Oil And Gas

Oil and Gas Deal Values Total $170 Billion in 2011

2012-01-04T16:21:00.000+05:30

In conjunction with international partner Derrick Petroleum Services reports that the Global M&A activity for upstream oil and gas deals in 2011 totaled $170 billion in 726 deals. The data set is from our industry leading Global M&A Transactions Database and includes all upstream oil and gas deals with values disclosed.According to Ronyld W. Wise, President of Houston-based PLS, Inc., "Total deal value in 2011 dropped 19% from 2010 record levels, yet the number of deals increased 15% to a record of 726. The relative strength of WTI and Brent oil prices, which averaged $95 and $111 per barrel, respectively, provided good fundamentals for both buyers and sellers to execute the deals. Activity in 2012 is expected to remain at a healthy pace as the industry continues to deploy large amounts of capital toward production development. Currently, we tally over $100 billion of assets on the market."

The buyers are dominated by international interests seeking to shore up longer term supply by investing in both proven conventional reserves worldwide and unconventional plays in the North America. Yashodeep Deodhar, Managing Partner, Derrick Petroleum Services, aptly points out, "The Chinese dominance in buying global oil and gas assets is highlighted by the fact that Sinopec has been the number one cash acquirer over the last three years, spending more than $35 billion between 2009 and 2011 to build a truly global footprint. Sinopec's cash was welcome in large capital intensive projects such as Repsol and Galp's pre-salt developments offshore Brazil and ConocoPhillips and Origin Energy's APLNG project in Australia. With continued healthy cash generation ($7.3 billion in H1 2011), Sinopec is expected to continue major acquisitions of global oil and gas assets, likely within unconventional shale plays worldwide, in countries such as the United States, Argentina and Poland. Today's announcement of Sinopec's $2.5 billion joint venture with Devon in five U.S. new venture plays is evidence of Sinopec's continuing acquisition strategy."

Table 1

Global Oil and Gas Deals - 2007 to 2011 Totals

Year Deals Value

(#) ($ B)

2011 726 $170

2010 630 $211

2009 460 $150

2008 495 $116

2007 470 $147

While the number of deals slowed in late 2011 due to uncertainty in the world financial markets, deal values in Q4 2011 set the high mark for the year. Highlights of Q4 2011 include KKR and partners' $7.2 billion acquisition of Tulsa-based privately held Samson Investments, Kinder Morgan's acquisition of El Paso ($7.2 billion attributed to the oil and gas assets included in the deal) and Statoil's $4.7 billion purchase of Brigham Exploration.

Table 2

Global Oil and Gas Deals - Top 5 in 2011

Month Buyer/Seller Value ($ B) Primary Country

July BHP/Petrohawk $15.1 United States

Feb. BP/Reliance $ 7.2 India

Oct. Kinder Morgan/El Paso(1) $ 7.2 United States

Nov. KKR et al/Samson $ 7.2 United States

Nov. Sinopec/Galp Energia $ 5.2 Brazil

(1). Value of oil and gas assets only. Part of $38 billion corporate acquisition.

Globally, the United States continues to lead upstream oil and gas deal activity with a 46% share of all deals and 51% of deal value followed by Canada with 27% and 9% share, respectively. According to Anders Wittemann, Associated Partner of Derrick Petroleum Services for EMEA, "Outside of North America, Europe, including the North Sea, in 2011 was the top region and reached a record high level at $14.4 billion or 8% of global share. This activity level, achieved by an extraordinary diversity of companies, has reaffirmed the strategic value and attractiveness of portfolios in the Europe/North Sea region."

Table 3

Global Oil and Gas Deals - 2011 Totals by Regions

Region Deals Value

(#) ($ B)

United States 334 $86

Canada 197 $16

Europe/North Sea 47 $14

South America 31 $13

Former Soviet Union 25 $13

Asia 18 $11

Africa 36 $10

Australia 30 $ 5

Middle East 8 $ 3

Total 726 $170

Corporate M&A activity, as opposed to asset purchases and joint ventures, represented 52% of global deal value in 2011. On a quarterly basis, corporate M&A share increased from 35% and 39% in Q1 and Q2 2011 to 65% and 62% in Q3 and Q4 2011, respectively. The high share of corporate M&A deals in the latter quarters points to the general uncertainty in the market which makes negotiating asset deals difficult. The same global trend also occurred in 2009 when the share of corporate M&A deals shot up to 73% from an average historical range of 35% to 45%.

As of January 1, 2012, the tally of upstream oil and gas assets on the market for sale stood at over $100 billion. Not surprisingly, approximately 30% of these are corporate M&A deals.

Looking forward, PLS and Derrick both expect the market for oil and gas assets to continue at a healthy pace driven in part by onshore North America's remarkable transformation from exploration, to exploitation to today's "manufacturing process," a technology that requires significant capital for full development of the resource. We expect the trend of independents such as Brigham, Petrohawk and XTO being sold to larger companies to continue especially in light of current North American gas prices and world oil prices.

Globally, growing Asian economies will continue to drive deal activity as buyers seek new oil and gas reserves and provide capital for world class exploration plays in areas such as West Africa, East Africa and Brazil deepwater.

PLS, Inc. and Derrick Petroleum Services are partners in providing U.S., Canadian and International clients with an industry leading Global and U.S. M&A database and related services. These databases are maintained 24/7 by a team of analysts and are accessible via the web.

SOURCE PLS, Inc.

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ONGC Videsh Ltd (OVL) to invest $ 1.5 bn in an Iraq oil block

2011-09-02T15:14:00.001+05:30

ONGC Videsh Ltd, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), may invest over $ 1.5 billion in exploring for oil in a block that was awarded to it by the erstwhile Saddam Hussein regime.

"We are nearing finality on the contract for Block-8. It is likely to be signed in next six months," an official said.

Block-8, located in the western desert in southern Iraq bordering Saudi Arabia and Kuwait, was awarded to OVL in November 2000 by the then Saddam Hussein government. However, the government formed after the US invasion of the oil-rich country, sought re-negotiation of the contract which has now been concluded.

The post-Saddam Hussain regime had initially agreed to signing of a Production Sharing Contract (PSC), where OVL would have got ownership of the oil it produced from Block-8. But the success of post-war licensing rounds, where global majors committed to develop oilfields for a small fee, has seen Baghdad change track and offer a service contract to OVL.

The block already has a discovery and is estimated to hold 645 million barrels of in-place reserves, of which 54 million are recoverable, he said, adding OVL has committed investing $ 86 million in two phases of exploration and $ 1.45 billion in development of the reserves thereafter.

The contract would be a service contract wherein OVL will be paid about 18 per cent rate of return on its investment. The company holds 100 per cent interest in the block.

"We are currently agreeing on finer details of the contract," he said.
Exploration and development contract for Block-8, Western Desert, was signed by OVL with the Oil Exploration Company of Iraq, on November 28, 2000, at New Delhi.

As per the 2000 contract, OVL was to reprocess and interpret existing 2-D seismic data. It was also to acquire, process and interpret 1,000 km of 2D and carry out 300 sq km of 3D seismic survey besides drilling two wells.

The service contract now being drawn would be similar to the one China National Petroleum Corp (CNPC) had signed recently for developing Al-Ahdad oilfield in central Iraq. "It will be a service contract wherein OVL will be paid about 18 per cent rate of return on the investment it makes in finding and producing oil from Block 8," the official said.

It would act as the operator of the field until it recoups all its costs and set up a joint operating company with the local operator to take over once development costs have been repaid.

Baghdad has, however, refused the Tuba oilfield, for which OVL, in consortia with Reliance Industries and Algeria's Sonatrach, were in negotiations before the US attack on Iraq.

Source: Economic Times

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Energy: The pros and cons of shale gas drilling

2011-07-12T15:06:00.000+05:30

Natural gas has been the ugly stepchild of our national energy debate: Never enjoying the political muscle of oil and coal, and never capturing the imagination like solar panels and wind farms. And to top it all off, it was in short supply.

But that's changing and now this stepchild is being touted as the hope of the future - the answer to our energy problems.

What's brought about the change is there's a new unconventional process for extracting natural gas from shale, a dense rock formation two miles underground.

And if you're sitting on top of it, you may become a new American phenomenon: A "shaleionaire."

And yet, if the BP spill last summer taught us anything, it's that exploring for energy has safety risks. But as we first reported in November, that can get lost in all the excitement.

What is increasingly evident is that shale gas is overwhelmingly abundant right here in the U.S.A.

"In the last few years, we've discovered the equivalent of two Saudi Arabias of oil in the form of natural gas in the United States. Not one, but two," Aubrey McClendon, the CEO of Chesapeake Energy, told "60 Minutes" correspondent Lesley Stahl.

"Wait, we have twice as much natural gas in this country, is that what you're saying, than they have oil in Saudi Arabia?" Stahl asked.

"I'm trying to very clearly say exactly that," he replied.

Chesapeake Energy is the largest independent gas producer in the country. McClendon is on a mission to get the U.S. off foreign oil and dirty coal.

Gas has nearly half the carbon emissions of coal, and no mercury.

"But natural gas is still a fossil fuel," Stahl pointed out.

"So is it perfect? No," McClendon said. "The answer is it's not perfect. But for the next 20 years, natural gas is probably our best bet. And the good news is, we've got it. And we've got as much of it as anybody else in the world."

There are shale formations across large parts of the country, and there is production or exploration in over 30 states. It's an American energy renaissance.

Some 10,000 wells will be drilled in northwest Louisiana, in some of the poorest communities in the country, where impoverished farmers are becoming overnight millionaires as they lease their land for drilling.

"I never dreamed of money like this," C.B. Leatherwood told Stahl. "

Leatherwood, a retired oil field worker, got a bundle to drill under his farm: $434,000.

His cousin, Mike Smith, also profited: he was paid nearly $2 million.

"So what'd you do that day?" Stahl asked Smith.

"I sat back and thought about it for a, all day. And I said, 'I'm a millionaire.' And that didn't sound right," he replied.

They actually call them "shaleionaires," and they don't mind putting up with the noisy, smelly drilling when the wells are built because they get a cut of the profits, which could last for years and add up to millions more.

Within a year, shale drilling generated almost $6 billion in Louisiana in new household earnings. As the rest of the nation plunged into a recession, the region added over 57,000 local jobs, and the Cadillac dealership in town is hopping.

People have known for a century that shale contained gas, but it was too difficult and pricy to extract.

Produced by Shachar Bar-On

Source: http://www.cbsnews.com

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ONGC to invest $7.7bn in KG basin

2011-06-22T12:42:00.000+05:30

Oil and Natural Gas Corporation (ONGC) plans to invest $7.7 billion to develop its gas field in the KG Basin, adjoining Reliance's prolific D-6 block, and produce up to 30 million cubic meters aday in five years. It plans to drill eight additional wells in the block to maximize output from the deep-sea field in the Bay of Bengal and has sought approval for the plan from the directorate general of hydrocarbons and the petroleum ministry. "The matter of drilling additional exploratory wells in the block was discussed in a technical committee meeting held on January 17, 2011 and subsequently a communication has been sent to DGH indicating requirement of 8 wells in the block, six in NDA and two in SDA," ONGC said in an email response.

ONGC said it had submitted a proposal for Declaration of Commerciality (DoC) to the DGH in re-Sabha that in-place gas reserves of 3.42 trillion cubic feet (tcf) have been established in the KGDWN-98/2 block, of this, 1.904 tcf is recoverable. The KG-DWN-98/2 block has 10 gas discoveries and Cairn India is already a 10% partner in the block. The company plans to produce 25-30 million standard cubic metres per day of gas from the block by 2016-17. The KG Basin is India's most prolific gas basin and home to some of India's biggest natural gas discoveries in recent years.

Reliance Industries discovered a giant gas field in the region in 2002 and started production from the gas field in 2009/10. Gas output from Reliance's field was ramped up to 60 mmscmd but production subsequently declined. State-run Gujarat State Petroleum Corp has also discovered natural gas in the same region. ONGC has been scouting for partners to develop the block as it does not have experience in developing fields in ultra-deep regions in the sea. spect of Northern Development Area and Southern Development Area in NELP Block KGDWN-98/2. "A total lifecycle cost as per the proposal for DoC is of the order of $ 7.7 billion," ONGC said.

On whether it is divesting a 30% stake in the KG-DWN-98/2 block, an official said: "ONGC had invited global majors to a data room for a possible tie-up in the integrated appraisal and development process of this block and adjoining nomination blocks. ENI and BG have evinced interest and the process of firming up the modalities of partnership is in progress." "It is too early to say when we will cement these partnerships with either BG or ENI, we still have to choose and talks are on, we are keen to forge these associations to gain technical expertise in ultra-deepwater exploration," AK Hazarika, chairman, ONGC told ET.

Last year, Minister of State for Petroleum and Natural Gas Jitin Prasada had informed the Lok Sabha that in-place gas reserves of 3.42 trillion cubic feet (tcf) have been established in the KGDWN-98/2 block, of this, 1.904 tcf is recoverable. The KG-DWN-98/2 block has 10 gas discoveries and Cairn India is already a 10% partner in the block. The company plans to produce 25-30 million standard cubic metres per day of gas from the block by 2016-17.

Source: Economic Times
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The explorers: Reliance and British Petroleum

2011-03-25T17:07:00.000+05:30

Reliance helps BP break into its next frontier — India. In return, the company hopes to get an entry into energy’s big league.

Tony Hayward’s visits to India during his years as the CEO of oil supermajor BP was largely to fulfil his duties as a non-executive director of Tata Steel. But his agenda often included a lesser known item — a low-key meeting with Mukesh Ambani, India’s No. 1 billionaire on Forbes India Rich List and the chairman and managing director of Reliance Industries (RIL).

The two often caught up to discuss the contours of a nascent relationship between their companies. RIL and BP had already bid for and won an oil block in India. And now both began talking of a deeper relationship. But what shape this relationship would take was not clear even to those close to the two men.
The answer came this February. Even though Hayward had been forced by then to quit BP in the aftermath of the Gulf of Mexico oil spill, the new CEO Robert Dudley picked up the threads with RIL. BP announced it will take a 30 percent stake in 23 oil and gas blocks owned by RIL across India, including the producing Krishna-Godavari D6 block.

The two companies also agreed to form an equal joint venture to source and market gas in India. BP said it would make a total investment of $20 billion in these ventures. This would make the deal one of the largest foreign investments in the country.

However, those who have watched the two companies closely say that their coming together was not just the result of friendship; both BP and RIL had been pushed to the corner in their respective businesses and were looking for partners that would help them recover. The alliance was their best chance to achieve that.
To say that 2010 was annus horribilis for BP would be an understatement. The explosion at its platform Deepwater Horizon in April resulted in the biggest oil spill in history. The company is still cleaning up the mess — both physically in the Gulf of Mexico and financially in its balance sheet.

The world’s third largest oil and gas company posted a $4.9 billion loss in 2010, its first annual loss since 1992. It included a total pre-tax charge of $40.9 billion related to the blow-out. The company’s retreat from the US, at least for the medium term, now looks certain.

Though not quite as cataclysmic, the problems of Reliance Industries are quite challenging too. It faced technical issues at D6 (Reliance’s and India’s largest natural gas find) as a result of which its plan to step up gas production was shot to pieces. In fact, the production began to fall. Sustaining production even at levels achieved in March-April 2010 became tough. The company that had brought to production India’s biggest gas field was finding its management and technical bandwidth stretched to the limit.

RIL was also lagging behind in exploration of its portfolio of 20 other blocks that it had bid for and won over the years. There was bad news from drilling in KG D9 that everyone had hoped would be ‘another D6’. The well turned out to be dry.

Exploration at NEC-25, the third prospective block in the Mahanadi Basin had not really developed. For these and the earlier problems between Ambani and his brother Anil, investors were punishing the stock. RIL has lagged the benchmark Sensex for three consecutive years.

The hard work begins for both the companies only now. Given that gas prices are regulated by the government and mostly stay much below international prices, it will be a challenge to make the alliance work, especially in distribution and marketing. Reliance has little experience working with global majors and its earlier partnership with Chevron was short-lived. It will be interesting to see how BP and Reliance leverage their respective strengths.

Find Baby FindThere is one number that reveals how long an oil and gas company can sustain production. It is the Reserve Replacement Ratio (RRR), the extent of a company’s finds over the current rate of production. For Reliance, this number has been falling. “RIL has been unable to significantly add to its reserves since the D6 discovery,” says Neil Beveridge, senior analyst at Sanford C. Bernstein in Hong Kong. There have been a number of incremental discoveries, but nothing approaching the scale of D6. The BP deal will bring in the much needed cash to boost its RRR.

RIL has proved its capability in developing the D6 block. But managing an exploration campaign over a huge area involving billions of dollars in investment, simultaneous activity in exploration, appraisal of findings, development and extraction of oil is a very complex affair. With BP’s experience, Reliance will be able to take up such campaigns, says Narendra Taneja, south Asia bureau chief of Upstream, a global oil and gas newspaper published from Norway.

More urgent is the need to fix technical problems that have been hampering production at D6. Here too, BP will make a difference, having drilled in over 30 countries and developed proven reserves of 18.3 billion barrels of oil equivalent.

