MonitorsPublished on Jan 09, 2007
Energy News Monitor |Volume III, Issue 29
Sustainable Development through Responsible Management of Electricity Industry

1.        Introduction:

The strong relationship between the availability of adequate quality energy and the all round development of our society is well established.  But the questions that need to be answered are: how much energy do we need, and at what societal cost. These and other issues such as the need for energy security on a sustainable basis for the vast & growing population, fast depletion of fossil fuel sources, the difficulties relating to nuclear power and hydro electric power, and all the associated environmental and social concerns have thrown up a huge challenge to the present generation. The challenge is to come up with a combination of techno-economically viable alternatives to meet the growing energy needs on a sustainable basis, which are also acceptable to the society from environmental and social angles. 

The ecologically sensitive areas like Western Ghats and Himalayas, which are two of the most important bio-diversity hotspots as per UN, have already been ravaged by large power projects.  The other bio-diversity rich areas like the coastal Karnataka are also facing the threat of heavy pollution because of large size coal fired power projects.  The state of Karnataka, which has no known reserve of fossil fuels, is planning to set up a number of coal based power stations in addition to few gas based stations.  Free or highly subsidized electricity to agricultural sector has led to serious depletion of ground water.  Similarly, the large size hydro-electric power stations are also affecting the environment by destroying thick rain forests and impounding huge quantity of water. All these environmental problems from electricity generating stations are only aggravating the national level pollution from other sectors like transportation and industries.

Even though India has no direct obligation under Kyoto protocol to reduce its GHG emission to any specific level, there is an urgent need for reducing the environmental pollution to an acceptable level because a high level of pollution in this country will affect our own population first before it affects others. Hence we are faced with a multi-dimensional problem of development, energy and environment, for which an integrated solution has to be found to meet the requirements of various sections of the society on a sustainable basis.

This paper makes an attempt to study the electricity requirement scenario of the state of Karnataka during the next 10 years, and focus on how the advances in energy research can be used to meet the increasing demand for electricity without having to rely largely on additional fossil fuel stations or large dam based hydro power stations.

2.       Looming Energy Crises:

The inability of the State agencies to supply reliable and quality electricity almost continuously for over 5 decades, growing electricity demand and the credible threat of Global Warming by the emission of Green House Gases from power plants have brought about multi dimensional energy crises.  The main issues to be considered in this context are:

·          If the growing electricity needs of all sections of our country with such a huge population base have to be met satisfactorily through grid quality electricity only, a huge capacity addition to the extent of about 700,000 MW, largely in the form of coal based and hydro electric stations, will be required by year 2031 as per the projections of Planning Commission. 

·          The impact of such a huge capacity addition on natural resources like land, forests, fresh water, environment and rural population will be immense. 

·          Even with so much addition, there is no guarantee that the security of supply will be ensured on a sustainable basis as long as the existing electricity infrastructures are not utilized efficiently.

·          As long as there is an absence of high degree of overall efficiency of the electricity industry, such additional generation capacity will only be a huge burden on the society without commensurate benefits. 

·          The country’s coal reserve is not infinite, and there is no known reserve of substantial liquid or gas fuels.

·          Whereas the deficit is largely during peak load hours, the base load stations like coal based are being planned to be built. A simulation study for Karnataka has revealed that such a planning would result in excess base generation capacity by year 2015, and is likely to result in PLF of less than 35%. 

·          The pollution level in the urban areas and many power-industrial complexes are already major source of concern; additional fossil fuel burning will take this concern to dangerous levels;

·          The recent example of China’s polluted rivers and cities, where a coal power station is being added on an average every fortnight, has attracted attention from all parts of the world.

·          The recently published report by the Select Committee on Economic Affairs, House of Lords, UK, and the subsequent Stern Review final report on Economics of Climate Change have provided adequate reasons for the governments around the world to invest wisely in alternative ways of meeting our energy requirements including and in new and renewable energy sources.

Our society has an urgent need to come up with suitable alternatives to meet the growing energy demand on a sustainable basis, while protecting flora, fauna, environment and weaker sections of the society.  In this background it is necessary to review how our own society has been viewing the reality of new and renewable energy sources, along with efficiency improvement and energy conservation measures. Such a situation has necessitated the adoption of paradigm shift as far as the energy and environment is concerned.

3.       Power Supply scenario in Karnataka:

Though Karnataka’s power availability has increased by over 5,400 MW since 1980, the power cuts being experienced during peak hours and in annual energy requirements have been almost continuous.  During the year 2005-06 these deficits were recorded as 9.8% and 0.74% respectively. The abstract of available power, power supply situation and load forecast are in tables 1, 2 & 3 below respectively. The load forecast for the state till year 2016 indicates that it is a modest increase of about 7% annually.  If all the additional peak demand (MW) were to be met by state’s own generation, installed capacity of the state has to be doubled. 

Table 1: Available power capacity in Karnataka (MW) (as on 28.2.2006)

State Sector (all types of fuels)


Private Sector


Share in Central Sector projects of

Southern Region




Source: CEA website as on 1.4.2006

Table 2: Electricity Demand and shortage in Karnataka: (April 2005 - March 2006)

Peak Demand Shortage

602 MW (against 6,160 MW)

9.8 %

Energy shortage

251 MU (against 34,578 MU)

0.74 %

Source: Ministry of Power, Govt. of India

Table 3: Load forecast for Karnataka





Peak Demand (MW)




Annual Energy (MU)




Source: 16th Annual Power Survey, CEA

3.1  The state’s scenario, wherein the total power availability of about 7,800 MW from all sources including that of its share from Central Sector projects against the assumed peak demand of 6,200 MW, presents a disturbing picture.  As per the norms prevailing in the industry about 8 – 10 % of this installed capacity can be expected to be unavailable at any give time due to station auxiliary needs and unplanned outages. In the Indian context even if we allow 15% of this capacity not to be available at any given instant, 6,500 MW of generation should be available to meet the peak demand requirements of the state. As indicated in table 2 the state could not meet a peak demand of even 6,200 MW. Similarly, the energy deficit of less than 1 % shown in the table 2 was avoidable.  It is important to note that proper management of the existing assets alone can do away with the existing power deficit issues.

3.2  In addition, the reduction of T&D losses to international level can make additionally about 15 -20% of the total installed capacity for productive/economic uses. The end use wastages/losses also are very high of the order of about 30 - 35% of the total capacity. It should also be recognized that there is huge scope for energy conservation and demand side management. Taking all these demand side management issues into realistic account it becomes evident that there is no shortage of generation capacity in the state, and the so called deficits are due to huge inefficiency in the system, which can be overcome by techno-economically viable methods.

3.3  For Karnataka, which has no known reserve of fossil fuels, inefficient use of the existing electricity infrastructures will mean setting up of a number of coal fired power stations at a huge cost to the society, because of the stiff opposition to hydro electric power plants on socio-environmental grounds.  This means that whereas the deficit that is being experienced is largely during peak load hours, the base load stations (like coal fired power stations) have to be built. A simulation study by D. Narasimha Rao, Visiting Faculty, IIM Bangalore in May 2006 has revealed that such a situation would result in excess base generation capacity by year 2015, and is likely to result in thermal PLF of less than 35%.  Even for setting up of the coal fired power stations there has been widespread opposition from the public on socio-environmental grounds.  So the state has to find out an acceptable way of meeting the growing demand for electricity on a sustainable basis. 

3.4  In this regard the realistic solution to meet the electricity demand satisfactorily on a sustainable basis is to have the best combination of high level of energy efficiency, optimal Demand Side Management, practical level of energy conservation, and maximum deployment of new and renewable energy technologies. 

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

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

(By Peter Meisen, President, GENI)

IV) GOVERNMENT REGULATIONS: What is the current commitment of the government regarding renewable energies?

India is one of the countries most involved in developing the use of renewable energies and is trying to make the opportunity for investors more attractive than costly.

a) Financing Sources and Incentives

To promote renewable energy technologies in the country, the government has put in place some subsidies & fiscal incentives. The Indian Renewable Energy Development Agency has been set up under Ministry for Non-Conventional Energy Sources and is a specialized financing agency to promote and finance renewable energy projects. Following is a short list of new measures:

·          Income tax breaks

·          Accelerated depreciation

·          Custom duty/duty free import concessions

·          Capital/Interest subsidy

·          Incentives for preparation of Detailed Project Reports (DPR) and feasibility reports

More details are as follows:

·          100 percent income tax exemption for any continuous block of power for 10 years in the first 15 years of operations

·          Providers of finance to such projects are exempt from tax on any income by way of dividends, interest or long-term capital gains from investment made in such projects on or after June 1, 1998 by way of shares or long-term finance

·          Accelerated 100-percent depreciation on specified renewable energy-based devices or projects

·          Accelerated depreciation of 80 percent in the first year of operations

·          Interest rate subsidies to promote commercialization of new technology

·          Lower customs and excise duties for specified equipment

·          Exemption or reduced rates of central and state taxes.

Ministry for Non-Conventional Energy Sources mix of fiscal and financial benefits:

·          2/3rd of the project cost subject to a maximum of Rs. 2.00 crore per 100 KW for procurement of modules, structures, power conditioning units, cabling etc. to the implementing agency. The balance cost on land, extension of grid lines, transformers, civil works, foundation and erection and commissioning, etc. is met by the implementing agency.

·          Up to Rs.1.0 lakh for the preparation of Detailed Project Report (DPR) for the grid interactive SPV power projects.

·          2.5 percent of its share of project cost, subject to a maximum of Rs.5 lakhs for performance evaluation, monitoring, report writing, etc. to the State Nodal Agency.

·          Interest subsidy of up to 4 percent to Financial Institutions including IREDA, Nationalized Banks etc. for captive power projects of maximum capacity 200 KW by industry.

b) Environmental Legislation

2001 Energy Conservation Act

·          Focus on energy efficiency

·          Standards and labeling

·          Designated consumers requirements

·          Energy conservation building codes

·          Energy conservation fund

·          Bureau of Energy Efficiency

2003 Electricity Act

·          Combined several existing pieces of legislation

·          Intended to accelerate growth of power sector

·          Targets additional 10 percent from renewable by 2012 (1000 MW/year capacity)

·          Competitive market-based

·          Features include:

§   National Electricity Policy

§   Delicensing of generation and captive generation

§   Public ownership of transmission companies

§   Open access in transmission

§   Freedom for distribution licenses

§   Establishment of State Electricity Regulatory Commissions

§   License-free generation and distribution in rural areas

Provisions and activities impacting the power sector:

·          Elimination of ceiling on foreign equity participation

·          Streamlining the procedure for clearance of power projects

·          Establishment of the Central Electricity Regulatory Commission

·          Formulating an action plan to set up the National Grid

State reforms impacting the power sector:

·          Unbundling the State Electricity Boards (SEB) into separate generation, transmission and distribution companies

·          Privatizing the generation, transmission and distribution companies

·          Setting up independent state electricity regulatory commissions

·          Making subsidy payments for subsidized categories of customers by state governments

·          Making tariff reforms by state governments

·          Enabling legislation and operational support extended to the SEB/utility

Improving operations of SEBs, particularly with regard to better management practices, reduction of transmission and distribution losses, better metering and reduction of power theft

Summary and Conclusion: Could India meet all energy needs with renewable energy?

