The Economics of Nuclear Energy Markets and the Future of International Security (part – II)
2. THE NUCLEAR CYCLE: RELATING ELECTRICITY GENERATION AND EXTREME THREATS
he nuclear fuel cycle involves multiple steps. Uranium is first mined then milled to obtain uranium oxide concentrate (U3O8, or “yellowcake”). This is the form in which uranium is commonly contracted for sale. For most nuclear reactors, the next step is purification and conversion of the uranium oxide into a gas, uranium hexafluoride (UF6), which enables enrichment. Enrichment can occur in various ways, but the most economic today is the centrifuge process in which the difference in atomic weights allows the percentage of the fissile isotope U-235 to increase from the 0.7 percent typical in natural uranium to the 3–5 percent most reactors require to make the uranium fissile; i.e. made up of atoms that can be split in a self-sustaining chain reaction to release energy. After enrichment, the UF6 gas is converted to uranium dioxide (UO2), which forms fuel tablets that are typically placed inside tubes assembled in bundles to become the fabricated fuel elements for the core of the reactor that will produce electricity. The process from mining to fuel fabrication involves a variety of companies and countries to transform the uranium required into the fuel elements for a typical 1,000 MW(e) light-water reactor. These fuel elements ordinarily require a change out every 12 to 36 months. Six countries presently enrich for the commercial markets: France, Germany, the Netherlands, Russia, the United Kingdom, and the United States. Enrichment is or has recently occurred in Argentina, Brazil, China, Iran, North Korea, Pakistan, and South Africa (Australian House of Representatives, 2006). Many other states have demonstrated interest in enrichment capability. The used fuel elements contain uranium residuals and other elements including plutonium. In an “open” fuel cycle, the used fuel is maintained on-site until its radioactivity decreases and it can be put into final storage. A “closed” fuel cycle involves reprocessing the used fuel into mixed oxide fuel (MOX) and reusing it. Some reactors, such as in France, are constructed to use MOX, while others may need to be converted to use such fuel. In the “closed” fuel cycle, the residual uranium is recovered and this depleted uranium re-enriched. It is supplemented with the plutonium that had been formed in the fuel elements and subsequently chemically separated out. Spent fuel is naturally proliferation-resistant because it possesses such high radioactivity that it cannot be safely handled or stolen. In reprocessing, the natural radioactivity of the residual fuel is reduced thereby making the material easier to handle and harder to detect; also the most fissile plutonium is separated out and could be diverted into weapons. Commercial reprocessing currently occurs in France, India, Japan, Russia, and the United Kingdom (UIC, 2007). The nuclear weapons states—China, France, India, North Korea, Pakistan, Russia, the United Kingdom, and the United States—have all reprocessed plutonium for bomb making. The controversial parts of the fuel cycle include enrichment and fuel reprocessing. Indeed, the same facilities that enrich uranium for electricity generation can also enrich it further for developing nuclear weapons. Highly enriched uranium is composed of at least 20 percent U-235, and weapons-grade uranium is typically 80 or 90 percent, although a less efficient weapon could use lower enrichment levels.2 Nuclear weapons can be made from enriched uranium, plutonium, or a combination of each—and the materials can come from non-commercial nuclear reactors as well.3 These include research reactors (currently about 100 research reactors worldwide use highly enriched uranium) and naval propulsion reactors on icebreakers, submarines, and other ships. For instance, the 2006 North Korean nuclear test is believed to have used plutonium reprocessed from its 5 MW(e) Yongbyon experimental nuclear reactor. States prefer plutonium-based weapons, which - for the same yield - weigh less than an enriched uranium warhead and thus more easily fit on a missile. Terrorists, on the other hand, might prefer enriched uranium, which they could more easily fashion into a nuclear weapon. This duality of nuclear material usage—electricity versus bomb—is a peculiar feature of this energy source. For this reason, any economic analysis that examines the future of nuclear energy markets without integrating the international security aspect would paint a very incomplete picture and lead to inaccuracies. On the other hand, focusing exclusively on the security aspect, disregarding the increasing demand for energy in general—and carbon-free energy sources in particular—combined with more countries calling for their energy independence (whether for oil, gas, or enriched uranium), would be misleading as well. Not surprisingly, then, both energy and security forces have influenced this market and are likely to continue to do so. We now turn to an analysis of demand for and supply of uranium, as well as of the evolution of prices, which, after 20 years of relative stability, have recently set record highs.
3. HISTORICAL PERSPECTIVE ON URANIUM MARKETS
3.1. Demand
Demand for uranium has been increasing since the 1950s. Figure 2 depicts the worldwide evolution of uranium requirements (dashed line) and production (solid line) since the development of nuclear technology. Although the first commercial reactors began to operate in the late 1950s, most of the uranium production was used to satisfy military demand in the 1950s and the 1960s, as the United States and Soviet Union increased their nuclear weapons stockpile (and also increased reliance on nuclear-powered ships4).
Figure 2 World Uranium Reactor Requirements and Production from Mines, 1945–2004
Sources: OECD and IAEA (2005)
As depicted in Figure 2, in 1969 the world annual uranium requirements for reactors were nearly 11,000 metric tons (t).5 In 1976, requirements had almost doubled, and after another 7 years had doubled again, to reach 40,000 tU in 1983. In addition to these direct reactor requirements, and the direct military uses already mentioned, much of the production went into commercial and military inventories—although military stocks are harder to estimate since data are often not publicly available. In the 1970s with utilities building up large stockpiles that amounted to several times the actual annual consumption for electricity production, commercial stock also increased. That build-up was driven by both the oil crisis and a growing concern about a possible uranium supply shortfall induced by more orders for new nuclear reactors. Over time, however, civilian inventories have fallen. Utilities today typically have 1 to 2 years of stocks as strategic reserves or in the pipeline (although in Asia the levels may be higher) and producers have 1 year (OECD, 2007). However, as nuclear power generation has increased and the number of operable reactors in the world continues to rise, so too have overall civilian uranium needs. As discussed in the introduction, as of January 2007, 435 reactors were operable worldwide and 92 others were under construction or planned (even though it is not clear at this point whether all the planned reactors will actually be constructed). Moreover, despite some aging reactors being decommissioned, many reactors are getting refurbished for larger capacities and are extending their operational lives. Thanks to better efficiency of fuel change outs and reduced downtimes, many existing reactors now operate at a much higher capacity factor (output proportion of their nominal full-power capacity). In the United States, deregulation of electricity markets has increasingly pressured utilities to be even more cost efficient and to tighten inventory management. The United States operated its nuclear reactors at an average 54 percent of their capacity in 1980, at 68 percent by 1991, and at 90 percent by 2001 (AUA, 2007). In 2005 world uranium requirements were nearly 66,000 tU (about 173 million pounds U3O8). To put this in perspective, one typical 1,000 megawatt electric nuclear power plant—enough to provide base power for a town of 600,000 people, as mentioned in footnote 1—typically uses 200 tons of natural uranium per annum. The United States remains the largest uranium consumer; its 103 nuclear reactors operating with an average generation capacity of 950 MWe consumed over 20,000 tU in 2005, or nearly one-third of the world’s uranium demand.6 Together, the United States, France, and Japan represent nearly 60 percent of the worldwide demand today (see Table 1, “Uranium required” Volume V, Issue 13). Meanwhile, non-civilian demand for new uranium supplies has nearly disappeared in the established nuclear weapons states as bomb making has generally subsided. Whereas only two nuclear bombs have been used in war to date (on Hiroshima and Nagasaki, Japan, in August 19457), Russia and the United States together possess today around 26,000 nuclear weapons, and France, the United Kingdom, and China together possess about 1,000. These states’ weapons are generally plutonium-based but have uranium components. As discussed above, India, Pakistan, and North Korea are also declared nuclear powers; Israel is presumed to have nuclear weapons; and Iran is suspected of planning to build them. These other states might have some demand for increasing weapon stockpiles (Cirincione, 2007).
Notes:
2 Working the opposite way, it is possible to produce low-enriched uranium by blending down highly enriched uranium (from existing weapons) with uranium with very low levels of isotope U-235. See our discussion of the “Megatons to Megawatts” program.
3 The International Atomic Energy Agency considers 8 kilograms of plutonium and 25 kilograms of uranium enriched to 20% or more of uranium-235 to be quantities sufficient to make a nuclear weapon, although here again lower amounts can be used.
4 Nuclear propulsion does not represent a large demand today. This demand is satisfied generally out of existing state reserves of enriched uranium—with the United States, for example, currently maintaining 50 years’ worth of highly enriched uranium (HEU) naval propulsion reserves (D’Agostino, 2007). Space exploration with nuclear fuel is also considered a potential, however minor, demand.
5 Measures that describe uranium markets vary: kilogram and metric ton of uranium (kgU and tU, respectively) or pound, kilogram, and metric ton of uranium oxide concentrate (U3O8). One ton (or tonne) of uranium oxide concentrate (U3O8) is made out of 1.17788 tU, and one pound uranium oxide (lb U3O8) contains approximately 0.38 kgU. One tU, therefore, can generate about 2,632 lb U3O8.
6 There are now 104 licensed nuclear plants in the United States. The 104th plant, TVA's Browns Ferry Unit 1, is undergoing refurbishment and is expected to restart later in 2007.
7 The atomic bomb dropped on Hiroshima, although comprised of over 60 kg of highly enriched uranium, only fissioned less than a single kilogram.
to be continued…
Courtesy: Risk Management and Decision Processes Center, The Wharton School, University of Pennsylvania
Fundamentals of Crude Oil Prices & the Role of Commodity Futures Markets (part – V)
Continued from Volume V, Issue No. 13…
Analysis of Crude Oil Futures Markets7
Broad Trends in the Participant Structure of Crude Oil Futures Markets
ccording to the publicly-available Commitments of Traders (COT) reports, activity in the West Texas Intermediate (WTI) light sweet crude oil contracts has grown markedly since 2000. In the last three and a half years alone, open interest across all available contract maturities (the number of contracts open at the end of each day) in WTI futures and futures-equivalent (or “adjusted”) option contracts traded on the New York Mercantile Exchange (NYMEX) has more than tripled from around 900,000 contracts in January 2004 to more than 2.9 million contracts in June 2008. During the same period, the number of large traders has also grown – almost doubling since January 2004, from approximately 220 to just under 400 reporting traders. These figures speak to the competitiveness and depth of the crude oil futures markets in the U.S. The COT reports also present the breakdown of the overall open interest between commercial and non-commercial traders grouped into long, short, and spread positions. While all types of positions have grown during the last three and a half years, the COT data suggests that it is the spread positions of non-commercial traders that have had the fastest growth rate. While overall open interest has tripled since 2004, non-commercial spread positions have increased six-fold. Notably, spread positions involve long positions in one month combined with short positions in another month so that spread traders are speculating on differences between futures prices in different months rather than the overall price level of crude oil. Since 2004, both the long and short positions of non-commercial traders have increased. Over that time period, the positions of non-commercial traders have been net long and have also increased; however, the proportion of those positions has been relatively constant as a share of open interest over the last few years, undercutting the hypothesis that an increase in the net long positions by non-commercial traders has pushed prices up recently.
Detailed Structure of Crude Oil Futures Markets
Whereas the publicly available data only identifies “commercial” and “non-commercial” categories of participants in the crude oil futures market, the COT report is built upon confidential CFTC data collected for market surveillance purposes that allows for a more precise categorization. For both analytical and presentational purposes, this confidential data was aggregated into broad sub-categories. Sub-categories for commercial participants include commercial producers, commercial manufacturers, commercial dealers, and swap dealers. Sub-categories for non-commercial participants include hedge funds and floor brokers and traders. These six commercial and non-commercial sub-categories account for approximately 80 percent of open interest in the crude oil futures market. Figures 10 and 11 show that the increases in both commercial and non-commercial activity, as previously summarized in publicly available COT data, are broad-based. Among the non-commercial participants, both hedge funds and floor brokers and traders exhibit robust growth in open interest.
Figure 10 WTI Average Open Interest by Non-Commercal Participants, 2003-2008
Source: Büyüksahin et al, CFTC, 2008
Among commercial traders, much of the growth in open interest comes from greater activity by two categories – commodity swap dealers and commercial dealers. While commercial dealers utilize futures trading to manage price risk for the purchase and sale of physical commodities, commodity swap dealers use futures markets to manage price risk stemming from their OTC swap business (as discussed previously) and also to handle the majority of commodity index trades in the futures markets. To improve market transparency, in June 2008, the CFTC issued a Special Call for, among other things, disaggregated information concerning OTC swaps from swap dealers and commodity index traders.