But investors point out that the deal does not seem to solve RIL’s problem of future growth. Analysts like Vidyadhar Ginde of HSBC expect an acquisition in the petrochemicals segment. The company has cash and cash equivalents of $7 billion on its books and is estimated to generate cash profit of $8 billion in 2011-12. Add to this the infusion of $7.2 billion from BP and it has sizeable wallet to shop with. It has already lined up investment of $7 billion that includes a few projects that are yet to take off. The problem of finding enough large investments is something that the company will have to continue grappling with for some more time —unless of course, the RIL-BP combo is able to find the next big one very quickly.

What’s in It for BPFor BP too, the RRR declined in 2010 after it sold assets around the world to fund liabilities in the Gulf of Mexico. However, it has struck two big deals this year that should increase the RRR — the Reliance deal, preceded by a share swap with Russian gas company Rosneft.

After reducing BP’s scope of operations in the US, CEO Dudley had been looking for growth and diversification opportunity. The vastly under-explored subcontinent was a compelling option.
BP’s Energy Outlook 2030 forecast that India’s energy consumption, which grew by 190 percent over the past 20 years, is likely to rise by 115 percent over the next 20 years. International pressure to cut emissions will also boost gas consumption more than oil over the next few years.

But the real challenge for the alliance comes in the marketing of gas. When RIL first struck large amounts of gas, everyone started speaking of India’s transition to a gas economy. Nearly 10 years later, there is still a huge shortage of gas.

City gas distribution was once considered the Holy Grail of last-mile gas marketing in India. But by now, it has become clear to companies that competition is very stiff and margins very thin in that business.
The deal is a bold move by both companies to bet on India’s future energy profile despite the odds. If they succeed, some of the tarnish may just be wiped out from Tony Hayward’s legacy.

Source:Money control
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Mukesh Ambani's RIL signs $9 bn deal with BP

2011-02-21T17:03:00.000+05:30

Mukesh Ambani led Reliance Industries Limited (RIL) has signed a 50:50 joint venture agreement with oil major British Petroleum (BP) for sourcing and marketing of gas in India. The joint venture agreement, valued at $9 billion, is one of the biggest foreign direct investments in the country. According to the agreement, BP will get 30 per cent of RIL's upstream assets in 23 oil and gas blocks (including the producing KG D6 block) for $9 billion.

BP will pay RIL an aggregate consideration of US$7.2 billion for the interests to be acquired in the 23 production sharing contracts. Future performance payments of up to US$1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to US$20 billion.

Mukesh Ambani said: "We are delighted to partner with BP, one of the largest energy majors and one of the finest deep water exploration companies in the world. This partnership combines the skills of both companies and will be focused on finding more hydrocarbons in the deep water blocks of India and significantly contribute to India's energy security."

"This partnership meets BP's strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets," said Mr. Carl-Henric Svanberg, Chairman of BP.

Source: http://profit.ndtv.com/news/show/mukesh-ambani-s-ril-signs-9-bn-deal-with-bp-141776

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ONGC fuel subsidy bill up 21 per cent in Q3

2011-01-20T13:21:00.000+05:30

State-owned Oil and Natural Gas Corp's fuel subsidy bill will increase by nearly 21 per cent to about Rs 4,222 crore in the third quarter this fiscal.

State fuel retailers Indian Oil Corp , Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) together lost about Rs 15,750 crore in revenues on selling diesel, domestic LPG and kerosene below cost of production in October-December quarter, an official said here.

"Of this under recovery, upstream companies like ONGC, Oil India and Gail India will bear one-third," he said.

As per this subsidy sharing formula, ONGC will chip in with Rs 4,222 crore by way of discount on crude oil it sells to IOC, BPCL and HPCL.

The subsidy outgo of ONGC in Q3 of last fiscal had stood at Rs 3,487 crore.

The official said while OIL will pay Rs 558 crore in subsidy during Q3 of this fiscal, GAIL will give Rs 418 crore.

While, petrol price was freed from government control in June, state oil firms continue to sell diesel, domestic LPG and kerosene at government ruled prices which is substantially lower than cost of production.

IOC, BPCL and HPCL currently lose Rs 6.80 per litre on diesel, Rs 18.66 per litre on kerosene and Rs 366 per 14.2-kg LPG cylinder.

Source: Economic Times

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RIL's KG D6 output set to rise by April

2011-01-12T18:37:00.000+05:30

OIL regulator Directorate General of Hydrocarbons (DGH) on Tuesday said that natural gas output from Krishna Godavari's D6 block is likely to touch 60 million metric standard cubic metre per day (mmsmcd) in April this year from prevailing 52-53 mmscmd.

"They (RIL) are producing natural gas from 18 wells currently. By April 2011, 22 wells will start producing gas. Once all 22 wells come on stream gas output will touch 60 mmsmcd," S K Srivastava, director general of DGH told reporters in the national capital on Tuesday.

Head of oil regulator also added that production is likely to touch 80 mmscmd by 2012-13.

Natural gas production from D6 block at KG basin operated by RIL and Niko Resources saw a 15 per cent dip in production during November-December last year. The output was as low as 45-46 mscmd from 53-54 mscmd owing to reservoir complexities.

Exploration companies sometime face technical issues with reservoir underground. It happens because of gas pressure after wells go on-stream.

"Wells behave differently at different times," Srivastava replied when asked the reason for dip in production.

In India, the share of natural gas has reached 11.15 per cent in the commercial energy basket after production from KG D6 that was about 8.6 per cent earlier. RIL commenced natural gas production from prolific KG basin in April 2009. The company reported 20 discoveries out of which D1 and D3 are with maximum reserves.

At present, domestic gas production in the country is close to 165 mmsmcd.

Out of this, power companies utilize 40 per cent gas while fertiliser companies use another 30 per cent. Rest of the gas is supplied to petrochemicals, steel, refineries and city cooking gas units among others.

Meanwhile, Srivastava said auction for shale gas blocks exploration will be done this year-end. "Resource assessment, policy framework and legislative changes are in progress (for the auction)," he said.

Shale gas is a cleaner source of energy found in shale rock formations. At present, shale gas is produced only in North America. The estimated shale gas reserves in the US are 125 trillion cubic feet (tcf) and 50 tcf in Canada.

Source: My digitalfc

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ONGC, Sistema to merge Russian oil & gas assets

2010-12-22T13:20:00.000+05:30

State-run ONGC and Russian conglomerate Sistema have decided to merge their oil & gas businesses in Russia under a joint venture in a no-cash deal where the Indian firm will have a 25% shareholding with a say in management.

The merger of three companies, Bashneft, RussNeft and Imperial Energy, will make ONGC a shareholder in the Russian firms’ annual oil production of 25 million tonne and in the output of their refineries which have a capacity of 20 million tonnes besides discovered oil fields, Trebs and Titov.

State-run Indian Oil Corp (IOC), India’s largest refiner, will join ONGC in the venture, an oil ministry official said.

ONGC will merge its wholly-owned subsidiary Imperial Energy into the new company. ONGC Videsh, the foreign arm of the state-owned giant, India’s second-largest company by market capitalisation, had acquired Imperial in 2008 for $2.1 billion. Imperial produces about 1 million tonnes of crude oil annually and all its assets are in Russia.

Officials with direct knowledge of the matter said that ONGC would be practically managing oil and gas assets of the merged entity due to its experience. ONGC’s shares were down 0.26% at Rs 1,301.60 from the previous day’s close.

Sistema, a diversified group, had been scouting for a strategic partner with experience in oil and gas sector, ONGC’s chairman & managing director RS Sharma said in a statement. Sistema is a financial corporation that manages companies with a presence in telecommunication, high technology, energy, aerospace, banking, retail, tourism and healthcare services. The deal will be concluded by June 30, statements issued by ONGC said.

A Sistema statement said the prospective partners had agreed to jointly invest in future in “key” countries. The names of the key countries could not be ascertained.

“It is a frame-work agreement. We will soon negotiate specific terms of an agreement in this regard,” an ONGC official said. The frame-work agreement was signed on Tuesday by Sistema chairman Vladimir Evtushenkov and ONGC Videsh managing director RS Butola during Russian president Dmitry Medvedev’s India visit.

State-run oil companies are also interested in joining the consortium, the official said requesting anonymity. The proposed consortium would be led by ONGC Videsh.

The new firm will also hold Trebs and Titov, the major discovered fields estimated to have 200 million tonne recoverable reserves, equivalent to 35% of ONGC’s total crude oil reserves. The fields were awarded to Bashneft in a recent auction where ONGC had also participated but was disqualified. The deal is significant for a country like India that imports over 70% its oil and gas consumption.

Sistema has a 75% direct stake in Bashneft that produces 13 million tonnes of oil from fields in Russia. It also owns refineries with a combined capacity of 20 million tonnes. It has a 49% stake in RussNeft that producing 12 million tonnes of oil. Sistema has a presence in Indian telecom sector through Sistema Shyam TeleServices.

Source : ET

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India seeks more oil, gas from Nigeria

2010-11-08T12:45:00.000+05:30

Union Minister for Petroleum and Natural Gas Murli Deora on Thursday said Africa's largest crude oil and gas producer — Nigeria — was willing to increase oil exports to India besides liquefied natural gas (LNG).

“Nigeria is our close friend and willing to help us in meeting our growing energy requirements. This is a positive development for securing India's energy security,'' Mr. Deora said. He recently had a meeting with Nigerian President's special adviser Emmanuel O. Egbogah.

Mr. Deora said that during his meeting, he took up the issue of GAIL (India) and Petronet LNG picking up stake in the $8-billion LNG project at Brass in the Niger delta. “We expressed interest in sourcing LNG on long-term contract from Nigeria and discussed the possibility of GAIL and Petronet joining in a LNG project,'' Mr. Deora remarked.

State-run Nigeria National Petroleum Corp has a 49 per cent stake in the Brass project. French energy major Total, Eni of Italy and ConocoPhillips hold 17 per cent stake each. India wants additional Nigerian crude, Petroleum Secretary S. Sundareshan said. “Mr. Emanuel responded positively and said the Indian side should send a formal proposal to the Nigerian Government in this regard. We will be moving in this direction soon,'' Mr. Deora said. India's energy demand is expected to increase by over 40 per cent during the next decade but supply from its ageing oil-fields is expected to increase by around 12 per cent necessitating higher import of oil and gas assets abroad, he said. India wants to increase its crude oil import from Nigeria, which plans to raise its production to 4 million barrels from 2.7 million barrels a day by 2012. India imports around 13 million tonnes of crude oil from Nigeria annually.

Nigeria is the largest crude oil producer in Africa. Nigerian crude oil is light and sweet and commands a premium in the international market due to its quality.

Source: The Hindu

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Cheer gas

2010-10-04T14:02:00.000+05:30

ONGC is banking on natural gas production to propel its future growth as industries wake up to the significance of the clean fuel in the fight against global warming. Gas production has become a profitable business for the company after the recent revision of administered (APM) prices. Margins are projected to go up further, as the country’s pipeline network widens, releasing suppressed demand for gas.

ONGC, interestingly, is adding more reserves of gas than crude oil to its asset portfolio. That would mean a higher share of gas in the company’s revenue in the years ahead. ONGC expects to increase natural gas production to 100 million standard cubic meter per day (mmscmd) by 2015 from 60 mmscmd now. “We have added gas reserves at a much faster pace in recent years compared to crude oil,” DK Pandey, ONGC’s director for exploration, told FE. “Natural gas is a clean source of energy and environment friendly. It is also becoming profitable now,” Pandey said.

When the government fixed the price for natural gas from Reliance Industries’ D6 field in the Krishna-Godavari basin at $4.2 per mmBtu in 2007, it was seen as fairly high then, given that RIL had quoted $2.34 per mmBtu in an opening bidding for the supply of 12 mmscmd gas to NTPC’s Kawas and Gandhar projects in 2003.

But more recently, the government has set a gas price for Gujarat state Petroleum Corporation’s DeenDayal field in the K-G basin at $5.7 per mmBtu. Now RIL is also pushing for a higher gas price for D6.

Global upstream investment saw an 18% decline in 2009 as the industry was forced to cut down on its spending in the face of economic recession. In contrast, ONGC maintained its exploration pace. That has helped the company clock the highest ultimate reserve accretion in the last two decades.

ONGC added 83 million tonnes of oil and oil equivalent gas reserves in the fields operated by it in 2009-10. On a cumulative basis, ONGC has added over 250 million tonnes of oil and oil equivalent reserves in the last four years.

“Being a national oil PSU, we have to keep investing in exploration,” Pandey reasoned. ONGC has set a capital expenditure target of Rs 1,30,000 crore for the 11 th Plan—a 47% hike over the previous plan.

The company has already spent about 67% of the allocated fund during the first three years of the Plan. It has earmarked about Rs 24,000 crore for financing its domestic exploration work in the current financial year. At this pace, ONGC is likely to exceed the exploration spending target for the current Plan.

The company has targeted to drill 154 exploratory wells compared with 128 in 2009-10. The ten-year average success rate for the company works out to 1:2.5, which compares favourably with the industry ratio of 1 to 3. “Giant fields are discovered only in virgin areas. It is our mandate to explore the hydrocarbon potential of all sedimentary basins in the country,” the ONGC director explained

Source: Financial Express

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Shale gas exploration acreages to be available from next year

2010-08-31T13:40:00.000+05:30

The Directorate General of Hydrocarbon (DGH) today said that shale gas exploration acreages in the country will be available from next year.

At present, the Ministry of Petroleum is working on a shale gas regime to find out the most suitable one for the country.

"We are expecting that by next year shale gas exploration acreages will be given. Currently, we are also working to find out a better shale gas regime. This shale gas regime will be a win-win situation for all," DGH's Director General Sunil Kumar Srivastava told reporters here.

Areas such as Cambay basin, Krishna-Godavari basin and Assam-Arakan basin are considered as most prospective areas for shale gas exploration, he said.

However, Srivastava said that given the variability of shale across India, a rapid pace of source development would probably come only after successful explorations in the initial basins.

The government signed a memorandum of understanding (MoU) with the US on shale gas, where the US Geological Survey (USGS) is likely to do a resource assessment of certain shale basins in India, he said.

Besides, the Government plans to move to the open acreage licensing policy (OALP) regime by 2012, he said adding the OALP will make India a favourable destination globally for exploration and production of crude and natural gas.

This will enable upstream companies to bid for any oil and gas block without waiting for the announcement of bidding under new exploration licensing policy (NELP) regime.

Commenting on ninth round of new exploration licensing policy (NELP), Srivastava said, "NELP-IX will be formally launched in September, followed by road show."

The production from Reliance Industries' KG Basin block is on track and producing as much as they committed

Source: Economic Times

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Reliance Industries: Buy

2010-08-10T12:19:00.000+05:30

Despite its June quarter results being in line with expectations, the stock of Reliance Industries Ltd (RIL), India's largest private sector company, saw no respite from its weak run. The markets seem to be have been spooked by the temporary cap on gas output from the KG-D6 basin. This, combined with concerns over overcapacity in the petrochemicals business has resulted in RIL's lacklustre run at the bourses.

However, the concerns may be overdone. There has been a string of positive recent events — the shale gas interest acquisitions in North America, continuing hydrocarbon discoveries and a favourable outcome in the protracted gas supply dispute with RNRL (which has paved the way for RIL's diversification into telecom and power).

Also, the company continues to be a veritable cash generating machine (FY10 operating cash flows of around Rs 20,500 crore) giving it the ability to muscle into any sector it chooses. Characteristically aggressive expansion plans hold the potential to propel growth.

RIL, which has underperformed the market for quite some time now, presents an attractive buying opportunity for investors with a long-term perspective. At the current market price of Rs 1,000, the stock discounts its trailing twelve months earnings by around 19 times, lower than the Sensex multiple of 22.

Entrenched position

Over the last fiscal, RIL has strengthened its formidable position in the energy business, thanks to the KG-D6 production, and the new refinery in Jamnagar.The oil and gas segment grew significantly with the KG wells ramping up gas production to around 60 mmscmd. This segment which generates the highest margins (in excess of 40 per cent), now accounts for almost 32 per cent of operating profits. The company's recent decision to cap gas production due to technical reasons and commence ramp-up to around 80 mmscmd only after two-to-four quarters is a short-term negative. Nevertheless, the long-term growth story looks intact.

RIL has enjoyed a traditional advantage in refining, its biggest revenue contributor (in excess of 70 per cent), with its high complexity refineries enabling processing of cheaper, heavier crude to earn superior gross refining margins (GRMs). With Reliance Petroleum's new SEZ refinery coming into its fold, RIL's capacity has almost doubled to around 1.24 mbpd. The segment reported low operating margins (4 per cent) in the June 2010 quarter. However, with GRMs expected to improve from last fiscal's lows, thanks to improving demand and widening differential between light crude and heavy crude, RIL could benefit.

The petrochemicals segment (accounting for around 20 per cent of revenues and 34 per cent of operating profits) is facing pressures due to overcapacity in the global market. However, feedstock synergies (in-house naphtha from the refining segment) and strong domestic demand outlook hedges the company to some extent. RIL is among the largest players globally in petrochemicals and has announced massive expansion plans in the segment. This could benefit the company significantly when the cycle turns.