India is a nation in transition. Considered an "emerging economy," increasing GDP is driving the demand for additional electrical energy, as well as transportation fuels. India is a nation of extremes. Poverty remains in areas with no energy services, while wealth grows in the new business hubs.

Coal fired generation currently provides two thirds of the generation capacity, and hydropower supplies the other third. Yet, India is blessed with vast resources of renewable energy in solar, wind, biomass and small hydro. In fact, the technical potential of these renewables exceeds the present installed generation capacity.

Unique in the world, India has the only Ministry that is dedicated to the development of renewable energies: the Ministry of New and Renewable Energy. This bodes well for the acceleration of renewable development throughout the nation -- both to meet the underserved needs of millions of rural residents and the growing demand of an energy hungry economy.

The development and deployment of renewable energy, products, and services in India is driven by the need to

·          Decrease dependence on energy imports

·          Sustain accelerated deployment of renewable energy system and devices

·          Expand cost-effective energy supply

·          Augment energy supply to remote and deficient areas to provide normative consumption levels to all section of the population across the country

·          And finally, switch fuels through new and renewable energy system/device deployment.

In a report on the Indian economy by Deutsche Bank, in which countries were ranked by attractiveness for outsourcing and off-shoring, India came in #1, well ahead of China.

India is currently experiencing strong economic growth, while at the same time attempting to extend modern power services to millions still in poverty. Expanding electrical capacity is essential. Renewable energy remains a small fraction of installed capacity, yet India is blessed with over 150,000MW of exploitable renewables.

It makes sense to the authors that all efforts and investment should consider accelerating these sustainable energy resources before committing to the same fossil fuel path as western nations. The fossil fuel strategy will surely bring price volatility from dwindling supplies and added pollution from carbon combustion.

Tapping India's wind, solar, biomass, and hydro could bring high quality jobs from a domestic resource. Extending the electric grid between all states, and ultimately between neighbor nations will expand international trade and co-operation on the subcontinent. This report is meant only as an overview in hopes that it will encourage even more rapid and extensive development of the renewable energy resources on the Indian subcontinent.


Courtesy: Global Energy Network Institute.





Asian Oilfield sells majority stake to raise funds

January 9, 2007.  Asian Oilfield Services (AOSL), a leading player in conducting two-dimension seismic survey for oil and gas companies in India, has sold majority of its equity to a Delhi-based company to raise funds for its future activities.  Over Rs 3.38 crore raised through sale of majority stake to Consolidated Securities Ltd would be used mainly in developing existing business and diversifying into acquiring oil fields and entering in drilling business.  As funds are now available through the equity route, the present management of the company has decided to put its plans into action. To begin with, the company would acquire an onshore drilling rig and marginal fields for further backward integration. The company has ties with Israel-based company for 2D seismic survey and data processing activity.  It plans to acquire a 2D-seismic survey machine to consolidate its position in the segment.  It also plans to enter 3D seismic survey and data collection in future. 

GSPC starts drilling 6th well in KG

January 9, 2007. The Gujarat State Petroleum Corporation (GSPC), state-owned oil and gas Exploration Company, has begun drilling the sixth well, KG#16, at Deen Dayal in the Krishna Godavari basin. KG#16 is located in the vicinity of KG#15. The latter was the last well to be drilled in the basin. Currently, it is undergoing a testing procedure. Under a development plan approved by the directorate general of hydrocarbon (DGH) the company will drill 14 wells. At present, the sixth well is being drilled. The company first started drilling the KG basin in 2004 and struck gas in June 2005 in KG#8 after two successive failures. However, since then it has struck gas and also oil in two more wells. A reserve estimate and development plan will be submitted to DGH by March 2007. The company is currently in the process of raising funds for developing the Deen Dayal block and also secure technology capable of tapping hydrocarbon at a high temperature and pressure. 

BPCL buys stakes in 3 blocks abroad

January 7, 2007. Oil marketing company Bharat Petroleum Corporation (BPCL) has strengthened its upstream presence by acquiring stakes in three exploration oil blocks overseas.  The state-owned company has picked up 25 per cent stake each in two blocks in the North Sea and 20 per cent in another block in the Timor Sea in the Australian offshore.  BPCL has floated a subsidiary called Bharat Petro Resources for upstream acquisitions and operations. The company has an authorised capital of $220 million. For the 25 per cent stake in the two blocks in the North Sea off the UK coast, BPCL will pay $12.2 million and bear 50 per cent of the cost of the exploratory well being drilled. A study carried out by Norwest indicates the presence of as much as 500 billion cubic feet of gas in the blocks. 

The blocks 48/1b and 2c are in proximity to a number of gas-producing fields and their associated infrastructure makes even moderate gas reserves very commercial. The UK government offered the two exploration blocks to Norwest Energy and Nido Petroleum with 50 per cent participating interest each. Currently, Australian company Encore holds 50 per cent and Norwest 50 per cent in the blocks. Encore is the operator for the blocks.  Major part of Europe’s oil and gas reserves are concentrated in the North Sea. It is one of the largest non-OPEC producing regions in the world.   

In the Timor Sea, BPCL has acquired 20 per cent interest in AC/P32 block in the Browse basin from Norwest’s wholly owned subsidiary Westranch Holdings. The agreement is that the Indian company will fund the purchase and reprocessing of new 3D seismic data by paying $1.42 million. In five years, it will have the option of paying 20 per cent of the cost of the second well to be drilled in the block or withdraw from the block. If BPCL decides to stay on then it will have the option of enhancing its stake in the block to 40 per cent by taking on the burden of another 40 per cent of the cost of the second well. 

Construction of oil storage facility to start by April

January 5, 2007. India will start construction on a 5 million tonnes per annum strategic oil storage facility by April this year and is looking at building another contingency reserve of equal size in partnership with private sector. The strategic reserves, to be built at two port locations on east and west coast, will hold oil to meet the demand for 15 days. The three nations, which have already built up considerable reserves the United States, South Korea and Japan, have offered help with technology and management to India. The three reserves will be built at Mangalore with a capacity to store 1.5 million tonnes per annum, Visakhapatnam 1 million tons and another location near Mangalore with a capacity of 2.5 million tonne. Though the actual cost of filling up the strategic crude oil storage would be based on the then prevailing international prices of crude, it is estimated that setting up a 5 million tons reserve will cost around Rs 11,267 crore over nine years, including the cost of imported crude. The operational cost will be around Rs 90 crore annually.

RIL, Orissa offshore block put on fast track

January 4, 2007. Reliance Industries Ltd has put the NEC-25 block in the Mahanadi Basin, offshore Orissa, on fast track development, and will launch a new drilling programme this week. The block is estimated to hold around 3-5 trillion cubic feet natural gas. The D6 block's current estimated reserve is around 14 trillion cubic feet. Reliance has so far drilled six exploration wells in the NEC-25 block, and all have made natural gas discoveries.  Reliance is the operator of NEC-25 block with 90 per cent stake and Canada's Niko Resources holds the remaining 10 per cent. The company plans to drill another three-four exploration wells in the block under the new drilling campaign. 


Indian company to build oil refinery in Iran

January 7, 2007. India’s Essar Group, a multi-billion dollar steel-to-telecoms conglomerate, is negotiating with National Iranian Oil Refining and Distribution Company (NIORDC) to set up a new oil refinery in Iran’s oil-rich southern region. The building of a two billion dollar oil refinery in the southern part of the country is parts of an 18 billion dollar fund allocated to the development and expansion of the nation’s oil refining capacity to meet its rapidly growing domestic fuel requirements. The estimated two billion dollar plus investment in a new 300,000 bpd plant to process Iran's heavy crude, would give the OPEC member's stagnant refining sector a boost and give Essar a foothold in the oil-rich country, where it is already in talks over a steel plant.

Essar, a diversified, family-owned holdings company with interests from telecoms to construction, plans to set up three steel plants in the Middle East, including a joint venture to build a 1.5 million tons a year steel plant in Iran. Its oil refining subsidiary Essar Oil Ltd. launched India's second private-sector refinery late last year and will ramp it up to 210,000 bpd by mid-year. Iran is the world's fourth-largest crude oil producer but is also the second-largest importer of gasoline, due to a lack of refining capacity and rapidly growing demand, fuelled by a young population and the world's second-cheapest pump prices. The rising cost of importing an estimated 170,000 bpd of gasoline has taken a toll on Tehran's budget, despite petrodollar revenues.

Although the Azadegan oilfield development deal with Japan's top explorer fell apart last year, Iran is drawing substantial interest from state oil firms in China and India, both keen to help tap the world's second-largest reserves of oil and gas. Tehran has also been enlisting foreign help particularly from China to upgrade and resurrect its refining sector, with a goal of boosting capacity by at least one million barrel per day (bpd) by 2010. Last month, the National Iranian Oil Company (NIOC) and a consortium of Iranian firms and Germany's ABB Lummus signed a 400-mln euro ($512-mln) contract to expand the 350,000-bpd Bandar Abbas refinery, located in southern Iran. Two new refineries are also planned in addition to the possible Essar venture.One is a new 360,000-bpd condensate refinery due to break ground in Bandar Abbas later this year, which is being built together with a private Indonesian company. It will join another 350,000 bpd refinery that was built there in 1997. Iran is also planning a 1.2 billion dollar expansion project to double the capacity of its 110,000-bpd Tabriz refinery in the second-half of next year.

Bio-fuels policy fails to clear air on ethanol-blended petrol

January 6, 2007. Prepared by the Ministry of New and Renewable Energy, the policy calls for compulsory 5 per cent green fuel blending with auto fuels by 2012. The Ministry of Petroleum and Natural Gas has already implemented, what was supposed to be a country-wide programme, in Uttar Pradesh, Tamil Nadu and Goa, and partly in Maharashtra. Negotiations with more states are going on.  Pricing issues have delayed the programme on a national scale. The government had set October 2006 for nationwide implementation, but late last month, Petroleum Secretary said 25 per cent of the country was being targeted by the end of January 2007.   

IOC set to open LPG outlets in Punjab

January 5, 2007. The Indian Oil Corporation (IOC) is set to introduce large petrol pumps equipped with dormitories, restaurants and eateries for the convenience of travellers. The corporation has recently launched the first auto LPG outlet in Punjab at Amar highway filling station at Pragpur on the city outskirts here.  The IOC is planning to launch LPG stations in Punjab to cover the state by the end of next year an auto LPG dispensing station would cost about Rs 50 lakh. Auto LPG is the fuel for the future and the IOC is striving hard to maximize its usage. LPG as auto fuel is lead-free and is a much cleaner fuel which leaves no residue. It is better than petrol as it reaches the engine in a pure gaseous form leading to an improved and a smooth combustion as a result of a higher octane number.