Figure 11 WTI Average Open Interest by Commercial Participants, 2003-2008
Commodity index funds have grown significantly during the past few years, bringing significant long positions to commodity markets. In the futures markets, these funds have typically been long-only funds, buying near-term futures contracts and rolling their positions into more distant months as the delivery month approaches. Commodity index funds are often utilized by pension funds and other large institutions that seek commodity exposure to diversify existing portfolios of stocks and bonds and this exposure is provided by swap dealers. Although commodity swap dealers’ gross positions have grown significantly, swap dealers' net positions decreased substantially between 2006 and June 2008. (Figure 12) This suggests that flows from commodity index funds have been offset by other swap dealer activity and thus have not necessarily contributed to the recent price increases in crude oil.
Figure 12 WTI Net Positions of Commercial Participants, January 2003 to June 2008
Across all maturities, the aggregate position of swap dealers in WTI crude oil futures contracts was only marginally net long as of the end of June 2008 and was net short on average during the first five months of 2008. This means that swap dealers’ futures positions, on balance, were poised to benefit more from a fall in crude oil prices than from a rise in crude oil prices.
Term Structure of Futures Prices
The term structure of futures prices depicts a series of prices for contracts that mature at given dates in the future. It is similar to a yield curve for Treasury bonds in the way information is both presented and interpreted. Futures are said to be in “contango” when prices rise with maturity and in “backwardation” when prices fall with maturity. Over time, the whole term structure may shift upward or downward, as well as rotate.
Figure 13 presents a time series of the term structure of crude oil futures prices between March 2004 and May 2008. The solid red line depicts the evolution of the cash (spot) price of crude oil, while each dashed curves shows the terms structure of crude oil futures prices at selected points in time.
Figure 13 Term Structure of Crude Oil Prices
Source: Energy Information Administration and the Commodity Futures Trading Commission. Prices for futures contracts shown are for liquid markets (1000 or more contracts).
According to Figure 13, during the last four years, the term structure has been steadily shifting upward. With a few exceptions, futures prices have been mostly in backwardation, that is, distant prices have been lower than near-term prices. The shape of the term structure provides information about inventories to market participants. Expectations of higher prices in the future are generally viewed as a signal to build up physical inventories.
Crude oil inventories can also shed light on whether the price run-up depicted in Figure 13 reflects mostly fundamental supply and demand factors. Artificially high prices will create an imbalance between supply and demand that should lead to inventory accumulation. However, as shown in Figure 14, inventories of crude oil and petroleum products in the United States and in OECD countries have generally declined over the past year. Based on these inventory figures, current prices, although high, are not prompting the inventory accumulation that would be associated with artificially high prices.
Notes:
7 This section largely summarizes findings in an upcoming CFTC research paper analyzing changes in the level and composition of end-of-day open interest in the U.S. crude oil futures market. See Büyükşahin, Haigh, Harris, Overdahl and Robe: “Market Growth and Trader Participation in Futures Markets,” CFTC – Office of the Chief Economist Working Paper, forthcoming, August 2008.
to be continued…
Courtesy: Interagency Task Force on Commodity Markets, Interim Report on Crude Oil, Washington D.C.
NEWS BRIEF
OIL & GAS
Jindal Steel to float petroleum subsidiary
September 22, 2008. Naveen Jindal-led Jindal Steel and Power (JSPL) plans to float a wholly-owned subsidiary Jindal Petroleum (JPL), which would look after the domestic and overseas oil and natural gas operations of the company. It is learnt that the firm has acquired exploration rights to one oil block in Rajasthan, four blocks in Georgia and three blocks in Peru (South America). Recently, the company along with Namibia-based Enigma Oil and Gas Exploration (EOGE), received exploration rights to three onshore oil blocks in the Maranon and Huallaga basins in northern Peru. EOGE is a wholly-owned subsidiary of Chariot Oil & Gas, an independent oil and gas exploration group. JSPL owns 50% in Block 159 in the Maranon basin, and 80% interest in each of the other two viz., Block 147 in Maranon and Block 153 in the Huallaga basin. The remaining stake in the blocks is held by EOGE. According to sources, the company has also been allotted exploration rights to an oil block near Jaisalmer, Rajasthan. The block is spread across an area of 1,400 sq km. In addition the firm has acquired four blocks in Georgia and is in the process of acquiring few blocks in Bolivia. In the upstream sector, the company’s long-term plan is to acquire exploration blocks besides producing fields.
Punj Lloyd bags $42 mn drilling contract in Libya
September 22, 2008. Engineering firm Punj Lloyd has secured a contract worth $ 42 mn (Rs 190.67 crore) from Libya-based Waha Oil Company for deployment of two onshore rigs in Libya. According to Punj Lloyd its drilling services subsidiary Punj Lloyd Upstream has secured the contract for drilling exploratory wells in the Gialo oilfield of Sirte Basin. Waha Oil Company, the second largest crude oil producer in Libya, is a joint venture between government-owned National Oil Company and US-based Conoco Phillips, Amerada Hess and Marathon Corporation.
RIL to account for 40 pc of India's energy output
September 22, 2008. According to RIL Chairman and Managing Director Mukesh Ambani Reliance Industries will account for about 40 per cent of the country’s energy production in the next 18 to 24 months, putting the company on track to earn a quarter of its profit from oil and gas production, from 5 per cent now. The total hydrocarbon output from the Dhirubhai 6 (D6) block in the Krishna-Godavari basin, the field that is expected to more than double India's gas output, will rise to 550,000 barrels of oil equivalent a day (boed) by March 2010, In monetary terms, it’s Rs 86,000 crore ($18.9 bn) a year. The initial production from the block was 5,000 boed. Ambani is investing $5.2 bn to develop the KG basin. The company will start pumping natural gas from the KG basin in the January-March quarter, which is within the broad target of the company but later than the government's forecast that production would begin by November. The company will produce 90 cubic metres of saleable gas a day starting in January. The same quantity of gas is being produced and that's being re-injected into the system. The gas pipeline connecting the east and west coasts is almost complete. The pipeline connects all existing gas networks of GAIL India and Gujarat State Petronet Ltd. The KG-D6 block in the KG basin, located in the east of Andhra Pradesh coast, was awarded to RIL under the first round of new exploration and licensing policy (NELP-I).
ONGC's capex to rise by 10 pc
September 20, 2008. Oil and Natural Gas Corp plans to incur Rs 19,338 crore ($4.2 bn) capital expenditure in the current financial year to March, up 10 per cent on year. For the sake of prudent fiscal management as also sustaining strong financials, it is desirable to retain substantial funds for capex investments. The company plans to increase its investment in exploration and production by 52 per cent in the current Five Year Plan ending 2011-12. ONGC is likely to get 20 blocks offered under the latest round of New Exploration and Licensing Policy. The company plans to invest $5 bn on developing its two blocks, KG-DWN-98/2 and KG-OS-DW-IV, in offshore Krishna-Godavari Basin.
ONGC to put $4.2 bn for oil, gas hunt
September 19, 2008. ONGC would invest Rs 19,338 crore ($4.2 bn) in oil and gas hunt during the current fiscal, about 10 per cent more than Rs 17,651 crore ($3.8 bn) in the previous year. Improving the reserve replacement ratio by intensifying exploratory efforts is company's first priority. Improving recovery factor, arresting decline in mature fields and expeditious development of discovered fields are the other priorities. ONGC declared Rs 14 per share final dividend for 2007-08, which is over and above Rs 18 per share interim dividend in December. ONGC will invest over $5 bn in developing gas finds in eastern offshore Krishna Godavari basin blocks KG-DWN-98/2 and KG-OS-DW4. The company's overseas arm ONGC Videsh Ltd is targeting 39.47 million tons of oil and oil equivalent gas from overseas properties in XIth Plan as against 23.25 million tons during Xth Plan.
RIL hikes gas spend by $2.4 bn
September 19, 2008. Reliance Industries (RIL), the country's largest company by market capitalisation, is planning to spend an additional Rs 10,000 crore ($2.47 bn) to produce natural gas from discoveries that were not a part of the original development plan in the Krishna-Godavari (KG) basin. The company has already received an approval to spend Rs 50,000 crore ($11.3 bn) for commercialising two of its biggest gas discoveries in the D6 block located in the KG basin. In a letter to oil regulator Directorate General of Hydrocarbons (DGH), the company has submitted one more development plan for Rs 10,000 crore ($2.47 bn) as additional capex (capital expenditure) for the block. With this, the total capex will go up to Rs 60,000 crore ($13.2 bn). The plan is yet to get a final approval from DGH and the ministry of petroleum and natural gas. RIL currently owns a 90 per cent stake in the KG basin's D6 block, where 18 oil and gas discoveries have been reported till date. The remaining stake is with Niko Resources of Canada. The new plan submitted to DGH is for development of eight discoveries, which will be linked to the existing infrastructure the company has put up for producing gas from its two previous discoveries (D1 and D3) in the D6 block of the KG basin. The billionaire Mukesh Ambani-controlled entity had submitted an initial development plan of Rs 10,000 crore ($2.47 bn) to produce 40 million metric standard cubic metres a day (MMSCMD) of gas in 2004. After 10 months of detailed study and review, the plan was finally approved by DGH and the ministry. With this, the capex for KG D6 had become Rs 50,000 crore ($11.3 bn). The ministry and DGH are expected to discuss the cost escalation as it would restrict the revenue of the government.
RIL bags oil and gas block in Peru
September 19, 2008. Reliance Industries has for the first time teamed up with China's China National Petroleum Corporation (CNPC) to win an oil and gas block in Peru in an effort to expand presence in Latin America. Reliance Exploration and Production DMCC, a fully owned subsidiary of Reliance Industries, along with CNPC and Argentina's Pluspetrol won rights to explore for gas in Block 155, in the southern highland department of Puno, next to the border with Bolivia. Meanwhile, Jindal Steel and Power teamed up with Enigma Oil and Gas Exploration (Pty) to win onshore blocks 147, 159 and 153 in Peru's 2008 bidding round that auctioned 17 new oil and gas blocks. Reliance-CNPC-Pluspetrol offered royalty of 24.58 per cent to the Peruvian government, while Jindal-Enigma offered 30.02-32.03 per cent royalty.
OVL to get 15 pc less oil from Russian field
September 18, 2008. ONGC Videsh (OVL), the overseas arm of Oil and Natural Gas Corporation (ONGC), will get 15 per cent less crude oil from the Sakhalin I oil field in Russia from next year due to declining reserves. OVL, which has a 20 per cent stake in the oil field in Russia's far east, currently gets around 38,000 barrels of oil per day of the total production of 190,000 barrels per day. OVL's share is expected to fall to 32,000 barrels even as the overall production from the field is likely to come down to 160,000 barrels from next year. The field is witnessing a drop in production since last year. OVL, a 100 per cent subsidiary of India's biggest oil producer, paid $1.7 bn for a 20 per cent stake in Sakhalin I, which reached a peak production (the highest rate of output) of 250,000 barrel in February 2007. OVL, which has 38 oil and gas assets in 18 countries, currently produces around 176,000 barrels per day from its assets. Its parent ONGC produces around 600,000 barrels from its oil fields in India. The Sakhalin I consortium – Exxon with 30 per cent stake, Russia's Rosneft with 20 per cent, OVL's 20 per cent and Japan's Sakhalin Oil and Gas Development Co with 30 per cent stake – plans to enhance production from the field by 2010 after implementing various high recovery methods. OVL does not bring its share of oil from its overseas assets to India. Instead, it brings the money it gets from selling the oil in global markets and uses that money to buy more oil assets. However, it had brought one cargo of Sakhalin I oil to its subsidiary Mangalore Refinery and Petrochemical refinery in Mangalore in early 2007.
PSU to sell 10 pc in Cauvery block to Norwegian firm
September 17, 2008. ONGC will sell 10 per cent stake in a Cauvery basin deep-sea block to Rocksource ASA of Norway. ONGC, which is the operator of block CY-DWN-2001/1 with 55 per cent stake, signed an agreement to sell 10 per cent of its stake to Rocksource. OIL and Brazil's Petroleo Brasileiro SA (Petrobras) are its other partners in the block that was awarded to ONGC in the first bidding round under New Exploration Licensing Policy (NELP) in 1999. The agreement to assign participating interest in the block is subject to the consent of OIL, Petrobras and the government. ONGC would hold 45 per cent participating interest in the block post assignment of 10 per cent. Company had made a gas discovery in the block and has submitted a development plan for the same.