Big-ticket expansion

The last quarter has seen RIL acquire stakes in significant shale gas acreages in North America. These ventures — with Atlas Energy, Pioneer Natural Resources, and Carrizo Oil and Gas — broaden RIL's upstream interests at a global level, and reduce the impact of cyclicality on the business. Shale gas is touted to be a game-changer in the natural gas business.

A key qualitative benefit for RIL is the access to technology, which may prove quite valuable in other potential markets. India plans to award shale-gas blocks by August 2011, by which time RIL's North American foray would have given it a formidable head-start.

Post the redrawing of the non-compete agreement with ADAG, RIL has re-entered the telecom sector by acquiring Infotel Broadband, the sole nationwide player in broadband wireless. The company has also announced ambitious plans in the power sector, and to scale up its retail business significantly. Besides, it is said to be in talks to acquire BP's fuel marketing assets in Africa. Reports also indicate a possible re-entry into fuel price retailing in India. Recent discoveries in the Cambay basin bode well. The company has also initiated steps to develop satellite fields on the East Coast and its other blocks in the country.

RIL's mammoth cash flows give rise to a problem of plenty. Favourable leverage ratios (net gearing of 24.2 per cent), huge cash balance (Rs 26,407 crore) and a formidable war chest in the form of treasury shares ensure that cash is not a constraint for expansion plans. While most of these projects are long-gestation in nature, they have the potential to catapult the company to the next growth cycle.

Financial performance

In FY 2010, high volumes in oil and gas, and refining saw the company grow consolidated net revenue by around 35 per cent to Rs 2,03,740 crore. However, a weak pricing environment resulted in profits growing at only around 4 per cent to Rs 15,898 crore and margins declining. GRMs declined sharply from $12.2 a barrel in FY 2009 to $6.6.

For the latest quarter, net revenue and profits at Rs 58,228 crore and Rs 4,851 crore respectively, were up 87 per cent and 32 per cent y-o-y driven by oil and gas, and refining segments. Margins however declined due to higher proportion of gas to oil, and higher depreciation costs. GRMs at $7.3 a barrel were down sequentially ($7.5) but higher than the year ago figure ($6.8). The performance was still good, given that the benchmark Singapore GRM had registered a steeper fall from the previous quarter. Return on equity is healthy at around 12 per cent.

Going forward, though growth may moderate in the near to medium term given the high base effect, expansion initiatives should see the company reporting strong numbers.

Risks

Sluggishness in demand due to uncertainties in the global economy could drag the company's performance, especially in the petrochemicals business. An unfavourable outcome in the ongoing gas supply dispute with NTPC will weigh negatively on the company.

Source: Hindu Business Line

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RIL to buy 3rd shale gas asset for $392 mn

2010-08-06T11:13:00.000+05:30

Reliance Industries (RIL) has agreed to buy 60% stake in the Marcellus shale acreage in the US for $392 million, or around `1,810 crore, its third investment in four months in the promising new energy resource.

RIL, India’s biggest company by market value, will immediately pay $340 million for the acquisition of the shale gas acreage in central and north-east Pennsylvania that is equally owned by Carrizo and its partner ACP II Marcellus, an affiliate of private equity firm Avista Capital Partners. It will pay $52 million more to cover part of the drilling costs in two years, the company said in a media statement.

Carrizo will hold 40% of the gas acreage after the transaction is over, which is likely to happen by mid-September. The acquisition will provide RIL access to 104,400 acres of underdeveloped land with estimated net resources of 3.4 trillion cubic feet of gas.

Houston-based Carrizo will be the so-called development operator of the venture, which means it gets to extract the gas. But RIL has the option to act as a development operator in some regions over the lifetime of the agreement, the statement added.

The RIL stock closed flat at `1,006.95 in a weak Mumbai market.

“Reliance will pay $6,258 an acre for the Carrizo deal, which will, in turn, add value of `8.3 a share,” said Deven Choksey, managing director of KR Choksey Securities. “The price paid by RIL for this deal is in line with the cost of other two (shale gas) acquisitions.”

This is the cheapest of the three assets RIL has bought so far.

In April, it had acquired a 40% stake in Atlas Energy's Marcellus share acreage in the US, gaining access to approximately 343,000 acres of undeveloped land with estimated gross resources of over 13 trillion cubic feet of gas. It paid $1.7 billion for this. In June, RIL bought a 45% stake in Pioneer Natural Resources for $1.15 billion, gaining access to 210,000 acres of land."We will continue to pursue such joint development opportunities with the best operators as well as on our own to build a substantial upstream business in North America," RIL chairman and India's richest man, Mukesh Ambani, had told shareholders at the company's annual general meeting in June.

RIL, which owns the world's biggest refinery complex and India's largest gas field in the KG basin, has cash and cash equivalent of more than $6 billion. Its projected annual cash flow is pegged at $7-8 billion. Jefferies & Co was the financial advisor while BNP Paribas and Credit Agricole Corporate & Investment Bank was the strategic advisor to RIL.

Shale gas is extracted from a common rock formation found in most parts of the world. The emergence of new drilling technologies has made the extraction of gas viable and has led to sudden an increase in the production of shale gas in the US, forcing gas prices to drop in that country.

Led by ExxonMobil, which bought shale gas specialist XTO for $41 billion in December last year, big energy companies such as BP and Total are entering the shale gas business.

Source: Economic Times

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Govt to provide Rs 14,000 cr to oil companies as subsidies

2010-08-04T13:38:00.000+05:30

The government will give Rs 14,000 crore in cash to Indian Oil, Bharat Petroleum and Hindustan Petroleum to make up for the losses incurred on selling fuel below cost in the first quarter of 2010-11 fiscal.

The Finance Ministry today sought parliamentary approval for additional spending of Rs 68,294.30 crore that included Rs 14,000 crore "for providing compensation to oil marketing companies towards estimated under-recoveries on account of sale of petroleum products."

Retailers IOC, BPCL and HPCL lost about Rs 20,275 crore on selling petrol, diesel, domestic LPG and kerosene below cost in the first quarter of this fiscal. Of these, losses of upstream firms like Oil and Natural Gas Corp (ONGC), made up for one-third or Rs 6,690.68 crore.

The Finance Ministry will meet the rest by way of cash dole-outs after Parliament passes supplementary demands for grants.

IOC, BPCL and HPCL had reported net losses in April-June quarter as the government support for selling fuel below cost did not come before accounts for the quarter were closed.

In Q1, ONGC paid Rs 5,515.54 crore towards fuel subsidies, Oil India Rs 729.66 crore and GAIL Rs 445.48 crore.

ONGC, state gas utility GAIL and OIL give discounts to the three retailers on the crude oil and LPG they buy to partly make up for the losses.

For the full fiscal, IOC, BPCL and HPCL are projected to lose less than Rs 57,000 crore.

The government freed petrol prices last month on June 25 and there will be no under-recovery on this motor fuel in the remaining part of the year. The three retailers currently sell diesel at a loss of Rs 2.76 a litre, kerosene at a discount of Rs 15.41 per litre and domestic LPG at a loss of Rs 170.57 per cylinder.

The Union government paid about Rs 26,000 crore in fuel subsidies in the 2009-10 fiscal.

Source: Economic Times

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GAIL first quarter net rises to Rs. 886 cr

2010-08-03T14:26:00.000+05:30

GAIL (India) on Monday reported a 35 per cent jump in net profit in the first quarter ended June 30, 2010, despite a near five-fold jump in fuel subsidy outgo. The company said that it would raise Rs. 500 crore through a maiden bonds issue in January next. Net profit rose 35.2 per cent to Rs. 886.80 crore in the April-June quarter from Rs. 655.80 crore in the same period a year-ago, GAIL Chairman and Managing Director B. C. Tripathi told reporters here.

The company's turnover rose to Rs. 7,163.50 crore from Rs. 6,119 crore. The increase was due to the government's move to more than double the APM gas price to $4.2 per mBtu (million British thermal unit) from $1.79 per mBtu and allow GAIL to charge a marketing margin of Rs. 200 per thousand cubic metres. The jump in net income was despite GAIL having to dole out Rs. 445 crore towards subsidies on petrol, diesel, domestic LPG and kerosene as against Rs. 75 crore.

Mr. Tripathi said the GAIL board on Monday approved borrowing of Rs. 1,250 crore from HDFC and raising another $150 million through the external commercial borrowing (ECB) route in December this year. The ECB would be the first tranche of $500 million the company planned to raise for funding its pipeline and expansion of its petrochemical project, he said. Mr. Tripathi said the company was doubling capacity of its petrochemical plant at Pata in Uttar Pradesh to 9 lakh tonnes at an investment of Rs. 8,200 crore.

JV with RIL put on back-burner

The company has put on the back-burner plans to set up a mega petrochemical plant overseas in a joint venture with Reliance Industries and has instead decided to invest Rs. 8,200 crore on doubling the capacity of its chemical unit in Uttar Pradesh. The expansion will take 42 months to complete, but GAIL would endeavour to commission the unit in 36 months, he said.

RIL and GAIL had on December 4, 2007, signed a memorandum of understanding (MoU) to jointly set up a mega gas-based petrochemical plant.

Source: Hindu Business Line

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RIL to drill two more wells in KG-D6 block

2010-07-28T14:07:00.000+05:30

Reliance Industries (RIL) is set to drill two more wells in the KG-D6 block that may boost gas production from the field where output has stagnated since April at about 60 million metric standard cubic meters per day (mmscmd).

“The government has approved RIL’s proposal to drill two more wells as part of D1 and D3 field-development plan,” an official in the Directorate General of Hydrocarbon (DGH) said.

The directorate, a technical arm of the oil ministry, is the custodian of the country’s oil and gas assets.

Experts in the oil ministry said that the two wells (A21 and B16) may help RIL increase gas production from the field and sustain the higher production.

“RIL has told us that the current (gas) production from the field is unlikely to increase beyond 60 mmscmd in the near future. It is making efforts to achieve the peak production of 80 mmscmd,” an official in the ministry said.

“We do not wish to comment (on this subject),” RIL spokesman said in an email reply. The company’s current production of around 60 mmscmd comes from 16 wells of D1 and D3 and 5 wells of D26 fields, RIL said in a press statement issued on Tuesday. The D26 field is located next to D1 and D3 field in the same KG-D6 block.

RIL has been producing crude oil and gas from D26 (also known as MA) field since September 2008. But major gas field, D1 and D3 commenced commercial production on April 2, 2009.

The company managed to ramp up gas production from KG-D6 to 60 mmscmd in just nine months, but output is stuck at that level. RIL is, however, hopeful of achieving the peak production of 80 mmscmd by 2012, an oil ministry official said.

The government had awarded the KG-D6 block (KG-DWN-98/3) to a consortium of RIL and Niko in 2000, under the first round of auction of New Exploration Licensing Policy (Nelp-I). In 2002, the consortium made the largest gas discovery of the time in the block. RIL holds 90% stake in the asset, while balance 10% is held by Niko.

Source: Economic Times

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ONGC plans to invest $5 bn to develop gas fields to boost output by 60 pc

2010-07-27T12:27:00.000+05:30

Oil & Natural Gas Corporation plans to spend $5 billion to develop gas fields to boost output by almost 60% in six years, two people with direct knowledge of the matter said.

The New Delhi-based explorer sought permission from the oil and gas regulator on July 16 to invest the funds in nine natural gas discoveries off India’s east coast to produce 35 million cubic metres a day by 2016, one person said, declining to be identified before the directorate general of hydrocarbons approves the plan.

The amount is triple ONGC’s planned spending on its largest oil field and follows the government’s decision in May to double the price at which the explorer sells gas. India is ramping up gas output at the fastest pace in the world, according to BP’s 2010 Statistical Review of World Energy, after companies including Reliance Industries discovered new fields. “ONGC has been discovering new reserves for a while but the concern is being able to convert them to production,” said Rohit Ahuja, a Mumbai-based analyst with Centrum Broking in Mumbai. “The company is looking to address this with the very good discoveries they have in the east coast.”

The producer of almost 25% of the crude oil used by India is starting new fields at home as output declined at aging areas off the west coast. Reserves added in fields operated by ONGC in the year ended March was the equivalent of 82.98 million metric tonne, the highest in the past 20 years, the explorer said April 26.

Source: Economic Times

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India plans to launch shale gas auction in august 2011

2010-07-26T11:16:00.000+05:30

The identification of the gas producing areas will be done by early next year

Major Indian energy companies like Reliance Industries Ltd (RIL), which have so far been scouting overseas for shale gas resources, may get a chance to bid for domestic shale gas blocks in about a year. The country is looking to launch the first-ever auction of shale gas areas in August 2011.

The identification of the gas producing areas will be done by early next year. This will be followed by carving out suitable blocks. Jitin Prasada, minister of state for petroleum and natural gas, had recently called a meeting of officials in the Directorate General of Hydrocarbons (DGH) and his ministry to discuss the future potential of shale gas. “The DGH has accordingly prepared a roadmap for the shale gas auction,” said a ministry official.

This will be the second unconventional natural gas source in India after coal bed methane. Several basins — Cambay (in Gujarat), Assam-Arakan (in the North-East) and Gondwana (in central India) are known to hold shale gas resources.

In March this year, the ONGC board approved a pilot project for exploration of shale gas in the Damodar Basin at an expenditure of Rs 128 crore.

DGH and the ministry would study worldwide fiscal and contractual regimes before framing a shale gas policy. It is being worked out and is likely to be in place by the end of the current financial year.

The Petroleum and Natural Gas Rules, which govern the oil and gas exploration activity, will be amended prior to the floating of the first round of auction.

MILKING THE ROCKS

# Companies like Reliance Industries Ltd have so far has been scouting overseas for shale gas resources

# The identification of the gas producing areas will be done by early next year. This will be followed by carving out suitable blocks

# Shale will be the second unconventional natural gas source in India after coal-bed methane

# Basins like Cambay (Gujarat), Assam-Arakan (the Northeast) and Gondwana (Central India) are known to hold shale gas resources

# A policy is being worked out and is likely to be in place by the end of this financial year

# The Petroleum and Natural Gas Rules will be amended before floating the first round of shale gas auction

India is also likely to sign a cooperation agreement with the US Geological Survey later this year for knowledge sharing in the area of shale gas. The US has successfully exploited its shale gas reserves, which currently account for 20 per cent of the country’s gas production. An Indian delegation was also expected to visit shale gas sites in the US sometime this year, the ministry official said. Countries like Canada and China are also increasingly exploiting their shale gas reserves.

Hydrocarbon found in the form of shale gas has over the past few years transformed the energy scenario for the world’s biggest energy consumer, the US. Indian energy companies have shown interest in developing this resource. While RIL recently acquired a 40 per cent stake in Atlas Energy’s Marcellus Shale acreage in the US, the Y K Modi-promoted Great Eastern Energy Corporation Ltd is keen to take part in the shale business.

Companies worldwide are increasingly looking at investing in shale gas, which they consider a lucrative business.

Source: Business Standard

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ONGC: Expressed Interest to Buy BP Stake in Vietnam Gas Block

2010-07-22T11:57:00.000+05:30

Oil & Natural Gas Corp. has expressed its interest to Vietnam Oil and Gas Group, or PetroVietnam, to buy BP PLC's stake in a gas block in Vietnam, the chairman of India's state-run oil and gas explorer said Thursday.

"Yesterday we have indicated our willingness to PetroVietnam to buy BP's stake. Let us see now," R.S. Sharma told Dow Jones Newswires.

BP holds a 35% stake in the block and is also the operator. ONGC owns 45%, while PetroVietnam has the remaining 20%.

BP announced Tuesday that it has agreed to sell assets in the U.S., Canada and Egypt to U.S. oil company Apache Corp. for $7 billion. BP also said it plans to sell gas fields and a pipeline in Vietnam, as well as exploration licenses in Pakistan to help pay for damages related to the Gulf of Mexico oil spill.

Source : online.wsj.com

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Oil ministry seeks Rs 13,500 cr for OMCs

2010-07-20T12:05:00.000+05:30

Finance ministry contests figure.

The ministry of petroleum and natural gas has sought Rs 13,500-crore subsidy from the government to compensate the revenue loss incurred by the three oil marketing companies during the first quarter of this financial year. The ministry of finance, though, is not likely to grant the amount in the forthcoming first supplementary to the budget.

A senior finance ministry official said parliamentary approval would be sought only for Rs 14,000 crore subsidy that was due for payment to Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation Ltd for 2009-10.

“There will not be any provision for the current year in the supplementary, which will be presented in the monsoon session of Parliament, starting July 26. Subsidy for the current year would be given only after the sharing mechanism is decided. The two ministries have held several rounds of meetings but a final view will be taken by an empowered group of ministers,” said the official.

The Budget 2010-11 had provided only Rs 3,108 crore for petroleum subsidy for the current year but the ministry of finance would now need to make a provision of Rs 14,000 crore which the three companies have already accounted as accruals in their accounts for 2009-10.

