Ecological Imperialism: The Curse of Capitalism
(part III)
John Bellamy Foster and Brett Clark
Continued from Issue No. 26
Having lost its two principal resources for export, the Peruvian economy collapsed after the war. As the great Peruvian Marxist José Carlos Mariátegui noted, defeat in the War of the Pacific increased Peruvian dependence on British capital. “Very soon [after the war] the capitalist group that had formed during the period of guano and nitrates resumed its activity and returned to power….The Grace Contract [which they negotiated] ratified British domination in Peru by delivering the state railways to the English bankers who until then had financed the republic and its extravagances.”xix Now that the Peruvian government no longer had the same wealth of resources to exploit it had no other way to pay off the foreign debts with which it was still encumbered except by handing its railroads over to British investors who had themselves clandestinely backed Chile in its seizing of much of Peru’s territory and its most valuable natural resources. As Bruce Farcau observed, the guano and nitrate deposits in Peru turned out, “like the Midas touch,” to be “a curse disguised as a blessing,” first in creating a debt-laden economy, and then giving rise to a war and the loss of these resources.xx
As a result of its seizure of the nitrate territories in the War of the Pacific Chile was to take on the curse of nitrates in the decades that followed. Europe still needed guano and nitrates in vast quantities to maintain its agricultural productivity and sought to control this trade imperialistically for the benefit of its own capitalists, exploiting these ecological resources to their limit while siphoning off the bulk of the economic wealth they generated. In 1888 the Chilean President José Manuel Balmaceda, who had carried out modernizing reforms including extensive public works and support for education, announced that the nitrate areas of Chile would have to be nationalized through the formation of Chilean enterprises, and blocked the sale of state-owned nitrate fields to the British. Three years later a civil war broke out, with British and other foreign investors supporting the opponents of Balmaceda with money and armaments. The press in London characterized Balmaceda (in tones very recognizable today) as a “dictator of the worst stripe.” When the defeated Balmaceda committed suicide in 1891 the British ambassador wrote to the Foreign Office: “The British community makes no secret of its satisfaction over the fall of Balmaceda, whose victory, it is thought, would have implied serious harm to British commercial interests.” State control of industries and economic infrastructure in Chile quickly receded after the civil war, as the British extended their investments.
In the early 1890s Chile was delivering three-quarters of all its exports to Britain while obtaining almost half of its imports from Britain, creating a trade dependence on Britain greater than that of India at that time. When the First World War broke out in Europe, two-thirds of Chile’s national income was derived from nitrate exports primarily to Britain and Germany. The British monopoly of the nitrate trade through its control of the Chilean economy had put Germany at a serious disadvantage in its competition with Britain, since nitrates were necessary for explosives as well as fertilizer. Like Britain, Germany had worked to have Balmaceda ousted, but Chile remained largely under British control, creating a problem for Germany. Just prior to the First World War, however, the German chemist and nationalist Fritz Haber devised a process for producing nitrates by fixing nitrogen from the air. The result within a few years was to destroy almost completely the value of Chilean nitrates, creating a severe crisis for the Chilean economy.xxi But the curse of nitrates (and nitrogen) did not end there; it was transferred to the world at large, including the rich countries themselves. Nitrogen fertilizers, used on an ever-increasing scale (currently around 100 million tons annually) to maintain agricultural productivity, now pollute more and more of the world’s groundwater, lakes and rivers through fertilizer runoff, giving rise to one of the major ecological problems facing the world today.xxii
Outside Latin America the history of the curse of nitrates is now forgotten. But the modern history of the curse of oil, with its all too close parallels with that earlier history, is still very much ongoing. As the New York Times noted in its June 7, 2003 issue, in an article entitled “Striking it Poor: Oil as a Curse,” “scholarly studies for more than a decade have consistently warned of what is known as the resource curse: that developing countries whose economies depend on exporting oil, gas or extracted materials are likely to be poor, authoritarian, corrupt and rocked by civil war.” The mainstream argument attributes this persistent “curse” to bad governments in poor countries, which supposedly lack the capacity to utilize the enormous and potentially corrupting economic benefits provided by such resources in a productive manner. The root explanation of the 'curse of oil,' however, like that of nitrates, is to be found in ecological imperialism. As Michael Perelman has cogently stated,
The origins of the curse of oil do not lie in the physical properties of petroleum but rather in the social structure of the world….A rich natural resource base makes a poor country, especially a relatively powerless one, an inviting target—both politically and militarily—for dominant nations. In the case of oil, the powerful nations will not risk letting such a valuable resource fall under the control of an independent government, especially one that might pursue policies that do not coincide with the economic interests of the great transnational corporations. So, governments that display excessive independence soon find themselves overthrown, even if their successors will foster an environment of corruption and political instability.xxiii
Nowadays, the curse of oil has also come back to haunt the rich countries too—their environments and their economies—in the form of global warming, or what might be called a planetary rift in the human relation to the global commons—the atmosphere and oceans. This planetary ecological rift, arising from the workings of the capitalist system and its necessary companion imperialism, while varied in its outcomes in specific regions, has led to ecological degradation on a scale that threatens to undermine all existing ecosystems and species (including the human species).
The Ecological Debt
The mobilization of opposition to ecological imperialism is now increasingly taking place via the concept of “ecological debt.” Acción Ecológica, an Ecuador-based organization that is leading the ecological debt campaign, defines ecological debt broadly as “the debt accumulated by Northern, industrial countries toward Third World countries on account of resource plundering, environmental damages, and the free occupation of environmental space to deposit wastes, such as greenhouse gases, from the industrial countries.”xxiv Accounting for ecological debt radically alters the question: “Who Owes Whom?”
Fundamental to this position is an analysis of the social interactions between nature and society, as organized by ecological imperialism. The history of pillage and super-exploitation of peoples is seen as part of a larger ecological debt. Capital remains a central focus, since it is the production and consumption patterns of the central capitalist countries that are held responsible for the deteriorating ecological conditions of the planet.xxv A wide range of activities contribute, third world critics contend, to the ecological debt: the extraction of natural resources; unequal terms of trade; degradation of land and soil for export crops; other unrecognized environmental damage and pollution caused by extractive and productive processes; appropriation of ancestral knowledge; loss of biodiversity; contamination of the atmosphere and oceans; the introduction of toxic chemicals and dangerous weapons; and the dumping of hazardous waste in the periphery.xxvi
Within the discussion of ecological debt there are two major dimensions: (1) the social-ecological destruction and exploitation that takes places within nations under the influence of ecological imperialism; and (2) the imperialist appropriation of global commons and the unequal use (exploitation) of the absorption capacity of these commons.
In his Hungry Planet, first published in 1965, Georg Borgstrom introduced the concept of “ghost acres” to illustrate Britain’s dependence on food and raw materials from colonial (or neo-colonial) hinterlands in order to sustain the productive, consumption, and trade operations of that nation. The growth of capital has increased the demands placed on the world as a whole. The 'ecological footprint' of the core nations continues to expand, as they deplete their own historic stocks of material and energy, as well as those of other nations.xxvii Debt cycles and military interventions maintain global inequalities, as the South continues to subsidize the North in terms of labour, commodities and natural resources. Extraction of raw materials for commodity production is organized around meeting the demands of the countries of the North, where approximately 25 percent of the world’s population lives but which consume 75 percent of global resources.xxviii For hundreds of years, the centre has depended on cheap primary materials and labour from the periphery. The volume of material and economic value that flows out of the South increases (“the volume of exports from Latin America increased by 245 percent” between 1980 and 1995), yet the financial debt of these nations continues to grow, exacerbated by arbitrary increases in interest rates.xxix At the same time monopoly capital, dominating the world market, is able to overvalue the North's industrial, high-value commodity exports, further unbalancing international trade.xxx
xix José Carlos Mariátegui, Seven Interpretive Essays on Peruvian Reality (Austin: University of Texas Press, 1971), pp. 9-13; Paul Gootenberg, Imagining Development: Economic Ideas in Peru’s “Fictitious Prosperity” of Guano, 1840-1880 (Berkeley: Univeristy of California Press, 1993), pp. 183-84.
xx Farcau, The Ten Cents War: Peru and Bolivia in the War of the Pacific, 1879-1883, p. 14.
xxi Galeano, Open Veins of Latin America, pp. 157-58; Blakemore, British Nitrates and Chilean Politics; Andre Gunder Frank, The Development of Underdevelopment in Latin America (New York: Monthly Review Press, 1969), pp. 73-93; Evans, Chile and its Relations with the United States; Montéon, Chile in the Nitrate Era; J.R. McNeill, Something New Under the Sun (New York: W.W. Norton, 2000), pp. 24-25. During the events leading up to the civil war in Chile U.S. foreign policy, headed by Blaine, who was again Secretary of State, was sympathetic toward Balmaceda, whose nationalism was seen as a curb on British power.
xxii See John Bellamy Foster and Fred Magdoff, “Liebig, Marx, and the Depletion of Soil Fertility: Relevance for Today’s Agriculture,” in Fred Magdoff, John Bellamy Foster and Frederick H. Buttel, ed., Hungry for Profit (New York: Monthly Review Press, 2000), p. 54; National Public Radio, “The Tragedy of Fritz Haber,” July 11, 2002; from www.npr.org/programs/morning/features/2002/jul/fritzhaber/ (Retrieved June 17, 2003).
xxiii Michael Perelman, “Myths of the Market: Economics and the Environment,” Organization & Environment, vol. 16, no. 2 (June 2003), pp. 199-202.
xxiv Acción Ecológica, “Ecological Debt: South Tells North ‘Time to Pay Up’” (Retrieved March 6, 2003, from www.cosmovisiones.com/DeudaEcologica/a_timetopay.html, 2003).
xxv Aurora Donoso, “Who Owes Who?: Collecting the Ecological Debt” (Retrieved March 6, 2003, from www.Brisbane.foe.org.au/eco_debt.htm, 2003).
xxvi Acción Ecológica, “No More Plunder, They Owe Us the Ecological Debt!” (Retrieved March 6, 2003, from www.cosmovisiones.com/DeudaEcologica/a_averde78in.html, 1999).
xxvii Georg Borgstrom, The Hungry Planet (New York: The Macmillan Company, 1965); Mathis Wackernagel and William Rees, Our Ecological Footprint (Gabriola Island, British Columbia: New Society, 1996); Richard York, Eugene A. Rosa and Thomas Dietz, “Footprints on the Earth,” American Sociological Review, vol. 68 (April 2003), pp. 279-300.
xxviii Donoso, “Who Owes Who?”
xxix Evaluating trade in terms of price is misleading given the tendency of the prices of goods from the South to decline. Aurora Donoso, “No More Looting!: Third World Owed an Ecological Debt” (Retrieved March 6, 2003, from www.cosmovisiones.com/DeudaEcologica/a_looting.html, 2000).
xxx Paul A. Baran and Paul Sweezy, Monopoly Capital: An Essay on the American Economic and Social Order (New York: Monthly Review Press, 1966).
to be continued…
Views are those of the author
Courtesy: SOCIALIST REGISTER
Who’s Afraid of a Big Bad Oil Shock? (part II)
William Nordhaus, Yale University
Continued from Issue No. 26
Measuring Oil Shocks
The second challenge in studying oil-price shocks is to determine an appropriate shock variable. The standard approach in studies of oil prices and the macroeconomy has been to use either nominal or real oil prices (see Hamilton [1983] and Blanchard and Gali [2007] as examples). This approach is clearly defective, as it does not scale oil prices for their economic importance.
It is useful to go back to first principles in defining a shock variable. All three of the mechanisms discussed in the last section would point to the overall share of oil or energy as the relevant variable for measuring the effect of a price shock. In the production function approach, the share of oil or energy in income (or the production elasticity) will be the key variable.
Similarly, in the oil-price-as tax-increase theory, the impact of changing prices will come through the effect on real income – that is, through the standard income effect. We follow this route in defining our shock variable. This would be measured by the value of purchases times the change in the price. That is, the income effect = (PX) ΔP, where P = price, X= quantity, PX = value of consumption, and the change is over θ periods. If we want to consider the importance relative to the economy, we might then divide by nominal GDP, which provides a first definition of the “oil-shock variable” at time t:
(1) OilShock(t; θ) = {P(t)X(t) ln[P(t)/P(t-θ)]}/GDP(t)
For this definition, P is the nominal price of crude oil and X is the total domestic consumption of crude oil.
