MonitorsPublished on Apr 07, 2007
Energy News Monitor |Volume III, Issue 43
Energy and Agriculture in the Third World: (part – I)

By Arjun Makhijani in collaboration with Alan Poole

Poverty, Agriculture, and Energy

Wood is the poor man's oil. Throughout the underdeveloped world, men, women, and children spend a considerable portion of their time cutting trees, gathering twigs and branches, and tending fires to have the energy they need for cooking and a modicum of heat and light. Together with wood, animal dung and crop residues, human and animal labor provide the barest of energy necessities for 50 to 60 percent of the world's people who live in the villages and small towns of Asia, Africa, and Latin America. The amount of energy so used is large—probably comparable to the flow of crude oil in the international market (about 30 million barrels a day). The commonly held notion that energy use in the underdeveloped countries is far below that in the industrialized nations1,2,3 is based only on the use of "commercial" fuels, such as oil, coal and hydropower. The energy characteristic that is typical of poverty is not so much low per capita energy use—though that is part of it—but the relatively small amount of useful work that is obtained from it.

The full possibilities of the traditional fuels that poor rural people use are commonly slighted or forgotten. This study does not propose exclusive or even primary reliance on non-commercial energy sources for Third World development, but it does give them special attention because they have so often been neglected. When commercial fertilizer is scarce and fuel prices fearfully high, as they were in early 1975 when this book was written, the production of energy from small-scale, decentralized, non-commercial sources takes on extra importance. This series explores how energy, in whatever form, may best help to transform agriculture, raise enough food, and provide other necessities for the people of the Third World, and to assess how much energy is needed to do this. But we must emphasize at the outset that energy alone is not enough. It is also imperative to move on many other fronts at the same time. Enough food must be available to begin with to keep farmworkers alive and able to work. Other essential parts of the mosaic are medical care; land reform; technical assistance; loans for small farmers; birth control information and services; and a social system which assures that all the people, not just a privileged few, share in the fruits of development.

There is no question that more useful work, obtained both from more energy and more efficient use of energy, is essential to the development that must take place. In many poor countries arable land is limited. Energy helps to increase the yield that each unit of land can put forth—by working pumps for irrigation, by plowing fields, by harvesting crops, by producing fertilizer. In providing the energy, the pumps, the fertilizers, the cement needed to produce more food, poor countries burdened by shortages of capital and high food, oil and fertilizer prices, must make the fullest possible use of their resources. Energy use in both agriculture and industry enables human labor to be more productive. Thus in the United States, about 10 percent of the work force, or less than 10 million workers in agriculture (including those engaged in the supply of fertilizers, tractors, and so on to farmers), supply enough food for the 210 million people in the U.S., with enough left over for substantial exports to other countries4. In many poor countries, 70 to 80 percent of the labor force are engaged in agriculture.

Increasing the productivity of land and labor—for which energy is essential—is, and has been, the foundation of economic growth. *How the wealth which flows from rising productivity of land and labor is parcelled out, both within nations and globally among nations, is of utmost importance. The long exploitation of poor countries' natural resources by industrialized nations (only recently reversed in the case of oil), the centuries-long exploitation of slaves in Europe and America, the great wealth of a few and the poverty of many in underdeveloped countries today—all illustrate that wealth among nations and within nations can increase, yet poverty and misery remain. Economic growth, or the increase of a nation's wealth, does not automatically result in economic development. Such growth is an essential, but not a sufficient, condition for the people of a nation to achieve well being. The "Brazilian economic miracle" is a good example. Brazil's Gross National Product (GNP) grew at an annual compounded growth rate of 6 percent between 1960 and 1970. Despite this growth there were more poor people in Brazil in 1970 than there were in 1960.

Table 1-1 shows that fully 80 percent of the Brazilian people were hardly better off in 1970 than they were in 1960. The ranks of the poor (bottom 80 percent) increased from about 50 million in 1960 to about 65 million in 1970. Yet there are no indications of change in the economic policies that have brought wealth only to the rich, both in Brazil and in the industrialized nations (particularly the U.S. through the repatriation of the profits of the multinational corporations6).

Table 1-1. Income Distribution in Brazil by Sectors of the Population

 

Percentage of the National Income

Average Income per Capita (U.S. $)

Income Groups

1960

1970

1960

1970

Bottom 40%

11.2

9.0

84

90

Next 40%

34.2

27.8

257

278

Next 15%

27.0

27.0

540

720

Top 5%

27.4

36.3

1,635

2,940

Average

 

 

300

400

Source: Note 5

This experience is not peculiar to Brazil. It is rather the rule in underdeveloped countries that the richest 5 to 15 percent are generally the ones to benefit the most from economic growth. They acquire automobiles, six-lane bridges, airplanes, and high-rise buildings on which precious cement and steel are wasted: stark monuments to the food, fertlizer and irrigation pumps that never were. Meanwhile the poor die from hunger and exposure. Yet, the ones who die quickly may be the more fortunate, for the ones who survive live in misery. The most devastating by-product of poverty is the chronic malnutrition that afflicts hundreds of millions of people in the Third World. Children suffer brain damage from the lack of sufficient protein. Night blindness and total blindness afflict millions of others. These are the realities embedded in abstractions such as average income or GNP. Redistribution of income is a fundamental reform to alleviate poverty. The redirection of capital spending to improve food production, land reform, health care, housing and provision of productive jobs for the poor are essential aspects of an income redistribution policy. In the People's Republic of China* such reforms have been a principal instrument in promoting the health and welfare of its people. The per capita availability of food in 1970 was about the same as it was in 19507, and only slightly larger than the per capita food availability in India in 19708. Yet, there is ample evidence to suggest that the hunger and chronic malnutrition that afflict more than a 100 million people in India have been largely overcome in China. The equitable distribution of food and the widespread availability of medical care in China are among the principal reasons for the difference9.

Equitable distribution of the available food takes on even more urgent importance in this time of food and fertilizer shortages and cruelly high prices of food, fertilizers, and oil. These high prices not only make the severe balance of payments problems intolerable for the poorest among the oil- and food-importing countries, but in these countries, as indeed in many others, the poor—particularly the urban poor and the landless rural poor—will bear the brunt of the food shortages. Poor weather in the Midwestern United States in 1974 resulted in a substantially lower crop production than anticipated; many fear that the food crisis will worsen. With these omens of world food shortages, increasing food production must be the primary goal of the underdeveloped nations if the future is to hold any hope for the poor. Agriculture and the activities that support agriculture must take precedence over all others for development in the poor countries of the Third World; they must have first call on available resources, energy included.

In this effort industrialization is essential. Industrialization is not and cannot be allowed to become the province of the wealthy nations, or of the wealthy people in the underdeveloped countries. Some essential industries, such as steel production or electric power generation, will remain capital-intensive in spite of every effort to reduce capital costs. Here it is of paramount importance that capacity be used as fully as possible and that the output of these industries be used to create jobs and contribute to the rapid expansion of the production of essentials. The primary aim of industrialization should be the same as that of aggressive promotion of agriculture—that of increasing the production of essential commodities, particularly food, as rapidly as possible, while ensuring that with the capital available, the creation of productive jobs stays well ahead of the growth of the labor force.

(To be continued)

Courtesy: Ford Foundation.

Gas Cartel: A De-facto Establishment

By Igor Tomberg

The Forum of gas-exporting countries (FGEC) ended its work in Qatar's capital Doha. A high-level delegation that represented Russia was led by Viktor Khristenko, Minister of Industry and Energy, and Gazprom CEO Alexei Miller. The FGEC meeting was dedicated to the issue of coordination of gas extraction and supplies. Its participants were most intrigued by prospects of amalgamation of chief gas producers with an eye at establishing a gas cartel similar to OPEC. Issues of international cooperation in the area of prospecting, extraction and supplies of "the blue fuel". Several countries are now planning to sign a number of bilateral agreements.

The first day of the FGEC work indicated that preparations for the creation of the gas cartel were already going on, even though no founding documents have yet been signed. Upon the conclusion of the session V. Khristenko said that the participants of the forum decided to set up a high-level group to work out gas pricing principles. The line-up of this group has not yet been defined. It will be working throughout 2007, arranging at least 6 sessions. According to the minister that decision was just a step in the direction of establishing the "gas OPEC". Even though the gas producing countries have not adopted a cartel agreement, it is evident that an agreement aiming to have control and coordination of gas pricing is a step forward on the way to setting up a gas analogue of OPEC. "Problems of gas pricing are very significant," – the minister said. "It is important to begin investigating this problem, and Russia is prepared to support those who are going to begin such investigations."

The next step on the way to setting up the cartel will be made by FGEC members in Russia. The 7th FGEC is slated for 2008 in Moscow. According to V. Khristenko such a decision was made on the strength of the proposal of the Russian delegation. Russia will act as a coordinator of the high-level gas-pricing group. In practice that means that Moscow succeeded in becoming the leader of the movement of unification of gas producers. And this is quite natural given Russia's political weight that could attribute serious geopolitical might to this would-be association.

The FGEC participants are 16 countries including Algiers, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, UAE and Venezuela. Norway has the status of observer. The FGEC members control 42% of natural gas production and supplies, and own more than 70% of its global reserves (OPEC controls 43% of global oil production). Many members of the gas club are also OPEC members.

The idea of setting up a "gas OPEC" has become a hit of the already highly politicised discussions of the global energy branch. Initially, the global gas elite, including Russia met the initiative of Iran announced at the 1st gas conference in May 2001 in Tehran rather coolly. However, events of 2006, and primarily, serious tensions between Russia and the West over the issue of energy forced the Kremlin to make a resolute U-turn in the direction of uniting gas producers on a cartel basis. During his first-ever visit to Qatar in February 2007 president Vladimir Putin said: "Whether it is needed so that we should establish it, is a different story, but what is really needed is coordination of the world's gas producers' activities." The leaders of all the world's major suppliers who own 70% of the global reserves of gas supported this idea. Latin American countries led by Venezuela have already set up their group along the lines of a "gas OPEC"(Latin American Gas Organisation) to regulate gas pricing policies. Iran and Venezuela are 100-percent supporters of the idea of creating a "gas OPEC". Arab countries are still wary about it. Quite recently Kazakhstan's president Nursultan Nazarbayev also confirmed that discussions on the issue of a gas cartel continue, saying: "We are talking about that with a number of global gas producers, and indeed there is such willingness."

The response of gas consumers, primarily the United States and Western Europe was – as was expected – negative. In early April the House of Representatives of the U.S. Senate contacted State Secretary Condoleezza Rice demanding that "energetic steps be made to oppose the creation of a global extortion and racket organization that would pose a major long-term threat to global supplies of energy resources."

Europeans are especially concerned over the cartel plans of gas producers. It can be easily understood: according to experts at leading research centres long-term perspective assessments should be made on the trend of growing gas consumption. Europe may require up to 640 billion cubic metres of natural gas by 2020. The consumption growth is accompanied by the evident trend of the decrease of production of gas in Europe itself, thus increasing its dependence on imported gas. Tentative evaluations of the E.ON Ruhrgas group based on the analysis of currently valid contracts indicate that the EU may face shortages of gas amounting to 140 bcm. in 2020, so the group's experts think that extra amounts of imported gas will inevitably be purchased. That is why the issue of diversification of natural gas suppliers has been in the focus of attention of the European Commission. Besides, the EC views the diversification of suppliers as the principal tool of control of prices. So "coordination" of pricing policies by gas producers is referred to in Europe as nothing but cartel collusion.

But such a view is not totally vindicated. Many experts, including Europeans deny the existence of a direct link between uniting of producers of natural gas and its prices growth. First, global gas supplies are mostly made according to long-term contracts, whereby prices of natural gas are linked to those of oil. Second, the growth of gas prices can rebound on gas producers themselves because many consumers may find it advantageous to switch over to coal or renewable sources of energy, or develop nuclear power sector.

Paradoxically, the threat posed by the likes of "gas OPEC" is what Brussels befits from using it as a strong argument to make the "united front" of the EU countries in their gas dialogue with Russia. Viktor Khristenko said, "The reasons of concern expressed by gas consuming countries and their bitter statements should be found at their homes." According to him "it is very profitable to portray gas producing countries as a monster, portraying them as a global threat, with an eye to diverting attention from their domestic acute problems. This is a trite political trick."

