF's biofuels, leading ultimately to the potential licensing of NGBF technology and to the construction of its own biofuel production plants employing NGBF's process in Costa Rica for use in its electric generation plants. This is expected to be completed within three months.

Landfill gas will help fuel French cement plant

June 22, 2009. An 8,000-foot pipeline will pump methane gas from a landfill to the Lafarge Tulsa Cement Plant. The methane will provide an alternative fuel source for the plant, which relies heavily on coal power. The gas is produced from the decomposition process at the Waste Management landfill where Tulsa's residential waste is dumped.

Cuba builds biogas plants as new energy sources

June 21, 2009. Cuba has built some 700 biogas plants as new energy sources to develop an efficient and sustainable energy model in the island. Cuba, will continue to build biogas plants and to use the energy at rural houses as an ideal way to save fuel and protect the environment. According to research data, Cuba has the potential to produce biogas exceeding 400 million cubic meters per year. It could generate electric power of 85 megawatts. Biogas is used in Cuba mostly for household cooking. Havana City, the provinces of Havana and Pinar del Rio, all located in the west of the island, have most potentials of biogas, which generates energy from the remains of sugar and coffee industries. Cuba began to use biogas in 1940 and the usage increased since 1980 after anaerobic digesters with floating hoods and fixed domes were introduced.

Nuclear power emerges as green option for Asia

June 20, 2009. The growing concern over climate change and how it will hurt the region's environment, human health and economy has forced economic planners, advocates and business leaders in Asia to search for a stable energy source that can moderate the carbon emissions. But the region's dependence on fossil fuels has also raised its greenhouse gas emissions, and now accounts for 30 percent of the world's nearly 30 billion metric tonnes carbon emissions, the Tokyo-based Asia Pacific Energy Research Centre (APERC) said in a report. According to APERC, Asia consumed 2,558 million tonnes of oil equivalent (MTOE) in 2006, most of which were sourced from coal and oil.

Trina Solar signs sales agreement with Enfinity

June 19, 2009. Solar photovoltaic (PV) products manufacturer Trina Solar Limited has entered into a sales agreement with Belgian renewable energy company Enfinity NV.

The agreement was signed in conjunction with the Intersolar-Munich Conference, held in May. Under the terms of the agreement, Trina Solar will supply Enfinity with approximately 15 MW of PV modules, with shipments scheduled in the current second quarter.

Russia offers climate goal with no real bite

Jun 19, 2009. Russia plans to release 30 percent more greenhouse gases by 2020 under an emissions target scheme announced by President Dmitry Medvedev. The plan would reduce emissions by 10-15 percent from Russia's emissions in 1990 when it was part of the Soviet Union and its emissions were far higher than they are today. This angered environmentalists, and the target also is likely to fall short of expectations from developing countries.

US Greenhouse gas auction nets $104 mn

June 19, 2009. The fourth quarterly auction of carbon allowances raised more than $104 million for 10 Northeastern states to invest in energy efficiency and renewable energy programs.

All 30.8 million allowances offered on June 17 were sold for $3.23 each - 8 percent less than the March price of $3.51. Each allowance represents a ton of carbon that electric plants can release. Generators in the 10 Regional Greenhouse Gas Initiative states are required to buy enough allowances to cover their emissions; as they reduce emissions, they can sell excess allowances.

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