Downstream
RPL's second refinery to go onstream in November
September 23, 2008. Reliance Petroleum (RPL) plans to begin production at its second refinery in Jamnagar by mid-November. About six weeks of work is remaining, including the synchronisation of almost 40 units. The pre-commissioning work is almost over. The refinery, adjacent to the existing unit, was initially planned to begin operations in December. Now it seems that the project could be fully commissioned in six to seven weeks. RPL is setting up the export-oriented refinery with a capacity to process 580,000 barrels a day of crude oil. It is also setting up a 900,000-tonne/year polypropylene plant at Jamnagar. The refinery project is being set up at a cost of Rs 27,000 crore ($5.9 bn) and is being funded through a mix of equity and debt. After the commissioning, Reliance’s Jamnagar units, including the existing refinery, will be the world’s largest single-location refining facility. The entire refinery complex will have a total processing capacity of 1.24 million barrels a day. The current production of the existing unit is 0.66 million barrels a day. The RPL refinery project, which was flagged off in December 2005, will have the ability to process heavy and sour crude, apart from producing value-added products. It will be one of the most complex refineries in the world with a Nelson Complexity Index of 14.0. With Asia expected to contribute 60-70 per cent of the world’s incremental oil demand, the refinery will focus on these markets for exports. RPL has strategic alliance with Singapore-based Chevron India Holdings, which currently holds 5 per cent stake in the company, for the project. French major Bechtel is the engineering contractor for the project.
BPCL plans $1.4 bn capex in three years
September 22, 2008. State-owned Bharat Petroleum Company Ltd has planned a capex of around Rs 6,700 crore ($1.4 bn) over the next three years. The capital expenditure for the next two years would be Rs 2,776 crore ($610.7 mn) and in 2010, it will be Rs 4,000 crore ($880 mn). Besides, Bharat Petroleum's subsidiary, Bharat PetroResources, had drawn up plans with a committed investment of Rs 1,500 crore ($330 mn) for the development of 24 blocks. The company's refining capacity would go up to 24 million metric tonnes per annum from 22.5 MMTPA after the completion of capacity expansion and modernisation of its Kochi unit. This would be further augmented with the setting up of six MMTPA refinery in Bina, Madhya Pradesh. The entire cost of the project was estimated at Rs 10,378 crore ($2.2 bn). The petro company has drawn up plans to diversity into other related areas such as bio-diesel. BPCL has floated a joint venture company called Bharat Renwable Energy along with Nandan Biomatrix and Shapoorji Pallonji & Co for producing bio-diesel. The JV firm will produce one million tonne of bio-diesel by 2015 with an investment of Rs 2,200 crore ($482 mn). It would plant jatropha in one million acres of wasteland and produce one million tonnes of jatropha by 2015. Bharat Petroleum is setting up a one-MW capacity grid connected solar farm in Punjab to generate electricity and make it available to the state.
HPCL fast-tracks Punjab refinery
September 23, 2008. Hindustan Petroleum Corporation (HPCL), the state-owned oil refining and marketing company, has decided to put its Bhatinda refinery in Punjab on fast track. It also plans to commission the same by March 2011, a year ahead of schedule. The company is also looking at increasing the production capacity of the refinery from the planned 9 mtpa to 11 mtpa. This refinery will give the company access to a huge market in the north. HPCL and L N Mittal’s Mittal Energy hold 49 per cent stake each in the refinery with the rest owned by financial institutions. The project is being financed in a 1.5:1 debt-equity ratio with an equity investment of Rs 3,577.50 crore ($783.8 mn) each by Mittal and HPCL. The refinery project was approved more than a decade back but was delayed because of HPCL’s inability to finalise a partner. Subsequently, the company signed separate agreements with Saudi Aramco and British Petroleum (BP). The current joint venture with Mittal Energy was signed last year. In addition, HPCL-Mittal combine is also laying a 1,100-km crude oil pipeline from Mundra port in Gujarat to Bhatinda and building a crude oil terminal and associated facilities at an estimated cost of around Rs 2,700 crore ($591.5 mn). The third-largest state-run refiner, which is incurring losses by selling petrol, diesel and kerosene at below-production cost, has planned a capital expenditure of around Rs 3,000 crore ($657.3 mn) for FY09. The company plans to spend around Rs 2,000 crore ($438.2 mn) towards exploration and production alone in the next five years.
IOC to raise refining capacity to 80 mt by ’10
September 19, 2008. IOC is planning to raise refining capacity to 80 mt by 2010 from 60.2 mt now. The country's biggest refiner is planning to expand its refining capacity and retail network to meet rising demand in Asia's fourth-largest economy. Economic growth faster than 8% in China and India, coupled with increasing car ownership among their combined population of 2.45 bn people, is expected to more than compensate for falling US demand. Power shortages and fuel substitution continue to drive oil demand in China and India.
RIL to set up fuel trading arm in US
September 17, 2008. After Singapore and London, India's largest private sector company Reliance Industries now plans to set up a trading arm in the United States to sell fuel from its refineries at Jamnagar in Gujarat. The company operates a 33- million tonne export-oriented refinery at Jamnagar and its subsidiary Reliance Petroleum is likely to commission a 29-million tonne refinery purely for exports in the next few months. About 40 per cent of the petrol and diesel from the new refinery is likely to land up in US. Europe is the other major market the company is looking at. Reliance, which has hired top Shell executives to head its trading arms, is likely to set up an arm in Houston.
City gas network gets EoI from just Reliance
September 23, 2008. Reliance Industries is the only company that has submitted expression of interest (EoI) for the proposed city gas distribution or CGD networks in Tamil Nadu, Petroleum and Natural Gas Regulatory Board (PNGRB) chairman L Mansingh said. PNGRB has identified six cities in the state including Chennai, Coimbatore, Salem, Tiruchy and Tuticorin to start with. The proposed investment would be Rs 400-800 crore ($87.6 – 175.2 mn). For a city like Chennai, it would be around Rs 600 crore ($131.4 mn). To lay an 18 inch pipe for a km, the cost would be between Rs 3.5 crore ($0.7 mn) and Rs 4 crore ($0.8 mn). The regulator is of the view that these projects will change the current scenario like shortage of fuel and LPG significantly and proper infrastructure and government support should be in place including the single window clearance system for the investors. The regulator had already approached other state governments, of which Andhra Pradesh and Gujarat responded positively for the single window clearance mechanism. It expects the same from the Tamil Nadu government. He said in the first phase, six states of Andhra Pradesh, Tamil Nadu, Gujarat, Maharashtra, Uttar Pradesh and Haryana will have CGD networks. So far, PNGRB has received 73 EoIs from global and domestic players including Reliance Industries Ltd, GAIL, Gujarat Gas, GSPL, Adani Group and the existing CGD players, which were permitted by the government before the regulator was formed. The regulator is conducting roadshows across the country to encourage more players to enter the segment. Companies, which are taking up the projects, will get infrastructure rights for 25 years and marketing rights for 5 years.
OVL may take $2.8 bn loan for Imperial buy
September 20, 2008. ONGC Videsh (OVL), the overseas investment arm of state-run Oil and Natural Gas Corporation (ONGC), may take a $1 bn short-term loan to partly fund the $2.8 bn acquisition of London Stock Exchange-listed Imperial Energy. The company is likely to raise the remaining $1.8 bn in the form of a loan from its parent company ONGC at 6 per cent interest rate. The current global financial markets turmoil may make it difficult for the company to raise the loan as a liquidity crisis grips financial institutions. The options include selling part of its 8.83 per cent stake in state-owned refiner Indian Oil Corporation and 4.83 per cent stake in gas marketer GAIL. Last month, ONGC had announced that it had entered into an agreement to buy Imperial Energy, which has oil and gas assets in Russia’s Siberian region and north Kazakhstan. ONGC’s fully-owned subsidiary OVL has applied to the Russian government earlier this month for the approval of the deal, which is necessary as Imperial’s oil producing assets are in Russia. A committee headed by Prime Minister Vladimir Putin, which screens foreign investments in strategic sectors, will decide on OVL’s application. The Russian government has unofficially approved the deal. A written approval is expected by the end of this month. Once the approval comes, OVL will make an open offer to acquire controlling stake in Imperial.
Petronet LNG may raise rates in January
September 19, 2008. Fertiliser and power plants, which use gas supplied by Petronet LNG, will see their fuel bills rise by up to 50 per cent from January when the country's largest importer of natural gas goes for a price revision. This is expected to increase cost of production for both power and fertiliser units by up to 30 per cent, as fuel constitutes a significant portion of the total cost. As fertiliser prices are capped by the government, the already high fertiliser subsidy bill is also expected to rise significantly. The management of Petronet LNG has indicated that the price of long-term gas could go up by around a dollar. Petronet has a facility to regassify imported natural gas here. Petronet imports 5 mtpa of liquefied natural gas (LNG) from Qatar-based Ras Gas, one of the world's largest LNG producers, at $2.53 per mBtu. This price is arrived at through a formula which connects the price of the gas to the Japanese Crude Cocktail, a variety of oil which trades at around a couple of dollars discount to the Brent crude oil. The current gas price is benchmarked to oil prices of around $30 per barrel. Oil is currently trading at around $90 per barrel. Petronet sells gas to transporters such as GAIL India and Gujarat State Petronet (GSPL) – who in turn distribute it to end users such as fertiliser companies, power plants and city gas distribution companies at around $4.5 per mBtu after addition of transportation cost and taxes. Its main buyers are fertiliser companies such as Kribhco, Iffco, Chambal Fertilisers and Shriram Fertilisers. The country's largest power producer NTPC also buys gas from Petronet. Petronet also imports another 1.25 million tonnes of LNG from Ras Gas, the delivered price of which is close to $8 per mBtu. This contract expires in September 2009, and is meant solely for the power plant at Dabhol in Maharashtra. In order to provide relief to the beleaguered Dabhol plant, the government had last year, pooled the prices of the gas from the two contracts. This resulted in an average delivered price of around $5.9 per mBtu for LNG from Petronet’s Dahej terminal. The price for the short-term LNG contract is also subject to a review in January, which could push up prices to around $15 per mBtu, driving up the average price of the two contracts to around $9 per mBtu in January 2009. The 25-year LNG contract with Ras Gas has a pricing formula that has a provision of monthly price revisions from January 2009 in line with the price of Japanese oil.
India crude oil basket marginally up at $86.96 per barrel
September 19, 2008. India’s crude oil basket on September 17, rose 54 cents a barrel to $86.96 (about Rs 4,100), as per the data released by the petroleum and natural gas ministry. On September 16, the Indian basket had fallen to an eight-month low of $86.42 per barrel. The Indian crude basket comprises Oman-Dubai sour grade crude and Brent dated sweet crude in a 62.3:37.7 ratio. On September 17, both Dubai and Oman crude prices rose by 71 cents a barrel each to $86.86 and $87.06, respectively. Dated Brent crude also rose by 26 cents a barrel to $86.95. The Indian crude basket has been falling in line with the global crude prices and has declined about 39 per cent since July, when it touched a record high of $142.04 a barrel. The Indian basket has averaged $98.25 per barrel so far this month, down over 13 per cent from August average of $113.05.
First-time explorers to gain less despite aggressive Nelp bidding
September 23, 2008. Indian companies, which are keen to gain the experience of operating an oil block, have bid aggressively in the latest round of the New Exploration Licensing Policy (Nelp VII) where these firms will not recover any of their investment in the block in case of an oil or gas discovery. This apart, they will also give away a significant portion of their profits to the government. Interlink Petroleum, a Bombay Stock Exchange-listed company which reported sales of Rs 1.18 crore ($0.25 mn) and a loss of Rs 70 lakh in 2007-08, and EnSearch, a privately held company based in Noida, has tentatively won one small block under Nelp VII by bidding for zero cost recovery and 72 per cent sharing of the profits with the government. These companies want the label of being operators of an oil block. That opens up windows for them to bid for bigger and more prospective blocks in future auctions in India as well as overseas. These blocks, called ‘S-block’, received the maximum number of response and do not require prior experience of exploration for bidding and the hydrocarbon reserves are small compared to other blocks. Companies winning the S-blocks have to drill a minimum of one well, which will cost around $10 million at today’s market rate for hiring a rig and other related costs. In addition, the firms will have to complete a minimum work programme including seismic surveys. Indian Oil Corporation (IOC), on the other hand, has also gained provisional control of another block under the auction by bidding for 7 per cent cost recovery and an 81 per cent share of the profits with the government. IOC beat Interlink-Ensearch in this block after the latter offered to give 71 per cent of its profits to the government compared with 81 per cent offered by the state-run oil major. Under the Nelp regime, companies have the option of recovering the entire investments they make in an oil or gas block from the sale of the hydrocarbons. These companies then start sharing the profits with the government from the day they have recovered the costs. Reliance Industries, for example, will recover the entire $11.2 billion it is spending in producing gas from its Nelp I block in the Krishna-Godavari basin before it starts sharing the profits from the sale of the gas with the government. If Interlink-Ensearch and IOC discover oil or gas in their Nelp VII blocks they will start sharing their profits with the government from the first day itself. IOC’s bid to recover 7 per cent of its investments means that the company will set aside only 7 per cent of the profits from the sale of the oil from the block every year in order to recover its total costs. If the companies do not complete the work programme like undertaking seismic surveys and drilling one well they have to pay a penalty to the DGH. Nelp VII blocks will be awarded by the end of this month. An empowered committee of secretaries is likely to meet this week to discuss the Nelp VII awards. The recommendations of the secretaries’ committee will then have to be approved by the Cabinet Committee on Economic Affairs, before the final contracts are signed with the winners of the blocks.