As for Russia, which in practice secures the movement for unity of gas producing countries, it needs the "gas OPEC" as a tool to work out the rules of the game that would meet the interests of both producers and consumers. And given the leading role this country plays in the production and supply of natural gas and maintaining its reserves, it is important that Moscow had more than just attributes in the form of a formal organisation as it needs to be able to influence policies pursued by all major producers of gas, and in the long run – those of transit countries. And from this standpoint "gas OPEC" can exist in any form, formal or informal.

The louder the calls for the creation of a "gas OPEC" the fewer the references to the Energy Charter and demands that Russia should ratify it. The tactic of "diverting of attention" works. As far as Moscow is concerned, the entry into a "coordination cartel" is much less binding than the ratification of the Charter that is full of hard-to-digest protocols. And if some principal agreements are concluded by the leading exporters of natural gas, the rules of the game on this market will also change drastically.

It is important that Russia do not "overdo a good thing" by just talking about the gas cartel. The emergence of an influential organisation of gas producers can seriously disrupt the current balance of forces and interests, so that in the long run it can be the cause of bitter conflicts and standoffs between producers and consumers of energy carriers. The situation whereby the developed nations used to be principal owners of the gas industry infrastructure, whereas the sources of raw materials were to be found in backward regions, took shape over many decades. That allowed Europe and the United States to dictate their terms. An amalgamation of producers, be it even a coordination body, would abate western appetites by coordinating activities on the global gas market, something that makes the world's leading countries wary.

Washington has stated that it would regard Russia's entry into the "gas OPEC" as an unfriendly move and a threat to the U.S. national security. That is why Americans deem it necessary to work out a number of concrete steps to prevent the cartel from being formed.

Europe, where relationships in the gas area used to be based on bilateral contracts that met the EC interests, is now making it known that in the event the gas cartel is established, Russia can face hard times. Gazprom that continues to operate in Europe is threatened with an eventuality of getting under the jurisdiction of European anti-monopoly law, whereby investments in Russia's gas industry could be reduced.

Observers note that the Russian delegation at the forum continued its active contacts with Algiers and Qatar. Russian gas producers need coordination of activities with these leading gas exporters as a matter of priority. An emphasis on negotiations particularly with Algiers was indicated by the fact that Viktor Khristenko spent much of his time meeting with his colleague from that northern African country, Shaqib Helil. Experts are unanimous in that the coordinated policies can help detach gas prices from the price of the basket of oil products. All producers and exporters of gas need that, as by solving this problem would allow them to pursue their own pricing policies irrespective of the global oil price situation.

The emergence of an organisation of gas exporters would allow them to collaborate as equals with the cartel of consumers represented by the International Energy Agency. However, to ensure full energy security the producers should enlist the gas transit countries in their cartel, as they are largely responsible for disruptions of gas supplies to consumers. Evidently, the creation of a full-fledged gas union is only delayed, but the idea itself is beginning to be filled with tangible content. The establishment of the "gas OPEC" is inevitable and all the players on the gas market can profit from it.

Coordination of activities of the world's leading gas producers has been long overdue, and their pending union within the framework of a cartel is just a technical issue. Apart from gas prices, directions and infrastructure of exports, coordination of the volumes of extraction and transport, new projects and technologies are also in the focus of attention. In the long run, a balance of interests of both producers and consumers should be achieved.

Concluded

(Views are personal)

Suitable Tariff Policies for the Electricity Industry:

A Challenge before the Forum of Electricity Regulators

Continued from Issue no. 42

(By Shankar Sharma, Consultant to electricity industry)

19. The deployment of roof top solar PV panels for the production of electricity is no more jus a concept. As usual USA has taken the lead to develop and implement the technology of deploying solar PV panels on the roof tops of large buildings to generate electricity. The reports also indicate that through suitable feed-in tariffs the local electricity supply companies are also able to buy back such energy during day time. It shall be emphasized here that such systems will not only meet many of requirements of many of the smaller loads like lighting, TV, computers, fans etc. during day time, but will also be able to reduce the evening peak demand. In addition, depending upon the size of the PV panels and the local loads the system can also feed back excess energy back to the grid, there by reducing the loads on larger generators and the T&D losses. If extended to Indian conditions, which has much more sun shine hours than in USA, the large no. of building like factories, schools, offices etc. can be sources of considerable quantum of electrical energy. Suitable feed-in tariff policy should be developed, and direct/indirect encouragement for the deployment of such systems should be practiced.

20. There are reports that a considerable part of captive power generating capacity is not being utilized for various reasons. A prime reason could be the absence of suitable feed-in tariff. A conservative estimate indicates that an effective use of such captive power generating capacity can do away with the shortages in many states. This issue should be addressed urgently.

The above listed issues indicate that in a sense there is no real shortage of electrical power/energy; but only shortcoming in the optimal usage of the capacity. Whereas political constraints have been preventing us from realizing the maximum benefits from the investments so far, the Forum of Electricity Regulators have much better chances of succeeding where our political leaders have failed. It is also the opinion of the electricity industry observers that IE Act 2003 has provided a golden opportunity for the society to transform the industry, and that the creation of Electricity Regulatory Commissions the best thing to happen to the industry in the last few decades.  People of this country are now looking up to the Forum of Electricity Regulators to undo the past mistakes not only to provide energy security for the future, but also to address the challenge of global warming by reducing the quantum of fossil fuel burning.

 

NEWS BRIEF

NATIONAL

OIL & GAS

Upstream

ONGC`s outlay for exploration up 20pc

April 17, 2007. ONGC plans to raise its spending on developing new and existing oil and gas fields by 20 per cent to Rs 18,000 crore in the current financial year. The company had spent Rs 15,000 crore in the previous financial year. Almost 72 per cent of the planned investment will be spent on developing existing fields. Of the Rs 18,000 crore, around Rs 5,000 crore will be spent on exploration of oil and gas, while the remaining will be spent on developing existing fields. The country’s largest exploration company has often come under government scrutiny for its poor rate of crude oil recovery. 

Cairn to begin seismic survey in Bihar soon

April 17, 2007. Cairn India will take up seismic survey operations in a block in north Bihar. This follows an airborne geo-magnetic survey of the block that has just been completed. The onshore NELP IV block GV-ONN-2002/1 in northern Bihar was awarded in 2004. Seismic survey operations are scheduled to start in the districts of Samastipur, Darbhanga and Madhubani. The programme covers an area from Dalsinghsarai in the south to Jainagar in the north and from Singhwara and Ladania in the west and east, respectively. Approximately 500-line km of data will be acquired. The aim of the seismic survey is to understand geographic structures below the surface. The 2D seismic field operations are scheduled to be completed by the end of June 2007 before the commencement of monsoon. As operator of the production sharing contract (PSC), Cairn India holds a 50% interest in this Block with joint venture partner Cairn Energy plc, through its subsidiary Capricorn Energy, holding the remaining 50% interest. The GV-ONN-2002/1 block in north Bihar is within the Ganga Basin, which is one of the largest sedimentary basins of India, but is under-explored and no hydrocarbons have yet been discovered. As per the PSC, Cairn India has a seven-year exploration period comprising three phases, which commenced from the issue of the petroleum exploration licence on June 8, 2005

ONGC-led consortium to hike gas output from Panna-Mukta

April 17, 2007. The ONGC-BG-Reliance Industries consortium has decided to raise the output from Panna-Mukta-Tapti (PMT) fields from 13 million metric standard cubic meter per day (mmscmd) to 17 mmscmd, with an investment of $520 million. The gas production will be raised from 13 mmscmd to 17 mmscmd in the next four to five months. While ONGC holds 40% stake in PMT fields, BG and Reliance have 30% each. The consortium is also planning to raise the prices of PMT gas. Gas sale contracts are up for renewal in March 2008. The JV sells gas to Gail, GSPC and others. 6 mmscmd of gas from the field is sold to Gail at $4.75 per million British thermal unit (mBtu), while GSPC and other companies get 4.8 mmscmd at around $4.08 per mBtu. The remaining gas (1.3 mmscmd) is sold at around $5.7 per mBtu. So far, the JV is marketing gas jointly, but the additional gas could be marketed by the three partners separately. On the oil front, ONGC is setting up a 15-million tonne refinery at Kakinada. The $4.5-billion project will be partly funded by an initial public offering (IPO). 15 MTPA could be feasible at Kakinada as the company would be able to leverage economies of scale. The refinery was originally conceived with a capacity of 7.5 million tonne.

GAIL to get foothold in Uzbekistan

April 16, 2007. Uzbekistan has agreed to open technical talks with public sector gas giant GAIL for enabling the Indian company to start exploration for natural gas in the gas-rich central Asian country. This decision materialised after meetings between Uzebekistan Prime Minister Savkit Mirziyayev and the visiting minister of state for commerce Jairam Ramesh at Tashkent. GAIL has identified four specific blocks for gas exploration. So far Russia, China and South Korea have invested in gas exploration in Uzbekistan. India has offered to help establish a training institute for gas technology in Tashkent, along the lines of the Jawaharlal Nehru IT Centre in the Uzbek capital inaugurated by the Prime Minister, Dr Manmohan Singh last year. Mr Ramesh also conveyed to the Uzbek Prime Minister India's interest in exploring for gold in the country given the fact that India had become the world's largest importer of gold. The Uzbek government has agreed to consider a proposal from MMTC and National Mineral Development Corporation (NMDC) for gold exploration but wants this proposal to include value-addition investments in Uzebekistan itself, like in gold jewellery. MMTC and NMDC will now formulate a proposal for submission to the Uzbek government in the next 30 days.

No big finds by ONGC in 20 years

April 14, 2007. ONGC, India's largest public sector enterprise in a recent report to the government, has acknowledged that it has not been able to make any major discoveries in the past 20 years. Whatever discoveries were made contributed only about 1.5 million tonnes per annum to the country's oil output, the oil major said in its annual performance report to the government. ONGC has zero success ratio with nil discoveries for the 47 blocks awarded to them. At the same time, private sector majors such as RIL have success ratio of 56% with 18 discoveries. Reserves are accreted through new finds, new pools/new pays and extension of existing fields. The production from discoveries around existing producing fields get automatically accounted in the production of the producing fields.

In the blocks awarded under the new exploration and licensing policy (NELP), ONGC has made six discoveries so far including discovery made in deep water block KG-DWN-98 /2, one in ultra deep-water with water depth of 2861 metres and another in block MN-OSN-200 /2 (Mahanadi shallow water block) at water depth of 988 metres. NELP was launched by the government in 1999 to attract foreign and private sector players with attractive tax incentives. ONGC's gas discovery in the hydrocarbon rich Krishna-Godavari basin early this year has not yet been declared commercial by the upstream regulator DGH. Initially, it was believed to be the largest gas find with estimated reserves of 21 trillion cubic feet (TCF).

HOEC finds oil in Cambay Basin

April 12, 2007. Hindustan Oil Exploration Company Ltd. (HOEC) has encountered hydrocarbon while drilling exploratory well Deva-1 in Block CB-ON-7, Onshore Cambay basin, and in SWC samples. Deva-1 well has been plugged and the prospect would need further appraisal before establishing discovery potential. HOEC is the operator of the Block CB-ON-7 and holds 50% participating interest during the exploration phase. Gujarat State Petroleum Corporation Ltd. (GSPC) and Oil and Natural Gas Corporation Ltd. (Licensee) are the consortium partners in the block.

NFPIL joins petroleum giants engaged in oil exploration

April 12, 2007. Nitin Fire Protection Industries Limited (NFPIL), one of the leading companies in fire protection, safety, security and Intelligent Building Management system along with High Pressure Seamless Cylinder and Refuelling systems, has joined with major petroleum companies, which are engaged in exploration and prospecting of crude oil block in Rajasthan State under the New Exploration and Licensing Policy (NELP-VI) of the Union Government. The company picked up 10% stake in the consortium along with petroleum giants such as GSPC (20%), GAIL (20%), HPCL (20 %,), BPCL (10%), HALLWORTHY (10) % and SILVERWARE (10%). Under NELP VI of the Government of India, NFPIL, along with the six others in consortium, has been awarded the contract in March 2007 for the exploration and prospecting of petroleum from Oil Block No. RJ-ONN-2004/1 admeasuring a contract area of 4,613 sq. km. NFPIL has also received an order for providing Gaseous Fire Suppression System for the control room of Reliance Petroleum Ltd, Jamnagar Refinery.  The value of the order is more than Rs 55 mn and shall be completed in the next 6 months.  Besides, it has also received order for supply of CNG Cascade to Indraprastha Gas Limited, New Delhi early this month. NFPIL provides end-to-end solutions for fire protection, safety and security, with capabilities in manufacturing, designing, engineering, commissioning and maintenance. The specific areas of operations are: Fire Protection (gas and water based), Fire Detection and Alarm, Building Automation and Security.

