MonitorsPublished on May 09, 2007
Energy News Monitor |Volume III, Issue 47
Energy and Agriculture in the Third World: (Part – V)

By Arjun Makhijani in collaboration with Alan Poole

The data on rice indicate that the productivity of land depends on the amount of useful energy put into the farm, both directly in the form of farm work and indirectly through the application of irrigation water and fertilizers. Appendix A (Refer to Issue no. 46) describes in some detail how the efficiencies of the various technologies of energy use are specified in order to derive a measure of "useful energy."

Outside of field work, the energy requirements of the Third World are met largely by the use of wood. In most underdeveloped countries, particularly in Asia and Africa, the use of fuel wood exceeds the combined use of all forms of commercial energy. Dung and crop residues are other important energy sources. When these energy sources are omitted, as they often are in both national and international energy accounts (with the major exception of India), serious misunderstandings of comparative energy use arise. In fact, in the underdeveloped countries, the use of "noncommercial" fuels (wood, dung, and so on)* is much larger than the use of "commercial" fuels—about 25 million Btu per capita per year for noncommercial energy compared to 10 million Btu per capita for commercial fuels.6,7,8,9,10 Total per capita energy use in the underdeveloped countries is, therefore, 30 to 40 million Btu per year or about one fourth of what is typical in the industrialized nations and about one-tenth of the average U.S. use. **

Deprivation of the benefits that energy brings is very real in the Third World. But to improve economic conditions of rural peoples requires something in addition to a general increase in the level of energy consumption. An immediate and less expensive way of achieving more benefits from energy in many cases is to make more efficient use of present resources, including all the noncommercial energy resources, which are relied upon so heavily in the Third World.

The following sections describe six areas of the Third World and prototypical composite villages, the data for which have been compiled from national, regional, and local sources. These six villages represent the basic variations of agriculture in the Third World except for agriculture as practiced by nomadic peoples and the slash-and-burn agriculture still prevelant in some areas, such as some islands of Indonesia and the Philippines.

Farming conditions and practices as well as the energy sources and uses that are typical of the vast majority of farmers in the Third World, are represented in these case studies. The irrigated wheat farms of Arango, Mexico, which are ploughed largely with tractors and are planted with high-yielding varieties of wheat and corn, are essentially similar to many farms in Punjab in Northwest India. The organic manuring practices on the rice fields of Southern China are common in South India and Taiwan. The manual farming unassisted by cattle, irrigation, or machines in the Tanzanian village (Kilombero) is typical of many areas of tropical Africa a few of the facts that emerge from comparison of these regions and villages are:

1.        Adequate power to work the fields either in the form of draft cattle or farm machines, irrigation, and the use of fertilizers (chemical and organic) play crucial roles in determining the wealth of agricultural communities. Except for the farms which are run only with manual labor, energy use per unit of land is high, but the amounts of useful work derived from the energy varies a great deal from one place to the next (Refer to Issue no. 46, Appendix A). Crop yields appear to be correlated with the useful work derived from energy use rather than total energy use.

2.        The yields of crops vary not only from place to place but also from one year to the next, particularly in unirrigated areas. Since these are precisely the areas where economic conditions are most precarious, inadequate rainfall often brings disaster. In years of adequate rainfall, there may be surplus grain production, but often a lack of good storage facilities prevents a buildup of sufficient reserves to get by in the leaner years.

3.        The peak labor problem is a feature of most agricultural communities, affecting those most that rely solely on human and animal labor.

4.        The unplanned use of wood as fuel is causing problems which in many areas are already severe and will become so in others if better management of wood resources is not instituted. In the Sahel region of Northern Africa it contributes to the inexorable southward advance of the Sahara and in the Indian Subcontinent to flooding in the Gangetic and Indus plains.* 12 Yet the enormous resources of wood, land, and sunshine that are available in many underdeveloped countries in Africa, Latin America, and Southeast Asia could, if effectively used, help promote agricultural and economic growth.

When we speak of waste or inefficiency, we do so in the national context. Individuals without capital resources have no choice but to burn wood or dung the way they do. Thus, while the individual may use his resources as efficiently as he can, the nation may still be wasting resources by neglecting opportunities. The primary aim of the vignettes of regions and prototypical villages which follow is to portray energy use in the context of agricultural practices and regional realities. This is the background for an assessment of the energy needs of agriculture, a technical and economic evaluation of some sources of energy that could fulfill those needs, and a discussion of the implications for agricultural development policy. Table 2-2 shows a summary of energy use in the prototypical villages.

INDIA

Of India's population of 580 million (during early 1970’s), about 350 million live in small villages of less than 2,000 people each. Most of these people are too poor to buy adequate food, medical care, decent housing, and sanitation, and the technological tools necessary to improve their productivity and income. A population growth rate of about 2.2 percent per year contributes to the monumental problems of economic and social development.

Table 2-2.Comparison of Energy Use in the Prototypical Villages a

 

Agricultural Energy Use Farm Work, Irrigation, Chemical Fertilizers, in Million Btu/yr. b

 

 

Domestic Energy Use per Capita Million Btu/yr.

Per Capita

Per Hectarec

Energy Use per Capita in Transportation, Crop Processing and Other Activities Million Btu/yr.b,d

Total per Capita Energy Use Million Btu/yr.

Place

Useful Energy

Energy Input

Useful Energy

Energy Input

Useful Energy

Energy Input

Useful Energy

Energy Input

Useful Energy

Energy Input

1. Mangaon, India

0.2

4

0.5

7.7

1.6

25.6

0.1

3.4

0.8

14.7

2. Peipan, China

1

20

1.4

8.3

6.5

41.5

0.1

3.2

2.5

31.5

3. Kilombero, Tanzania

1.1

22

0.06

2.3

0.1

3.8

0.02

0.7

1.2

25

4. Batagawara, Nigeria

0.75

15

0.16

2.4

0.4

7.3

0.03

0.9

0.9

18.5

5. Arango, Mexico

1.6

17

13.5

41

14.9

45.5

0.1e

3.6e

15.2

61.6

6. Quebrada, Bolivia

1.7

33.3

0.3

6.7

1.8

40

0.3

6.6

2.3

46.6

a            This table is derived from Tables 2-4, 2-8, 2-12, 2-15, 2-18, and 2-22.

b            Half the human food has been included in the columns for agricultural energy use, the other half in the columns showing energy use for miscellaneous activities.

c            The area of land which is cultivated (not including any multiple cropping) is used for computing energy use per hectare.

d            Fifty percent of the human food and 25 percent of the draft animal energy is included in these columns, except for Quebrada, Bolivia, where 50 percent of the human food and 50 percent of the draft animal energy is included. For Kilombero, Tanzania, and Batagawara, Nigeria, we include only 25 percent of the human food in the "other" columns and 75 percent for farm work, because generally farm work is unassisted by draft animals or machines. The rest of the human food and draft animal energy is included in the columns showing agricultural energy use. This breakdown is somewhat arbitrary for we only know that most of the draft animal labor and a large portion of the human labor are used on the farms but have no empirical data on the subject.

e            This number is probably an underestimate since we have not included oil or electricity for crop processing or oil for transportation of food and fertilizers.

About 140 million hectares of India's area of 320 million hectares is cultivated land13. India therefore has a cultivated area comparable to that of the U.S. or China, although its total land area is only about 40 percent as large as either country.

India's agricultural progress during the period 1950-1970 was substantial. Food (cereals and pulses) production doubled from about 51 million tons a year in 1950-51 to about 100 million tons in 1969-70, while population increased by about 50 percent. Thus, in spite of the severe drought of the mid sixties, the per capita availability of food increased. The average picture is, however, misleading because the distribution of this agricultural progress among the various regions of India as well as the distribution of the increased incomes from agricultural and economic growth has not been uniform. Thus Punjab (in Northwest India) has had spectacular growth in agricultural production and particularly in wheat production since the introduction of the high-yielding varieties of wheat in the late 1960s. Foodgrain production in Punjab increased at 15 percent per year (compounded) during the period 1966-70, and wheat production increased at 18 percent per year during this period14. Seventy-two percent of the cultivated area was irrigated in 1972, and about 40 percent of the cultivated area was sown more than once. Although all classes of farmers have benefited from agricultural growth, "the farmers in the higher income groups have gained relatively more than lower income groups," according to a sample survey in the Ludhiana district analyzed by Mohindar Mudahar15.

The regional disparities are even greater. Only 25 percent or so of India's cultivated land is irrigated, but in Bihar this figure falls to 10 percent 16,17,18 though Bihar lies on an amazingly rich source of subterranean water in the Gangetic plain which is recharged by many snowfed and rainfed rivers. Much of the irrigated area in India cannot support two crops a year because the water supply in many canal systems is insufficient. Many parts of India's irrigation system are quite old and were not built to cope with the intensive use required for high-yielding seeds and multiple cropping. Partly because of these inadequacies, only 20 percent of India's irrigated area is sown more than once a year19.

The picture is similar in rural electrification: 25 percent of the villages in India have electricity. In Haryana, in Northwest India, all villages have electricity; in Tamil Nadu the figure is 97 percent; in Punjab 55 percent; in Uttar Pradesh about 20 percent; in Bihar about 15 percent; and in Assam, in Eastern India, about 3 percent20, 21. The proportion of villagers who actually use the electricity where it is available is quite low. The rural electrification survey of 196522, reported that electricity use in an average village ceases to grow when only 20 percent of the people use it. While the lot of many rural people has improved since independence in 1947, particularly in the Northwest and in parts of the coastal plains, the lot of many of the landless and many farmers with small or marginal land holdings has not improved. In many cases it has become worse.

The food-fertilizer-oil crisis has hit India particularly hard. It was one of the principal factors in the decline in grain production from a high of 108 million tons in 1970-71 to 103 million tons in 1973-74. The trend of rising per capita food production in the 1950-1970 period was reversed in the 1970-74 period. Even in Punjab, India's most productive agricultural state, yields are declining because of a shortage of fertilizers and pesticides and lack of enough oil and electricity to run the irrigation pumps. At the same time the fertilizer plants of India are running far below capacity (50 to 60 percent). India is one of the few countries where a systematic attempt has been made to determine the extent of use of noncommercial fuels. Sample surveys in villages and towns were conducted by the Energy Survey of India Committee to determine the extent of noncommercial fuel sources and uses23.

The Committee reported that about 120 million tons of wood, 50 million tons of dry dung, and 30 million tons of "vegetable wastes" were burned each year, largely in the villages but also in the towns. Vegetable wastes fed to draft animals were not considered in the report. If the energy taken in by draft animals is included, the per capita consumption of noncommercial energy is about 12 million Btu per year (about half of which is burned directly as a fuel) compared to the commercial energy use of 6 million Btu per year (about one-fourth of which is used to generate electricity)*. About 10 percent of the commercial fuels are consumed in the villages primarily for irrigation and farm machines. The other 90 percent is consumed in the towns and cities, most of it going to industry and transport.

The statistics on noncommercial fuels are compiled in a way so that commercial fuels appear to play a larger role in energy use than is actually the case. If the energy content of both categories of fuel is measured on a Btu basis (or metric tons of coal equivalent), as is standard practice in almost all countries and in the United Nations, the noncommercial fuels assume more significance. With the international method of accounting, 86 percent of India's energy use in 1954-55 was in noncommercial fuels; with the "coal replacement" method used in India, the figure is about 70 percent. For example, a metric ton of cow dung used for cooking is taken to be equivalent in energy value to the amount of coal that would replace it, if coal were used in place of the dung. Since the efficiency of coal burning is assumed to be higher, this practice understates the quantity of energy available in the dung. Energy in dung can be used just as efficiently as energy in coal, provided that it is burned in the right equipment. Therefore, the energy accounting procedure used in this book is based upon the energy content of the fuel. This gives us a more accurate picture of the amount of resources that are available and the amounts that are used.