ONGC scraps retail plan

January 3, 2007. Low-to-negative margins on sale of petroleum products have forced some companies to scrap their retail expansion plan, while others have chosen to go slow. The country’s largest upstream company - Oil and Natural Gas Corporation (ONGC) - which was planning to add 600 outlets to its existing single outlet, has dropped its retail plans altogether because of the current pricing situation. Oil marketing is dominated by government-owned companies. The largest marketer - Indian Oil Corporation - is losing about Rs 50 crore a day owing to negative margins. Its smaller rivals - Bharat Petroleum and Hindustan Petroleum - are also incurring heavy losses. That explains the go-slow at companies such as Bharat Petroleum. It commissioned 902 retail outlets last year (2005-06), while in the April-November (2006) period, it has commissioned only 207 outlets. 

After the dismantling of the administered price mechanism (APM) for petroleum products in 2002, the government had opened up the market for retailing of petroleum products for companies which had invested Rs 2,000 crore in the sector.  Private sector player Reliance Industries has a nod to open 5,849 outlets, while Essar Oil and Shell was given the go-ahead for 1,700 and 2,000 outlets respectively.  However, the number of retail outlets by the new players have not been significant. Data till the end of September 2006 shows that Reliance currently owns 1,287 outlets, while Essar and Shell have opened 514 and 17 outlets respectively.  The company decided to go slow when it was forced to sell products at prices higher than that offered by the state-owned companies supported by subsidy.   

PM Diesels to launch CNG, LPG engines

January 3, 2007. Rajkot-based PM Diesels Ltd (PMDL), which manufactures diesel engines under the `Fieldmarshal' brand, is set to launch CNG (compressed natural gas) and LPG (liquefied petroleum gas) engines.  The company has presented the models for certification at the Automobiles Research Association of India (ARAI) - Pune. Once certified, the company plans to supply the gas engines to leading automotive manufactures including Bajaj, Piaggio, Force, Mahindra & Mahindra, Scooters India among others.  The company plans to convert at least 5,000 vehicles to CNG or LPG in Rajkot alone, followed by 40,000-50,000 across 21 districts in Gujarat after Ahmedabad, Baroda, Bharuch and Surat. It is aiming at a vehicle base of 3-5 lakh across the country. 

Transportation / Trade

M’shtra turns saviour for GAIL's Uran pipeline project

January 9, 2007. The Maharashtra government extended a helping hand to the Gas Authority of India (GAIL) for completion of its Dahej-Uran gas pipeline by March this year. Work on GAIL’s proposed Rs 1,836-crore, 485-km natural gas pipeline, which will eventually supply gas to the Dabhol power plant, has been held up due to farmers’ agitation in Thane district. The gas major has drawn much flak for the delay and aims to wrap up the work by March. The Dahej-Uran pipeline will subsequently be linked to another line from Panvel to Dabhol costing at Rs 1,330 crore. The pipeline will pass through 63 villages covering at least five talukas of Thane district. The local villagers are up in arms asking for a higher compensation package in lieu of their land. And it’s some organisations like the Shramik Sena and Kunabi Sena, which have been reportedly instigating farmers to go in for a higher payment.

Dabhol to get cheaper LNG

January 6, 2007. Ratnagiri Gas and Power (RGPPL) will start generating power from April using LNG. Petronet LNG (PLL) has arrived at an informal arrangement with suppliers to buy 1.2 million tonnes of LNG over two years. The gas will be sold to RGPPL at subsidised rates. The petroleum ministry is working out a formula by means of which RGPPL will get subsidised LNG at the cost of other gas users. The ministry is likely announce this formula by mid-January. RGPPL is currently generating electricity at Rs 5.25 per unit using naphtha as feedstock. It is buying naphtha from IndianOil at about $500 per tonne, a considerable premium over prevailing Brent prices. PLL has been appointed as a nodal agency for sourcing LNG for RGPPL after GAIL failed to source LNG at agreed prices. RGPPL is has written to the power ministry seeking customs duty exemption on LNG imports. Meanwhile, PLL is negotiating with Shell to use the latter’s Hazira terminal to import 1.25 million tonnes of LNG for gassification, from where it can be pumped into Gail’s pipeline network. 

India may get 2 new LNG terminals by 2009

January 5, 2007. Come 2009, and the country will have doubled its LNG terminals to four from two, at present, if Petronet LNG’s Kochi terminal and the Dabhol terminal go according to schedule.  The two terminals are being planned at Ennore by the Indian Oil Corporation and at Mangalore by the ONGC, which will take the total LNG handling capacity to around 40 million tonnes.  However, some analysts and industry players are of the view that with all the gas being discovered in the east coast, not all of these terminals may be viable.  The large amounts of gas discovered, estimated to be almost 55 trillion cubic feet, by companies like the ONGC, Reliance Industries and the Gujarat State Petroleum Corporation (GSPC) in the east coast may make importing LNG unviable. 

India to sign 25-year deal for Australian LNG

January 3, 2007. India expects soon to ink a deal to buy 2.5 million tonnes a year of liquefied natural gas (LNG) from Australia to secure energy supplies as Asian demand grows.  The LNG will come from Australia's Gorgon development. The company expects a deal by end-June after negotiations with the project's joint venture partners Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell. India, which imports more than 70 percent of the fuel it consumes, wants to ensure adequate supplies to sustain an economy growing at more than 8 percent a year. It is also negotiating LNG purchases with Iran. India's domestic gas production was seen at 200 million cubic metres a day in the next five years. Petronet says India's regasification capacity for LNG gas super cooled and shipped by tanker stands at 10 million tonnes a year. India imposes price controls on domestic gas sales, keeping prices below world market levels. However, the LNG is destined for industrial users such as fertiliser manufacturers and power stations, which will have to pay market rates.   

GAIL, ONGC to ink gas marketing pact

January 3, 2007. State-owned gas utility GAIL and Oil and Natural Gas Corporation are joining hands for transporting and marketing gas from flagship explorer's new finds in the Krishna-Godavari and Mahanadi basins off the Andhra and Orissa coasts, respectively. The two are working on a draft MoU which is expected soon. ONGC is yet to make the finds official as these have not been vetted by the exploration regulator. But executives estimate the Krisha-Godavari find to yield over 21 tcf and the Mahanadi field 3-4 tcf gas. It has several smaller fields in the region which together will yield another 3-4 tcf. GAIL had initially sought sole marketing rights just as it has in fields that had been given to ONGC before the government started auctioning acreages. ONGC declined and suggested joining hands for laying pipelines and "cooperation" in marketing operations that could include piping gas to households. GAIL's participation will end its grumblings over the oil ministry's decision to allow ONGC to set up a plant for separating petrochem-making elements from LNG being shipped in by Petronet at Dahej in Gujarat. After recent change of guards at both companies, GAIL renewed its pitch for a reversal of the decision without much success as ONGC has made substantial investments to complete half the work. The tie-up is in line with an emerging trend where entites which have gas are joining hands with firms having marketing network or expertise. A case in point is RIL working out a joint venture with IndianOil Corporation for piping gas to households. Here the state-owned refiner-marketer has a network of petrol pumps, while Reliance will supply gas from its 2002 find neighbouring ONGC's field off the Andhra coast.

Policy / Performance

ONGC, Shell in talks for Sakhalin gas liquefaction

January 8, 2007. Oil and Natural Gas Corporation (ONGC), through its consortium partner in the Sakhalin-1 field in Russia Exxon Mobil, is in talks with Royal Dutch Shell for liquefying the gas from the fields before it is exported to China. The operator of the field, Exxon Mobil, had on October 19, 2006, signed a preliminary agreement to sell all of the natural gas exports from the field to China National Petroleum Corporation (CNPC).  The agreement has led to a Sales and Purchase Agreement with the Chinese company, the process of which has already begun.  Exxon Neftegas, Exxon’s Sakhalin subsidiary, has already submitted the first draft of the deal to CNPC in December 2006.

ONGC, through its overseas arm ONGC Videsh, owns 20 per cent stake in the Sakhalin-1 field. Exxon holds 30 per cent stake while Rosneft owns 20 per cent. The consortium is looking to work out an agreement through which the gas will be liquefied at Shell’s liquefaction plant in the Aniva Bay in Sakhalin. This plant, located in the block adjoining the Sakhalin-1 field, has a 9.6 million-tonne per annum capacity. The plant, set up under Sakhalin-2, has already contracted to sell more than 7 million tonne of LNG to Japanese and Korean buyers. 

The consortium aims to sell 8 billion cubic metres of gas per year to China. Exxon is also in talks with Gazprom to secure access to China via the company’s pipeline network. The price at which the gas would be sold to CNPC is not known yet. Currently, gas from Sakhalin-1 is only sold within Russia. Sales stand at 1.7 billion cubic meters a year. The potential recoverable reserves of Sakhalin-1 are 2.3 billion barrels of oil and 485 billion cubic meters of gas.


OVL likely to form joint venture with Venezuelan co

January 8, 2007. ONGC Videsh Ltd (OVL), the overseas investment arm of ONGC engaged in exploration and production (E&P) of oil and gas outside India, is hopeful of inking a joint venture agreement with PDVSA, the national oil company of Venezuela, soon. Since PDVSA is a national oil company, Governmental approval is required before signing the joint venture. Subsequently, a joint working group will be formed to examine possible business opportunities. There are also indications that OVL may join hands with other international oil and gas companies to tap exploration opportunities in Venezuela. OVL has been offered 30 per cent participating interest in San Cristobal oil block in Venezuela. The oil field is expected to produce 100,000 barrels of oil per day. Apart from E&P activities, the OVL team has initiated a work programme on reserve quantification and a certification project. ONGC is one of the few MNCs invited by the Venezuelan Government to participate in the biggest-ever reserve quantification and certification project in the Orinoco heavy oil belt, along with other companies. A hydrocarbon agreement between India and Venezuela was signed in March 2005.

Full customs waiver for core projects in petro sector unlikely

January 8, 2007. The finance ministry is not in favour of a zero project import duty structure for infrastructure projects in the petroleum sector. Against the petroleum ministry’s demand for nil customs duty on capital goods imported for new refineries, refinery expansions and pipeline projects, the finance ministry is, however, open to providing a partial duty relief by reviewing the existing duty structure. It is said that there was a strong possibility of the finance ministry doing away with the additional 16% duty on project imports, imposed as the countervailing duty (CVD). Currently, the customs duty on project imports for new refineries is a 5% basic customs duty plus a 16% CVD, besides the 2% education cess. The customs duty on pipeline projects is a 15% basic customs duty, besides an education cess of 16 and 2% respectively. Any reduction in the project import duty for refineries and pipeline projects will benefit companies like Reliance and Essar in the private sector and HPCL, BPCL and IOC in the public sector. While RIL is executing a new 27 million tonnes per annum export-oriented refinery at the Jamnagar SEZ, Essar is in the process of expanding its recently commissioned refinery from 10.5 mtpa to 40 mtpa by 2010.

