Energy News Monitor |Volume IV, Issue 29

Who’s Afraid of a Big Bad Oil Shock? (Part IV) William Nordhaus, Yale University

Continued from Issue No. 28

Declining impact of shocks? 

The big question remains whether the macroeconomy has become less sensitive to exogenous or policy shocks in recent years, with insensitivity to oil prices being the primary question raised in this paper. Investigating this issue requires taking a firm stance on the structure of the macroeconomy. In this section, I take a modest step by examining a small equation for aggregate demand and looking at the trend in variability and coefficients. 

For this purpose, I take a very simple one-equation representation of the macroeconomy:

(2) CU(t) = α0 + α1*Exog(t) + α2*CU(t-2) + α3TB3(t-2) + α4 Oilshock(t) + AR1

where CU = ratio of output to potential output, Exog = ratio of exports plus government spending to potential output, TB3 is the nominal three-month Treasury bill rate, and Oilshock is the oil-shock variable. The αi are estimated coefficients. Estimating this equation over the period 1950:Q1 to 2007:Q2 gives coefficients with the appropriate sign and size.

The question is whether the coefficients have changed over time. For this exercise, I estimate equation (2) for four subperiods, 1950:1-1970:1, 1960:1-1980:1, 1970:1-1990:1, and 1987.2-2007:2. I then show the coefficients in Table 4. (A similar approach with a different structure was undertaken by Blanchard and Gali [2007].)

Estimated coefficient	1950-70 1960-70 1970-90 1987-2007
Exogenous spending Coefficient Standard error Oil-price shock Coefficient Standard error	0.24          0.67         1.13          0.97     (0.19)       (0.29)      (0.34)      (0.21)   -4.48        -0.54        -0.19       -0.11    (3.92)       (0.32)      (0.26)     (0.18)

Table4. Coefficients on exogenous spending and oil-price shock in aggregate demand equation,   various periods

(The table shows the estimated coefficients for equation (2) in the text for different subperiods. The exogenous spending coefficient is α1 while the oil-price shock variable is α4.)

While the results will be sensitive to different specifications and sample periods, they suggest strongly that the impact of exogenous spending continues to be relatively strong, perhaps even increasing slightly over the period.

On the other hand, the impact of the oil-shock variable declines sharply over time and is close to zero in the last two decades – a period that excludes the earlier price shocks and includes only the shocks after 1987.

We can get another view of the contribution of different factors by examining rolling estimates of volatility over time.

Figure 4. Variability of shocks, subperiods

(Figure shows the standard deviation of the four-quarter change in each variable for different subperiods. The variables are “Exog” for the ratio of exports and government purchases to potential output, “Energy” and “Oil” for the scaled energy-price and oil-price shock variables shown in Figure 1, and “Int rate” for the Federal funds rate. “Output” is the ratio of output to potential output while “Inflation” is the PCE price index.)

Figure 4 shows the sub-period standard deviations of changes in four policy or shock factors along with inflation and output. These volatility measures compute the standard deviation of the four-quarter changes for each of the five subperiods shown in the accompanying legend. 

Beginning with energy prices, this graph shows the increase and then decrease in the volatility of oil- and energy shocks over the postwar period. The increase in volatility from the 1950-70 period to later periods is extremely dramatic. There has been only a modest decline in volatility, particularly of the oil-shock, since its peak in the 1970-1990 period. In terms of macroeconomic impact, the decreasing macroeconomic sensitivity of output to oil-price shocks has accompanied declining shocks over the period since 1970. This unambiguously leads to a smaller impact of oil and energy-price shocks on the economy since the 1970s. 

What of exogenous spending shocks? The stunning point is that the variability of the exogenous component has declined by a factor of five since the first period. This sharp decline in variability of the exogenous factors is fighting against a constant or even perhaps increasing multiplier, with the likely outcome being a lower volatility of output. The endogeneity and changing structure of monetary policy requires a much more complicated economic and statistical structure than the model used here, but it is worth noting that the volatility of interest rates first increased and then decreased over the period. The interpretation of this is ambiguous, however, because it would involve assessing whether the movements in the different periods were pro- or anti-cyclical.

The last two sets of bars show the variability of output and inflation. Both of these show a decline in variability – as suggested by the theory of the Great Moderation. Over the range of observations, the variability of output has declined by almost two-thirds while that of inflation declined by more than half.

The net assessment is that the declining impact of oil and energy-price shocks on the economy results from a combination of both declining sensitivity of the economy to energy-price shocks and from a decline in the variability of energy and oil prices since the 1970s. The declining sensitivity appears quantitatively more important, but the estimates of the sensitivity parameter are hardly well-determined.

Conclusion

 So what should we conclude? To begin with, the oil shock of 2002-2006 was different from those of earlier period. If we measure the shock as the income effect per year of the price increases, the shock was substantially smaller than the shocks of the 1970s. It occurred more gradually, and the change was much less of a surprise in the context of past experience. Roughly speaking, the shock was about one-third as large as the shocks of the 1970s.

 In terms of effects, the impact of the shock on inflation was qualitatively similar although quantitatively different from the earlier shocks. The rise in PCE inflation in the recent shock was consistent with less than full pass-through of the energy-price increase. Unlike the shocks of the 1970s, there appears to have been no substantial pass-through of the energy-price increases into wages or other prices. 

The impact of the shock on output was completely different from earlier episodes – indeed the sign was opposite. Output continued to grow relative to potential output after the shock, and unemployment continued to fall. The reason for the anomalous output impact is unclear. One possible reason is that the shock was too small to affect the overall pace of economic growth. 

 Additionally, there is modest evidence that the transmission mechanism from energy prices to output has changed from negative to neutral over the last three decades. The reasons for the declining sensitivity are not completely understood, but two underlying causes seem plausible. First, there is evidence that the Federal Reserve reacted more sensibly to energy prices in the 2000s, looking more at core inflation than total inflation and paying more attention to the superlative PCE price index than the flawed CPI of the 1970s and early 1980s. Perhaps experienced hands at the Fed remembered history and decided not to repeat it. Perhaps they correctly judged (correctly in my view) that the energy-price shock was a one-time shock to the price level that would not be passed through into wage inflation.

 A second and more speculative reason for the muted macroeconomic reaction is that consumers, businesses, and workers may see oil-price increases as volatile and temporary movements rather than the earth-shaking changes of the 1970s. Returning to the oil-price-as-tax-increase theory, consumers might view oil-price increases as temporary rather than permanent tax increases, and their reactions would therefore be correspondingly smaller. Similarly, businesses today might build energy-price volatility into their plans and investments, and large price changes would not upset operations as much as in earlier periods. A similar set of factors might lead workers and unions to absorb declines in real wages induced by energy prices rather than go on strike in an attempt to recapture losses that might turn out to be transitory. All of these factors would tend to reduce the impact of energy-price shocks on the macroeconomy. 

In the end, this suggests that much of what we should fear from oil-price shocks is the fearful overreactions of the monetary authority, consumers, businesses, and workers. A cautious reading today suggests that policymakers should not be afraid of a Big Bad Oil Shock. The most recent evidence suggests that the economy is robust in the face of major energy shocks. The economy weathered an increase in real oil prices of 125 percent from 2002 to 2006 without any major strain. This suggests that policymakers should focus on fundamentals such as employment, real output, and containment of inflation as well as the instabilities caused by financial innovations and risk-taking. Oil-price shocks are neither so big nor as bad as in the 1970s.

 

 

Concluded

 

 

 

 

Ecological Imperialism: The Curse of Capitalism (part V)

John Bellamy Foster and Brett Clark

 

 

Continued from Issue No. 28

 

The struggle against ecological imperialism today

The problem with the ecological debt campaign is, clearly, that given the current balance of world forces it cannot hope to succeed. This is indicated by the level of resistance on the part of capital marked by the U.S. withdrawal from the Kyoto Protocol, and by the declaration of victory by the Global Climate Coalition (representing many of the leading global monopolistic corporations) with the effective collapse of the protocol. As they state on their web page:

The Global Climate Coalition has been deactivated.  The industry voice on climate change has served its purpose by contributing to a new national approach to global warming. 

The Bush administration will soon announce a climate policy that is expected to rely on the development of new technologies to reduce greenhouse emissions, a concept strongly supported by the GCC. 

The coalition also opposed Senate ratification of the Kyoto Protocol that would assign such stringent targets for lowering greenhouse gas emissions that economic growth in the U.S. would be severely hampered and energy prices for consumers would skyrocket. The GCC also opposed the treaty because it does not require the largest developing countries to make cuts in their emissions.

At this point, both Congress and the Administration agree that the U.S. should not accept the mandatory cuts in emissions required by the protocol. ^xlii

If global warming is a problem, the Bush administration has contended, it does not constitute an immediate threat to the United States; hence actions to address the problem that would carry high economic costs should be avoided. Better to depend on futuristic 'carbon-sequestration' technologies and similar means.

For many island or low-lying nations watching sea levels rise as the arctic glaciers melt, such a stance is a particularly extreme case of ecological imperialism. While the poor nations of the periphery are expected to continue to pay financial debts to banks of the rich nations of the centre, the enormous ecological debt incurred by the latter is not even being acknowledged—and the entire planetary problem is growing worse by the year. The struggle is therefore likely to intensify.

 

The ecological debt struggle, organized around the degradation of the global commons—particularly the warming of the atmosphere—brought on disproportionately by the rich countries, has certainly given a new practical meaning to the concept of ecological imperialism. This age-old fight has now become associated with an organized form of resistance centred on the need to set the ecological debt of the rich countries against the financial debts of the poor countries. This immediate struggle, moreover, brings the larger ecological curse of capitalism more and more clearly into view. The economic development of capitalism has always carried with it social and ecological degradation as its other side: the degradation of work, as Marx argued, is accompanied by the degradation of the earth.

Moreover, ecological imperialism has meant that the worst forms of ecological destruction in terms of pillage of resources, the disruption of sustainable relations to the earth, and the dumping of wastes—all fall on the periphery more than the centre. This relation has not changed at all over the centuries as witnessed by the wars over guano and nitrates of the late nineteenth century and the wars over oil (and the geopolitical power to be obtained through control of oil) of the late twentieth and early twenty-first century.

It is in the nature of this process that it continually worsens. Capital in the late twentieth and twenty-first century is running up against ecological barriers at a biospheric level that cannot be overcome, as was the case previously, through the 'spatial fix' of geographical expansion and exploitation. Ecological imperialism—the growth of the centre of the system at unsustainable rates, through the more thoroughgoing ecological degradation of the periphery—is now generating a planetary-scale set of ecological contradictions, imperiling the entire biosphere.

Only a revolutionary social solution that addresses the rift in ecological relations on a planetary scale and their relation to global structures of imperialism and inequality offers any genuine hope that these contradictions can be transcended.  More than ever the world needs what the early socialist thinkers, including Marx, called for: the rational organization of the human metabolism with nature by freely associated producers. The fundamental curse to be exorcised is capitalism itself.

 

Notes:

 ^xlii  Retrieved June 12, 2003 from www.globalclimate.org.

 

 

 

Concluded

Views are those of the author

 

NEWS BRIEF

OIL & GAS

ONGC Videsh, Hindujas in E&P pact

January 8, 2008. OVL has agreed to sign a memorandum of understanding with Hinduja Group, London, to jointly explore acquisition of overseas acreages, particularly in Iran. For developing assets in Iran, OVL and the Hindujas will adopt a collaborative approach. Indications are that they were exploring joint opportunities in Iran's onshore Azadegan oil field and its offshore South Pars Phase 12 gas asset. The equity structure and investment decision will be finalized once an equity stake in the two blocks is obtained. OVL and the Hindujas were understood to be in talks with a subsidiary of National Iranian Oil Co. for a presence in the two fields. Azadegan, with reserves estimated at 33 bn bbl, is one of the largest oil fields to be discovered in the world during the past 30 years. South Pars gas field contains about 50% of Iran's gas resources. Together with its extension, Qatar's North field, it is regarded as the largest offshore gas field in the world.

Reliance may bid for oil find in S. Asia

January 8, 2008. Reliance Industries Ltd may bid with local or foreign exploration companies to find oil in the South Asian region. The Jamnagar refinery would be operational this year. The company’s east-west pipeline from the Krishna Godavari basin to Gujarat will be ready by the middle of this year. RIL will also venture into developing oil assets in Iraq. The company is keen to list with Iraqi Government so it can compete for the tenders. In November 2007, RIL had signed contracts with the Kurdistan region Government of Iraq for two blocks. The move has angered the Iraqi Government in Baghdad.