Much of the world's poverty is concentrated in the rich alluvial plain of the Ganges River which consists of Bangladesh and the Indian States of Uttar Pradesh, Bihar, and West Bengal. The protypical village in Bihar that we have chosen for study is poorer than villages in many other parts of India such as Punjab or the coastal areas of Tamil Nadu in South India. We have chosen it because it represents the conditions of life for a great many of the 300 million people who populate the Gangetic plain, and because we feel, that this area with its rich soil and water resources has great potential for agricultural growth. These are also among the reasons that we have used this village as the principal example in our illustrative calculations of energy needs and the economics of energy supply described in later sections.

Footnotes:

* Fuel input for electricity generation is taken as 12,000 Btu per kwhe delivered, which is typical of many underdeveloped countries.

13. India 1971-72 (New Delhi: Government of India, 1972).

14. Mohindar S. Mudahar, "Dynamic Analysis of Agricultural Revolution in Punjab, India," Cornell University, Ithaca, New York, July 1974.

15. Ibid.

16. India 1971-72.

17. K. L. Rao, "Irrigation" (New Delhi: Government of India, 1972).

18. Ranjit Gupta, The Musahri Plan (Patna, India: Association of Voluntary Agencies for Rural Development, 1972).

19. India 1971-72.

20. Economic Situation and Prospects for India— Vol. II: The Energy Sector (Washington, D.C.: International Bank for Reconstruction and Development, 1974).

21. S. Swayambu, "Power Development," (New Delhi: Government of India, 1972).

22. Planning Commission, Report on Evaluation of the Rural Electrification Programme (New Delhi: Government of India, 1965).

23. Report of the Energy Survey.

24. World Energy Supplies 1960-1970.

(To be continued)

Courtesy: Ford Foundation.

Optimised Electricity Generation Planning: A case study for Karnataka

By Shankar Sharma, Consultant to electricity industry

Synopsis:  One of the major reasons for the electricity crises being faced in the country is the sub-optimal generation planning. As a case study for Karnataka reveals, there is a vast scope of improvement in this regard. An objective approach in this regard will result in much better use of the resources of the country at a much lower overall societal cost in addition to eliminating the need for power cuts.

1. Background:

A recent news article in Karnataka indicated the difficulties being faced by Karnataka Power Corporation Limited (KPCL) to have a fuel linkage to a proposed gas based power project at a place called Bidadi near Bangalore. Even after the elapse of 10 years the fuel linkage for this project has been uncertain, whereas the project costs seem to be spiraling.  In such a situation shall KPCL and the state govt. not consider shelving the project instead of continuing to spend more money on an uncertain project?  The Director (Operations), NTPC is on record having said few months ago that basing power projects on natural gas has become unviable in India at least in the foreseeable future. If NTPC, with many gas fired power stations in the country (which are being frequently shut down due to the non-availability of gas), think so is it not unwise to commit the consumers for a gas based power station in a state, which has no known reserve of any type of fossil fuels?

Instead of continuing with this project with ever increasing costs it would be wiser to consider the money spent so far on this project as a sunk cost. This unsubstantiated expenditure (about Rs. 120 Crores so far, as reported) could be analysed from another perspective. At the prevailing cost of addition of new generation capacity of about Rs. 4 to 6 crores per MW, the total cost of putting up 1,200 MW gas power plant would amount to about Rs. 6,000 Crores, excluding the cost of transmission system, and the recurring cost of the uncertain availability of gas. 

On the other hand, as per the Bureau of Energy Efficiency, at the prevailing cost of additional energy generation it costs a unit of energy about one fourth the cost to save than to produce it with new capacity. If we take this wisdom into correct perspective it means that whereas the money spent so far (about Rs. 120 Crores, as reported) has not given us any additional generating capacity, the same money spent on efficiency improvement in the electricity industry of the state in the areas of generation, transmission, distribution and utilisation would have resulted in virtual addition of about 90 MW on a perpetual basis without any of the uncertainties and environmental issues associated with gas power plants. The state governments have to adopt such rational perspectives, if we want to see energy security on a sustainable basis.  The energy security for any state on a sustainable basis will be feasible only when there are concerted efforts first to harness the state’s own resources optimally and minimise the need to import energy sources.

In this regard the Sections 27(1) (d), (e) and (f) of the Karnataka Electricity Reforms Act 1999 stipulates that the Commission shall be guided by the factors like ‘economical use of the resources’,  ‘optimum investments’, ‘the interests of the consumers’ and ‘commercial principles’.  If one looks at the history of many of the power generation projects in the country it becomes clear that none of these requirements appear to have been complied with fully.  In continuing with the practice of implementing such ill conceived projects the state governments do not appear to keep in mind the commercial principles or the interests of the consumers, because all such project preparation costs due to time & cost overrun including those of unviable projects, will get transferred to the consumers ultimately.

2. Ill-conceived Hydel Projects:

Another example for the lack of holistic approach is the proposed Gundia hydro electric project in Hassan District of Karnataka.  The Detailed Project Report (DPR) in this case indicates that a vast stretch of dense rain forests (about 490 Hectares) in the Western Ghats will have to be destroyed to get 400 MW of installed capacity at an annual Load Factor of 32.42%, which is quite low as compared to many other hydel projects. Can we afford to loose this much of thick rain forests for such a small benefit?  If we take all the direct benefits of rain forests of highly sensitive Western Ghats, the value of these forests alone will be much more than the benefits of the project over its entire life time.

However, the value of the forests has not been taken into objective account in this DPR. Another disturbing aspect of this DPR is that no alternatives have been considered.  The electricity industry in the state of Karnataka, as is the case with most other states, is operating at a low level of overall efficiency, and reduction of the losses due to these inefficiencies alone will be able to add virtually thousands of MW of capacity at much lower costs than that of new installed capacity.  Shall each of the states not be looking at such efficiency improvement measures before embarking on large projects of high impact on the society?

3. Unsuitable coal fired projects:

The proposal to add a number of coal based power generating plants in Karnataka is another case of ignoring the need to manage our resources well. Since Karnataka state has no known reserve of fossil fuels, the coal power stations cannot be in the best interest of our society.  The location of coal power stations at places like Raichur, Mysore, Hassan etc. which are neither at the coal pit head nor at the load centre, brings in the disadvantages of both options. While the officials are talking largely about peak load shortages, to establish such base load stations will lead to excess base load capacity in the near future.

This has been the inference of a simulation study by D. Narasimha Rao, Visiting Faculty, IIM Bangalore in May 2006, which has revealed that such a situation would result in excess base generation capacity by year 2015, and is likely to result in thermal PLF of less than 35%. This will mean a huge burden on the paying public, and also waste of state’s resources.  It is very unfortunate that the state Energy department, which should have initiated such perspective studies at regular intervals, is even ignoring the recommendations of such private initiatives.

Similarly, the diesel power plant at Yelahanka also cannot be said to be in the overall interest of the society. Without looking at the future availability of diesel, the plant seems to have been commissioned and the average annual PLF of the plant indicates that it was not the best alternatives. Now, the consumers will have to bear the capital and O&M cost of the plant without commensurate benefits.

It is not inconceivable that such a situation, of un-coordinated approach to generation planning without holistic approach to the overall societal needs, is prevailing in most of the states.  There is, hence, an urgent need for our society to review this situation in order to protect the interest of the consumer, and also to maximize the usage of our natural resources.

(Views are personal)

-To be continued-

NEWS BRIEF

NATIONAL

OIL & GAS

Upstream

ONGC changes rules for rig deals

May 15, 2007. ONGC Ltd, the oil and natural gas exploration and production major, has decided to change its bid-evaluation criteria for charter-hire of offshore and onshore rigs, an area in which it expects to spend up to Rs 6829 crore by 2010. ONGC would, for the first time, charter hire 17 onshore rigs of different types for Rs 2,468 crore. The tender committee has decided to relax some norms and tighten others for its first-ever charter-hire of onshore rigs. ONGC plans to spend Rs 16,075 crore for purchase, charter-hire and upgradation of rigs in the next five years. While ONGC plans to purchase 10 onshore rigs for Rs 600 crore over the next two-three years, the charter hire of 17 onshore rigs for Rs 2,468 crore will be completed within the next three years. For upgrading the existing land rigs, ONGC has decided to spend Rs 1,246 crore between 2008 and 2012. For charter hire of 16-17 offshore rigs by 2008, ONGC has decided spend Rs 4,361 crore and for purchase of 4 jack up rigs for shallow water exploration, ONGC has decided to spend Rs 4,400 crore by 2012. ONGC has earmarked Rs 3,000 crore to purchase a floater for the first time for deep-water exploration and expects to commission it by 2012. The tenders for purchase and the charter hire have already been floated and they are at different stages of processing. For charter hire, the tender committee has made changes in the bid evaluation norms, which include changes in matters relating to experience of bidders, third-party inspection agency, mobilisation period, mobilisation fee and payment of excise duty. There are changes being incorporated in the model-drilling contract too. ONGC has decided to take over the contractors' liability of service tax as well as limit contractor's liability for pollution and blow out up to Rs 50 lakh. Mobilisation period of rigs or the number days between getting the rigs and put them to work have been made uniform to 180 days with lumpsum mobilisation fee for getting rigs within India fixed at $0.3 mn and $1.5 mn for rigs mobilised from outside India.

RIL has another gas bounty waiting

May 14, 2007. After the 11.3 tcf gas discovery in the Krishna-Godavari basin, which is India’s largest - his group flagship Reliance Industries (RIL) holds another 8.3 tcf of gas at its North East Coast (NEC) blocks. While KG gas is expected to start flowing from June next year, the NEC blocks are expected to start production a year after that. As production goes full stream at both the blocks, RIL expects 2010 to be a watershed year in terms of contribution to cash flows. In India, any discovery must ascertained by the Directorate General of Hydrocarbons (DGH) and certified by it before being announced in public. RIL proposes its NEC basin gas to be used for city gas distribution (CGD) and industrial purposes in Orissa, West Bengal and Madhya Pradesh. RIL’s affiliate Reliance Gas Transportation Infrastructure (RGTIL), is laying pipeline from Basudebpur in Orissa and connect it to Bhopal via Cuttack and Howrah.

Reliance may tie up with ONGC Videsh

May 13, 2007. In another significant public-private initiative, ONGC Videsh Ltd (OVL) and Reliance Industries Ltd (RIL) could soon strike a strategic relationship for overseas oil and gas projects. OVL is keen to revive talks with Iraq to get a stake in the Tuba oilfield in that country and though this would not be the company's first venture in Iraq, it could mark a beginning of an alliance between OVL, the overseas arm of ONGC, and the private sector major RIL. OVL with its partners had earlier completed negotiations with the Iraqi Government for a stake in the oil field in southern Iraq, but the deal could not be taken to its logical conclusion due to the political scenario in that country. The consortium of OVL, RIL and Sonatrach would have seen OVL and RIL holding about 30 per cent stake each and Sonatrach the remaining 40 per cent, thus giving the Indian companies the controlling stake jointly. Industry experts say partnerships between PSU and private sector players would be beneficial for both. A public undertaking could bring value in terms of Government-to-Government relationships and, in this case, OVL could also bring to the table expertise and global credibility. A private sector player, on the other hand, helps in bringing in speed and the right amount of aggression to close such transactions, as a lot of these deals depend on things managed on the ground.