Canadian, Indian firms to hunt crude in Nagaland

April 11, 2007. A Canadian company and an Indian exploration firm will soon begin looking for crude oil in the jungles of Nagaland in the northeast, a state haunted by decades of insurgency. Agreements with Canoro Resources Ltd of Canada and Oil and the state-owned Oil and Natural Gas Corp (ONGC) have been signed and the calendar of activities will start soon. The predominantly Christian state of two million has the potential to yield some 600 million tones of crude oil. Nagaland is literally sitting on a multi-million dollar oil reserve. The state's economy would definitely witness a massive turnaround if oil is struck. ONGC, India's premier oil exploration firm, began exploration work in Nagaland in 1994 but had to withdraw its operations following threats from the separatist Isak-Muivah faction of the National Socialist Council of Nagaland (NSCN-IM) and several other tribal groups. A similar deal was signed between the local government and Canoro.

Downstream

ONGC to invest $4.8 bn in AP

April 17, 2007. Oil and Natural Gas Corporation (ONGC) will seek concessions from the Andhra Pradesh government for setting up a 15 million tonne a year (mtpa) refinery at Kakinada. The company plans to invest Rs 19,000-20,000 crore ($4.8 bn) in the refinery. A special purpose vehicle (SPV) - Kakinada Refinery and Petrochemicals Ltd (KRPL) - for executing the refinery has been formed in which Mangalore Refinery and Petrochemicals (MRPL) holds 46 per cent stake, Andhra Pradesh Industrial Development Corporation 3 per cent, with the remaining held by IL&FS, and other financial institutions. The SPV will go for an initial public offering to raise funds for the project in a couple of years. ONGC, the country’s most profitable company, has appointed Engineers India Ltd (EIL) to carry out a feasibility study for the refinery. The refinery, currently promoted by MRPL, is proposed to be taken on the books of ONGC since the balance sheet of MRPL is not strong enough to finance the project. The exploration company had earlier proposed to set up a 7.5 mtpa refinery at Kakinada, which was found economically unviable by EIL at that capacity.

BRPL lines up $0.5 bn investment

April 12, 2007.  Bongaigaon Refinery and Petrochemicals Ltd (BRPL) - an IndianOil group company - has lined up over Rs 2,000-crore (0.5 bn) investment to increase profitability by upgrading product quality and replacing the existing production of black oil and naphtha with high value products. Located in Bongaigaon in Assam, BRPL now refines roughly 2.35 million tonne of crude. Efforts to enhance the capacities so far remained unsuccessful due to inadequate crude supplies in the North Eastern region.

While the company is already implementing projects worth close to Rs 1,500 crore for switching over from Euro-II to Euro-III grade diesel and petrol by 2008, two more projects worth roughly Rs 640 crore for replacing the entire production of naphtha and black oil (including LSHS, LBFO and others) with petrol, diesel, LPG and kerosene are now under consideration. The company is now in the process of firming up technology agreements with foreign collaborators for the proposed "Indmax" (Rs 600 crore) and "light naphtha isomerisation (Rs 40 crore) in next two to three months. Once the projects are fully implemented, BRPL will not be producing any residuals like naphtha or black oil and will use almost the entire refining capacity in producing cleaner auto-fuels as well as LPG and kerosene

IOC mulls paraxylene project at Koyali

April 11, 2007. Indian Oil Corporation Ltd (IOC) plans to commission a paraxylene project at its Koyali-based Gujarat Refinery. Initial estimates suggest the project cost would be in the region of Rs 1,700 crore. IOC has already undertaken a feasibility study. In fact, IOC is producing paraxylene at its Panipat Refinery. However, it is mainly being used for captive consumption to produce purified terephthalic acid (PTA), a significant input to manufacture fibre. It was learnt that IOC would sell paraxylene produced at Gujarat Refinery in the open market. IOC is considering an installed capacity of 3.30 lakh tonne paraxylene a year. The Gujarat Refinery is also coming up with the residue upgradation unit and motor spirit and high-speed diesel quality project with an investment of Rs 5,693 crore to be completed by the end of the year 2009.

PM flags off Assam gas cracker project

April 11, 2007. Prime Minister Manmahon Singh has laid the foundation stone for the long cherished and long delayed Assam Gas Cracker Project, christened as Brahmaputra Cracker and Polymer Limited (BCPL), at Lepatkata in Dibrugarh district in upper Assam. BCPL is a joint venture of government of Assam, GAIL, OIL and Numaligarh Refinery Limited. GAIL holds 70 per cent stake in the company and the remaining 30 per cent is hared equally amongst the other three. It is the second occasion when the foundation stone for the Gas Cracker project is being laid by a prime minister. The previous occasion was in 1994 when then prime minister PV Narishimha Rao laid the foundation stone at Tengaghat in Dibrugarh district. However, the location was later abandoned. This project was conceived as part of the historic Assam accord signed in 1985 to accelerate industrial development in the state. 

It will come up at an estimated cost of Rs. 5460 crore. BCPL, when completed, is expected to provide a big boost to employment generation in the state as the project will open up opportunities for downstream industries including setting up of two plastic parks in upper Assam. More than a lakh people are expected to get absorbed in the downstream industries and allied activities in the service sector.  Oil India Limited (OIL) will supply 1.35 MMSCMD and Oil and Natural Gas Corporation (ONGC) will provide 1.35 MMSCMD of gas for the project. BCPL is expected to produce 2,20,000 TPA of HDPE/LLDPE and 60,000 TPA of poly propylene, 55,000 TPA of raw pyrolysis gasoline and 12,500 TPA of fuel oil when operational. The new road bridge over the Brahmaputra would be laid parallel to the existing Saraighat Bridge in Guwahati. 

Essar Oil to ramp up Vadinar refinery to full capacity

April 11, 2007. Essar Oil will ramp up its Vadinar refinery to full capacity by September-October, a company official said. Ruias-owned Essar commissioned the grassroot refinery at Vadinar in Gujarat last November at a rate of 7.5 mn ton a year (150,000 barrels per day), while its full design capacity is 10.5 mn ton a year. It will take a 30-day shutdown in July to integrate units like FCCU (fluid catalytic cracker unit) and diesel hydrotreater. After integration, the refinery will come back on stream and new units will be progressively commissioned to see that the refiner y achieves full design capacity as soon as possible. The full nameplate capacity of the most export-oriented refinery would be attained with the commissioning of the last two remaining secondary units, a 3.3 mn ton a year fluid catalytic cracker and a 3.7 mn ton a year diesel hydrosulfurizer. The units are under erection.

Transportation / Trade

Petronet LNG to import LNG

April 17, 2007. Petronet LNG, responsible for supplying gas to the beleaguered Dabhol Power Project, is planning to import 1.25 million tonne of liquefied natural gas (LNG) annually for the gas-starved power project. The first phase of 740 MW Dabhol power plant would require around 3 million cubic metres of gas every day, while 8 million cubic metres would be needed in the second phase. To meet the gas requirement, it plans to import 20 spot LNG cargoes in the current calendar year. As the pipeline between Dabhol and Dahej, where Petronet LNG has its LNG regassification plant, is not ready, the company is diverting LNG to power and fertiliser plants. Once the Dahej-Dabhol pipeline is completed, which is likely in June, it will supply 3 million cubic metres of gas a day plant. 

Promotion of city gas distribution will curb rising LPG subsidy

April 16, 2007. The petroleum ministry’s initiative to promote city gas distribution (CGD) all over the country has received a major boost with the Petroleum Regulatory Board observing that CGD can help address the issue of burgeoning LPG subsidy, adulteration, import dependence. The petroleum regulator called for a comprehensive policy to prioritise categories of end users in CGD networks. City gas distribution networks exist in Delhi, Mumbai and some cities of Gujarat. The regulator feels with a comprehensive policy in place, the selection criteria and regulatory consideration for authorising entities for developing city gas distribution networks would become quite transparent. Petroleum minister Murli Deora recently hoped that nearly two crore homes would reap the benefits of piped gas. Similarly, a large number of vehicles, including public transport would run on compressed natural gas (CNG). The rate of growth in CGD can be gauged from the fact that out of the 376 CNG stations in the country today, 172 stations were added during the last two years—a growth of almost 84%. The regulator also suggested that the Centre should write to the states and Union territories for soliciting their support as they can play an active role in promoting CNG usage under Motor Vehicles Rules and by chalking out a phasing plan for vehicles.

Apart from being subsidised, domestic LPG carriers incur nil rates of customs and excise duties and have been categorized as “declared goods”, thereby restricting the states sales tax/VAT rate to 4%. A similar taxation structure should be available for natural gas and CNG should have nil excise duty as there is hardly any manufacturing activity involved while compressing gas. Furthermore, domestic piped natural gas (PNG) should be encouraged instead of LPG in the areas covered under CGD networks. LPG is the only product for which the country is import dependent. The replacement of LPG by PNG would also help contain the rising subsidy burden. This would also contain chances of diversion of domestic LPG for unintended purposes.

IOC to up marketing spend to $0.4 bn

April 12, 2007. Indian Oil Corporation (IOC) will scale up its investment in marketing activities this financial year to Rs 1,800 crore ($0.4 bn) from last year’s Rs 1,225 crore. The company will also invest Rs 300 crore for developing a 600,000 tonne a year liquefied petroleum gas (LPG) station in Ennoor near Chennai. However, no clear timeframe has been set for the completion of this project. IOC will increase its investment in the retail segment from Rs 534 crore last year to Rs 624 crore in 07-08. The investment in the LPG segment that includes equipment procurement, auto LPG, three new bottling plants in Mathura, Raipur and Baroda, would move up from Rs 423 crore to Rs 629 crore. Investment in aviation fuel business would also increase from Rs 24 crore to Rs 60 crore, while infrastructure and tankage investments would go down to Rs 180 crore this year from Rs 183 crore in 06-07. An additional Rs 300 crore would be invested in developing small pipeline projects, upgradation of quality control laboratories and modernisation of lube plants.  It is increasingly focusing on reaching out to the rural markets in India through our Kisan Seva Kendras(KSKs). This year, it has planned 1,600 new retail outlets all over the country of which 1,000 would be KSKs alone. At present, it has 12,954 outlets, including 1,330 KSKs.

IOC eyes LPG import as RIL cuts supply to PSUs

April 12, 2007. Indian Oil Corporation (IOC) is planning to import over one million tonnes of LPG to meet the shortfall in the domestic market. And Reliance Industries’ (RIL) decision to cut liquefied petroleum gas (LPG) supplies to PSU oil companies has worsened the situation. The decision on imports will be taken in a few months. The country needs over 10 million tonnes of LPG per annum, and at least 2 million tonnes were earlier imported. Now, with Reliance cutting supplies, more will have to be imported. RIL has recently converted its 33-million-tonnes-a-year Jamnagar refinery into an export-oriented unit and has sought international rates for LPG (through international competitive bidding process) from public sector oil companies. RIL’s production accounts for over one-fourth of the country’s total LPG production. The company currently supplies LPG at a price lower than that of the import. The petroleum ministry has asked state-owned oil marketing companies to look into the implications of buying LPG from Reliance’s Jamnagar refinery.

The availability of LPG is a vexed issue for the oil industry because of the huge losses they make on the product. Every cylinder of domestic LPG is subsidised to the extent of Rs 155. IOC is currently losing about Rs 64 crore a day on the sale of various petro-products. In a bid to overcome the shortfall in the long run, IOC is planning to set up one million tonnes of LPG capacity at its planned refinery in Paradip. It has also decided to build an LPG import terminal at Ennore in Tamil Nadu. The terminal will be of 60,000-tonnes-per-annum capacity and will cost over Rs 300 crore. IOC has added 45,000 new LPG connections, thereby reaching 4.8 crore households in the country. The company also expanded its LPG bottling capacities in Manipur and Mizoram and plans to add new capacities in Mathura, Raipur and Baroda by the end of the current fiscal. 

IOC, GAIL sign agreement to sell piped gas in Bengal

April 11, 2007. Indian Oil Corp (IOC) and GAIL (India) Ltd have signed an agreement to jointly sell piped natural gas for domestic use and CNG for automobiles in West Bengal. The two PSUs have already an equal joint venture, Green Gas Ltd, for city gas distribution project in Lucknow and Agra and they plan to take similar service to other cities. The joint venture company will have 22.5% equity holding each by GAIL and IOC, 5% by the state government or its nominee and the remaining 50% will be held by strategic investors/public/financial institutions. The first chairman of the board shall be nominated by GAIL and shall hold office for a period of two years. Thereafter, the post of chairman would be rotated between IOC and GAIL every two years. The managing director shall be from GAIL, who would be whole time director and serve on full time basis. The joint Venture would include supply of piped natural gas and CNG for domestic, commercial, industrial and automotive sectors respectively.