The government has asked upstream oil and gas producing companies – ONGC, GAIL India and Oil India Ltd – to shell out Rs 6,500 crore as part of a subsidy-sharing mechanism for the April-June quarter. It will partially make up the revenue loss incurred by the marketing companies for selling auto and cooking fuels below international rates.

The underrecoveries have been calculated assuming an average crude oil price of $75 a barrel for the whole year. Speaking to Business Standard, petroleum secretary S Sundareshan said, “Underrecoveries came to Rs 20,000 crore, of which Rs 6,500 crore comes from the upstream companies. We have written to the ministry of finance to contribute the rest. Discussions will be held to arrive at the final figures.”

On what was the basis of the calculation of underrecoveries, the secretary said they were calculated on the trade parity formula devised by the Rangarajan committee.

Source: Business Standard

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Gas EGoM likely to okay supply for Lanco, GMR, Sravanthi power units

2010-07-20T12:02:00.000+05:30

When the empowered group of ministers (EGoM) meets for gas allocation on July 27, it is likely to commit supply for power plants coming up in 2011-12.

Among those likely to get allocation are Lanco Infratech, GMR and the South India-based Sravanthi group. It would be a tough call for the EGoM, though, since the government has received requests totalling over 350 million standard cubic metres a day (mscmd).

Lanco is likely to get an allocation for the 742 Mw third phase of its Kondapalli power plant, near Vijayawada. The Gurgaon-based company has two operational gas-based power plants, at Kondapalli and at Karuppur in Tamil Nadu. Currently, it has units of 368 Mw and 366 Mw at at Kondapalli. The Karuppur unit is a small one, with 120 Mw capacity.

Officials said GMR was also seeking natural gas for 768 Mw capacity, while Sravanthi plans to set up a 228 Mw plant.

The Anil Ambani group has sought 28 mscmd for four gas-based power projects, including Dadri in Uttar Pradesh, Shahapur in Maharashtra's Raigarh district, Jambusar in Gujarat’s Bharuch and Samalkot in Andhra Pradesh.

The group that had fought a bitter battle with Mukesh Ambani-owned Reliance Industries Ltd for gas for its Dadri power project seems to have diluted the demand for this one. “Since Dadri power plant is under litigation in the Supreme Court over land acquisition, the request for Dadri is subject to case being resolved,” said an executive close to the development.

A senior official said the Ministry of Petroleum and Natural Gas would be briefing the EGoM on the production profile of the Reliance Industries’ D6 field. Following the scheduling of the meeting, the ministry had asked the directorate general of hydrocarbons to send a fresh estimate of D6 production, currently around 60 mscmd of gas. This was to be raised to 80 mscmd and remain at that level for eight years. The government has already made firm allocations for about 62 mscmd and a fall-back (temporary) allocation for another 30 mscmd.

Since the production equals the firm allocations, the new allocations might be made from the fall-back quantities. The meeting of the group would be the first one after the Supreme Court upheld the union government’s sovereign right over natural gas and made the Ambani brothers renegotiate a gas deal in compliance with the government policy.

Source: Business Standard

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Reliance Industries in talks to buy stake in Quicksilver

2010-07-19T16:09:00.000+05:30

Energy major Reliance Industries is in talks with Texas-based Quicksilver Resources , including for a possible buyout of the US firm that develops shale gas and coal-bed methane, a newspaper reported on Monday.

The talks also include buying a part stake or partnering Quicksilver for one of its major projects called the Horn River Basin assets in British Columbia, the newspaper said, citing unidentified sources familiar with the development.

Quicksilver, which is estimated to have sales of $900 million this year, currently has two large shale basins with proven reserves of around 2.4 trillion cubic feet, the paper said.

Source: Economic Times

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IOC to acquire oilfields in Africa in $1-bn push

2010-07-16T18:38:00.000+05:30

Indian Oil Corp, the country’s second-biggest refiner, plans to acquire oilfields in Africa as part of a $1 billion overseas investment plan, its chairman said.

“Africa is top of our list to buy assets because it is near India and has good quality crude,” Brij Mohan Bansal said in an interview at his office in New Delhi today. “We are planning retail outlets in Indonesia.”

State-run Indian Oil’s renewed plans to expand overseas came after the government freed gasoline prices from its control last month and said it will eventually allow refiners to set diesel rates, helping to increase cash flow. The refiner has set aside $1 billion for acquisitions overseas, Bansal reiterated.

“Africa offers many grades of crude and gives refiners security of supplies to have fields there,” said Vinay Nair, a Mumbai-based analyst with Khandwala Securities Ltd. “They will, however, still need financial support from the government to help make profits.”

The refiner delayed crude-processing and pipeline projects overseas, including Nigeria and Turkey, because of reduced cash flow after selling fuels below cost, Bansal said in July last year. Indian Oil and Turkish builder Calik Holding had planned to spend $4.9 billion to build a 300,000 barrel-a-day refinery in Ceyhan on the Mediterranean coast.

The companies, with Eni SpA, Europe’s fourth-largest oil company, had also planned to spend $2 billion on a pipeline from Samsun on Turkey’s Black Sea coast to Ceyhan to transport as much as 1.5 million tonnes of Central Asian crude oil a day.

Delay in plans

The shares have increased 23 per cent in Mumbai trading this year, compared with the three per cent gain in the benchmark Sensitive Index of the Bombay Stock Exchange. The stock declined 3.8 per cent to Rs 374.45 today.

Indian Oil, which owns stakes in ventures in Africa and West Asia, had plans to invest in refinery and pipeline projects in Nigeria, former company spokesman M Kali Krishna said in October 2006.

Source: Business Standard

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Diesel subsidy may be set at Rs 1.49/litre

2010-07-12T15:11:00.000+05:30

Diesel price decontrol may only be partial, unlike in the case of free pricing of petrol, as the government may continue to provide a fixed subsidy of Rs 1.49 per litre irrespective of the rise or fall in its market-linked retail price.

The government freed up prices of petrol and diesel on June 25, but capped the increase in the case of diesel to Rs 2 per litre against a required hike of Rs 3.49 a litre.

There is no clarity within the government about the balance Rs 1.49-a-litre hike needed to lift diesel to market rates.

“What this means is that on diesel we will give a (virtually) fixed per-litre subsidy of Rs 1.49,” a finance ministry note circulated to top decisionmakers in the country said.

Irrespective of variations in the pump price of diesel, the note says, consumers will continue to get the Rs 1.49-a-litre subsidy cushion.

In its June 25 decision, an empowered group of ministers headed by finance minister Pranab Mukherjee fully deregulated petrol and diesel prices. While the price of petrol immediately rose to what it would cost in a free market — by Rs 3.5 a litre in Delhi — in the case of diesel the EGoM pegged the increase at Rs 2 a litre, Rs 1.49 per litre short of what the free market price would have been.

While the assumption was that diesel prices would gradually rise to a free-market price, the government does not seem to be so clear.

“There is no clarity who will bear this burden (shortfall of Rs 1.49 a litre),” a senior executive of a public sector oil marketing company said.

The note pointed at the ambiguity in the EGoM decision.

“I stressed this (fixed subsidy on diesel) at the EGoM and there was some discussion on it. But in various statements coming out subsequently this got muffled. So observers are not clear if diesel has been decontrolled or not,” a senior official said in the note.

The oil ministry seems to think the EGoM freed pricing of both petrol and diesel. “The EGoM has deregulated both petrol and diesel prices on June 25 and it has not proposed any fixed subsidy on it,” an official in the ministry said.

But he could not say why the government restricted retail price increase in diesel to only Rs 2 a litre while the then market price would have required an increase of Rs 3.49 a litre.

The government’s statement issued on June 25 did say that “the pricing of petrol and diesel both at the refinery gate and the retail level will be market-determined”.

But it was vague on moving towards a market-determined diesel price. “... in respect of diesel, the initial increase in retail selling price of diesel will be Rs 2 per litre ... Further increases will be made by the public sector oil marketing companies in consultation with the ministry of petroleum & natural gas,” it had said.

Source: Economic Times

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Shale: A home remedy for India’s gas problem

2010-07-08T15:52:00.000+05:30

Taking a cue from the US, India is seriously looking at the unconventional shale gas, which, if successful, could mean a substantial improvement in the country’s energy outlook within the next few years.

The government is gearing up with policy guidelines for shale gas exploitation and auction shale gas blocks within the next two years, even as various E&P players are moving ahead with their pilot projects. ONGC has tied up with Schlumberger for a pilot project in Damodar valley at a capital cost of Rs 128 crore. Similarly, Oil India has initiated a project in Assam, while Reliance Industries is active in Cambay basin.

However, the project timelines are not short. ONGC, which has been researching shale gas in India since 2006, is expected to spend the next two years gathering geological data in its Damodar valley field, followed by drilling and resource estimation by 2013. In 2014 the company will be able to assess the feasibility and consider production from this pilot project.

While state-owned players are trying to source shale gas technologies from foreign players, Reliance Industries has chosen to learn the trade by working on live projects. RIL has agreed to invest over $3.1 billion in two separate deals over the next four years to garner 3,08,000 acres of shale in the US.

Shale is a common rock found across the world and the petroleum explorers are well aware of hydrocarbon deposits trapped in it for a long time. But its exploitation was considered impossible due to the solid nature of shale that prevented hydrocarbons to flow up. With development of newer drilling techniques in the past few years, it has become possible to tap this energy reserve.

The US is today witnessing excessive availability of natural gas, which is depressing its imports, increasing its inventories and pressurising prices.

A number of Indian sedimentary basins, including the hydrocarbon bearing ones — Cambay, Assam and Damodar — are bestowed with thick sequences of shale. Though not all shales are good candidates for shale gas exploration, substantial potential for gas from shale is expected from these basins.

ONGC informed that parameters like productive shale volumes, gas content, thermal maturity, type and amount of organic matter, lithology & extent, mineralogy and saturation, need to be assessed before shale formation can be considered promising.

While learning the technology to exploit these shale gas reserves is a key hurdle, lack of transporting and storage infrastructure for natural gas and policy framework are other impediments. The entire shale gas exploitation process also carries a number of environmental risks which need to be addressed for sustainable growth.

Although it is too early, India’s ability to successfully exploit shale gas could go a long way in supporting its future growth. A home-grown remedy to domestic energy needs could indeed be the key in sustaining economic growth and strengthen India’s position in global economics.

Source: Economic Times

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RIL, Essar to hit the highway to fuel oil profits

2010-07-02T12:39:00.000+05:30

With the government deregulating prices of petrol and planning to do the same in case of diesel, private fuel retailers like Reliance Industries (RIL) and Essar plan to aggressively expand their presence along India's national highways, giving public sector oil marketing companies (OMCs) a run for their money .

OMCs have traditionally controlled this high-volume business segment of the retail market. Intense compe tition from private players could put pressure on OMCs' retailing margins. "After price deregulation, there would be significant investments by private players in petroleum retailing, but they are likely to focus on highways," says Ajay Arora, an energy expert with global consultancy firm Ernst & Young.

Now that both refinery and retail prices of petrol have been deregulated, RIL and Essar can sell the fuel at any price of their choice.

This will put pressure on OMCs to keep their prices competitive, making the current practice of fortnightly price revisions irrelevant.

Competitive pricing is going to be the name of the game.

Both RIL and Essar have relatively larger and technologically more advanced refineries capable of processing a higher share of tough, heavy and sour crude oil which is cheaper. They also have the flexibility to produce more petrol and diesel out of the same barrel of crude oil. As a result, their refining cost is lower than that of PSUs like IOC, BPCL and HPCL, which have relatively older and smaller refineries.

However, refining facilities of private players are concentrated in a particular area unlike public sector players who have facilities across the country . For example, both RIL and Essar have their refineries in Jamnagar. This translates into higher transportation and distribution costs. "We are well-positioned to face competition from private players. Our overhead cost may be higher, but our distribution cost would be lower," IOC chairman BM Bansal told FE. Besides, OMCs have also acted fast in improving customer services at retail outlets.

Private players will have to further reduce their refining costs to offset the impact of higher distribution costs. Setting up new refineries to achieve geographical spread is not an option due to high capital costs. Continued from Page 1 Private players have been swapping products with O M C s t o s ave t r a n s portation costs. But it is difficult to say how long this understanding would hold once competition for market share intensifies.

The global slowdown of the last two years led to some demand contraction for petrol and diesel in North America and west Europe, both of which were favourite destinations for Indian petro-product exports.

However, the Indian market still remains lucrative, given the strong demand for auto fuels in the country.

So, it makes sense f o r p r iv a t e p l ay e r s , wh i ch h ave b e e n e x porting a sizeable quantum of their production, to expand their footprint in the domestic market.

Source: Financial Express

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Government approves $5.25 per mmBtu for ONGC gas

2010-07-02T11:47:00.000+05:30

The government has approved a higher price of gas for ONGC’s C-Series fields in Mumbai offshore taking a step forward in its policy to bring all gas prices closer to market-determined rates.

The C-Series gas priced has been fixed at $ 5.25 per million British thermal unit (mmscmd), which almost a dollar higher than the price at which Reliance Industries sells gas from the its fields in Krishna Godavari basin.

Reliance gets $ 4.215 per mmBtu for the gas it produces from KG-D6 fields. The price for ONGC is a tad lower than $ 5.5 per mmBtu which it had sought earlier, said a oil and gas ministry official.

The government had recently increased the price of gas sold at controlled price (administered price mechanism or APM gas ) by state owned upstream oil companies to $ 4.2 per mmBtu bringing it at par with KG D-6 gas.

Natural gas produced from C-Series fields is sold to Gail which further markets it to end users. ONGC began production from C-Series fields last month and is currently producing between 0.8 to 1.2 million standard cubic meters per day from the wells drilled so far.

The peak output from the field is expected to be 2.8 mmscmd after all the 15 wells are drilled after monsoon season.

Source: Economic Times

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India targeting first-ever offer of shale gas blocks in 2012

2010-07-01T11:54:00.000+05:30

India is planning its first-ever offer of shale gas areas for exploration in 2012, even as it targets the launch of the ninth and possibility last auction of oil and gas blocks later this year. "Shale gas (gas locked in sedimentary rocks) is an emerging area. It has become an important source of energy in a few countries who have been able to commercially exploit this resource," Oil Minister Murli Deora said at the signing of contracts for blocks awarded under the eighth round of the New Exploration Licencing Policy (NELP). India has so far only explored for oil and gas.

Shale gas is the new focus area in the US, Canada and China as an alternative to conventional oil and gas for meeting growing energy needs. These unconventional deposits have raised estimates for US gas reserves from 30 years to 100 years at current usage rates.

Shale gas deposits weren't considered worth tapping before Houston billionaire George P Mitchell pioneered new extraction techniques in the 1990s. Action is on to "develop a framework for an assessment of resource potential, which would lead to exploitation of this resource. Our intention and endeavour is to put in place a policy framework in about an year''s time," Deora said. DGH Director-General S K Srivastava said the oil regulator is working on a shale gas policy.

"Several basins in India are known to hold shale gas resources. Primarily, our focus is on three basins — Cambay (in Gujarat), Assam-Arakan (in the North-East) and Gondwana (in central India).

He said the first offer of shale gas areas was likely in one-and-half years' time. "You can say in 2012."

Deora said the ninth round of oil and gas block auctions under NELP was likely in the third quarter of 2010. NELP-VIII, which concluded in October last year, attracted a minimum investment commitment of USD 1.3 billion in 34 oil and gas blocks that were awarded out of the 70 offered.

"The total investment under the earlier NELP rounds stands at USD 13.8 billion," he said. Production Sharing Contracts (PSCs) for 31 exploration blocks awarded to 23 companies under the eighth round of NELP were signed today.

"Out of 31 blocks, 17 blocks are awarded to national oil companies — ONGC, Oil India and NTPC. Forteen exploration blocks are awarded to private and foreign companies, including BHP Billiton, BG Exploration and Cairn Energy," he said. He said the government intends to move towards an Open Acreage Licensing Policy (OALP) regime as soon as possible.

Under OALP, companies can suggest any block for offer at any time, without waiting for the regular bid rounds under NELP. "The blocks will be awarded to the party giving the best bid," he said.

Source: Economic Times

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Soon, oil firms to choose blocks for exploration

2010-07-01T11:52:00.000+05:30

Oil exploration companies may soon be able to choose the blocks they want to take up for their hydrocarbon search.

“The Government's intention is to move to the Open Acreage Licensing Policy (OALP) regime as soon as possible,” the Petroleum Minister, Mr Murli Deora, said.

Speaking at the production-sharing contract (PSC) signing ceremony for the blocks awarded in the eighth round of oil and gas blocks auction (NELP-VIII), he said, “Under this policy (OALP), companies can suggest any block on offer at any time, without waiting for the regular bid rounds under NELP. The blocks will be awarded to the party giving the best bid.”

For the OALP to become operational, the establishment of the National Data Repository (NDR) is a pre-requisite. The Directorate-General for Hydrocarbons (DGH) is in the process of setting up the NDR, which will archive all the exploration and production data under one roof.

“Certain regulations regarding ownership of data and sharing of information in the public domain will be required to be formulated while setting up the NDR. These issues are being looked into,” Mr Jitin Prasada, Minister of State, Petroleum and Natural Gas, said.