Rupee fall to help ONGC margin
September 20, 2008. ONGC expects to earn around Rs 2,880 for every barrel of crude oil in the quarter ending September. However, in dollar terms its realisation from a barrel of crude oil in the second quarter is expected to fall to below $65 per barrel from $69 per barrel in the first quarter. ONGC charges the local refiners in dollars which helps it to benefit from the depreciation in the local currency. The revenues from the sale of crude oil is projected to be around Rs 15,275 crore, or $3.51 bn, between July and September this year at the average exchange rate of around Rs 43.41 per dollar. In the first quarter of the financial year, the average exchange rate was Rs 41.73 per dollar. ONGC’s crude oil is benchmarked to a variety of crude oil called Nigerian Bonny Light, which trades at a premium of around $3 per barrel to Brent crude oil, the international benchmark. ONGC’s crude oil gross price averaged $125 per barrel in the first quarter. It, however, gave discounts of around $56 per barrel to the state-owned oil refiners as part of the oil subsidy burden.
‘Pricing key component of new energy policy’: PM
September 20, 2008. The Prime Minister, Dr Manmohan Singh, has said the issue of energy pricing and acquisition of overseas assets by Indian utilities would be among key focus areas of a new integrated energy policy on the anvil. Dr Singh also struck a cautionary note on India’s vulnerability to uncertain global prices while chairing a meeting of the Planning Commission, which was convened to discuss the Draft Integrated Energy Policy prepared by the panel. Energy pricing is a key component of energy policy, since appropriate energy prices must provide the incentives needed for efficient use of energy and also the incentives for investment in expanding supplies. Prices must be market determined but subject to optimal energy taxes to reflect externalities. The policy will also seek to create a mechanism for co-ordination between various ministries like petroleum and natural gas, coal, power, water resources, atomic energy, new and renewable energy, and finance. The Planning Commission Member (Energy), Mr Kirit Parikh, said there was a need to allow use of infrastructure facilities such as gas pipelines and electricity transmission lines on a common carrier basis. The policy will also seek to address impediments preventing private investment in the sector and also look to promote energy efficiency.
Oil India to consult govt before public issue
September 18, 2008. OIL, the second-largest government-owned oil producer, will consult the finance ministry before taking a decision on its proposed initial public offer (IPO) of shares. The decision to consult the disinvestment division comes at a time when equity markets around the world are being hit by collapse of investment banks in the US. This has forced foreign institutional investors to pull out money from the Indian markets leading to 6.35 per cent, or Rs 294,225 crore ($63.5 bn), of wealth being wiped out from the markets in the last three days. The company was initially planning to open its public offer on November 10 and list its shares on the stock exchanges by November 29. The company got clearance from market regulator Securities and Exchange Board of India (Sebi) for the IPO on September 11. This approval holds for 90 days. If OIL does not open its issue before December 10, the company will have to reapply for the market regulator’s approval. The company plans to offer 10 per cent of its expanded capital base to the public. Another one per cent will be offered to employees. The central government, which currently holds around 98 per cent stake in the company, will also offload 10 per cent of its stake in the company to state-owned refiners, Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation at the issue price.
‘No brakes on existing city gas firms’: PNGRB
September 17, 2008. The Petroleum and Natural Gas Regulatory Board (PNGRB) has clarified that existing city gas distribution (CGD) companies can continue their operations provided they comply with the minimum safety standards the board is notifying separately. Existing CGD companies can also apply for an interim permission to undertake capital works after submitting applications for authorisation. Gujarat Gas and HPCL, Ahmedabad, have already been granted interim permission, pending a final decision on their applications. The regulatory body has further stated that the PNGRB Act provides for recognition of authorisation of CGD networks by the Union government prior to the day the new regulations came into force. The board, therefore, has two sets of regulations one for existing entities authorised by the Union government and the other for those which have not received such authorisation. The board will decide on the veracity of the authorisations received by existing CGD companies from the Union government and will also subject the existing entities under both sets of regulations to the same terms and conditions to ensure a level-playing field, a fair and competitive market and protection of consumers’ interest. Also, the board will first decide on existing CGD companies’ objections to the expressions of interest submitted by new entities wishing to start CGD networks and then only start the bidding process. The board will consider comments of only those existing CGD companies which have applied to the PNGRB under the relevant regulations for authorisation of their operations.
‘Need to add more hydrocarbon reserves’: Deora
September 17, 2008. The Petroleum and Natural Gas Minister, Mr Murli Deora, emphasised the need for adding more hydrocarbon reserves and for stepping up the efficiency in production especially in the light of country’s heavy import dependence for crude oil which stands at more than 70 per cent of domestic requirement. He pointed out that hydrocarbons account for about 45 per cent of India’s total energy requirement. Referring to the scope for increasing domestic production, Mr Deora said that about 75 per cent of the total estimated hydrocarbon resources of about 32 billion tonnes of oil and oil equivalent gas still remains to be explored in Indian business. He also stressed upon the need for utilising alternative sources of energy and called for improving oil recovery factor from existing fields. The Minister urged the public and the scientific community to come forward with innovative ideas and suggestions so that hydrocarbon fuels are used more efficiently and effectively. The Government has ensured supply of kerosene to the vulnerable section at a much cheaper rate of Rs 9 a litre which is even lower than the cost of a mineral water bottle. Similarly, LPG and HSD used as domestic and transportation fuels are also sold at substantially lower prices.
Govt reviews demand-supply of oil products
September 17, 2008. Petroleum Secretary, R S Pandey, reviewed the supply situation of petroleum products in the country in the wake of the decisions taken at an oil industry meeting chaired by Petroleum Minister Murli Deora last month. He also reviewed the demand and supply position, particularly in view of the upcoming festivals and the winter season, when the demand for petroleum products rises substantially. Pandey directed public sector Oil Marketing Companies (OMCs) to ensure adequate availability of all products. The LPG waiting list of nearly 8 lakh a month ago has now fallen by half to 3.9 lakh at present. The balance will be wiped out by the end of September. OMCs assured Pandey to remove any difficulties being faced by the existing customers in getting their refill supplies. It was decided that the Grievances Redressal System of OMCs would be made more effective and a Toll Free No. for each OMC would be launched from October 2. Any customer can call this number across the country to lodge a complaint. OMCs would also launch an Awareness Campaign about the Public Grievances Redressal Mechanism for the people to make full use of the facility.
POWER
Fresh bids invited for Jaipur project after Reliance Infra pullout
September 23, 2008. The Jaipur Development Authority (JDA) will invite bids afresh for developing the 143-km Ring Road project in the Pink City. JDA is the controlling authority for all master plans of Jaipur. The move to call for re-bids is a result of the original project winner, Reliance Infrastructure Ltd, deciding not to make the Rs 2,700 crore ($591.5 mn) reserve payment as the project cost had escalated. The company’s name was changed after the group set up Reliance Power Ltd to execute its new power generation projects though Reliance Infrastructure itself still operates five power projects totalling 940.59 MW. Reliance Infrastructure had submitted the draft report for the project and was ready with the detailed one, before it decided not to go ahead with the Rs 2,700 crore ($591.5 mn) payment.
GMDC power project in trouble
September 23, 2008. The beleaguered Gujarat Mineral Development Corporation (GMDC), which has seen its scrip fall sharply in September, is facing the dark shadow of Lehman Brothers over its power project in Chhattisgarh. GMDC has a joint venture with KSK Energy to set up a 1800 MW coal-based power project at Korba. Almost 30 per cent of equity in the Hyderabad-based KSK is held by the fallen US financial giant. Two years ago, when GMDC signed the agreement for the Rs 8,000-crore ($1.7 bn) project, LB India Holdings Mauritius Ltd, held 90% equity in KSK, which came down to 30 per cent following an IPO. The Lehman Brothers' firm cannot sell the shares in KSK as there is a lock-in period till July 2009. As per the agreement, GMDC was to pick up 26 per cent equity stake in the proposed power plant which was to get coal from GMDC's Mogra block. GMDC's share in the power output was 1010 MW. The GMDC is already in trouble with its scrip falling sharply in September, following the announcement in its annual report that it was abiding by the Gujarat government's request to public sector enterprises (PSEs) to set aside up to 30 per cent of profit before tax (PBT) for welfare.
Rosa Power project ahead of schedule
September 22, 2008. Reliance ADAG's Rosa power project at Shahjahanpur in Uttar Pradesh is likely to get commissioned six months ahead of schedule. The Rosa project is running about six months ahead of schedule. The first units of 300 MW under Stage-I is expected to commission in the latter half of 2009. The second unit (300 MW) would produce power at a gap of three months gap. Rosa project has two stages. In stage-I, two unit of 300 MW are to be developed. The deadlines for commissioning the first and second units are March and June in 2010 respectively. Now, the first and second units are expected to get commissioned by September and December in 2009. At present over 40 per cent of the overall project work is completed. As per schedule, it had to achieve 28 per cent project completion by now. As far as Stage-II of the project is concerned, some clearances are awaited including coal linkage. In this stage two units of 300 MW are being developed.
NTPC threatens to sue Russian firm for Barh project delay
September 21, 2008. NTPC, the country’s largest power generator, has warned Technopromexport (TPE), the Russian power equipment supplier, of legal action if the latter does not resume work at NTPC’s power project in Bihar. The dispute relates to NTPC’s Barh stage-I project, where the Russian company is supplying boilers for three units of 660 MW each. The work at the Rs 8,700-crore ($1.8 bn) project has come to a standstill and is now running two years behind schedule, owing to the dispute between NTPC and TPE. For the past few months, NTPC has been in dialogue with TPE to sort out the dispute over price and time escalation and get the work resumed at the site. NTPC has already spent about Rs 3,000 crore ($654.8 mn) on the project, whose total cost is estimated at Rs 8,700 crore ($1.8 bn). The state-owned Navratna company’s warning to TPE was announced by Minister of State for Power Jairam Ramesh, while launching the stage-II of the Barh power project in Bihar. The total capacity of the stage-II, which is estimated at Rs 7,340 crore ($1.6 bn), is 1,200 MW and employs two units of 660 MW each to be supplied by Bharat Heavy Electricals (Bhel), India’s largest power equipment manufacturer.
GE exploring biz opportunities in Indian civil N-power
September 21, 2008. US energy major General Electric (GE) is exploring business opportunities for civilian nuclear power in India, including nuclear reactors and plant services. GE is also interested in providing fuel for both existing and new nuclear power reactors. Collaboration with Indian vendors would be an important element of GEH's (GE Hitachi Nuclear Energy) approach to Indian power plants and could have the potential for broader worldwide cooperation in some cases. There were many variables to consider before any estimates can be arrived upon.
R-Power gets 1,800 acres for Andhra project
September 21, 2008. Reliance Power, an Anil Dhirubhai Ambani group (ADAG) company, has got possession of 1,800-acre land required for its power plant in Krishnapattnam. The land will be sufficient to begin work for the main plant and related facilities, and a further 700-acre land for residential and ash ponds will be acquired soon. The land was acquired by the Andhra Pradesh government and handed over to a special purpose vehicle (SPV) created for Coastal Andhra Power (CAPL). The SPVs are created by the central government to facilitate faster implementation of Ultra Mega Power Project (UMPP), each with a capacity of 4,000 MW. These SPVs, which will get government and regulatory approvals, are transferred to companies after they won the bidding. Thus, CAPL is now a wholly-owned subsidiary of Reliance Power. The acquisition is in sharp contrast to the problems faced by the Tata Group at Singur. Tata Motors have stopped work at the plant because of protest against the land acquisition.
Work on new Koodankulam units to start by year-end
September 19, 2008. The Centre plans to commence work on setting up four new reactors at Koodankulam with Russian assistance as early as December, with the draft technical and economic proposals expected to be firmed up latest by March-April 2009. According to Government sources, during the last six months, Nuclear Power Corporation of India Ltd (NPCIL) has done considerable groundwork for expanding the site in Tamil Nadu for accommodating new units. The building of support infrastructure is already under way and the digging of the foundation pit is to start shortly. All necessary permissions from the Ministry of Environment and Forests are in place. The four new units would be set up under the inter-governmental agreement initialled by Russia and India earlier this year. The ‘VVER-1000’ water-cooled reactors manufactured by Russian firm Atomstroyexport, two of which are being set up in the first phase, will be deployed in the second phase as well. The funding pattern for the four new units of 1,000-MW each could, however, be different from that for the first two units under construction, where the Russian Government extended a long-term credit covering nearly half of the $2.6-billion cost. In the case of the new Koodankulam units, as well as the project expected to be set up at Jaitapur in Maharashtra with French assistance, NPCIL is likely to contribute 30 per cent equity, while the remaining 70 per cent of project cost is likely to be raised through other sources, including multilateral loans and from the markets.