IOC may partner Reliance for city gas distribution

April 11, 2007. Indian Oil Corporation Ltd (IOC) is in talks with Reliance Industries Ltd to source natural gas for distribution in cities. The gas would be sourced from the upcoming KG basin fields of Reliance. IOC could even consider entering into a joint venture with Reliance for the gas distribution venture. Gas from the KG basin would be available by July 2008. The matter was still at a discussion stage. There is a potential of supplying to 200 cities. By July 2008 about 40 million standard cubic metres per day (mscmd) of gas would be available from Reliance. A large part of this gas would be supplied to power plants; therefore, about 7-8 mscmd would be left for city gas distribution. IOC would like to have the whole supply. IOC is now fanning out into low-cost, no-frills fuel stations, largely for the rural population. These stations, called Kisan Seva Kendras (KSK), are at present in 1,330 locations across the country. At present IOC has over 12,954 retail outlets, of which about 1,330 are KSKs. For the year 2007-08, IOC proposes to commission 1,600 new retail outlets, of which 1,000 would be KSKs. With this, IOC will further strengthen its presence in the rural market, which has an untapped potential.

IOC is considering setting up a six-lakh-tonne LPG import facility near Ennore, Chennai. About Rs 300 crore would be the investment for the facility. The issue would soon be taken to the IOC board for the approval of the facility. Further, in the 2007-08 period, IOC proposes to invest Rs 1,800 crore, of which Rs 624 crore would be spent on the retail business, Rs 629 crore would be for three LPG bottling plants, Rs 180 crore would be for augmenting tanks and infrastructure and about Rs 300 crore would be spent on pipelines.

Policy / Performance

Rajasthan Oil may appoint Raha special consultant

April 16, 2007. Mr Subir Raha, the former MD of ONGC, is likely to be appointed as special consultant in the newly-formed Rajasthan Oil Corporation. The proposal of Mr Raha’s appointment, mooted by Rajasthan petroleum minister Mr Laxmi Narayan, is awaiting chief minister’s nod. All the formalities have been completed. The state government, earlier, was thinking to appoint Mr Raha as consultant on the issue of setting up ONGC refinery in the state. Now that the state government has decided to step into the exploration, exploitation, transportation and distribution of oil drilled in the state through its oil corporation, services of Mr Raha would be instrumental in shaping up the ‘petro dreams’ of Rajasthan government. The corporation would allow private sector participation on equal sharing basis. The government would set up a special project vehicle (SPV) with private players for specific projects. The corporation will build infrastructure in association with exploring agencies in the private sector.

Indian oil cos in no hurry to set up EoUs

April 15, 2007. Indian oil companies seem to be in no immediate rush to set up export-oriented units (EoUs). Other than the private sector player, Reliance Industries Limited, no other refiner has submitted an application to turn their units in India into an EoU. There are several reasons why the Indian dream of being a refiner to the world has not taken off. The capacity of most refineries in India is small and they are low on complexity, as measured by the Nelson index. This index is an indicator of not only the investment intensity or cost index of the refinery but also the value addition potential of a refinery. This is also the reason smaller refineries all over the world have been closing down. There is little scope of converting any existing refinery into a full fledged EoU. It has to be a grassroot refinery, set up in coastal region for it to be able to compete on operating and logistics cost. This means any oil company who plans to set up an EoU refinery would apply for such a status for obtaining the tax benefits.  However, Indian refineries do have significantly lower cash operating costs including labour cost, as well as 25 to 50 per cent lower capital costs over other Asian countries. At present India does not seem to be a fertile ground for proliferation of EoUs, the average refining capacity among the public sector units being approximately five million metric tonnes per annum.

RIL scouts for K-G gas buyers

April 13, 2007. With the price of gas from its fields in the Krishna-Godavari basin expected to be higher than rivals, Reliance Industries is targeting automobiles and domestic users because power and fertiliser plants may not be able to afford it. The country’s largest private sector company has worked out a pricing formula for its K-G basin gas, where the price of the gas that consumers pay across the country would be above $6 per million British thermal unit (mBtu). However, the country’s power and fertiliser companies, which consume more than 80 per cent of the total gas demand in the country, would not be able to afford such high prices of gas. GAIL India, the country’s largest transporter and marketer of gas, currently buys gas from the Panna-Mukta and Tapti fields for $3.86 per mBtu. The field, operated by a consortium of British Gas, ONGC and Reliance, had a few years back wanted GAIL to pay $4.8 per mBtu for the gas, but GAIL went to the petroleum ministry saying its consumers, mainly power and fertiliser plants, are not ready to pay prices higher than $4 per mBtu. 

As soon as price of gas goes above $4 per mBtu, gas starts replacing coal as a fuel in power and fertiliser plants. The company was more interested in selling a major part of its 80 million standard cubic metres a day (mscmd) of gas to industrial users, the automobile industry and for domestic use in cities. The industry predicts that in the next 5-6 years almost 30 per cent of the current consumption of petrol, diesel and LPG in the country would be replaced by gas, even as city gas distribution projects takes off in many cities. The realisation from selling CNG and piping it to domestic users in cities is almost above $8 per mBtu. At 85 million standard cubic metres a day (mscmd), gas supplies in the country are currently less than half the demand of around 195 mscmd. Consumption may rise to 400 mscmd a day by 2025 if the economy grows at the projected rate of 7-8 per cent a year. Reliance, which discovered gas in the K-G basin block in 2002, will start producing 40 mscmd by June 2008. This will be raised to 80 mscmd by the middle of 2009.

Cabinet clears petrochemical policy

April 13, 2007. The Cabinet approved a national policy on petrochemicals aimed at giving a big boost to India’s $8.8 billion petrochem industry. The policy outlines measures to attract more investments in the sector and to enable it to capture a larger slice of the Asian demand for polymers. For this, the government would provide natural gas - the feedstock — at globally competitive prices, create infrastructure and further rationalise tariffs and taxes. The Cabinet also approved setting up an inter-ministerial expert committee to recommend the use of plastics in the thrust areas as mandatory. The policy will also provide for modernising the downstream plastic processing industry to enhance its capacity and competitiveness. By 2011, the per capita consumption of plastic products and synthetic fibre would go up three-fold from the current 4 kg and 1.6 kg respectively. The policy envisages setting up a petrochemical technology upgradation fund, a plastic development council and a task force on petrochemical feedstock to suggest measures to ensure the availability of petrochemical feedstock at internationally competitive prices and for setting up future cracker complexes. The policy also envisages increasing the investment limit for SSI units making plastic articles from Rs 1 crore to Rs 5 crore.

ONGC nod to $0.9 bn investment

April 12, 2007. Oil exploration major Oil and Natural Gas Corporation (ONGC) has approved investment of over Rs 3,700 crore (0.9 bn) in a slew of projects. This includes an investment of Rs 576 crore as equity in the Rs 3,844 crore, 740 MW gas-based power project in Tripura and another Rs 1,817 crore in augmentation of gas production in the state to feed the power plant. The Tripura power project is being financed in the debt-equity ratio of 70:30 and the plant is scheduled to be commissioned by 2010. This integrated project will enable ONGC to harness its gas potential in the state through ‘Gas-to-Wire’ concept, catalysing significant development in the North-Eastern region. The country’s largest upstream company will also pump in another Rs 795 crore over and above the Rs 3,195 crore already approved in development of the C-Series fields in the western offshore and another Rs 355 crore in building seven pipelines in Bombay High North field. These seven pipelines are essential for realisation of full potential from Bombay High (North) and shall be connected to the upcoming MHN Complex (facilities). 

Rs 1,817 crore would be invested in developing upstream facilities to raise gas production from Tripura to 4.5 million cubic meters (mmscmd) per day from the current 1.45 mmscmd. The incremental gas will be supplied to the 740 MW power plant being built by ONGC Tripura Power Company, in which the state-owned company has 50 per cent stake. The company also approved the construction of an energy-efficient, green, intelligent and barrier-free office building (in around 32,000 sq mt) at Rajarhat in Kolkata at an investment of Rs 228 crore. 

Gail gives conditional NOC to BG's energy trading arm

April 11, 2007. GAIL India has given 'conditional nod' to a proposal from its joint venture partner British Gas for setting up of a wholly-owned subsidiary, BG India Energy Solutions. The proposed new subsidiary would be debarred from entering into city gas distribution business as it would be in conflict with the interests of their existing JV, Mahanagar Gas (MGL). BG and Gail India tied up to form Mahanagar Gas, which provides gas in Mumbai and Greater Mumbai. Gail's no objection certificate (NOC) has been forwarded to the Foreign Investment Promotion Board (FIPB), paving the way for clearing BG's proposal. Earlier, Gail had raised objection to BG's proposed move stating that business activities planned by BG India Energy Solutions could adversely affect existing business of MGL. As per the existing FDI norms, BG needed an NOC from Gail to enter into new areas as it was in the similar line of business. The government, in 2005, had granted permission to the UK-based BG Energy Holdings for setting up a wholly-owned subsidiary for undertaking energy trading business. In January 2007, the company again sought government's permission for expanding its business activities. It filed an application in the FIPB to undertake addition activities related to marketing and distribution of natural gas. The company plans to procure gas from domestic and imported sources, including regasified LPG in India.

Petrol, diesel prices to hold for now

April 11, 2007. Consumers will not have to worry about paying more for petrol and diesel for another couple of months at least, even as oil-marketing companies continue to be worried. The Ministry Of Petroleum and Natural Gas has ruled out a hike in the prices of petrol and diesel in the near future even as the price of the Indian basket of crude oil continues to remain above $65 a barrel. Prices will not be hiked even if the global crude oil crosses $70 a barrel. The price of the basket of crude oil that Indian refiners buy has risen almost 10.79 per cent to $66.12 a barrel over the last one-month. The high prices – the average price in March was $60.26 a barrel compared with $56.53 in February – has resulted in the state-owned oil marketing companies losing close to Rs 120 crore a day from retail sales. This has resulted in the industry calling for a hike in retail prices of petrol and diesel. However, the government is not yet prepared to raise prices of automobile fuels. The government did not yet have a price benchmark above which prices of auto fuels will be hiked.

POWER

Generation

NTPC to pump in $1.8 bn for power plant in Kerala

April 17, 2007. National Thermal Power Corporation (NTPC) is planning to set up a 1,950 MW thermal power plant at Kayamkulam in Kerala with an investment of Rs 7,613 crore ($1.8 bn). The feasibility study for the project is on and is subject to water and fuel tie-up. NTPC is also looking at a couple of sites in coastal Tamil Nadu for expansion. NTPC southern region has a total power capacity of 3,960 MW, the largest being the 2,600 MW plant at Ramagundam, apart from the 1,000 MW unit at Simhadri and the 350 MW Rajiv Gandhi combined cycle power project at Kerala. Apart from the 3,960 MW power, an additional 2,000 MW of power from NTPC’s Talcher in Orissa is supplied to the southern states. The Simhadri project is at the second stage of expansion wherein two units of 500MW each will be set up with an investment of Rs 4,844 crore. The project will attain completion by 2010-11 and the cost of power from the unit will be Rs 2.30 per kwh. About 33% of Andhra Pradesh’s power needs is met by the Simhadri project. The cost of power from Unit I of Simhadri is Rs 1.61 per kwh while the cost of power from the Ramagundam unit is Rs 1.30 per kwh. NTPC has signed power purchase agreements for supply of power from the new Simhadri project with the governments of Andhra, Karnataka and Tamil Nadu. The agreement with Kerala will be signed shortly. In 2006-07, NTPC southern region achieved a total generation of 29,453 million units against 27,792 units in the previous fiscal. The plant load factors at the Simhadri, Ramagundam and Rajiv Gandhi CCPP during the year 2006-07 were at 92%, 88.9% and 78% respectively.