This definition is limited because it considers only oil. We therefore define a second variable which is an “energy-shock variable.” This is conceptually the same as the oil-shock variable but uses the price and quantity of personal consumption expenditures on energy products (primarily gasoline, electricity, and heating fuels). For this second shock variable, we use personal consumption expenditures as the denominator. The advantage of the energy-shock variable is that it is more inclusive and considers the impact on consumers. The disadvantage is that it omits second-round effects, such as the effect of oil prices on jet fuel and thence on air fares.
Figure 1 shows cumulative measures of the energy- and oil-shock variables. We show the cumulative totals because the shock variable will differ depending upon the length of the differencing period.
Figure1. Cumulative energy and oil shocks
(Figure shows the cumulative total shocks for each concept. The oil-shock variable is scaled by GDP while the energy-shock variable is scaled by personal consumption expenditures)
Table 2 shows the changes in the scaled shock variables over the shock periods for each episode. These are calculated as a rate per year to reflect the fact that the period of shock varied across shock periods.
|
Period
|
Oil shock*
|
Energy shock**
|
|
[Percent per year***]
|
|
1973:Q3-75:Q2
|
2.1%
|
0.7%
|
|
1978:Q4-1980:Q3
|
2.4%
|
1.4%
|
|
1990:Q3-90:Q4
|
3.0%
|
1.9%
|
|
2002Q4-2006:Q2
|
0.7%
|
0.6%
|
* Percent of national oil consumption; ** Percent of personal consumption expenditures; *** Shock from beginning to end divided by number of years
Table 2. Scaled energy and oil shocks
(The table shows the total scaled oil and energy shocks for the four major oil-shock periods. This measure annualizes the variables by taking the total change from beginning to end divided by the number of years.)
In terms of the total size of the shock, the 2002-2006 shock was close to the average of the 1970 shocks. However, the oil shocks of the 1970s had a completely different shape than that of 2002-2006 period in that the earlier ones were very sharp, while that of the 2000s was much more gradual. If we consider the oil-shock variable at an annual rate, then the shock per year was 2.1% for 1973-75, 2.4% for 1978-80, but only 0.7% for 2002-2006. The rates were roughly similarly proportioned for the energy-shock variables.
The historical context and shape of the energy and oil shocks suggest that those of the 1970s might have a far more powerful economic impact. The 1970s shocks were dislocations that changed our view of energy and resources in a fundamental way. Given the historical stability of oil prices before the fall of 1973, the changes that ensued were large-sigma events, similar in psychological effect to the collapse of the World Trade Towers or Hurricane Katrina. For example, the largest four-quarter change in the real oil price between 1950 and 1973 was 10 percent. In the next two years, the change was as high as 160 percent. My recollection is that no serious forecaster in 1972 foresaw anything approaching a five-fold increase in the real price of oil by the end of the decade.
By contrast, the oil-price increase of the 2000s was large, but not outside the range of reasonable pessimism. Indeed, George Perry’s study of the economic effects of terrorist events indicated that $75 per barrel oil was a “worse case” and not even the “worst case” (Perry [2001]). My study of the economic effects of the war in Iraq also suggested an oil-price spike of $75 per barrel for my high case, declining as the war wound down (Nordhaus [2002]).
To summarize, when we construct a scaled oil-shock and energy-shock variable, we see that the oil and energy shock of the 2000 has a cumulative economic effect that is similar to that of the 1970s shocks. However, the latest shock was much more gradual and was not unthinkably large to market participants.
Mechanisms for declining impact of oil shocks
It is worth pausing to consider why oil shocks might have a smaller impact on the economy today than in earlier periods. We can preliminarily consider three reasons: smaller shocks, smaller multipliers, and other forces. (Many of these issues were originally investigated in Hamilton [1983].)
A first reason why oil-price shocks might have a smaller impact is that the shocks are smaller. As earlier sections indicated, this can account for a smaller macroeconomic response but not for an economic expansion during the 2002-2006 period.
A second reason for a smaller impact is that the transmission mechanism has progressively tended to moderate the macroeconomic impact of shocks. Under the classical Frischian view of the economy, we distinguish exogenous and policy shocks (in which category the first reason lies) from the complicated non-linear stochastic dynamic system which takes shocks and generates endogenous variables like unemployment, prices, and output. In this second approach, a given variability of exogenous or policy variables such as oil prices would lead to lower variability of output. In the simplest macroeconomic framework, the oil-price multiplier on output is smaller.
A third reason for a smaller impact is that other variables might have reinforced the contractionary and inflationary impacts of oil prices in the 1970s while they tended to offset those impacts in the 2000s. Economic histories of the 1970s point to other shocks such as commodity shortages, poor grain harvests, political business cycles, collapse of the Bretton Woods system, disappearing anchovies, and an army of plagues that reinforced the inflationary impact of the 1973 shock, while the anti-inflation wars of the 1979-82 period (in part motivated by the 1978 shock) surely reinforced the contractionary impact of the 1978 shock.
Note again that the story of the oil-price shocks runs parallel to the explanation of the Great Moderation. In explaining the declining volatility of output and inflation, we would look to some combination of these three factors.
The trajectory of shocks and responses
I next take a closer look at the pattern of shocks and responses for the three major episodes. For this, I examine the time series of inflation and output along with the cumulative energy and oil shocks. For these comparisons, I plot the cumulative oil and energy-shock variables just described along with the trajectories of output or inflation.
Figure 2. Price shocks and output
(Figure shows the trajectory of GDP (as a fraction of potential GDP) and the energy and oil-shock variables for the three major price shock periods. Note that the shock variables are associated with declining output in the first two periods but not in the third period. Each variable is normalized to equal 0 in the shock period)
Figure 2 shows the time series on the price shock variables along with output. For this purpose, we use as the output variable the ratio of real output to potential real output as defined by the Congressional Budget Office. I have normalized the variables to be zero on the shock date. Therefore, the plot shows the cumulative change since the shock date. For example, output declined relative to potential by 7.7 percent in 1975:2, while the size of the cumulative energy and oil shocks were 1.2 and 3.7 percent of PCE and GDP in that period.
Figure 2 shows the anomaly for the 2000s. Whereas output paralleled the (negative) shocks of the 1970s, the relationship reversed in the 2000s. The sample size of shocks is obviously pathetically small, but it is clear that the earlier relationships did not hold.
to be continued…
Courtesy: Prepared for Brookings Panel on Economic Activity (Special Anniversary Edition), September 2007.
NEWS BRIEF
OIL & GAS
ONGC to spend $645 mn on Mumbai offshore
December 24, 2007. India's state-run explorer Oil and Natural Gas Corp. plans to spend Rs 25.5 bn ($645 mn) in the next three years to strengthen the oil and gas pipeline network at its western offshore Mumbai fields. The company plans to revamp the pipeline network as it expects implementation of a development project will increase the production life of its Mumbai offshore fields to 2030. The ONGC board also approved a capital expenditure of $35.9 mn for the third phase of development of its PY-3 oil and gas field in the eastern offshore Cauvery basin. ONGC holds 40% stake in the field while Hindustan Oil Exploration Co. owns 21%, Tata Petrodyne 21% and Hardy Exploration & Production 18%.
India to be major player in Sri Lankan oil exploration
December 21, 2007. India will be a key player in the Sri Lankan oil and gas exploration in the Cauvery Bay of the Gulf of Mannar which is set to begin in March next year. As many as 18 oil and 11 gas reserves have been identified on the Indian side of Cauvery Bay and exploration will begin in March next year. Experts estimate the sites may contain millions of barrels of crude oil for which both India and China are competing for overseas oil and gas reserves to meet soaring energy demand. The international arm of the Oil and Natural Gas Corporation, OVL Ltd, paid one million dollars to Norwegian seismic survey group, TGS NOPE a few weeks ago for acquiring data in the Mannar Offshore Basin in Sri Lanka. The Mannar Basin, located between southwestern Sri Lanka and Indian coastline in water depths ranging from 50 metres to more than 3,000 metres, lies to the south of Cauvery Basin in Indian waters - known for both oil and gas production. Sri Lanka, currently, relies on imports to meet all of its crude oil demand of around 42,000 barrels a day and fifty per cent of its products demand of about 70,000 barrels a day. Sri Lanka had offered to give OVL 5,000 to 6,000 sq km of exploration area in the Mannar Offshore Basin on nomination basis. This is in lieu of assistance in training their professionals and assisting them in demarcation of the exploration and production (E&P) blocks.
ONGC ropes in ENI, BG, Norsk for NELP-VII bid
December 21, 2007. India’s biggest oil producer Oil and Natural Gas Corporation (ONGC) has teamed up with European majors to jointly bid for the next round of National Exploration and Licensing Policy (NELP). The state-owned oil company has roped in ENI of Italy, British major BG and Norwegian firm Norsk Hydro to jointly bid aggressively for deep and ultra deep water blocks and shallow water blocks in the seventh round of NELP bidding. They have proven technologies in deep water drilling. This year, the government has for the first time given additional weight to domestic companies that tie up with global corporations with experience in deep-sea oil and gas exploration. The move is aimed at attracting more global oil giants to bid under NELP - VII. In its largest auction so far, offering 57 blocks, the government hopes to attract investment commitments of up to $3.5-$4 bn. Of the 57 oil and gas blocks, nine are in shallow water, 19 in deep sea and 29 on-land. Bidding for NELP-VII will close on April 11, 2008, and the entire process is expected to be completed within six months Global oil majors such as Exxon-Mobil, Chevron and Royal Dutch Shell have been absent in the earlier rounds. British Gas is the only significant oil company to have acquired blocks. ONGC has traditionally bagged the largest number of blocks offered during the sixth round of NELP bidding.
Indian Oil sets aside $3 bn for overseas acquisition
December 19, 2007. Indian Oil Corporation, the nation’s biggest refiner, may spend as much as $3 bn to buy an overseas oil producer to meet rising demand in the world’s second-fastest-growing major economy. The target would be a company that owned fields in Africa or countries that were part of the former Soviet Union. The acquisition would be made jointly with Oil India, a state-run explorer. Indian Oil and Oil & Natural Gas Corporation, the nation’s biggest explorer, are scouting projects in Russia, Kazakhstan, Iran and Africa to meet fuel demand in a race with China, which is securing energy supplies to feed the world’s fastest-growing economy. India imports three-fourths of its oil as production from ageing domestic fields is slumping. The refiner is seeking new oil-producing areas and has sought government help in its hunt for crude producers. India, beaten by China to more than $10 bn of overseas energy assets in the last two years, plans to emulate its rival by building ports and railways in Africa to secure oil and gas fields. Indian Oil wants to get about 2 mt of crude oil a year from overseas fields it will hold by 2012.
Downstream
Vizag LPG cavern to be commissioned this week
December 24, 2007. The 60,000-tonne capacity liquefied petroleum gas (LPG) cavern storage facility in Visakhapatnam will be commissioned later this week, as the very large gas carrier from Saudi Arabia, 39,000-tonne capacity Maharishi Bharadwaj of Varun Shipping, started unloading the gas in the sunken ship jetty in the outer harbour of Visakhapatnam port from December 24. It was the first time such a large vessel had entered the country with LPG and currently the gas was being sent to the bottling plant of the HPCL-Visakha refinery. After the completion of the ongoing vapour gasing test of the cavern in the next few days, the LPG delivered would be filled in the cavern and it would be commissioned. It would take a few days for the complete discharge of the gas from the ship. The cavern was nearing its final stages of testing as the cavern acceptance test and pressure test by filling it up with water had been successfully completed. The SALPG wanted to ensure it was perfect in all aspects. The cavern, the first of its kind in South and South-East Asia, was set up by the SALPG, a 50:50 joint venture between Hindustan Petroleum Corporation Ltd and Total, a French oil major. The Rs 333-crore ($84.6 mn) project had come up near the harbour channel in the vicinity of Dolphin’s Nose in the city. The foundation for the project was laid on February 19, 2004. The cavern with a volume of 1,23,600 cubic metres, had been dug up under a solid hard rock to store LPG at as low as 162 metres below mean sea level. The storage facility was made up of two caverns of size measuring 19 metres in height, 20 m in diameter and 160 m in length.