State-owned oil refiners like HPCL and BPCL are moving ahead with their refinery projects at Bhatinda in Punjab and Bina in Madhya Pradesh respectively, while IOC is in the process of putting up a 12.5 mtpa export-oriented refinery at Paradeep in Orissa. A total of 92 million tonnes of new refining capacity is expected to be added in the country during 2007-12, with the PSU plan expenditure alone being of the order of Rs 85,000 crores. According to petroleum ministry, the existing high level of project import duties for infrastructure projects in the petroleum result in a higher cost of refining, thereby making exports less lucrative. “Exports of petroleum products are the largest commodity exports of the country and exceeded $8.3 billion is the first five months of the current financial year. Refineries need to be cost effective and it is essential that the project cost be not inflated due to taxation on project imports,” as per the petroleum ministry’s proposal to finance ministry

ONGC pulls ex-staffers back into fold

January 8, 2007. ONGC has succeeded in drawing back talent lost to its more glamorous private sector competitors like Reliance, Cairn and Essar, reversing a brain drain that began five years ago - it has steadily lost nearly 550 experts to private oil companies. The public sector oil major has received over 300 applications from highly qualified technical experts working in private oil companies. Most of these candidates are former ONGC employees. Two months ago, ONGC invited applications from ex-employees, who wanted to work for the company again. ONGC has, at the same time, made it clear that it’s not a dumping ground. Not all those who want to come back will be absorbed. Re-induction of former employees would be a one-time initiative and selection would be based on merit, experience, qualification and skills acquired during the severance period. For exceptionally deserving candidates, ONGC is even willing to relax selection criteria like age or qualifications. It is hard to believe that people who are experts in their fields are willing to give up fat pay packets offered by private companies for coming back to a PSU.

Oil minister for infrastructure status to E&P business

January 5, 2007. Petroleum Ministry has demanded that oil and gas exploration business and pipelines be granted infrastructure status to encourage prospecting in unexplored basins. Only 31% of India's sedimentary basins have been explored till date. India has set an ambitious target of reaching 60% by the end of 11th Plan period 2012. For giving fillip to E&P activity, the petroleum ministry wants the business to be granted infrastructure status entailing a 10-year tax holiday to companies. In its wishlist for the Budget 2007-08, "Domestic E&P investments are the need of the hour, considering the growing oil import dependence of the country." Besides E&P business, the ministry also sought tax holiday for LNG import and re-gasification projects, cross-country pipelines for crude, gas and petroleum products and crude and product import facilities. Facilities put up in the oil sector are no less than other infrastructure projects as they service the energy needs of the nation. Allowing them the benefit of infrastructure projects will facilitate creation of additional resources, which can be utilised for further development of the oil sector to service the needs of the growing economy. The ministry was also for withdrawal of service tax on 'Survey and Exploration of Mineral' to promote domestic E&P.

Feasibility report on gas to be prepared

January 5, 2007. With industries continuing to move towards Uttarakhand, the state is now mulling the idea of having alternative sources of energy in gas, which will also help in running industries. For this purpose, the government has already roped in the Gas Authority of India Ltd (GAIL) to jointly examine various project opportunities for natural gas in the state and undertake extension of the National Gas Grid to Uttarakhand. The State Industrial Development Corporation of Uttarankhand Ltd (SIDCUL), a government enterprise which has developed several modern industrial estates, had signed a MoU with GAIL last year. And now, a move is afoot to prepare a report on the amount of money required for the project.   An exercise is also being conducted for assessment of the demand of natural gas and allied products in the state. It will also promote usage of gas like CNG and Regasified Liquefied Natural Gas (RLNG) and Piped Natural Gas (PNG) in the state.  GAIL’s existing HBJ trunk pipeline networks in the neighbouring state of Uttar Pradesh will have the nearest tapping point at Bareilly from where clean fuel like natural gas could be made available in Uttarakhand via two points.  The first route will lay a 95-km pipeline network to Rudrapur, Ramnagar and Haldwani from Bareilly. The other route as envisaged in an extension of gas pipeline from Dadri to Haridwar and then to Dehra Dun after laying pipeline of 200 km. According to the preliminary survey carried out by GAIL, an initial demand of 2.13 MM Standard Cubic Meter per Day (MMSCMD) of natural gas is projected after considering both the routes, assessing the existing industries in the region which will increase substantially in view of increased demand in industrial, commercial, domestic and CNG sectors.  The demand for power is likely to increase this year as more and more industries in the state began their formal operations.

Auto fuel doping to be mandatory from ’12

January 5, 2007. Call it the green fuel impact — Indian automakers will soon need to tweak the car engine specifications and designs to cater to the new fuel policy, which will mandate a compulsory doping of 10% to 20% of ethanol/vegetable oil in auto fuel. The government is working on a proposal to compulsorily blend more than 10% green fuel with petrol and diesel from 2017. The recommendation is part of the National Policy on Bio-fuels, which awaits the Cabinet’s approval. Targets for operation of petrol and diesel vehicles on bio-fuel would be set on the basis of a road map which would provide detailed rules related to conversion from petrol to bio-fuel in vehicles. The draft policy was initiated to reduce the growing dependence on fossil fuels and promote a greener alternative.

The short-term target is 5% blending by 2012 and 10% by 2017. The government will, however, go for 10-20% blend beyond 2017 as its long-term goal. This would require vehicle manufacturers to revisit their engine manuals. Beyond 10% doping of fuel, modification of engines and some automotive parts are required. The apex body, the National Biofuel Development Board, will work under the Prime Minister. The nodal ministry would be the ministry of new and renewable energy (MNRE). The board will comprise of ministries of agriculture, petroleum, biotechnology, science and technology, rural development and the Planning Commission. The price of biofuels and potential seeds like Jathropa could be determined by the apex body. If need be, the board is meant to decide the minimum purchase prices of seeds and oil. The policy also proposes to give fiscal incentives to bio-fuel producers with immediate effect. It is likely that the government may provide import duty protection to domestic biofuel producers. The policy will also provide alternative routes for production of ethanol like from cellousic materials. Development of other potential seeds besides Jathropa is also addressed by the policy. To promote such R&D projects, the policy provides for fiscal incentives in support of such projects. It also asks for modification of land policies at the state level addressing use of degraded land for plantation of such seeds and adopting plantations on a PPP model. 

BGL to have new equity partner

January 4, 2007. Bhagyanagar Gas Limited (BGL), the joint venture company of GAIL (India) Limited and HPCL supplying CNG and piped gas in Andhra Pradesh, may soon have a new equity partner from the private sector. GAIL has conveyed clearly to the Andhra Pradesh government that it is open to private participation from the owners of gas from the Krishna Godavari basin. This implies that either Reliance Industries Limited (RIL) or Gujarat State Petroleum Corporation (GSPC), both of which are private sector companies with huge gas reserves in the KG basin, may pick up equity in Bhagyanagar Gas Ltd. As a leading pipeline transmission company, GAIL has also conveyed its interest to lay pipelines on the ownership/joint venture basis for effective utilisation of gas available from KG offshore. However, as under the new gas pipeline policy, the final approval on laying any new pipeline rests with the petroleum ministry/regulator and GAIL or its JV partners will have to approach the Centre in this regard.

Customs duty cut on LNG import for Dabhol sought

January 4, 2007. The Ratnagiri Gas & Power Pvt Ltd (RGPPL), which has acquired 2,184 MW Dabhol project, has requested the power ministry for a customs duty exemption on liquefied natural gas (LNG) import. RGPPL's plea is crucial as the company is planning to shift its project operation to LNG from naphtha after March. The government has already given custom duty exemption on imported naphtha after the project was resumed in July. Petronet LNG Ltd (PLL) will annually import 1.2 million tonne LNG between March 2007 and June 2009 at its Dahej terminal and the regasified LNG will be supplied through the proposed Dahej-Panvel-Dabhol gas pipeline of GAIL India to the project. The company has argued that the waiver in the customs duty would help bring down the per unit tariff substantially. GAIL India, which has failed to close LNG supply deal for the project, has communicated to the Centre that the Dahej-Panvel-Dabhol pipeline would be ready by March.

RGPPL has called upon the power ministry to take up the matter with the finance ministry for issuance of the suitable modification to relevant customs notification for facilitating customs duty-free import of LNG by PLL or any other designated agency at any terminal. The finance ministry had issued a customs notification on September 30, 2005, exempting LNG imported by RGPPL for the purpose of generating power from levy of customs duty for a period of five years beginning October 2005. However, due to non availability of LNG, RGPPL was forced to restart the project from April 30 last year on naphtha.

OPEC ministers to attend oil conference in India

January 4, 2007. Key oil ministers from Saudi Arabia, Iran, Venezuela and Qatar are expected to attend a conference in the Indian capital at which India will present itself as a destination for investment in oil and gas exploration. The key ministers, representing the Organization of Petroleum Exporting Countries, have confirmed their participation in the Petrotech-2007 conference. The conference, to be held in New Delhi Jan 15-19, will also be attended by representatives of global energy companies.



Merchant plants to hike capacity by 10,000 MW

January 9, 2007. The government plans to “facilitate” setting up of around 24 merchant power plants over the next 3-4 years. The plants, with a total capacity of 10,000 MW, will be allowed to sell power at market rates, unlike other plants which sell at prices decided by regulators. The power ministry has issued guidelines for setting up these plants, for which captive coal blocks will be allotted. The promoters of merchant plants will not enter into long-term contracts with buyers through power purchase agreements (PPAs). Instead, the tariff they charge will depend on demand and supply. Also, the risks of merchant power plants are carried on the balance sheet of the promoters, unlike conventional utilities.   

The government has asked the Power Finance Corporation (PFC) to identify sites for the plants and prepare project reports. The sites have been broadly identified but their feasibility will be assessed by consultants. Initially, the merchant plants will be thermal. The power ministry, which is looking at merchant power plants to provide the huge generating capacity that the country requires in the near future, plans to give incentives in lieu of the high risks that the promoters face. Experts say that financial institutions will be keen to fund these plants considering the success of ultra mega power projects. The prominent players like Reliance Energy and the NTPC have shown interest in developing merchant power plants. The large merchant power plants with a capacity of 500-1,000 MW would be provided coal linkages and captive coal blocks. The power ministry, in consultation with the ministry of coal, has identified 15 coal blocks with estimated reserves of about 3.6 billion tonnes for this. Out of these, coal blocks of aggregate reserves of around 2.4 billion tonnes are expected to be considered for merchant power plants. 

$0.9 bn power project for Essar

January 5, 2007. The Gujarat government awarded the 1,000 MW imported coal-based power project to Essar Power at the end of a long bidding process. The proposed project will be set up at Jamnagar.  The other companies in the race for the power project were China Light & Power Hong Kong, Tata Power and Torrent Power. Essar Power had quoted Rs 2.40 a unit – the lowest bid for the project. The state government had invited bids for imported coal-based power projects at various locations across the state.  Essar is considering its proposed SEZ for petrochemicals as a possible location for the power project near Jamnagar. Essar Power is currently executing a captive gas-based combined cycle power plant of 355 MW capacity at Hazira to fulfill the rising demand for power of its group company Essar Steel. The project, whose first phase has already been commissioned, is expected to complete by March 2007.  The company has commissioned a 120 MW co-generation plant at Vadinar, for captive use by Essar Oil’s refinery and a 25 MW coal-based plant at Visakhapatnam for captive use by Essar Steel recently.  It is finalising plans for a 1,500 MW gas-based project at Hazira. Essar Power is also exploring opportunities for new projects based on thermal, wind and hydel energy. 