NTPC wants global bids for Mauda project

April 16, 2007. State-run National Thermal Power Corporation (NTPC) has appealed to the power ministry, seeking permission to invite international competitive bids (ICB) for the 1,000-MW coal-based Mauda project near Nagpur. The project has been in the news recently after the Shiv Sena registered a complaint with the Election Commission against power minister Sushil kumar Shinde for announcing the development of the project ahead of the Ramtek Lok Sabha by-election. International competitive bids for steam generator along with electrostatic precipitator and steam turbine generator packages was essential for making payments in foreign currencies to Indian bidders under the package. The ministry has already received NTPC’s plea and will provide necessary help to implement the project without any further delay. NTPC has already completed a feasibility study on the project. Though the project has been hogging the limelight since 2004-05, no substantial progress was made owing to the Centre and the state’s inability to arrive at a conclusion. But, with the power minister taking interest in the matter, NTPC proposes to complete the project during the Eleventh Plan period.

NTPC to share Simhadri power with South

April 16, 2007. Contrary to the claims of the Andhra Pradesh government over the 1,000-MW Simhadri expansion project, the National Thermal Power Corporation has entered into power purchase agreements with Tamil Nadu and Karnataka besides Andhra. It is expected to ink a similar pact with Kerala soon. It may be recalled that the NTPC had dedicated the entire power of the existing Simhadri project of a similar size, located at Visakhapatnam, to Andhra Pradesh. The present government has been asking the corporation to extend the same privilege with regard to the new capacity addition that will be available from the year 2010-11 also. But the increased power demand across the southern grid has apparently led the NTPC to act otherwise. The PPAs had already been entered with Discoms of Andhra, Escoms of Karnataka and the Tamil Nadu Electricity Board while the agreement with the Kerala power utility was expected next week. 

Though the actual allocation of power to each of these states from the expansion project will be decided at a later date, Andhra is expected to get 33 per cent share in line with the NTPC’s overall contribution to the state grid. The cost of the expansion project is estimated at Rs 4,844 crore and it is expected to sell power at Rs 2.30 per unit. The corporation has also been pumping in an additional 2,000 MW power from its Talcher plant to the southern grid. This is apart from the close to 4,000-MW installed capacity being operated by it in Andhra and Kerala. NTPC generated 20,247 million units of power at 88.90 PLF (plant load factor) during the last financial year, compared with 19,690 mu in the previous year in spite of loss of generation on account of grid restrictions.

CDM tag for two more Lanco hydel projects

April 15, 2007. Two more hydel projects of the Hyderabad-based Lanco group in Himachal Pradesh have been registered as Clean Development Mechanism (CDM) projects by the United Nations Framework Convention on Climate Change (UNFCCC) under the Kyoto Protocol. The two 5-MW projects at Upper Khauli and Drinidhar on the Beas River are currently under construction and expected to be commissioned by 2008; they are expected to generate approximately 35,000 Certified Emission Reductions (CER) per annum. With this, the total capacity of Lanco group's hydro projects registered with UNFCCC has risen to 20 MW. Lanco is one of the first Indian corporates to get its projects registered as CDM projects with UNFCCC. It is closely looking at the developments in the international carbon market where it sees a potential for further value addition to the company.

HCC eyes setting up more nuclear reactors

April 14, 2007. Hindustan Construction Company (HCC), the infrastructure development player that has set its eyes on becoming a $1 billion company by 2010, sees a huge opportunity in development of nuclear power projects following the agreement between India and the US. The company, which has built seven out of 14 reactors in various nuclear power plants, feels that the agreement would result in setting up of more nuclear plants. The company currently handled construction of reactor buildings and tunnels for the Koodankulum Nuclear Power Plant of 1,000 MW each in Tamil Nadu. HCC, which registered a turnover of Rs 2,028.20 crore in 2005-06, now held an order book worth Rs 9,604 crore in sectors such as transportation, nuclear and hydro power generation, water supply and irrigation. For the third quarter ended December 31, the company registered a turnover of Rs 540.65 crore against Rs 461.87 crore in the corresponding quarter last year, showing a growth of 17 per cent. HCC has identified Andhra Pradesh as one of the focus areas, with the State going in for infrastructure development in different areas such as irrigation and road construction. The company, which had already taken up two lift irrigation projects on Godavari and a North-South national highway project in Andhra Pradesh, had two more jobs in the pipeline. It was taking up Rs 700-crore Velugodu tunnel and Rs 320-crore Dummugudem water supply project. HCC, which had bagged the Package 4 of the Rs 1,306-crore Bandra-Worli Sea Link Project of Maharashtra State Road Development Corporation, is hopeful of completing the crucial part after monsoon in 2008.

Hydel power to light up rural Jharkhand

April 12, 2007. Jharkhand, endowed with a good number of rivers, rivulets and waterfalls, has identified 47 locations in the state where hydel projects of various sizes could come up for producing around 64 MW to bring relief to people living in its remote villages. Initially, it is to start work on 25 such sites. The Jharkhand Renewable Energy Development Agency (Jreda) has already floated national tenders for erection/construction of hydel projects at these 25 locations. While the power projects will be of various generating capacities, from 0.2 MW to 6.86 MW, they will together have the potential to generate around 33 MW in five-six years. The entire project is to cost around Rs 165 crore. Some of the 25 sites are located at Kolebera, Banu, Tethainagar (Simdega district); Mahuabaand, Sugabaand & Pidhe (Latehar district); Disham Falls, Subarnarekha at Namkum, Raru, Tajna river at Arki, Topra, Subarnarekha at Hudroo & Jouha (Ranchi district); Subarnarekha at Kuju, Kharkai, Subarnarekha III & IV (East Singhbhum); Chainpur, Bistanpur and Dumri (Gumla district), etc. The selected parties will conduct a detailed survey investigation (DSI) and prepare detailed project reports (DPRs) after examining all natural conditions at the sites.

BCCL contests Reliance claim of CBM power generation

April 11, 2007. Bharat Coking Coal Ltd, a subsidiary of Coal India Ltd (CIL), would be the first to start power generation based on coal-bed methane, challenging the claim of Mukesh Ambani's controlled Reliance Industries Ltd (RIL) that it has already begun producing power from its own CBM project. Although there are reports that RIL has started generating power from CBM but they have not made any official declaration about it. BCCL will be the first to produce power from CBM, as its project will be ready in March 2008. Reliance had been the first to hit CBM, in 2005, at Sohagpur block in Madhya Pradesh, This block has reserves of 35-40 trillion cubic feet. Work for getting CBM from the blocks in Rajasthan and Chattisgarh are at an advanced stage. BCCL, is thinking of generating 20MW (2x10MW) from the CBM it has hit at its mines in Moonidih and Sudamdih. While the first well at Moonidih (1059 meters) has been drilled, the second one is progressing and the target is 1100 metres. The offers for geophysical logging and perforation services are under tech- commercial scrutiny. BCCL has also completed the survey of the route for the gas pipeline, which will be laid once the best drill site is located. The project is expected to successfully demonstrate CBM gas utilisation within this fiscal and power generation will run into 2008.

NMDC to enter coal mining

April 11, 2007. The National Mineral Development Corporation (NMDC) has drawn up plans to invest about Rs 9,000 crore in various projects, including a 2- million tonne integrated steel plant, which it has proposed to set up at either Jagadalpur or Bailadilla in Chhattisgarh as part of its diversification efforts. In a significant development, the corporation has also decided to enter coal mining by joining other public sector companies already identified by the Centre for overseas coal block acquisition.  The feasibility report for the proposed steel plant, estimated to cost close to Rs 4,000 crore, was ready and the corporation was in the process of appointing a consultant to work out the project details. Though the corporation has proposed a joint venture with Steel Authority of India Limited (SAIL), it is yet to receive a response from SAIL in this regard. The other proposals in the pipeline include a two-lakh tonne sponge iron project along with a 10-MWpower plant at Bailadilla for which the investment details are being worked out. 

Transmission / Distribution / Trade

Cos with captive coal, ore mines may get nod to sell excess output

April 15, 2007. Companies with captive coal and iron ore mines might soon be allowed to market production in excess of their immediate captive requirement. A proposal to this effect is currently being examined by a Group of Ministers (GoM) on mining policy. The proposal envisages that excess coal from the mines could be routed to the market through Coal India Ltd whereas in case of iron ore, the National Mineral Development Corporation (NMDC) will take the product to the market.

The proposal before the GoM emanates from an earlier move in the Coal Ministry to market the excess production from captive mines and this has now been revived to have a similar policy for iron ore as well. In the captive iron ore mines with steel companies and coal mines with steel, power and cement industries, normal mining operations yield a substantial amount of mineral in excess of the respective company's requirement. In case the GoM approves the proposal to sell the excess production in the market, details such as royalty payment, rights over the mineral etc., would be worked out later.

TN stops selling power to Maha, Punjab

April 13, 2007. Tamil Nadu had stopped selling electricity to Maharashtra and Punjab from March 15 as the wind mills could not generate enough power due to lesser wind speed. Tamil Nadu was wheeling power generated from the wind mills to these two states. Over powercuts in some parts of the state, the government was taking steps to solve the problem of powercuts and improve the situation. However, there was no powercuts during night and farmers using motor pumps for irrigation during nights did not have any problem. Earlier, frequent power cuts during nights was affecting farmers depending on irrigation through motor pumps. 

Tata Power told to stop overdrawing

April 12, 2007. The Maharashtra Electricity Regulatory Commission (MERC) ordered Tata Power Company Ltd to stop overdrawing power from the Maharashtra grid. It has also ordered Tata Power to provide a load shedding plan for Mumbai city. The MERC, which has quasi-judicial status, gave the order while hearing a petition filed by Maharashtra State Electricity Distribution Company Ltd (MSEDCL) against Tata Power. In its plea MSEDCL had sought directions from MERC to prevent Tata Power from persistently overdrawing power from its resources. If Tata Power cannot cater to increased demand for power in Mumbai, a load shedding plan has to be prepared. Tata Power, Reliance Energy Ltd and BEST Undertaking are the three main power distributors in Mumbai city. BEST has no power stations but procures power from Tata Power and re-sells to its consumers in the island city area of Mumbai. Currently Mumbai has a demand of 2,600 MW of which about 2,200 MW is supplied by Tata and Reliance from their own power stations located in Maharashtra. The shortfall is covered by drawing power from the Maharashtra grid and from power stations across the country. MERC cannot accept `EHV opening' (unplanned load shedding) by MSEDCL in Maharashtra due to overdrawing of power by Tata Power for Mumbai.

Policy / Performance

Coal distribution policy set for rejig

April 16 2007. The country’s coal distribution system is set for an overhaul as it is likely to be based on the needs of ‘regulated and non-regulated sectors’. This new classification of sectors will replace the present system based on coal procurement by the core and non-core sectors. The present system has been there for quite sometime. Sectors like steel and cement have long been deregulated. Therefore, the ministry is formulating a new policy of coal distribution in consultation with other sectors. The committee for the evaluation of policy for distribution of coal headed by secretary HC Gupta is likely to formulate the new policy within a month. The ministry wants to bring sectors, where the government or a statutory body determines prices, under the framework of the regulated sector. Such sectors are likely to meet 90% of their coal requirements through fuel supply agreements (FSAs) at notified prices. The remaining 10% is likely to be met through e-marketing and imports.

The regulated sectors will include National Thermal Power Corporation (NTPC) and central power utilities. Fertiliser units, the prices of which are controlled by a regulatory authority and the defence sector, are also likely to fall in this category. The non-regulated sector will consist of all sectors which are deregulated. Steel and cement are likely to fall under this category. Coal India Limited (CIL) will consider 75% of the quantity as per linkage for supply through FSA at notified prices for this sector. For the remaining 25%, other sectors will have to rely on imports and e-marketing. Based on the transparent and rational price formula, prices will be fixed by Coal India annually.

Govt mulls tax relief to industrial units

April 16, 2007. The Maharashtra Government may consider granting tax relief to industrial units producing their own power using diesel-based captive power plants. The State Cabinet was expected to consider a proposal seeking concessions in VAT and other taxes on diesel used by captive power plants. With the help of captive power plants, about 1,200 MW of power could be produced which could give some relief to the power-starved units. Price of power from diesel-fired captive plant is likely to be a whopping Rs 12 per unit. The industries associations have demanded subsidy on diesel so that producing captive power becomes viable. The proposed additional day of staggering load shedding would cost huge losses to the industry in the State and therefore the association has demanded that the Government should compensate for the losses incurred by the industry.