NTPC on lookout for LNG terminal options
December 21, 2007. India’s largest power generation company NTPC Ltd is looking at acquiring or setting up LNG (liquefied natural gas) terminals after the government decided against hiving off the under-construction LNG terminal of the Ratnagiri Gas and Power Project Ltd (RGPPL) at Dabhol, Maharashtra that the company was looking to acquire. NTPC wants an LNG terminal to ship in around 3 mtpa of natural gas from Nigeria to power its plants here. India faces a significant shortage of natural gas. The amount of investment would depend upon the size of the regasification terminal. India has only two LNG regasification terminals. Both are located in Gujarat, one is owned by Petronet LNG Ltd (capacity of 6.5 mtpa) and the other by Shell India Pvt. Ltd (2.5 mtpa). Other terminals in the works include one each in Dabhol (5 mtpa), Kochi (5 mtpa) and Mangalore (5 mtpa). The country imports around 3 mtpa of LNG, or 12 mmscmd of gas that is bought in the spot markets. NTPC had to alter its strategy after the government decided that the Dabhol terminal would not be hived off and that the 2,160 MW RGPPL would function as an integrated project. The Dabhol terminal will initially have a capacity of 1.2 mtpa, which will be increased to 5 mtpa by 2010. NTPC is looking for gas blocks overseas in an effort to find fuel to power its plants in India. This will help the company procure gas at much lower prices than those in the spot markets, even after accounting for investments in gas blocks, liquefaction, regasification and shipping. The company will need to invest around $1.7 bn (Rs 6,732 crore) in building an LNG liquefaction terminal in Nigeria and setting up a re-gasification terminal in India. It would be easier for the company to acquire one because it has never set up a regasification terminal before.
Australian LNG companies see scope in India’s surge in gas use
December 21, 2007. Demand in India may rise by 2.5 times to 82 bcm and imports may reach 31 mt. Indian natural gas consumption is set to more than double by 2025, opening up opportunities for Australian liquefied natural gas (LNG) producers. Gas demand in India may rise to 82 bcm in 2025, from 32 bn in 2005. India’s LNG imports may reach 10 mt in 2015, rising to 31mt in 2025. Australia’s LNG export capacity of almost 16 mt is set to jump by 56% with projects under construction at the Woodside Petroleum Ltd-operated North West Shelf venture and the Perth, Australia-based company’s Pluto project. Proposed additional plants by Chevron Corp., Inpex Holdings Inc. and others could add more than 46mt, the bureau estimates.
Reliance, HPCL among bidders for Bihar sugar mills
December 21, 2007. Reliance Industries, Hindustan Petroleum Corporation Ltd and India Glycols Ltd are among the leading companies that have bid for closed sugar mills in Bihar. Among the sugar companies, the KK Birla group’s Upper Ganges Sugar and Industries has also made a bid and the qualification of technical bids will take place by December 29. Most of these companies have expressed interest in foraying into ethanol production to take advantage of the mandatory blending norms. At present, oil marketing companies are required to blend 5 per cent ethanol in petrol. This will increase to 10 per cent from October 2008. Moreover, the government of Bihar is offering a host of incentives like capital subsidy, sugarcane purchase tax waiver etc on sugarcane-based industries. To attract investments in sugarcane-based industries, the state government amended the Bihar Sugarcane (Regulation of Supply and Purchase) Act, 1981, earlier this year, allowing sugarcane juice to be directly used to produce ethanol or rectified spirit and for co-generation of power. Last month, the Bihar government decided to offer 15 closed mills belonging to the Bihar State Sugar Corporation for a long-term lease of 60 years, extendable by 30 years, on the recommendation of SBI Capital Markets. Of the 15 mills, eight have been reserved for sugarcane-based industries like sugar mills or distilleries for ethanol or alcohol production. The remaining seven can be used by non-sugarcane-based industries.
ONGC, BPCL to source LNG from Middle East
December 19, 2007. The country’s major oil PSU Companies like ONGC and BPCL are planning to source liquefied natural gas (LNG) from Gulf countries like Iran, Kuwait and Oman, among others. According to sources close to the development, ONGC is most likely to form a joint venture with global oil majors such as Exxon Mobil and Shell for LNG supply from Kuwait and Oman. On the other hand, BPCL has also expressed interest to participate in discussions or negotiations with Kuwait-based oil Companies like Kuwait Santa Fe Company (KSFEC) for LNG. Ministry sources added that in an initiative to build up an international co-operation with Kuwait, Indian oil PSU Companies are going for various mutual agreements between both the countries. At present, Petronet LNG Ltd, in which ONGC has 12.5% equity interest, is engaged in the import and marketing of LNG in India. Other partners in this venture are IOC, GAIL and BPCL, each with 12.5% equity. According to petroleum ministry sources, the import of LNG does not require an import license.
Essar Oil to wrap up $4 bn fund-raising soon
December 19, 2007. Essar Oil, operator of India’s newest refinery, is likely to complete its $4 billion fund raising plan next month, to triple capacity at its refinery at Vadinar (Jamnagar). Nearly half of the fund will be raised overseas. The Indian refiners are reliant on exports because state-set retail prices make it impossible to profit from selling gasoline, diesel and heating oil at home. Construction by Essar, Reliance and Indian Oil Corp will increase India’s ability to process crude by 92 mtpa by 2012 from 149 mtpa now, boosting exports. India had a surplus of 20.1 mt of fuels in the year ended March 31, of which diesel accounted for more than half. Essar will increase capacity at the Jamnagar refinery to 34 mtpa, or 680,000 barrels a day, from 10.5 mt now. Reliance Petroleum, a unit of Reliance Industries, is building a 580,000 barrel-a-day refinery adjacent to a 660,000 barrel-a-day plant owned by its parent. Indian Oil, the nation’s biggest state-run refiner, and third-ranked Bharat Petroleum Corp are also planning expansions. Essar Oil has about $2 bn of debt outstanding. The parent company last month secured a $3.59 bn loan against its stake in a mobile-phone venture with Vodafone.
BPCL talks to Nippon Oil for tech sharing
December 19, 2007. The state-run Bharat Petroleum Corporation (BPCL) is in talks with Japan’s Nippon Oil Corporation (NOC) for a technology sharing tie-up for developing polymer electrolyte fuel cell (PEFC). PEFC is the world’s first residential use cogeneration system, using liquefied petroleum gas (LPG) and developed in 2005 by Nippon Oil, Japan’s largest oil importer and distributor. These fuel cells generate and supply power and recover thermal energy derived during power generation to produce hot water. In comparison with the conventional power generation system, fuel cells will improve energy efficiency. In this technology, the reduction rate of CO2 is estimated at 40 per cent when installed and operated in households. LPG is used as the base fuel for PEFC.
ONGC to supply gas to Tripura power unit
December 25, 2007. The Oil and Natural Gas Corporation (ONGC) has agreed to supply natural gas for the proposed 104 MW gas based thermal project at Monarchak in West Tripura district. The decision was taken in a high level meeting between ONGC and North Eastern Power Corporation (NEEPCO). ONGC would sign agreement to supply five lakh cubic meter gas per day for Tripura for the next 15 years. The agreement is likely to be signed in February next. NEEPCO was pursuing for gas since 2000 last and with this assurance power generation was likely to be started from next year.
Andhra Govt. to reduce stake in KGGNL
December 25, 2007. The Andhra Pradesh government would confine its stake to 11 per cent in the Krishna Godavari Gas Network Limited (KGGNL) to enable Reliance Industries Limited (RIL) to hold a majority equity in the special purpose vehicle, which was created to set up a gas grid and city gas network in the state. Currently, the Andhra Pradesh government and the Gujarat State Petroleum Corporation Limited(GSPC) hold 26 per cent stake while the remaining 48 per cent equity is held by IDFC Private Equity. The company in the past had proposed to set up its own city gas network, covering 32 cities and towns in the state.
GAIL's going in for a makeover
December 23, 2007. India’s largest transporter and marketer of gas, the Rs 16,047 crore ($4.07 bn) GAIL, is in for a makeover. Not satisfied with simply moving gas across the country, it wants to make the pipes that will move the gas and also lay the pipelines. That’s not all. In early December, GAIL announced a deal with Reliance Industries (RIL) the two are planning a petrochemicals plant overseas. And it’s also teaming up with Reliance Gas Transportation Infrastructure to move gas from RIL’s fields in the Krishna-Godavari basin. The company’s motto now appears to be to co-operate, collaborate and then compete’ as GAIL’s CMD recently put it.
Diesel shipments to Bangladesh from Numaligarh begins
December 20, 2007. The long-awaited shipment of diesel by barges from Numaligarh Refinery in Assam to Bangladesh has started. The first consignment of 1,200 tonne, loaded in two barges of 600-tonne capacity each, left Silghat, the refinery’s nearest loading point on the Brahamaputra river and arrived at Guwahati for Customs and other clearances. Two other barges, one of 1,200-tonne capacity and the other 600-tonne, are currently being loaded at Silghat. They too will leave for Bangladesh shortly. With this, a total of 3,000 tonne are to be exported to Bangladesh in the current year. The four barges deployed for the purpose have been supplied by a Mumbai-based river transport company. According to agreement with Bangladesh, Numaligarh refinery is to supply 10,000 tonne of diesel every month. However, the agreement expires on December 31, 2007. Which means, the agreement has to be renewed before further shipments can take place. According to the agreement, the shipments were to take place between May and December 2007. But that did not happen. The first shipment is now taking place.
Metro airports to let in private oil companies
December 19, 2007. Private firms, including Reliance Industries Ltd, Essar Oil Ltd and Royal Dutch Shell Plc., will soon be able to sell jet fuel at metro airports despite not having their own supply depots as several such airports are planning to set up their own common fuel supplying facilities. Such a common facility could help reduce investments in fuel supply logistics at these airports and could potentially cut the cost of jet fuel as well. It will also see the beginning of the end of a near-monopoly in sales of jet fuel at major airports by three state-owned Indian oil marketing companies. Jet fuel accounts for about 40% of the operating cost of India’s domestic carriers, all of whom have collectively reported a loss of $500 mn (Rs2,300 crore then) in 2006-07. The estimated annual fuel bill for the domestic airline industry is around $1.9 bn, based on rates prevailing in November. Fuel prices for domestic operations in India are 70-90% higher than international benchmarks. Airports in Mumbai, Bangalore and Hyderabad are in the process of building fuel farms that can be used by all firms that are licensed to sell jet fuel. Delhi International Airport Ltd, a joint venture promoted by GMR Group-led consortium, is also exploring a similar infrastructure option. Meanwhile, the proposed Navi Mumbai International Airport, the Kolkata and Chennai airports, as well as other new projects are also expected to have a common fuel supply facility.
Maytas Infra bets big on oil, gas
December 19, 2007. The Maytas Infra has roped in a Ukrainian company for technical knowhow. A Rs 310-crore ($78.5 mn) pipeline project currently being executed for the Gujarat State Petroleum Corporation (GSPC) by Hyderabad-based Maytas Infra Limited is just a beginning as the company is eyeing a bigger pie from the $3 bn opportunity it sees in the transportation and installation (T&I) in the oil and gas industry in the immediate future. Energy, which includes oil and gas industry, is one of the four verticals that the company aims to even out in terms of value and operations in the next 3-5 years from the predominantly irrigation projects-led turnover at present. It would focus on oil and gas operations under NELP V and NELP VI that have started reaching the T&I level. This segment would offer opportunities for a longer time since it's counting on oil and gas exploration and production operations under NELP V and NELP VI for the next 3-4 years. This is in addition to the downstream opportunities, such as refinery construction, the company is looking at. The company, which is currently executing 30 projects in all with a total project cost of about Rs 4,800 crore ($1.2 bn) excluding the joint venture partners' share, also proposes to look for more opportunities in the transportation segment including airports and ports.
Environment cess on diesel
December 25, 2007. The Delhi government has decided to impose an environment cess of 25 paise per litre on diesel to promote use of clean fuel. The money raised by the Environment Cess Fund would be used to promote greater usage of compressed natural gas (CNG) in the capital. The Cabinet also discussed a financial package to encourage replacement of diesel-driven goods vehicles plying on local permits with new CNG-run vehicles. In June, the Delhi government had raised sales tax on petrol and diesel by 1 per cent. The current price of petrol in the national capital is Rs 43.52 a litre and diesel is Rs 30.48 rupee a litre.
Petrol, diesel to be out of GST
December 25, 2007. Petroleum products such as crude, motor spirit and diesel, and alcohol beverages will be kept outside the dual goods and service tax (GST) structure, which will be implemented from April 2010. The Empowered Committee of State Finance Ministers has recommended to keep the above products outside GST structure to protect the high tax revenue generated by these products to the central and state governments. While the current tax rates on these products are very high, the GST rates are expected to be moderate. The modified draft guideline along with GST rates at both central and state levels, will be submitted to Union Finance Minister P Chidambaram by the end of January for consideration.