PSCs signed

Under NELP-VIII, of the 70 blocks offered, only 36 attracted bids. Bids for two blocks were rejected and 34 blocks were awarded. Out of these 34 blocks, PSCs for 31 were signed on Wednesday and the remaining will be inked later. ONGC and its consortium won 17 blocks.

PSCs were signed with 20 companies for eight deepwater blocks, 11 shallow water offshore, and 12 onland blocks. Apart from ONGC, Oil India Ltd, and NTPC, those who signed the PSC include BHP Billiton Petroleum International Exploration Pvt Ltd, BG Exploration and Production India Ltd, Cairn Energy India Pty Ltd, Bengal Energy International Inc, Esveegee Steel Gujarat Pvt Ltd, Harish Chandra (India) Ltd, Jubilant Oil & Gas Pvt Ltd, and Jay Polychem (India) Ltd.

In addition, nine companies that have participating interest with operating companies such as Adani Welspun Exploration Ltd, Andhra Pradesh Gas Infrastructure Corporation Pvt Ltd, GAIL, GSPC, and Indian Oil Corporation, also signed the PSCs.

“Considering the global economic situation, the committed investment in NELP-VIII by these companies is $1.1 billion. The actual investment made under the earlier NELP rounds stands at $13.8 billion,” Mr Deora said. The Government plans to launch NELP IX in the third quarter of 2010 and offer about 30-40 blocks.

More attractive

The Petroleum Secretary, Mr S. Sundareshan, said, “Efforts are on to make the NELP regime more attractive.” As regards clarity on whether the definition of mineral oil will include natural gas for tax purposes, he said, “We have taken up the issue with the Ministry of Finance. There can be no question of NELP-IX without tax breaks being worked out for gas as well.”

On shale gas, Mr Deora said, “We have initiated action to develop a framework for an assessment of resource potential which would lead to exploitation of this resource. Our endeavour is to put in place a policy framework in about a year's time.” Shale gas is natural gas located in shale rock areas and is far beneath the earth's surface. Shale gas is one of a number of unconventional sources of natural gas.

Source: Hindu Business line

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Shale gas fields will be next on the block

2010-07-01T11:49:00.000+05:30

Encouraged by the US’ success in the area, India is stepping on shale gas, a potentially abundant, yet untapped source of energy. It is preparing to start auctioning the fields which could be rich in this resource for exploration.

“The government’s intention and endeavour is to put in place a policy framework for effective exploration and production of shale gas in about a year’s time,” Union petroleum minister Murli Deora said on Wednesday. Shale gas is natural gas found in shale rock formations.

India’s shale gas reserves are estimated to be higher than its conventional gas reserves, although no definite assessment of the extractable quantity is available. Reliance Industries (RIL), the first among Indian companies to take exposure to the business through its investment in US shale gas acreages, is believed to be best-placed to play a leading role when India starts offering shale gas blocks for exploitation. Multinational energy giants like Exxon Mobil and Royal Dutch Shell are also expected to join the shale gas fray in India.

“The government will appoint an expert by early July to assess potential reserves and then create rules to tap unconventional energy sources before auctioning areas in about a year,” Bloomberg reported on Wednesday, quoting

SK Srivastava, director-general of hydrocarbons, India’s upstream hydrocarbon regulator.

Preliminary estimates show India’s shale-gas reserves may be larger than its proven conventional gas deposits, said PK Bhowmick, president of the country’s Association of Petroleum Geologists. India plans to join a boom in shale-gas exploration that has fueled more than $39 billion of acquisitions in the US by global energy companies.

India’s biggest energy explorer ONGC awarded a $26-million contract to Schlumberger in April to explore shale gas in east India, according to chairman RS Sharma. Drilling wells to assess reserves may be completed by the end of this year, he said. Shale rocks have been found in Gujarat, Assam, Jharkhand.

Shale gas has proven to be a game-changer in the US energy market, significantly reducing the country’s dependence on imported LNG. It can help India as well to bolster its energy security. Shale gas reserves in the US have been known for a long time. However, drilling technology to facilitate commercial exploitation of shale gas was developed only recently.

The Indian economy is projected to grow at 8-10% a year over the long term. The country will need to ensure its energy security if it is to maintain its economic growth. Shale gas offers hope in this regard.

Coal accounts for over 50% of India’s primary energy consumption. Coal remains the predominant fuel for the domestic power sector. India has decided to reduce its carbon emissions on a voluntary basis as part of its commitment to contribute to the global efforts against climate change. If the country has to meet its global commitment, it must shift its energy consumption pattern toward gas, which is a clean source of energy.

Before shale gas production started in the US, the country used to be a big importer of LNG. Global LNG market is vulnerable to volatility in crude oil prices. When crude oil prices surged during 2005-2008, LNG prices skyrocketed. The price of LNG in the spot market then had hit $22 per mmbtu....

Source: Financial Express

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Pricing oil for the market

2010-06-29T11:44:00.000+05:30

It appears to have been a planned manoeuvre. Not having got adequate traction from the Rangarajan Committee report on the pricing and taxation of petroleum products and not wanting to lose the opportunity of pushing ahead with petroleum price decontrol under a government not dependent on Left support, UPA II set up an Expert Group chaired by former Planning Commission member Kirit Parikh.

The committee's clear mandate was to examine the pricing policy for four sensitive petroleum products (petrol, diesel, PDS kerosene and domestic LPG) and recommend a viable and sustainable pricing strategy for these products.

The composition of the committee suggested that it was expected to recommend wholesale liberalisation of the pricing of petroleum products.

The Expert Group did not disappoint, and delivered its recommendations in five months.

What is surprising is that the Government has decided to accept most of the committee's recommendations and hike the prices of petrol, diesel, kerosene and LPG, opt for price decontrol for petrol immediately and announce that a similar transition would follow for diesel in the not too distant future.

Surprising move

The move is especially surprising because persisting inflation is already a major cause for concern. The Wholesale Price Index (WPI) figures for May pointed to three worrying trends. First, for the fifth month running, the aggregate annual rate of inflation as reflected in the month-on-month increase in the WPI was near or well above double-digit levels.

The figures for May put inflation at 10.2 per cent over the year. Second, the current inflation is particularly sharp in the case of some essential commodities, as a result of which the prices of food articles as a group have risen by 16.5 per cent and of foodgrains by close to 10 per cent. Finally, there are clear signs that what was largely an inflation in food prices is now more generalised with fuel prices rising by 13 per cent and manufactured goods prices by 6-7 per cent.

The immediate and near-term impact of the oil price decisions would be an aggravation of these inflationary trends focused on essential commodities that currently burden the common man. Petroleum products are consumed in some measure by all. Given the fact that these products are universal intermediates, entering into the costs of production of a number of goods and services, the cascading effects of the price hike on the costs and prices of a range of commodities is likely to be significant.

With prices of essentials already on the rise, the move threatens a return to the days when inflation was a major economic problem faced by the country. It follows, therefore, that this is the worst time for hikes in and the decontrol of the prices of petroleum products.

Under-recoveries

The Government claims that this was unavoidable because of the “losses” being suffered by the oil marketing companies (OMCs). When the domestic prices of oil products are controlled but the price of imported oil is rising, oil marketing companies receive from the consumer less than what it costs them to acquire the products they distribute.

This leads to what are termed “under-recoveries”, which would affect the accounts of the OMCs (Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and IBP) that obtain their supplies of petrol and diesel from the refineries at prices that equal their import price inclusive of customs duty.

According to estimates, if retail prices had not been raised under-recoveries by the oil marketing companies would have exceeded Rs 70,000 crore in the current fiscal year. Since this is unsustainable, it is argued, the hike in prices and a shift out of a controlled pricing regime is unavoidable.

The Government's argument is by no means watertight. While under-recoveries are a reality, they do not turn oil refining and marketing firms into loss-making enterprises, because those firms deliver a range of products and services, the prices of all of which are not controlled.

If, for example, even if we consider the profit after taxes of the most important oil companies over the last ten years, they have remained positive in all years and quite substantially so in some (Chart 1).

Under-recoveries are notional losses that only lower book profits relative to some benchmark. Thus, there is little danger that the industry would be bankrupted even if prices were kept at their earlier levels.

There is, of course, the question of fairness. Since there are many players involved in the industry there is no reason why under-recoveries should affect only the books of the oil marketing companies.

Sharing the burden

As Charts 2 and 3 show, the returns on net worth earned by the oil marketing companies are far more volatile and vulnerable than that garnered by the upstream oil companies (ONGC, OIL and GAIL). The burden should be shared by the latter, which receive prices that more than compensate for costs; by the Central Government which garners revenues in the form of customs duties and excise duties (besides dividends from the oil majors); and by the State governments which benefit from sales taxes.

This requires, for example, the oil refineries to offer discounts when selling products to the OMCs and for the Government to reduce the taxes it levies on oil products in order to absorb part of the under-recovery.

The controversial question as to how the burden should be shared was analysed by a committee headed by C. Rangarajan. The committee spent much of its energies on the different stages through which imported and domestic crude is converted into petroleum products supplied to the consumer, and the cost escalation that arises as the raw material passes through these stages.

Through that analysis, it found that the upstream oil companies (or oil companies other than the oil marketing companies, such as ONGC, OIL and GAIL) had recorded profits to the tune of Rs 15,600 core in 2004-05 and Rs 14,600 crore in the first nine months of 2005-06. That the oil industry's contribution to the central exchequer in terms of duties, taxes, royalty, dividends, etc., rose from Rs 64,595 crore in 2002-03 to Rs 77,692 crore in 2004-05. That the petroleum sector alone contributed around two-fifths of the total net excise revenues of the Centre. That taking Delhi as an example, Central and State taxes amounted to 38 and 17 per cent respectively of the retail price of petrol and 23 and 11 per cent respectively of diesel. And that the incidence of taxes as a proportion of the retail price in India was higher than in the US, Canada, Pakistan, Nepal, Bangladesh and Sri Lanka, though they were lower than in many countries in Europe known for their higher average level of prices.

In sum, the numbers suggested that there was an adequate buffer to shield domestic consumers from the effects of increases in international prices, so long as segments that can afford to take a cut in petroleum-related revenues because they have alternative sources of resource mobilisation are willing to accept such a reduction.

Difficult to justify

Thus, if at all there is an argument for price deregulation it can only be that it is for some reason wrong to expect the oil companies and the Government to bear the burden of the irrational fluctuations in the global prices of oil. That argument too is difficult to justify.

When the industry was wholly in the public sector, the prices of oil products were treated as one set of instruments in the tax-cum-subsidy regime of the Government. Any losses suffered by the industry or any shortfall in funds required for investment as a result of price regulation were to be met from resources mobilised through progressive taxes rather than from regressive price increases. The Government should have adopted a similar approach in the current situation and focused on rules that can and have been devised.

It needs to be noted here that oil prices have not been held constant in recent history. Rather, as Chart 4 shows, alternative measures of the average annual increase in prices over the last two decades indicate that the increase has been much higher in the case of retail prices of petrol, for example, than in the wholesale price index for all commodities.
The common person has indeed borne some of the burden of volatile oil prices. What the Government is arguing now is that the burden of irrational shifts in the international prices of oil should largely be borne by the consumer, even if the burden sharing involved is extremely regressive.

In what seems an afterthought, the Government has declared in its recent pricing policy announcement that it reserves the right to intervene in the market to protect consumers if prices rise to levels too high or price movements are excessively volatile. Nobody can or has taken that right from the Government. It is the Government that is giving it up, and exposing the common person to the volatility in international prices that has no rational basis.

The question remains as to why the Government is choosing this policy direction. Ideological commitment may be playing a role. But, more importantly, the Government's move seems intended to favour the private companies that have been allowed to enter and expand in this sector.

Private companies will treat any shortfall in profits as a “loss” and demand price adjustments. The Government seems inclined to oblige.

Source: Hindu Business Line
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RIL makes 7th oil discovery in Cambay Basin

2010-06-28T15:49:00.000+05:30

Reliance Industries Limited (RIL) has made its seventh oil discovery in exploration block CB-ONN-2003/1 (CB 10 A&B) in Cambay Basin, Ahmedabad, Gujarat.

The block was awarded to RIL under the NELP-V. RIL had earlier this month, made the sixth oil discovery in the basin.

The discovery is significant, as it is expected to open more oil pool areas leading to better hydrocarbon potential within the block. RIL, as operator, holds 100 per cent participating interest in the block and is continuing further exploratory drilling efforts," RIL said in a press statement.

The block covers an area of 635-sq km in two parts, Part A and Part B. Of the 17 exploratory wells drilled in the block by RIL so far, 13 are located in Part A and the remaining 4 in Part B of the block.

"This discovery, named Dhirubhai–50, the seventh oil discovery in the block so far, has been notified to the Government of India and to the Director General, Directorate General of Hydrocarbons. The potential commercial interest of the discovery is being ascertained through more data gathering and analysis," RIL added in the statement.

Source: Business Standard

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RIL to pay Rs 6,200 cr for US shale field

2010-06-28T12:55:00.000+05:30

In a bid to build its presence in the US shale gas industry, Reliance Industries (RIL) will pay $1.35 billion (around Rs 6,200 crore) for a stake in a field controlled by Pioneer Natural Resources, reports said on Tuesday. Reliance, India’s largest listed company, will acquire 45% stake in the Eagle Ford shale gas field in south Texas. The deal would be the second of its kind in recent months for Reliance, controlled by Mukesh Ambani, the world’s fourth-richest man.

The acquisition is part of RIL’s bid to tap the growing market for non-conventional energy. In April, RIL had bought 40% stake in Atlas Energy, under which the Indian company will invest $1.7 billion (around Rs 7,500 crore) in Atlas’s core Marcellus Shale acreage position.

Shale gas—produced from shale, a fine-grained sedimentary rock—is becoming an increasingly important source of natural gas across the globe. Over the next decade, shale gas is expected to contribute to over 20% of the overall gas production in the US.

RIL shares fell 0.15% on the BSE on Tuesday to close at Rs 1,063.65, while the 30-share benchmark Sensex fell 0.71%. RIL, which has huge cash resources, does not have any problem funding large acquisitions.

RIL had cash and cash equivalents of Rs 15,960 crore as of December 31, 2009, and raised about Rs 9,240 crore by selling treasury stocks in three tranches since September last year.

Mukesh Ambani told shareholders last week at the Reliance AGM that the company was looking to build up its presence in the US shale gas business.

RIL has also been eyeing some distressed assets in the developed world. It made a $14.5-billion bid for Dutch petrochemicals company LyondellBasell Industries, but the bid was rejected this March.

The International Energy Agency (IEA) in its World Energy Outlook 2009 estimates that by 2030, global energy demand will rise 49% from its current level. Oil and natural gas are expected to remain primary energy sources, meeting 51% of global demand.

In the Pioneer deal, Reliance was represented by Barclays and UBS, while Pioneer was advised by Bank of America-Merrill Lynch, reports said.

During its Atlas acquisition, in addition to funding its own 40% of drilling obligations, RIL had agreed to fund 75% of Atlas’ respective portion of drilling and completion costs until the $1.36 billion drilling carry is fully utilised. Atlas and Reliance also agreed upon a five-year development plan that calls for the drilling of 45 horizontal Marcellus Shale wells for the joint venture during the remainder of 2010, increasing to 108 wells in 2011, 178 wells in 2012, and 300 wells in 2013 and 2014.

Atlas had been looking for a partner for its operations in the booming Marcellus Shale in the eastern US. Barclays Capital had advised Reliance on the Atlas deal. Shale gas is natural gas stored in organic-rich sedimentary rocks. It may be attached to or “adsorbed” onto organic matter. The gas is contained in difficult-to-produce reservoirs that require special completion, stimulation and/or production techniques to achieve economic production. RIL is planning to invest more than $3 billion over the next four to five years to build capacity for its entry into the fertiliser sector. The move is related to the announcement on Friday on setting up a giant coke gasification project at Jamnagar....

Source: Financial Express

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RIL may partner Mexico’s Pemex to set up refinery

2010-06-28T11:51:00.000+05:30

State-owned Mexican oil company Pemex and India’s Reliance Industries may soon forge a partnership to develop a large-capacity greenfield refinery in Mexico. The 300,000-barrels-a-day refinery will largely meet the domestic energy requirements of Mexico.

“We are impressed with the refinery operations of Reliance. A team of senior government officials will visit RIL’s site at Jamnagar to explore the possibility of partnerships,” Mexican energy secretary Georgina Kessel told reporters while talking about country’s potential in the energy sector.

It is expected that Reliance will be roped in as a service provider in the new refinery project to be developed by Pemex. “There would be no joint venture with RIL, as the law does not permit that,” the minister said.

Without specifying the date, Ms Kessel said, she would be visiting India and meet with energy ministers besides visiting the facilities of RIL. She also did not give details of the scale of investment needed in the refinery, but said that it would be used to meet needs of products for domestic market. She said Indian companies could also forge alliances for setting up refinery operations for exports of products from Mexico. On the possibility of Indian companies exploring oil and gas reserves in Mexico, she said, it is not possible. However, the possibility of exploring oil and gas in third countries can be explored by Pemex and ONGC Videsh and other companies.