Cairn India makes two new discoveries

May 11, 2007. Cairn India announced two new oil and gas discoveries in its prolific Rajasthan block. The discoveries were made in Kameshwari West-2 and Kameshwari West-3 wells. The Kameshwari West-2 discovery, located 12 km north west of the 2003 Kameshwari discovery and 56 km south of the giant Mangala field, encountered 18.2 metres of net oil pay. The Kameshwari West-3 discovery is located 10.6 km to the north of Kameshwari West-2 and encountered up to 16 m of gas pay. Two DSTs were conducted and test results in the upper interval confirmed the presence of a gas pool, which flowed at approximately 75,000 standard cubic feet per day. Cairn India has received a six-month extension from the government for conducting its exploration programme in Rajasthan. The programme is for an appraisal area west to Cairn’s oil fields in the same block, currently under development. The company has already made two discoveries in the 879 sq km appraisal area, but it needs time to assess the full potential of these finds.

OVL hits big gas reserve in Iran

May 10, 2007. An Indian consortium led by ONGC Videsh Ltd has made a huge gas discovery in Iran, the largest find in the Islamic country this year, with in-place reserves being estimated at around 10 tcf. OVL, the overseas arm of state-run Oil and Natural Gas Corp, had previously discovered oil in Iran's Farsi offshore block that lies 90-km off Bushehr port. OVL has 40 per cent stake in the 3,500 sq km block. Indian Oil Corp (IOC) has a similar stake while Oil India Ltd (OIL) has the remaining 20 per cent stake in the block. However, under the contract with the Iranian government, OVL cannot take oil and gas found in the block to India. OVL will now present a development plan to the Iranian authorities for bringing to production the oil and gas finds in the block. Iran will pay a 35 per cent rate of return to the consortium on the expenditure it made during exploration. For development phase, the rate of return is to be determined.

US watching as ONGC strikes oil in Gulf

May 9, 2007. A consortium of Indian oil companies, led by ONGC, has struck it rich in the Persian Gulf, a find of an estimated 10 tcf of natural gas and 1bn barrels of oil in the Farsi block. This development comes even as New Delhi and Washington are engaged in tough negotiations over finalising a controversial nuclear deal and US senators have been warning India against making military and energy deals with Iran. The consortium of Indian oil majors, led by ONGC Videsh (OVL), the overseas investment arm of ONGC, has IOC and OIL as members. Gas reserves in the block are estimated to go up to 10 tcf, while oil reserves in the block are estimated to be in the region of 1bn barrels. The oil and gas find by the consortium could have large geo-political ramifications. Senior US Senators and congressional supporters of the nuclear deal have written to Indian Prime Minister, to terminate all cooperation with Iran in the energy sector. Pressure has been mounting on India to take a more cautious approach on Indo-Iran bilateral ties. The US had, in September 2006, extended the scope of economic sanctions under the Iran-Lybia Sanctions Act, by which, foreign companies making an investment of more than $20 mn in one year in Iran’s energy sector would be blacklisted. Though the Indo-US nuclear deal has always had political overtones that had little to do with energy, it is difficult for energy-starved India to ignore the hydrocarbon potential of Iran. India has signed a $20 bn deal to buy liquefied natural gas (LNG) from Iran and is also pursuing a pipeline project along with Pakistan to bring Iranian gas to India. The consortium of oil companies, which began work in 2003, found the first traces of oil and gas in late 2006.

ONGC to procure 27 rigs in next three years

May 8, 2007. To tide over the crisis of onshore rigs, ONGC has drawn up a plan to purchase and hire a total of 27 such rigs in next three years. The total outlay on purchase and hiring of on land rigs till 2010 is estimated at Rs 3,100 crore. An additional Rs 1,200 crore is proposed to be spent for upgradation of the existing rigs with the company. A total of three rigs were expected to be purchased in next two to three years at an approximate cost of Rs 600 crore. This apart, ONGC has already floated three tenders for hiring 17 onshore rigs. This will also include replacement of some of the existing rigs. The total estimated outlay for hiring rigs till 2010 is Rs 2,468 crore.  It made nine new oil and gas discoveries in 2006-07. Thirteen more discoveries were made in proven field. 

Downstream

Essar Global to invest $4 bn in Egypt

May 15, 2007. Essar group holding company Essar Global has firmed up plans to invest Rs 16,400 crore ($4 billion) in Egypt for setting up a refinery and a steel plant. The company proposes to build a 300,000-barrels-per-day oil refinery in northern Egypt, with an investment of $3.4 billion. Talks were on to explore the possibility of setting up the refinery as a joint venture with certain foreign companies and the Egyptian government. Egypt has nine refineries, mostly concentrated in the northeast, in places like Cairo, Alexandria and in Suez. A 300,000-bpd Egyptian refinery is part of Essar’s plan to have a bigger presence in West Asia as well as in global markets, where oil-fuelled growth and a construction boom have boosted domestic consumption, squeezing supplies to Europe and Asia.

Shell to help scale up CPCL operations

May 14, 2007. Shell Global solutions will soon launch an optimisation study at Chennai Petroleum Corporation (CPCL) aimed at further improving the operations of the refinery and fetching a guaranteed additional return of $ 0.5 per barrel as refinery margin. Shell Global is a specialist in the line and has been working with refineries in various countries. It has just finished a similar study in Kochi Refineries and is currently doing one at Indian Oil’s Mathura refinery. It will also be engaged by HPCL for its refinery at Visakhapatnam. Next month, 20 experts from Shell will be here to work along with CPCL team on the optimisation study. In the first two months, they will identify the areas for operational efficiency covering the entire process in the plants, energy management, various utilities in the refineries etc. It is expected to take about two years to complete the study.

Iraq to push for Indian refineries

May 14, 2007. Iraq will press Indian firms to set up refineries there. Iraq has a refining capacity of 603,000 barrels per day. It produces 477,000 bpd of refined products and consumption stands at 514,000 bpd. Iraq is expected to enact an oil law by May-end that would allow its various regions to negotiate oilfield contracts with foreign investors. Baghdad desperately needs foreign investment to revive its shattered economy, which relies heavily on oil export revenues. The country straddles the world's third largest oil reserves. Decades of war, sanctions, under-investment and now widespread violence and sabotage have left it critically short of fuel. It has to import nearly half of all its gasoline.

CPCL plans $8.5 bn refinery with IOC help

May 11, 2007. Chennai Petroleum Corporation Ltd (CPCL), a group company of Indian Oil Corporation, plans to set up a refinery and petrochemical complex at Ennore with an estimated investment ranging from Rs 30,000 crore to Rs 35,000 crore ($8.5 bn). Work on the project is expected to start in 2008-09 and will be completed by 2014-15. CPCL has sought 3,000 acres of land from the Tamil Nadu government for the project. Experts from CPCL and IOC are jointly conducting a feasibility study for refinery configuration, petrochemical configuration and other factors. They will submit a report in June-July. This will be followed by a market survey. For financing the project, one-third of the required funds would be raised by the three promoters. The balance would be a mixture of debt and equity. Other details, like the size and instruments of debt, would be decided at an appropriate time.

Technology developed to double LPG production

May 11, 2007. Indian Oil Corporation has developed an indigenous technology that can double LPG production in refineries. IOC has developed INDMAX process technology, which has been patented for maximization of LPG production in refineries. This technology can double the LPG yield as compared to existing Catalytic Cracking Technology. INDMAX technology can be implemented in grassroot refinery project as well as in refineries installing new Catalytic Cracking Units. It is operational at Guwahati refinery since June 2003. It has also been selected for Paradip Refinery (of IOC) and Bongaigaon Refinery and Petrochemicals Ltd. The expected LPG production from Paradip Refinery is 0.90 mmtpa and from BRPL 0.226 mmtpa on commissioning these units. They are expected to go on stream in 2010-11. India is currently deficit in LPG production and needs to import the cooking fuel to meet demand.

Transportation / Trade

GSPC to invest $150 mn in gas distribution

May 14, 2007. Gujarat State Petroleum Corporation (GSPC) has decided to invest around Rs 600 crore (150 mn) through its subsidiary GSPC Gas Company over the next four years for a CNG and piped natural gas (PNG) network in 20 major cities and towns in the state. PNG business involves a lot of legwork as connections have to be made for individual buildings. This is a tedious and low-value business, a reason why most players shy away. CNG distribution has its own worries, as CNG stations have not come up in required numbers. The state-owned company is going ahead on its own in a field, which has few players. While the Adani group was allotted Ahmedabad and Vadodara, GAIL was given Rajkot and BPCL was allotted Gandhinagar. Recently, GSPC converted the Gujarat State Fuel Management Company into GSPC Gas Company. The company was formed with a clear objective to cater to the natural gas requirements of all retail segment users and undertake the city gas distribution business to provide gas to all retail consumers in the domestic, commercial, small industrial and transport segments. 

GAIL in talks with Exxon for LNG imports

May 10, 2007. State-run GAIL (India) Ltd is in talks with US energy major Exxon for importing 5 mt of liquefied natural gas (LNG) at Dabhol. The company is talking to Exxon for importing LNG from its Gorgon project in Australia, and with Sonatrach for imports from Algeria. The LNG import and regassification facility adjacent to 2,150 MW Dabhol power plant in Maharashtra will be completed by November this year. Beginning November, GAIL can potentially import LNG at the terminal. But the same are possible only during the November to April in absence of a breakwater. The breakwater will be built by mid-2010 to make the terminal operational at its full capacity of 5 mt. A breakwater, a wall of rock piles in the sea, helps prevent sea currents from destabilising during docking and unloading, particularly during monsoon period.

Kerosene fails to fuel kitchens in rural India

May 9, 2007. Kerosene is no longer a cooking fuel option for rural India. It is totally absent from National Sample Survey Organisation’s (NSSO’s) nationwide survey on energy sources of Indian households for cooking and lighting. Successive governments have, till date, justified huge subsidy for kerosene, which serves as the only alternative fuel for rural India apart from firewood and dung cakes. The government is estimated to have spent around Rs 15,000 crore for subsidising kerosene. The government data shows, barely 1% of rural households use kerosene for cooking purposes. LPG seems to be a more preferred option, with close to 9% using it. This is 3% more than 1999-2000. This also substantiates various reports, which show that around 38.6% of subsidised kerosene meant to be distributed through the Public Distribution System, is being diverted for black marketing and adulteration purposes. The government loses around Rs 5,700 crore worth of subsidy owing to such diversions. Hence, firewood and chips constitute around 75% of cooking fuel. Around 9% households use dung cakes. On the other hand, around 57% of urban households use LPG. However, firewood and chips are also widely prevalent, with 22% of urban households using it. Kerosene, however, is a major lighting fuel in rural households, with 44.4% using it. But here too, electricity, a relatively urban commodity, pips it as a lighting fuel. Even though urban households exhibit a heavy preference for electricity (around 92.3% use it), kerosene is used for lighting in close to 7% households. This is more than the number of rural households using kerosene.

Dabhol project to get gas at $6 per mmBtu

May 9, 2007. The Petronet LNG Ltd would supply 1.2 mmtpa of gas for two years to the Ratnagiri Gas & Power Pvt Ltd (RGPPL) at around $5.94 to $6 per mmBtu. Gas price would be determined with a view to bring in equity and it has been done on pool-account basis. GAIL India has already signed the gas sale purchase agreement with Petronet. The RGPPL would be able to operate two units of 700 MW on gas from July. GAIL India on Monday said it would be able to transport the gas supplied by Petronet LNG Ltd from the Dahej-Uran and Panvel-Dabhol pipeline from July onwards.