Ministry push for infra status for oil pipelines
December 25, 2007. The petroleum ministry has called for infrastructure status to be given to pipelines transporting crude oil and petroleum products across the country in its list of demands for the upcoming budget. The demand comes after the finance ministry gave cross-country natural gas pipelines such a status, which would exempt companies operating the pipelines from paying income tax for 10 years. Natural gas pipelines are laid on a common-carrier principle which allow companies, other than the owner of the pipeline, to book capacity on the pipeline, thus making them national assets. The government had set up a company called Petronet India Ltd, promoted by Indian Oil Corporation (IOC), Hindustan Petroleum (HPCL) and Bharat petroleum (BPCL), for laying crude oil and product pipelines on a common-carrier principle. The company has various arms which operate single pipelines. These arms are joint ventures between Petronet India and other oil companies which have direct operations and markets along the pipeline’s route. The experiment has proved to be a non-starter with Petronet India selling stake in its arms to its joint venture partners, as operations were not profitable. According to the ministry oil and natural gas exploration companies should be exempted from paying service tax, which the finance ministry fixed at 12 per cent in the last budget. The oil companies have also been lobbying for exemption from service tax, arguing that their business was fraught with risk. The revenue department, attached to the finance ministry, on the other hand, believes that the oil exploration companies can afford to pay service tax since norms under the New Exploration Licensing Policy (NELP) allow the petroleum ministry to refund any tax the companies paid. The oil ministry has also proposed that natural gas, liquefied natural gas (LNG) and biofuels such as ethanol and biodiesel should get declared goods status.
US help sought for shelved gas grid
December 24, 2007. In a peculiar case of time over-run, US consultants have been invited to study and provide technical assistance for setting up a national gas grid a network of cross-country gas pipelines linked to each other while the competent body to rule on the issue is the recently-constituted Petroleum and Natural Gas Regulatory Board (PNGRB). The proposal for commissioning a US company for the gas grid was floated a couple of years ago by the petroleum ministry. Since then, the PNGRB has been set up, which is mandated to regulate the gas sector, including natural gas pipelines. The bid documents have been hosted by the United States Trade and Development Agency (USTDA) on its website. The contract for conceptualising the national gas grid is $920,000, which comprises a USTDA grant of $690,000 and a contribution of $230,000 by the Petroleum Planning and Analysis Cell (PPAC) under the petroleum ministry. The documents call for bids from US companies and individuals only by December 27, the last date. A pre-bid meeting took place on December 5 this year. The grid itself was to be laid by the government-owned gas utility GAIL, which now accepts that the gas grid will not be laid as it was planned. The development comes in the background of stiff opposition from the US to the proposed $7-bn Iran-Pakistan-India gas pipeline. The US has opposed the pipeline, which would have transported 30 mmcmd of gas initially, and would later have been ramped up to 60 mmcmd. Currently gas availability in India, from both domestic sources and imported liquefied natural gas, is around 85 mmcmd, which is only half the demand of around 179 mmcmd.
Expect moderate hike in petrol and diesel prices in January
December 22, 2007. The Union Government is expected to raise petrol and diesel prices moderately by mid-January to help state-run oil firms reduce the loss they are incurring on selling fuel below cost. The hike would be just the price of tea here (Rs 2-Rs 3). The government was providing domestic cooking gas for around Rs 290, nearly half of the actual cost. Indian Oil, Bharat Petroleum and Hindustan Petroleum are projected to lose Rs 69,753 crore ($17.7 bn) on the sale of petrol, diesel, LPG and PDS kerosene as the government has not allowed them to raise prices in line with the price of imported crude. The government had last increased petrol and diesel prices on June 6, 2006. Petrol is being sold at a loss of Rs 8.74 a litre, diesel at Rs 9.92 per litre, kerosene Rs 20.53 a litre and LPG at a loss of Rs 256.35 per cylinder.
Work on IPI pipeline to begin by March
December 22, 2007. India expressed confidence that the work on the proposed $7 bn Iran-Pakistan-India (IPI) gas pipeline project will start by March next year as it is hopeful of finalising a transit fee agreement with Islamabad before that. India was confident of starting work on the 2,775-km long IPI project by the end of March 2008. Talks with Pakistan to iron out differences on the transit fee issue were stopped due to political developments in that country and that negotiations would be resumed soon. India has already discussed the issue of gas price and transportation charges with Pakistan and only the transit fee issue remains to be solved.
OMCs worry ministry regarding ethanol blending
December 20, 2007. In the wake of the Centre’s move to make 5% blending of ethanol with auto fuel mandatory across the country, the petroleum ministry has urged the government to protect the interests of the oil marketing Companies (OMCs). The ministry wants the Centre to ensure that OMCs do not suffer any under-recovery in the sale of ethanol blended petrol (EBP) and ethanol is available for procurement in the required quantities at all notified locations. Furthermore, if the uniform purchase price of ethanol at Rs 21.50 per litre imposed by the Cabinet Committee On Economic Affairs (CCEA) across the country is to be fixed, OMCs will have to be compensated if it is commercially not viable at that price. According to sources, the ministry has brought to the Centre’s notice that at present OMCs are discovering the price through open competitive bidding as per Central Vigilance Commission (CVC) guidelines. Furthermore, the ministry wants availability of ethanol on an assured basis to be ensured, especially since sugarcane acreages and production could fluctuate from year-to-year, depending on demand and agro-climatic condition. The ethanol-blending programme has so far been implemented in 16 states, covering just 70% of the states identified for the launch of the programme. However, the programme has come to a standstill in Jharkhand, Chhattisgarh and Orissa. Haryana, Punjab, Rajasthan, Orissa and Chhattisgarh have imposed a high import fee on ethanol, while Uttar Pradesh, Maharashtra and Bihar have levied an export fee on ethanol, which has made procurement of ethanol by OMCs for blending in other states unviable. In addition, state governments are also imposing storage fee, sales tax and transport permit fees.
Plan panel may put Govt. in spot on KG Basin gas pricing
December 19, 2007. The 11th Plan document, which is set to be adopted, has indirectly questioned the KG Basin gas pricing policy, saying that price bids cannot be accepted as discovery of fair market value. According to the report the price bids by power and fertiliser companies cannot be accepted for price discovery of fair market value. The power and fertiliser sectors are entitled to pass-through the cost of gas and, thus, have no incentive to push for lower prices. It is surprising that the pricing policy has been criticised in the Plan document by the same government that approved the KG Basin gas price three months ago. RIL, the KG Basin gas producer, is yet to sign formal gas sale agreements with the selected consumers.
Centre readies to hike gas prices
December 19, 2007. With elections in key states such as Gujarat and Himachal Pradesh behind it, the Union government proposes to raise the administered price of gas. This will increase production costs for public sector fertilizer and power firms and, consequently, increase the government’s fertilizer subsidy bill and power charges for customers in states such as Gujarat, Delhi, Andhra Pradesh and Tamil Nadu, which primarily use gas-based power. The government’s plan involves raising the price of gas from the current $1.90 (Rs75.24) per mBtu to $2.50. While the exact increase in fertilizer subsidy could not be calculated, power costs in the states concerned could go up by 20 paise a unit, existing laws allow any increase in fuel cost for power companies to be passed on to the consumers. Around 10% of the power generated in India is gas-based. The tariff commission, which comes under the ministry of commerce and industry, is an expert body that looks at setting appropriate tariffs for different products and industries keeping in mind the larger economic interests. Of the 90 mmscmd of gas available in the country, around 53 mmscmd is priced under the administered price mechanism, or APM, where the government sets the price of the product. Of this 53 mmscmd, around 48 mmscmd is produced by Oil and Natural Gas Corp. Ltd (ONGC) and 5 mmscmd by Oil India Ltd (OIL). All of this is sold to government-owned firms in the power and fertilizer business. The proposal to raise gas prices was first suggested by the empowered group of ministers, or eGoM, on gas pricing, formed to decide on the pricing of the gas being pumped out of the Krishna-Godavari basin by Reliance Industries Ltd. The petroleum ministry had informed eGoM that it would shortly submit a note to the cabinet asking for an upward revision of APM prices. The government had, on eGoM’s recommendation, fixed the floor price of gas produced from the Krishna-Godavari basin at $4.20 per mBtu. While any increase in prices would stem the losses for ONGC and OIL, it would also increase costs for the power and fertilizer sectors, putting pressure on them to raise their prices. The power and fertilizer sectors account for 40% and 29%, respectively, of the total gas consumption in India.
POWER
Power generation at Dabhol dips by 14pc
December 21, 2007. Electricity generation at the Dabhol power plant in Maharashtra has dipped by more than 14% after a reduction in gas supply to the unit. The total requirement of regasified liquefied natural gas (RLNG) for operation of block two and three at base load is 5.7 mmscmd. But from December 14, suppliers of RLNG— GAIL India Ltd, Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd, have disbursed only 4.506 mmscmd. The sudden reduction in RLNG supply is adversely affecting generation. From December 14, power generation has reduced to about 1,080 MW from 1,260 MW and if full supply of gas is not resumed, the generation is going to reduce further.
REL to bid for projects in three African countries
December 19, 2007. The Anil Ambani-controlled Reliance Energy (REL), which is in the race for Tuas Power of Singapore and a green-field project in Bahrain, is now planning to foray into Africa. The company is believed to be in talks with the governments of Botswana, Tanzania and Zambia for setting up generation capacities of over 1,000 mega watt (MW). The company’s African Safari will be followed by a bid for 1,200 MW greenfield project at Yanbu in Saudi Arabia. REL has submitted an expression of interest (EoI) for a 300-400 MW coal-fired power plant in Botswana. The hydel resource rich Tanzania is looking to set up 500 MW generation capacity. Zambia is still in talks with interested parties to set up coal-based generation capacity. The African countries are setting up fresh capacity as the major supplier, South African power utility, Eskom, plans to discontinue power supplies to neighbouring countries from 2009. For building 1,000 MW projects in these countries, REL will have to shell out around Rs 4,000 crore ($1 bn). In Saudi Arabia, the company is in race to set up an oil-fired project of 1,200 MW along with a desalination plant. REL will submit pre-qualification documents by February 2008. The potential developer will have to sign an agreement with the government for fuel supply and power evacuation.
Jindal Power to up Chhattisgarh plant capacity
December 19, 2007. Jindal Power, a wholly owned subsidiary of Jindal Steel & Power (JSPL), is likely to invest more than Rs 5,000 crore ($1.26 bn) in adding another 1,320 MW to its thermal power project in Chhattisgarh. The company is in the process of inviting bids from suppliers. Once the bids were evaluated, a timeline for the project would be set. Jindal Power is already in the process of setting up the coal-based 1,000 MW OP Jindal Super Thermal Power Plant near Tamnar in Chhattisgarh’s Raigarh district. At present, 250 MW is operational and the project will be completed by June 2008. The company will be adding 1,320 MW over and above the 1,000 MW capacity. The investment for 1,000 MW is around Rs 4,500 crore ($1.13 bn). Though the investment in the project was yet to crystallise, sources pointed out that Rs 4 crore ($1 mn) was needed to generate 1 MW. Jindal Power is also examining various options for funding the investment.
Transmission / Distribution / Trade
Gujarat NRE wraps up Australian acquisition
December 25, 2007. Gujarat NRE Coke has completed the acquisition of Australia-based Elouera mine from BHP Billiton, a part of the Australia-based Illawarra Coal Business, for an undisclosed amount. The acquisition was made by Gujarat NRE Resources NL (Gujarat), the Australian flagship firm of the Gujarat NRE Coke group, the producer of metallurgical coke. The coal lease and associated licences, including the mine, would be transferred along with associated land holdings and the responsibility for rehabilitation and closure of the mine once operations were complete. Post-transfer, the mine would be re-christened NRE Wongawilli and the acquisition would give Gujarat NRE group ready infrastructure, including mining equipment and railway access to Port Kembla. Gujarat NRE Resources intends to start mining from February 2008, with development work on the first of the three longwall blocks commencing with immediate effect. Large reserves of coal exist in the combined Wongawilli and Avondale leases that would provide over 20 years of mine life. With the global surge in coal demand, the buyout was expected to reap good benefits for the group. The Elouera mine would help the NRE Group’s objective to increase its export to India to make better profit from the demand-supply mismatch and the resultant price hikes.