While Reliance is operating one of the largest refineries in the world, ONGC’s foreign arm, ONGC Videsh, explores oil and gas in foreign countries. Mexico has huge reserves of oil and gas and Indian companies are looking for partnerships that can allow them to bring some products back to the country.

Besides reliance, Tata Motors is also exploring partnership with a local auto company to meet the domestic needs of Mexico.

Source: Economic Times

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Pioneer deal adds twice the punch to RIL's shale gas plans

2010-06-25T11:36:00.000+05:30

After picking up 40 per cent interest in the Marcellus shale gas acreage of Atlas Energy in April, Reliance Industries Ltd (RIL) on Thursday announced a $1.3-billion (Rs 6,000 crore) acquisition of 45 per cent interest in the Eagle Ford shale acreage of Pioneer Natural Resources. This is its second acquisition in two months in US shale gas assets, the former nearer the east coast and the latter in Texas.

Though RIL was already present in the unconventional gas business in India through its interest in coal bed methane, it is quickly building a portfolio of new age and unconventional hydrocarbon resources abroad with the two acquisitions.

Pioneer has about 310,000 acres of shale gas plays in the Eagle Ford region. Being the operator, it had the controlling 84 per cent interest; its partner, Newpek LLC, has 16 per cent. Both companies will now offload 45 per cent of their respective working interests in the acreage to RIL.

The deal has been done through a RIL subsidiary, Reliance Eagle Upstream. Under the new arrangement, Reliance will have 45 per cent share in the acreage, Pioneer 46 per cent, with Newpek holding the remaining 9 per cent. Reliance has agreed to upfront pay $266 million in cash to Pioneer and to also pay an additional $879 million to carry Pioneer's share of future drilling costs over the next four to six years.

As part of the deal, Reliance will also be paying Newpek approximately $210 million for buying its stake. It will also share Newpek’s future drilling costs, by paying it $173 million over the same four to six-year timeframe.

The shale gas business in the US was primarily dominated by small companies. However, over the past year, it has seen a spate of acquisitions by big companies. Royal Dutch Shell acquired East Resources’ shale gas interest in the US for $4.7 billion this May, while Exxon Mobil bought XTO for $30 billion last year. Similar acquisitions were made by Statoil and BG.

Manisha Girotra, managing director and chairman of UBS, one of RIL’s financial advisors in the deal, said: “In the shale gas space, the way to go forward is through a string-of-pearls acquisitions — a multiple of small to relatively midsize buys, as that’s what is available. This (Eagle Ford) is one of the biggest assets in the US... And, a JV (joint venture) route is a clever way to keep the management team intact and imbibe their existing expertise.”

RIL executives said all the discovered oil and gas assets in conventional sand formations were already taken up by global players. So, while RIL will focus on new discoveries, like the one it did in the Krishna-Godavari (KG) Basin in 2001, the focus will increase towards shale and other unconventional energy sources. Power, with fixed annuity return, will also play a significant role in RIL’s energy portfolio.

“RIL is clearly building its economies of scale in shale gas,” said Vandana Hari, Asia news director at Platts, the energy watch agency. “Its part of a bigger strategy. They have heft in India but now want to grow overseas… And, shale is the hydrocarbon story of the decade. If you move in early in the most developed market and build scale, then you have tremendous early mover advantage.”

Shale gas is natural gas stored in organic-rich sedimentary rocks. It is considered an unconventional source, as the gas may be attached to organic matter. The gas is contained in difficult-to produce reservoirs that require special completion, stimulation or production techniques to achieve economic production. It accounts for between 15 per cent and 20 per cent of US gas production but is expected to quadruple in coming years, triggering a scramble among producers, large and small, for access to resources.

“For a late starter of gas exploration like RIL, the opportunities are limited. The prolific gas fields are already taken. Shale is a new opportunity that RIL will not like to miss out on,” said Anish De, CEO Asia of Mercados Energy Markets International, an oil and gas consulting company.

There are other reasons, too, for this subtle but significant review in strategy. RIL insiders said after the big-bang discovery of KG-D6, success has been moderate. The risk perception towards traditional exploration and production activities has gone up. “There have been cases of dry wells across the east coast. Its part of the risk that every player faces. That also means there is no guarantee of 100 per cent strike rate for anybody, including RIL,” said a company official, on condition of anonymity.

“Adding to that, the BP incident has reminded the whole world of the perils of offshore oil and gas drilling,” added Hari.

In comparison, shale is safer, has better longevity but traditionally has low productivity, as most reservoirs have low permeability. However, with horizontal drilling tactics and by creating artificial fractures by the “hydrofracing” technique, the surface area can be increased and by applying low to medium pressure, gas can be “oozed” out. “Traditionally, recovery from one area is low, depending on the tightness of shale and its porosity,” said an RIL executive. “But new techniques are coming into force every day. This is the future.”

“Low operating costs, significant liquid content (70 per cent of the acreage lies within the condensate window) and excellent access to services in the region combine to make the Eagle Ford one of the most economically attractive unconventional resource plays in North America,” RIL said in a statement.

The deal is also a shift in RIL’s acquisition strategy. Instead of outright buyouts, it is going in for partnerships with existing players like Atlas and Pioneer for joint acreage development. Many analysts feel this is the best way to pick up expertise and get training. “RIL has money, but it needs to learn the dynamics of the shale business. In a developed market like the US, a local player brings a lot to the table. But who is stopping them from hiking their business interests in the same acreage in future? There can be buyouts from RIL, once they master the shale exploration business,” said a Hong Kong-based energy analyst with a foreign brokerage firm.

RIL executives said a new core team to proceed with its shale business is already taking shape, with Walter van de Vijver, a former Shell executive, leading the charge in both the US and the Netherlands. Some of the executives from the Indian operations will also get trained in this new skill set.

Shale gas can be used the same way as natural gas. Which is why RIL will also participate with Pioneer in the development of midstream assets in the Eagle Ford Shale, as a 49.9 per cent partner and will be paying $46 million. The midstream business will initially consist of central gathering facilities to separate condensate production from produced gas and to treat the produced gas. Developing this midstream business, as against contracting with a third party, will provide enhanced control and efficiencies for the marketing of the joint venture’s upstream production and the potential to attract third party business.

Source: Business Standard

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Gas as transportation fuel

2010-06-25T11:34:00.000+05:30

Should the prices of petrol and diesel be freed? This is a tough call for decision makers, though expert panels, including the Kirit Parekh committee, have voted for price decontrol. But not freeing the prices would mean losses to the three oil marketing companies, thereby weakening the pillars of energy security in India. The burden of under recovery on four administered products, petrol, diesel, LPG and kerosene oil is estimated at Rs 80,000 crore in 2010-11.

This can be partly bridged, at the expense of their own requirements of investment and growth, from the upstream PSU oil companies as has been the practice over the last few years. But, the government will have to issue either bonds or cash to protect the bottom-lines of OMCs. This will, however, lead to macroeconomic distortions at present or in future.

If prices are freed and aligned with the international prices, petrol and diesel would cost more by over Rs 3.50 per litre each immediately. This would further fuel inflationary pressures. So far, the government has been managing the situation, trying to balance the interest of consumers, the OMCs and the exchequer. Product prices are adjusted to some extent, the upstream PSUs and OMCs are asked to chip in and balance of the underrecovery is met by government subsidies through bonds and cash. This arrangement, though ad hoc, has worked for the past few years and may work this year too.

The government should re-structure the taxation of petro products. Replacing ad valorem by specific rate of duties will bring in relief to the customer, while reasonably protecting government revenues. The future is scary. A spurt in crude prices to $100 per barrel is imminent. It will be no surprise if the prices touch $120-150 in the next five years or so. If we find it difficult to free the prices at the current level of around $75 per barrel of crude oil, how are we going to manage in the years to come?

Based on current policies and projections, the International Energy Agency (IEA) in its report of 2009, has estimated India's crude oil requirements to grow at the highest rate, by 3.9% per annum. By 2030, India's import will go up to 92% of the country's consumption requirement, excluding the requirement of processing for exports.

India's import bill is bound to rise substantially and the balance of trade will become more adverse. The burden on consumers or the OMCs or both will be a matter of serious concern. Such a scenario has grave implications for energy security and calls for a strategic shift in our approach. We have to reduce our dependence on crude oil to the extent possible. This can be done through many ways, by involving measures to promote efficiency and conservation of fuel use and using substitutes. An important way is to use gas as transportation fuel instead of petrol or diesel.

This is feasible and happening in Delhi and Mumbai. Gas users pay less. In Delhi, the per km cost of running a car with gas is Rs 1.31 at present as against Rs 2.54 with diesel and Rs 3.20 with petrol. If all the three fuels are sold at market prices, the running cost with diesel and petrol will be even higher. This is because gas is cheaper than Oil. One barrel of crude produces the same energy as 6 mmbtu of gas. Therefore, at crude price of $ 80 per barrel, gas should be priced at approximately $13 per mmbtu. Happily, most of the gas in India is sold at $ 4.2 per mmbtu, and the imported gas is available at about $5 per mmbtu. So, there is a clear disconnect between the price of crude oil and gas.

Unfortunately, less than 6% of the vehicles in Delhi are on CNG. Imagine the savings to the economy and the consumers and the political dividend it will generate if all vehicles in Delhi and Mumbai, where gas supply infrastructure exists and also throughout India, run on gas at half the cost of diesel and further less of petrol.

The 21st century is said to be the century of gas as the 20th century was that of oil. Availability of gas within the country as well as globally is more than oil. As per IEA 2009 estimates, while domestic oil production will decline to less than half of its present level by 2030, gas production will double. If oil reserves globally are to last for 30 years, gas reserves are estimated to last for 60 years.

Moreover, newer sources of gas, such as shale gas and coal bed methane gas will increasingly be available. Gas is also cleaner than oil. Tax rates on gas are lower than on petrol or diesel and as a tool to disincentivise pollution, are expected to remain lower even in future.

So, it makes sense to substitute oil by gas to the extent possible. Since about 40% of petroleum products are used for transportation and since much of the expected increase in petro consumption is for transportation, it is necessary to switch over to gas as transportation fuel as speedily as possible.

The present market mechanism will not be able to bring about this change fast. Besides a policy thrust, work needs to be done on promotional activities such as creating a road map for covering the country with a network of pipelines, devising fresh funding strategies, firming up availability and infrastructure for import of gas, coordinating with state governments, municipal authorities and the automotive industry, dealing with bottlenecks in replacing existing retail outlets with CNG stations and so on.

The regulatory regime also has to adopt imaginative approaches with a suitable organisational arrangement to bring this about. Energy security imperative would call for a time bound target to substitute petrol and diesel by gas as transportation fuel. This has to be implemented in a mission mode. It should be possible to substitute about half of transportation fuel by gas in the next ten years. And if this happens, it will also have a salutary effect on international prices of crude even in anticipation of its happening since India is amongst the largest consumers and importers of crude oil. Connectivity of habitations with gas will also connect kitchens with PNG instead of LPG thereby reducing imports and under recoveries of LPG.

India aspires to be in the top league along with China and the US in the next two to three decades, but India's vulnerability in matters of oil for energy is much more than that of China and the US. Energy security is as critical as national security.

Source: Economic Times

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Gas price: CEA, NTPC differ

2010-06-25T11:31:00.000+05:30

The Central Electricity Authority and NTPC appear to be taking different stands on having a common price for gas from different sources, called pool pricing.

CEA is open to considering separate price pools for power and fertilizer sectors with certain conditions, NTPC has outrightly rejected the idea.

Commenting on a report by Spain’s Mercados Energy prepared for gas utility GAIL, CEA said the pooling option excluding spot LNG (gas imported in ships) suits the power sector. Supporting separate pools for power plants, it said ‘‘ electricity generated by burning gas is distributed in a competitive environment and tariff is decided by regulators ... The nodal agency and the pool can be achieved with a few necessary operational regulations... and may be considered.’’

But NTPC has told the power ministry it is opposed to any kind of pooling as the resultant price will be higher than the present average cost of fuel sourced variously by power producers. With a common price, both power producers and gas importers will lose incentive to source LNG at competitive rates.

NTPC said the pool term of 4-5 years will create uncertainty as power plants are planned on long term of 25 years or more and fuel supplies are also tied up as such on term contracts. Price pooling will put old plants at a disadvantage because of their lower efficiency. Power producers will also have no incentive to schedule their production plan efficiently and higher pool price could also affect viability of many projects that were financially planned with lower fuel costs.

Source: Economic Times

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RIL-Pioneer deal as value accretive from onset: Macquarie

2010-06-24T17:40:00.000+05:30

Reliance Industries has signed a USD 1.15 billion joint venture with Pioneer Natural Resources, reports CNBC-TV18. The latter will sell 45% interest in Eagle Ford Shale acreage in south Texas. RIL is looking to build its presence in the US shale gas sector.

In an interview with CNBC-TV18, Jal Irani of Macquarie spoke about his reading of the RIL- Pioneer deal and road ahead for RIL.

Q: What do you make of this move on Eagle Ford, for yet another shale gas unit from RIL?

A: Based on our analysis, at even the worst case scenario of USD 10,000 an acre, the IRR would work out to 17%. Now it seems that RIL has acquired even cheaper, so it seems like a fairly good deal. The Pioneer’s acreage in Eagle Ford itself is second largest in that shale gas region. It also seems to have acquired one of the larger acreages there.

The cost per acre works out to USD 8200 per acre this compares with USD 14,000 per acre for RIL’s Marcellus acquisition just a couple of month’s back, so it’s significantly cheaper than its early acquisition 40% cheaper.

Q: So will it be value accretive for them from the word go? Any sense of what kind of realizations they may have over here?

A: We will have to calculate that but given that on a worst case basis with actually USD 10,000 per acre the IRR was working out at 17%, so it's value accretive at that point. At USD 8200 per acre, it would seem that it would be even more value accretive. I am just commenting from headlines. We need to see there are any final details to this. But on the face of it the answer is yes.

Q: What do you make of RIL’s strategy in Shale Gas because this is not the first one there have been a string of deals which RIL is putting together on Shale gas assets, what do you make of it directionally?

A: There is couple of things here. RIL management group philosophy has improvised into getting into newer fast growing technologies with arguably potentially higher returns and high risk. Now shale gas is one such sort of technological of innovation and an extremely large one. In the US itself out of the one trillion dollars which are expected to be spent on upstream exploration and development, 80% of it is meant to be in shale gas and shale gas itself from an economic perspective the cost are falling and in fact shall potentially become even cheaper than your conventional gas.

As a result, RIL is really going for something which is potentially extremely large and it is actually at a cutting edge of technology and gives it a huge competitive advantage in an extremely large market. This can progressively be utilized in India also, it is too premature for India but India also seems to have some decent size hydro-carbon reserves and shale is nothing but source rock. So, it could potentially be extended to India also.

Source: Money Control

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Reliance to spend over $3 billion in fertiliser push

2010-06-23T11:46:00.000+05:30

Reliance Industries plans to invest more than $3 billion over the next four to five years to build capacity for its entry into the fertiliser sector, a source with direct knowledge of the plan said.

The move is related to Chairman Mukesh Ambani's announcement on Friday to set up a giant coke gasification project at Jamnagar on west coast, where Reliance's two refineries are located. Reliance's refining complex, the largest in the world, can process 1.24 million barrels of crude a day.

"The entire project right from coke gasification to urea production will need an investment of over $3 billion," the source, who declined to be named, said, adding: "Reliance can also gasify coal in the same plant, in case there is a shortage of petcoke".

Urea is used as a fertiliser. The source said Reliance was evaluating proposals from global firms that have the technology to set up the plants.

"Reliance is in the process of evaluating proposals from global licensors to set up coke gasification and giant urea plants in India ... It is in advanced stages of financial closure," the source said.

Reliance is on an expansion spree. Last week, Ambani unveiled plans for Reliance to enter the power sector and expand its retail operations. It also recently returned to telecoms by agreeing to buy control of Infotel Broadband.

Mukesh Ambani, the world's fourth-richest man, and his long-estranged younger brother Anil last month agreed to scrap a pact that prevented them from competing on the other's turf, opening up key sectors for the elder brother's firm, including power and telecoms.

Reliance, largest listed company, is also close to investing $1.35 billion in a shale gas field in Texas, according to a newspaper, which would be its second such investment in the United States this year.

The source said Jamnagar's refineries can together produce 180,000 tonnes of petcoke annually, which when gasified can be utilised as fuel for power generation for the two plants and as feed for producing ammonia and, in turn, urea.

Reliance plans to set up a plant that can process 7,000 tonnes of ammonia a day to produce 10,000 tonnes of urea, the source said.

FERTILISER INVESTMENT SOUGHT

India plans to further ease controls on urea pricing to strengthen private participation in the sector, which has not seen a new urea plant built in the past 12 years. Earlier this year, India eased controls over pricing of crop nutrients and raised prices of urea in a move aimed at capping subsidy spending.

The source said Reliance's entry into urea production depends on government policy, and the firm also plans eventually to produce nitrogen, phosphate and potash (NPK) fertilisers.