HP mulls spending $18 bn on power sector

January 4, 2007. To exploit the untapped hydel potential of Himachal Pradesh, the state government plans to invest Rs 80,000 crore ($18.12 bn) in the next decade and rope in top private and state-run companies.  This will help Himachal become the power centre of the country. At 21,000 MW, the hill state has a quarter of the entire country's power potential. Himachal achieved 100 per cent electrification way back in 1988 and it offers the lowest power tariffs in the country to all segments of consumers. Over 78,000 km of overhead lines have been laid. The highest power project in the country is located at Rongtong at 13,000 ft above the sea level and the country’s highest village Komik at 15,025 ft above the sea level has already been electrified. Projects up to 2 MW will be earmarked for locals, and preference will be given to locals for investing in hydel projects up to 5 MW. Projects above 5 MW and up to 100 MW shall be allotted to Independent Power Producers (IPPs) through memorandum of understandings route by giving wide publicity for attracting the bidders and above 100 MW through international competitive bidding. The Himachal government will have the right to equity participation in the private sector projects of above 100 MW up to 49 per cent.

Raj West Power in deal to set up power project in Barmer

January 4, 2007. Rajasthan will soon have another lignite-based power project. Rajasthan State Mines & Minerals Ltd (RSSML) has signed an agreement with Raj West Power Ltd for setting up a Rs 5,000-crore lignite-based power plant of 1,000 MW as a joint venture in Barmer district. This would be a state government enterprise and in this venture RSMML would have a 51 per cent stake. Lignite for this power plant will be supplied by RSSML through its Jalipa and Kapurdi mines in the district. This would be the second major lignite power project in the state. Neyveli Lignite Corporation (NLC) has started work on the major lignite-mining-cum-power project in Bikaner district.

RIL to set up 1,000-MW Jamnagar power plant

January 4, 2007. Reliance Industries (RIL) is planning to set up the country’s first integrated gasification combined cycle (IGCC) plant in Jamnagar. The plant will produce power and hydrogen, besides petrochemicals. The petcoke-based power plant is expected to generate at least 1,000 MW. RIL would be investing a little over Rs 10,000 crore on this project, which will set in a new level of thermal efficiency in the country. RIL is in talks with Shell and GE Texaco for the technology and a decision on a technology partner will be taken shortly. The project is set to commissioned in about three years.

RIL plans to use petcoke, a refinery residue which is usually blended with coal to be used as fuel for power plants. The IGCC technology would provide for the petcoke to be gasified before it can be used to produce heat and electricity, fertilisers, hydrogen and petrochemicals. While RIL itself would need to ramp up its power capacity to meet its increased requirement, there is also a demand from other players setting shop within the RIL SEZ for power and water. RIL’s advantage lies in the fact that the plant will use refinery residue and produce power which is much cleaner than coal. Petcoke has a higher calorific value of almost 8,400 kilocal/kg as compared to 4,000 kilocal/kg in the case of coal. While the thermal efficiency, a measure of the efficiency to convert fuel to energy, is 35% in coal-based power plants, in IGCC plants it could be as high as 50%.

Transmission / Distribution / Trade

PowerGrid seeks $2 bn loans; plans IPO in April-May

January 4, 2006. Power Grid Corporation of India Ltd (PGCIL) hopes to conclude loan agreements with World Bank and Asian Development Bank next year for $2 billion to fund power transmission projects. The state-owned utility also plans to come out with an initial public offering in the first quarter of the next fiscal to part-finance its expansion plans. The loan is likely to have tenure of 20 years. The company proposes to fund transmission projects, which includes building lines to carry power from the seven proposed Ultra Mega projects to ramp up the country's power generation capacity to 2 lakh MW by 2012. The company also plans capital expenditures of up to Rs 9,100 crore during the next fiscal to fund ongoing and new projects. During the current financial year ending March 31, the company expects to spend around Rs 6,100 crore, compared with an initial target of Rs 4,800 crore. PGCIL will enter the capital market with an IPO in the first quarter of the next fiscal.

APGenco invites gas project bids

January 3, 2007. Andhra Pradesh Power Generation Company (APGenco), which has launched a capacity addition programme of 4,053-MW, has invited competitive bids for 2,100-MW gas-based project at Karimnagar. The project, which entails an investment of Rs 5,520 crore, would be implemented through a SPV—Andhra Pradesh Power Development Company which is a joint venture of APGenco and Infrastructure Leasing and Financial Services (ILFS). The combined cycle power plant would consist of three blocks of 700 MW each. The upcoming project would need around 9.72 million standard cubic meter per day (of gas). The project is expected to commission in the 11th Plan period. The bidder should be a gas turbine manufacturer who has manufactured, supplied and commissioned at least two gas turbines, each of at least 95% ISO rating of the offered gas turbine model which is in operation. The bidder should have at least $500 million average annual turnover in the past three years. The developer can source gas from the Krishna Godavari basin so the per unit tariff can become competitive.

Policy / Performance

Priority to reforms in power sector: PM

January 8, 2007. The government has called a meeting of chief ministers to address issues related to the power sector, the Prime Minister said that cleaning up the sector was one of his priorities. The meeting of chief ministers, which has been called in February, will address the bottlenecks constraining the power sector, particularly the viability of distribution companies. It is my solemn assurance that the power sector will secure the priority attention of our government this year, which it deserves. The government was in the process of finalising a new rehabilitation policy in three months to deal with issues arising out of land acquisition for industrial use. The Prime Minister also wanted the domestic industry to be prepared for increased integration in South Asia, particularly Pakistan, with which he hoped a peace treaty would be reached.

Policy soon on giant hydro power

January 8, 2007. The government is mulling a policy for developing hydro-power capacity, under which projects, possibly of 2,000-3,000 MW each, would be drawn up and offered to private and public sector developers. The policy for ultra mega “hydro” projects is expected to mirror the one put in place last year for ultra mega “thermal” projects, two of which were recently bagged by private sector developers. The 4,000 MW each projects at Sasan in Madhya Pradesh and Mundra in Gujarat were bagged by Lanco Infratech and Tata Power, respectively.  The two developers’ bids — Rs 1.196 per unit by Lanco and Rs 2.26 per unit by Tata Power — are extremely competitive and are being seen as a new benchmark in thermal power generation. 

The ministry is in the process of finalising the project sites. So far, none has been finalised. The policy blueprint is likely to be drawn up in a month’s time. It is likely that the 3,000-MW Lohit hydro-power project, located close to the Indo-China border in Arunachal Pradesh, would be made a part of the initiative.  The power ministry was looking at adopting the special purpose vehicle route for the ultra mega hydro projects, as had been done for ultra mega thermal projects. Already, a Cabinet note has been put up by the power ministry to give parity to private developers vis-à-vis the public sector for generation of hydro power.  According to the draft policy for development of hydro projects by the private sector, finalised by Union Power Secretaryrecently, the existing system of allocation of projects by states would be extended to the private sector. Himachal Pradesh, Uttaranchal, Sikkim and Arunachal Pradesh have awarded 35 projects of 10,000 MW capacity to the private sector till date.  Another 35 projects of 3,000 MW capacity are in the process of being awarded by Himachal Pradesh. India has an estimated hydro-power potential of 1,50,000 MW, of which only 33,600 MW has been tapped. 

Reliance Energy, Tata Power in land slugfest

January 7, 2007. Tata Power Company and Reliance Energy (REL) are at loggerheads once again. At stake is a 1,300 acre site on the Maharashtra coast where both companies want to build a power plant.  While REL had approached the state revenue department to acquire land for its 2x2,000 MW imported coal-based plant, the Tatas approached the state industrial development corporation, MIDC, to acquire the land for their 1,600 MW plant, under the MIDC Act. While MIDC has notified the land acquisition and is planning a public hearing, the state revenue department is yet to notify the land requested by REL.  However, Reliance's proposal was approved earlier by the state government, which now finds itself in the unenviable position of having to sort out who gets the land. Tata Power's original plan was to set up the plant at Vale-Bagad village in the same district. The company, however, decided to move to the new site in June last year. 

DVC, CIL plan JV for mining, eye coal blocks

January 6, 2007. Damodar Valley Corporation (DVC) and Coal India Ltd (CIL) have decided to form a joint venture for coal mining activities and procuring domestic and overseas coal blocks. The company may also take up activities for CIL's unutilised underground coal blocks. The financial and other details would be finalised after the boards cleared the proposal. DVC was keen on a majority stake in the venture.  The JV will facilitate assured coal supply to meet its expansion plans. DVC is adding 1,000 MW by March this year and plans to add 7,000 MW during the 11th Five-Year Plan period. 

‘Blended’ coal likely for coastal power plants

January 6, 2007. As the number of coastal plants increases in comparison to pit-head plants in the 4,000 MW ultra mega power project package, the government is considering revisiting the policy of depending on imported coal. It is, instead, considering shifting to blended coal — a blend of domestic and imported coal — for coastal projects. If the government does finally decide to go with blended coal, then only two of the coastal ultra mega power projects — Mundra (Gujarat) and Krishnapatnam (Andhra Pradesh) — will be fired by imported coal. On last count, there will be at least six coastal ultra mega power projects. Of these, the Mundra project has been awarded to Tata Power, while bidding is on for Krishnapatnam. It is likely then that the projects at Chayyur (Tamil Nadu), Nagapatnam (Tamil Nadu), Tadri or an alternative site in Karnataka and Girye in Maharashtra will be considered to be run on a blend of domestic-imported coal. The government is looking at 40:60 or 50:50 ratio of imported-to-domestic coal.

Given the results of the bidding for the Mundra power project, the power ministry argues that it is not tariff that is behind the rethink on imported coal. For Mundra, the tariff ranged from Rs 2.26 to Rs 3.70 per unit — with four of the five bids quoting tariff less than Rs 2.80 per unit. However, it would seem that given the volatility of the international coal market, moving to a blended coal approach would have considerable price advantage. It would also ensure energy security whereby the country’s power needs would not be solely dependent on fuel imports. It would seem the decision to set up power plants based on imported coal was taken because though the country has coal reserves of more than 200 billion tonnes, the exploitable reserve would be less than 100 billion tonnes.

Panel to study coal-to-liquid fuel projects

January 5, 2006. The Prime Minister, Dr Manmohan Singh, has decided to set up an Inter-Ministerial Group (IMG) within the Planning Commission to examine the possibility of conversion of coal to liquid fuel and recommend a time-bound action plan. The decision follows a presentation by the Investment Commission suggesting that conversion of coal to liquid fuel and gas is feasible in India, and should become an integral part of the country's strategy for oil security. The commission said the country is expected to import over 90 per cent of its oil needs in the future and new domestic discoveries of oil and gas are not expected to substantially reduce oil imports. According to the commission, four to five coal to liquid projects can double domestic proven oil reserves and the proposed project will add 20 per cent to India's domestic proven oil reserves. The liquid fuel to be produced would be predominantly diesel but will also include naphtha and LPG. On the other hand, India's low-grade coal would not be a limitation as the fuel output would be ultra clean. The project, according to the commission, would need 1.3 billion tonnes of coal as captive mine to the project with open cast mining of pit-head coal and will require CTL to be notified as end use for captive mining.