ONGC delays Krishna-Godavari basin development

January 7, 2008. ONGC has delayed drilling its well UD-1 on Block KG-DWN-98/2 in the Krishna-Godavari basin because it is having difficulty contracting an ultradeepwater rig. The well is needed to prove ONGC's claims of a large gas discovery on the block. The amount of the volumes found remains in question. ONGC informed VK Sibal, India's Directorate-General of Hydrocarbons (DGH), of the commercial discovery last year, claiming gas reserves of 2-14 tcf.

However ONGC cut the estimated size of its KG basin find to 56.6 bcm (about 2 tcf) from the original 595 bcm (about 21 tcf) estimate it had announced in December 2006. In return for a rig, the explorer is understood to have offered an equity stake in the block. The company intends to develop other gas discoveries on the block, now claiming it holds 6.37 tcf of gas, and has submitted to the DGH an appraisal and conceptual development plan for the fields. It also plans to produce oil from the region. The plan must be studied in depth because the issues involved concern different exploration regimes. The KG-DWN-98/2 Block was awarded under the New Exploration Licensing Policy, while the other discoveries belonged to nomination blocks. Both involved different policies. The cost of developing the Krishna-Godavari discovery has been pegged at $5 bn. The earliest commercial production could start, given the worldwide shortage of rigs, is 2011.

L&T bags $331 mn Cairn-ONGC order

January 7, 2007. Larsen and Toubro Ltd has bagged two major contracts worth Rs 1,300 crore ($331.2 mn) from Cairn India-ONGC joint venture for the construction of civil works and the consolidated construction works for the Northern Area Development Project located near Barmer in Rajasthan. Cairn India and ONGC are getting ready for oil production in 2009 from one of the 15 blocks they are working on. The scope of the work covers the development of infrastructure facilities, the construction of 18 well pad structures, detailed engineering and construction of all civil and electromechanical works at the Mangala and Raageshwari fields, offsite infrastructure facilities, supply, installation and commissioning of 33 KVA high voltage power line system and the telecom network.

The Mangala processing facility will cover some 400 acres in the Thar Desert in Rajasthan. The construction team will have to move approximately six million cubic metres of rock and soil to prepare the site for development. Cairn Energy India Pvt Ltd has drilled more than 140 wells and has made more than 20 discoveries in Rajasthan. The Government has given its approval for the field development plans for the Mangala, Aishwarya, Saraswati and Raageshwari fields.

Reliance seeks more gas from PMT fields

January 5, 2008. Reliance Industries has sought a minimum supply of 3.6 mmscmd of gas for its petrochemical plants from the Panna/Mukta and Tapti fields, from which gas has been diverted by the government to state-run GAIL India. Reliance along with state-run Oil and Natural Gas Corp (ONGC) and BG Group of UK are the operators of the PMT fields lying in Mumbai offshore and till December last, marketed gas from the fields in proportion to their shareholding.

The Mukesh Ambani-run firm’s petrochemical plants got 5.2 mmscmd of gas from the PMT fields. PMT joint venture currently has commitment to supply around 2 mmscmd to RIL petrochemical plant at Hazira and about 1.9 mmscmd to (its subsidiary) IPCL plants at Gandhar and Vadodara. IPCL have contract for additional supply of 1.3 mmscmd from PMT gas. Oil Ministry last month cancelled almost all contracts for sale of gas from PMT fields and diverted it to GAIL India Ltd for re-sale at higher price. GAIL is to finalise sale contracts in line with the gas utilisation policy that priorities allocation to fertiliser, petrochemical, existing power plants and city gas distribution units in that order.

BG in talks with Petronet LNG for terminal access

January 8, 2008. British Gas is in discussions with Petronet LNG Ltd (PLL) for third party access to PLL’s Dahej terminal for importing LNG. The global energy major is in an advanced stage of discussion (with PLL) in this regard and imports may begin in early 2008-09, once PLL completes capacity expansion of Dahej terminal. As per the proposal, BG may source spot LNG from its global liquefaction capacities, get it regasified using PLL’s capacity against a negotiated charge and will sell it directly to its (BG’s) customers.

BG had made at least two such attempts in the past to import LNG cargoes through Shell Hazira terminal. According to sources, a substantial quantity of the proposed LNG imports may be used by BG’s city gas subsidiary Gujarat Gas Company Ltd (GGCL). GGCL was originally exploring LNG options for growth beyond 2009. The situation, however, changed dramatically following the recent award of marketing right of Panna-Mukta-Tapti joint venture (PMT) gas to GAIL and the subsequent reduction in supply to GGCL.

While BG is lobbying the case for its subsidiary before the Union Ministry of Petroleum and Natural Gas, GGCL is now seriously looking forward to LNG options to maintain supplies to its existing customer base in the immediate future.

ONGC seeks $4 bn sops for Kakinada

January 6, 2008. ONGC, the country’s largest oil and gas company, has sought up to Rs 16,000 crore ($4.07 bn) worth of incentives from the Andhra Pradesh government for making the proposed 15 mtpa refinery-cum-mega petrochemical complex at Kakinada viable. The incentives sought are for over a period of eight years. This means the incentives in the form of tax holidays and free land work out to Rs 2,000 crore ($508.77 mn) per month. It is the state government, that has been lobbying for the refinery, but ONGC is not keen to invest without the incentives which include almost 950 hectares of free land for the project.

ONGC also wants exemption from sales tax on sale of petroleum and petrochemical products, free power and water supply during construction phase and road and rail connectivity. ONGC’s subsidiary Mangalore Refinery holds 26 per cent stake in Kakinada Refinery Petrochemicals Ltd (KRPL), the company set up to implement the refinery project. IL&FS holds 51 per cent stake and the balance is with the Andhra Pradesh government. With the incentives, and the petrochemical complex, the Kakinada refinery would be feasible. The petrochemical complex, planned to be of a capacity of 1 mtpa, would be the driving force behind the project. The petrochemical industry, which is cyclical in nature, is expected to go through a downturn from 2009 to 2013.

Oil PSUs plan big retail expansion

January 3, 2008. Indian Oil, Bharat Petroleum, Hindustan Petroleum to open over 3,000 outlets this year.  Even losses of over Rs 300 crore ($76.4 mn) per day from selling automobile fuels have not stopped government-owned oil marketing companies from expanding their retail network across the country. The three government-owned companies, Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) are together planning to open over 3,000 retail outlets this financial year as against 2,000 outlets opened last year.

In fact, over 1,600 outlets have already been commissioned in the current year. Not only is the number of outlets to be added higher this year, the marketing losses (under-recoveries) are also projected to be higher, at around Rs 69,000 crore ($17.57 bn) as against Rs 49,000 crore ($12.48 bn) last year.

THE MAIN FUEL RETAILERS
Company	Number of outlets
Indian Oil Corporation	16,540
Hindustan Petroleum Corporation	8,060
Bharat Petroleum Corporation	8,015
Reliance Industries	1,800
Essar Oil	1,250
Numaligarh Refinery	74
Shell	35

The marketing businesses of oil retailers are suffering losses as they are forced to sell petrol, diesel, LPG and kerosene at subsidised prices. Demand for these products is growing at a healthy rate of about 8 per cent per year. The sales per outlet have come down to a large extent. The average throughput of petrol per outlet per month has more than halved to around 70 kilolitres now from 160 kilolitres in 2003. In June, Petroleum Minister Murli Deora said BPCL would open around 800 outlets this year, and HPCL another 800.  Both companies have, however, scaled down their targets. Another public sector company, Mangalore Refinery and Petrochemicals (MRPL), is planning to open around 15 outlets over the next two months.

Another refiner, Numaligarh Refinery (NRL), a subsidiary of BPCL, has 74 retail outlets across the country and plans to open at least 100 more this year, both in the North-East and north India, said a senior official in the oil ministry. However, private sector companies, Reliance Industries (RIL) and Essar Oil, are not keen on expanding their fuel retailing market as they are not compensated for subsidised fuel sales. RIL has around 1,800 retail outlets, while Essar has 1,250. The two companies are not keen on opening new ones as the business is not profitable.

The marketing businesses of oil retailers are suffering losses as they are forced to sell petrol, diesel, LPG and kerosene at subsidised prices. Not only is the number of outlets to be added higher this year, the marketing losses (under-recoveries) are also projected to be higher, at around Rs 69,000 crore ($17.57 bn) as against Rs 49,000 crore ($12.48 bn) last year.

Oil retailers are also looking at revenues from non-fuel retailing, such as FMCG products and grocery sales, at their outlets as the revenue from these is good. However, private sector companies, Reliance Industries and Essar Oil, are not keen on expanding their fuel retailing market, as they are not compensated for subsidised fuel sales.  

HPCL, Reliance among bidders for Bihar sugar mills

January 3, 2008. Reliance Industries, the country's biggest private refiner, and state-run oil firm HPCL were among those who have submitted financial bids for reviving half-a-dozen sugar mills in the state. HPCL, Reliance and several other major industrial houses participated in the bids for revival of six of the 13 state-owned sugar mills which are not in production. The winners are expected to be given the mills on a 60-year lease and are likely to use them for extracting ethanol, which is to be mandatorily mixed with petrol from this year.

SBI Capitals conducted the auction for the mills and the names of the highest bidders for the mills at Rayam, Lohat, Motipur, Sugauli and Bihta would be declared tomorrow after the government's approval. The files in this respect have been sent to the state development commission this evening after the bidding concluded smoothly.

McDonald’s opens its 1^st Oil Alliance outlet with HPCL

January 3, 2008. For the citizens of Hinjewadi, Pune the year 2008 started with the ‘Golden Arches’ coming to their neighborhood as McDonald’s India (Hardcastle Restaurants) today opened its first ‘Full scale’ and ‘Free standing drive thru’ restaurant at HPCL Retail outlet opposite the KPIT Cummins IT Park. Spread over an area of 2400 sq feet with a total seating capacity of 116 people, this is McDonald’s eighth outlet in Pune.

This outlet is the first as a part of strategic tie up between McDonald’s and Hindustan Petroleum Corporation Limited to set up and operate outlets. McDonald’s would be opening 4 Restaurants at select HPCL retail outlets in cities of Mumbai, Pune, Hyderabad and Bangalore and the arrangement will be soon replicated in Western & Southern India.

LN Mittal-HPCL to opt for SEZ option

January 2, 2008. The five partners have set up a working group to deliberate on various aspects of this proposed complex. Consortium has decided to utilise the in house expertise along with global exposure of TOTAL in the sector for carrying out preliminary studies for the refinery configuration. LN Mittal-HPCL consortium to consider the option of housing its US$6bn greenfield refinery-cum-petrochemical project in a SEZ.

Initially, the complex was expected to come up in the proposed petroleum, chemicals and petro-chemicals region (PCPIR) in Vizag. French oil major Total, GAIL and Oil India are other partners in the consortium which is setting up the ambitious project. Andhra Pradesh government has an ambitious plan to promote a PCPIR of about 1.5lakh acres between Visakhapatnam-Kakinada-Rajahmundry coastal corridor.

SEZs, which are conceived as investment hubs with a focus on export markets, enjoy more flexibility and tax breaks than a PCPIR where the investor’s major attraction is state-funded infrastructure such as ports, airports, power plants and roads. Developers and co-developers in a PCPIR gets income-tax exemption under Section 80(I)(A) for developing, operating and maintenance of power plants, airport, ports, waste management facilities and water treatment plants.

SEZs, which could be smaller in size (compared to PCPIRs) and larger in numbers, get import duty exemption, full income-tax exemption on export income for the first five years and in smaller measure in subsequent years. Besides, SEZs also get exemption from minimum alternate tax, VAT and service tax.

IOC may sell $510 mn oil bonds

January 7, 2008. Indian Oil Corporation may bid alone for some small oil and gas blocks and is in talks with foreign players for bigger blocks in the seventh round of auction announced by the government. The company would take a larger stake in the bidding for 57 oil and gas blocks in the country under the seventh round of New Exploration Licencing Policy. The company plans to sell Rs 2,000 crore ($509.55 mn) worth of oil bonds to partly offset losses due to selling fuel below cost will depend on price revision and other factors. Sale of bonds will depend upon some factors like price revision which will be recommended by the group of ministers likely to meet in the third week of January. After that the company will see how far the under-recovery comes down.

Haldia-Paradip crude pipeline almost ready

January 7, 2008. Indian Oil Corporation (IOC) is confident that its 330-km Paradip-Haldia crude oil pipeline will go on stream in four to six weeks.  The Rs 1,178 crore ($300 mn) pipeline was originally slated to be commissioned in March 2006 but the project got delayed as the work on setting up a single point mooring and storage facility at Paradip was stalled due to issues ranging from technical problems to the replacement of the contractor.