"We have to protect farmers' interest. Food security is a big issue. Reliance eventually wants to come into NPK fertilisers -- that is because crop productivity is dropping due to use of nitrogen fertiliser," the source said.

Fertiliser use in India is heavily skewed towards urea. Nitrogen-based urea accounts for more than half of India's fertiliser consumption because of heavy government subsidies on the nutrient. Phosphate fertilisers account for a fifth of Indian demand, while potash accounts for 8 percent.

A government official said, "Even in the current scenario Reliance can make good profit. If you have the raw material, production of urea costs much less than the government subsidy you get. Fertiliser subsidy is linked to import cost."

Satish Chander, director general of the Fertiliser Association of India, said Reliance's entry into urea production will help reduce fertiliser imports. India imports 6-7 million tonnes of nutrients annually, he said.

"Any investment which produces 2-5 million tonne is always welcome ... Our average consumption of nutrients is much lower than neighbouring countries. Per hectare use of nutrient in India is almost one-third of China."

Source: Economic Times

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RIL to pick up 45% in Texas shale gas field for Rs 6,500 crore

2010-06-23T11:43:00.000+05:30

Reliance Industries (RIL) will make its second investment in two months in a large shale gas field in the US, as it tries to cash in on a boom in a vast new energy resource that is threatening to change the global energy balance.

The company is close to buying a sizeable minority stake in a shale gas field in Texas from US-based Pioneer Natural Resources, people close to the development said.

India’s largest company will buy 45% in the Eagle Ford shale gas field for about Rs 6,500 crore. It will make an up-front payment of nearly Rs 1,400 crore and the balance in the next four years, said a person close to the matter.

In April, RIL had acquired a 40% stake in Atlas Energy’s Marcellus share acreage in the US, gaining access to approximately 343,000 acres of undeveloped land with estimated gross resources of over 13 trillion cubic feet of gas.

“We will continue to pursue such joint development opportunities with the best operators as well as on our own to build a substantial upstream business in North America,” RIL chairman and India’s richest man, Mukesh Ambani, had told shareholders at the company’s annual general meeting on Friday.

Shale gas is extracted from a common rock formation found in most parts of the world by pumping water and sand. Till recently, it was not considered economically viable to extra gas from shale formations but the emergence of new drilling technologies has changed the game.

The sudden increase in the production of shale gas in the US has changed the dynamics of the US gas industry. Gas prices have dropped with companies such as ExxonMobil and Royal/Dutch Shell joining in the rush.

According to the website of Pioneer, the Eagle Ford gas field has around 310,000 gross acres of prospective gas.

Pioneer has another shale gas field in Barnett, near Fort Worth in Texas.

“RIL wants to consolidate its position in gas as it will be tomorrow’s fuel,” said Deven Choksey, managing director of KR Choksey Securities.” RIL will create such assets in the US, the best destination for alternate energy, by utilising part of its cash flow so that its balance sheet remains unstretched.”

RIL, which owns the world’s biggest refinery complex and India’s largest gas field in the KG basin, has cash and cash equivalent of more than $6 billion, and a projected annual cash flow of $7-8 billion.

The expansion of RIL’s footprint in shale gas is in line with the investors’ expectations, said Ambarish Baliga vice-president of Karvy Stock Broking. “The acquisition cost of such assets is cheap, making more sense for the company.”

UBS is learnt to be RIL’s advisor for the deal. The RIL spokesman declined to comment while the Pioneer spokeswoman could not be reached.

Led by ExxonMobil, which bought shale gas specialist XTO for $41 billion in December last year, any big energy company worth its salt is getting into the unconventional energy space in the US. The list includes BP, Statoil and Total.

“Shale Gas is the most promising development in the energy area in North America,” Mr Ambani had said in its AGM speech. “It is likely to overtake both conventional gas as well as liquid fuels as a source of energy within the next decade. Shale gas development represents a low level of geological risk as the gas is trapped in rock across a wide geographical region in excess of tens of millions of acres.”

Reliance aspires to build a significant position in the shale gas business, Mr Ambani had said at the AGM. “ We will enhance efficiencies across the chain by drawing on our experience in drilling and project management. We will commit capital alongside proven low-cost operators to accelerate the development of this resource.” RIL has been looking for assets in a range of areas. It made an abortive attempt to buy bankrupt petrochemical company LyondellBasell early this year.

Earlier this month, RIL acquired a 95% stake in Infotel for Rs 4,800 crore after the HFCL Group firm bagged the national licence for broadband wireless access (BWA) radio waves. International rating agency Moody’s Investor Service on Monday said the risk profile of RIL has increased following its entry into telecom with the acquisition of Infotel Broadband Services, but has retained the stable outlook of the company.

Source: Economic Times

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Oil gets extension for most exploration licences

2010-06-22T11:55:00.000+05:30

State-run Oil India (OIL) has secured an extension for petroleum exploration licences (PELs) for 10 of its 16 independently held blocks in Assam and Arunachal Pradesh.

The company has, however, been asked to surrender five blocks, according to a company official. OIL had in 2009 written to the Ministry of Petroleum and Natural Gas, seeking extension of PELs for 15 of its 16 nomination blocks. "The ministry granted us PELs for 10 blocks after they saw our work programme. It, however, asked us to surrender the other blocks, which do not hold much potential," an OIL official told Business Standard. Through these blocks, OIL held a total area of approximately 5,367 sq km. Having posted a six-fold jump in its net profit at Rs 431 crore for the quarter ended March 31, it plans to spend around Rs 2,300 crore as on exploration and production this financial year "This extension will allow us to carry on with our exploration activities in these blocks. Had these not been granted, our business could have been adversely affected," the official added. OIL produced 3.6 million tonnes of crude in the year, a 3.3 per cent increase over 2008-09. It also produced 2.4 billion cubic metres of gas during the period, 6.4 per cent more than last year. The company added around 9.7 million tonnes of new hydrocarbon reserves in 2009. All of its current reserves, estimated at around 42 mt, are in Northeast India.

With the recent revision in administered price of natural gas from $1.79 to $4.2 per unit, OIL is expecting an upward revision in the company's top line by Rs 500 crore a year and net profit by Rs 315-340 crore. The company produces two billion cubic metres of natural gas a year, of which around 85 per cent is sold at administered prices. Gas sold to power and fertiliser customers in the northeast is given a 40 per cent

Source: Business Standard

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Natural gas players: Attractive for a long term

2010-06-21T12:44:00.000+05:30

Although natural gas players have weathered the storm much better in the past couple of months and are apparently fairly priced, retail investors can still find the sector attractive for long-term investments.

The industry has showed a robust performance in the last quarter for FY10, which is likely to continue in future as the availability of gas increases and the necessary infrastructure is put in place.

The total natural gas supply in the country has risen to 175 mmscmd from 114 mmscmd last year, thanks to RIL’s KG basin fields. While the domestic demand for gas remains robust, the companies transporting gas continue to earn higher revenues from increasing volumes. The four listed companies in the industry — Gail, Gujarat State Petronet (GSPL), Gujarat Gas Company (GGCL) and Indraprastha Gas (IGL) — posted a healthy growth in net profit for the Mar ‘10 quarter.

The industry leader Gail posted a 17% rise in profits of its natural gas transmission business to Rs 506 crore in the quarter, as gas volumes jumped 39% to 114 mmscmd. Similarly, GSPL nearly doubled its bottom line to Rs 108 crore as its volumes nearly tripled to 36.2 mmscmd.

The two listed city gas distribution (CGD) entities — Indraprastha Gas and Gujarat Gas — reported profit growth of 28% at Rs 51 crore and 73% at Rs 62 crore, respectively in the March 2010 quarter. The volume growth for them was around 22%.

As the availability of the natural gas is growing and demand remains strong, the transporting infrastructure is the only bottleneck in the future growth of the industry. All the companies have lined up heavy capex plans to extend their pipeline networks and increase their gas carrying capacity.

Gail alone is investing nearly Rs 35,000 crore between FY10 and FY14 to double its pipeline network. GSPL, which has already incurred a capex of Rs 2,800 crore in the past 4-5 years to set up a pipeline network spanning most of Gujarat, is further planning a capex of Rs 1,500 crore to augment its existing pipelines and set up CGDs.

IGL is also investing nearly Rs 3500 crore in next 5 years to expand its CGD business within the NCR region as well as Noida, Greater Noida and Ghaziabad. In view of the pending regulatory approvals, Gujarat Gas has not drawn any major capex plans except Rs 300 crore of annual capex.

With this the gross block of the gas industry is expected to double within the next 3-4 years, which will necessitate the players that were debt-free so far to borrow.

The players have started gradually cutting down on their dividend payouts to preserve cash. Although all the companies increased their dividends for FY10, the growth was lower than that in the profits marking lower payouts. Only in case of Gujarat Gas the payout increased as it gave a special one-time dividend of Rs 5 per share.

The recent dismantling of administered pricing mechanism for natural gas will have a great impact on this industry, although it is not the ultimate consumer. Gail stands to benefit due to the$0.11/mmBtu marketing margin it will now be able to charge , while passing on the increased cost to its customers. Gail is expected to earn additional net profit of around Rs 200 crore from this.

Contrary to the belief that the CGD businesses would find it difficult to pass on the price hike to the final consumers, Indraprastha Gas last week raised the CNG prices by around 25% across all its geographies. This won’t affect IGL’s volume growth, as gas still remains a cheaper option to liquid fuels and IGL holds a monopoly in its region.

The impact on Gujarat Gas is insignificant as less than 5% of its gas came from APM sources. Gujarat State Petronet being a pure transporter of gas won’t have any impact from the development.

The industry’s improving prospects have hardly remained a secret among investors. The industry has consistently outperformed the market over the past one year. With huge capex plans coming on stream, the industry is expected to continue with the growth momentum in the coming years.

All the companies are currently trading in a price-to-earnings multiple (P/E) range of 13 and 18.5 as against the Sensex P/E of 20.3. These valuations appear attractive for long-term investment, considering the expected profit growth in the coming years.

Source: Economic Times

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India's public finance, oil price are big issues'

2010-06-16T16:31:00.000+05:30

Indian and global equity markets saw substantial outflows in the month of May due to concerns ranging from Europe to China. In an interview with Jitendra Kumar Gupta, Cameron Brandt, senior global markets analyst at EPFR Global, which provides fund flow and asset allocation data (for over $13 trillion) to financial institutions across the world, shares his views on the issues. Edited excerpts:

In last couple of weeks, we have seen FIIs (foreign institutional investors) pulling out from Indian markets. What is the trigger and how much more outflow is India likely to witness?

There are two main and well-chronicled reasons for the shift in sentiment. The first is the fear that China’s efforts to rebalance its economy and head off asset bubbles fall short of what is really needed, and is setting up a situation where more harsher measures would be needed. China is now a key trading partner for most of the region’s larger economies and an abrupt deceleration of its economic growth would have a ripple effect.

The second is the Greek debt crisis and its impact on that region spells trouble for Asian exporters, almost any way you cut it. While China-US trade tends to get headlines, a slightly bigger share of China’s total exports goes to the EU-27 — which also happens to be India’s largest trading partner — and weaker demand from this region will have a real impact.

How are foreign investors pursuing Indian markets vis-a-vis emerging markets, particularly China?

Overall, India is viewed as a defensive play, albeit one with an IT (information technology) angle. So, the likely response to the country’s strong GDP growth by foreign investors will be a reassessment of plays geared to the domestic demand.

According to you, where is the global investors’ money flowing now in terms of assets classes and markets?

Since mid-2009, the bulk of the fresh money coming into the major fund groups has flowed into the four major bond fund groups: US, global, high yield and emerging markets bond funds. Flows into high yield bond funds have, however, turned sharply negative in recent weeks. Year-to-date winners among the equity fund groups — albeit at modest levels — are Pacific, global, global emerging markets and EMEA equity funds.

Flows into emerging markets bond funds have picked up markedly since the beginning of December 2009 quarter, with funds investing in local currency debt faring particularly well.

How is the currency risk perceived now?

The strong flows into local currency emerging markets bond funds, allied to a longer-term pattern whereby fund managers are rotating out of dollar-denominated assets, suggest the whole issue of currency risk is being re-evaluated and currencies of emerging markets with solid fundamentals are being viewed as less and less risky.

What are the key concerns that foreign investors have in their minds regarding the Indian market?

India’s public finances and the price of oil are probably the two biggest macroeconomic issues. The uncertainty created by the Greek crisis has reinforced a long-standing coolness among FIIs to markets with big current account deficits. India’s, if you add in the states, could well be running around 10 per cent of the GDP at the moment. Given that India imports some 80 per cent of the oil it uses, spikes in prices translate — via the trade balance and fuel subsidy system — into bigger deficits and producer-driven inflationary pressures.

Are global investors waiting for a bigger correction in the emerging markets, especially Indian equity?

We don’t think so. There is still a lot of liquidity out there chasing a finite number of good quality assets. As for India, again, no. Investors are very anxious to put the money they preserved from the 2008-09 recession by moving it into ultra low-yielding money market funds.

Despite good earnings and economic growth, countries like India are suffering due to the ills of the European economies and the US market...

While it is not entirely fair, India’s fiscal issues and the extremely slow unfolding of the anticipated reform story give those external issues a resonance. India is also linked by trade and remittance flows to those economies.

Source: Business Standard

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LPG expansion, a stimulus for oil marketers

2010-06-14T11:23:00.000+05:30

The government's plan to make liquified petroleum gas (LPG) available to three-fourth of the country in the next five years is set to be a major economic stimulus for the allied industry--firms supplying cylinders and pressure regulators to the three national fuel retailers·HPCL, IOC and BPCL. The move is also expected to create more employment in filling plants and in transportation.

The proposed drive to make LPG use more widespread will also result in the cleaner fuel being available to three-fifths of the rural folks by 2015, petroleum ministry officials said. Now there are only 11 crore consumers for LPG across the country, which is set to rapidly expand, they said. In the last five years, consumption of subsidised LPG has grown by about 30%.

Equipment procurement for the massive supply expansion would be staggered over the next half a decade so that there is no supply constraints. Although the three retailers gave 60 lakh new connections last fiscal, over two lakh prospective customers had to wait due to a short-supply of cylinders.

The three state-owned retailers are now about to issue tenders for purchasing cylinders and pressure regulators for this fiscal. A petroleum ministry official told FE that Indian Oil Corporation would soon procure over a crore new LPG cylinders and about 70 lakh regulators for release this fiscal. Bharat Petroleum Corporation is now in the process of procuring 36 lakh cylinders and 31 lakh regulators. Hindustan Petroleum Corporation is also acquiring equipment by a similar measure.

Production of LPG cylinders and pressure regulators is a major allied industry that is present across states such as Madhya Pradesh, Rajasthan, Tamil Nadu, Andhra Pradesh, Haryana, Maharashtra, Punjab and Orissa. Industry sources said the segment has been witnessing double-digit growth.

The fuel retailers are also in the process of stepping up the number of LPG distributors across the country—9,500 now— by 15% to enhance their reach. Under the government's plan to make LPG available to the poor through a new scheme named after former Prime Minister Rajiv Gandhi, at least 35 lakh poor families would get connections this fiscal. To find enough equipment to facilitate fresh connections, the government has asked agencies that provide piped natural gas in cities to take an undertaking from consumers to surrender their existing LPG connections.

While the massive expansion drive of LPG retailers would lead to an increase in the government's subsidy for the product, it is expected to reduce the subsidy on kerosene, a large part of which (up to 35% of public distribution kerosene) is now diverted to adulterate the costlier diesel. The government intends to cut down the kerosene allocation to states by a fifth as rural electrification and LPG availability goes up. This would also help in the government's larger goal of reducing carbon emissions. And the proposed reforms in the oil sector such as targeting LPG subsidy to the poor through direct cash transfers could stabilise the use of LPG in cities, where rich consumers benefit mostly from the government subsidy....

Source: Financial Express

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RIL eyes gas JV with US firm

2010-06-11T11:24:00.000+05:30

Two months after Reliance Industries bought a 40% stake in US-based Atlas Energy's Marcellus Shale gas operations for $339 million, the Mukesh Ambani-led company has now set its eyes on a joint venture with Pioneer Natural Resources.

The Texas-based Pioneer had said last month that it expects to zero in on a partner for its Eagle Ford shale gas assets by the end of June. Pioneer Natural Resources has about 3.10 lakh acres in the Eagle Ford region in south Texas. It tested its first successful well in last October and the second one in January this year.

Reliance is not the only company chasing shale gas assets globally. Companies from Exxon Mobil to France's Total to Royal Dutch Shell have all been betting on natural gas properties and have been investing billions of dollars in shale gas deposits.

‘‘Shale gas represents a growing source of energy and is expected to constitute 20% of the overall gas production in the US over the next 10 years,'' Alok Agarwal, chief financial officer at Reliance Industries, had told reporters while announcing the company's deal with Atlas in April.

He had also said that the company is looking at opportunities emerging in the US unconventional gas business. Extracting gas from shale rock formations is speeding up in the US, which wants to reduce its dependence on Middle-East oil and energy players are expecting better price realisations for cleaner fuel as the world is increasingly becoming environment conscious.