EPDCL aims to bring down distribution losses to 9 per cent
December 24, 2007. The Eastern Power Distribution Company of Andhra Pradesh Limited (EPDCL) is targeting to reduce distribution losses to 9 per cent by March 2008. A one per cent reduction would fetch the company Rs 25 crore (6.4 mn) a year. Over the last four months, the company had been successful in cutting down the distribution losses by about 2.74 per cent. Two years back, the distribution losses were about 17 per cent, which came down to 12.22 per cent by March 2007. This was further brought down to 9.44 per cent by November. EPDCL distributes about 24.5 million units a day.
NTPC to take $380 mn loan from Japan Bank
December 23, 2007. NTPC has signed a $380 mn (about Rs 1,495 crore) loan agreement with Japan Bank for International Co-operation (JBIC) to part finance its 1,980-mw Barh Super Thermal Power Project in Bihar. NTPC concluded a $380 mn loan facility under the (JBIC) guarantee to part finance the 1,980 MW (3x660 MW) Barh Super Thermal Power Project (Stage-I) in Bihar. The facility, which was arranged and guaranteed by JBIC, has floating interest rate linked to the LIBOR and door-to-door maturity of 18 years. This is the first facility extended by the JBIC to NTPC without sovereign guarantee. JBIC has previously provided financing for Gandhar, Simhadri, Faridabad and North Karanpura power projects for an aggregate amount of 172 billion Japanese yen through its overseas development assistance programme.
Private players for developing hydro projects in Arunachal
December 19, 2007. Arunachal Pradesh has received Rs. 158.64 crore ($40.2 mn) from various private players as processing and upfront premium for developing different hydel power projects in the state in the last three years. The above amount was received for 35 projects with a proposed capacity totalling 13361 MW. As per the list submitted, Athena Energy Ventures Ltd. New Delhi alone paid Rs 93 crore ($23.54 mn) for the 3000 mw Demwe mega hydro project, Jaiprakash Associate Ltd. New Delhi paid Rs.6.7 crore ($1.7 mn), Reliance Energy 5.27 crore ($1.3 mn) and D S Construction Ltd. Rs. 3.1 crore ($0.8 mn) for five more mega projects in Siang basin. Out of 115 projects identified in the state with a proposed capacity of 56151 MW, MOUs have been signed for 42 projects with a total installed capacity of 23591 MW with private as well as central government agencies for execution in the state.
SAIL, RVNL sign imported coal transportation agreement
December 19, 2007. State-owned Steel Authority of India Ltd signed an agreement with Rail Vikas Nigam Ltd for transporting imported coking coal using the Paradip-Haridaspur railway line. RVNL would transport an assured volume of 5 lakh tonnes of coking coal per annum. SAIL also handed over a cheque for Rs 2.5 crore ($0.6 mn) as its equity contribution in Haridaspur-Paradip Railway Company, which has been formed by RVNL as a special purpose vehicle (SPV) for development of an 82-km railway line in Orissa to connect Paradip port with the hinterland. The shareholders agreement for formation of the SPV was signed in October last year. The traffic guarantee agreement, which has made SAIL a strategic investor in the company, ensures SAIL the availability of required number of rakes from Indian Railways for movement of imported coking coal to meet its production target of 2010. The company will also enjoy reduced freight rates for some destinations.
Diamond Power Infra bags $12 mn export order
December 19, 2007. Cashing in on the Centre’s African development aid initiative, Vadodara-based Diamond Power Infrastructure Ltd has bagged an export order of transformers from a leading power utility in Africa. Diamond Power is engaged in manufacture of transmission and distribution (T&D) conductors, power and control cables and power and distribution transformers. The order, valued at Rs 48 crore ($12.2 mn), will be fulfilled over a period of six months. The order is a part of the African development aid where the Government of India provides grants for power system improvement and rural electrification in 19 African countries. Under the aid, the government provides grant of Rs 100-200 crore ($25.3 – 50.6 mn) following which these countries are bound to buy power equipment from Indian companies. Given the number of utilities possibly buying equipment under the grant, roughly around Rs 2,500 crore ($632.9 mn) worth of power equipment would be exported from India over the next three years.
Tata Power to foray into shipping
December 19, 2007. Move to facilitate feedstock procurement for the company's power units Tata Power, the country’s largest private sector power company, plans to foray into the shipping and logistics business in order to facilitate coal procurement for its power plants. The Tata group’s power arm also plans to raise Rs 4,000 crore ($1 bn) from the international markets. The proposed move would also mark the group’s entry, which is present in a wide range of businesses from salt to steel, in the burgeoning shipping and logistics business. Tata Power will raise Rs 4,000 crore ($1 bn) either through sale of equity via the GDR route or issue of foreign currency convertible bonds (FCCB).
Policy / Performance
IIFCL to provide $457 mn to UMPP
December 25, 2007. State-owned India Infrastructure Finance Company Ltd (IIFCL) has sanctioned Rs 1,800 crore ($457.2 mn) to the Tata Group-promoted Mundra Ultra Mega Power Project (UMPP) and is planning to extend Rs 1,000 crore ($254 mn) credit to the Sasan power project, being developed by Reliance. The company, would provide Rs 1,000 crore ($254 mn) for the Sasan project being developed by the Anil Ambani-led Reliance Power. The company is bullish on UMPPs and would also provide loans for the execution of other mega power projects. Tata Power had bagged the first of the series of nine ultra mega power projects from the government in December last year to generate 4,000-MW of energy at an estimated cost of Rs 16,000 crore ($4.06 bn). The project will come up at coastal site at Mundra in Gujarat. Reliance Power won the bid for the Sasan Power Project to be developed at Madhya Pradesh and Krishnapatnam project at Andhra Pradesh. While the Sasan power project, to be based on domestic coal, is expected to cost Rs 14,000 crore ($3.55 bn) - the 4,000 MW Krishnapatnam project, to be operated on imported coal, would require an investment of more than Rs 16,000 crore ($4.06 bn). The government is proposing to add 78,000 MW of additional power generation capacity during the Eleventh Plan with an estimated investment of $177 bn.
CSEB questions power allocation from UMPPs
December 25, 2007. The electricity board of Chhattisgarh, where a proposed ultra mega power project has been put on hold for want of state support, has questioned the Centre's procedure of power allocation from the programmes terming it as arbitrary. Chhattisgarh State Electricity Board (CSEB) Chairman Rajib Ranjan has written to the Power Ministry advocating the need for a national policy for power allocation to states from UMPPs. The ministry had last year re-allocated 250 MW and 50 MW from Chhattisgarh and Delhi respectively to Madhya Pradesh. As per the new proposal, Sasan UMPP in Madhya Pradesh would benefit Delhi, Haryana, Uttar Pradesh, Rajasthan, Punjab, Uttarakhand, besides the home state. While Krishnapatnam UMPP in Andhra Pradesh would benefit Tamil Nadu, Karnataka, and Maharashtra, the one in Mundra, Gujarat would be beneficial utilities in Haryana, Maharashtra, Punjab and Rajasthan. The power allocation from UMPPs is not being made on a set criteria and this arbitrary allocation has given rise to various technical and commercial problems.
Norms may be tweaked to power BHEL
December 24, 2007. In a desperate bid to protect domestic equipment manufacturer BHEL, the government may end up tweaking the mega power policy whereby tax concessions would be available even if the project contracted its equipment through the nomination route. As of now, tax waivers for mega power projects can only be availed if the project is developed through the international competitive bidding route. However, the government is now planning to relax the norms related to fiscal incentives under the mega power policy, in a move that would clear hurdles in the ways of BHEL getting bulk orders for the 800 mega watt (MW) super critical thermal power plants planned by NTPC. BHEL, which is on an expansion mode, creating facilities to manufacture super critical boilers and turbines, has been making a case for allocation of some projects on a nomination basis. The power ministry, however, was oppossed to this move as it felt that competitive bidding alone could secure the best prices for a plant. Also, giving projects on a nomination basis often sent out wrong signals to other bidders including global majors like GE, ABB, Siemens, Doosan and Dongfang among others who are waiting to enter the mega power sector in the country. A high-level meeting of the NMCC, Planning Commission, power, heavy industry and finance ministries was held to deliberate and discuss the proposal. The issue of tax incentives was the major hurdle in the way for BHEL getting bulk orders for ten units of 800 MW each. Now, with the Prime Minister’s Office (PMO) and finance ministry intervention, the issue is expected to be solved soon.
Nod to coal supply on tapering basis
December 23, 2007. The government has approved the allocation of coal on tapering basis to power companies who have been allocated coal blocks for their power plants but mining of the blocks is yet to start. Aimed at addressing the mismatch between production from the mine and commencement of the power plant, the new policy has been implemented with effect from December 4. Usually it takes about 48 months to build a power plant, but the development of a mine takes about seven years. In such a scenario, the power plant needs coal supply to fire the plant and produce power. The standing linkage committee (long-term) would consider the tapering linkages issue. The policy has been backed by the Planning Commission and was recently approved by the energy co-ordination committee headed by the prime minister. The procedures for granting tapering linkages would be similar to the procedure being followed for grant of normal linkages, which includes submitting the application form with prescribed processing fees. This would followed by reports from ministries concerned and companies, quite similar to the normal procedure for the linkage followed by the coal ministry.
India, Pak set to lock horns over hydel project
December 20, 2007. Pakistan is likely to drag India into yet another international arbitration over the construction of a hydro power project in Kashmir over the Jhelum river. Islamabad’s intention of creating roadblocks in the completion of the 330 MW Kishenganga power project that is already under construction by the National Hydro Power Corporation (NHPC) at village Kralpora in Baramulla, Kashmir, were clear when it announced construction of a mega power project downstream on the Kishenganga called Neelum in Pakistan, a tributary of Jhelum in the Pakistan occupied Kashmir (PoK) last week. A day after Pakistan President Pervez Musharaf ended the emergency in the country last week, his cabinet approved the 969 MW Neelum-Jhelum hydropower project in PoK that would be constructed by a Chinese consortium. Pakistan’s plan is based on a clause in the Indus water treaty (IWT) of 1960, that governs the distribution of river waters between the two neighbours, which entitles it to priority right over use of Jhelum waters. The treaty gives the right of unhindered use of three western rivers Jhelum, Indus and Chenab (that flow from Kashmir to PoK) to Pakistan, and on the Easters rivers Beas, Ravi and Sutlej (flowing from Punjab) to India. From Islamabad’s point of view the Neelum-Jhelum project has been necessitated by a clause in the IWT, which permits the construction of hydro-electric projects on the tributaries of the river Jhelum by India, provided it does not ‘adversely affect’ any ‘existing uses’ by Pakistan on the same tributary. In case Pakistan is able to raise the dam of the project at Nausheri, 40 kms from PoK capital Muzaffarabad, before the Kishenganga dam is ready, Islamabad, would be able to say that Kishenganga was hindering its power project and therefore claim priority rights on the use of Jhelum waters. This, if upheld by an arbitrator, would mean the end of Kishengaga project for India.
Power tariff cut for jute units
December 19, 2007. The Federation of Andhra Pradesh Industries (FAPI) has appealed to the State Government to reduce the power tariff to agro-based units, especially jute units, from the present Rs 3.40 per unit to Rs 2, as such units need support. An application for allotment of land to a proposed jute park in Srikakulam district was also pending with the State Government.
No sops for companies planning captive power units
December 19, 2007. The revenue department has declined to provide any tax breaks for captive and merchant power plants. The department has shot down the power ministry’s proposal to give tax incentives to these power plants if they have a capacity of 1,000 MW or more. A host of companies in the cement, steel and other sectors have set up large captive plants or have plans to set up such plants. The revenue department is of the view that the ministry should support such sectoral development through Plan support or budgetary allocation instead of tax exemptions. The mega power policy offers incentives such as complete waiver from Customs duty on equipment imports and a 10-year tax holiday to thermal power projects with a minimum capacity of 1,000 MW and hydel projects of 500 MW capacity. The power ministry, which feels that captive and merchant power plants may play an important role in boosting the country’s power generation capacity, wanted similar concessions extended to this category of power plants. According to estimates, captive power plants will add about 15,000 MW. The power ministry had circulated a draft Cabinet note on the proposed changes in the mega power plants policy. The revenue department is of the view that since selling price of both merchant and captive power plants is to be determined by way of competitive bidding or by electricity regulatory authorities, extending fiscal sops to captive power plants will lead to a double benefit for their promoters. This is because capital assets of captive power plants are normally taken on the balance sheet of the main company the one that manufactures the main product. Since all fixed costs of captive power plants are accounted for, if their selling price is determined by competitive bidding alone, their competitors, stand-alone power companies, that have to factor in costs relating both to capital assets and variable expenses will be at a price disadvantage, giving such captive power plants an undue advantage. Also, a company setting up a captive power plant may already be enjoying some sort of tax exemption.