Crude from vessels would be stored in Paradip and pumped through the pipeline to Haldia. IOC's Haldia refinery will benefit the most from this pipeline and is expecting a net positive impact of $1 per barrel in its gross refining margin. IOC is eyeing operation of small oil and gas exploration blocks which are to be offered for bidding in the seventh round of the New Exploration and Licensing Policy (NELP-VII). IOC is open to bid for all exploration blocks, even the recycled ones and it is especially looking at the operation of small blocks which will be auctioned under NELP-VII.

The first roadshow for NELP-VII would be held in Mumbai on January 8 and the overseas promotional campaign will begin in the third week of January. The roadshows are planned at a number of overseas locations like Houston, Calgary, London and Perth as the NELP VII has emphasised on greater participation of foreign oil firms in the bidding process. Under the NELP-VII, 57 oil and gas blocks will be offered for bidding, out of which nine are in shallow water, 19 in deep-sea and the remaining 29 on land. IOC has also lined up a plan to set up 1,500 retail outlets throughout the country in the next fiscal. At present, IOC has Rs 12,000 crore ($3.05 bn) of outstanding oil bonds. IOC is also mulling to raise the price of its branded fuel- Xtra Premium petrol by 50 paise to gauge the market response. 

Deshmukh firm on ethanol-petrol blending

January 8, 2008. Chief Minister Vilasrao Deshmukh has expressed his displeasure over the procrastination by petroleum companies on implementing 5 per cent blending of ethanol with petrol. The chief minister has asked Petroleum Minister Murli Deora to direct petroleum firms to start buying ethanol from sugar cooperatives in Maharashtra at the rate of Rs 21.50 per litre directly as per the Union Cabinet’s decision and not through the tendering process.

The state government’s headquarters, that the decision asking petroleum companies to buy ethanol at Rs 21.50 directly from the manufacturers was taken by the Union Cabinet on October 7. Petroleum companies have floated the tender to purchase ethanol from lowest bidders. Even traders who have nothing to do with ethanol manufacturing are also participating in this tendering process and quoting rates like Rs 16 or Rs 17 per litre. At a time when the sugar industry is facing a glut, the only way they can survive and offer farmers a remunerative price of their sugarcane is by selling ethanol. The installed capacity of ethanol manufacturing in Maharashtra is about 800 million litre per year. At 5 per cent blending, around 100 million litre a year, and at 10 per cent 200 million litre can be supplied by factories from the state.  

35 pc of fuel sales off price control

January 8, 2008. At a time when the government is considering a marginal increase in petrol and diesel prices, about a third of fuel sales come under the category of premium branded fuels that are outside the price controls and for which consumers readily pay a premium. In 2007, branded fuels, which offer better mileage and superior engine performance, accounted for about a third of revenues from retail sales of petrol and diesel, as against about 23 per cent in 2006, and 12 to 13 per cent two years ago. Oil marketing companies sell high-performance petrol and diesel mixed with additives under brands like Xtra Premium (Indian Oil Corporation), Speed (Bharat Petroleum) and Power (Hindustan Petroleum). The price difference between branded petrol and normal petrol varies from Rs 1.40 to Rs 1.70 per litre. For branded and non-branded diesel, the difference is around 60 paise. Diesel sales are four and a half times those of petrol.

Price of branded petrol (Delhi, Rs/litre)
The Brand	Branded Petrol	Normal Petrol
Xtra Premium	45.4	43.5
Speed (BPCL)	45.2	43.5
Power (HPCL)	44.9	43.5
Source: Industry

The increasing volumes negate some of the retail losses from non-branded fuel sales. If the under-recovery is Rs 9 per litre for petrol, it drops to about Rs 7.30 in the case of branded petrol. Indian Oil Corporation (IOC), the largest retailer of petroleum products, increased prices of its branded fuels Xtra Premium (petrol) and Xtra Mile (diesel) by 20 paise and 10 paise each. The other two government-owned marketing companies viz., Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), are also expected to raise prices soon. There is no price control on branded fuels though it needs to be within touching distance of subsidised petrol and diesel. Otherwise, consumers would not be attracted. The pricing freedom that the oil marketing companies enjoy for branded fuels could pave the way for surrogate fuel pricing freedom, as revenues from the segment are expected to increase. The fact that Reliance and Essar are selling non-branded fuels at almost Rs 4 per litre more than non-branded fuel. The three oil marketing companies currently have to sell normal petrol and diesel at government-controlled prices and collectively incur losses of around Rs 320 crore ($81.77 mn) a day as a result. The government issues oil bonds to the oil marketing companies to partly offset their retail losses. Raising diesel prices by even 50 paisa per litre would help cut retail losses by around Rs 54 lakh per day for Indian Oil Corporation. The company is losing around Rs 165 crore  ($42 mn)per day.

Govt. prepares for Rs 2 a litre petrol price hike

January 4, 2008. The government is preparing the ground for an increase in the prices of petrol and diesel in February to partly cushion losses, projected at Rs 70,000 crore ($17.8 bn) this fiscal, which oil marketing companies make from selling fuel below cost against steadily rising crude oil prices. The proposed price increase, the first in 18 months, is likely to be in the range of Rs 2 per litre for petrol and Re 1 per litre for diesel. Prices of kerosene and domestic LPG are unlikely to be raised. The Rs 4 hike in petrol prices may be too steep, considering there are the Left parties to deal with. It will probably be Rs 2 for petrol and Re 1 for diesel. The Left parties have suggested that the import duty on crude oil be reduced instead of increasing retail prices. The government also runs the risk of inflation moving back above 5 per cent if fuel prices are raised. Inflation has been controlled to a shade above 3 per cent for the last half year. 

STEPPING ON THE GAS Fuel prices in Delhi since 2002
(Rs/litre)	Petrol	Diesel	Crude oil*
June 4, 02	29.94	17.99	25
Jan 1, 3	29.93	19.07	26
June 15, 04	35.71	22.74	37
April 1, 05	37.99	28.22	48
June 6, 06	47.51	32.47	62
June 6, 07	43.52	30.48	74
* Average price in $/barrel

 

POWER

RNRL may buy overseas mines for AP mega project

January 7, 2007. The Anil Dhirubhai Ambani Group’s (ADAG) company Reliance Natural Resources Ltd (RNRL) may buy out some mines in Indonesia and Australia for dedicated fuel supplies to support the Krishnapatnam ultra mega power plant (UMPP). RNRL, which is the supplier of fuels for ADAG power plants, is also in the process of firming up joint ventures for imported coal supply to execute the UMPP. Providing an overview of the Reliance Power plants including two UMPPs which were awarded to the group. Apart from the pit head Sasan UMPP project and the Krishnapatnam UMPP, the company was in the process of bidding for the Telia project too. The company had signed up with four States for the supply of power generated from the project and expects the special purpose vehicle Coastal Power created for the project to hand over the possession of land by the end of January 2008. The effective date of implementation of this 4,000 MW project would be between 68 and 93 months and based on supercritical technology, with each unit of 800 MW. The necessary support infrastructure for imported coal evacuation is being made near Krishnapatnam with a dedicated port. This port is being developed by the Navayuga Group.

Reliance Power eyeing Dabhol power project

January 7, 2008. Then we will also look at the inorganic route to expand. Reliance Power Ltd., which is coming out with a US$3bn IPO later this month, is planning to scale up its operations rapidly by resorting to acquisitions, including the beleaguered Dabhol power project. The Dabhol plant, developed by the now defunct Enron Corp. is now being operated by Ratnagiri, a joint venture of NTPC and Gail India. The 2144 MW power project is expected to be running full steam with all three units operational by the end of the current financial year. State Bank of India (SBI) and other banks have a 28% stake in the project. Dabhol was shut in the summer of 2001 after the erstwhile Maharashtra State Electricity Board (MSEB) stopped paying its bills, saying that prices charged by the US energy giant were too high. The plant was later revived in April 2006 after a five-year shutdown. Reliance Power will begin trading in the first week of February, after the share sale. Reliance Power plans to raise as much as Rs117bn through the IPO. The company will sell 260mn shares at Rs405 to Rs450 a share. The issue opens for subscription on January 15 and would close on January 18. With projects of an aggregate capacity of 28,200 MW under its belt, Reliance Power will see its first greenfield power project become operational in 2009.

NPCIL gets $509 mn for equipment procurement

January 6, 2008. Undeterred by the uncertainties over the Indo-US civilian nuclear cooperation deal, state-run Nuclear Power Corporation of India Ltd is going ahead with its plans to set up the country's first 700 MW generating units. The Centre recently sanctioned Rs 2,000 crore ($508.77 mn) to NPCIL for advanced procurement of equipment for four 700 MW plants of pressurized heavy water reactors. The company has placed its orders with state-run Bharat Heavy Electricals Ltd. NPCIL, which commissioned two 540 MW plants at Tarapur in the last couple of years, now will have to scale up for the four 700 MW units that require huge turbines. In order to have a good pricing mechanism, NPCIL has placed an order for eight of these turbines. In Maharashtra, at Jaitapur in Ratnagiri district that will be housing up to 10,000 MW nuclear power plants after the Indo-US deal comes through, the land acquisition process was nearing completion, and the pre-project work was on.

New Year blast for primary market

January 3, 2008. Anil Ambani-promoted Reliance Power (Rel Power) will offer 5-10 per cent discount to retail investors for its Rs 11,700 crore ($2.98 bn) initial public offer (IPO), slated to hit the market from January 15 to 18. The funds raised will be used to fund its gas, coal and hydropower generation projects in India. The company is owned a little over 50 per cent by Reliance Energy and the rest is held by the R-ADAG investment firms. Parent Reliance Energy quadrupled in value last year as the government plans to invest $200 bn in electricity generation and distribution in seven years to sustain record economic growth.

BHEL, NPC to form JV to manufacture nuclear reactors

January 2, 2008. The JV will produce reactors of 700 MW and 1,000 MW for nuclear power projects. The initial investment will be worth Rs5bn. Bharat Heavy Electricals Ltd (BHEL) and the Nuclear Power Corporation (NPC), plans to form a 50:50 JV for manufacturing nuclear reactors. The board of both the Companies have approved the proposed JV. The JV will produce reactors of 700mw and 1,000mw for nuclear power projects. The initial investment will be worth Rs5bn. NPC, with an installed nuclear capacity of 3,900 MW, has launched the plan to increase the total nuclear capacity to 20,000 MW by 2020. It has launched the capacity addition of 3,920 MW comprising 440 MW at Kaiga 3 and 4, 440 MW at Rajasthan, 2,000 MW at Kudankulam and 500 MW at Kalpakkam. Besides, the Centre has approved sites for the addition of 6,000mw comprising 2x1,000 MW at Jaitapur (Maharashtra), 2x1,000 MW Kudankulam, (Tamil Nadu), 2x700 Kakrapar (Gujarat) and 2x700 Rawathbhata (Rajasthan). At Jaitapur, NPC has proposed to set up a capacity of 10,000 MW in phases. BHEL has already launched its plan to increase its manufacturing capacity to 15,000 MW by 2009. BHEL has formed JV with NTPC for carrying out engineering, procurement and construction (EPC) activities in the power sector on mutually beneficial terms. BHEL designed, manufactured and commissioned equipment accounts for around 70% of NTPC’s installed capacity. Moreover, BHEL has also formed JV with the Tamil Nadu Electricity Board (TNEB) to set up the first 2x800 MW supercritical power project. BHEL is also currently in talks with various states including Maharashtra.

Coal India blames infrastructure for supply problems

January 8, 2008. The failure of infrastructure to keep pace with growth in coal production were causing problems. Transport and logistics problems led to poor coal evacuation to power sector consumers. An internal assessment done by Coal India Limited (CIL) revealed that while pit head coal stocks during November and December 2006 was over 5 million ton (mt), utility stocks in most of the country's power stations were 8.7 mt, equivalent to only nine days stock of coal available with power utilities. Central Electricity Authority (CEA) over the past few months had identified 29 power stations as critical, with seven days of stock. Recently the number has come down to 19, as CIL sold more coal to power stations. Power stations were required to maintain 21-day stock of coal. The desired stock level, according to government norms, was 14 days. Stock in most of the major 74 power stations was reportedly between 7 and 9 days, though this could not be confirmed from power generating agencies. CIL in the past one year had seen pit head stocks rise. In 2005-06, pit head stocks stood at around 34 mt, which went up to 43 mt in 2006-07. CIL estimated 2007-08 pit head stocks at around 53 mt. According to the study, coal stocks were low at the power stations owing to inadequate stacking capacity. Most power stations allegedly ignored creation of stacking capacity at yards and focussed primarily on generation.  Secondly, the placement of particular type of rakes prevented rise in stock levels at yards.  Some power stations used bottom discharge coal rakes for supply and evacuation while many could not handle N-Box wagons. Transport capacity was constrained as well and scope for supplementary supply from other sources was limited. Many power plants projected operating levels at 75 per cent PLF but were actually operating at 90 per cent PLF, consuming more coal than projected. Lack of freight corridors and feeder routes hindered transport logistics. The Planning Commission has estimated coal requirement at 483 mt for the power sector in the 11th Plan, with CIL supplying 384 mt. Supply of coal during the fair-weather period of November to March to power stations was a problem as railway wagons during this period were mostly used to ship fertiliser for Kharif and Rabi crops.