Policy / Performance

Training diplomacy to swap more stake in foreign gas companies

May 15, 2007. To meet increasing oil and gas demands, the Centre going all out to pick up equity stakes in foreign oil and gas companies besides procuring gas from various countries. Now, the government has resorted to training diplomacy to raise the chances of acquiring stakes in oil and gas fields abroad. It plans to provide training to foreign nationals in the oil and gas sector from prospective countries in India’s training institutes. The training programme would be conducted by oil PSUs. Training diplomacy is crucial especially as the country has been lobbying hard in countries like Russia, Saudi Arabia, Egypt, Oman, Qatar, Syria, Iran and Iraq for acquiring equity for the Indian oil PSUs and also for entering into long-term gas supplies arrangements. The petroleum ministry has already worked out a comprehensive plan in this regard. The ministry is convinced that it could leverage its position to help the PSUs acquire equity in foreign oil companies. Trained personnel would act as India’s goodwill ambassadors in the countries where India is interested in exploration and production (E&P), refinery and marketing. The ministry proposes to launch the training programme for two years from July this year. Oil & Natural Gas Corporation, Indian Oil Corporation, GAIL India, Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd and Engineers India Ltd have already promised to provide their facilities and help prepare suitable training modules. The training programme could range from 15 days to six weeks and includes academic training, field visits, familiarisation programmes, laboratory exposure, tie-ups with professional institutions followed by award of certificate.

PSU oil companies pump up production plans

May 14, 2007. The government plans to spend about Rs 2,70,000 crore in oil and gas sector during the Eleventh Plan (2007-12), a 160% jump from the Tenth Plan’s outlay of Rs 1,04,000 crore. The prime focus of the public sector oil companies is on exploration and production (E&P) of hydrocarbon, besides acquiring more oil and gas assets abroad. Public sector E&P major ONGC is planning to enhance its outlay for 2007-12 by over 151%. The company’s proposed outlay in 2007-12 is about Rs 83,000 crore, a significant jump from Rs 33,000 crore in the Tenth Plan. Other PSU, Oil India’s (OIL) outlay is expected to go up from Rs 5,000 crore in the Tenth Plan to Rs 10,000 crore in the Eleventh Plan. OIL has been mandated to seek newer areas for intensifying exploration efforts. ONGC has set a crude production target of 29 mt in 2007-08, about 6% higher than 27 mt figure in the previous fiscal. The company has committed for natural gas production of 25 bcm, 14% higher than 22 bcm in 2006-07. Besides enhancing domestic E&P activities, the government is keen on acquiring hydrocarbon assets abroad for equity oil and equity gas. ONGC’s foreign arm ONGC Videsh (OVL) is likely to get an outlay of about Rs 60,000 crore to acquire various oil and gas assets in the Eleventh Plan. The amount is significant compared to Rs 14,000 crore allotted in the Tenth Plan, more than a four-fold rise. On the downstream side, the government would focus on upgrading, modernising and expanding refineries. Indian Oil Corporation (IOC) has committed for five major projects in the first year of the Plan period. It plans to enhance Panipat refinery capacity from 12 to 15 mmtpa and set up a Naphtha cracker at the refinery. Its plan for the year include augmentation of Mundra-Panipat crude oil pipeline to 9 mmtpa, laying Jalandhar LPG pipeline and setting up a hydro cracker project at the Haldia refinery. 

Petroleum sector drives infrastructure growth

May 11, 2007. A turnaround in crude oil output and higher production by refineries pushed the growth of six infrastructure industries to 8.6% in 2006-07 as against 6.2% in the previous year. The crude production, which had declined 5.3% in 2005-06, increased by 5.6% in 2006-07. Similarly, the output of refineries grew 12.6% in FY07 as compared to 2.4% in 2005-06. In March 2007, the growth of the core sector was 10% as against 7.1% in the same month last year.

Prioritise gas availability to fertiliser units

May 10, 2007. Inadequate availability of gas is the main constraint for setting up new fertiliser plants and reviving closed ones. The Parliamentary Standing Committee on Chemicals and Fertilisers has strongly recommended the fertiliser sector to be given top priority in the allocation of gas. At present, power and fertiliser sectors consume almost 75% of gas from domestic sources, supplied by GAIL (India) Ltd. The committee has recommended more gas for the fertiliser industry, compared with the amount allocated to the power sector. According to the committee, gas given to the power sector does not result in any value addition, but in the case of the fertiliser sector, it reduces the burden of subsidy. Inadequate gas supply has severely affected the existing plants, the expansion of working units and also the establishment of new ones. According to the department of fertilisers, gas would be available to closed units by 2009-10 and to other units by 2008-09. An inter-ministerial committee has also been constituted under the chairmanship of the petroleum secretary to facilitate the connectivity and supply of gas to non-gas based units, and develop appropriate mechanism for fixing gas prices. The department of fertilisers should also ensure that gas pipelines are also provided before March 31, 2008, so that existing units would be able to operation at full capacity.

GAIL plans $0.67 bn capital expenditure for 2007-08

May 9, 2007.  GAIL (India) Ltd has chalked out a capital expenditure plan of Rs 2,744 crore ($0.67 bn) during the financial year 2007-08. The investments would be made towards pipeline projects, oil and gas exploration and expansion of petrochemical plant. Of the Rs 2,744-crore, the company plans to invest Rs 1,855 crore in pipeline projects, Rs 500 crore in E&P projects, Rs 146 crore in petrochemicals, Rs 94 crore in business development, and the rest in projects related to city gas, telecom, and coal gasification. GAIL is expanding the capacity of its Pata petrochemicals plant in Uttar Pradesh to 410,000 tonnes per annum (tpa) from the current 310,000 tpa. The project is expected to be completed by the first quarter of the current financial year. GAIL plans to raise Rs 2,500 crore in the current financial year, of which 60 per cent would in the form of external commercial borrowings. GAIL plans a total capital expenditure of Rs 25,000 crore for the next five years (by 2011-12). Of this, it plans to raise Rs 15,000 crore through borrowings and the remaining Rs 10,000 crore will be through internal accruals. GAIL may sell its 2.5 per cent stake in ONGC to partly fund its capital expenditure for the current financial year and 2008-09 (April-March). In the financial year 2008-09, the company plans a capital expenditure of Rs 6,000 crore, mainly for gas pipeline projects. The proposed pipelines are Dadri-Bawana-Nangal pipeline, Chainsa-Gurgaon-Jhajjar-Hissar, Jagdishpur-Haldia, Dabhol-Bangalore, and Kochi-Kanjirkkod-Bangalore/Mangalore. Once these pipelines are commissioned the gas throughput capacity is expected to increase to 280 mcm per day from the current 130 mcm per day.

Essar Oil plans $100 mn ECB

May 9, 2007. Essar Oil is in the final stages of negotiations to raise $100 mn (about Rs 407 crore) through external commercial borrowings (ECB) for expansion and upgradation of its crude refinery in Khambalia, Gujarat.   ICICI Bank is the principal facilitator for the fund-raising exercise. A proposal is still under negotiation between Essar Oil and ICICI Bank for raising $100 mn through ECB. This would be used for capacity expansion and technology upgradation at our refinery. The $100 mn to be raised through ECB would be part of the investment that Essar Oil would need to expand capacity at its refinery from the existing 10.5 mmtpa to 16 mmtpa over the next two years.  The company would invest part of the money in upgrading technology at the refinery, as well. The refinery was commissioned in 2006 and is running at a current capacity of 7.5 mmtpa. The refinery is expected to run at full capacity by July this year. It processes crude in excess of 150,000 barrels a day. The $2.26 bn refinery has a current approximate output capacity of 5.5 mmtpa of high speed diesel and 2.2 mmtpa of gasoline. However, with the capacity expansion, the company would produce larger volumes of other fuels such as liquified petroleum gas, jet fuel, kerosene, fuel oil and bitumen. Essar’s Khambalia refinery had been designed to primarily handle a crude mix of Arabian Light and Heavy in a 70:30 ratio. However, additional flexibility was provided for processing a variety of crude mixes from sweet-light crude to heavy high sulphur sour and bituminous crude. Financial closure for initial funding of the grass root refinery had been achieved earlier. While $1.5 bn were raised through debt, the remaining investment was made by the promoters. 

Pipeline regulator on the anvil

May 8, 2007.  The prime minister’s office has cleared the formation of pipeline development and regulatory authority. The authority would be put in place immediately. The clearance to form the regulatory body has come when the pipeline network for transporting petroleum products is spreading fast. Only about 25% of long distance transport of petroleum products is taking place through pipelines in the country, which is very low when compared to developed nations.

Policy on petrochemical investment zones outlined

May 8, 2007. The Minister for Chemicals and Fertilisers, announced the new policy on petroleum, chemicals and petrochemical investment regions (PCPIRs), the first of which is likely to come up before the year-end. The PCPIRs would be specifically delineated investment regions with an area of around 250 sq km. The area might include one or more special economic zones (SEZs), free trade and warehousing zones, export-oriented units or growth centres notified under relevant Central or State legislation policy. The region would have manufacturing facilities for domestic and export-led production in petroleum, chemicals and petrochemicals along with associated services and infrastructure. Each PCPIR will have a refinery/petrochemical feedstock company as an anchor tenant. According to the policy, the Central Government will ensure the availability of external physical infrastructure including rail, national highways, ports, airports and telecommunication facilities in a time-bound manner. This infrastructure will be created/upgraded through public-private partnerships (PPPs) to the extent possible. The various state governments will be responsible for providing infrastructure facilities such as power, water, sewerage and health, safety and environmental concerns. The Department of Chemicals and Petrochemicals will be the nodal department and a high-powered committee will be constituted by the Centre to scrutinise applications for setting up the PCPIR and then monitor and expedite the implementation.

POWER

Generation

Sterlite to raise $2 bn for power plant

May 15, 2007. Sterlite Industries (India) plans to raise as much as $2 bn in its first share sale in the US to pay for a new power plant. By building a power plant, it is starting his second new venture three weeks after agreeing to pay $1.4 bn for 71 per cent of India’s biggest non-state iron-ore exporter. Sterlite is planning a $1.9 bn, 2,400 MW plant in Orissa. Sterlite has built six of its seven power plants that can generate a total 1,046 MW. 

Palatana plant to start power generation by 2011

May 15, 2007. State-run Oil and Natural Gas Corporation said power generation from its proposed 750 MW gas-based thermal project in Palatana in South Tripura would start by 2011. Currently, ONGC is extracting 3 mcm gas from 124 wells in Tripura and drilling is on at 64 new places in the state to fulfill the requirements of the Palatana project in which the ONGC has nearly 70 per cent stake. Nearly 4.5 mcm gas per day would be needed to run the project. The state-run oil PSU would invest Rs 5,000 crore for the Palatana project.

Central Coal to develop 5 mines

May 14, 2007. Central Coalfields Ltd (CCL) would soon take up the development of five new mines with capital expenditure of Rs 1854 crore to raise its production to 78 mt of coal in the XI Plan. CCL expected to raise its output by the end of the Xl Five-year Plan and expected to start work at the five new mines, all of which were in Jharkhand. The five mines were the Magadh opencast mines with 12 mmtpa capacity, Amrapali with 12 mmtpa, Ashok Expansion with 6.5 mmtpa, North Urimari opencast of 3 mmtpa, Karo opencast of 3.5 mmtpa and Konar opencast of 3.5 mmtpa. The Xl Plan would see the opening of 13 new opencast mines with expected production capacity of about 28 mmtpa of coal.