Central Regulator for open access norms to include power bourse
December 19, 2007. Power regulator CERC mooted a proposal to modify the existing regulations for open access in electricity transmission to specify norms for collective trading by utilities through power exchanges. As per the draft regulation, the Central Electricity Regulatory Commission has proposed to make the National Load Dispatch Centre as the nodal agency for collective transactions made by energy bourses. The nodal agency for overseeing trading between a buyer and a seller would, however, remain the respective Regional Load Dispatch Centre. Any person or the power exchange intending to avail of open access for use of the transmission lines or associated facilities for such lines on the inter-state transmission system, shall make an application to the nodal agency in accordance with these regulations. Also, the application fee, transmission charges and operating charges for bilateral transactions and collective transactions have been specified separately. A power exchange would have to pay operating charges of Rs 5,000 per day to the National Load Despatch Centre for each state involved and Rs 1,000 a day for the State Load Despatch Centre involved for each point of transaction. The charges include fee for scheduling, system operation and collection, and disbursement of charges. Consequent to the Electricity Act, 2003, CERC had introduced open access in electricity transmission in 2004.
Coal India plans forward e-auction
December 19, 2007. The Coal India Limited (CIL) board has approved the forward e-auction mechanism to sell coal to what it calls 'genuine consumers' at a meeting in Kolkata. A notice inviting tender (NIT) would shortly be floated for the forward e-auction mechanism. The forward e-auction consumers would mostly be large cement plants and sponge iron units. Some other industrial consumers may also be included in the list at a later stage. The trading community would, however, be kept out of its ambit. The forward e-auction mechanism will be effective for one year. About 12 million ton of coal is proposed to be offloaded through the forward e-auction route. The move is in line with the proposals kept in the new coal sales policy announced about two months ago. Around 10 per cent of CIL's estimated coal production has been earmarked for offloading through the e-auction route. Spot trading, however, would continue by the side of forward e-auction. In this system traders will be allowed to participate. A proposed 26 million ton of the material has been fixed for sale through spot trading.
OIL & GAS
Aban Offshore arm gets order from Chevron
December 24, 2007. Aban Offshore Ltd.’s subsidiary has entered into a contract with Chevron Offshore (Thailand) Ltd. for provision of the jack-up drilling rig, Deep Driller 2. The contract with Chevron will be for an estimated duration of 5-7 months for drilling operations offshore Thailand. This contract will commence around the end of December and is valued at approximately US$28mn to US$40mn.
Tethys & Sangam JV to pursue Tajikistan projects
December 24, 2007. Tethys Petroleum Limited has signed an agreement to take a partner in its current projects in Tajikistan. One of the first western companies to commence oil and gas operations in Tajikistan, Tethys is active in the country through its wholly owned subsidiary Tethys Tajikistan Limited. Tethys began negotiations for a production sharing agreement covering the Kulob Area of south-western Tajikistan earlier this year. The Kulob Area is a large highly prospective region which has existing oil and gas discoveries, but it has seen limited exploration in the past. Negotiations to finalize the PSA are currently under way. The PSA requires both governmental and parliamentary consents. An Investment Operating Agreement was entered into by TTL in October of this year to commence rehabilitation activities on old fields in the Kulob Area as a pre-cursor to the PSA. Work on the first two wells has just commenced. Under the Agreement TTL and Sangam Limited will form a joint company named Seven Stars Energy Corporation owned and funded 51% by TTL and 49% by Sangam. The initial budget for SSEC for 2008 activities in the Kulob Area will be U.S. $10 mn, with U.S. $5.1 mn being provided by TTL and U.S. $4.9 mn being provided by Sangam.
China oilfield services wins Libya deal
December 24, 2007. China Oilfield Services Ltd has signed a contract with a Libyan drilling company to provide four onshore drill rigs. China Oilfield will supply two 7,000-meter and two 5,000-meter rigs, as well as senior technical personnel to manage the project. The three-year contract begins in March 2008. Financial details of the contract were not provided.
Shell-Exxon Mobil JV resumes Schoonebeck production in ’10
December 21, 2007. Nederlandse Aardolie Maatschappij, jointly owned by Royal Dutch Shell PLC and ExxonMobil Corp, said oil production will resume at the Schoonebeck field, the largest onshore oil field in northwest Europe, in 2010. Schoonebeck, discovered in 1943, is believed to hold around 1 bn barrels of oil. NAM produced 250 mn barrels from the field for nearly 50 years before production was halted in 1996. NAM ceased the oil production in Schoonebeek because it was no longer feasible to produce the viscous oil, using the technology and infrastructure of that time. But using new technology, the group said it could pump around 100-120 mn barrels from the field over the next 25 years. NAM owns a 60 pct stake in the project, while Dutch government-owned EBN holds the remaining 40 pct. The plan involves the drilling of around 70 wells and the construction of 18 new production sites. Construction and engineering work will be carried out by a consortium led by Jacobs Nederland, Stork Industry Services, Visser & Smit Hanab and Yokogawa Europe. Oil will be transported to the Lingen refinery in Germany
Aurelian discovers gas column in Romania
December 21, 2007. Aurelian Oil and Gas has discovered a 16-meter gas column in the Dornesti Sud-1 well on its Suceava Block EIV-1 concession, Romania. Aurelian will look to tie the well into the Bilca Gas Plant during 2008. Aurelian Oil and Gas PLC announced that the Boistea-1 well, Cuejdiu Block EIII-3, in Romania will be completed to allow a long-term flow test of the interval 1783 to 1785 meters. The test will take place during January 2008.
Canadian contact reaches out to Hungary
December 20, 2007. Contact Exploration Inc. has signed a Joint Venture Agreement with Toreador Hungary Ltd., for participation in the drilling of two exploratory wells and the acquisition of 170 square kilometers of 3-D seismic in their shallow gas Szolnok prospect. The prospects are located in the 262,000 hectare Szolnok exploration license area in the east central part of Hungary. It is one of the largest exploration permits in Hungary and is adjacent to producing oil and gas fields. The block contains at least 10 already defined exploration targets in the shallow Pannonian and Miocene siliclastic formations. The first two wells, to be drilled in the first half of 2008, have depths ranging from 1400 meters to 2250 meters. Contact will be a partner in the drilling of the two wells and in the acquisition of the seismic data paying 21.67% of the cost to earn a 16.25% interest in the block. The projected total cost for the two wells and seismic is EUR 6.5 mn, with Contact's portion being EUR 1.4 mn. There are multiple pipeline shipping options in close proximity to each of the proposed wells, with an attractive European pricing scenario for potentially produced hydrocarbons. This project will be operated by Toreador's staff in Hungary, and Contact will provide technical expertise as needed.
Gazprom commissions Yuzhno Russkoye gas field
December 19, 2007. Production has started from the 825.2 bcm Yuzhno Russkoye oil and gas condensate field in western Siberia, marking new supplies for Western Europe. It will produce 1.4 bcm of gas in fourth-quarter 2007. The field will reach its 25 bcm designed capacity in 2009. The field represented a major milestone in its relationship with major energy companies, including BASF AG, which has taken a 25% stake minus one voting share and one share without voting rights in the field. The partners will increase the number of existing wells and develop the infrastructure. The field start-up facility was brought online in October 2007. Gas from the field will be dedicated to the planned 55 bcm per year Nord Stream pipeline from the Russian port of Vyborg under the Baltic Sea to Germany.
New oil and gas fields in Asia-Australia's kipper to start in ’11
December 19, 2007. A number of new oilfields are expected to start production in the coming years across Asia. This is a partial list of the biggest known developments. Fields, whose developments are pending approval, are indicated with Oil figures are in barrels-of-oil per-day (bopd). Gas figures are in mmcfd. The largest fields, with an oil output of 25,000 bopd or more, and gas output of 100 mmcfd, are listed first.
Chevron, CNPC to develop Sichuan gas fields
December 19, 2007. Chevron’s main Chinese subsidiary will be the operator and hold 49% interest, while CNPC will hold 51% interest. Chevron Corp. and China National Petroleum Corp. has signed a 30-year production-sharing contract to develop the 2,000km Chuandongbei gas area in Sichuan province. The Chuandongbei area includes Tieshanpo, Dukouhe-Qilibei, and Luojiazhai gas fields. Chevron's main Chinese subsidiary will be the operator and hold 49% interest, while CNPC will hold 51% interest.
Todd makes substantial gas discovery at Mangahewa
December 19, 2007. A substantial discovery of natural gas has been made at the Mangahewa gas condensate field in onshore Taranaki during new appraisal operations by Todd Energy. Todd Energy sees potentially 2,000 petajoules (PJ) of new gas that Todd is currently actively evaluating in its fields. This was additional to New Zealand's current gas reserves of 2,100 PJ. This 2,000 PJ of new gas potential was made up not only of the Mangahewa field but of additional gas expected from the Pohokura gas field, which is 26% owned by Todd from the Kapuni gas field (50% Todd) and from the company’s 100% owned undeveloped offshore Karewa field.
World gasoline prices ease in Dec. on crude
December 21, 2007. Global gasoline prices mostly dipped in December thanks to easing crude oil but were still higher than a year ago. However the volatile crude oil market may provide only a limited relief to drivers in coming months. By country, the costliest petrol is the Netherlands in December, taking over from Europe's top oil producer Norway, which fell to second place. Saudi Arabia, the world's biggest oil exporter, was near the bottom in the 20-nation survey. In the world's top consumer the United States, the average retail gasoline price fell to $2.998 a U.S. gallon (70 cents per litre) last week, falling below $3 for the first time in seven weeks. But the price was 68 cents higher than mid-December in 2006. International benchmark U.S. crude has fallen about 8 percent to about $91 a barrel from its all-time high of $99.29 struck in November. However, the price level is still 40 percent higher than a year earlier and political concerns, such as tension between Turkey and Iran, and refinery strikes in France, which disrupted some supplies there, have led to short term spikes in crude prices in December. In Britain, petrol prices eased from record highs. But the UK Automobile Association said crude oil over $90 a barrel might still keep it costly. A few countries which have seen rises in retail gasoline prices include Russia and Brazil. In dollar terms, Russia's December average pump prices ticked up by 1 cents to 81 cents a litre. Brazil's December average price is 2.502 reais ($1.39) per litre, 2.488 reais in November.
Work on Nigeria refinery to begin next year
December 21, 2007. Construction of a new 180 bn naira oil refinery is to begin in the first quarter of 2008 at the Onne Oil and Gas Free Zone in the oil city of Port Harcourt in southern Nigeria. The Starex Petroleum Nigeria Ltd. refinery will process 100,000 barrels of crude a day and employ 25,000 workers when it reaches full production. The government through Nigerian National Petroleum Corp., which gave the company sovereign guarantee for crude oil, has 15% equity stake in the project. Indigenous stakeholders own 25%, while unnamed core investors retain 60%.
PetroChina completes Huabei refinery expansion
December 21, 2007. PetroChina has completed the expansion of its Huabei refinery in Hebei province near Beijing, raising daily crude processing capacity to 13,000 tons from 10,000. The expansion project also increases Huabei refinery's fuel output by over 30 percent. The expansion started in April 2005, including a 5 mt crude oil unit, a 1.6 mt catalytic cracker and 200,000 cubic meters of crude storage.
Placid expects to complete Port Allen project in 2010
December 19, 2007. Placid Refining Company LLC is on schedule in implementing its $300 million project to upgrade and expand its Port Allen, La. refinery. Completion is expected during the first half of 2010. The project will expand the refinery's capacity to 80,000 barrels per day from its current 55,000 barrel per day rating while reducing total air emissions by about 50 percent. In addition, a new FCC gasoline hydrotreater, new sulfur extraction capacity, tankage, and other environmental improvements are being constructed to enable the refinery to meet all applicable clean fuel standards for its products. The upgrades will allow the company flexibility to utilize a less expensive, higher sulfur crude oil mix in its production process. As an independent oil refinery located in Port Allen, Placid currently supplies 35 to 40 percent of the gasoline consumed in the Baton Rouge area. The refinery's current production of approximately 1 million gallons of gasoline per day will increase to about 1.5 million gallons per day when the expansion is complete in 2010. Diesel production will increase from 750,000 gallons per day to 1 million gallons per day.