NHPC outlines $6.79 bn capex

January 4, 2006. State-owned National Hydroelectric Power Corporation Ltd (NHPC) has outlined a capital expenditure of about Rs 30,000 crore ($6.79 bn) to more than double its existing generation capacity to 10,000 MW by the end of 2012. The company, which has an installed capacity of 3,755 MW at present, has lined up 14 projects to augment its generation capacity during the Eleventh Plan period. Of the proposed Rs 30,000-crore expenditure, internal accruals will account for Rs 4,800 crore and the Government's budgetary support would be to the tune of Rs 6,000 crore, while the company plans to raise Rs 1,000 crore from the markets through an IPO. The balance amount will come from domestic and international borrowings. NHPC already has two lines of credit worth Rs 9,000 crore with Life Insurance Corporation, of which around Rs 1,000 crore has already been used. Of the 14 projects lined up for the Eleventh Plan, 12 are already under various stages of implementation. "Clearance for the remaining two projects is awaited and we hope to get it before March this year, the two projects — Kotlibhel 1A and 1B in Uttaranchal — would generate 195 MW and 320 MW respectively and entail an investment of around Rs 2,500 crore.

NTPC in talks for gas project in Nigeria

January 4, 2007. After Sri Lanka, NTPC is now set to venture out into the mineral-rich lands of Africa. In a swap deal, the Rs 26,000-crore power company is all set to tie up an agreement with the Nigerian government to set up a 700 MW gas-fired plant in lieu of 3 million tonnes of liquefied natural gas per annum. The agreement is likely to be finalised in the next two months. The power major is also in the initial stages of discussion with the governments of South Africa and Mozambique for access to coal and gas. The Nigerian government has forwarded a draft MoU to NTPC, agreeing to allocate NTPC proven onshore gas blocks and gas resources of 3 million tonnes per annum.

NTPC would be required to develop these blocks and later set up a liquefaction terminal in Nigeria to export the LNG to its gas-fired stations in India. The investment proposal is being examined. NTPC is waiting advice from the government. NTPC’s expansion plans in Kawas and Gandhar have been on hold because of gas shortage. The company has had to buy gas from the spot market at $10 per mmbtu to run its gas-based plants. NTPC operates six gas-based plants at Gandhar, Kawas, Anta, Auraiya, Dadri and Faridabad. However, its average plant load factor (PLF) is only around 70% due to non-availability of adequate gas supplies.

Nine new cogeneration projects in Maharashtra

January 3, 2007. Cogeneration capacities in Maharashtra will receive a shot in the arm when the nine-cogeneration power projects will get commissioned this season in various sugar cooperatives in the state. These nine projects will create capacities of around 100 MW for the Maharashtra. 150 MW has been commissioned in Maharashtra through 12 bagasse-based cogeneration projects. Maharashtra had a bumper sugarcane crop season in 2006-07. Around 637 lakh tonne of sugarcane was crushed and the production touched 653 lakh tonne. Because of this, surplus power to the tune of 70 MW was generated in the existing 12 projects in 2006-07. The potential, however was as high as 1,000 MW. Sources revealed that the state has not been able to generate as much power from such cogen projects since it was difficult to raise the mandatory 10% equity.

CIL starts e-booking for premium sales

January 3, 2007. Coal India Ltd (CIL) has launched an e-booking scheme that will enable it to sell coal at premiums of 20-30% over the notified prices, even as its lucrative e-auction system stayed closed for the second month following a Supreme Court order. Kolkata-based CIL said the Union ministry of coal had cleared an interim coal sale policy that classifies consumers into two categories. The first includes the National Coal Consumers’ Federation, non-core linked consumers and state government agencies that resell coal to small users. Buyers in this category would get coal at 20% over the notified price. The other group consists of non-linked consumers as well as linked consumers who want more than their allotted quantity. This group would have to pay 30% more than the notified price. There is no end-use restriction for coal supplied under this category.

The margins in the e-booking system would be less than the highs of 30-40% in the highest-bid-wins e-auction system that helped subsidiaries like Bharat Coking Coal Ltd make their first profit since inception, while eliminating the Dhanbad mafia that skimmed the profits arising from market demand. Over the past few years, Coal India had been using the e-auction route to sell coal to the highest bidders from certain categories of consumers excluding core sector ones like coal and cement. However, in December last year, the Supreme Court ruled it was wrong to sell the same grade of coal at different prices, and asked Coal India to work out a suitable mechanism. The new e-booking system would continue up to January 31, 2007.

M’shtra to invite proposals for merchant power plants

January 3, 2007. In an effort to encourage merchant power plants (MPPs) in the State, the Maharashtra Government will soon invite proposals for setting up coal-based MPPs with capacity of 500 MW each. MPPs are primarily independent power plants, but not owned or controlled by the Government. Such plants are not bound to sell power to the State Government utilities and are free to negotiate tariffs with industrial consumers. They will supply power to customers in time-bound packages, having the option to trade power at spot rates depending on the market. Maharashtra Government would not make arrangements for coal linkages for such MPPs. The State Government will only facilitate land acquisition, water supply and other critical infrastructure for the setting up such plants. The State Government would conclude MoUs with companies wanting to set up MPPs only after they submit detailed project reports, audited balance sheets, and power off-take arrangements.

Torrent likely to take up power plant at Pipavav

January 3, 2007. The Torrent group is expected to take-up the mega 2,000MW power plant at Pipavav that was abandoned by the National Thermal Power Corporation (NTPC), recently. This imported coal-based power plant is to be set up at an estimated cost of Rs 8,000 crore. Torrent group’s Torrent Power is expected to sign an MoU for this project during the upcoming Vibrant Gujarat Investors’ Summit. Torrent is going to take an over 90% stake in the new company that will be formed for this project, while the rest will be held by Gujarat Power Corporation (GPCL) and possibly some other state PSUs. The Pipavav port operated by Maersk would facilitate the import of the large quantities of coal required for this mega power project. Torrent group may even set up its own captive jetty. Torrent Power is currently having a 500MW generation capacity of its own and another 1,100MW capacity is coming up at Sugen near Surat.




Iran, Malaysia sign MOU to develop southern gas fields

January 9, 2007. Iran and Malaysia signed a MoU for developing Iran’s southern gas fields. National Iranian Oil Company (NIOC) and Malaysia’s SKS Ventures signed a MoU for developing Iran’s Golshan and Ferdows gas fields. Following the signing of the MOU, SKS Ventures will begin complementary studies to pave the way for the final agreement. Located 180 kilometers southeast of the port city of Bushehr, Golshan Gas Field has an estimated reserve of over 50 tcf in place. The field is expected to produce 70 million cubic meters of gas per day once it is developed. Also located 190 kilometers southeast of Bushehr, Ferdows is estimated to have in situ reserve of 10 trillion cubic feet of gas. It is anticipated to produce 25 million cubic meters of gas per day after development. The MOU is worth at $16 billion, and includes the establishment of LNG production units in addition to developing the gas fields.

Nexen's Buzzard oil field begins production

January 8, 2007. Nexen Inc. it has begun producing oil from the massive Buzzard field in the North Sea, one the biggest finds in the region in more than a decade. The production from the 550-million-barrel field will reach a peak of 200,000 barrels of oil equivalent per day within six months. As the biggest owner and operator of the field with a 43.2-percent stake, Nexen's share of the production will be about 85,000 barrels a day. Nexen, Canada's No. 4 independent oil exploration firm, produced 148,000 barrels of oil equivalent a day after royalties, over the third quarter of 2006. Nexen's partners in the development include Petro-Canada with a 29.9 percent stake, BG Group, with 21.7 percent and Edinburgh Oil & Gas Plc., with a 5.2-percent interest.

Hardy oil reports offshore India discovery

January 8, 2007. Hardy Oil and Gas plc, the exploration and production company with assets in India and West Africa, announced the discovery of hydrocarbons in the well Fan-A-1. The CY-OS/2 license, in which the Company owns a 75% participating interest and is Operator, is located in the Cauvery Basin on the East Coast of India. Drilling has been completed in the exploration well to a depth of 4089m. During drilling, several sand bodies with a high pressure of hydrocarbons were encountered in the Cretaceous section of the well, of which five were identified with potential for production of hydrocarbons. Three of these intervals were chosen for production testing. The first zone at 3755m - 3817m was perforated over 9m and flowed both gas and 42deg API oil to the surface. However, the test had to be aborted prematurely due to mechanical problems in the DST string. The Company is considering the option to sidetrack and retest the zone after completing the testing of shallower intervals. The second interval at 3565m - 3569m is currently being tested and recorded an initial rate of 10mmscf/d with a condensate content of approximately 20bbls/ mmscf, on a 52/64" choke from a 4m interval. MDT pressures recorded in this zone were in the order of 7800 psi. The Company plans to move to the next shallower interval at a depth of 3333m after completing testing at the current interval of 3565m - 3569m. Hardy plans to submit a detailed appraisal program for the contract area to the Government of India, as soon as the preliminary review of the test results is completed.

Oil companies to invest $85 bn in Brazil

January 8, 2007. Oil companies plan to invest some $85.3 bn between 2007 and 2010 in exploration projects in Brazil. Up until now, most of the investment in exploration in this South American nation has come from Brazilian oil giant Petrobras, but 25 percent of the new funds, or some $21.3 billion, will be provided by both domestic and foreign private oil firms.  The expanded role for foreign firms comes nearly a decade after Brazil ended Petrobras's nearly 50-year monopoly on oil exploration, production, refining and distribution in 1998. The 57 oil companies, including Petrobras, were currently operating in Brazil, with 52 of the firms managing projects in the exploration phase and 17 working on the development phase of projects. 19 new domestic oil and natural gas fields were commercially viable. The new studies were still needed to evaluate the size of the fields, the equivalent of 2.1 billion barrels could be extracted from the new areas. Petrobas has proven oil and gas reserves in Brazil totaling some 13.5 billion barrels and already produces enough crude to make Brazil self-sufficient.

Thailand awards four petroleum concessions

January 8, 2007. Thailand awarded petroleum concession rights to four consortiums, allowing them to explore for petroleum in the Gulf of Thailand as well as in onshore blocks. Among the winners for offshore blocks in the Gulf of Thailand are Pearl Oil Esarn for Block G2/48, Northern Gulf Oil (Thailand) for Block G3/48, and Occidental Exploration Pte. for Block G6/48. Pan Orient Energy Corp. won the concession for onshore Block L53/48. The operators will have to pay around $19 million for a six-year exploration concession for each block. If petroleum is discovered, they will have to apply for production rights, which are valid for 20-30 years. The Thai government had offered a total of 82 offshore and onshore blocks, totaling 440,704 square kilometers in area. The next round of bidding is expected to open around May.