KSK Energy setting up power plant in M’shtra

May 14, 2007. Hyderabad-based KSK Energy Ventures Limited has achieved financial closure for its first phase (270 MW) of the proposed 540 MW coal-based power project at Warora in Chandrapur district of Maharashtra. The project is being developed through Wardha Power Company Private Limited (WPCPL). On completion, the project will generate about 3,500 million units of power a year. While KSK Electricity Finance Private Limited, a joint venture between KSK and Lehman Brothers, holds 74 per cent of the Rs 600 crore equity in the project, the rest is held by Maharashtra-based Viraj Profiles Limited. Viraj has also entered into a 25-year agreement with the company to buy back the entire 270 MW of power for captive use. The three financial institutions, Rural Electrification Corporation (REC), Hudco, and Indian Overseas Bank (IOB) have agreed to fund Rs 555 crore, Rs 233 crore and Rs 100 crore respectively for the project, which requires a total capital investment of Rs 2,400 crore. The first unit of 135 MW under phase I is scheduled to be commissioned in May 2009. The remaining three units of the same capacity, under the two phases, will be synchronised to the power grid in three-month intervals thereafter. KSK Energy Ventures has an asset size of Rs 2,000 crore. It has so far deployed Rs 600 crore equity in the projects. It currently operates six small size power plants, which supply power to cement, textile and other industries in Tamil Nadu, Kerala, and Andhra Pradesh.

JSW Energy zooms on two coal assets in Indonesia

May 13, 2007. To ensure steady coal supply for its 5,000 MW power expansion programme, the energy arm of the Sajjan Jindal-headed JSW Group is looking at investing in coal assets in Indonesia. These mines would supply 2.5 to three million tonnes of coal every year. JSW Energy has plans to increase its generation capacity to 5,500 MW in the next two to three years from 500 MW at an investment of Rs 15,000 crore. The company would receive supply from these mines by 2010-11.

Uran power project capacity to be hiked

May 11, 2007. The Uran power project, which currently generates about 400 MW electricity, would start producing 250 MW additional power from July after availability of spot gas for the project. Tenders for spot gas have been floated and the gas is expected to be available by June-end. This would raise the total power generation from the Uran project to around 700 MW as against its installed capacity of 850 MW. The Parli thermal power project in Marathwada region would also begin generating 250 MW shortly and by this month-end, the state shall start getting another 250 MW from Paras power project. The state currently faces a power shortage of around 4000 MW as against shortage of around 5600 MW recently. The current power availability to the state is around 10,000 MW. This includes around 5600 MW generated by state power generation company and around 2000 MW supplied by the Central Grid.

Punjab has plans for self-reliance in power

May 10, 2007. In order to make Punjab self- reliant in power, which is reeling under severe power shortage, the Shiromani Akali Dal working president unveiled a blue print for futuristic development of the state. It aims to add over 6,000 MW of power in the next three and half years by setting up projects at pit heads and port heads, liberalising the state policy so as to allow the industrial units to develop captive as well as co-generation plants and providing open access system. As against Punjab's total generation capacity of 6,088 MW, the present demand in the state is of 9,000 MW power. The power shortage in the state is growing at the rate of 10 per cent per annum.  The new capacity additions include 500 MW at Lehra Mohabbat, which would be executed in two phases. Both the phases would be operational by November 2007. Also, the Goindwal power plant having 600 MW power generation capacity would be operational within 3 years.  There are similar plans to generate 1,200 MW power from Talwandi Sabo power plant and also 1,200 MW at Nabha for which pre-bid conference would be held on May 19, 2007.  The state would also generate 1,000 MW of power from co-generation and agricultural residue. 

Transmission / Distribution / Trade

Private companies may get to bid for MahaVitaran contracts

May 15, 2007. Maharashtra’s state-owned power utility MahaVitaran may soon opt for private companies instead of public sector enterprise Bharat Heavy Electricals (Bhel) for supplying electrical equipment. The company would go for international competitive bidding to purchase equipment for several capacity expansion plans. MahaVitaran is more serious about trying international competitive bidding for two reasons. First is the delay by Bhel in servicing the orders and the second, the requirement of higher technological compatibility for future generation projects. The expertise held by foreign companies in manufacturing equipment for plants, which have units generating over 800 MW each is being cited as a reason for a more competitive bidding process. Bhel has the expertise in equipment for units generating less than 800 MW. Technological upgradation in future may prefer bigger capacity units for which state-of-the art equipment would be needed.

Petroleum Minister promises more gas for state power plants

May 14, 2007. Petroleum minister has promised more natural gas to power plants in Maharashtra to tide over the acute electricity shortage in the state that has seen load shedding even in so far untouched Mumbai. The minister agreed to divert some of the gas meant for Rashtriya Chemicals and Fertilisers (RCF) to Maharashtra State Electricity Board (MSEB) for raising power generation.

Discoms introduce insulated wires to prevent power theft

May 13, 2007. Plagued by losses due to power thefts, discoms in the capital have introduced a new insulated transmission network which would make stealing electricity next to impossible. Branding it as the Mass Network Modernisation programme, the distribution companies are using insulating Ariel bunch cables to supply power. These are specially effective in areas where the streets are very narrow and people are hooking on to power cables, resulting in huge losses. Apart from reducing power thefts, the new technology will also streamline supply and cut transmission losses. While as of now the programme has been launched in areas of east and west Delhi it will soon be extended to other parts of the capital. Under the scheme, electricity is supplied through 100 per cent insulated cables and a locked distribution box will make it next to impossible for power thieves to hook and steal power. MNNP is a part of a Rs 100 crore system improvement exercise. A total of 382 MNNP schemes have been planned.

M’shtra to get 2,600 MW more in one year

May 13, 2007. Energy-starved Maharashtra will get an additional 2,600 MW from various sources during the next twelve months. Maharashtra is facing a demand-supply shortfall of around 4,500-5,000 MW at present. But the high-profile meeting failed to provide an early respite from planned power cuts. The decisions taken by the Centre would help Maharashtra get 2,600 MW during the next one year. This includes 2,100 MW from Dabhol plant. The Centre has agreed to provide coal linkages for Koradi and Chandrapur power plants which together have a capacity of 2,400 MW and for the expansion project of Parali, Paras, and Bhusawal stations. The coal supply would amount to 12.3 mmtpa and would be available till the Machakatta coal block allotted to the state government gets commissioned.

PricewaterhouseCoopers to help two Bengal utilities raise funds

May 11, 2007. West Bengal State Electricity Distribution Co (WBSEDC) and West Bengal State Electricity Transmission Co (WBSETC), the two entities created after bifurcation of WBSEB, have appointed PricewaterhouseCoopers (PwC) to work out new accounting standards which will enable them to raise funds from the market shortly. PwC will complete the exercise within three months. As PwC was closely involved in restructuring the erstwhile WBSEB, the task will be easier for them. It has already kicked off the exercise. In fact, both WBSEDC and WBSETC have decided to invest Rs 1,000 crore in 2007-08 to improve distribution, transmission and customer services. They will approach banks and multi-lateral funding agencies like Japan Bank for International Cooperation (JBIC) for this. Once accounting standards are worked out, both WBSETC and WBSEDC will kick off an asset verification programme.

Torrent gets licence for transmission line

May 9, 2007. Torrent PowerGrid has secured a licence from CERC to set up a 222 km long 400 kV dedicated transmission line from the upcoming 1100 MW Sugen combined cycle power project of Torrent Power near Surat to the Pirana sub-station being built by PowerGrid in the capacity of CTU. Torrent PowerGrid is a joint venture company of Torrent Power Ltd (TPL) and Power Grid Corporation of India Ltd (PowerGrid) with 74 per cent and 26 per cent equity respectively. It is the second private company in India to receive the interstate transmission license from CERC. The first transmission licence was issued to Power Links Transmission Ltd, a joint venture of The Tata Power Company Ltd and PowerGrid.  The project is being built on a build, own and operate basis at an estimated investment of around Rs 358 crore. The beneficiaries of the project shall be discoms of Ahmedabad and Surat and Madhya Pradesh. This transmission line will evacuate power from the upcoming Sugen project to the Western Grid thereby increasing the power availability in the Western Region. PowerGrid will provide the design, engineering and technical parameters for setting up the transmission line. The project completion is scheduled to coincide with the commissioning of the Sugen project. Torrent Powergrid will also execute a LILO of Gandhar-Vapi 400 kV line at Sugen. It has already received a long-term open access of 500 MV for wheeling of power to Western Region beneficiaries. 

L&T bags UAE order

May 8, 2007. Larsen & Toubro Ltd has bagged a Rs 215 crore order from the Abu Dhabi Water and Electricity Authority. The order is for supply and installation of 33 kV power cables and fibre optic cables for inter-connections between substations. According to the contract, L&T will supply and install the cables as per the specification of international consultant, Lahmeyer International Gmbh. The underground cabling contract includes design, manufacture, supply, installation as well as testing and commissioning of the cables, including associated civil works, covering 11 substations in the eastern region of Abu Dhabi for the reinforcement of power distribution network. The contract will be executed within 18 months.

Policy / Performance

BHEL to invest $0.79 bn in 11th Plan

May 15, 2007. Power equipment maker Bharat Heavy Electricals Ltd will spend Rs 3,200 crore ($0.79 bn) in the 11th Five-Year Plan period to increase manufacturing capacity from the current 6,000 MW to 15,000 MW pa. The company would be spending Rs 1,200 crore to augment its capacity to 10,000 MW by end of 2007. BHEL would be fully able to meet its investment requirements and meet funding requirements through internal accruals and resources raised from the market. The installed capacity base in the country was expected to increase by 1,50,000 MW by the end of 12th Plan and BHEL expected the enhanced capacity of 10,000 MW to meet the immediate power equipment demand for the 11th Plan. The company was focused on addition of facilities for various products in manufacturing units and for construction of tools and equipments for erection and commissioning services at project sites. BHEL would also replace ageing facilities for improving product quality, reducing cost and cycle time and enhancing productivity, besides modernising and upgrading equipment at various power plant sites for meeting enhanced erection load and shorter commissioning schedules.

Power ministry recoils on sops to ultra mega projects

May 14, 2007. The power ministry would not press for fulfilment of conditions relating to privatisation of distribution before granting concessions under the mega power project policy. This will now enable Andhra Pradesh, Tamil Nadu, Jharkhand and Maharashtra to pursue the implementation of ultra mega power projects. The power ministry had issued a directive that concessions including customs duty waiver and income tax holidays would be available only if states committed to privatising distribution in cities with over one million population. But states vehemently opposed the move as this did not apply to the Sasan and Mundra projects. Also according to them privatisation of distribution would not be possible in one stroke, but would have to be implemented in stages.

High power tariff clamps investment in Gujarat

May 12, 2007. High power tariffs have taken a toll on power-dependent industrial units in Gujarat. This has also led to a reduction in the capital invested in such industrial units across the state and increase in production costs of these units. The gap between the demand and supply of power in the state has widened due to the increase in consumption by households. The state government was aware of the situation and is also in the process of initiating new power projects to take care of the power situation in the state. Power shortage in the state would further reduce once these projects commenced operations and high power tariff would also come down. The state was also implementing a project called the Critical Infrastructure Fund (CIF) to upgrade the infrastructure facilities of various industrial estates operating in Gujarat. This project will include other industrial estates apart from those managed by the Gujarat Industrial Development Corporation (GIDCO).