Reliance Energy, GMR only Indian cos on Singapore’s Tuas shortlist

January 8, 2008. The Anil Ambani-controlled Reliance Energy and the infrastructure major GMR Infrastructure are the only Indian firms shortlisted for buying the $2 billion Tuas Power, owned by Singapore’s state investor Temasek Holdings. Three local companies, including Tata Power, had submitted non-binding bids in December 2007. Temasek plans to complete the bid by June 2009. Japan’s Marubeni, Mitsubishi Corporation, Hong Kong Electric, Reliance Energy, a joint venture (JV) of Macquarie Bank and GMR, Malaysia’s Tanjong, Huaneng Power International, Hong Kong’s CLP Holdings, and a JV of Bahrain-based investment bank Arcapita and Spain’s Union Fenosa are believed to be shortlisted for the final bid. Cash-rich Indian power companies have joined their colleagues in manufacturing and services in bidding for overseas assets. Tuas has 2,700 MW generation capacity, 1,500 MW from a gas-fired combined cycle project and 1,200 MW from oil fired steam turbine project. It also has an electricity distribution arm under its fold. In recent years, Singapore has reformed its power generation by breaking up the former monopoly of state-run companies into several companies active in power generation, transmission and distribution. Despite the reforms, Singapore might not be as lucrative for power firms as fast-growing China, which is growing 15% annually.

Power Grid plans to raise $1.2 bn in debt

January 8, 2008. State-run Power Grid Corp of India Ltd was in talks with the World Bank and Asian Development Bank to raise $1.2 bn in debt. Negotiations with the World Bank for $600 mn debt were likely to conclude in February. The company hoped to spend Rs 8500 crore ($2.17 bn) in 2008/09 to expand its transmission network. 

Power supply firm focuses on rural grievances

January 8, 2008. Set up a year ago, the three-member Electricity Consumer Grievance Redressal Forum of the Mysore-headquartered Chamundeswari Electricity Supply Company (CESC) has so far disposed off 16 complaints received from consumers.  Six of these complaints were adjudicated, five in favour of the complainants and one in favour of the CESC. Of the five cases adjudicated, one complainant is pursuing the matter before a regular court. The CESC authorities attended to rest of the complaints when the forum sought replies from them.  With regards to two appeals, the ombudsman upheld the forum’s stand. Six of the 16 complaints relate to Mysore city and the rest are from the rural areas. The forum, headed by a former superintending engineer of the licensee and comprising of a superintending engineer of the licensee and a consumer activist, has held about 20 sittings to hear and adjudicated on the complaints. The forum, set up in May 2006 by the Karnataka Electricity Regulatory Commission (KERC), under the Electricity Act 2003, had only a chairman for some six months and later the full-fledged body came into existence. The first sitting took place in February 2007. A major decision taken by the forum is in respect of imposition of a power factor (PF) penalty for three months on Falcon Tyres, Mysore. After hearing the complaint, the forum decided by 2-1 majority that the penalty was not in consonance with Section 22.02 (A) of the Electricity Act, which stipulates a three-month notice to the consumer to rectify the PF. Hence, it ordered for the refund of Rs 8 lakh collected from the complainant. In another complaint, the forum ordered for payment Rs 500 towards the cost of the complaint. A decision in favour of the licensee was taken in the case where the complainant objected a transformer being installed for his building in his commercial complex.

Severe power crisis may hit industry in Uttarakhand

January 8, 2008. A severe power crisis has hit Uttarakhand and is likely to affect industrial production in the state. Power generation in the state-run plants, including those in Chibro, Dhalipur and Ramganga, had come down to nearly half following a sharp fall in the water flow of rivers.  The demand for power during the winter season has reached 21 million units from 18 million units, thereby adding to the power shortage. The UPCL has been resorting to frequent power cuts in the state. Uttarakhand used to receive 150 Mw from Delhi. But lately, due to some technical snag in big power projects, Uttarakhand has been overdrawing electricity at a much higher cost. According to the latest schedule, there will be three- to five-hour power cuts in big cities like Dehradun till January 15. Uttarakhand is drawing 6.5 million units of power from the central pool. Besides, 2 million units are being overdrawn. Apart from this, Uttarakhand is also taking back 1 million units which it had banked in Punjab and Haryana. But despite this the state is left with a deficit of 2-3 million units of power.

 GMR Energy buys 80 pc in Nepal hydro power firm

January 7, 2008. GMR Energy Ltd., the 100% subsidiary of GMR Infrastructure has acquired 80% stake in Himtal Hydro Power Co. Pvt. Ltd. of Nepal. Himtal has subsisting survey licence issued by the Department of Electricity Development, Govt. of Nepal for undertaking the feasibility study and environmental impact assessment study for setting up a 250 MW Upper Marsyangdi-2, Hydro Power Project, at Upper Marsyangdi, Nepal. Furthermore, the company has obtained the necessary approval from Investment Promotion Board, Department of Industries of Government of Nepal.

J&K can produce 20,000 MW hydel power

January 8, 2008. The Jammu and Kashmir government has identified a potential to 20,000 MW of hydro power. Replying to the question of National Conference's (NC) Legislator Mustafa Kamal, Singh said 20,000 MW of hydel power potential has been identified in the state. Of the total 20,000 MW, potential for 16,400 MW have been identified in Jhelum Chenab, Indus and Ravi with Jhelum having the potential to generate 3,560 MW, Chenab 10,360 MW, Indus 2,060 MW and Ravi 500 MW. The state currently has a installed capacity of 1,869 MW, of which 309 MW is under state programmes and 1,560 MW under central schemes. The gap between installed capacity and actual generation is mostly because of high fluctuations in the discharge of the sources. However, the expenditure on some power schemes have been low as local contractors are unable to undertake the work and national level firms hesitate to come to the valley and the problem would be addressed. Rs 19,577.71 crore ($5 bn) have been earmarked for the power sector under Prime Minister's Reconstruction Plan (PMRP) and other Centrally sponsored schemes. Under PMRP Rs 14907 crore ($3.8 bn) are being spent on NHPC hydel Projects, Rs 700 crore ($178.89 mn) under Rggvy, Rs 10 crore ($2.55 mn) for 1,000 micro hydel project and Rs 2802.79 crore ($716 mn) are being spent under the state programmes.

Bengal to take over discarded coal mines

January 7, 2007. The State Government has proposed to take over 27 coal mines that have been abandoned by Eastern Coalfields Ltd (ECL) and operate them on a public-private partnership (PPP) basis. The Union Government had recently formed a task force to suggest ways to tackle the issue of illegal mining, which has emerged as a major problem in some districts. In West Bengal, around 50,000 people in Purulia, Bardhaman and Bankura districts are currently engaged in illegal mining that was dangerous and unscientific.

Reliance Power sets sights on govt. assets

January 7, 2008. Reliance Power, the power generation arm of Anil Ambani’s Reliance Energy, is planning to tap the inorganic route and explore possibilities of taking over existing government power projects, including Ratnagiri Gas and Power plant at Dabhol, to scale up its generation capacity. To keep pace with the requirement of the planned increased capacities, Reliance Power has initiated talks with key global equipment and engineering firms for a strategic tie-up. The Dabhol plant, developed by the beleaguered Enron Corp of the US, is now being operated by Ratnagiri, a joint venture of NTPC and GAIL India.

TN secures 600 MW to tide over shortfall

January 7, 2008. The Tamil Nadu government is gearing up to tide over the power shortfall in the state. It has managed to secure about 600 MW of power from the Centre and a few states to meet its power requirements. The state, which claimed to be comfortable in terms of power availability, has faced a marked power crisis over the last couple of months. The power shortfall is estimated between 650 MW and 700 MW at present.

The state government has attributed this to a drop in power generation through windmills to the tune of 1,500 MW, non-availability of 500 MW from the Centre’s utilities, and the supply of 500 MW from the Neyveli Lignite Corporation due to heavy rains disrupting power generation. The state has been making efforts to overcome the power shortage. It has started procuring about 300 MW of power from the Centre out of the latter’s pool of unallocated power. The state has also been procuring 150 MW of power from Kerala and another 150 MW from Assam and Haryana under a swap agreement.

Based on the agreement, Tamil Nadu will get power from these states for the next 3-4 months and will return the power during April-October. TNEB had allowed Salem Steel Plant (SSP) to wheel power from a captive plant in Durgapur, West Bengal. SSP is the first company in the state to wheel power from a plant outside the state under the captive use mode. SSP has been drawing 5 Mw of power from the Durgapur captive power plant and will pay transmission and wheeling costs to TNEB for this.

Himachal invites bids for 1,481 MW hydel units

January 7, 2008. The Himachal Pradesh government has identified eight hydel power projects to generate 1,481 MW electricity in the state, bids for which have been invited from global as well as domestic companies. The state government has invited proposals from eligible bidders for eight projects, six of which would be built on international competitive bidding route.

These include the 454 MW Seli project on the river Chenab. Besides Seli, four more projects would be established on Chenab, Reoli/Dugli (268 MW), Dugar (238 MW), Sach-Khas (149 MW), and Gyspa stage-I and stage-II (170 MW). The remaining two projects, Kuling Lara (40 MW) and Patam (60 MW), would created through MoU route on rivers Sutlej and Chenab respectively.

The selected developers would be responsible for preparing feasibility and detailed project reports (DPRs), commissioning and operation, and identification of transmission systems for the projects to be set up on a build, own, operate and transfer (BOOT) basis. The operation period of the projects shall be 40 years from the date of scheduled commercial operation, after which, they would revert to the state government. The project would give 18 per cent free electricity for a period of next 18 years, and thereafter, 30 per cent for the balance agreement period beyond 30 years. 

The Himachal Pradesh government has also reserved the right of equity participation up to 49 per cent for projects above 100 MW installed capacity. The last date for submission of bids is March 5. The bidders would be required to deposit a processing fee of up to Rs 10,00,000 per project. As per data available with the Central Electricity Authority (CEA), the country has a potential to generate close to 1,50,000 MW hydroelectric power, of which, Himachal Pradesh offers over 18,000 MW. As on October 31, 2007, the state had developed 6,085.5 MW. 

India's power ministry wants Tapti gas for NTPC

January 4, 2008. A fresh tussle is brewing in the government over gas supplies. The power ministry has staked claim to nearly half of natural gas from the Panna-Mukta-Tapti fields operated by a consortium of Reliance Industries, BG and ONGC on the ground that 900 MW generation capacity of state-owned NTPC has been stranded because three government-run LNG (liquefied natural gas) marketers have dumped its tenders for spot purchase of fuel.

NTPC has been running short of nearly 7 mcm per day of gas for operating its gas-fired units at 90 percent capacity. It made up 5 mcm per day through spot purchases from state-owned GAIL, IndianOil and Bharat Petroleum, besides Shell and Gujarat government entity GSPC. The shortfall of 2 mcmd left nearly 500 MW capacity stranded.

Recently, however, the three government-run oil firms have refused to take part in NTPC's tenders for spot purchase of LNG, increasing gas shortage and pushing up stranded capacity to 900 MW. The oil companies, which are the sole marketers of 5 mt of LNG imported annually by Petronet, have dumped NTPC's tenders on the ground that the prevailing high prices of spot purchases could vitiate long-term gas market in India. NTPC has been paying between $11.5 and $17 per mBtu for its spot LNG against an average of $6-8 mBtu for gas procured through long-term contracts. The present going rate for spot LNG is $14 mBtu (ex-ship) but companies still prefer it to costlier naphtha.

Iron, cement, power units to get 92 mt coal

January 4, 2008. The coal ministry today decided to allot 92.38 mt of coal to ensure the much-needed long-term linkages to 236 sponge-iron plants, 73 cement manufacturing units and 224 captive power facilities. The recommendation of the standing linkage committee in this connection has been approved by Minister of State for Coal Dasari Narayan Rao. The 236 sponge-iron units with a total production capacity of 41.5 mt located in 13 states have been sanctioned long-term linkages of 19 mt of coal per annum. Of these 236 units, 84 are located in Orissa, 48 in Chhattisgarh, 36 in West Bengal, 27 in Jharkhand, 15 in Andhra Pradesh and 8 each in Karnataka and Maharashtra. About 194 units had already started producing 10.38 mt of sponge-iron annually, while another 42 with a capacity of 4.12 mt would be commissioned soon.