Neepco, ASEB sign power unit pact
September 19, 2008. North Eastern Electric Power Corporation (Neepco) and Assam State Electricity Board (ASEB) have decided to jointly set up a 250 MW coal based power project in Margherita in upper Assam. Union minister of state for power, Jairam Ramesh, said that the joint venture agreement between Neepco and ASEB would be singed in mid October. Neepco would have 51 per cent stake in the joint venture company and the rest 49 per cent would be ASEB's share. Though Assam has demanded that the total 250 MW should go to its kitty. The best environment friendly technologies would be applied in the plant, keeping in consideration the high sulphur contents in Assam coal. Neepco had implemented the upper-Kopili project but has been hanging on the lower-kopili project for last 15 years, prompting the state government to look for private players. Since Neepco had done upper-Kopili so it makes sense for Neepco to do lower-Kopili also. Ramesh expressed his displeasure over the inordinate delay in the implementation of the 750 MW thermal power station in Bongaigaon in lower Assam whose foundation stone was laid by the Prime Minister on 14 January 2004. The entire responsibility for the delay goes to National Thermal Power Station (NTPC), which would be implementing it.
NTPC opts for bulk equipment sourcing
September 18, 2008. NTPC, India’s largest power generator, is likely to save up to Rs 2,500 crore ($539.6 mn) through bulk procurement of next generation power equipment, as part of its plan to double installed capacity over the next seven years. The state-owned company is planning to bunch together its equipment order of 7-9 supercritical sets of 660 MW each, through which it is hoping to generate a discount of 5-10 per cent. Bulk ordering of such high capacity equipment provides benefits like building of huge spare inventory. The bids for the supercritical equipment will be open for both the domestic and international manufacturers. The bids will be opened from February-March and the orders are placed by June. In the last one year, the equipment procurement cost has seen a huge increase mainly on account of increase in raw material prices like cement and steel. Thus, companies are looking at innovative ways to cut down project costs and bulk procurement is one of them. In general, the price difference between a supercritical and a subcritical project is around 5 per cent and it occurs mainly on account of higher civil engineering cost.
NTPC planning to scale up nuclear power capacity
September 18, 2008. Power major NTPC Ltd is looking to expand its planned nuclear power capacity beyond the original target in the wake of the recent lifting of the global embargo on nuclear trade with the country. NSG approval enables the company to explore the possibility of increasing the size of its planned nuclear portfolio of 2,000 MW by 2017. The Nuclear Suppliers Group, a 45-nation cartel that controls global nuclear trade, approved a US-sponsored agreement that permitted the export of civilian nuclear technology and services to India earlier this month. The Indo-US civilian nuclear deal has now been sent to the US Congress for ratification. NTPC is eyeing a consolidated turnover of Rs 1,00,000 crore ($21.5 bn) by 2014, up from the gross revenues of Rs 40,011 crore ($8.6 bn) clocked last fiscal. On the thermal side, NTPC aims to raise its generation capacity by 22,430 MW during the Eleventh Plan. The company is eyeing 75,000 MW by 2017, from the 29,394-MW now. The state-owned firm, which is the country’s biggest electricity producer, hopes to boost coal output to as much as 14 mtpa by end-2012 at the mines leased from the Centre to meet its increasing fuel needs. The utility plans to produce 47 mt a year by 2017 to meet power generation targets and is also looking to buy coal mines in Indonesia, Mozambique and South Africa.
Transmission / Distribution / Trade
'Poor' BSEB sells power outside
September 23, 2008. Power-starved Bihar is selling power outside at a premium to earn revenue even as people continue to suffer. Bihar was allotted 956.3 MW from the central sector of which it utilised only 733.2 MW. The remaining 223 MW was sold to other states at a premium. The entire state has been reeling under severe power crisis for the last several weeks. During the last six months (March to September), the state power board bought power worth Rs 33.32 crore ($7.3 mn). Its own generation is less than 10 MW. Despite an SOS to the Centre seeking an additional 300 MW for four months, BSEB is yet to get any positive response. A similar request was made to the Damodar Valley Corporation (DVC), Grid Corporation of Orissa and West Bengal State Electricity Distribution Company. Till date, BSEB has not received any positive response as regards supply of the additional power. Last year, BSEB had to spend Rs 12 crore ($2.6 mn) during the festival period for purchasing additional power at an enhanced rate of Rs 8.25 per unit. The state's two power generating plants at Barauni and Muzaffarpur are not generating even a single unit at present.
Power Grid to pump $1 bn in Mundra UMPP
September 22, 2008. The Board of Directors of Power Grid Corporation of India Ltd. have approved the investment approval for, Transmission System associated with Mundra Ultra Mega Power Project, at an estimated cost of Rs48.24bn ($1.06 bn) with commissioning schedule of 48 months from the date of investment approval.
KEC bags two orders worth $38.6 mn
September 18, 2008. KEC International Ltd. (KEC), a global leader in the power transmission EPC business, has bagged two orders worth Rs 1.24 bn ($26.7 mn) from NTPC Electric Supply Company Ltd. (NESCL) and Rs 550 mn ($11.8 mn) from Power Grid Corporation of India Limited (PGCIL). The NESCL order which is a Turnkey Rural Electrification project in the district of Sahibganj of Jharkhand state covers electrification of 1307 villages, providing electricity connections to approx. 20500 below poverty line (BPL) families and also construction of fourteen 33/11KV new/augmentation substations. The project is scheduled to be completed by March 2010. This is the 3rd order bagged under RGGVY scheme by KEC in the state of Jharkhand. The PGCIL order which is also a Turnkey Rural Electrification project is in the district of Sonepur of Orissa state and covers electrification of 959 villages, providing electricity connections to approx. 63000 below poverty line (BPL) families and also construction of six 33/11KV new/augmentation substations. The project is scheduled to be completed by March 2010.
Policy / Performance
HPGCL, IPGCL form JV for coal block development
September 23, 2008. With Haryana Power Generation Corporation Ltd (HPGCL) and Indraprastha Power Generation Co Ltd (IPGCL) jointly floating a company for development of a Madhya Pradesh-located coal block, Haryana-based thermal power plants can look forward to an enhanced flow of coal supply. The coal block is said to have reserves of coal sufficient enough for generating 4,000 MW of power for the next 25 years. A coal block, Mara-II Mahan, in Singrauli district of Madhya Pradesh was allocated by the government of India. It was jointly allocated to HPGCL and Delhi government in August 2006. The total area of the coal block is about 66 sq km and has an estimated reserve of 950 mt of coal. HPGCL would also explore the possibility of establishing a pit-head plant at the coal block site. HPGCL and IPGCL formed a joint venture company for further development of the coal block. Formalities like JV agreement, memorandum of association and article of association have already been finalised. The JV company would have two directors from HPGCL and two from IPGCL, while the posts of chairman and CEO would be rotated between Haryana and Delhi every two years. The Letter of Intent was issued to Mineral Exploration Corporation Ltd (MECL), Nagpur, on February 26, 2008, for priority exploration of the coal block, covering an area of approximately 10 sq km in the first phase at a cost of Rs 4.25 crore ($0.9 mn). Applications for obtaining prospective licence for mining in the coal block have already been filed with the Madhya Pradesh Mining Department, and for forest clearance with the forest department of the state. The mining would have both open-cast and under-ground facilities and the apportionment of the coal extracted from the block between the two parties would be decided by the Ministry of Coal, government of India, after consultations with both parties.
Nepal turns to Indian power firms for funding
September 23 2008. In a bid to raise resources for developing its hydropower sector, Nepal plans to offer Indian private sector developers majority stakes in mid-size joint ventures with a capacity of 300-500 MW. The Indian partners will be offered majority stakes on condition that they raise the entire debt component for such projects, said Arjun Kumar Karki, managing director at Nepal Electricity Authority, or NEA, the largest power sector utility in the Himalayan nation. The Indian developers will get a 51% stake in such hydropower projects and NEA, representing the Nepal government, a 25% stake. The rest will be offered to the public in Nepal and India. The proposal has not been accepted yet. Nepal has emerged as a favourite destination for several Indian hydroelectric power generation firms due to its huge untapped potential. The companies that have plans to set up hydroelectric projects in that country include Satluj Jal Vidyut Nigam Ltd, Bhilwara Energy Ltd and GMR Infrastructure Ltd. During his visit to India that ended last week, Nepal Prime Minister Pushpa Kamal Dahal had invited investments in his country’s hydropower sector, pledging to work towards harnessing 10,000 MW of power in the next 10 years. With investment in hydropower projects in Nepal around Rs12 crore ($2.6 mn) per megawatt due to inaccessibility of project sites, the country has an investment requirement of around Rs1.2 trillion ($26.2 bn) to develop these projects. The Nepal government has already begun offering small projects on the same public-private partnership model. One project to be offered through this route is the 42 MW Upper Modi project, where South Korea’s Korea Electric Power Corp., or Kepco, has a 70% stake, with the balance held by NEA. The total debt for the project will be raised by Kepco. Attracting resources and making Indian power project developers participate in (Nepal’s) hydropower projects has been looked at from certain sections of the people with suspicion. Nepal has an installed capacity of 617 MW, of which around 570 MW is generated from hydropower. Although Nepal has 83,000 MW of hydropower potential, it is facing a shortage of 100MW, which is expected to increase to around 300 MW in the coming winters.
Market price for power on anvil
September 21, 2008. The Planning Commission approved the draft integrated energy policy, which seeks to implement market-based pricing and bring about better coordination among ministries. The draft policy proposes a common appellate tribunal for all energy sub-sectors like coal, power, etc, to resolve disputes, but there is no recommendation for a common regulator. The commission, chaired by Prime Minister Manmohan Singh, will forward the new energy policy in a month to the Union Cabinet for approval. The prices should be market-determined because of the huge import dependence. The prices should also take care of externalities like pollution. The report proposes to double the e-auction of coal to 20 per cent to discover the market price. At present, domestic coal supplied by public sector utilities is sold at a fraction of what it costs in the international market.
Myanmar and India sign hydro deal
September 19, 2008. Myanmar has signed an agreement with neighbouring India to build two hydro electricity projects in the northwest of the country. Myanmar's Hydroelectric Power Department and India's Hydroelectric Power Corporation Ltd signed the agreement for the construction in Chin state, which borders India. The agreement called for the building of a 1200 MW dam in Htamanthi and a 600 MW dam in Shwesayay. The deal was signed on September 16. Myanmar and India share a 1,300-kilometre (800-mile) border, and the hydro deal is the latest move signaling expanding ties between the two counties. India was until the mid-1990s a supporter of Myanmar's pro-democracy leader Aung San Suu Kyi but it has since cultivated ties with the ruling junta as it sees Myanmar as a key source of energy to power its fast economic growth. India was one of the first countries to rush aid to Myanmar after Cyclone Nargis hit on May 2-3, leaving 138,000 people dead or missing. Over the past few years New Delhi has pledged hundreds of millions of dollars to Myanmar despite increasing international calls for the military government to introduce democracy.
RNRL to use fly ash from Sasan UMPP
September 19, 2008. Anil Ambani-controlled Reliance Natural Resources (RNRL) has secured licences from the Madhya Pradesh government to mine around 9 mt limestone annually from four mines for its proposed cement plant in the state. RNRL is setting up a 10-MT capacity cement plant in the state’s Satna district at an investment of Rs 5,000 crore. The Anil Dhirubhai Ambani Group (ADAG) company will use the fly ash, a by-product of burning coal for power, from its Sasan ultra mega power plant for cement-making. For the coal linkage, it has applied to the Madhya Pradesh government and power is expected to be sourced from the state-run utility. The company requires 1.8 MT coal and 1,000 million unit power for the greenfield project.
Companies to pay higher guarantee on new UMPP
September 18, 2008. Having already bagged two ultra mega power projects (UMPPs), Anil Ambani Group will have to furnish financial guarantee that is 50 per cent more than the previous amount to become eligible to bid for more such projects. The government has not put any cap on the number of UMPPs to be awarded to a company, but has imposed stringent financial conditions to bid for additional projects. No cap has been put, only change that has been brought is that for every additional UMPP the financial guarantee requirement will be 50 per cent higher than the previous one. The company bidding for a UMPP has to meet all requirements as outlined by the government and submit a bank guarantee of Rs 300 crore ($64.7 mn) for financial performance. With the new clause in place, the successful company bidding for the second UMPP will have to produce bank guarantee of Rs 450 crore ($97.1 mn) instead of Rs 300 crore ($64.7 mn). The government has already allotted three UMPPs, out of which one has been bagged by Tata Power (Mundra in Gujarat) and two by Anil Ambani group firm Reliance Power (Krishnapatnam in Andhra Pradesh and Sasan in Madhya Pradesh). However, the clause does not apply to the two already allotted UMPPs to Reliance Power, as it will be applicable to future projects only. The government has invited bids for the fourth UMPP at Tilaiya in Jharkhand.