Cuba produced 3.9m tons of oil and gas in 2006

January 5, 2007. Cuba fulfilled its plan to produce 3.9 million tons of oil and natural gas in 2006, and it continues exploration activities at 30 wells operated by foreign firms and state-owned Cubapetroleo. That production is equivalent to 69.6 million barrels of crude and represents a nearly sevenfold increase over the figure for 1990. The oil exploration efforts on the island began 10 years ago and intensified in 2006 with the inclusion of new foreign companies operating in Cuban territorial waters within the Gulf of Mexico. Cuba produces some 80,000 barrels each day of high-sulfur heavy crude, which it primarily uses to generate electricity.

Zambia invites tenders for new gas, oil fields

January 5, 2007. Zambia would invite tenders from oil firms to prospect for new petroleum and gas fields found in the country's north-west. The areas where the oil and gas reserves were discovered last year had been demarcated so that private firms could bid for specific blocks. The demarcated blocks are being published in the Government Gazette to invite bids from interested companies. The selection of successful bids will be done in the early part of 2007.

Indonesia's Pertamina to boost gas production

January 4, 2007. A subsidiary of state-owned oil and gas company Pertamina, PT Pertamina EP, will this year step up gas production at its Besi Tang field in North Sumatra to meet high demand for gas in Medan, North Sumatra's provincial capital.  Gas field development in the Besi Tang area will have economic value, as demand for gas in Medan is high. The Singaporean oil and gas firm has prepared up to US$1 billion to develop 14 Pertamina oil and gas fields including the Besi Tang gas field. Most of the oil and gas fields are old or have limited oil and gas deposits. Pertamina plans to raise its oil production from 140,000 barrels per day to 250,000-300,000 barrels per day and its gas output from 1,000 million cubic feet per day to 2,000 million cubic feet per day by 2010.

Total, Sonangol in oil discovery offshore Angola

January 3, 2007. Sociedade Nacional de Combustiveis de Angola and Total Exploration and Production Angola made a new oil discovery in Block 32 offshore Angola. Drilled at a water depth of 1,806 metres, the Salsa-1 well tested at a rate of 3,686 barrels per day of oil. Sonangol holds the concession rights for Block 32. Total holds a 30 percent interest as operator. Total's other partners in the contractor's group are Marathon Oil Company 30 percent, Sonangol E.P. 20 percent, Esso Exploration and Production Angola Limited 15 percent, and Petrogal 5 percent.

New natural gas discovery made in Libya

January 3, 2007. Repsol YPF in conjunction with Woodside Petroleum Ltd. reports that the C1-NC210 exploration well, drilled by Woodside, in NC210 in Libya's Murzuq Basin, has reached a total depth of 808 meters. The well is located approximately 1000km south of Tripoli, and 150 km south of the producing Al Wafa Gas Field. An initial production test of the Awaynat Wanin Formation confirmed the presence of a gas column and flowed 5.7 million standard cubic feet of gas per day (mmscfd) through a 72/64 inch choke. The Absolute Open Flow is calculated to be 10.7 mmscfd. A production test of the Mrar M7 reservoir confirmed the presence of a gas column and flowed 5.8 million standard cubic feet of gas per day through a 72/64 inch choke. The Absolute Open Flow is calculated to be 13.0 mmcfd. Repsol YPF, as a joint venture partner with Woodside Energy (N.A.) Ltd., the operator, is drilling the well under an Exploration and Production Sharing Agreement with the National Oil Corporation Libya.

Petrobras to invest $22.3bn to up production

January 3, 2007. Brazil's federal energy company Petrobras plans to invest 47.5 bn reals (US$22.3 billion) in 2007 to boost oil and gas production to 2.5 billion boe/d. Petrobras' board and top management has approved the investment program. Petrobras produced 2.3 billion boe/d in the first 11 months of 2006. Petrobras plans to invest 23.5 billion reals in E&P, 9.9 billion reals in supplies, which includes refurbishment and expansion of its refining park, 7.1 billion reals in gas and power, 4.6 billion reals in international operations and 953 million reals in distribution, the company said. Another 1.5 billion reals will go to improve its overall business performance. The 2007 investment program is 23% higher than the 38.5 billion reals earmarked for 2006. The company invested 22.6 billion reals in the first nine of months of 2006 and 25.7 billion reals in all 2005. BNamericas reported late last month the board was analyzing plans to invest 40 billion-50 billion reals in 2007. Petrobras in mid-2006 decided to increase its 2007-11 strategic investment program to US$87 billion, or an average of US$17.4 billion a year, from the annual average of US$10.6 billion set in the 2006-10 program.


Libya and Tunisia plan oil refinery

January 8, 2007. Libya and Tunisia are thinking of building an oil refinery and pipelines with the help of international investors as the North African neighbours step up economic co-operation. Libya and Tunisia planned to build a tourist village on their border and reiterated Libya's intention to establish a free trade zone in the nearby coastal town of Zwara Aboukammash. Tunisia has only one oil refinery, in the northern city of Bizerte, with capacity of 30 000 barrels a day. It has said it plans to build another, with capacity of 120 000 bpd, to meet the needs of its growing economy. It has far less oil than Libya, whose estimated reserves of 37 billion barrels put it among the world's top 10 oil reserve owners. Tunisia has already picked state-owned Qatar Petroleum and British company Petrofac as pre-qualified interested investors to build the plant.

Petron to build fuel blend plant

January 5, 2007. PETRON Corp. has signed two new agreements with Innospec Inc., in line with the Philippine refiner’s strategy of developing nontraditional revenue sources and taking advantage of overseas market opportunities. Under the Fuel Additives Blending Agreement signed between the two companies, Petron will construct and operate a $2.5-million blending plant in Subic Bay Freeport by the end of the year. The plant will serve the fuel additives requirements of Innospec’s customers in the Asia Pacific region, including Petron. The ten-year contract guarantees that Petron will be Innospec’s exclusive toll blender in the region.

The blending plant will serve as Innospec’s supply hub in the Asia Pacific region, as it positions itself to tap the fast-growing regional market and bring its products and services closer to Asian customers. Traditionally, Innospec products used in the region have been sourced from Europe. The other agreement between the two companies is for Technology Services and Marketing of Fuel Additives. Petron will provide technology support services to Innospec and its customers in the region, including customer technical programs, laboratory services, product development, field tests and consultancy services.

The agreement will allow Petron to tap the customer base of Innospec in the region to broaden the local refiner’s own lubricant brands. Innospec already serves a wide variety of power plants, refiners and manufacturers throughout the region, many of which are also users of lubricants. Petron-branded lubricants are already being sold in Cambodia and Indonesia. Besides lubricants, Petron has been exporting petroleum products in the region including industrial fuel oil, diesel and the petrochemical mixed xylene.

Transportation / Trade

Trinidad strikes natgas deal with BG Group

January 5, 2007. Trinidad and Tobago's state-owned National Gas Co. reached a preliminary agreement with BG Group and its partner Chevron Corp. for the supply of 220 million standard cubic feet of natural gas per day over 15 years. A fully termed sales agreement, to support several gas-based projects in the Caribbean nation, is expected to finalize later this year and initial deliveries would begin in 2009. The agreement underpins the commercialization of 1.2 trillion cubic feet of undeveloped gas in Trinidad's East Coast Marine Area.

S. Korea to sign for Australian LNG in mid-Jan

January 5, 2007. South Korea's state-run Korea Gas Corp. will renew its 7-year deal to buy 500,000 tonnes of liquefied natural gas (LNG) per year from Australia's North West Shelf by mid-January. The deal is to last from 2009 to 2016. The current deal expires in 2010. NWS currently has a production capacity of 11.6 million tonnes of LNG per year and will increase to 16.3 million from late 2008. The six equal partners in the NWS joint venture are Woodside, BHP Billiton, Chevron, BP Plc, Japan Australia LNG Pty. Ltd., a joint venture of Mitsubishi Corp. and Mitsui and Co. and Woodside's 34 percent shareholder, Royal Dutch Shell.

Policy / Performance

Iran, Turkey’s important natural gas supplier despite cutoffs

January 7, 2007.  Following Iran’s cutoff of natural gas because of the growing domestic consumption, Turkey began seeking alternatives to prevent future troubles. Botas authorities also said that they have taken all necessary measures to meet the demand for natural gas. Despite the cutoffs, Iran still remained a major natural gas supplier for Turkey. Turkey would resort to international arbitration if Iran would not pay compensation in connection with its noncompliance with the natural gas agreement between the parties. Recalling that there were no problems in terms of system balances, that Botas would be able to meet the household demands for natural gas in any case. Turkey continued its natural gas purchase from spot markets.

Texas-based group awarded $375 mn energy contract

January 6, 2007.  A Texas-based nonprofit consortium has been awarded a $375 million contract to manage research and technology for natural gas production and oil exploration and the development of new energy sources. The Research Partnership to Secure Energy for America will award contracts to universities, research institutions, national laboratories and industry partners. The 10-year contract was awarded to the research partnership by the U.S. Department of Energy. The group is based in the Houston suburb of Sugar Land. The contract is funded from royalties to the government that are paid by oil and gas companies using federal lands.

Vietnam approved offshore oil exploration

January 5, 2007. Vietnam's prime minister has given the go-ahead for joint oil exploration between Chinese and Vietnamese state oil companies in the Gulf of Tonkin. The China National Offshore Oil Corporation and the Vietnam Petroleum Corporation (PetroVietnam) agreed on the project in mid-November.

Russia increases gas exports to Turkey

January 6, 2007. Russia's energy giant Gazprom has increased its daily natural gas exports to Turkey by 14 million cubic meters to 84 million cubic meters following a temporary cutoff in supplies from Iran. It suspended gas supplies to Turkey to meet its own domestic demand, which dramatically increased due to unusually cold weather, but promised to resume them in 10 days. Under a contract, signed in 1996, Iran supplies Turkey with 27 million-28 million cubic meters of gas per day via a 2,500-km gas pipeline. But in late December gas supplies via the pipeline were reduced 10-fold to about 2.5 million cubic meters before being stopped completely.

Joint company to set up refinery, naphtha plant in Pak

January 5, 2007. Chairman Iran Foreign Investment Company has said that the company is keen in setting up a refinery, and naphtha cracker plant in Pakistan. Welcoming the Iranian dignitary the minister said that there existed a lot of potential for the joint venture company’s investment in oil refineries, LNG, LPG, CNG, coal power generation, gas pipeline and mineral projects. The government would welcome joint ventures' maximum participation in the oil and gas development activities for their mutual advantage. The government had finalised an ambitious energy plan to utilise the vast mineral deposits of Thar, Lakhra and Soda Jerruk for power generation up to 20,000 MW by the 2020 and added that the joint venture could also benefit the two countries by learning a lot from each others experience in coal power generation sector.