A total of 73 cement plants located in 14 states with an annual capacity of 116.8 mt have also been granted long-term linkage of 21.4 mtpa. Of these cement-manufacturing units, 43 are being expanded to contribute 55.6 mt, while another 30 are greenfield projects with projected capacity of 61.2 mt. Twenty-four units are located in Andhra Pradesh alone with a production capacity of 46.25 mtpa. These captive power plants are expected to generate 9,211 MW of power and most of these are to be commissioned. Following the notification of a new coal distribution policy recently, the coal ministry has taken a liberal view on granting long-term coal linkages. The new policy provides for Coal India Ltd to import coal if required to meet its linkage commitments, in the wake up of rising coal demand in the country. 

Cabinet decides to involve private sector in hydel projects

January 3, 2008. With a view to encourage the private sector to develop hydroelectric projects, the Centre decided to modify the Hydro Power Policy. A meeting of the Union Cabinet chaired by Prime Minister Manmohan Singh gave its approval to modification to the policy to provide an impetus to the development of hydroelectric projects by the private sector in a big way. Though there is tremendous potential for tapping hydel power by involving the private sector, there is lack of incentives in this regard. The arrangements would ensure that the initiative for allocation of projects remain with the state governments and scrutiny by the Regulator and Central Electricity Authority would ensure that projects are designed and built in the most optimal and economic manner. The interest of the consumers would also be adequately protected. 

CII pushes power trading proposal to tackle load-shedding

January 3, 2008. If a power trading proposal by the Confederation of Indian Industry (CII) works out, Pune will become the first city in the country to receive 350 million units of power this year through the the newly introduced open access system for power trading.  Under the proposal, which CII’s Maharashtra unit will put before the state electricity regulatory commission soon, a group of Pune-based private companies will buy electricity from a power trading company and supply to Pune city, which is plagued by load-shedding. The supply will be available for residential as well as commercial complexes. Pune has a shortfall of 100 MW to 110 MW and this is expected to cross 150 MW in a year. The state electricity distribution company estimates a shortfall of 350 million units for Pune this year. CII plans to bridge this gap on a no-profit-no-loss basis. CII members in Pune currently supply about 100 MW to Pune from captive diesel generation. This has enabled Pune city to tide over the power shortage. CII is looking at players like Tata Power Trading Company, or subsidiaries of National Thermal Power Company to sign the power trade agreements as per the open access system policy. 

OIL & GAS

 

Oil majors eyeing offshore Yemen blocks

January 8, 2008. ExxonMobil Corp. and Total S.A. are among 25 companies that have qualified to participate in Yemen's first offshore bid round covering blocks spanning the Red Sea and Gulf of Aden areas. Occidental Petroleum Corp. and Gaz de France are also among the companies prequalified to bid for the 11 offshore blocks later in the year. Other companies in the race for the blocks include Repsol YPF S.A., StatoilHydro ASA and Hungarian oil and gas company MOL NYRT. The offshore concessions are set to be awarded on July 30. Yemen, one of the Middle East's poorest countries in terms of per capita income and located in the southwest of the Arabian Peninsula on the Red Sea and the Arabian Sea, has seen oil production fall in recent years as existing fields mature and few new ones have been brought on stream. In the past six years, the country has been battling a decline in crude oil production, which has seen output fall 16% from a record high of 438,501 barrels a day in 2001 to 365,722 million barrels a day last year. In the first half of 2007, production dropped further to 328,019 barrels a day. Yemen hopes that with international oil firms' expertise it will be able to recover some of the country's more difficult reserves, especially those in deep offshore waters.

Ameriwest claims 18 mn bbl still in place in Wyoming

January 8, 2008. Ameriwest Energy announced the results of a reservoir study of the South Glenrock C Unit (SGCU), located in Converse County, Wyoming. The study completed by NITEC LLC, reports on the estimated remaining oil-in-place (OIP) and the estimated recoverable oil in the Lower Muddy formation under a CO2 injection program. According to the study's base case the estimated remaining OIP in the C Unit is 17.67 million barrels of oil (MMSTB) of which 4.9 MMSTB may be recovered from a continuous CO2 injection program over 25 years according to detailed simulation predictions.

The SGCU is located in the extreme south-southwestern portion of the Powder River Basin on the Big Muddy Anticline about 15 miles east of Casper, Wyoming. The SGCU is one of three units within the South Glenrock field which was discovered in 1950. The Muddy formation is found at drilling depths of 5,000 to 6,000 feet and is about 200 feet thick with the productive Lower Muddy formation ranging up to 33 feet in thickness. The Lower Muddy is a naturally fractured fluvial sandstone deposit which has produced 7.7 MMSTB of which 5.3 MMSTB was produced under primary conditions and 2.4 MMSTB from secondary water-flood activities.

StatoilHydro, ExxonMobil JV hit significant Gulf discovery

January 8, 2008. ExxonMobil and StatoilHydro have hit it big with the Julia well in deepwater Gulf of Mexico. The joint venture discovered hydrocarbons about 265 miles southwest of New Orleans, La. StatoilHydro is a major lease holder in Walker Ridge. Drilling to a total depth of 9,500 meters, the Julia well is located in 2,000 meters of water. More appraisal drilling is planned for 2008 to further define the extent of the Julia discovery. This is the first well drilled for the joint venture, which was formed in 2005 to explore deepwater Gulf of Mexico. As the third-largest lease holder in the Gulf of Mexico, StatoilHydro is currently developing two substantial discoveries in the same area the Julia discovery, Jack and St. Malo, which are scheduled to commence production by 2014. Additionally, the company recently discovered hydrocarbons at West Tonga in Green Canyon.

PTTEP farms in to blocks off Bangladesh

January 7, 2007.  Thailand's PTT Exploration & Production PLC (PTTEP) signed an accord to farm in with a 30% interest to Bangladesh's offshore Blocks 17 and 18. PTTEP joins Total SA 30%, Tullow Oil PLC 32%, Okland Bangladesh Ltd. 4%, and Rexwood Offshore Holdings Ltd. 4% as a stakeholder in the blocks. The two blocks covers a combined area of 13,724 sq km, 150 km from Chittagong. The acquisition is part of PTTEP's aggressive pursuit of overseas upstream assets to raise its reserves. PTTEP Pres. The blocks are expected to have high gas potential because they are only 40 km south of operating gas field Sangu, and 80 km north of Shwe gas field in Block A1 in Myanmar.

Russia's Gazprom eyes Nigerian gas reserves

January 5, 2008. Russia's state-owned gas giant Gazprom is eyeing a mindboggling stake in Nigeria's energy reserves in a bid to trump US, Chinese and Indian interests. In a dispatch from Abuja and Moscow, Gazprom was offering to invest in energy infrastructure in return for access to the country's vast gas deposits. The FT assessed that Gazprom's move on the heels of Russian President Vladimir Putin's attempts to seek energy co-operation with his Nigerian counterpart Umaru Yar'Adua would cause concern among European governments. Europe is dependent on Russia for about a quarter of gas imports and has been troubled by Moscow's readiness to cut off supplies. Any inroads made by Gazprom would challenge Western dominance by companies such as Royal Dutch Shell, Chevron and ExxonMobil in Nigeria, which is Africa's biggest producer of crude oil. Gazprom executives had visited Nigeria in mid-December to outline proposals to overhaul the under-performing gas sector.

CNPC 2007 overseas crude output 60.23 mt

 January 4, 2008. China National Petroleum Corp’s  overseas crude output reached 60.23 mt in 2007, a record high. The company, China's top oil and gas producer, had overseas crude output of 59.14 mt in 2006. In Sudan, Block 1/2/4 produced 13.5 mt last year and Block 3/7 produced 10.02 mt. CNPC's PetroKazakhstan venture in Kazakhstan also produced over 10 mt of crude last year, without providing comparative figures.

Pacific Stratus discovers gas in Colombia

January 3, 2008. Pacific Stratus Energy Ltd. announced that the La Creciente D-1 (LCD-1) well has reached the total depth of 11,450 feet Measured Depth (or 10,711 feet True Vertical Depth at Sub-Sea level). The petrophysical evaluation indicates a water gas contact at a Measured Depth of 10,869 feet (10,131 True Vertical Depth at Sub-Sea level), 32 feet below the top of the reservoir. As result of this evaluation, 28 feet of net reservoir sandstones have been identified, with a net to gross ratio of 86%, an average porosity of 18.1% and an average water saturation of 38.8%. The formation pressure recorded at the top of the reservoir was 6,492 pounds per square inches (psi), which is 150 psi lower than the pressure registered at the same depth on Prospect "A". The gas bearing area attributable to this new discovery measures 430 acres. The Cienaga de Oro Formation consists of 483 feet of well-sorted coarse to fine grain sandstones (upper unit) and an interbedded sequence of silts, shales and fine grain sandstones. The Cienaga de Oro was logged using resistivity, gamma ray and density Logging While Drilling (LWD) tools. The company is now finishing wireline logging and preparing to run and cement the production liner in order to commence formation testing shortly thereafter.

Repsol YPF to double capacity at Cartagena refinery

January 8, 2008. Repsol YPF SA its board of directors has approved an investment of EUR3.2 bn in its Cartagena, Spain refinery, where capacity will be doubled to 220,000 barrels per day. The improved installations will be ready in 2011, adding they will help reduce the current deficit in gasoils in Spain. In November 2005, the Spanish-Argentine oil and gas group announced investments in its downstream business of EUR6.2 bn in 2005-2009. Of this total, EUR2.7 bn was earmarked for its refineries in Cartagena and Bilbao to increase production by 20 percent.

Sinochem starts building refinery in Quanzhou

January 8, 2008. State-owned Sinochem Corp started construction of an oil refinery in Quanzhou in eastern China's Fujian province on Dec 28. The refinery is designed to produce 5 million tons of heavy oil annually during the first phase of construction, which will be boosted to 12 mtpa by the second phase. The first phase of construction of the refinery, together with the dock, storage and logistics facilities, involves a total investment of 17.7 bn yuan, and is expected to be completed in 2010. Investment for the second phase of is projected to reach 25 billion yuan. Fujian has become a major oil refinery center. China Petroleum & Chemical Corp (Sinopec) is building a project there worth US$5 billion, in which Saudi Aramco and Exxon Mobil are equity partners, and which is expected to begin commercial operations at the end of 2008. Sinochem Corp, the parent of Sinochem International Co Ltd and Sinochem Hong Kong Holdings Ltd, China's largest fertilizer importer, currently has oil exploration operations in the Middle East and North Africa.

 Libya's NOC, UAE consortium to modernize refinery

January 7, 2008. Libya's state oil company, NOC, and a United Arab Emirates consortium have signed an agreement for the modernisation of a refinery in Libya for an investment of US$2 bn. NOC and the Star consortium, formed by the UAE companies TransAsia Gas International and Star Petro Energy set up a joint venture for the modernization and the expansion of the Ras Lanouf refinery, the petrochemical complex located 600 km to the east of Tripoli. The two sides signed a five-year contract to increase the refinery's output, which will rise to a maximum of 220,000 barrels per day. Libya is the second largest oil producer in Africa, with 1.7 mn bpd, and Libya has oil reserves estimated at 42 bn barrels. Libya is planning to double its oil production to reach about 3 mn bpd by 2010.

Foreign group signs MOA to build Vietnam's oil refinery

January 7, 2008. A Vietnamese provincial government has signed a memorandum of agreement allowing a consortium led by Thailand's Saha Regal Best company to prepare to build Vietnam's second oil refinery, which will be located in Nghi Son, Thanh Hoa province. Although the provincial government has signed the MOA, it hasn't reached a final decision on which company to award the project to. The refinery is expected to cost as much as $6 billion to build, and the provincial government is still considering investment plans offered by Japan's Idemitsu Kosan Co. The consortium led by Saha Regal Best comprises Leighton Holdings (LEI.AU), Honeywell Ltd. and Global Union of Australia, Transkon Group of Malaysia, Jardin Lloyd Thompson of the U.K. and Kunming No. 1 Construction and Engineering of China could build the refinery, which is expected to have an annual processing capacity of 7 mmt - 8.4 mmt.