Industry hopes cost of diesel generator power can be shared
September 18, 2008. Industry representatives in Tamil Nadu hope that the State Government and other consumers will bear the additional cost if they turn on the diesel generator sets to tide over the power shortage in the State. Over the last one week, the Government has been consulting the industry on ways to tackle the power shortage. Last week, it suggested that the Government could tap about 1,000 MW of the 3,500-MW capacity in diesel generators available with industrial units. But the catch is that this is a high-cost power, cost works out to about Rs 12 a unit, almost three times more than the cost of grid power and the Government would have to bear the additional cost. However, the Government would have to foot the bill, which could also be shared among the other consumers such as the domestic and other commercial segments like retail and office users. Industry’s point of view is that power cost in Tamil Nadu is among the highest at Rs 4.50 a unit for industry. This was primarily because the industry cross-subsidises the other users who pay a lower price. But, as a proportion of power consumption, industry uses just about a third of the power generated. Domestic consumers and the retail and commercial segments account for 55 per cent while agriculture, which gets free power, consumes about 20 per cent. If the industry were to generate high-cost power with diesel generators, it is only fair that the other paying consumers foot a portion of the bill if the State Government cannot fully bear the subsidy.
OIL & GAS
Eni, PDVSA to jointly explore offshore Venezuela
September 22, 2008. Eni signed in Caracas a Memorandum of Understanding with PDVSA for the exploration and development of two offshore areas in Venezuela. The two areas, Blanquilla Est and Tortuga, are located in the Caribbean Sea off the coast of northern Venezuela, approximately 130 kilometers north of Puerto La Cruz. Water depths in the approximately 5,000 square kilometers covered by the agreement range from 200 to 500 meters. As confirmed by two wells drilled to date, the areas have a high potential for gas and condensate resources. The development of the two areas will be an integrated business venture consisting of exploration, production, liquefaction and marketing activities linked to a new LNG train. The project will consist of two phases. The first phase will cover the exploration and reserve certification processes and will be carried out by a joint venture that includes PDVSA (20%), Eni (20%) and other partners. The second phase will be carried out by a mixed enterprise that includes PDVSA (60%), Eni (10%) and other partners. Reserves from the development will be primarily dedicated to the LNG facility, in which Eni will also have a 10% ownership. Through this new integrated project, PDVSA and Eni will further strengthen and consolidate a strategic alliance that will facilitate the development of important resources for the country. In Venezuela, Eni participates in the Petrosucre mixed enterprise (PDVSA 74%, Eni 26%), which operates the Corocoro field, and in the Petrolera Guiria mixed enterprise (PDVSA 64.25%, Eni 19.5%, Ineparia 16.25%), which manages the Punta Sur discovery. Corocoro and Punta Sur are both located offshore in the Gulf of Paria. In addition, Eni owns a 50% stake in the Cardon IV gas exploration license, located offshore in the Gulf of Venezuela. Eni is also conducting with PDVSA a joint study aimed at the development of the Junin Block 5 in the Orinoco Heavy Oil Belt. Based on several wells already drilled, preliminary estimates indicate that resource potential on this block is in excess of 2.5 billion barrels of oil.
Ecuador, Petrobras agree to transfer block to State
September 22, 2008. The Ecuadorian government and Brazilian state-run oil firm Petrobras agreed to finish the contract for block 31, which will be transferred to the state. After hard negotiations with Petrobras and although it has $200 mn in investment, the government got the Company to transfer the block 31 to Ecuador. Block 31 has 200,000 hectares, some within the Yasuni National Park, which Unesco has declared a world biosphere reserve. Petrobras hasn't started production in block 31. Government sources said that Petrobras agreed to transfer block 31 because changes in windfall profit tax rates make its businesses unprofitable. The previous administration of President Alfredo Palacio mandated that when oil prices rose above those in operating contracts, the government's share of the excess would be 50%. Correa's administration raised that to 99% in October 2007. The government and Petrobras had reached a friendly agreement, without costs for the state. The block will come to the state in around 30 or 45 days after some audits are completed. Petrobras has 11.42% of shares in the OCP. OCP's shareholders, all of which transport oil along the OCP, operate under take-or-pay contracts, where they must make payments regardless of how much oil is transported. The tariff could be around $1.436 per barrel transported. In August 2004, under former President Alfredo Palacio, Ecuador gave Petrobras a license to operate the block. But in July 2005 Environment Minister Ana Alban suspended the license and forbade the Company to enter Yasuni Park, asking Petrobras for a new development plan and a new environmental management plan for the block. The Company presented the new plans in May 2006. The Environment and Mining and Oil Ministries approved the new plans in December 2006. The Company paid about $800,000 for the new environmental license and other fees. That was in addition to $700,000 that the Company paid originally in 2004. Petrobras planned to start producing 30,000 barrels of oil a day from the Apaika and Nenke fields in block 31 in 2009. It has invested around $257 mn in the block. Since Ecuador approved the first environmental license for Petrobras to operate in block 31 in 2004, ecological and scientific groups have lobbied against oil exploration in the park, which is considered to contain one of the most biodiverse areas in the world. Unions and leftist movements also held occasional protests to impede oil exploration in block 31.
Shell plans Russian oil exploration project
September 19, 2008. Shell is planning a new exploration project in Russia and is considering three oil fields in Kalmykia in the Urals as possible sites. The fields require deep drilling, over 6 kilometers. Shell has yet to acquire licenses for the fields. A number of Russian oil companies have drilled the fields but failed to reach productive layers due to poor technology. Shell and the Kalmykia regional government last month signed a cooperation agreement allowing Shell to explore and develop oil resources. Shell has been trying to improve its position in Russia, after it had to cede control in major offshore project Sakhalin 2 to state-controlled Gazprom last year. Shell now owns 27.5 percent of Sakalin 2. Shell also owns half of West Siberia's Salym project and plans to develop heavy oil deposits in the Volga region of Tatarstan jointly with mid-sized oil firm Tatneft.
ExxonMobil Indonesia to spend $450 mn on exploration
September 18, 2008. ExxonMobil Indonesia Inc. will invest $450 million for gas and oil exploration in two blocks in West Sulawesi province. The two blocks, Mandar in Polewali Mandar regency and Surumana near Dongala regency, are predicted to have total reserves of 1 billion barrels of oil equivalent. Some of the funds will be spent on rig hiring, which will cost up to $70 million. Drilling activities in the fields will begin in December. Indonesia has been attempting to boost crude oil output and gas as it failed to find new oil and gas fields fast enough and it badly needs oil and gas for domestic industries and exports. Currently, the country's only can produce 927,000 barrel of oil per day. Indonesia, the world's second-biggest liquefied natural gas ( LNG) exporter after Qatar, has more far more gas than oil.
Eni expects 0.15 mn bopd from Kashagan
September 18, 2008. Italian oil major Eni said it expects to increase production of oil and gas by 3.6% per annum between 2007 and 2011 if oil prices average $90 per barrel. Eni said growth would be 3.0% if oil averages $120/bbl. Eni said it expects to be producing 150,000 barrels of oil per day (bopd) in the fourth quarter of 2012 at its Kashagan oil field in Kazakhstan. Many investors feared output had been pushed back until 2014.
Petrobras' Brazil oil output hits record in August
September 17, 2008. The average daily oil production of Petrobras’ fields in Brazil was 1,885,196 barrels/day in August, a 4.3% increase over a year ago and 1% more than the previous month. This result also set a new monthly production record, 18,000 barrels per day more than the previous record, set in June 2008, when 1,867,336 barrels were produced per day. Petrobras’ total average production (oil and natural gas in Brazil and abroad) topped at 2,442,444 barrels of oil equivalent (boe) per day in august, 5.3% more than in the same month of 2007, and 0.9% higher than last July. Natural gas production in domestic fields reached 52.734 mcm per day, 22.5% more than the volume extracted a year ago, and 0.9% more than in July 2008. In August, joint production (oil and gas in barrel equivalents) abroad closed at 225,563 boe/day, stable compared to the previous month. Of this total, 211,666 came from companies Petrobras controls, while 13,897 from partner companies. Exclusive oil production in the fields abroad was 124,254 barrels per day, 4.3% more than the total extracted in the previous month. Petrobras’ production in the Agbami field, Nigeria, where it operates in partnership with other companies, was kicked-off in July, and in August it reached 7,541 barrels per day. In addition to Agbami, the Akpo field is also in its development phase in Nigeria. Petrobras’ share in these two giant fields, together, is expected to reach 65,200 barrels per day. Natural gas production abroad was 17.212 mcm per day in August, stable compared to July and 13.5% less than a year ago.
Gasoline prices fall despite oil's rise
September 23, 2008. The average price of a gallon of self-serve regular gasoline nationally falls 11.7 cents to $3.718. In California, the cost is down 7.9 cents to $3.725. The price of crude oil jumped dramatically as the dollar's value fell and traders jockeyed on the last day of trading on the October futures contract. But gasoline prices didn't follow crude's lead. Having surged after Hurricane Ike, prices at the pump fell nationwide as refineries shut down by the storm returned to service. The Energy Department's weekly survey of filling stations showed Ike's effect was still being felt east of the Rocky Mountains last week. That made for another rare period during which gasoline in California was not substantially more expensive than it was nationally. The average price of a gallon of self-serve regular gasoline nationally fell 11.7 cents to $3.718 over the last week. In California, the cost was down 7.9 cents to $3.725. The South got some price relief, but it remained the most expensive region for gasoline because it was more affected by the refinery shutdowns. Gasoline there fell 13.6 cents to an average of $3.821 a gallon. The national average price of gas is 90.6 cents higher than it was at this time last year. The California average is 76.4 cents higher than the year-ago price.
Petrobras launches refinery project in Rio Grande
September 22, 2008. Petrobras inaugurated the Jesus Soares Pereira Thermoelectric Plant (UTE JSP/Termoacu) and signed the deployment protocol for the Clara Camarao Refinery, in Rio Grande do Norte. The Jesus Soares Pereira Thermoelectric Plant, part of the Growth Acceleration Program (GAP), is an important Petrobras project aimed to boost the supply of electric energy in Northeastern Brazil and to diversify the sources of power generation in the country. With the new refinery, Rio Grande do Norte, already self-sufficient in all other derivatives, will also be in gasoline. The plant will be installed in Alto do Rodrigues, in the Acu Valley, 110 km away from Mossoro.
PetroChina, Rosneft to sign refinery deal next month
September 22, 2008. PetroChina and Russia's Rosneft are going to sign an agreement next month on building a 15 million t/y refinery in Tianjin. The refinery, to cost 60 billion yuan, is planned to be located in north China's port city Tianjin and feed on oil imported from Russia. At the beginning of this year, a JV investment company named Sino- Russia Oriental Petrochemical was established by PetroChina and Rosneft deliberately for the building of the refinery. China and Russia is constructing crude pipeline running from Russian Thaishet to China's northeastern Daqing city. China hopes to extend the Sino-Russia crude pipeline from Daqing to Tianjin to ensure feedstock supply to the new refinery.
PetroChina breaks ground on Ningxia refinery project
September 22, 2008. PetroChina Co Ltd, the country's top oil and gas producer, has started building a refinery in northwestern China's Ningxia region. The refinery, located in Yinchuan, the capital of Ningxia, will require total investment of 8.2 bn yuan. The plant, which will have annual capacity of 5 mt, is slated to go into operations by the end of 2010. The refinery will produce 1.73 million tons of gasoline, 2.38 mt of diesel and 210,000 tons of liquefied petroleum gas per year after operations. ($1 = 6.8 yuan )
Three Saudi refinery projects face delays
September 20, 2008. Saudi Arabia's plans for three new refinery projects have been hit by delays. The projects affected are Saudi Arabian Oil Co.'s integrated refinery and petrochemical complexes at Ras Tanura and Rabigh, and the oil ministry's greenfield Jizan refinery scheme. Aramco's estimated $25 billion Ras Tanura complex developed with Dow Chemical Co. has been delayed as the workload for front-end engineering design, or FEED, contractor KBR Inc. has proven to be too high for a single firm. Some of KBR's original workload will be given to another company. Start-up of Petro Rabigh, the Aramco joint venture with Sumitomo Chemical Co. has been delayed to the first quarter 2009. Bids for the Jizan refinery project have been pushed back to March 7 next year after initially expected in March this year as the ministry is preparing to put together an incentives package for bidders and to process government permissions.