Gujarat federation to challenge power tariff hikes before commission

May 11, 2007. The Federation of Gujarat Industries (FGI) has decided to challenge the system adopted by Gujarat Urja Vikas Nigam Limited (GUVNL) to increase power tariffs, before the Gujarat Electricity Regulatory Commission (GERC). The state-owned power generation, distribution and transmission company, GUVNL, violated norms set by the Gujarat Electricity Regulatory Commission while hiking rates of power, which the FGI is opposed to. Many representations have been made to GERC about the hike in power tariffs and each time company received a guarantee from the regulatory body that necessary modifications would be made to make the system more effective. However, GUVNL along with associated power companies hiked the tariffs without complying with the GERC’s norms. The committee has studied the power system of these companies and the federation would challenge the system of spiralling power rates before the GERC. Inefficiency and cross subsidies of the GUVNL contributed more to tariff hikes by the company than the costs of power generation. FGI will produce all evidence of GUVNL’s inefficiency and try to get justice from GERC.

Coast clear for Orissa plant

May 11, 2007. The Orissa government has cleared the decks for setting up the Ib Valley Ultra Mega Power Plant by withdrawing its demand for free power. Orissa and Chhattisgarh wanted power from the respective Ib Valley and Akaltara UMPPs either free or at variable cost. But with the Centre rejecting this demand, Orissa has extended its support without any pre-condition. Four other states are yet to give the necessary clearances for other projects.   A team appointed by the Central Electricity Authority (CEA) has already visited the state and site details are being finalised. The Akaltara UMPP is not making headway due to the lack of response from the Chhattisgarh government. Girye and Tadri coastal projects in Maharashtra and Karnataka respectively are on hold for want of necessary clearances from the state governments. 

 

TPC to raise $600 mn for Indonesian mines

May 10, 2007. TATA Power Company (TPC), India’s largest private power utility, is planning to raise $600 mn to fund its recent acquisition of coal mines in Indonesia. In March, TPC had acquired 30% stake in Indonesia-based Bumi Resources’ two coal mines, for $1.3 bn. The non-recourse debt would be raised through a special purpose vehicle (SPV) to be floated in Mauritius or Singapore. The debt should be paid back in seven years from the profit TPC gets from Bumi’s two coal mines, PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia (Arutmin) and a related trading company.

The company has appointed US-based brokerage Calyon Financial as the lead arranger for the deal and the process will be completed in June 2007. The SPV will raise the debt banking on Bumi’s balance sheet. The cost of debt will be pegged at 200 basis points above the Libor. It works out much cheaper compared to domestic debt. The Indonesian coal will fire the proposed power projects of TPC including the 4,000 MW Mundra ultra mega power project.

Government plans to tap captive plants

May 9, 2007.  Faced with a peak shortage of 14%, the government has suggested easing regulations and removing extra charges like cross subsidies so that surplus power from captive power plants can be supplied to consumers. This is not the first time that the ministry of power has sought to tap surplus from the captive plants. In 2005, the ministry of power has written to all state governments to establish the captive power capacity as well as surplus available in the segment, after which the state electricity commissions will determine a commercial rate for the surplus power from the captive plants. Beyond regulations concerning safety and grid security, all other regulations and extra charges should be removed so that surplus power can be harnessed. The forum of regulators has already suggested rationalisation of charges. The forum had suggested that apart from wheeling charge and surcharge, the 5-6 other charges such as grid connectivity, parallel operation charges and SLDC charges could be rationalised.

However, no deadline was set for the implementation, rendering the suggestion meaningless. At present, the total installed capacity of captive power plants, those set up by industries to meet their electricity requirements, is about 19,000 MW. Of the 72bn units generated by captive power plants during 2004-05, around 4.2bn units had been fed into the grid. Further, a capacity addition of around 12,000 MW is expected during the 11th five-year plan period, of which around 20% is expected to be surplus and available to the grid.

No free power to 3 producing states

May 9, 2007. States such as Orissa, Jharkhand and Chhattisgarh will have to give up their dreams for free power. These states have demanded that they receive a portion of the power they generate in the state free of cost, just as states producing hydroelectricity get. The chief ministers of these three states met Prime Minister in December regarding their strategy for capacity addition. They argued that as in the case of states with hydel power potential, they should also receive a portion of the power produced in their state free of cost to compensate for the environmental costs of the power projects. They argue that power produced by projects in their states is utilised by other states and hence, the need for compensation. The ministry of power accepts that the issue of environmental impact is a legitimate concern and is being addressed through environmental policy governing coal mines and power plants. There is a case for strengthening the regulations in this context. However, the ministry feels that a claim of free power on the grounds that hydro-rich states are given 12% free power is not appropriate. The reason being that the distress and dislocation in the case of hydro power projects is much more severe compared to thermal power projects. More importantly, the hydro-rich states do not receive any royalty for fuel. Besides which any initiative to give free power or power at variable cost from new thermal power plants would give rise to a similar demand from existing plants. This would mean a claim that covers as much as 70,000 MW of generating capacities

WB financed study to make thermal plants efficient

May 9, 2007. The World Bank is funding a regulatory study to encourage energy efficiency through investment in rehabilitation of coal fired generation plant in India. The study will be undertaken to provide power sector regulators and other stakeholders in India with a coherent understanding of regulatory options available to encourage investment in rehabilitation that brings about improvements in plant operating energy efficiency (energy efficient renovation and modernisation or EF R&M) at the state level. Workable solutions will be developed that draw on a comprehensive understanding of issues within the Indian regulatory environment and lessons from best practice around the world. The study would be launched at a time when the centre has already approached the World Bank and the Global Environmental Facility (GEF) for financing of EF R&M so that barriers to energy efficiency approaches can be reduced. The project is proposed to be an energy efficiency window within the Partnership for Excellence Programme and is intended to demonstrate the efficacy of using energy efficiency as one of the primary criteria along with the plant load factor (PLF) enhancement and life extension in rehabilitation project design. Rehabilitation schemes prepared in this manner will be financed by the World Bank and Global Environment Facility (GEF) whereby the incremental capital cost of such energy efficient rehabilitation (EF renovation and modernisation (R&M) design would be financed with GEF grants. Output from the regulatory study would feed into the national programme for creating incentives for R&M as set out by the tariff policy issued by the Government of India.

Tata Power gets BB+ rating

May 9, 2007. Standard & Poor's ratings services placed BB+ long-term foreign and local currency corporate credit ratings on Tata Power Company Ltd. It placed the company on credit watch with negative implications reflecting significantly greater concerns on the company's debt and on its exposure to higher project completion, stabilisation, and counter-party risks.  In October 2006, the rating outlook was revised to negative from stable after the company announced its $541 mn investment plan and its intention to proceed with the Rs 4,000 crore Maithon power project. In April 2007, Tata Power announced the acquisition of special purpose entity Coastal Gujarat Power Ltd. It also declared the finalisation of agreements to acquire 30 per cent stakes in two Indonesian coal producers for about $1.1 bn.

INTERNATIONAL

OIL & GAS

Upstream

Bolivia will begin exploring for oil and natgas

May 14, 2007. Bolivia will begin exploring for new oil and gas reserves, in the latest step in a year-long state takeover of the energy industry. A decree issued by leftist President launched a plan to find more oil and natural gas, granting state energy company YPFB exploration rights in 21 areas. YPFB, Yacimientos Petroliferos Fiscales Bolivianos, is already in talks with state-owned energy companies PDVSA of Venezuela and Gazprom of Russia to create tie-ups to carry out exploration in the areas assigned to it. Bolivia has the second largest natural gas reserves in South America after Venezuela and last month new contracts were put into force under which foreign energy companies gave control of their operations to the government.

Indonesia's Pertamina sees 10,000 bpd Cepu output

May 14, 2007.  Production from Indonesia's $2.6 bn Cepu development may start at 10,000 barrels per day (bpd) of crude oil in late 2008 or early 2009. Indonesian authorities hope that speedy development of Cepu on Java island, which will be jointly operated by Exxon Mobil and Pertamina, will help reverse the country's shrinking oil output. Cepu output could start in late 2008. Exxon Mobil wanted to produce oil as soon as possible from Cepu block, but complex problems surround the project, which ranks among the major's top 10 projects worldwide. BPMIGAS, which is authorised to control and manage oil contractors working in Indonesia, there was a difficulty over land issues in Cepu had caused problems for the project. The local community wanted a very high price for its land. Cepu is estimated to have recoverable reserves of up to 600 mn barrels, equivalent to about 6.7 percent of Indonesia's total and is expected to produce up to 180,000 bpd at its peak. Cepu, located onshore in East and Central Java, also has an estimated 1.7 tcf of natural gas reserves, which the government wants developed as soon as possible as it seeks to reduce its dependance on oil. Indonesian crude oil production fell 1.5 percent to 838,900 barrels per day (bpd) in April from March after technical problems at several oil wells.

OMV will increase daily production in 2010

May 14, 2007. OMV AG, Central Europe's leading oil and gas group, opened its Abu Dhabi in a move that will help the firm concentrate on Middle East business opportunities. The company will increase its daily production from 325,000 to 500,000 barrels of oil equivalent per day (boed) in 2010. The company's 1.3 bn boe reserves, will be increased to 2.36 bn in 2010. The new office will further strengthen its relationship with the UAE and help it to evaluate investment opportunities. The close co-operation with Abu Dhabi's International Petroleum Investment Company (Ipic), OMV's second largest shareholder, will support the Austrian company's plans in the region. The new office will focus on reviewing opportunities for expanding our exploration and production (E&P) activities in the Middle East, one of OMV's core regions.

GE and its partners acquire reserves in Texas and Oklahoma

May 8, 2007. GE Energy Financial Services has partnered with two experienced operators to acquire $154 mn in oil and gas reserves in Oklahoma and Texas. With Bays Exploration Inc., the GE unit acquired oil and gas reserves with significant development opportunities in western Oklahoma for $79 mn. In addition, Energy Financial Services plans to invest up to $60 mn for the development of the reserves. In the second transaction, GE Energy Financial Services partnered with Southern Bay Energy, a subsidiary of GeoResources, Inc., to acquire oil and gas properties in the Austin Chalk trend of East Texas for $75 mn. GE Energy Financial Services plans to invest an additional $27 mn for the development of these properties. An affiliate of GE Energy Financial Services holds limited partnership interests in two separate partnerships, with Bays Exploration Inc. and an affiliate of Southern Bay Energy serving as general partners of the two entities and operators of the respective properties.

Saudi Arabia steps up gas exploration

May 10, 2007. Saudi Arabia is stepping up exploration to boost its gas reserves by around 40 per cent in the next 10 years as it plans to expand its industry and manufacturing. The kingdom faces increasing demand for gas from its rapidly growing population of 24 mn, including 7 mn foreigners, and new petrochemical and industrial projects. The country is planning to add in the next 10 years 100 tcf to its current reserves of gas. The kingdom holds the world's fourth largest natural gas reserves at 252 tcf. The gas expansion would be an integral part of a National Project to Develop Industrial Areas. These areas will include car manufacture, construction materials, household appliances and metal industries. Domestic gas sales were expected to rise by 40 per cent through 2012 from the current level of around seven bcf per day. The kingdom plans to drill 186 exploration wells for gas and 332 development wells by 2012.

Kufpec and Petronas Carigali awarded block SB 312 offshore Malaysia

May 8, 2007. Petronas has awarded a Production Sharing Contract for offshore Block SB 312 to Petronas Carigali Sdn Bhd and Kufpec. Block SB 312, covering an area of approximately 2,900 square kilometers, is located about 80 km offshore Kota Kinabalu in water depths ranging from 60 to 150 meters. Under the terms of the PSC, Petrons Carigali will own a 60% and will operate the block. Kufpec has the remaining 40% and will carry 20% of Petronas Carigali's interest during the PSC's exploration period. The award is based on an exploration program which includes exploration drilling of three wells and an acquisition of 750 square kilometers of 3D seismic data. The minimum financial commitment for the block is US $45 mn.