Sinopec to expand Wuhan refinery's capacity by 30 pc

January 7, 2008. China Petroleum & Chemical Corp. (SNP), or Sinopec, will soon expand the capacity of a major refinery in Wuhan city by 30% to ease a fuel supply shortage in central China. The company will increase the refinery's crude oil processing capacity to 6.5 mmtpa or 130,534 barrels a day from the current 5 mmtpa once a new vacuum distillation unit comes online. Sinopec on December 25 completed construction of the unit, with an annual processing capacity of 5 mt of crude oil. The company will shut down some of its old units to be replaced by the new unit. Sinopec will soon build more units at the refinery, including a 1.2 mmtpa delayed coking unit and a 2 mtpa hydrocracking unit, which will together increase the refinery's combined capacity to 8 mmtpa or 160,657 barrels a day. Demand for gasoline and diesel in central China is increasing rapidly as a result of the region's booming economy, but oil refining facilities in the region have remained at low capacities over the past few years, resulting in shortages from time to time. Apart from supplying more gasoline and diesel to central China, the refinery will also supply feedstock to a nearby ethylene facility which is under construction. Sinopec started building the 800,000-ton-a-year ethylene facility December 18.

Kuwait reviewing bids for $14.6 bn refinery

January 3, 2008. Kuwait National Petroleum Corp. plans to award the contracts to build a new $14.6 bn refinery to process crude oil for domestic power plants in the first quarter. KNPC is presently evaluating bids received on Dec. 26 from international companies, including JGC Corp. and Snamprogetti, for four separate packages covering the construction of the Al Zour refinery. The 615,000-barrel a day Al Zour refinery, Kuwait's fourth, will mainly produce low-sulfur fuel oil for the country's power plants. Project completion is scheduled for March 2012. Foster Wheeler Ltd., Technip S.A. and several South Korean contractors are among the other bidders for the project's four packages, comprising processing units, marine work and tank farms, according to the ABQ Zawya projects monitor. KNPC, which will provide full financing for the scheme, has set aside a budget of 4 bn Kuwaiti dinars ($14.6 bn) for construction.

TransCanada's Alaska gas pipeline proposal progressing

January 7, 2007.  TransCanada's application to build a natural gas pipeline in Alaska is open for a 60-day public comment period. It's the only one of five formal applications to meet all the state's requirements. Sinopec of China, AEergia of California, and two Alaska groups viz., the Alaska Gasline Port Authority and the Alaska Natural Gas Development Authority, submitted other applications. TransCanada proposes a 48-in pipeline extending from Prudhoe Bay to Alberta, where it would tie into existing pipelines that transport gas to US markets. The project's estimated cost is $26-35 bn, and it's estimated that if authorized by lawmakers the proposed pipeline could start operation in 2017. The proposed pipeline would follow the route of the existing trans-Alaska oil pipeline and the Alaska Highway, and continue through northern British Columbia to link with the pipeline grid in northwestern Alberta. In 2006, Alaska Gov. Frank Murkowski reached a privately negotiated pipeline agreement with North Slope producers ConocoPhillips, ExxonMobil Corp., and BP PLC. But that agreement was dropped when Palin was elected governor. Upon taking office in 2007, she outlined elements of an open bidding process. The Alaska Gasline Inducement Act (AGIA) calls for the state to provide $500 mn for a gas pipeline project and fixed tax rates for 10 years. Those incentives are for a pipeline project that meets state requirements. AGIC replaced the Stranded Gas Development Act, a 1998 law that allowed companies to apply for state incentives for a large gas project. The state continues to review a pipeline proposal from ConocoPhillips that was made outside the AGIA solicitation.

Nord stream consortium confident of Swedish approval

January 7, 2008. A consortium that plans to build an underwater Baltic Sea gas pipeline from Russia to Germany was confident it would get approval from Sweden. Nord Stream, the Russian-German joint venture, in December submitted an application for the construction of the pipeline as well as an Environmental Impact Assessment (EIA) report. The consortium includes Russian gas giant Gazprom, Germany's BASF/Wintershall and EON Ruhrgas and Dutch group Gasunie. The 1,200-kilometer pipeline would run from Viborg in Russia to Greifswald, Germany, and was planned to pass through the Swedish economic zone, east of the Swedish Baltic Sea island Gotland. Costs were estimated to be at least 5 bn euros (US$7.3 bn), and that prices of steel and vessels used to lay pipeline sections have contributed to price hikes. In April, the consortium was due to hand in applications to other states impacted by the project including Russia, Finland, Denmark and Germany. The group was aware of opposition to the project among Swedish parliamentarians who have cited environmental concerns and fears that Russia would step up its military presence. There was no need for any military personnel to protect the pipeline, comparing the pipeline to those in the North Sea. Nord Stream had no plans to build a land-based route as called for by among others Anders Ygeman, environment spokesman for the opposition Social Democrats. Although Sweden is not dependent on Russian energy exports the country would benefit from several hundred jobs for the supplies of pipeline material at a harbour on Gotland and two locations in southern Sweden.

ExxonMobil planning a floating offshore LNG terminal

January 3, 2007. ExxonMobil Corp. plans to seek regulatory approval for BlueOcean Energy, a floating LNG receiving terminal that will help boost natural gas supplies to New Jersey and New York. The project, estimated to cost more than $1 bn, will have the capacity to supply 1.2 bcfd. The terminal is expected to be moored in 150 ft of water about 30 miles off Long Island. The terminal would be away from shipping lanes, ports, and recreational areas. With several years required for permitting, engineering, and construction, BlueOcean Energy is expected to begin service around 2015. Plans call for a subsea pipeline to deliver gas to New Jersey and New York markets. No pipeline route has been selected, although initial plans involve a crossing in New Jersey's Raritan Bay.

The floating terminal is designed to receive LNG supplies from double-hulled LNG vessels about twice a week. The LNG will be stored inside insulated tanks within the terminal's double hull. BlueOcean Energy is at the start of a lengthy, rigorous permitting process involving state and federal agencies and the public. The US Maritime Administration and the US Coast Guard are the agencies that review terminal plans under the Deepwater Port Act. In addition to BlueOcean Energy, ExxonMobil is involved in three other terminal projects. Receiving terminals are under construction near Sabine Pass, Tex.; in Wales; and in the Adriatic Sea off Italy.

Bush economic advice includes more domestic E&P

January 8, 2008. US President George W. Bush is including more domestic oil and gas exploration in his general economic recommendations as 2008 gets under way. Bush reiterated his opposition to new taxes and concern over impacts from the housing crisis. But he also noted that gasoline prices have risen and that consumers are feeling financially pinched. According to him the administration will need to work together keep taxes low. Raising taxes when the economy is strong but indicators are mixed would be a serious mistake. He is of the view that if we are worried about gasoline prices, we ought to expand refineries here in the United States, and we ought to explore for oil and gas in environmentally friendly ways in the United States.

Eurogas concerned about EC's third energy directive

January 8, 2008. The wider powers to be granted regulatory authorities under terms of the European Commission's proposed, Third Energy Package directive, which was announced Sept. 19, 2007, are causing Eurogas concern. The powers lack, a clear accompanying framework and that the introduction of powers for the commission to adopt guidelines on a wide range of subjects, leaves only negative powers to the EU council and parliament.

This means that the democratic procedure is exercised differently from the codecision procedure for approving legislation. As a major representative of Europe's gas market players, Eurogas wants a stronger role and greater involvement in applying the right legislation. It outlined its position on proposed regulatory powers and the respective roles of the national regulators: the Agency for the Cooperation of Energy Regulators (ACER), the EC, and the European Network of Transmission System Operators for Gas (ENTSOG).

The new regulatory powers proposed for the EC in the third energy package, marks a shift in the traditional pattern of segmentation between the regulated infrastructure business and the competitive, nonregulated supply business, with regulatory authorities being granted wider powers in the interest of ensuring a well-functioning and competitive market.

However, to ensure that the process is transparent and nondiscriminatory, it is essential, insists Eurogas, to establish a clear policy framework within which the national regulatory authority can implement the additional powers to promote effective competition and ensure the proper functioning of the market. Better regulation depends on the quality of regulation, which inevitably implies the participation of the companies involved in the market. This framework should, therefore, include consultation with market participants and publication of clear and fully reasoned decisions that take into account the views of market participants, the existing contractual obligations of the parties concerned, and the expected costs and benefits of the decision.

Pakistan Cabinet approved IPI gas pipeline deal

January 8, 2008. The Pakistani Cabinet approved the Iran-Pakistan-India gas pipeline agreement. The cabinet gave its approval to the planned gas purchases, a government guarantee, gas sales to local supply companies and taking additional gas if India doesn't join the pipeline project. The cabinet also recommended making a formal request to the Iranian government to allocate an additional volume of 1.05 bcf of gas a day to Pakistan if India doesn't participate. Pakistan is considering two routes for the pipeline,  one from Quetta to Rahim Yar Khan and the other would connect Sukkar and Karachi. Pakistan's part of the pipeline is likely to cost between $2.7 bn and $3 bn, ranging from 700 kilometers to 1,050 kilometers. Iran and Pakistan estimate the project is likely to start by mid-2008 and be completed by 2012.

Transport spending plans based on oil at just $50

January 4, 2008. A government document meant to underpin future UK transport policy is based on an oil price of $50 a barrel about half the current level, raising serious questions about the logic of resulting spending commitments. The report, Road Traffic Forecasts for England 2007, was drawn up by economists at the Department for Transport to model trends in road traffic up to 2025. Published just two months ago, it is being used to shape UK policy on roadbuilding spending, traffic congestion and carbon emission over the next two decades. But the soaring price of oil casts doubt over the report’s estimates for growth in traffic.

The central assumption for oil prices is that they will be around $50 per barrel (2004 prices) by 2025, going on to assume a drop in the cost of car ownership by 2025. Due to fuel economy improvements the overall impact on the cost of driving is a 23 per cent fall for the average car. Falling fuel costs per kilometre account for around 15 per cent of forecast traffic growth. However, with oil prices at a record after breaching $100 a barrel yesterday, experts and MPs claimed that the estimates were fundamentally flawed and made a mockery of the economics of future public spending on transport.

France approves gas transport system expansion

January 3, 2008. France's Energy Regulatory Commission (CRE) has approved the 2008 investments planned by Gaz de France's gas transmission subsidiary GRTgaz and Total's gas transmission subsidiary Total Infrastructures Gaz France (TIGF). The sums are much higher than those of the previous years, noted CRE, pointing to the €585 mn planned by GRTgaz, up from €382 mn in 2007, and to the €191 mn estimated by TIGF, up from €160 mn in 2007. The increase represents part of both companies' long-term projects involving investments of €4 bn for GRTgaz and €1 bn for TIGF over the next 10 years. The funds, intended primarily to develop the French gas transport network to meet their market players' needs, will contribute both to its development and to gas supply safety. From 2009 on, the merger of three balancing zones on the network of GRTgaz will create a 350 Tw-hr annual consumption market and put into competition LNG and gas from Northern Europe and Russia. In addition, the bolstering of entry point capacities and the coming on stream of gas-powered electricity units will enable new players to compete in France's market. However Gaz de France and Total have refused to renew the 3-year gas release programs in the south and southwest of France that began in 2005. These gradually will end in 2008, starting in early January for some of the programs. Despite a number of alternative gas suppliers' wanting the gas releases to be kept up in that area of France, which is short of entry points, CRE has no authority to force Gaz de France and Total to comply.

POWER

Green campaigners furious as new coal-fired power station approved

January 4, 2008. The comeback of coal as an energy source cleared its first hurdle when a council approved plans for Britain’s first coal-fired power station for 20 years. Environmental campaigners and the international development lobby have made it clear that they will continue to fight the planned Kingsnorth power station in Medway, Kent. The £1 billion investment was recommended by Medway council, but still faces a final decision from the Secretary of State for Business. Opponents of the plant want a public inquiry to address the wider issue of using coal. The Government’s public stance will be seen as empty rhetoric if Kingsnorth gets the go-ahead and ushers in a new generation of coal-fired power stations. In the absence of technology to remove CO2 from power station emissions, the Government should place a moratorium on new coal plants. E.ON UK, formerly Powergen, wants to replace its existing Kingsnorth power station with a clean coal, carbon-capture system. It could become the prototype for all future clean coal projects in Britain if it wins a carbon-capture design competition. Approving the plant would be viewed as opening the floodgates to a new generation of coal-fired generators, with seven proposals in the pipe-line. It could take up to two years to receive approval from John Hutton, the Business Secretary, and longer if the Government grants a public inquiry. It’s going to take 15 years to get nuclear up and running, so in the short term you build gas and, in the medium term, coal. The new plant would produce enough energy to supply about 1.5 million homes and lead to a cut in carbon emissions of almost two million tons a year. More than 9,000 people have objected to the plans.