El Paso, PG&E strike deal for Wyo. Ore. pipeline
December 22, 2007. El Paso Corp. has executed a precedent agreement with Pacific Gas and Electric Co. (PG&E) for long-term firm transportation service on El Paso's Ruby Pipeline, a proposed 680-mile, 42-inch natural gas transmission pipeline that would begin at the Opal Hub in Wyoming and terminate at the Malin, Oregon, interconnect near California's northern border. The PG&E precedent agreement provides for the transportation of 375,000 dekatherms per day for a 15-year term. El Paso Corp. provides natural gas and related energy products in a safe, efficient, and dependable manner. The company owns North America's largest interstate natural gas pipeline system and one of North America's largest independent natural gas producers. Pacific Gas and Electric Co., California's largest investor-owned utility, serves more than 15 million people throughout a 70,000 square-mile service area in northern and central California.
Nord stream pushes back start date for gas shipments
December 21, 2007. Nord Stream AG said its undersea pipeline will begin shipping gas from Russia to Germany in 2011, missing the original 2010 start date. The first gas to be delivered by this commercial project is scheduled for the spring of 2011, after completion of the test phase. In its initial phase, Nord Stream will transport about 27.5 bcm of gas per year. A second parallel pipeline will be laid, allowing Nord Stream to double its capacity to 55 bcm in 2012. OAO Gazprom owns a 51 percent stake in Nord Stream, while BASF AG and E.ON AG each hold 24.5 percent of it.
Keyera to extend Caribou North
December 21, 2007. Keyera Facilities Income Fund announced a project to extend its Caribou North Gas Gathering System in early 2008. The 6-inch sour gas pipeline extension will run in a northwest direction approximately 24 kilometers from the north end of the existing pipeline and connect with an existing unutilized pipeline system acquired by Keyera in the second quarter of 2007. This project will provide pipeline infrastructure and processing access to about 500 square kilometers of geologically prospective natural gas lands in the Trutch and Bougie areas of British Columbia. The pipeline extension is expected to cost approximately $8 mn and, assuming reasonable winter weather, is expected to be completed by the end of the first quarter of 2008.
Petrobras funded for Amazonas pipelines
December 20, 2007. The Brazilian National Social and Economic Development Bank (BNDES) has awarded state-owned Petroleo Brasileiro SA (Petrobras) 2.49 bn reais for the construction of pipelines in Amazonas state. The funds will be designated for use by Transportadora Urucu-Manaus SA, which will construct a 383-km, 20-in. natural gas pipeline connecting Coari and Manaus, where it will have two delivery points. Additionally, TUM SA also will build distribution branches to supply seven municipalities located along the pipeline route and a 279-km, 10-in. LPG pipeline connecting the Arara Pole in Urucu to the Solimoes Terminal in Coari. The gas will be used initially for thermoelectric power generation in Manaus, replacing fuel oil generators now in use. Gas will later be used to supply the region's industrial, vehicle, commercial, and residential sectors. The project also includes the re-adaptation of an existing 18-in. pipeline between Urucu and Coari, which will be interconnected to the 20-in. line, allowing for gas production outflow.
Russia, Kazakhstan, Turkmenistan to build Caspian gas pipeline
December 20, 2007. A Caspian pipeline stretching from Turkmenistan to Russia will be built to transport Turkmen natural gas to Western markets. An agreement on the construction of the gas pipeline, to be built along the Caspian Sea coast and pass through Turkmenistan, Kazakhstan and Russia, was signed in the Kremlin. The construction will be completed in 2010. Putin, Nazarbayev and their Turkmen counterpart Kurbanguly Berdymukhamedov agreed in May to build the pipeline, which is expected to have an annual capacity of 10 bcm by 2010 and could then increase to 30 bcm. Turkmenistan, the world's No. 5 gas-and-oil rich country, is currently exporting gas via the Central Asia-Center pipeline that possesses an annual capacity of nearly 50 bcm. The United States and the European Union have been trying to persuade Turkmenistan to ship gas past Russia via a proposed pipeline under the Caspian Sea.
China may separate grid, power sales in Guangdong
December 25, 2007. The pilot will only go ahead after Beijing finishes stripping generating assets from its grid operators, which was meant to be completed by the end of this year. The separation of grid management and sales is a key step towards China's long-term goal of liberalising the electricity market, which has proceeded more slowly than expected. The government's attention has been focused in recent years on resolving crippling power shortages, which in 2004 rose to around 10 percent of installed capacity, and cleaning up generating infrastructure in an energy efficiency and green growth drive. Until recent years, China had only one power operator controlling the entire sector from generation to transmission and sales. The monopoly was broken up in 2002 with the allocation of power assets among two grid firms and five generating groups. But China left two batches of generating assets under the control of the grid operators, which were supposed to be sold to finance the restructuring of the sector. According to the State Electricity Regulatory Commission the sale of a final 8 gigawatts (GW) of capacity run by the State Grid Corp had largely been completed. The government in May sold the first batch of generating assets, with 10.8 GW of capacity, to 31 firms for a total of 18.7 bn yuan ($2.55 bn). ($1=7.339 Yuan)
Enbridge, Exxon Mobil seek commitments for Texas access
December 20, 2007. Enbridge Inc. and Exxon Mobil Pipeline Co. will conduct a Solicitation for Binding Shipper Commitment (Commitment Solicitation) for a proposed new pipeline system, to transport crude oil from Patoka, Illinois, to the Texas Gulf Coast. The new pipeline, called Texas Access Pipeline, would transport crude oil sourced from the Canadian oil sands region in Alberta and from the upper U.S. Midwest to refiners in the Nederland and Houston, Texas, areas. The proposed project comprises a new 768-mile, 30-inch diameter pipeline, which would transport crude oil from Patoka, Illinois southward to Nederland, Texas. Also proposed is an 88-mile, 24-inch pipeline to transport crude oil onward from Nederland to a delivery point in the east Houston area. Through connections with existing terminals in Nederland and Houston, the new pipeline system would provide shippers with the added flexibility of moving onto different crude oil distribution pipelines. The Commitment Solicitation is for shipper interest in executing binding commitments to transport specified volumes of crude oil on the new pipeline, which is expected to be completed in 2011. The results of the Commitment Solicitation will guide and determine the further development of the proposed joint venture pipeline project.
Oil boil may push up inflation
December 19, 2007. The wholesale price index (WPI) inflation rate is likely to increase in the coming weeks as prices of edible oils and industrial fuel oil are on the boil. Besides, the high base effect, which has so far been partly responsible for keeping it at moderate level, is fading. The oil refineries have increased the prices of industrial fuels which are deregulated. It means companies are free to sell furnace oil, aviation turbine fuel (ATF), naphtha at market determined prices. At the same time, the retail prices of edible oils are going up due to less-than-expected production and steady demand and higher freight tariffs. The situation is expected to persist in the coming months too as crop in the US and China has been damaged, making imports dearer. The inflation rate escalated to 3.75% for the week ended December 1, against the previous week’s level of 3.01%. The consumer price index (CPI) numbers, however, are ruling at much higher levels despite monetary and fiscal measures. The CPI inflation rate is ruling at 5.51% while for the agricultural labourers and rural labourers, the inflation went up by 5.89% and 5.62%, respectively. In the last six months, the prices of furnace oil prices have gone up by 35%. Naphtha prices have also risen, putting pressure on WPI-index. In the last two months, crude oil prices have rallied from $79 a barrel to nearly $99 before softening to $90 a barrel. During this period, fuel oil prices have gone up by 18%.
ETP Expands Carthage Hub Capacity
December 20, 2007. Energy Transfer Partners, L.P. announced the completion of two natural gas compression projects that will allow the Partnership to increase capacity on its recently completed Cleburne to Carthage pipeline. The Partnership also announced that it plans to construct a 30-mile natural gas pipeline project in the prolific Barnett Shale field, which will provide producers greater access to all major market hubs in Texas. Energy Transfer Partners is the largest transporter of natural gas out of the Barnett Shale. The two completed compression projects will add approximately 90,000 horsepower on the Cleburne to Carthage pipeline, increasing natural gas deliverability at the Carthage hub to more than 2.0 bcf per day. Pipeline interconnects at the Carthage hub provide natural gas producers and consumers with broad-based market access. The newly announced Southern Shale natural gas pipeline project consists of a 36-inch pipeline that will originate in southern Tarrant County and will deliver natural gas to ETP's previously announced Maypearl to Malone pipeline expansion project. The Maypearl to Malone project provides a direct interconnect for Barnett Shale production to ETP's large diameter pipeline infrastructure. The Southern Shale pipeline is scheduled to be completed in the 3rd quarter of 2008 while the Maypearl to Malone pipeline project is currently expected to be in service the 2nd quarter 2008.
POWER
Generation
China State Grid sells eight power plants
December 25, 2007. State Grid Corp of China, the nation's biggest electricity distributor, said it sold eight thermal power plants to raise money to expand its overburdened network. The utility and seven buyers signed contracts on December 23 to transfer 6,470 MW of power-generation assets. The buyers are China Huaneng Group, China Datang Corp, China Huadian Corp, China Guodian Corp, China Power Investment Corp, Shenhua Group Corp and Hunan Xiangtou Holdings Group Co. China is seeking funds to expand its power grid and generating capacity to help end four years of electricity shortages. Separating ownership of power plants from the network carrying the electricity will bring China nearer to international practices and improve the stability of supply.
Bangladesh eyeing nuclear power plant by ’15
December 25, 2007. Bangladesh is eyeing to install its first nuclear power plant by 2015 to meet the country's mounting electricity demand, as the International Atomic Energy Agency (IAEA) has responded positively to its installation plan. The IAEA's response received recently was found to be very positive towards installation of a nuclear power plant. Bangladesh is planning to set up the country's first nuclear power plant having a generation capacity between 700 MW and 1,000 MW at Rooppur in the northwestern Pabna district, 125 km northwest of capital Dhaka. The IAEA, the global nuclear watchdog, also asked Bangladesh to send a delegation to expedite the process of installing a nuclear power plant with its assistance. The total investment required in setting up a nuclear plant is anywhere between US$1.0 bn and US$1.5 bn.
Kansai to team up with Kazakh firm on nuclear fuel
December 25, 2007. Japanese electric utility company Kansai Electric Power Co Inc and trading house Sumitomo Corp will join forces with a state-run Kazakh resources company to process uranium for nuclear power generation. Kazakhstan holds the second-largest uranium reserves in the world. By working with state-owned Kazatomprom to process uranium into nuclear fuel, the Japanese companies seek to secure a stable supply, the business daily said, without citing its sources. The companies will sign the agreement. Under the agreement, Kazatomprom will handle the reconversion process at a facility in Kazakhstan, while Kansai Electric and Sumitomo will provide expertise and funding for necessary modifications of the plant.
PV Power to build hydroelectric plant in Laos
December 24, 2007. The PetroVietnam Power Corporation (PV Power) plans to pour US$2 bn in a hydroelectric plant in Luang Prabang province in Laos. With a designed capacity of 1,410 MW, the Luang Prabang plant is expected to generate between 7-8 bn KWh of electricity per year. Feasibility study for the project, which is invested in the form of build-operate-transfer (BOT), is currently underway and is scheduled for completion in mid April, 2008. The plant is slated for operation in 2014 and part of its electricity output will be sold to Viet Nam.
Transmission / Distribution / Trade
Itochu to buy power plant in U.S. from Tenaska
December 25, 2007. Itochu Corp, Japan's fourth-biggest trading company would buy a gas-oil fired power plant in Virginia with generation capacity of 315 MW from Tenaska Inc for an undisclosed sum. The Nikkei business daily reported the purchase value at around 20 bn to 30 bn yen ($175-263 mn). Itochu will buy the plant, which can power 300,000 households, from Tenaska Power Fund LP, an affiliate of Tenaska Inc, in February. The acquisition of the Virginia facility will raise Itochu's net power generation capacity to 440MW.
China to curb exports of coking coal
December 25, 2007. China will increase export taxes on coking coal and some varieties of steel, besides introducing such taxes on other types of finished products, a move that could create problems for coking coal-starved Indian steel industry. China will impose or raise export duties on products including wood pulp, coke, alloy steel, steel billets, and some finished steel products in 2008. The move aims to rein in the rapid expansion of the industries that consume more energy and discharge more pollutants. The announcement, made on December 21, confirms rumours that Beijing is planning further measures to curb exports of high polluting and resource-intensive steel products. Although India does not import steel directly from China, certain Chinese varieties of the alloy make way into India through other countries due to lower prices. Next year, China will levy lower temporary import duties on more than 600 kinds of products including crude oil, coal, key equipment and component parts, doubling last year’s figure, amid efforts to trim the trade surplus and optimise economic structure.