Earlier in the day, the Maharashtra Electricity Regulatory Commission (MERC) came down heavily on the Maharashtra State Electricity Distribution Company Ltd (MSEDCL) for its inability to gauge the exact demand and supply of power in the State. MERC was hearing the load shedding plan of the MSEDCL. MSEDCL has approached MERC for the second time in two months with load shedding plan. MSEDCL as a utility company should have anticipated the rise in demand for power in the State and accordingly made its load shedding plan. MSEDCL cannot approach the commission every time the demand fluctuates in the State. At the hearing, the MSEDCL proposed one more day of staggered load shedding for industrial units in the State.

Chhattisgarh in power-sharing pact with J&K

April 16, 2007. Jammu & Kashmir will provide Chhattisgarh power this summer while the latter will return it in the same proportion with a bonus of 5 per cent in the winter. The pact between both the states was finalised recently through the NTPC Vidyut Vyapar Nigam Limited, a wholly-owned subsidiary of the National Thermal Power Corporation (NTPC). While J&K will start supplying power in next couple of days, Chhattisgarh will return it in November and onwards. Under the pact, J&K will provide 100 MW of power to the state while we will return 105 MW. The formalities have been completed and the state will start getting power from April 16. The state will draw power from Kashmir for the entire summer. There was a huge gap of 500 MW between demand and supply in the state at this point of time. The installed capacity of the state-run power board is 1410.85 MW. With the state getting power from other sources, it reaches to 1,950 MW.  The demand, however, has already reached 2,500 MW and is likely to increase as summer advances. The board has increased the time of load shedding as a temporary measure to maintain the balance between demand and supply. The 100 MW from Kashmir will help in reducing the gap as the board is also exploring other options to meet the crises. The state officials are in touch with the other states to purchase power. But the deal could not be finalised except the one with Jammu and Kashmir

E&Y seeks report from Lanco on low bid

April 16, 2007. Fate of the Sasan ultra mega power project is likely to be decided within a month even as project consultant Ernst & Young has sought clarifications from developer Lanco Infratech on its "shockingly" low bid. E&Y has sought clarifications from Lanco on few issues such as the low bid of Rs 1.19 a unit, which had shocked many people. After E&Y submits its report, a decision will be taken on whether there will be a rebid or not. Power Finance Corporation, the nodal agency for conducting bidding of all ultra mega power projects, had sought a report from E&Y on the issue. Following this, E&Y has asked for clarifications from the winning consortium. The low bid had also raised doubts on how the developers would implement the project. The 4,000 MW Sasan project, to be set up in Madhya Pradesh at an estimated cost of Rs 20,000 crore, ran into rough weather after Lanco's partner Globeleq of Singapore made an exit from the joint venture and sold its 70 per cent stake to Lanco and Jindal Steel and Power Ltd.

Plan commission fights to power tariff-based bidding

April 16, 2007. The power ministry’s attempt to give a quiet burial to the tariff-based competitive route for the hydel sector has run into trouble. The proposed move to a cost-plus regime for hydro power was considered by some states such as Uttaranchal, Himachal Pradesh and Arunachal Pradesh. However, the states continued to award projects to private players on considerations other than tariff. The Planning Commission isn’t in favour of stopping the route. It is making a last ditch attempt to make tariff-based competitive bidding work for hydro power projects. For the 11th Plan, the commission has suggested setting up a hydro power viability fund that will allow developers to defer a portion of the tariff to be recovered from consumers after the first 10 years of the project. The proposed fund has been suggested to offset the high cost of generation in the initial 4-5 years of the projects. The fund is one of the recommendations made by the working group on power for the 11th Plan. It is suggested that in the case of long-term contracts, a portion, say 25% of the tariff, for the first five years of commercial operations is deferred and not recovered from the buyers of power. Instead, it is added to the tariff between the 11th year and 15th year. Of course, the developer will not absorb the cost of the deferred payment. So, lenders will have to initiate schemes that will finance the deferred component of the power tariff for the first five years. The lenders will recover their money in the 11-15th year of the project’s commercial operations. The working group has suggested the responsibility of developing and operating the hydro project viability fund would be vested with financial intermediaries such as Power Finance Corporation.

Rlys, NTPC may ink pact for Nabinagar plant soon

April 16, 2007. The Railways and NTPC are likely to sign a new MoU for setting up a captive power plant at Nabinagar within six months. The joint venture company, called Bharatiya Rail Bijlee Company, will set up the 1,000-MW plant. NTPC will hold 74 per cent in it, while the Railways would own the rest. The Railways requires 2,200 MW for its entire network. Currently, it pays Rs 4.22 per unit (average all-India) for its traction needs. However, with the setting up of this captive power plant, it would get power at Rs 2.51 a unit, which is 40 per cent cheaper. The cost per unit may further go down to Rs 2.39 if the joint venture gets mega-project status. The new agreement is being worked out. The validity of the earlier MoU, which was expiring in February, has been extended till August. Reworking of the MoU is required since the earlier proposal envisaged a higher stake for the Railways (51 per cent). In February, the Cabinet Committee on Economic Affairs (CCEA) had approved a joint venture between NTPC and the Railways for setting up a Rs 5,352.5-crore thermal power plant at Nabinagar in Bihar. The cost of Rs 5,352.5 crore includes interest during construction of Rs 624.6 crore and working capital margin of Rs 103.1 crore. The company will have seed capital of Rs 10 crore and authorised capital of Rs 1,605.75 crore. NTPC will invest Rs 1,188.26 crore while the Railways will chip in with Rs 417.50 crore towards the equity.

2 Lanco mini hydro projects get CDM registration

April 13, 2007. Two more minihydro projects of Lanco in Himachal Pradesh have been registered as Clean Development Mechanism (CDM) projects by the United Nations Framework Convention on Climate Change (UNFCCC) under the Kyoto Protocol. The 5-MWUpper Khuli and 5-MW Drinidhar on the Beas River are the two additions to its CDM list. Both the projects, which are expected to generate close to 35,000 certified emission reductions (CER) a year will be commissioned next year. Lanco’s existing biomass projects and two hydro projects have already been registered as CDM projects generating 1.1 lakh CERs a year. 

CII plans survey on power needs of south TN districts

April 13, 2007. The Confederation of Indian Industry (CII) will undertake a survey during the second quarter of the current year to highlight the requirement of power for industrialisation of south Tamil Nadu. CII is planning to form a core team to work with the Government for promotion of rural business hubs in the areas of agriculture and rural industries, especially in Theni and Dindigul districts. As a follow-up of the conference `Southern Prosperity Through Enhanced Economic Development (SPEED)' held last year, awareness has spread on the need for development of the region. With the supportive action initiated by the State Government, the progress has been on the positive side and the zone, to sustain continuity in action plan, has taken up as its theme `Reach South Tamil Nadu' with a three-year vision in thrust areas, mainly industry, infrastructure, tourism and agriculture. Promotion of IT companies, development of cluster concept among SMEs in the region and harnessing the potential in quality and performance of various industries would form part of the industry initiatives.

Rajasthan power firms pulled up for T&D losses

April 12, 2007. The tall claims made by the Rajasthan government about reducing transmission and distribution losses has fallen flat as the Comptroller and Auditor General of India (CAG) has rapped power distribution companies on high transmission and distribution (T&D) losses. The CAG in its report, tabled in the state assembly recently, said against the norms of 4 per cent for transmission loss and 11.5 per cent of distribution loss, actual losses ranged between 6.01 per cent and 8.15 per cent and 34.06 per cent and 45.51 per cent, respectively. The T&D losses, in excess of the norm of 15.5 per cent, amounted to Rs 11,624.80 crore for a period of five years from 2000-01 to 2004-05. The performance of Rajasthan Rajya Vidyut Prasaran Nigam Ltd, with regard to evacuation of power within state, deteriorated during 2003-05 as within state transmission losses increased to 4.72 per cent in 2003-04 and 4.59 per cent in 2004-05 as compared to 4.10 per cent in 2000-01, despite capital investment of Rs 1125.16 crore. Due to transmission and distribution losses in excess of the norm of 15.5 per cent, consumers had to bear additional burden of Rs 4,183.57 crore in the form of higher tariff equivalent to 17 per cent of average tariff for the year 2004-05. Distribution loss, in excess of that allowed by the regulatory commission, was Rs 2,508.75 crore during the period of four years from 2001-02 to 2004-05.

Coal India to sign FSA with NTPC, SEBs

April 11, 2007. State owned Coal India Ltd (CIL), which has set a target of producing an additional 160 million tonne of coal in the 11th plan, will sign a fuel supply agreement (FSA) with the National Thermal Power Corporation (NTPC) and different state power utilities. Both CIL and NTPC have concluded discussion on all clauses under FSA, which is likely to be signed next month. The Union Coal Ministry is also in favour of the FSA. The FSA would have both penalty and bonus clauses, which would be binding on both parties. If the supplier fails to supply coal it will pay penalty, while similar penalty will be paid by consumers if they fail to lift coal. There will be bonus clause in the FSA as well. CIL has now built up a stock of nearly 43 mt against 20 mt, which was the normal stock position, due to power utilities failing to lift the assured quantity of coal. CIL planned its production according to projection made in the 11th plan. If it is not adhered to, the company will run the risk of adding up stocks. the company would produce 160 mt of additional coal in the 11th plan with an investment of Rs 18,000 crore, 80 per cent of which would be linked to power. CIL would help sustain an additional 25,000 MW of power in the 11th plan. Currently the company supplied coal to generate 60,000 MW of power.

Tata Power rating watch revised to negative: Crisil

April 11, 2007. Crisil has placed its rating on Tata Power Company’s (TPC’s) long-term debt on ‘Rating Watch with Negative Implications’. The rating was previously on ‘Rating Watch with Developing Implications.’ TPC has been currently engaged in generation, transmission, distribution and power trading in various parts of India. The revision reflects the increased likelihood of deterioration in TPC’s credit profile, following the company’s decision to acquire equity in three Indonesian companies, and to execute the 4,000 MW Mundra Ultra Mega Power Project on its own. TPC proposes to acquire $1.1 billion of equity in two Indonesian coal producers and a related trading company, through an offshore special purpose vehicle (SPV). TPC is planning to raise around 55% of the amount through foreign debt; the remainder will be financed through TPC’s internal accruals.

Similarly, the Rs 17,000 crore Mundra Ultra Mega Power Project is likely to be about 75% debt funded; the ownership of this project would rest solely with TPC, without equity involvement from any other partners. TPC had quoted Rs 2.26 per unit for the Mundra UMPP. Together, these would substantially increase TPC’s consolidated debt. The aggregate size and funding requirements of the project and acquisitions is substantial in relation to TPC’s present scale of operations and balance sheet size. Crisil is in discussions with TPC’s management to better understand the impact of these ventures, after which Crisil would take a final view on the ratings.

Power conservation vital for industry

April 11, 2007. Conservation of power and energy, both at domestic and industrial level, was the need of the hour. The total loss incurred annually by electricity distribution companies was estimated at Rs 27,000 crore, which is about 0.75 per cent of the country's GDP. The GDP could have grown much faster had there been sufficient power supply facility. As a result industries suffer. The solution is conservation of power. It is estimated that India spends more than $43 billion of foreign exchange to import oil. In short, energy requirement is at a premium. The need is to conserve energy and save fuel, including coal, since the source of most of our power, particularly electricity is coal. The need for capacity addition by more than 100,000 MW to achieve the goal of 100 per cent electrification by 2012 could be substantially reduced through energy conservation measures which are one-third capital intensive compared with new capacity addition. It is estimated that in most cases, energy savings to the extent of 30 per cent was possible through techno-economically viable measures.

Ratnagiri Gas, electricity board in power purchase agreement

April 11, 2007. Maharashtra State Electricity Distribution Company Limited (MSEDCL), or Mahavitaran has signed a power purchase agreement with the Ratnagiri Gas and Power Private Limited (RGPPL) around Rs 3.10 per unit of power. RGPPL will sell 95 per cent power generated to Maharashtra and the remaining would be sold to customers outside the state. While the variable cost of Rs 2.12 has been assumed to be the cost of gas per unit, the fixed cost component is 98.5 paise. The fixed cost, however, is subject to further review and finalisation by the Centre and the state government as both parties disagree on the fix cost.   

INTERNATIONAL

OIL & GAS

Upstream

Energy trader Mercuria invests $310 mn upstream

April 17, 2007. Trader Mercuria will invest more than $300 million in upstream projects as it builds on its core business of buying and selling oil. Mercuria will invest $250 million over the next few years in Delta Hydrocarbons, a new company that aims to maximise recovery from existing oil and gas fields. Delta is raising $1 billion and private equity firm 3i Group Plc said last month that it had also committed $250 million to the company, along with Mercuria and Dyas BV, a unit of Dutch company SHV Holdings NV, which were each investing a similar amount. The private trader has also invested $60 million in a 50 percent share of California-based Orchard Petroleum.