OEB issues decision on PUC Distribution Inc.'s 2007 electricity distribution rates

January 8, 2008. The Ontario Energy Board (the Board) issued a Decision and Order approving changes to the 2007 electricity distribution rates for PUC Distribution Inc. (PUC). In its application for 2007 distribution rates, PUC sought and received rate adjustments using the Board's incentive regulation guideline. The guideline provided for a modest increase due to inflation less an adjustment to encourage utilities to find efficiencies in their operations. In the current application, PUC sought to correct what it considered to be an anomaly in its 2007 rates process which resulted in its Payments in Lieu of Taxes (PILs) expense provision being unreasonably low. In its Decision, the Board found that PUC's request to adjust its 2007 rates to reflect the elimination of historical loss carry-forwards by December 31, 2006 was supported by the evidence. However, the Board found PUC's proposed PILs expense provision to be overstated. The Board approved the requested relief, to be adjusted for the overstatement, effective September 21, 2007, to be implemented February 1, 2008. The notional foregone revenue pertaining to the period of September 21, 2007 to January 31, 2008 is to be recorded in a deferral account  to be disposed of at a later date.

Electricity bills will rise again to pay for clean-up at nuclear plants

January 7, 2008. Electricity bills are to rise yet again to pay for the clean-up costs of nuclear power stations, it emerged. With consumers already facing painful price rises for gas and electricity this year, they now face another levy when a new generation of atomic plants is built. Energy Secretary John Hutton is expected to give a go-ahead this week to replacing Britain's nuclear generators with modern reactors. Proceeds from an extra levy charged for electricity sold by the private nuclear generators would go towards the massive cost of decommissioning the plants in years to come, the Guardian reported. The Government will announce its decision on the subject. The decision comes amid growing anger at double-digit price rises imposed by private power companies. Chancellor Alistair Darling has ordered energy regulators Ofgem to investigate whether the increases can be justified by the industry. He is concerned that soaring energy prices threaten the stability of the economy because they put huge pressure on household budgets and industry costs. Npower sparked fury last week with price rises of 17.2 per cent for gas and 12.7 per cent for electricity, hitting typical consumers with an extra £95 for gas and £64 for electricity a year. Other energy firms have signalled they are planning rises of around 15 per cent this year, taking the average household bill to more than £1,000 a year. The moves follow rises in the price of oil to more than 100 dollars a barrel.

Con Edison Delivers Record Electricity in 2007

January 7, 2008. Consolidated Edison Company of New York, Inc. (Con Edison) announced that the company delivered a record amount of electricity to customers in New York City and Westchester County in 2007, spurred largely by the region's growing economy. Last year's usage of 62,591 gigawatt hours (GWh) eclipsed the record of 61,608 GWh set in 2005, and is more than 23 percent higher than the 50,837 GWh used in 1997. According to the latest available national data, Con Edison's record delivery surpasses the annual electrical usage of the entire state of Colorado (49,734 GWh) or the Commonwealth of Massachusetts (55,850 GWh) in 2006.* That same year, electrical usage in Con Edison's service area was 60,627 GWh. A gigawatt is a rate of energy production equal to 1,000 megawatts. One megawatt can power approximately 1,000 homes. Peak electric demand in New York City and Westchester County in summertime has been growing annually by about 200 megawatts, the equivalent of powering an additional 200,000 homes per year. New construction and increased use of new electrical devices, including flat-screen televisions and associated on-screen games, computers, and various handheld gadgets, as well as record numbers of home offices, are all part of downstate's prosperity and contribute to increasing use. Con Edison has the largest underground electrical system in North America with 94,000 miles of underground cables, enough to wrap the earth 3.6 times. The company also maintains 36,000 miles of overhead cables. Con Edison expects to spend $7.5 bn over the next five years on its electric delivery system to maintain reliability and support the significant economic growth projected for its service area. Con Edison is a subsidiary of Consolidated Edison, Inc., one of the nation's largest investor-owned energy companies, with approximately $12 billion in annual revenues and $28 bn in assets.

Salt River Project plans 4 pc electricity rate increase

January 4, 2008. Arizona's second-largest electricity provider wants to increase power rates by nearly 4 percent to help pay for $6 bn in needed investments and pay for higher fuel costs. Salt River Project managers are recommending the 3.9 percent rate boost to the agency's elected board of directors, which is expected to make a decision in March after a series of public meetings. The plan also includes summer adjustments that reflect higher power costs during hot months. SRP serves more than 900,000 electricity customers in metropolitan Phoenix. It is a quasi-public agency that also operates dams, canals and water delivery systems and is the third-largest public power utility in the nation.

Hong Kong power regulations based in part on emissions

January 8, 2008. The two electric power companies agreed to a new regulatory system that sets their annual rate of return, based in part on how much pollution they emit, a carrot-and-stick approach that could some day be a model for mainland China's giant power industries. The 10-year agreement between the Hong Kong government and the territory's two companies Hong Kong Electric and CLP authorizes the companies to charge electricity rates that will give them a 9.99 percent return on assets. If either company exceeds regulatory limits for any pollutant, however, it would be required to charge customers less, reducing its allowed rate of return by 0.2 to 0.4 percentage point. If the companies manage to cut their pollution more than required, then they are allowed to raise prices to the point where they effectively earn bonuses of 0.05 to 0.1 percentage point on their rate of return. A complicated formula also allows them to charge slightly more for electricity as they exploit renewable energy sources. Western regulators increasingly provide complex environmental incentives and impose penalties on power companies. But regulators in mainland China and Hong Kong have tended to rely mainly on fines if companies fail to meet basic requirements. Particularly on the mainland, though, fines are seldom assessed, and violations are rampant. Mainland power companies also have limited incentives and flexibility to choose fuels that are more environmentally friendly than coal. For instance, only a few provinces allow wind-turbine operators to charge significantly more than coal-fired plant operators for the electricity they sell to the grid. And the rate subsidy for burning agricultural waste to generate electricity is not high enough to make it economical in many areas. Instead, the regulatory system on the mainland has focused on keeping electricity rates as low as possible, with little regard for the pressure this puts on power companies to choose cheap but highly polluting coal-fired power plants. Exxon Mobil owns 60 percent of a power-generating joint venture with CLP, and CLP owns the rest plus the entire distribution grid, which serves three-quarters of Hong Kong's nearly seven million people. The government had set the new regulated rate of return at 9.99 percent after deciding that public opinion strongly favored a rate below 10 percent.

Hydel promoters will have to find their own buyers

January 6, 2007. According to minister for Water Resources Gyanendra Bahadur Karki in Nepal the promoters of Upper Karnali, Arun III and Budhi Gandaki hydro power projects themselves should search for electricity market after the completion of the projects. The government had made the policy of buying 10 per cent electricity for domestic use from the exportable project. The Upper Karnali, Arun III and Budhi Gandaki hydropower projects have the capacity of 300 MW, 400MW and 600MW respectively. The ministry has formulated a four-member task force under former secretary Bhanu Prasad Acharya for providing permission for the construction of the projects. According to the Ministry of Water Resources, it had received 14 proposals for Upper Karnali, nine for Arun III and two for Budhi Gandaki projects. There are 11 Indian, two Chinese and one Dutch companies bidding for the Upper Karnali. For Arun III, there are seven Indian and two Chinese companies. After the evaluation by the task force, the GMR Energy Limited, India has been placed top for the Upper Karnali hydropower project. The others in chronological order are Karmachari Sanchaya Kosh (KSK), Electricity Financing Pvt. Ltd., India, Reliance Energy Limited, Mumbai, India, Satluj Jal Vidhyut Nigam (SJVN), Jindal Steel & Power Ltd., Athena Projects Pvt. Ltd., Larsen and Toubro Limted, Jaiprakash Associates Limited, National Hydroelectric Power Corporation Ltd. Bhilwara Energy Limited (LNJ Bhilwal Group) and Maytas Infra Pvt. Ltd. The two Chinese companies are Sinohydro Corporation Ltd. and China Overseas Engineering Group Co. Ltd and the Dutch company is Brakel Corporation NV. The three non-Indian companies have come at the bottom in the evaluation criteria.For Arun III project, also GMR Energy Limited of India has been placed at top in the evaluation criteria. The other companies are Satluj Jal Vidhyut Nigam, Jindal Steel & Power Ltd, Reliance Energy Limited, Jaiprakash Associates Limited, Larson and Toubro (all Indian), Sinohydro Corporation Limited of China, Maytas Infra Pvt.Ltd. of India and China Overseas Engineering Group Co. Ltd. of China. None of the two companies bidding for the Budhi Gandaki project could meet the required criteria. The government is preparing to import 40 MW electricity from India to help ease the shortage of energy. 

Funds plan for nuclear plants in Britain

January 6, 2008. POWER companies building new nuclear stations in Britain will have to set up independent pension funds to pay for the treatment of waste and reactor decommissioning. Ministers are expected to give the green light to new nuclear plants this week. The nuclear proposals, together with targets on renewable power and the clean-up scheme, will be included in a draft energy bill, full details of which are likely to follow in a fortnight. New nuclear plants are necessary if the UK is to meet its targets on cutting greenhouse gas emissions and to avoid overreliance on imported fossil fuels. Around 10 stations, sufficient to provide more than one-fifth of the UK’s power, are likely to be built, with construction on the first starting around 2012. But the go-ahead is likely to spark a judicial challenge from environmental groups. The first consultation document on nuclear power had to be redrawn last year after a court action. Power companies, however, are eager to press ahead. Several utility groups have registered their interest with British Energy, which owns all the current nuclear-power station sites in the UK. It is widely expected that the new stations will be built on or alongside existing ones because of the availability of grid connections and the support of locals. Electricité de France (EDF), the French power group, will build four new stations in the UK if the government takes the necessary preparatory steps. The French design being used at Normandy is one of four currently being considered for UK licensing by the Nuclear Installations Inspectorate. Developers will not be allowed to start construction without a decommissioning and clean-up fund in place. The funds will be ring-fenced so that operators have no call on the money, and are to be run by independent trustees. Operators will pay a levy of up to 50p per MW hour into their fund, a MW hour of electricity costs sells for about £35. Eventually, each station fund will be worth several hundred million pounds. The trustees will be encouraged to invest in long-term assets such as roads, railways and power stations.

West Bengal residents to sell solar energy to electricity board

January 8, 2008. According to CESC or West Bengal State Electricity Distribution Company (WBSEDCL), install solar panels at home to meet a portion of your power requirement for heating water or running ACs and sell the rest to your local power distributor at a whopping premium of Rs 12.5 per unit. And if one is running institutions like hotels or hospitals, or are in charge of maintaining large complexes like office buildings or even residential complexes in West Bengal, you can save on electricity bills as well as make some money by pushing the extra power to the local grid. Solar panels convert the sun's energy into electricity usable for running equipment at home or institutions. In the absence of feed-in-tariffs, such power could not be profitably fed into the grid to earn money. In comparison, the commercial thermal power generators get to charge at most Rs 4 per unit for power that you consume at home or at institutions. Interestingly, West Bengal is the only state as of now which will allow its residents to push power generated from solar energy into the state's power network, technically termed state grid. To top it, the power suppliers, CESC and WBSEDCL in this case, have been asked by West Bengal Electricity Regulatory Commission (WBERC) to buy at least 10% of the power from renewable sources by 2012 or pay penalties. WBERC, a quasi-judicial body, is responsible for fixing power tariff for your homes and it has recently announced preferential tariff for electricity generated from solar sources. Incidentally, the state is slated to see a total investment of Rs 3,400 crore ($869 mn) in the solar energy segment. About Rs 400 crore ($102 mn) will go into power generation of 10 MW, while the rest of the Rs 3,000 crore ($767 mn) will go into equipment manufacturing. Players like Reliance, Astonfield as well as a Srei group have shown interest in power generation from solar energy. Meanwhile, another Rs 90 crore ($23 mn) will go into projects for generating 10.6 MW of power from municiapl solid waste and bio-gas.

Suzlon bags order from Spain for supplying 42.5 MW turbine

January 7, 2008. World's fifth largest wind turbine maker Suzlon Energy today said its European and Latin American marketing arm Suzlon Wind Energy A/S has bagged an order from Spain. Suzlon Wind Energy A/S, Denmark, has bagged an order for supplying 42.5 MW wind turbines from Eolia Renovables SRC SA and Iniciativas Energticas SA. Suzlon would start executing the contract for turn-key erection of a wind farm Jerez (42.5 MW) by installing 22 units of Suzlon's S88 2.1 MW turbines. Spain has an installed capacity exceeding 11,000 MW and is estimated to have yearly installations of around 2,000 MW from 2008-2011.