Malaysian firm wins nod for Brunei refinery project
September 20, 2008. TRC Synergy Bhd has received approval from the Brunei Government through its associated company, PetroBru (B) Sdn Bhd, to proceed with an oil refinery project in the sultanate. The company has completed a feasibility study on the economic viability of building and operating a crude oil storage and a refinery in Pulau Muara Besar. PetroBru was tasked with conducting the study early this year. To date, TRC has invested RM2.5 million in Brunei. Its order book stands at RM1.5 billion until 2010.
Vietnam's first refinery to sell propylene to Japan
September 18, 2008. Vietnam's first oil refinery Dung Quat, due to put into operation next February, has signed a contract to sell between 75,000 and 150,000 tons of propylene every year to Japanese company Marubeni until 2010. According to the contract signed, the prices will be determined on the basis of Singapore's market. The delivery will be made at the refinery's port. Dung Quat oil refinery, with the investment of $2.5 bn, will have an annual processing capacity of 6.5 mt of crude oil once in operation. Its sole investor, PetroVietnam, has recently proposed the government raise the refinery's processing capacity to 10 mt of crude oil. Vietnam currently has no processing capacity of crude oil. It imported 9.6 million tons of petroleum products totaling $9.1 bn in the first eight months of this year, up 13.7 percent and 94.3 percent. Meanwhile, it exported nearly 9 mt of crude oil worth roughly 7.9 billion dollars, down 10.8 percent in volume, but up 53.3 percent in value.
European companies win contract to modernize Peru refinery
September 17, 2008. The task of modernizing Peru's biggest oil refinery has gotten underway with the selection of two European companies to manage the project. The state-owned Petrobras said the process of modernizing the Talara refinery, one of the country's largest oil-sector projects, has begun in earnest with the awarding of the contracts to France's Axens and Denmark's Haldor Topsoe. The work of expanding and modernizing the refinery, located some 1,200 kilometers (745 miles) north of Lima, will involve the revamping of existing units, desulfurization of diesel and gasoline, the production of sulfuric acid, electricity generation and other objectives. The project is expected to last three years and cost some $1 bn, although some sections of the refinery are to be onstream by 2010. Haldor Topsoe and Axens are catalyst company that have developed technology to reduce the amount of sulfur in fuels since 1940 and 1944, respectively. Current Peruvian production of refined hydrocarbons will nearly double from 24,000 barrels per day to 45,000 bpd as a result of the modernization of Talara, allowing the Andean nation to become a net exporter of fuel.
Iran expects to be biggest regional refiner by ’12
September 17, 2008. Iran will become the biggest oil refiner in the Persian Gulf by 2012, said director of the Refinery and Oil Products Distribution Company's refinery affairs. Currently Iran ranks first in making investment in refinery and ranks second in refinery after Saudi Arabia. Saudi's current refining capacity stands at 2.1 million barrels a day while the figure for Iran will reach 3.3 million barrels a day by 2012, he said, noting that this is while the former's capacity is to hit 3 million barrels a day by 2015. Stating that Saudi Arabia is considered Iran's rival in the field of refining in the Persian Gulf, he further said that the country has undertaken the implementation of great refinery projects. Given the economic growth of big consumers such as India and China, oil producing countries have made huge investments in oil refining. Pointing out that most of the Iranian refinery projects will become operational in 2012, he also said that oil products produced in Hormuz Refinery, which has a capacity of 300,000 barrels a day, will be completely exported. Some section of Bandar Abbas Gas Condensate Refinery's products and Khuzestan Refinery will also be exported. The crude refining capacity of Iran's nine refineries currently stands at 1.75 million barrels a day. Abadan Refinery is the biggest in the country with the capacity of 425,000 barrels a day while Kermanshah Refinery is the smallest with the capacity of 22,000 to 23,000 barrels a day. A total of eight million liters of liquefied gas, 43 million liters of gasoline, 21 million liters of kerosene, 82 million liters of gas oil, 75 million liters of fuel oil are produced in the country's nine refineries everyday. The establishment of seven new refineries requires 15.5 billion euros ($22 billion).
Saudi trims oil supply to Majors, U.S.
September 22, 2008. Top oil exporter Saudi Arabia has trimmed oil supplies to international majors and U.S. refiners since the start of September. They were marketing their crude very aggressively from June through August, but they slowed it down for September and October. The kingdom had already throttled back on supplies even before it signed up to an OPEC deal earlier this month to trim output that exceeded the producer group's targets. Saudi supply to international oil majors was down around 5 percent in September from August. The majors received close to their full contract volumes from June to August after the kingdom pledged to pump at the fastest rate in decades to meet demand and tame runaway prices. They also reduced supply to some U.S. customers. But the slower supply was partly compensated by an increase in supply to China. Aramco shipped its first cargo of crude to China's Dalian refinery in August. The refinery in northeast China is in the final stages of an upgrade to double its capacity to 400,000 barrels per day, and received a two million barrel cargo from Aramco last month.
Gazprom-Venezuela deal to produce LNG for export
September 22, 2008. Gazprom will liquefy some of the gas produced as a result of its cooperation agreement with Venezuela to develop gas on the Latin American country's shelf. Exploration and production of natural gas on the shelf will be delivered to the domestic market and will also be liquefied for export. Gazprom and Venezuela clinched an exploration and production deal last week. Venezuela also struck deals on Friday for natural gas projects in the Caribbean with other foreign companies, including U.S.-based Chevron. As well as Chevron and Gazprom, Italy's Eni, Qatar Petroleum, Japan's Mitsubishi Corp., Mitsui, Itochu and Malaysia's Petronas signed the accords to work on the offshore gas projects. The deals help make Venezuela's case that its OPEC nation can work with foreign investors despite its deteriorating relations with the us administration. Gazprom, which is the largest gas producer in the world and supplier of a quarter of Europe's gas, has said it will add some 90 million tonnes of the super-cooled LNG fuel to its production by 2030, making it a global player with a quarter of the market. The company now has no LNG production of its own, but will get the first volumes next year when it launches its Sakhalin-2 project together with Royal Dutch Shell and Japanese firms. The project in the Pacific waters will ultimately produce 9.6 mt, entitling Gazprom to 4.8 mt of LNG per year. It also wants to launch its landmark Shtokman Barents Sea field in 2013 with first LNG production expected at a few mt in 2014. Gazprom will also look at other exploration and development projects in Venezuela.
Kern River to expand system from Wyo. to Nev.
September 20, 2008. Kern River Gas Transmission Co. announced it completed a successful binding open season to expand its system. Based on the open season results, Kern River will expand its system to provide 266,000 dekatherms per day of new transportation service from Wyoming to southern Nevada and to provide 400,000 Dth/d of new firm backhaul transportation service to delivery points in southern Nevada. Nevada Power Company, a subsidiary of Sierra Pacific Resources, was the successful bidder for the capacity. The 266,000 Dth/d of capacity, known as the Apex Expansion Project, has a projected in-service date of Nov. 1, 2011. The expected in-service date for the backhaul capacity is April 1, 2009. The proposed Apex Expansion Project will be subject to approval by the Federal Energy Regulatory Commission and other agencies. Kern River Gas Transmission Co. owns and operates a 1,680-mile interstate natural gas pipeline between southwestern Wyoming and Southern California. With headquarters in Salt Lake City, Kern River currently delivers more than 1.7 bcf per day of natural gas to expanding markets in Utah, Nevada and California. Kern River is a subsidiary of MidAmerican Energy Holdings Co.
Nigeria pleased with EU's gas pipeline offer
September 18, 2008. Nigerian President Umaru Musa Yar'Adua has expressed happiness with European Union's (EU) offer of assistance on the proposed construction of the N2.4 trillion (about $21 billion) Trans-Saharan gas pipeline from Nigeria to Algeria. The project, which stretches a distance of 4,300 kilometers across the Sahara desert - Nigeria (1,050km); Niger (750km), and Algeria (2,500km) when completed will connect Nigeria's gas reserves to Europe via Algeria's Mediterranean coast. The EU's latest expression of interest in the project came amidst fears that Gazprom, a Russian gas company, might win the contract as part of a strategy to tighten its grip on energy supplies to Europe. Gazprom signed a Memo-randum of Understanding with the Nigerian National Petroleum Corporation (NNPC) in Moscow to co-operate on gas exploration, production and transportation and this is giving their European rivals a cause for concern.
PetroChina to export fuel oil from Qinzhou refinery after ’09
September 18, 2008. PetroChina Co. plans to export fuel oil from its Qinzhou refinery in South China after the refinery goes into operation at the end of 2009, announced China National Petroleum Corp., parent company of PetroChina on its website. If so, the Qinzhou refinery will be the first export base of PetroChina in South China. The refinery has a designed daily crude processing capacity of 200,800 barrels. CNPC said the refinery is expected to export 900,000 tons of fuel oil every year. Qinzhou is close to the gasoline export destinations of China, including Indonesia, Vietnam and Singapore. PetroChina now exports gasoline from its refineries in north China, including Dalian and Daqing.
Trinitad & Tabago budget based on $ 70 oil price
September 23, 2008. As Government insists that diversification of the economy is the way to go, Finance Minister, Karen Nunez-Tesheira, said that the energy sector will remain the backbone of the local economy for the next decade. According to her, the non-energy sector grew at a faster rate that the energy sector in 2008. However, the energy industry has supported Government’s fiscal surpluses over the past five years and its external accounts have been strengthened by the global high oil and natural gas prices. The $49.465 billion budget, a $20 billion leap over last year’s is based on an oil price of $70 and a natural gas price of $4 per million metric British thermal units (mmbtu). Government expects the energy sector to produce revenues of $19,924.6 mn. The oil price for the budget is determined on a moving average basis.
Iraq-Shell Basra gas JV may lead to LNG facility
September 22, 2008. The Ministry of Oil of the Republic of Iraq and a wholly owned affiliate of Royal Dutch Shell plc signed a Heads of Agreement that sets the commercial principles to establish an incorporated JV between the South Gas Company and Shell for the processing and marketing of all associated natural gas produced in the Governorate of Basra in southern Iraq, an area covering some 19,000 square kilometers. The signature follows the approval of the Iraqi Council of Ministers on 7th September 2008. Some 700 mmscmd of natural gas, which is produced by upstream suppliers in association with oil, is currently being flared in southern Iraq. By capturing and processing this natural gas, the JV will create an important and reliable supply of domestic energy, reduce greenhouse gas emissions, and create significant value for Iraq. The JV will purchase associated natural gas from upstream operations; own and operate existing gas gathering, treating and processing facilities; and invest to repair non-functioning assets and develop new facilities. The JV will be focused initially on creating reliable sources of domestic energy, including liquefied petroleum gas, natural gas liquids, natural gas supply for power generators, and deliveries to local distribution networks. In the future, the JV could develop a liquefied natural gas facility to export natural gas not needed for local domestic use. The JV structure is the model chosen by the Ministry of Oil as the vehicle to create a world-class natural gas industry in Iraq. South Gas Company will be the 51 percent majority shareholder in the JV, with Shell holding 49 percent.
US senate expected to consider taxes on oil, gas industry
September 22, 2008. US senators will be asked to approve additional taxes on the oil and gas industry by the end of the week to help finance $40 bn in clean energy financial incentives. Senate Finance Committee leaders said that about $17 bn would come from freezing the tax deduction for US oil and gas companies' domestic activities, tightening rules by which oil and gas companies pay taxes on income earned overseas, and freeing money from the general fund by increasing payments into the oil spill liability trust fund as new drilling is considered. The balance would be raised by extending the Federal Unemployment Tax Act surtax at the current level for 1 year. The new taxes are part of a broader agreement which also would increase the threshold at which taxpayers become subject to the alternative minimum tax, and extend tax cuts for college tuition, state and local sales taxes, and research and development for US businesses. This month, the Senate can act to create jobs, break America's dependence on foreign oil, support working families, and help businesses thrive. This agreement will lead America toward clean, homegrown energy and the good-paying jobs that come with it. The proposals would come as amendments to HR 6049, the Renewable Energy and Job Creation Act of 2008, which passed the House by 236 to 160 votes on May 21. Other Senate Finance Committee members endorsed the proposals and called for their immediate adoption.
‘Asean must kick gas habit’: IEA
September 21, 2008. Southeast Asian nations rely too heavily on natural gas and must diversify their power generation to ensure long-term fuel supply. The agency had been advising policy planners and energy operators in the region that too much dependence on one fuel risks future energy shortages. Most fuel reserves here [Southeast Asia] are natural gas, therefore the countries here mostly rely on what they have, but it will run dry very quickly since demand is growing but few new reserves are being discovered.