34 more offshore exploration areas for Australia

April 16, 2007. The federal government has released 34 new offshore petroleum exploration areas to help assure Australia's long-term energy security. The areas were located across six basins off the Northern Territory, West Australian and Victorian coastlines. Increasingly, global petroleum explorers are viewing Australia as a big gas opportunity with low sovereign risk, and Australia has attracted a number of new global explorers over the past two years. The take-up rate for new exploration areas has continued to rise, from about 50 per cent in 2002 to 90 per cent in 2005. Bids for 17 of the new areas will close on October 18 this year, with the remaining 17 closing on April 17, 2008.

Sipetrol makes oil discovery in Egypt

April 16, 2007. Empresa Nacional del Petroleo (ENAP), through its international subsidiary Enap Sipetrol S.A., made a new oil discovery in the East Ras Qattara block in Egypt's Western Desert, with the drilling of the Ghard-1 well. It has already made a previous discovery in this area, with the Shahd-1 well in November 2006. The Ghard-ST1 well was drilled to a depth of 3,436 meters (11,273 feet) and proved the existence of oil in the lower Bahariya formation. A 10-meter thick zone of interest was proven at a depth of 3,341 meters, which produced light oil of 40.5 degrees API (i.e. a good-quality light oil), at an initial rate of 327 m3/day (2,026 barrels per day), plus 74,000 m3/day of gas (2.6 million cubic feet a day). The East Ras Qattara block has been explored since 2004 by a consortium formed by Enap Sipetrol, as operator with 50.5% participation, and the Australian company Oil Search Limited (49.5%). With this new exploration success, the company completes its tenth discovery in Egypt and eleventh in the Middle East and North Africa region during the last four years.

Saudi Arabia wants to boost oil output

April 16, 2007. Saudi Arabia wants to increase its oil production so it can meet domestic and international demand while ensuring "fair" world prices. Now pumping just over 11 million barrels a day, the kingdom is the world's largest oil producer and the biggest supplier of petroleum to the United States. OPEC has cut production twice in the past five months, contributing to relative stability that has kept benchmark crude between $50 and $60 a barrel - down from the record highs of above $78 a barrel last summer, but still around 40 percent above 2004 levels.

China firm sees 227 mn bbls oil in Cambodia block

April 16, 2007. Cambodian offshore oil exploration Block D holds an estimated 227 million barrels of recoverable oil reserves. Cambodia hopes to begin pumping oil from offshore fields in the Gulf of Thailand in two years, although it has yet to confirm reserves estimated at 400-700 million barrels in Block A, being explored by U.S. oil major Chevron Corp., China Petrotech Holdings Limited had completed a 3-D seismic survey of Block D, data from which received a favourable review by the Exploration and Production Research Institute of CNOOC Bohai Corporation. That review estimated recoverable reserves of 226.9 million barrels of crude and 496 billion cubic feet of natural gas.

Exxon Mobil starts new gas production

April 13, 2007. ExxonMobil Exploration and Production Malaysia Inc has started production of non-associated gas (NAG) from the Tabu field, 200km offshore Terengganu. The NAG project was developed under the gas production sharing contract (GPSC) between EMEPMI as the operator and co-venturer Petronas Carigali Sdn Bhd (PCSB) to help meet increasing gas demand in Malaysia. EMEPMI and PCSB each holds a 50% participating interest in the GPSC, which was developed at an estimated cost of about RM673mil (US$182mil). EMEPMI is currently producing oil from the Tabu field via two platforms.

US wants extra 9 mn barrels of oil for reserves

April 13, 2007. The US Department of Energy issued a bid for contracts to deliver up to nine million barrels of oil to the Strategic Petroleum Reserve, as part of the Bush administration's plan for the US to have a bigger oil cushion to handle supply emergencies. The oil will come from oil companies that turn over a portion of the crude they drill on federal offshore leases as royalty fees in lieu of making cashing royalty payments. The reserve, which was created by Congress in 1975 after the Arab oil embargo, now stores close to 689 million barrels of crude underground at four sites in Texas and Louisiana. Both the purchased oil and the royalty-in-kind oil would help fill the stockpile to its current capacity of 727 million barrels. It would also continue to solicit bids periodically to purchase oil to replace almost 11 million barrels of reserve crude it sold for $584 million to refiners after Hurricane Katrina disrupted petroleum supplies.

Vietnam makes oil discovery

April 13, 2007. About 37 MMbbl of probable crude oil reserves is believed to rest under the Phuong Dong oil field on block 15.2 off southern Vietnam. The reports shows that appraisals showed condensate reserves of 5.4 MMbbl and 3.16 bcm. Further tests are underway to determine the exact oil reserves. JVPC operates the field with 46.5% interest along with partners ConocoPhillips 36% and Petrovietnam (PVEP) 17.5%.

Gazprom to open underground gas storage in Austria

April 11, 2007. Russian energy giant Gazporm, Germany's RAJ AJ and Russian-German Wingas are planning to open an underground gas storage facility in Haidach, that each of the partners would have a 33% share in the new facility. Gazprom also plans to build an underground gas storage facility with a capacity of 0.5 billion cubic meters of gas in Belgium, and is considering launching underground gas storage projects in China, Pakistan, India, Iran, Romania and Italy. Gazprom has already established and will finalize the registration of a new subsidiary to handle underground gas storage, Gazprom-PHG, before the yearend as part of restructuring.

Santos joins oil search in PNG gas project

April 11, 2007. Oil producer Santos has joined with an ExxonMobil-led consortium in a bid to exploit vast gas resources in Papua New Guinea. Santos will work with ExxonMobil, Oil Search Ltd and Nippon Oil to jointly progress a detailed study of a stand-alone liquified natural gas (LNG) project in PNG. The consortium is investigating the viability of a stand-alone LNG operation after shelving its troubled $8 billion PNG to Australia gas pipeline project in February. The consortium is expected to spend about $US60 million ($72.7 million) evaluating the merits of a 5 million to 6.5 million tonne per annum LNG facility. The evaluation is expected to be completed by the end of 2007, with first LNG shipments targeted for 2012-2013.

Gazprom's gas reserves at 29.8 tcm as of early 2007

April 10, 2007. Russia's energy giant Gazprom’s natural gas reserves stood at 29.8 trillion cubic meters as of the beginning of 2007 compared with 29.1 trillion cubic meters a year earlier. Russia's total natural gas reserves stood at 47.8 trillion cubic meters as of the beginning of 2007, with Gazprom accounting for 62%, independent companies for about 21% and undistributed stocks for about 17%. Gazprom intends to boost annual natural gas output to 560 billion cubic meters by 2010, to 580-590 billion cubic meters by 2020 and to 610-630 billion cubic meters by 2030. Between 2002 and 2030, Gazprom will spend about 1,915 billion rubles (about $73.6 billion at the current exchange rate) on geological prospecting to increase gas reserves by 27 billion metric tons.

China plans to boost oil and gas output to meet booming demand

April 10, 2007.  China plans to produce 193 million tons of crude oil and 92 billion cubic meters of natural gas in 2010. China will apply new technologies and increase investment to boost oil and gas output, according to the Eleventh Five-Year Plan for Energy Development (2006-2010) released by the National Development and Reform Commission. The plan said China, the world's second-largest energy consumer, will also draw up incentives to encourage investment in oil and gas exploration and production. It said China will step up development of recyclable and nuclear energy and hydropower on condition that the environment is protected and displaced people are resettled. China will speed up development of its six major coal production bases and hydropower stations on the upper reaches of the Yellow River, and middle and upper reaches of the Yangtze River and several of its major tributaries, according to the plan. The plan also said China will strive to limit its energy consumption to 2.7 billion tons of standard coal, an annual growth of 4 percent between 2006 and 2010. It said China aimed to produce 2.4 billion tons of standard coal in 2010, an annual growth of 3.5 percent. China will strive to cut energy consumption per 10,000 yuan (1,370 U.S. dollars) of gross domestic product from 1.22 tons of standard coal in 2005 to 0.98 tons in 2010, an annual decrease of 4.4 percent.

Marathon in Gulf of Mexico oil discovery

April 10, 2007. Integrated oil and Gas Company Marathon Oil Corp. a new deepwater discovery well in the Green Canyon region of the Gulf of Mexico had struck oil. The Droshky No.1 well, previously called Troika Deep, lies about 137 miles (220 km) south-southwest of Venice, Louisiana, in about 2,900 feet (884 meters) of water.

The well was drilled to 21,190 feet, and encountered a reservoir with about 250 of net oil pay. Marathon, which owns a 100 percent interest in the find, has started to drill up to two sidetrack wells, which will be followed by engineering development studies.

Downstream

GS Caltex to invest $360 mn in diesel facility

April 13, 2007. South Korea's GS Holdings Corp. plans to invest 335 billion won ($360.4 million) in a diesel hydrodesulfurization project. GS Caltex, South Korea's No.2 refiner, will build the facility by early 2009, its parent company GS said in a filing to the Korea Exchange. GS Caltex is a 50-50 joint venture between GS Holdings and U.S. major Chevron Corp.

Malaysia plans refineries in Middle East

April 12, 2007. Malaysia will soon start building two refineries and a pipeline to process and pump oil from the Middle East a major project that could help tankers sidestep one of the world's busiest shipping routes. Investors from China, Iran and Saudi Arabia will each take a stake in the 50-billion ringgit (US$14.2 billion; euro10.6 billion) initiative in northern Malaysia. Construction should begin in Kedah in August, with at least one coastal refinery that can process 200,000 barrels a day scheduled to be operational by the end of 2010.

Mozambique mulls US refinery plan

April 11, 2007. Mozambique’s government was considering a proposal by a group of US businessmen to build a $1,3bn oil refinery in the southern African country. The proposed refinery at Nacala, a port city in the north, would be the first of its kind in Mozambique, which has relied entirely on imports of oil products since a refinery in the capital, Maputo, was shut down years ago.

Pioneer Bio plans refineries worth RM15bn

April 10, 2007. Pioneer Bio Industries Corp Sdn Bhd (PBIC), Malaysia’s first Nipah or mangrove palm-based ethanol producer, plans to set up 15 refineries nationwide costing about RM15bil within the next five years given the increasing global demand for the commodity. The group’s maiden ethanol refinery in Trong near Taiping, Perak is slated for operation by end-2008.

Transportation / Trade

Gazprom mulling increase in gas supplies to Greece

April 12, 2007. Gazprom discussed the possibility of an increase in natural gas supplies to Greece. The sides also discussed Burgas-Alexandroupolis oil pipeline construction, as well as extension of the existing contracts till 2040. Gazprom is currently looking into its prospects in Greece in light of the electricity market's liberalization. According to the Development Ministry's data, Gazprom currently covers 80 percent of the country's natural gas demand. The country forecasts that gas consumption by various industries and households will reach 6.5bn cubic meters.

Policy / Performance

Kazakhstan to review energy contracts

April 17, 2007. Kazakhstan's government announced an audit of all energy and mineral resources contracts but said it had no intention of seeking unilaterally to revise any existing deals. The vast Central Asian state has attracted tens of billions of dollars of foreign investment into its rapidly growing oil, gas and metals extraction industries. In recent years it has demanded terms more in its favour, reflecting lower risks of investment.

Shtokman gas may be delayed to 2035

April 17, 2007. Russia's huge Shtokman gas field in the Barents Sea will probably not be on line before 2035, two decades later than presently planned. Russia does not have the technology to develop the field by itself and must rely on foreign know-how. Potential foreign partners for Shtokman, while displaying interest in public, were privately growing wary of entering long-term deals in Russia after the Kremlin had muscled in on other petroleum projects.Foreign firms were more cautious after Russian authorities halted multi-billion-dollar projects to force foreigners to yield control and after incidents of police raiding foreign oil companies' offices. Foreign companies faced uncertainties over Shtokman that included the use of untested offshore technology, an unclear tax regime and still unspecified gas export routes and transit costs.

Spain's Enagas sets 4 bn euro investment plan

April 17, 2007. Spanish gas distribution network operator Enagas would invest 4 billion euros ($5.42 billion) over the next five years and raise annual net profit growth over 10 percent in the period. Enagas also said it would increase its dividend payout by up to 60 percent between 2007 and 2012.