Electricity bills could surge by 5 pc
December 20, 2007. A total of 2.8 mn families and companies could face higher electricity bills with both power companies (Hongkong Electric and China Light and Power) expected to announce increases following their annual tariff reviews. They would seek tariff increases of 5 percent and 4 percent respectively. But a spokesman for CLP stressed the company had frozen its fees for nine years while Hongkong Electric had made some adjustments over the past few years. Both companies are to attend the Legislative Council's economic development panel to present their review findings to lawmakers. The scheme of control for both companies will be subject to renewal at the end of next year. The rate of return on a new scheme of control should not be set higher than a double-digit figure. Currently, the power firms enjoy a rate of return of not less than 13.5 percent.
Electricity prices to rise
December 20, 2007. South Africa's power regulator approved a 14.2 percent tariff increase for state-owned utility Eskom's 2008/09 financial year. The National Energy Regulator (Nersa) cited Eskom's capital financing needs for its decision. Eskom, which generates the vast majority of South Africa's power, had requested the regulator approve an 18.7 percent hike for 2008 and 17 percent for 2009 - significantly above the central bank's 3 to 6 percent target range invoking warnings from the Reserve Bank of higher inflation. According to the Reserve Bank last month the expected sharp increases in electricity prices were likely to further pressure inflation, even though the bank had already factored higher than traditional increases into its inflation forecasts.
Iran's first home-made nuclear power plant to be operational in 9 years
December 25, 2007. A senior member of the parliament said that Iran's first home-grown nuclear power plant is scheduled to be operational in about nine years. The power plant is scheduled to come online by the (Iranian) year of 1395 (March 2016 - March 2017). The conceptual design of the 360-megawatt power plant, which will be built in Darkhowein in the southwestern Khuzestan province, started two years ago and was completed last year. The detailed design is expected to be completed by the middle of the Iranian year 1387 (about September 2008), he said, adding that the technical and equipment design will be finalized by 1390(March 2011 - March 2012). The Russian contractor company Atomstroiexport is building Iran's first atomic power plant in the southern city of Bushehr, but the 360 MW plant in Darkhowein would be Iran's first nuclear power plant using domestic technology. Iran wants to build a network of nuclear power plants with a capacity of 20,000 MW by 2020.
Uganda power project gets Sh43 bn financing
December 25, 2007. The Industrial Promotion Services (K) Limited (IPS), an affiliate of Aga Khan for Economic Development (Akfed), has finalised a Sh42.9 bn ($682 mn) hydroelectric deal. According to Akfed the debt facility would finance a 250 MW Bujagali hydroelectric station located on the River Nile in Uganda. IPS also announced the formation of a special purpose company, Bujagali Energy Limited (BEL), it co-owns with the Government of Uganda and Sithe Global Power, LLC, an affiliate of the Blackstone Group for the project. Sithe Global Power is a privately held international independent power development and construction company, which focuses on certain target markets in North America, Europe, Mexico, Africa and the Middle East. BEL, in which IPS, Jubilee Investment Company Limited and AKFED hold 50.25 per cent voting interest, was appointed the developer for the project, after an international competitive bidding won by IPS two years ago.
Japan eyes signing nuclear fusion tech accord with China
December 25, 2007. The government has decided to move toward concluding its first nuclear fusion agreement with China to boost regional technical capability related to the technology, which is expected to be a future source of energy. Japan, together with the United States, the European Union, Russia and other countries, constructed the International Thermonuclear Experimental Reactor and plans to conduct experiments on the practical use of nuclear fusion energy. Japan has been a center of nuclear fusion-related research in Asia. Together with China, which has experienced its own remarkable scientific and technological development, the government expects to boost regional nuclear fusion technology via the envisaged pact. Japan and China will shortly add a clause touching on nuclear fusion research to the existing bilateral agreement on science and technology cooperation. The pact is expected to establish a cooperative framework that would include establishing a joint working group of senior scientists and officials. The working group would hold regular annual meetings alternating in each country for purposes such as planning. Specifically, both countries would enhance mutual exchange between scientists from the Japan Atomic Energy Agency's JT-60 tokamak nuclear fusion facility in Naka, Ibaraki Prefecture, and the Experimental Advanced Superconducting Tokamak (EAST) of the Institute of Plasma Physics of the Chinese Academy of Sciences in Anhui Province, China.
Army marches ahead on bio-diesel application
December 25, 2007. The country’s defence forces is set to move ahead in the direction of using bio-oil blended fuel for its tanks, military vehicles and heavy-duty generators in the forward areas. A number of processes and experiments right from cultivation of crops like Jatropha to a superior quality bio-diesel blending are in their various stages of progress for the purpose. The DRDO is viewing the project in its totality, from a bio-fuel crop to its enhanced blending, exclusively for defence purposes. The Army has about 2,000 hectares of unutilised land. Bio-fuel crops can be cultivated on most of these. Taking a major plunge in this direction, the Army has taken up bio-fuel crop cultivation. As a model project, it has planted Jatropha on 480 hectares in Secunderabad and in the second phase at Ahmednagar. The plants are in the fruiting stage already. Another achievement of the DRDO has been the identification of germ plasm of plants that has the highest oil yield. The 36.4 per cent oil yield these plants offer is the highest in the country. Apart from identifying the high-yielding variety, the DRDO has propagated tissue culture as well. Explaining further about the on-going project, the DRDO R&D scientist another advanced step taken up was the installation of an extraction plant, with the CSIR providing the transfer verification technology. The process enables bio-diesel conversion of Jatropha seeds. After oil extraction, the next issue is if the 70 per cent cake left behind can be used as fodder.
Tribunal wants new tariff for TN wind power
December 23, 2007. The Appellate Tribunal for Electricity has set aside the tariff fixed for wind power producers by the Tamil Nadu Electricity Regulatory Commission (TNERC) and directed the Commission to fix a new tariff within two months. The new tariff is to take into account the time value of money, a method of calculating future income and returns from an investment made. The tribunal has also directed that the Tamil Nadu Electricity Board should pay the arrears to the wind power generators within two months of the new tariff being determined. The Tribunal’s order dated December 18, 2007, follows an appeal filed by the Wind Power Producers Association, challenging TNERC’s tariff order No. 3/2006 dated May 15, 2006 and a subsequent order of May 29, 2006 passed in DRF No.1 /2002. Through these orders the TNERC had fixed a levelised tariff of Rs 2.75 a kWh for existing wind energy producers and Rs 2.90 a kWh for new units for the next 20 years. At the time the tariff was announced, the industry had been hoping for Rs 3.25 a kWh. But the tariff fixed by the TNERC was among the lowest paid in any State and had come as a disappointment. This had resulted in wind power producers opting to invest in other States. The association had challenged the tariff on the grounds that the methodology of fixing tariff had not taken into account the time value of money. The TNERC had only considered factors like the operation and maintenance charges, insurance, interest on loan, depreciation and return on equity.
JCT to foray into wind power
December 22, 2007. Samir Thapar-led JCT is taking its first major diversification step beyond the traditional textile and filament yarn businesses. The group is getting into a 50:50 joint venture with US-listed Dakshidin Corp, which specialises in low-wind speed windmills. The venture would mark JCT’s entry into wind energy on a long-term basis. Initially, the windmill-based water-pumping products would be imported from Dakshidin’s Chinese plant, but the venture is already studying ways of setting up its own manufacturing facility in the country. Dakshidin, producers of the world’s most powerful water-pumping windmill, is also planning to bring in its wind power generating products by mid-2008, which would then allow the Indian venture to get into small wind energy projects.
ONGC to invest $305 mn for wind energy
December 22, 2007. Oil and Natural Gas Corporation (ONGC), the country’s leading oil and gas exploration and production company, is entering the alternative energy segment with a Rs 1,200 crore ($305.03 mn)-plus investment to generate 200 MW of wind power for captive use, within two years. The company has already placed orders with the Pune-based Suzlon Energy, the world’s fifth-largest producer of wind mills, for 50 MW of wind turbine capacity to be installed in Gujarat’s Kutch region. The oil and gas exploration major is in talks with respective state governments for wheeling the electricity for captive consumption. In Gujarat, the electricity generated will be used to power the sucker road pumps, used in enhanced oil recovery from our old oil fields in Kutch. The company has approved the 50 MW unit in Karnataka and is in the process of finalising the location. Andhra Pradesh and Maharashtra were the other two states where ONGC was considering wind energy units.
MP to allot land to 11 firms for jatropha cultivation
December 21, 2007. From the initial demand of 90,000 ha of land by companies, the state government has curtailed it to 22,000 ha. As many as 11 firms will be allotted around 22,000 hectares of land for jatropha cultivation to produce bio-diesel in Madhya Pradesh. In a recent decision, the state government curbed the companies’ demand of 90,000 hectares of land to only 22000 hectares, which, will see a combined investment of Rs 3,200 crore ($814.2 mn). This was an exercise of allotting land to industries through the back door. The identified land belong to areas where the poorest of the poors live. They are Jhabua, Barwani and Shivpuri where landowners will hardly protest. Mumbai-based Ruchi Soya Industries, Delhi-based Mission Bio Fuels India and LT Overseas Pvt Ltd, Great One Oils Pvt Ltd, DN Oil Pvt Ltd and Morena-based KS Oils are the major ones among those who have demanded a huge chunk of land for bio-diesel cultivation. There are eleven companies who have evinced their interest in producing bio-diesel. They initially demanded more than 600,000 hectares of land but the state government reduced it to 2,000 hectares for each investors. After successful completion of the project within two years from now, the companies will be awarded lease of land for a period of 28 years on an annual fee (Rs 500 per hectare) basis.
PSC hopes rate deduction in renewable energy
December 25, 2007. Public Service Commission members hope a recent rate decrease for renewable energy will bring more customers into an obscure Alabama Power Co. biomass project, but some say the utility hasn't done enough to publicize the program. The project is located in Gadsden and mixes coal with a small percentage of switchgrass, usually 5 to 7 percent. Experts believe the process could be promising in reducing emissions, and the utility hopes the lower rates will attract more participation. But the program has only attracted 215 buyers among a total customer base of 1.4 mn. The utility has relied on flyers tucked into bills to promote the program. The program allows residential customers to pay for the production of 100 kilowatt-hours of renewable energy each month for a $6 surcharge on top of the customer's regular bill. Under changes approved by the PSC on December 4, residential customers will have the option of buying in at $2.25 per 50 kilowatt-hours, starting January 1.
ICP signs supply agreement with Shanghai Electric Solar Energy
December 24, 2007. ICP Solar Technologies, a developer, manufacturer and marketer of solar cells and products, has signed a two year supply agreement with Shanghai Electric Solar Energy. The company believes that the deal will ensure timely supply of solar modules at favorable prices and payment conditions in a market of tight supply.
Siemens to supply turbines for offshore wind farm
December 24, 2007. Power engineering firm Siemens Power Generation has signed a contract with Danish energy company Dong Energy for the supply of 91 wind turbines to extend the existing Horns Rev offshore wind farm in the North Sea off the Danish coast. Siemens said that the contract for a total capacity of more than 200MW is the largest order Siemens has ever received for offshore wind turbines. The installation of the wind turbines for the Horns Rev II project is expected to begin in early 2009, with startup slated for the end of 2009. The contract between Dong Energy and Siemens covers delivery and installation of the turbines, as well as service and maintenance.
Suzlon to float $400 mn wind energy fund
December 20, 2007. Suzlon Energy, which has raised $552 mn through a qualified institutional issue (QIP) to repay debts, is set to launch a $400 mn fund that would invest in wind energy assets. The company is planning to raise close to $400 mn from international investors over the next 6-12 months. According to the company there would be enough possibilities to invest in the power sector with a few of the big projects being cleared recently and a more likely to be given the go-ahead over the next 2-3 years. There is enough room for investments in the power sector. Three more ultra mega projects need to be cleared and attractive investment opportunities are there in alternate energy sources. The company is planning to double power generation capacity from the existing 2,700 MW to 5,000 MW over the next 5 years. Suzlon is also planning capital expenditure of over Rs 2,600 crore to increase capacity.
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