Downstream

Saudi and Dow sign deal to build giant petrochemical plant

May 12, 2007. Saudi Aramco and U.S. Dow Chemical Co. announced a deal to build a petrochemical plant that industry insiders expect to be the largest foreign investment in Saudi Arabia's energy sector. The cost of the Ras Tanura plastics and chemicals complex would be mammoth. Ras Tanura will be one of the biggest plants of its kind built from scratch. When fully operational, the new complex will be one of the largest grassroots plastics and chemicals production facilities in the world and will be ideally positioned to serve major world markets. Aramco and Dow signed a memorandum of understanding and will now enter a final negotiation phase for the formation of a joint company to build, own and operate the plant. The companies plan to float a 30 percent stake in Ras Tanura and raise the rest through debt.

Bolivia spells out next steps in energy takeover

May 11, 2007. A day after Bolivia agreed to pay $112 mn to take over two Petrobras oil refineries, Energy Minister outlined the next targets in the country's energy-sector nationalization. The talks will begin next week on the state's buyout of Bolivia's Hydrocarbons Logistics Company, or CLHB, which stores and transports petroleum derivatives and is controlled by Germany's Oil tanking and Peru's Grana Montero.

This is aimed at securing control along the entire hydrocarbons production chain, as the nationalization decree stipulates. The government will then tackle the state takeover of Andina, Chaco and Transredes, other companies formed during YPFB's privatization. Andina is a unit of Spain's Repsol YPF, while Chaco is controlled by a local unit of Amoco, now part of BP Plc and Panamerican Energy. YPFB plans to expand the plants' capacity, which stands at some 40,000 barrels of crude oil a day, to meet rising demand for diesel in the domestic market.

Rosneft buys YUKOS refineries

May 11, 2007. Neft-Aktiv, a Rosneft-affiliated company, won an auction for YUKOS's Samara assets. Ever since YUKOS was declared bankrupt in August 2006, the market has been predicting that the beleaguered company's oil refineries would be scooped up by Rosneft, which had been suffering from an imbalance between its production and refining capacities. At the time, the state giant owned two refineries in Tuapse and Komsomolsk-on-Amur, whereas oil produced at Yuganskneftegaz's fields was already being processed at YUKOS's Samara refineries. May 10 auction for YUKOS's Lot 11, which included, among other things, 100-percent stakes in Samaraneftegaz and the Kuybyshev, Novokuybyshev, and Syzran oil refineries, started at RUR154.9bn (approx. USD6.02bn). Ten minutes into trading and after 44 bid increments, the lot was sold to Neft-Aktiv for RUR165.5bn (approx. USD6.43bn). As a result, Rosneft, the top oil producer, also became the largest oil refiner. The company has acquired the new status at a fairly low price, as the lot was sold at about 15-20 percent below the fair market value.

Kuwait doubles cost estimate of new refinery

May 9, 2007. Kuwait has doubled the cost estimates for a new refinery to about $12 bn after a first round of bidding was canceled because of high offers. The decision to double the cost estimates from the original $6.3 bn was taken by national oil conglomerate Kuwait Petroleum Corp. (KPC) on May 7. The new bidding will be based on a cost plus profit margin, which means paying the cost to the foreign companies plus an agreed profit. The new refinery was originally due for completion by 2010 but there is a delay and the new target date is end of 2011.

Petrobras to begin work on NE Refinery in July

May 8, 2007. State-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, will start in July bulldozing the ground for a planned joint refinery in Brazil's northeast with Venezuelan state-oil firm Petroleos de Venezuela SA. The company is expecting to be granted an environmental license for the project in June and will start the project even without signing a firm agreement on it with PdVSA. Petrobras plans to take a 60% stake in the refinery in Pernambuco State, with PdVSA taking 40%, but the two companies still need to sign a final agreement over its construction, which hinges on other planned joint projects. They plan to feed the 200,000 bpd refinery half with heavy oil from Brazil's offshore production, and half with extra heavy oil from the Orinoco tar basin in Venezuela.

CNPC may build refinery in Hebei

May 8, 2007. CNPC, parent firm of China's top oil/gas producer PetroChina, may consider building a refinery in north China's Hebei province to process the crude from its newly found Nanpu oilfield in the Bohai Bay. The company will plan the use of Nanpu oil in accordance with state needs, but the company has rough ideas on building a refining base in Caofeidian, Hebei, for the Bohai oil, which is reported to be light, but detailed plan on such a refinery has not been formed yet. If materialized, the refinery will compete with a similar one to be built by rival Sinopec  also in Caofeidian, which will mainly feed on imported crude from the Middle East. The refinery will also accelerate the two companies competition in the north China region, where Sinopec plans new fineries in Qingdao, Tianjin and Hebei to reinforce its dominance. CNPC will start to develop the Nanpu oilfield as soon as possible and the first-phase development is planned to produce a yearly output of 10 million tons, which will rise to 25 mn afterwards.

Transportation / Trade

Petronas to Sell LNG to Shikoku

May 14, 2007. Malaysia's state oil and gas firm Petroliam Nasional Bhd (Petronas) has agreed to sell 420,000 tonnes of liquefied natural gas (LNG) a year to Japan's Shikoku Electric Power Co Inc. Shikoku Electric, Japan's eighth-largest power company, will use LNG to generate electricity, starting from 2010. The company supplies electricity to more than four million people on Shikoku Island, and will use LNG as fuel in its power plants for the first time. Shikoku Electric signed an agreement with Malaysia LNG Sdn Bhd (MLNG), a Petronas subsidiary, in Kuala Lumpur on May 13. The LNG supply will start on April 1 2010.

Algeria aims to triple LNG exports to US

May 14, 2007. Algerian state-owned energy group Sonatrach, a leading gas supplier to Europe, will triple LNG exports to the United States to 12 bcm by 2010. The target would be reached after the completion of two big projects in the North African country, which are likely to help boost national gas output capacity by 12 bcm. The country produces both natural gas and LNG. Sonatrach produces a total of about 62 bcm of gas per year.

Malaysia to cement energy cooperation with China

May 14, 2007. Malaysia's national petroleum corporation was ready to enhance cooperation with China in the energy sector. Petronas had been working with Chinese petroleum companies in Africa and such cooperation would help cement ties between Malaysia and China. Shanghai was Petronas' first buyer of liquefied natural gas (LNG) on the Chinese mainland. Petronas would work closely with China to ship LNG from Malaysia to Shanghai before the opening of the World Expo in that city in 2010. Shanghai LNG Co., Ltd. reached a deal with a subsidiary of Petronas last year and construction started in January on a Shanghai terminal that will receive LNG from Malaysia starting from 2009 for a period of 25 years. The project was approved by the National Development and Reform Commission last December. Shanghai will received around 1.1 mt of LNG in the first three years of the contract, with that amount rising to 3 mt by 2012. The first phase of the project involves a total investment of 7 bn yuan (US$900 mn) and includes three 165,000 ton concrete tanks and a dock that can anchor ships as large as 200,000 cubic meters.

Russia gets Caspian gas pipeline deal

May 13, 2007. The leaders of Russia, Turkmenistan and Kazakhstan agreed to build a new natural gas pipeline around the Caspian Sea, a move that bolsters Russia's dominance over the region's gas exports. The new pipeline and an accompanying deal to upgrade existing Soviet-era infrastructure deliver a blow to US, European and Chinese hopes of prising the flow of Central Asian gas out of Russian hands. Although all three former Soviet republics sought to play down the diplomatic implications of the pipe-line, it comes at a time of increased Western anxiety about Russia's use of its vast energy resources for political ends, a charge Moscow denies. The agreement was reached at a summit of the three states in the Turkmen Caspian port of Turkmenbashi. In its first stage, the pipeline will deliver 10 billion cubic metres (bcm) of gas per year by 2009-2010. Including the infrastructure upgrade, deliveries to the Russian border will rise to 90 bcm.

Chevron exits from cooking gas market

May 12, 2007. Chevron Philippines, Inc., formerly Caltex, has sold its liquefied petroleum gas business unit to Petron Corp., the country’s largest oil company. The company’s divestment involves its Caltex LPG-branded dealerships, branded refillers, various equipment on loan, LPG cylinders and the use of the Caltex LPG™ brand for two years. During the two-year period, Petron will convert and rebrand Caltex LPG tanks to its own Gasul cylinders. Meanwhile, it will begin integrating the CPI’s dealers into its nationwide LPG network in the next few months.

Nepal faces fuel shortage after India cuts supply

May 11, 2007.  Hundreds of cars and motorcycles lined up at petrol stations in the Nepali capital, after a state-run Indian oil firm reduced fuel supplies because it had not been paid. Most petrol stations in Kathmandu displayed, No petrol signs at their gates while the few that were open were flooded with motorists. According to the Nepal Oil Corporation (NOC) it had run out of stock after the Indian Oil Corporation (IOC) reduced supplies by nearly 40 percent due to the non-payment of bills. There is a shortage because NOC have no reserves and the supply to it has been reduced. NOC have to pay about 5.95 bn rupees ($85 mn) to the IOC and we have no money for that. NOC was losing about four mn dollars every month because of subsidies on cooking gas and kerosene, used by most Nepalis. NOC have requested the government to make the payment to IOC so the normal supplies can be resumed.

Markets for oil and petrol could tighten: IEA

May 11, 2007. The International Energy Agency shaved its forecast for world oil demand this year but warned that markets for oil and petrol could tighten, pointing to further price rises. The IEA focused on political trouble in Nigeria, a fall in OECD oil stocks and of reserves of petrol in the United States before the summer driving season there, and strains in the global refining sector. It reduced its forecast figure for global demand for oil in 2007 by 0.1 million barrels per day from its estimate a month ago to 85.7 mn barrels because of mild weather in the northern hemisphere and on a slight reduction of its forecast for demand in China. But it warned that with average (petrol) retail prices in the US near record highs at just over USD three per gallon several weeks ahead of the start to the summer driving season, concerns over supplies are being raised. Underlying worries about product availability in the summer are concerns that geopolitics could threaten crude supplies, mostly in Nigeria. According to IEA, since the Organisation of Petroleum Exporting Countries was apparently unconvinced of the need to review crude production before its scheduled September meeting, steady output at current levels would lead to the group undershooting our calculated range for a call on it crude, and thus tightening stock further.

IEV Energy in $42 mn deal to supply natural gas in Jakarta

May 9, 2007. IEV Energy Sdn Bhd has finalised a deal estimated to be worth US$42 mn with an Indonesian private company to process and transport compressed natural gas (CNG) to industrial users around Jakarta. The contract between IEV Energy subsidiary PT IEV Gas and PT Odira Energy Persada will span 10 years. It would be IEV Energy’s first project in Indonesia. The company was currently building the plant and production was scheduled to begin in September. Under the first phase, we expect to produce 3 mn standard cubic feet of CNG per day. There is potential to increase the size of the plant in the future.

Policy / Performance

IPIC raises energy investment to $10bn

May 13, 2007. Abu Dhabi's International Petroleum Investment Company (IPIC) has increased its investments to $10 bn in the oil and gas industry worldwide, in line with its future global acquisition plans. The company is looking for LNG investment projects. IPIC is looking to increase its recent 17.6 per cent share in OMV, Central Europe's leading oil and gas group.