Promote biodiesel as global crude prices rise

January 7, 2008. Rising global crude oil prices may not have anything positive for the economy, but they provide an opportunity to tap other energy resources like biodiesel. Global rise in prices of crude augurs well for biodisel. It has already become quite profitable. NCAER has asked for government intervention to promote cultivation of feedstock for biodiesel. To achieve significant scale of production jatropha would have to be grown on a larger scale requiring cultivation by a large number of farmers and investments by small and large entrepreneurs to set up processing units. However, the growth of biodiesel programme in the country over the past years has been quite slow. One of the primary reasons for this is the failure of the government to help create appropriate local level institutions like marketing channels and to erect a system of dissemination of information and technology to farmers. Therefore, the government should launch a campaign highlighting the benefits, costs, cultivation techniques, sources of seedlings and other inputs, prices of seeds, purchasing agencies for seeds and simultaneously set up the required state agencies to coordinate R&D with cultivation. 

GNFC invests $20 mn on clean development projects

Jan 7, 2007. Six eco-friendly wind power generators installed by the State-owned Gujarat Narmada Valley Fertilizers Company Ltd (GNFC) in Kutch district of Gujarat with an investment of Rs 55 crore have gone on stream recently. The company had ventured into three eco-friendly projects totalling an investment of Rs 78 crore ($19.87 mn), which in the long run are expected to have a positive impact on the environment. The projects include power generation through wind turbo-generators, reduction in greenhouse gas emission at Weak Nitric Acid Plant through clean development mechanism (CDM) under the Kyoto Protocol and environment-friendly utilisation of dry fly ash, for value addition. All six machines are generating power since December 2007. This project will help reduce the net power requirement from State electricity grid and provide clean power. The second eco-friendly project, although the nitrous oxide (commonly known as laughing gas), generated in the company’s Weak Nitric Acid plant, is non-toxic in nature and has no adverse effect on living beings, it contributes to global warming and climatic changes. To reduce the emission of this gas, GNFC installed a special catalyst in the plant with an investment of Rs 8 crore ($2 mn). GNFC uses about five to six lakh mt of coal annually in addition to other fuels to sustain production of fertilisers and chemicals. As a result, about 1.8 lakh mt of ash is generated which is stored in wet form. GNFC has invested Rs 15 crore ($3.8 mn), whereby 70 to 80 per cent ash generated from coal would be separated in the dry form which can be utilised by cement/brick manufacturers. With this new venture, GNFC would be collecting only about 0.4 lakh mt of ash in wet form and no storage facility would be required for the balance 1.4 mt of dry ash, which in turn would save water and power. The project is expected to be completed by October 2008.

Investors seek power from $23 bn renewable energy

January 6, 2008. The ongoing global negotiations on climate change may take the same dimension as the much hyped-up WTO rounds. And once that happens, the demand for clean energy will increase manifold as each country will make a serious bid to convince the world that it has been increasing the share of green energy to contain global carbon emission. For India, however, the statistics on the generation of renewable energy, which includes small hydro, wind and solar energy, has not been dismal once it is compared with the conventional power generation in the country. During the 10th Five Year Plan (2002-’07), for instance, the capacity addition of renewable energy (6000 MW) was 25% of that of conventional sources of power such as mega hydro and thermal projects. The renewable energy sector in India can witness a monumental growth if production costs can be substantially lowered. At present, generating 1 MW of solar energy, for example, costs Rs 20 cr ($5 mn) against Rs 4 cr ($1 mn) to Rs 6 cr ($1.5 mn) for generating 1 MW of hydro or thermal project. And that poses a major threat to the popularity of renewable sources. Minister of state for new and renewable energy Vilas Muttemwar hints that a big business house in India may set up manufacturing facilities to produce 30,000 tonnes of polysilicon annually. The project is quite ambitious as the generation of 1 MW of solar energy needs 10 tonnes of polysilicon. The minister says that power will be a long-term bet. Power generation will be a long story in India. Within that space, renewable energy will remain important as debates over global warming have intensified. Significantly, if the government can achieve its target of generating 14,000 MW of renewable energy in five years, it will bring in an investment of around Rs 90,000 crore ($22.89 bn)) during the 11th Plan period. Of that, around 9,000 MW will be contributed by wind energy, whereas the rest will come from small hydro units, bio-mass and solar energy. Renewable energy may turn out to be a good bet for investors as the government has pushed for incentive-based schemes both for wind and solar energy. Experts also agree. According to William H Davidow, a celebrated Silicon Valley-based VC, the next round of investments would largely be in solar technology and environment-based companies. “The trend may take time to come to India but it’s pretty much the emerging trend for the West in 2008.

MNRE for MW-capacity solar power generation

January 6, 2007. The Ministry of New and Renewable Energy (MNRE) is all set to promote the setting up of megawatt-capacity grid-connected solar power generation in the country. Solar thermal power plants have been installed globally in MW-capacity range but no such plant has been installed in the country till now. Currently the country gets solar energy equivalent to over 5,000 trillion kWh per year and the daily average solar energy incident over different parts of India is about 4-7 kWh per square metre, depending on the location. While the largest solar photovoltaic (PV) plant in India is of 200 kwp capacity currently, the experience with grid-connected PV plants was limited mostly to 25 kwp capacity plants with battery backup, and these plants are underpinned by MNRE subsidy. Owing to the high initial capital cost of solar power plants and the cost of electricity from such plants (Rs 15 per kWh in grid without battery as opposed to Rs 1.75-3.50 in small hydro), the Ministry has decided to provide a generation-based fillip. This would consist of a maximum of Rs 12 per kWh for electricity generated from solar PV, and Rs 10 per kWh for electricity generated through solar thermal power plants and fed to the grid from a grid-interactive solar power plant of one MWp and above capacity. This subvention would be provided to project developers at a fixed rate for a span of 10 years and the MNRE incentive would be worked out taking into account the tariff provided by the utility to the solar power producer. The utilities are expected to purchase solar power at the rate usually provided by them for medium-term power purchase or the highest rate fixed by the State Electricity Regulatory Commission for purchase of power from any other renewable energy source.

Trial to produce power from ocean begins

January 3, 2008. Production of power on trial basis under the Ocean Thermal Energy Conversion Project at Kulasekarapattinam in Tuticorin district is on. The ocean thermal energy conversion involved vaporisation of liquid ammonium using the sudden drop in the temperature within five metres from the surface of the sea water. The vapourised gas was used to operate turbines which generated power. For the ongoing trial production a floating vessel was being used and once the trial was successful, power could be generated on a largescale. Besides, trial production of power from tidal waves was going on in Gujarat. The government was also keen to tap solar energy and wind energy. The TNEB planned to streamline the power supply to agriculture sector. There was a plan to supply power for farms three times a day. The state stood first in wind energy generation by producing 3,684 MW.

India to provide subsidy for solar power plants

January 2, 2008. India will subsidize the running of solar power plants to help develop a renewable energy infrastructure, where high costs can be prohibitive. Renewable energy accounts for about 7.5 percent of India's installed generation capacity of 127,673 MW, a rate that compares favorably with much of the rest of the world. Much of this capacity is wind-based, and the share of solar power is small. The private sector is expected to invest about Rs 10 bn ($253.7 mn) in solar plants eligible for aid under the scheme during the five years to 2012. A maximum capacity of 10 megawatt (MW) in each of the country's states and a maximum of five MW per developer will be considered under the scheme. Capital investors will not be allowed to apply. Developers will sell electricity to state-run utilities and the incentives will be paid to them based on the tariff the utilities provide. The incentives, for a period of 10 years, will be over and above any financial assistance provided by the states, said V. Subramanian.

FERC approves incentive rates to accommodate renewable energy projects

January 7, 2008. The Federal Energy Regulatory Commission (FERC) granted Xcel Energy Services Inc.'s request for incentive transmission rates as part of its plan for six transmission upgrades to meet state renewable energy generation standards and serve increased power demand in the Upper Midwest. Xcel, on behalf of Northern States Power Co. of Minnesota and Northern States Power Co. of Wisconsin (together, NSP Companies), filed proposed modifications to the NSP companies' transmission rate formula under the Midwest Independent Transmission System Operator Inc.'s (Midwest ISO) open access transmission and energy markets tariff. The proposed modifications permit two types of incentive rate treatments for the upgrades, viz., recovery of return on 100 percent of prudently incurred construction work in progress (CWIP) and recovery of prudently incurred costs of transmission facilities that are canceled or abandoned for reasons beyond the NSP Companies' control. The transmission upgrades will help serve renewable energy resources, particularly wind energy. Xcel is looking to build transmission to accommodate between 300 and 700 MW of wind power. The NSP companies are two of Xcel's operating utilities and serve customers in Minnesota, North Dakota, South Dakota, western Wisconsin and part of Michigan's Upper Peninsula. The companies are transmission-owning members of the Midwest ISO. Along with other utilities in the region subject to the Midwest ISO's oversight, the companies have been developing plans to upgrade the regional transmission infrastructure and plan to invest approximately $1 bn in six expansion projects to serve their five-state service territory. The Energy Policy Act of 2005 directed FERC to develop incentive-based rate treatments for transmission of electric energy in interstate commerce. In Order No. 679, as modified by Order No. 679-A, the commission set out the process under which utilities could seek transmission rate incentives. Under Order No. 679, the proposed incentive rate must also be shown to have a nexus between the incentive sought and investment being made. Order No. 679-A clarified the nexus test is met when an applicant demonstrates that the total package of incentives requested is tailored to address the demonstrable risks or challenges faced by the applicant. This nexus test is fact-specific and requires the commission to review each application on a case-by-case basis. FERC conditionally accepted the companies' proposal to modify their transmission rate formula to use projected test year cost inputs, with a true-up mechanism to reflect actual costs. The proposed rate incentives and formula rate modifications are effective Jan. 1, 2008.

SunPower builds plant in Spain

January 6 2008. A corporate affiliate of The Naturener Group, a Spanish-based company, will own the solar power plant, and SunPower expects the system will begin operating in September 2008. SunPower's engineering, procurement and construction expertise will be key to meeting its budget and schedule targets. SunPower Corporation announced in December that it has signed a definitive agreement to acquire Solar Solutions, a solar systems integration and product distribution company based in Faenza, Italy. The acquisition is expected close in Q1 of 2008 and to be accretive to non-GAAP net income in 2008.

Perihelion Global for 5-year biofuel deal

January 4, 2008. Perihelion Global has executed a formal 5 year agreement with Petroleum Distributor Crew Distributing Co., Inc. to purchase, distribute and market Biodiesel from the company's Opp, Ala., Biofuel Refinery. The 5 year Purchase, Distribution & Marketing agreement calls for Crew Distributing to purchase the permitted production capacity of (currently permitted for approximately 3 Million Gallons annually) Perihelion's Opp Refinery. Additionally, Crew Distributing has secured a first right of purchase, distribution and marketing option on all increases in production capacity for the Opp Refinery. The Opp Refinery is planned to have annual production of 60 Million gallons per year with the Phase Two addition. The new 5 year Purchase, Distribution and Marketing agreement greatly expands on the previously announced Letter of Intent for Crew Distributing to purchase 1.2 million gallons of Biodiesel from Perihelion. Under the formal agreement that is being announced, Crew Distributing will also provide logistical transport, distribution, marketing and additional storage capacity and for all Biofuel produced at the Opp Refinery. With over 30 years experience, Crew Distributing, Co., Inc. is a major oil company distributor, operates a fleet of tanker trucks and is licensed, bonded and insured to distribute petroleum fuels, chemicals and lubricants in the Southeastern United States to portions of Alabama, Georgia, Mississippi and Florida. Crew Distributing also owns and operates several major oil company branded retail gas stations.

California suing EPA over greenhouse gas rules

January 2, 2008. California has filed a lawsuit against the US Environmental Protection Agency. The anticipated action comes after the EPA last month denied California a waiver that the state requested under the US Clean Air Act. The requested waiver would have allowed California to impose tougher standards on motor vehicles' emissions than federal regulations require. More than 12 other states are expected to join California's suit against EPA. These states have adopted the California emissions standards for GHG emissions from new cars and trucks. According to California Atty. Gen. Jerry Brown the lawsuit was filed on January 2 in the 9th US Circuit Court of Appeals in San Francisco. He expects that the federal government will try to have the case transferred to an appeals court in Washington, DC. Brown suggested EPA's decision was made after White House pressure, automobile influence, or some other lobbying pressure. The vehicle regulations are part of California's global warming law that seeks to reduce GHG emissions statewide by 25%, or to 1990 levels, by 2020. The denial prompted criticism from California congressional members. Sen. Barbara Boxer and Rep. Henry Waxman, both Democrats chairing committees that oversee EPA.

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