Governor allows use of winter blend gas
September 20, 2008. Gov. John Hoeven's office says he has issued an executive order allowing the early use of winter blend gasoline in North Dakota. Hoeven will help increase gasoline supplies in the aftermath of the Gulf Coast hurricanes. He says the waiver allows the sale of winter formulated gasoline now, instead of waiting until October 1. Ron Day is the environmental health and safety manager at the Tesoro refinery in Mandan. He says the winter blend allows refineries to blend more butane to increase the gasoline's volatility, which results in more volume.
Kuwaiti parliament puts refinery deal in Limbo
September 18, 2008. Japanese plant engineering firm JGC Corp. and other companies that have been awarded a contract to build a petroleum refinery facility in Kuwait are left in limbo due to a parliamentary deadlock in that nation. JGC, South Korea's GS Engineering & Construction Corp., and U.S. firm Fluor Corp. were among those selected in May by Kuwait National Petroleum Co. to build the plant in Al-Zour.
‘EU must look beyond Nabucco for gas’: US envoy
September 17, 2008. The European Union should be open-minded about the route of the planned Nabucco pipeline from Turkey or how it pipes in Caspian gas, the U.S. envoy to the EU said. The Nabucco pipeline is supported by the European Union as a way of reducing its heavy dependence on Russian gas, and its development has gained urgency since Russia's invasion of Georgia last month stoked tensions with the West. The pipeline is due to bring 30 billion cubic meters of Caspian and Middle Eastern gas annually from Turkey to an Austrian gas hub via Bulgaria, Romania and Hungary. But U.S. envoy C. Boyden Gray, fresh from a visit to Turkey and the Caspian region, said that while Turkey was an indispensible link in accessing Caspian gas, other routes out of Turkey towards Europe might be developed more quickly. Alternatives to the planned Nabucco route include shipping the gas as liquefied LNG or pumping it through an expanded Greece-Turkey pipeline. There is also sense in running it through Turkey's existing pipeline grid if it can be upgraded and made more interconnected with points to the west. Alternative ways of getting gas from Azerbaijan and Turkmenistan to Europe have been gaining ground in recent weeks, including the New Europe Transmission System (NETS) project, which would also connect with a Turkey-Greece pipeline. Turkey was dragging its feet at the bargaining table to try to secure higher transit fees and rights to trade gas going through the pipeline. But Turkey said in July it expected a deal within months. Securing Turkey as a reliable transit state would also help the EU when Iraqi gas becomes available. Iraq has pledged to supply the EU with 5 billion cubic metres of gas from its Akkas field in two to three years, with more to follow.
POWER
Generation
Limay power plant re-bidding set
September 22, 2008. The 620 MW Limay combined cycle power plant has been opened for re-bidding again after the Power Sector Assets and Liabilities Management Corp. (PSALM) failed to sell the plant in June. The new bidding will start on September 22, and that all interested parties have up to October 7 this year to submit a letter of interest. Interested investor groups are also required to execute a confidentiality agreement and undertaking with PSALM and to pay a non-refundable amount of $2,000 as their participation fee. The deadline for submission of these preliminary requirements is on October 8, while the due diligence period will be held from September 22 to January 12, 2009. The government power privatization firm will hold the Limay pre-bid conference for qualified participants on Oct. 17, 2008.
Power station secures 40 year coal supply
September 19, 2008. A contract for Exxaro Resources Limited to supply coal for Eskom's Limpopo Medupi power station was signed. Exxaro's capital expenditure for the project is estimated at R9 billion. Exxaro's Grootegeluk mine would, over the next 40 years, supply an average of 146 million tons a year of power-station grade coal to Medupi. Production was scheduled to begin in the third quarter of 2011, with full production expected by 2014. The contract should create about 9, 500 direct jobs. Thousands of indirect jobs will also be created during the construction of the power station and the expansion of the mine. Medupi is the first of Eskom's new generation base-load coal-fired power stations and will be the largest air-cooled power station in SA. It comprises six 800 MW generation units capable of supplying 4 800 MW of generation capacity to the national grid. Commercial operation of its first generation unit is scheduled for the last quarter of 2011. The last unit is expected to be in operation in the first half of 2014.
Transmission / Distribution / Trade
Lebanon likely to face power shortages for years to come
September 23, 2008. An energy expert said that Lebanon would continue to suffer severe power outages for many years to come if the government fails to find alternatives to costly fuel oil. Lebanon will receive the promised electricity and natural gas from Egypt any time soon because Jordan and Syria have not completed the installations of the high voltage lines and pipelines. Egypt was supposed to supply Lebanon between 150 MW and 450 MW of electricity this month, but the plan has been delayed by the Egyptians. Egypt gave no explanation for the delay in the delivery of electricity.
Hoku signs power agreement for Idaho plant
September 22, 2008. Hoku Materials has signed an agreement to purchase electricity from Idaho Power at its production facility in Pocatello, Idaho. The company, a subsidiary of Hoku Scientific, has secured guaranteed amounts of power capacity at a negotiated fixed and industrial tariff rate for four years starting June 2009. After the four-year term, the price would revert to the utility’s standard tariff rates in effect at that time. The power is expected to be enough to support 4,000 metric tons of polysilicon production a year. Hoku also amended its substation construction agreement with Idaho Power. The amendment increases the planned substation capacity to 82 megawatts. The substation facilities are expected to come online in May 2009, with additional facilities being phased in until final completion in August 2009.
Rudd promises $100 mn for clean coal in Australia
September 20, 2008. The Federal Government hopes to seize the lead on the world stage over the contentious issue of clean-coal technology, pledging $100 million to establish a global institute on carbon capture. Prime Minister Kevin Rudd announced the funding with Resources Minister Martin Ferguson, who said Australia, as a resources, superpower, was perfectly placed to be the frontrunner among 20 nations working in the area. All major models of how the world could achieve lower greenhouse gas emissions expected a significant part of the reduction to be achieved through the use of carbon dioxide capture and storage, known as CCS. However, only small-scale trials of the technology had been conducted, with no industrial-scale integrated CCS power stations yet built. The clarion call from industry [has been] let's get this going. The institute was needed to close the information gap, identify projects and organise finance and to turn all these aspirational statements into reality, putting an end to the litany of good intentions. The Opposition attacked the announcement as the latest of Mr Rudd's desperate attempts to make a splash on the global stage. The previous government committed $400 million to help develop clean-coal technology, including $100 million for a $750 million, 400 megawatt power plant in Victoria's Latrobe Valley. Coal is Australia's largest source of export earnings, bringing in an estimated $43 billion in 2008-09. Industry and mining unions welcomed the Government move to establish the institute.
Eskom may build extra power plant
September 19, 2008. With construction of two major coal-fired power stations under way, Eskom is investigating another in the Waterberg area of Limpopo. With security of electricity supply under constant threat due to a low reserve margin, Eskom is being pressed to ensure extra capacity. The utility has said it would double its capacity to 80000 MW by 2026. Construction of Eskom’s new coal-fired power stations is under way. These are the 4788 MW Medupi plant in Limpopo and a 4818MW plant in Mpumalanga.
Both facilities would have six generating units. Camden, Komati and Grootvlei power stations were mothballed because of excess capacity in the late 1980s and 1990s. The stations’ 23 generating units, totalling 3800 MW of capacity, are scheduled to be operational by October 2011. The power utility is also close to announcing the outcome of the bid for the construction of a new nuclear power station.
Govt for renewable energy SEZ
September 18, 2008. The government had acquired 2,000 hectares to develop a special economic zone (SEZ) for renewable energy in Nagpur, which would become operational within 2-3 years. Two thousand hectares of land has been acquired for the renewable energy SEZ in Maharashtra and it would become operational in 2-3 years’ time. This SEZ is being developed by the Maharashtra Industrial Development Corporation (MIDC) and Indian Renewable Energy Development Agency (Ireda).
A European firm is understood to have committed investment worth 3.71 billion euros (Rs 22,000 crore) in the SEZ. The government is focusing on non-conventional energy sources, including wind and solar power. Various tax benefits have been given for investments in the renewable energy area. India has emerged as a major supplier of equipment for wind power, led by Pune-based Suzlon Energy.
ONGC to enter solar energy business
September 17, 2008. The oil and gas major, ONGC, is also exploring geothermal energy for which it is in talks with Iceland government. All these projects will be carried out under its ONGC Energy Centre housed at Rajiv Gandhi Urja Bhavan, New Delhi. Currently, the company is studying a report submitted by Director General of Hydrocarbons of Iceland. About 80 per cent of Iceland's energy requirements is met with geothermal energy. Various pilot projects were going on at the Energy Centre, which included geo-thermal energy. Among various players, ONGC is learnt to be in talks with the US firm, Silicon Valley-based Sun One, for setting up a 60-MW PV cells unit in India. Sun One is in the process of setting up a 60 MW solar unit in Germany and ONGC is exploring to replicate the project in India. A conservative figure of Rs 12 crore ($2.5 mn) per MW of energy produced from solar, the estimated cost of producing 60 MW would be about Rs 700 crore ($150.5 mn). The Energy Centre was set up last year for carrying out research in alternate energy sources beyond oil and coal. ONGC, which currently produces 80 per cent of the oil and gas production of the country, is also banking highly on uranium mining for which it has entered into a 50:50 JV with Uranium Corporation of India. In India, the per capita consumption of energy is 0.38 tpa which is less than one-third of world average of 1.2 tonnes annually. With demand for crude likely to rise from 400 mt oil equivalent of energy to 1,000 mt by 2020, ONGC is looking at becoming an integrated energy player with focus on renewable energy. The 50 MW wind farm was on a pilot basis and they aim to go beyond it on a commercial basis. The company is mulling to generate as much as 1,000 MW from wind energy in coming years. This would require an investment to the tune of Rs 6,000 crore ($1.2 bn).
Wind farm in Maltese territorial waters
September 22, 2008. Blue H Technologies BV, a Holland-based company specialising in the development of offshore wind farms, has said it would be interested in building a wind farm in Maltese territorial waters. Blue H was one of the nine companies that submitted an expression of interest for offshore wind farm development in Malta two years ago. Blue H was incorporated in the UK in 2004 and is now based in Holland. It brings together expertise in wind energy, marine construction and tension legged platforms to develop offshore wind farms with large turbines (five Megawatts or more), which are difficult to site on shore. The company focuses exclusively on developing economic wind energy sites far offshore. The company has adapted proven deepwater technology from the oil and gas industry to develop stable platforms in the sea on which to place offshore wind turbines in the sea. Blue H typically aims to develop offshore wind farms about 10 to 15 nautical miles off the coast and at sites where the average winds are good (at least eight metres per second).
Ashland changes solar power policy
September 21, 2008. The city of Ashland has expanded its landmark policy on selling excess power from residential solar panels in order to encourage large-scale projects. People could receive credit on their electric bills for systems up to 25 kilowatts by feeding the extra electricity back into the city electric grid. Now the Ashland City Council has raised the level to 50 kilowatts because more homeowners and businesses may be taking advantage of federal and state tax incentives to install bigger systems. Some people may be racing to install solar systems because of uncertainty over whether Congress will reauthorize federal incentives for solar that expire at the end of this year. Several reauthorization bills have been introduced, but none have passed so far.
UK small-scale wind-power turbine installs may double in ’08
September 21, 2008. UK installations of small-scale wind-power turbines may more than double this year as the government aims to meet renewable-energy targets and as consumers face rising electricity costs. Private turbine installs may reach 7,844, compared with 3,459 in 2007. The number of installs last year in Europe’s windiest country climbed 80 percent from 2006. Britain is seeking as much as 35 percent of its electricity from green sources by 2020. European governments want to increase alternative-energy production to curb greenhouse gas emissions, blamed by scientists for climate change. The UK’s six biggest energy suppliers haves raised household bills twice this year, as wholesale fuel costs reached records. UK electricity for the six months ending March 2009 traded at a record 99.10 pounds ($181.77) a MW hour. The increase in installations is being driven by technology improvements and the realization that there are huge savings to be made by deploying small turbines. So-called micro-generation is production from units with a capacity of as much as 1.5 kilowatts and small wind systems are those with a capacity of up to 50 kilowatts. The generators can be freestanding or mounted to walls or roofs of buildings. The UK government is proposing to modify the country’s Renewables Obligation, which requires suppliers to sell a rising portion of alternative energy. The obligation increased renewable generation to about 4.4 percent of power supplies in 2006 from 2 percent in 2001. The government may raise or abolish a cap on the mechanism and make payments for longer.
Other measures proposed in June include so-called feed-in tariffs for domestic generators, which provide fixed prices for power produced in homes and small businesses. As many as 3 million generators using solar or wind energy to produce electricity may be installed by 2020 with government support. That would reduce losses during transmission and cut emissions of carbon dioxide. There are fewer than 100,000 in the country so far. A typical coal-fired power station in the UK has a capacity of about 500 MW.
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