IBM shifts $1 bn in effort to make corporate data centers more energy efficient Brian

May 11, 2007. In a sign that environmental sensibilities are informing business strategies, IBM Corp. is spending $1 bn to spread technologies and services that could make corporate computing centers more energy efficient. Under an initiative that IBM executives intend to announce at an event in New York, the company will reoutfit the data centers it operates and help its customers redo their own with multiple power-saving approaches. Data centers are huge, humming banks of servers that process transactions, serve up Web pages and store information. Because of all the electricity and air conditioning those computers need, data centers can be energy hogs. IBM, which has pledged, like several other big companies, to reduce its greenhouse gas emissions, is a leading data center operator, with more than 8 mn square feet of these computing warehouses worldwide.

Bahrain planning to import gas from Iran

May 10, 2007. Bahrain has begun talks with Iran to import gas through a new pipeline by 2015. Negotiations between the two nations, combined with ongoing talks with Saudi and Qatar about another possible pipeline, were aimed at meeting Bahrain's future energy needs as its own gas reserves decline. Bahrain has adequate gas to cover its requirements for a few years to come, but what it needs to do is discover new gas or import gas from places where there is a large quantity. Bahrain is facing a decline in its gas reserves while we have a steadily increasing demand for electricity generation. Bahrain has been examining all its options regarding natural gas in order to avoid an impending supply shortage including taking appropriate measures to improve energy efficiency.

Power

Generation

Iran’s SP power plant to generate 1000 MW electricity

May 14, 2007. Pars Oil and Gas Company (POGC) is constructing a power plant, 10km off Assaluyeh in southern Iran, to produce 1,000MW electricity. With more than 10 percent progress, the power plant provides electricity needed by refineries of phases 9, 10, 15, and 16, 17, and 18. The plant is to apply six 150-170MW gas turbines that observe ISO standards. Iran Power Plant Projects Management Co. (MAPNA) is responsible for the executive operations of the project. POGC is affiliated to the National Iranian Oil Company (NIOC), which is in charge of development projects of South Pars, North Pars, Golshan, and Ferdows gas fields in southern Iran.

32 power projects to be commissioned in Pakistan

May 11, 2007. The National Assembly was informed that 32 power projects were expected to be commissioned during the next three years to generate 2,500 MW. The government had taken a number of steps to increase power generation from thermal and hydel sources in the public and private sector to meet the growing demand. 28 proposals for establishing thermal power stations in the private sector were being processed by the Private Power and Infrastructure Board. The projects would generate 7,679 MW that would be sold to the Water and Power Development Authority. The government had begun the process for importing electricity from Tajikistan and Iran. The Alternate Energy Development Board was taking all possible measures for preserving energy and providing it to remote areas.

4 power plants in Thar soon

May 10, 2007. The Sindh government has issued a Letter of Intent (LoI), to Messrs Hassan Associates for setting up four power generation plants of 250 MW each and coalmining in Thar area. It would be a fast track project to be completed in about 38 months at an estimated cost of $1.2 bn, for which the company is providing both financial and technical commitment. A bank guarantee to the tune of $5-7 million (non-refundable) will be provided within a week, while physical work on the project will start after one month.

Transmission / Distribution / Trade

PG&E utility in deal to buy geothermal power

May 10, 2007. California utility Pacific Gas & Electric Co. will purchase geothermal electricity from a Canadian company developing a power plant at The Geysers Geothermal Field in Northern California. The utility, a unit of San Francisco-based PG&E Corp it contracted for 25.5 MW of electricity with a unit of Vancouver-based Western GeoPower Corp. The plant will deliver electricity beginning in 2010 to supply about 18,000 homes. The electricity will go toward a California requirement that investor-owned utilities make renewable energy at least 20 percent of their supplies by 2010. The utility currently supplies 13 percent of its energy from renewable sources. The purchase agreement is subject to approval by the California Public Utilities Commission.

SNGPL supplies 40pc of gas to power plants

May 10, 2007. Sui Northern Gas Pipeline Ltd is supplying 40 per cent of its total gas supplies to power plants for the generation of electricity that includes two thermal power plants in the private sector. The line losses of SNGPL have increased to 8 per cent during the first nine months of the current financial year against the target of 6 per cent. Efforts are afoot to bring the line losses to targeted level. The company is expected to post the same profit as declared last year. The company with drilling rights will drill four more wells at that location. Gas from Kohat discovery would first be supplied to the Northern Areas of NWFP. Any surplus gas would then be supplied to other parts of Punjab and NWFP.

Policy / Performance

Coal based power plant approved

May 8, 2007. The Private Power and Infrastructure Board (PPIB) has approved issuance of a Letter of Interest to Hassan Associates Ltd for establishing a 1,000 MW power plant based on Thar coal. The Sindh government has awarded an exploration licence, over 64 km at the Thar coal field, to the sponsors of the $1.5 bn project, who are local investors and their proposal has been evaluated by PPIB.

Waterloo approves coal power plant

May 8, 2007. Waterloo is a step closer to getting a new coal-fired power plant. The city council has approved annexing 340 acres of land east of the city and rezoning it for the $1.3 bn Elk Run Energy Station. Elk Run Energy Associates will file its application for an air quality emissions permit with the Iowa Department of Natural Resources within weeks. That permit, and separate approval from the Iowa Utilities Board, is required before the subsidiary of L-S Power Development can begin construction. Officials hope to get started in 2008 and be operational in 2012. The 750 MW plant would be capable of powering a half million homes with electricity.

Renewable Energy Trends

National

Sugar mills to help in power generation

May 15, 2007. Five sugar mills are set to augment power generation in the State adding a capacity of 96.45 MW in the coming months. Of them, construction of the 20 MW plant of NCS Sugars at Bobbili in Vizianagaram is complete and it is expected to be commissioned in sync with the next sugarcane crushing season starting in November. The other four units belonging to Empee Sugars at Nellore (20 MW), Madhucon Sugars at Khammam (20 MW), Jeypore Sugars at Pothavaram in West Godavari (16.8 MW) and Sri Sarvaraya Sugars at Chellur in East Godavari (19.65 MW) are under various stages of execution. The completion of these projects will make sugar mills the largest contributor to power generation in the non-conventional energy sector in the State. So far, forty biomass projects with an aggregate installed capacity of 217.75 MW were the leaders in the sector. Sugar mills, however, will overtake them by contributing 296.95 MW. The Discoms were purchasing power from sugar mills at Rs. 2.63 a unit. There were 18 sugar factories, including 16 in the private sector, that were involved in sugar processing as well as power generation using bagasse (sugarcane waste) as fuel to produce steam. The Centre was encouraging co-generation in sugar mills by giving capital subsidy

Meet local energy needs first from biodiesel

May 14, 2007. Amidst flurry of activities with regard to biodiesel and its mandatory blend with fossil fuel, an interesting argument is slowly gaining currency, that the non-edible grade vegetable oils should be used locally to attend to local energy needs. Besides making the farmers self-sufficient in their power needs, this Gandhian model would help the country retain vital soil nutrients back in the Indian soil as it stresses on using the oil cakes, which are being exported in huge quantities. These can be used locally to supply energy to agricultural activities at a very cheap rate. The farmers on an average needed 550-600 units of power annually. India should have a national policy facilitating the farmers to set up medium-sized biogas plants. Moreover, if these plants were to be taken up and bundled under a national project, the country could generate huge number of carbon credits, providing additional income to the farmers. As regards to the proposal to use vegetable and non-edible grade oils for blending with fossil fuels, domestic oil production generated 13-14.5 mt of oil cake worth Rs 5,000 crore. Most of it is exported, leaving the country bereft of vital soil nutrients. India should import oil seeds and not oil as it did at present because one hectare of oil seed crop could produce about 100 cubic metres of biogas, equivalent to standard natural gas in terms of calorific value. Considering the fact that India had 24 mn hectares of oil crop, the country could easily bet on energy potential from oilcake that was equivalent to 2.30 mt of coal or 1,155 mn litres of diesel, or 475 MW of electricity. For this, the country should discourage export of oil cake.

India and China to grab top slots in green energy

May 10, 2007.  According to Ernst & Young, India and China will become the most attractive countries for investment in renewable energy projects by 2012. The two Asian countries are expected to share the top three spots along with the US on its overall All Renewables Index within the next five years. For the first quarter of 2007, the US retained the top spot as individual states there continue to adopt legislation favourable to wind and solar power. Ernst & Young ranks countries for investment in all forms of renewable energy and by individual types including wind, solar and biomass. China maintained sixth spot on the All Renewables Index, although it climbed to fifth spot from eighth on the Wind Index. India held second place on the index again this quarter, with tax exemptions and government legislation on compulsory renewable obligations stimulating growth in the sector.

Solar power to cover North Bengal villages by Sept. 2007

May 9, 2007. Solar power will reach all virgin remote villages in North Bengal by September 2007, covering 5,000 tribal families. The project, built by Kolkata based Nippon Power Limited, would generate 17 mn KWH of power annually, leading to the electrification of 7000-8000 families. It entails an investment of Rs 15 crore, to be funded by Indian Renewable Energy Development Agency (IREDA) through World Bank line of credit. The project boasts of having the longest penstock of 2.6kms and would help save 17,000 tonnes of fossil fuels per annum. It has received the support of the Ministry of New and Renewable Energy (MNRE), Govt of India and WBREDA, the nodal agency for development of Renewable Energy in West Bengal. 

Global

CPS Energy gains addition 240 megawatts of wind energy

May 14, 2007. CPS Energy is tapping into a new 240 MW source of wind-generated electricity. Some 180 new wind turbines at the Cottonwood Creek Wind Farm that were under construction since last year have come online. The wind farm is located just southwest of Sweetwater, Texas. The new turbines are up and running, CPS Energy can tap 340 MW of capacity from this site alone.

City of Birmingham switches to green gas

May 10, 2007. The city of Birmingham has switched to using environmentally friendly bio-diesel fuel in 600 city vehicles. The city has signed a $5 mn contract with Allied Energy of Birmingham to provide 2 mn gallons of gas that will include 80 percent diesel and 20 percent fuel made from soybeans and canola oil. The switch is not expected to cost the city more than previous spent. It also should improve air quality in the city that is regularly ranked one of the worst cities in the country for smog.

Solid Energy enters biodiesel market

May 9, 2007. State-owned coal miner Solid Energy has entered the biodiesel market with the purchase of producer Canterbury Biodiesel. It can aim to lift annual production to 70 mn litres within three years, which will meet more than half the Government's 2012 target for biofuels. Biodiesel New Zealand currently produces about 1 million litres of biodiesel a year from its Christchurch plant by converting used cooking oil collected from restaurants and other food businesses. Biodiesel's current customers are fleet operators which operate very high ratio blends of biodiesel, but Solid Energy also plans to assess the use of biofuel in its own operations.

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* In all cases, wood not used as a fuel is excluded.

6 Keith Openshaw, "The Gambia: A Wood Consumption Survey and Timber Trend Study 1973-2000," Unpublished report to the ODA/LRD Gambia Land Resources Development Project, Midlothian, Great Britain, 1973.

8 Keith Openshaw, "Projections of Wood Use in Thailand," Unpublished report to the Public Works Department, Thailand, Midlothian, Great Britain, 1973.

10 World Energy Supplies 1960-1970, Statistical Papers, Series J, No. 15 (New York: United Nations, 1971).

** Per capita consumption of commercial fuels is generally higher in Latin America than in Asia or Africa.11

11 Ibid.

 

* Extensive deforestation causes flooding because trees retard the flow of run of water into rivers and streams. Forests, therefore, not only help hold the soil together but they cause more of the rainwater to percolate to underground reservoirs. Trees, in effect, act as natural bunds in aiding soil conservation.

12 Lester Brown, By Bread Alone (Washington, D.C.: Overseas Development Council, 1974).

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