PSA to produce oil in Egypt with ENI, LUKoil extended to 2024

April 13, 2007. A production-sharing agreement (PSA) to produce oil at an Egyptian field with the participation of Italy's Eni and offshore LUKoil Overseas has been extended until 2024. The PSA participants are IEOC Production holding 56%, LUKoil Overseas with 24%, and International Finance Company with 20%. The project is operated by Agiba, a joint venture of state company Egyptian General Petroleum Corporation (EGPC), IEOC and IFC. Geological reserves of the Meleiha field, one of the most profitable and efficient producing projects by LUKoil Overseas, are estimated at 90 million tons (662 million bbl), and recoverable reserves at 34 million tons (250 million bbl). For almost 30 years of development, more than 17 million tons (125 million bbl) of oil has been produced. In 2006, 0.8 million tons (5.88 million bbl) of oil was produced, and this year, plans are to produce 0.84 million tons (6.17 million bbl).

Japan, China companies sign oil, gas deals

April 12, 2007. Japanese and Chinese companies signed business deals in the energy sector which may lead to possible joint development of oil and gas projects in the future, including in the East China Sea. Nippon Oil Corp. and China National Petroleum Corp. (CNPC) signed an accord for long-term cooperation, including overseas oil and natural gas resources development. China National Offshore Oil Corp. confirmed for the first time it had begun producing gas at a field in the East China Sea despite Japan's objections. Tokyo fears the development might drain off its resources. Nippon Oil also expects to expand bilateral trade in crude oil, oil products and liquefied petroleum gas (LPG). Mitsui & Co.'s U.K. unit and CNOOC signed an accord on liquefied natural gas (LNG) spot trading at the seminar. Japan's Sumitomo Corp., Kyushu Electric Power Co and utility China Datang Corp. have already agreed to cooperate in the development of renewable energy sources. The three companies are discussing the joint operation of wind power generators in Mongolia to begin in late 2008

Russia, Greece discuss gas contract extension till 2040

April 11, 2007.  Russia and Greece are considering extending a contract on natural gas deliveries to Greece until 2040. Russia delivers natural gas to Greece, meeting 80% of the country's needs, under a 1987 intergovernmental agreement.

Russia, Qatar agree on energy cooperation

April 10, 2007.  Russia and Qatar, the world's leading gas producers, agreed to form an energy development committee at the forum of gas exporters in Doha. The agreement was reached at a forum of 14 leading gas exporters in Doha. The committee will be based on Russia's natural gas giant Gazprom and Qatar's oil company. Qatar's natural gas reserves total 25.9 trillion cubic meters, and Russia's 47.8 trillion. In February, Qatar launched liquefied gas (LNG) production expected to put out 7.4 million metric tons of LNG annually, and will also commission two other production lines to yield 7.8 million metric tons a year each. The first line will supply LNG to China and the other to the United States. The ultimate production target is 37 million metric tons of LNG a year by 2010-2011 for exports to South Korea, India, Taiwan, Italy and Spain.

Power

Generation

Fortum to build biofuel power plant

April 16, 2007. Finnish utility Fortum Corp. will invest euro60 million (US$80 million) in a biofuel heat and power station near Helsinki, to be online by 2010. The plant, to be built 40 kilometers (25 miles) north of Helsinki mainly to provide heating for two regional towns, will replace old boilers using heavy fuel oil and natural gas. The company plans to increase the production of "environmentally benign" electricity and will also build a natural gas heat boiler next to the power plant. The companies will build a euro14 million (US$18.5 million) demonstration plant at Stora Enso's Varkaus Mill in eastern Finland. It is expected to start up in 2008. Fortum, based in Espoo near the Finnish capital, is the second largest power company in the Nordic region.

Iran plans two more nuclear plants

April 16, 2007. Iran has announced plans to build two more nuclear power plants despite international pressures to curb its controversial nuclear programme. The plants would be light-water reactors, each with the capacity to generate up to 1,600 MW of electricity. Each plant would cost up to 1.7 bn US dollars (£856 million) and take up to 11 years to construct. The country has been locked in a bitter dispute with Russia over the funding of Iran's first nuclear power plant outside the southern city of Bushehr. Russia delayed Bushehr's launch, which had been set for September, and refused to ship uranium fuel for the reactor last month as earlier planned, citing Iran's payment arrears. Iran is already building a 40 MW heavy water reactor in Arak, central Iran, based on domestic technology. It is also preparing to build a 360 MW nuclear power plant in Darkhovin, in south-western Iran. The two new plants would be built near Bushehr.

Australian company plans to build power plant in Vietnam

April 14, 2007. Australian coal mining company Ensham Resources Pty Ltd. plans to build a US$4-billion coal-fired power plant in southern Vietnam. Authorities recently approved the proposal from Ensham, which wants to build a 3,600 MW power plant in the southern Mekong Delta province. The construction will begin in 2008 and be completed in 2012. The plant will be built in Kien Giang, 240 kilometres southwest of Ho Chi Minh City. Vietnam's electricity consumption has increased an average of 17 per cent annually in recent years. The country's power supply has been struggling to keep pace with the demands of its booming economy.

Gazprom, Soteg to build power plant in Germany

April 13, 2007. Gazprom and Luxembourg-based Soteg SA have signed a memorandum of understanding on a 400-million-euro project to build a power-generating facility in Germany. The combined cycle plant with two 400 MW turbines will be located in the eastern town of Eisenhuttenstadt, and its launch has been scheduled for 2010. The joint venture, in which Gazprom's subsidiary, Gazprom Marketing & Trading Ltd, and Luxembourg's main natural gas supplier will have equal stakes, will sell part of its electric energy output directly to industrial consumers under long-term contracts. The Russian natural gas monopoly said the project would allow its subsidiary to diversify its business, which comprises trading in natural gas, including liquefied gas, electric energy and quotas on atmospheric emissions. Gazprom Marketing & Trading Ltd supplies over 70 wholesale consumers in Western Europe and some 1,000 retail consumers in the United Kingdom and France.

Transmission / Distribution / Trade

Great River signs coal supply deal for N.D. plant

April 13, 2007. Great River Energy extended a contract with North American Coal Corp.'s Falkirk Mining Co. to supply all of the lignite coal for the 1,116 MW Coal Creek power plant in North Dakota through 2045. Great River signed the original contract with Falkirk in 1974. This is the second extension of the original contract. The first occurred in 2000, and extended the contract from 2013-2020. The new contract will match the fuel supply to the expected life expectancy of the mine-mouth power plant. Coal Creek Station receives about 8 million tons of lignite coal annually from the Falkirk Mine. The Coal Creek plant is located near Underwood in McLean County about 50 miles north of Bismarck, North Dakota. There are three units at the station, including the 554 MW coal Unit 1, the 560 MW coal Unit 2 and the 2 MW oil Unit 3, which entered service in 1979, 1980 and 1979, respectively. Great River, Elk River, Minnesota, is a generation and transmission cooperative that owns and operates more than 2,300 MW of generating capacity and provides power to 28 distribution cooperatives in Minnesota and Wisconsin

Policy / Performance

Peabody says considering coal investment in China

April 16, 2007. Peabody Energy Corp., the world's largest privately owned coal producer was considering coalmine investments in China. It is expected that the company's coal output in Australia to rise to 30 million tonnes next year from 25 million this year following its acquisition of Excel Coal Ltd.

IAEA to help Jordan get nuclear energy

April 16, 2007. The Vienna-based International Atomic Energy Agency is ready to help Jordan acquire nuclear energy. Jordan wanted a nuclear plant by 2015 to generate electricity, as well as to use nuclear technology in education and to desalinate water for the largely desert kingdom. Jordan imports 95 per cent of its energy needs and is one of the 10 most water-impoverished countries in the world, with its annual water deficit exceeding 500 million cubic metres. The IAEA’s support for Jordan, including technical support and developing (human) capabilities, will guarantee the success of its nuclear programme.

Goldman to invest in Hunton Texas IGCC power plant

April 10, 2007. Goldman Sachs Group Inc.'s Cogentrix Energy Inc. subsidiary signed a letter of intent with Hunton Energy that would make Cogentrix the lead equity partner in the proposed $2.4 billion Lockwood power plant in Texas. Lockwood is a 1,200-MW integrated gasification combined cycle (IGCC) project in Fort Bend County, southwest of Houston. Hunton Energy, a division of the Hunton Group, wants to build the project in two phases with construction of the first phase expected to start in the first quarter of 2008 and scheduled to enter service in 2011. IGCC technology, a variation of a natural gas-fired combined cycle plant, uses coal or petroleum-derived gas in a gas turbine to generate electricity and then uses the hot gas leaving the turbine to heat water to produce steam to power a steam turbine and generate more power.

TXU seeks to build biggest U.S. nuclear plants

April 10 2007. Utility company TXU, which scrapped plans to build eight coal-fired plants when it agreed to be acquired by two private equity firms, is now hoping to build the biggest nuclear power plants in the United States. The reactors selected by TXU would be designed and build by Mitsubishi Heavy Industries of Japan, and would be 50 percent bigger than TXU's current nuclear reactors.

Westar signs energy management deal with Kelson

April 10, 2007. Westar Energy Inc. expanded its energy marketing relationship with Kelson Energy Inc. by renewing an agreement for the Redbud power plant and adding a new agreement for the Dogwood plant. Kelson recently purchased the 620 MW Dogwood combined-cycle power plant in Pleasant Hill, Missouri, and purchased the 1,230 MW Redbud Energy LLC combined-cycle plant in Luther, Oklahoma, in 2005. Under the terms of the agreement, Westar will purchase fuel for the plants and market the energy output from the plants. Westar will also provide Kelson with energy scheduling and other related power marketing services.

Renewable Energy Trends

National

TN to fuel jatropha cultivation

April 15, 2007. Tamil Nadu, which plans to cultivate the bio-diesel plant, jatropha, in over one lakh hectares in the next five years, by planting 20,000 hectares every year, will promote biodiesel production units in every district. Two plants in the private sector are to be commissioned this year. Already jatropha is planted in over 22,277 hectares in the state. Four companies have expressed their interest in entering into contract farming of jatropha cultivation and establishing the extraction units. They are Mohan Breweries and Distilleries Ltd, Shiva Distilleries Ltd, Dharani Sugars and Chemicals Ltd and Riverway Agro Products Pvt LtdFour companies have expressed their interest in entering into contract farming of jatropha cultivation and establishing the extraction units. The state government is keen to fetch remunerative price to the farmers by facilitating contractual arrangement with processing firms. Apart from these, jatropha promotion is also done by many NGOs, SHGs and co-operative societies. Mohan Breweries is investing Rs 25 crore to set up a 33,000-litre daily capacity biodiesel plant. The Coimbatore-based Shiva Distilleries is investing Rs 5 crore for a 3,000-litre daily capacity biodiesel plant. Both these plants are expected to start commercial production this year.

Global

KCP&L seeks wind power for Kansas/Missouri

April 17, 2007. Great Plains Energy Inc.'s Kansas City Power & Light subsidiary is seeking bids for up to 400 MW of wind generation in Missouri and/or Kansas. KCP&L would assess proposals to add a minimum of 100 MW in 2008 and up to an additional 300 MW from 2009 through 2012. The proposals are due June 15, 2007. The company's first wind project, the 100 MW Spearville wind farm in Spearville, Kansas, went into service in October 2006. Great Plains, of Kansas City, Missouri, owns and operates about 4,000 MW of generating capacity, markets energy commodities, and transmits and distributes power to about 500,000 customers in western Missouri and Kansas.

Vestas wins 150 MW wind turbine order in USA

April 17, 2007. Denmark's Vestas the world's biggest maker of wind turbines, received an order of turbines totaling 150 MW in the United States. The order is for 50 of its 3 MW turbines, which will be delivered starting in the fourth quarter of this year. It was placed by BP's BP Alternative Energy North America unit, a leading developer of wind-power projects in the United States.

 

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3. Nathaniel Guyol, Energy in Perspective of Geography (Englewood Cliffs, N.J.: Prentice Hall, 1971).

* Of course, there are other sources of national wealth, a most important one being the ownership of valuable natural resources. As the sudden wealth of oil-exporting countries shows, the sale of these resources can provide both ample income and capital for economic growth. Yet this wealth, which the high price of oil has transferred from oil consuming to oil-producing countries, fundamentally rests upon the ability of industrialized nations to use the oil to achieve high productivity of land and labor.

 

6 Ronald Muller, "Poverty is the Product," Foreign Policy 13 (Winter 1973-74): 71-103.

* Throughout this book the People's Republic of China is referred to as China. The Republic of China is referred to as Taiwan.

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