Daewoo Shipbuilding in Nigerian venture

January 3, 2007. Daewoo Shipbuilding & Marine Engineering Co., the world's second-largest shipyard, will form a venture with Nigerian National Petroleum Corp. to ship oil and cargo from the West African country. The venture's sales will rise to 1.2 trillion won ($1.3 billion) as operations pick up. The unit will begin by shipping oil out of Nigeria and will expand into transporting liquefied natural gas, chemicals and containers. The move into Nigeria is the fourth overseas project for Daewoo Shipbuilding and may help the company win contracts to build oil and gas platforms in the African country and to transport the fuels. Nigeria is the world's seventh-largest holder of natural-gas reserves. The venture will have initial capital of $10 million and will be 49 percent-owned by Daewoo Shipbuilding and 51 percent- owned by Nigerian National Petroleum.

Norway to purchase greenhouse gas quotas

January 3, 2007. Norway plans to buy greenhouse gas quotas for public officials when they fly aboard to help curb global warming. Under the Kyoto climate treaty that went into force last February, 35 industrialized nations committed themselves to reducing or limiting output of six gases, chiefly carbon dioxide, a byproduct of burning coal and oil products. International air travel is not covered by the Kyoto agreement.

Within the European Union, and associated countries like nonmember Norway, carbon dioxide emissions can be bought and sold by companies or countries. If Norway buys emissions quotas for government employees' flights, countries or companies selling the quota would have to cut their emissions by the same amount. The E.U. last month said aircraft emissions make up 3 percent of total greenhouse gas emissions, higher than any other industry. However, Norway is the world's third-largest oil exporter, and a major natural gas exporter. This year, the government approved the construction of new natural gas power plants, despite their heavy emissions of carbon dioxide. The cost of buying emission quotas for public employees on foreign flights would be roughly $400,000 (2.5 million kroner) per year.



California panel acts on three new power projects

January 4, 2007. The California Energy Commission has acted on three new power projects that would add about 450 MW of new generating capacity to the state's electric grid. The panel also approved a permit exemption for a third power plant in El Centro near the border with Mexico and Arizona that would supply a public irrigation district. The three projects could begin putting electricity on the state grid in 2009. California set a new electricity demand record last summer during a prolonged heat wave and energy planners are concerned about the outlook for next summer.

Depending on the weather and grid conditions, the state could see demand of more than 60,000 MW in summer 2007 and beyond, topping the record 50,270 MW last July.  The Central Valley licensing review projects are the $85 million, 120-MW Starwood-Midway LLC Power Plant and the $170 million, 200-MW Bullard Energy Center LLC plant. The natural gas-fired plants will produce electricity during periods of high demand. The Starwood-Midway project will connect to PG&E's transmission grid and supply electricity to the utility under a 15-year power purchase contract. Construction is scheduled to begin in June 2008 and the plant would begin generating power by May 2009. Bullard Energy Center also will connect to the PG&E network and supply electricity under a 20-year deal. Construction is expected to begin in February 2008 and the plant would begin producing power by summer 2009. The third project is a $73.5 million, 128-MW repowering of the gas-fired El Centro Unit 3 power plant to be built by the Imperial Irrigation District. Construction is expected to begin in September 2007 and the plant could start producing power by May 2009.

Myanmar, China agree on two more hydro-power projects

January 3, 2007. Myanmar and China have agreed to build two major hydro-power dams in northeast Kachin State, which will have a combined capacity of 5,600 MW. A 2,000 MW hydro-power plant will be built on the Maykha River, which flows into the Ayeyawady River in northeast Kachin State near the Chinese border. Another dam built at the confluence of the Maykha and the Ayeyawady, the longest river in Myanmar, will generate 3,600 MW of electricity. The projects will be jointly carried out by Myanmar's hydro-power department and China Power Investment Corporation (CPI) of a 600 MW dam on the central Shweli River. Myanmar's government has recently signed a slate of agreements with neighboring China and Thailand to build hydro-electric dams that would generate energy to power their own growing economies. The biggest of the projects is a six-billion-dollar deal with Thailand signed in April to build a dam on the Salween River, the longest undammed river in Southeast Asia. The dam would be the biggest in Myanmar with a 7,000 MW capacity, but it has raised the ire of environmental groups and rights activists who fear it will destroy habitats and uproot villages.

Transmission / Distribution / Trade

Zimbabwe to import more electricity

January 6, 2007. The country had sealed electricity import deals with neighbouring Mozambique and South Africa, and was finalising a similar package with Zambia. The state-run Zimbabwe Electricity Supply Authority (ZESA) said Mozambique would export 450 MW of power to the country under a renewed contract, while South Africa had agreed to extend a similar contract to March this year. Zimbabwe domestically produces 65 percent of its electricity needs, and imports the balance from neighbours. But supplies from neighbours had become uncertain due to a looming region-wide electricity shortage in southern Africa from this year. ZESA was finalising a deal to import power from Zambia, one of a few countries in the region with surplus electricity. However, that local thermal and hydropower plants were being refurbished to increase domestic supplies to between 70 and 80 percent as a long-term solution to electricity shortages.

Iran mulling power connection to Europe

January 3, 2007. Iran is assessing a plan to establish an electricity network connection with Europe via Turkey and Russia. Link to Russia is possible through Azerbaijan and Georgia republics by setting Armenia in the middle of the ‘job’; the task is costly and requires a comprehensive development plan across the nation’s power transmission and distribution centers. Elsewhere, managing director of Iran Power Development Company (I.P.D.C) stipulated that the country has already been exchanging electricity with some of the neighbors, and the connection to Turkmenistan will be done via Sarakhs, Iran’s utmost northeastern point, by yearend. Iran Power Development Company is also constructing several new lines to link the national grid to Russia via Khoy, Ahar and Jolfa in northwest region of the country in three years.

Policy / Performance

Japan, U.S. to ink N-plant finance deal

January 8, 2007. The Japanese and U.S. governments reached a basic agreement to jointly finance the construction of nuclear power plants in the United States, with Washington providing debt guarantees and Tokyo trade insurance. The agreement will help boost Japanese companies' presence in the United States the world's largest energy consumer, where many firms plan to build nuclear power plants--and, in doing so, help tackle global warming. Following the policy change by the administration of George W. Bush to promote the construction of nuclear power plants, more than 30 plants are under consideration. Since Japanese technology proved indispensable during the construction of nuclear power plants built recently, Japanese companies are expected to participate in the construction of all the plants in the United States under a Japan-U.S. corporate alliance. The two governments aim to map out joint assistance policies, including policies covering technological assistance, in April. The construction cost for each nuclear power plant is an estimated 300 billion yen to 400 billion yen. To cover the high costs, the U.S. Energy Department will establish a system that will provide debt guarantees covering about 80 percent of the costs. Since the 1979 Three Mile Island accident, the U.S. government has frozen construction of nuclear power plants. As such, U.S. financial institutions are reluctant to extend loans for such construction because U.S. companies lack current experience in the field. The U.S. government's debt guarantees, which will reduce the risk of loans becoming irrecoverable, will therefore facilitate plant construction. The Japanese government will indirectly help U.S. nuclear plant building firms by providing trade insurance, which would compensate Japanese firms for losses suffered through overseas investment and trading, for the remaining 20 percent of the plant building costs.

Australia and China ratify nuclear fuel deal

January 5, 2007. Australia and China have ratified a nuclear agreement clearing the way for the export of uranium to feed Beijing's giant nuclear power programme. The agreement providing a legal framework for shipments of the nuclear fuel to the Asian powerhouse will come into force in 30 days. Australia, which has the world's largest known reserves of uranium, expects to earn some $250 million a year from the deal. China has announced plans to build 28 new nuclear reactors and by 2020 the annual uranium requirement will be about 8,000 tonnes a year. The agreement was ratified through an exchange of diplomatic notes in Beijing on January 4 after the government's standing committee on treaties gave the go-ahead.

Renewable Energy Trends


Indian Gasohol to pump in $3 bn in Bihar

January 9, 2007. At a time when big sugar companies such as Dhampur and Rajshree are looking to delay their investment in Bihar, Tamil Nadu-based Indian Gasohol Ltd has proposed to pump in Rs 13,557 crore ($3 bn) in the state over the next 3-4 years. The state cabinet has given its approval to the proposal. The company would set up 10 distilleries for producing ethanol from sugarcane with a combined capacity of 54 lakh tonne annually. Each unit will have a crushing capacity of 25,000 tonne crushed daily (tcd). The work is expected to start this year.  Apart from ethanol, the mills would also generate 2000 MW of energy out of bagasse. Of this, about 1450 MW would be supplied to the state grid while the rest would be used to run the units. This would help the state to tide over the power shortage to a large extent. The company has offered to buy sugarcane at a price of Rs 1250 per tonne from farmers. The units are expected to provide direct employment to 50,000 people and indirect employment to two lakh people. The company would give training to 18, 000 state farmers on growing sugarcane to increase the per acre yield to 50 tonne from the current 30-40 tonne. The farmers would also be given solar energy operated pump sets for carrying out irrigation.  The units will be set up in districts of Buxar, Rohtas, Aurangabad, Gaya, Araria, Katihar, Bhagalpur and Nalanda. 

AP to step up hydel generation

January 3, 2007. The State Government plans to initiate steps to boost hydel power generation that would meet the demand for power from various lift irrigation schemes. It was proposed to generate about 1,800 MW from Pulichintala, Indira Sagar (Polavaram), Dummugudem and Singareddypaly projects. AP Genco has decided to finalise the terms of construction of various projects and a committee constituted with Principal Secretary (Energy) would study the various aspects for speedy implementation of these projects. Most of these projects are expected to complete by 2008-09. It is estimated that the total demand from lift irrigation projects would be 2,352 MW and the effort to generate additional power from new hydel projects is aimed at meeting this demand.


RM1.4 bn biofuel refinery planned in Malaysia

January 5, 2007. Pioneer Bio Industries Corp Sdn Bhd, the inventor of nipah or mangrove palm-based ethanol, will invest RM1.4 bn to set up the country’s first refinery plant to produce biofuel on a large scale. The factory would be built in the 1,000ha area where some 6,000 wild nipah trees were found growing in abundance in Trong, about 12km from here. The refinery, scheduled to be in operation by early next year, would have the capacity to process some 1.8 bn litres of the country’s ethanol production annually. A major portion of the ethanol production, an alternative to petrol, would be exported while only a small percentage would be marketed locally.

South Korea’s POSCO to build $32 mn fuel cell plant

January 5, 2007. POSCO will build the nation's first fuel cell plant for power generation in Pohang next year, using technology transferred from U.S.-based Fuel Cell Energy. The steelmaker plans to invest 30 billion won ($32 million) initially in the production plant next year. The partnership with FCE will give POSCO rights to manufacture and sell fuel cells outside the United States, Europe and Japan. Fuel cells, which use hydrogen to produce electricity, are regarded as environment-friendly because they do not emit carbon dioxide. POSCO plans to receive power-generating equipment from FCE and construct other necessary machinery in Korea. Aiming to commence full production of fuel cells in three years, POSCO will build a research center, along with the plant, to work on the localization of electricity generating units.

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