For RIL, funding a possible transaction with Pioneer is not a problem as it is sitting on cash to the tune of $4.7 billion as on March 31, 2010. It forayed into the shale gas business through a joint venture with Atlas.

Apart from $339 million for the 40% stake in Atlas' shale gas arm, Reliance said in April it is investing an additional $1.36 billion towards the field's development. The deal valued the 3-lakh acres in the Marcellus Shale region in southwestern Pennsylvania at $14,167 an acre.

Apart from shale gas, RIL is also simultaneously drawing up plans to enter the power and telecommunications sector in India after being freed from a non-compete agreement with his younger brother, Anil controlled Reliance-ADA group, that barred the energy-to-education conglomerate from investing in certain businesses like power, telecom and financial services.

Reliance Industries may look at coal-based power stations and nuclear energy and hasn't ruled out entering the lucrative corporate bandwidth market. According to industry sources, RIL could leverage on the optical fibre cable network that has been laid out to connect its refineries, retail outlets and petrol pumps to offer telecom services such as broadband. Another option is to acquire companies.

Media reports suggest that RIL is looking at acquiring the two-year old Infotel Broadband Services. Another prospective candidate is the Rs 1,967-crore Tulip Telecom. It is also widely speculated that Reliance Industries may waltz with Venugopal Dhoot-led telecom arm, Datacom Solutions. When contacted by TOI, Dhoot declined to comment.

Source: Economic Times

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Shale gas in Cambay basin

2010-06-11T11:19:00.000+05:30

US-based minnow Joshi Technologies (JTI) is in talks with the DGH, the oil ministry, GSPC and ONGC about sharing resources to tap onshore shale gas reserves in Gujarat’s Cambay basin. Producing shale gas can be expensive, JTI tells us, requiring advanced technology.

“Vertical wells don’t yield shale gas,”says JTI, “You need horizontal wells with six to 15 ‘sophisticated fracturings’.” These horizontal wells can cost three times as much asvertical ones. JTI last met oil ministry officials in April to discuss a concerted development strategy for exploiting Cambay basin shale gas.

Last year JTI “accidentally” discovered shale gas 1350-metres below surface in a well at its Dholka field. “No major discovery has been made for a long time in the Cambay

basin,” we are told.

“Shale gas is a new prospect which will boost exploration.” Growing shale gas production in the US has revolutionised the market there, and had a direct impact on global LNG prices.

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GSPC Gas reaches daily gas sale of 3 mmscmd

2010-06-08T17:50:00.000+05:30

Following the Gujarat government's mandate to Gujarat State Petroleum Corporation Limited (GSPC) to undertake city gas distribution project, the company's subsidiary GSPC Gas Company Limited has reached to around 1,50,000 PNG domestic customers as well as daily gas sale of 3 mmscmd in the state.

GSPC Gas Company, which supplies piped natural gas (PNG) to domestic, commercial or non-commercial and industrial customers, has so far covered 10 districts, 17 talukas and about 40 locations, from Vapi to Rajkot.

With daily gas sales volumes of 3.00 mmscmd, at present GSPC Gas has a base of approximately 1,50,067 domestic households, 629 commercial establishments, and 820 industrial customers. GSPC Gas is also operating 70 CNG stations across major part of Gujarat.

The company also provides natural gas to domestic, industrial, commercial and transportation segments, apart from city gas distribution projects.

The role of GSPC Gas in city gas distribution is being complemented by Gujarat State Petronet Ltd. (GSPL)'s gas grid of approximately 1,500 kms spread across Gujarat. At every location where the GSPL network ends, GSPC Gas' retail network starts.

GSPC Gas has achieved daily gas sale volume of 2 mmscmd on June 25, 2009 and in last 10 months; the daily sale has gone up to 3 mmscmd.

Similarly, GSPC Gas has touched 100,000 PNG domestic customer base on January 6, 2010 and in the current year has already added 50,000 PNG domestic customers at the rate of about 10,000 customers per month, making GSPC Gas the fastest growing city gas distribution company in India.

Source: Business Standard

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Why delink gas prices from oil contracts

2010-06-08T17:47:00.000+05:30

The economic recession of 2008 has come out as an eye-opener for the stakeholders in the global energy markets as it caused a visible crack in the historical linkage between the prices of natural gas and that of long-term crude oil contracts. The pattern of movement in gas prices started to diverge markedly from the oil prices with a substantial glut in worldwide natural gas production, driven by technological advancements and rapid growth of unconventional gas resources (shale gas, coalbed methane, etc), especially in the US, coupled with a declining demand (reinforced by worldwide recession). The price of gas declined substantially and eventually increased the competitiveness of the global gas market (especially LNG). The fallout of this persistent glut, IEA predicted in its World Energy Outlook 2009, would eventually be in the form of pressure on long-term gas contracts pricing (usually indexed to price of long-term oil contracts), delinking of gas prices from oil contracts, rise in sale of gas on a spot basis and emergence of a new regional gas demand-supply dynamics through spot price-linkage and integration of regional gas markets in Europe and Asia-Pacific.

The Indian government is currently mulling a rationalisation of domestic natural gas pricing. The rationalisation would serve a dual purpose of delinking price of the crude from the production-sharing contracts between the gas producers and the government, and eliminate the differentials that exist in gas prices from different sources. At this juncture, it needs to be mentioned that the prices of LNG in the Asia-Pacific basin are usually linked to crude oil and hence the prices of LNG that India procures are also linked to that of crude oil. However, given that the natural gas sector is still at its nascent stage and expected to capture a substantial share of India’s future energy mix, it is crucial to dissociate the pricing of the natural gas from the oil price in order to isolate the sector from the increasing oil markets volatility. The move is also rational in view of the perceptible cracks in the international price link between the two resources and the new demand-supply dynamics in the international gas sector. Moreover, although natural gas and crude oil usually come as joint products, their cost of production differs. The energy carriers for oil and gas are different and require completely different sets of infrastructure. Oil is also more amenable to trading than gas. Thus, it may not be appropriate to link the demand-supply dynamics of gas with that of oil either domestically or internationally.

It also needs to be duly recognised that although KG-D6 did help in achieving a surprising boost in GDP, the supply of gas from this source alone may not be enough to meet the growing demand of natural gas by the consuming sectors (especially power and fertilisers). With the LNG markets becoming increasingly competitive internationally, it would also be essential and worthwhile to avail more of that. In other words, a rationalisation of natural gas prices that helps in procuring LNG supplies at competitive rates, without compromising the interests of the main consumers, is clearly important. The government is planning rationalisation through pooling of gas prices from various sources. Currently, India has source-based pricing of natural gas and this varies from less than British thermal unit. Out of nearly 140 mmscmd of gas supplies, about 55 mmscmd is sold under the APM. As for the gas from KG-D6, operated by RIL, the government has fixed a base price of $4.20 per mmBtu and this is capped to a crude oil price of $60 a barrel. Imported gas (in the form of LNG) comes at around $4.50 per mmBtu.

With the heightened concern for climate change and energy security and in view of the barriers that exist in fostering an immediate tectonic shift to renewables, natural gas is viewed as a bridge fuel, both nationally and internationally. Therefore, a shift to uniform stable pricing of natural gas domestically is crucial to justify the incurred investment in the sector. This is also essential to nurture proper growth of a pipeline network so as to make gas easily and adequately accessible to the end-users, and to send a correct signal to the end-users for ensuring more efficient utilisation of gas. Thus, it would really be worth seeing whether the formula for rationalisation that the government is mooting at present actually kills two birds (delinking with crude and removing distortions) with one stone.

Source: Financial Express

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Private fuel retailers to make positive margin on sales after deregulation

2010-06-07T12:41:00.000+05:30

Essar Oil (EOL), Reliance Industries (RIL), Shell Petroleum and state-run Mangalore Refineries and Petrochemicals (MRPL) have, at present, one wish in common — making positive margins on the sale of auto fuel and to scale up their fuel retail outlets.

These companies are waiting for the government to take a final decision on deregulation of fuel prices, which would not only allow them to regain their market share in fuel retailing but also help them make a gross margin of Rs 1,000 per kilolitre.

At present, the gross margin on sale of every litre of auto fuel is zero. Post deregulation, it would be a rupee per litre. Net margin would be 40p on each litre sold.

Essar Oil, which has 1,341 outlets operational, is selling petrol and diesel at Rs 4 and Rs 2.50 a litre, respectively, in all states, except Gujarat and Karnataka. The company plans to scale up its retail outlets to 1,700 by March 2011. But, if the prices are deregulated, the company says it might be able to achieve the target by this December.

LEVEL FIELD

“We had recommended that there should be total freeing of petrol prices, while in diesel, we welcome total decontrol, in a phased manner. The outcome of Monday's meeting (of the empowered group of ministers) will decide the pace of our ramp-up. Private players are not in the market due to government's fuel pricing policy. A level playing field will help firm up their market presence,” said an Essar Oil official. It has two per cent market share in the retail fuel segment.

Analysts say the proposed price deregulation of auto fuels, if implemented, would be positive for RIL and EOL.

“Fuel price deregulation could lead to nil underrecoveries on auto fuels, as the entire burden would shift to the consumers. While deregulation of the petrol prices is a possibility, chances of deregulation of diesel prices are less, considering its impact on inflation and given that 15 per cent of the total diesel consumption is for agricultural purposes,” said a Mumbai-based analyst.

Sector analysts say RIL in particular, could ramp up its retail operations at a much faster pace. “RIL might take only a couple of quarters to regain its lost market share, as in the past, in a matter of less than four years, the company was able to ramp up its share in the diesel segment to 14 per cent,” said a Mumbai-based analyst who tracks RIL closely.

RIL, in its fourth quarter results, said it had over 650 retail outlets operational. It has 1,400-odd retail fuel stations across the country and today has less than one per cent of retail market share. Shell India, which has 40 of its total 80 retail outlets operational, might also look at re-opening the balance outlets.

PSU REFINER AS AVID

On the other hand, standalone refiner MRPL, a subsidiary of state-controlled Oil and Natural Gas Corporation, is waiting to expand its presence in the petroleum retail business as soon as the government allows the linking of petrol and diesel sales to market prices.

MRPL has two retail outlets operating under the HiQ brand. It has an approval in place since 2006 from the Union government to set up 500 retail outlets. The government had asked it to put its plans on hold and was firm that it would not give any compensatory bonds (for retailing petro fuels below cost price) to MRPL, though it was a government company.

MRPL says in view of heavy underrecoveries, it has been treading cautiously on setting up retail outlets. Each new outlet would cost over Rs 2 crore. The company would follow the dealer-owned and operated pattern.

"On the advice of the ministry, we had put our retail plans on hold. But, with the government planning to free retail fuel prices from its control, we might review our retail plans," a senior executive from MRPL told Business Standard.

The Kirit Parikh committee on the subject, in its report, had recommended market-determined pricing for petrol and diesel and linking the price of domestic LPG and kerosene distributed through the Public Distribution System (ration shops) to the increase in per capita gross domestic product and agriculture GDP, respectively.

It had also suggested a partial increase of Rs 6 a litre on kerosene and Rs 100 on every LPG cylinder. It also proposed a 20 per cent reduction in kerosene allocations for the PDS.

“Anybody in the business would like to reach the end-user. Our plans to be in marketing remain. Much will depend on what the EGoM decides in the meeting,” said an MRPL official.

Source: Business Standard

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Market-linked petroleum pricing on EGoM agenda

2010-06-07T12:10:00.000+05:30

Petroleum Minister Murli Deora has started the groundwork for a probable rejig in the petroleum pricing policy even before the meeting of the Empowered Group of Ministers (EGoM), scheduled for Monday. On Saturday evening, Deora met Prime Minister Manmohan Singh to brief him about the EGoM meet. Deora also met Finance Minister Pranab Mukherjee on Sunday.

With the underrecovery on petrol and diesel falling by more than 50 per cent during the current fortnight and the crucial municipal elections in West Bengal behind, the proposed reform in auto fuel pricing has become more possible politically. A crucial meeting of the EGoM on Monday will deliberate on the proposal of the committee headed by former Planning Commission member Kirit Parikh to align auto fuel rates to market price.

Underrecovery on petrol and diesel has fallen to Rs 2.79 and Rs 2.9 a litre, respectively, from Rs 6.63 and Rs 6.26 per litre a month ago. The report, which was submitted in February, suggested market-linked prices for petrol and diesel.

The European crisis has tamed crude oil prices. Compared to an average of price $84.13 a barrel in April and $76.11 in May, the Indian basket of crude oil has averaged $73.07 in June so far. According to latest figures, the price of the Indian basket has dipped nearly 16 per cent to $72.45 from $85.88 on April 27. At the same time, the product-wise underrecovery has also been coming down.

The report had also suggested a phased increase in kerosene and LPG prices based on the increase in per capita urban and rural incomes. It had also proposed a reduction in kerosene sold through ration cards by 20 per cent. The OMCs currently incur an underrecovery of Rs 17.50 a litre on kerosene and Rs 262 on every LPG cylinder. Though a decision on kerosene and LPG might still be politically tricky, it is likely that the government may align petrol prices to the international rates.

Currently, the oil marketing companies (OMCs) — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — purchase crude oil at internationally benchmarked prices but the sale price of products like petrol, diesel, kerosene and LPG are not maintained in line with the international prices.

The EGoM may also look at tinkering excise duty so that only part of the price increase gets passed on to consumers. The excise duty on petrol and diesel is Rs 14.78 and Rs 4.74 a litre, respectively much above the revenue loss. In Delhi, the excise duty accounts for 30.84 per cent of the final petrol price and 12.44 per cent of the diesel price.

Private and public fuel retailers have been pressing for market-linked prices of petrol and diesel. “This is the best time to take a decision. Even if prices are freed, the burden passed on to consumers will be less than Rs 3 on a litre of petrol or diesel. The industry can reduce prices if crude oil dips further,” said an official with a private fuel retailer.

The report also recommended an incremental rate of taxes on higher crude oil price realisation from the nomination blocks of ONGC and Oil India Ltd (OIL) to keep the government’s subsidy share in the range of Rs 19,780-23,340 crore at various levels of crude.

Under the burden-sharing mechanism for 2009-10, the public sector upstream oil companies — ONGC, OIL and GAIL — were supposed to fully compensate the loss on petrol and diesel, estimated at Rs 14,430 crore. The loss of Rs 31,620 crore on kerosene and LPG was supposed to be made good by the government. Of this, Rs 26,000 has been compensated to the OMCs in cash. This still left the OMCs with a revenue loss of Rs 5,620 crore.

At a crude oil price of $80 a barrel, the underrecovery for the current year is estimated at Rs 98,000 crore. However, no subsidy mechanism is in place for the current year.

Source: Business Standard

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RIL may power into nuclear energy business

2010-06-07T12:02:00.000+05:30

Mukesh Ambani-promoted Reliance Industries (RIL) may foray into nuclear energy after being freed from a non-compete agreement with the Anil Dhirubhai Ambani Group (ADAG) that barred it from investing in some businesses, including power.

“RIL has indicated to the government that it is keen on generation and distribution of nuclear power,” a senior government official said on condition of anonymity.

An RIL spokesperson did not respond to ET’s email query on the subject.

According to industry and official sources, RIL’s nuclear plans are still at a preliminary stage.

The company is believed to be in talks with US-based engineering, construction and project management firm Bechtel Corporation for a possible collaboration.

According to sources, Bechtel has been asked by RIL to carry out a study on whether the nuclear business is feasible for the Indian company.

RIL has a long association with Bechtel, which is helping it to develop its KG-D6 deepwater gas field in the Bay of Bengal. Bechtel has also built RIL’s Jamnagar refinery.

Bechtel India’s managing director could not be contacted.

After the US-India civil nuclear deal, many public and private sector energy firms have contemplated entering the nuclear power business. In the regulatory framework currently in place, domestic private firms can participate in nuclear power generation as a minority partner, another official who deals with nuclear issues said.

According to existing laws, the central government must have at least 51% equity stake in a nuclear power venture through either of its two arms—Nuclear Power Corporation of India (NPCIL) and Bharatiya Nabhikiya Vidyut Nigam (BHAVINI).

These two government-run companies are the only ones authorised to set up nuclear power plants in India and any other firm wanting to enter the nuclear energy business must form a joint venture with them.

The government is considering opening up the sector to private participation, the official said. In February this year, the Prime Minister’s Economic Advisory Council had recommended that private investors should be allowed to own majority stakes in nuclear power-generating companies. But this would be possible only through an amendment to the Atomic Energy Act, 1962.

Public sector power major NTPC is the first company to have signed a joint venture agreement with NPCIL for executing nuclear power projects. It has picked up a 49% stake in the JV while NPCIL has 51% ownership.

It is likely that RIL may also follow the NTPC model. If RIL enters the nuclear energy business, it would be the first private investment in the sector.

Bechtel has designed and built more than half of the US’ nuclear power plants. It has a portfolio of more than 74,000 mw of nuclear design, construction, and operating plant support experience in over 150 plants world-wide. Bechtel has been recently named as the top US contractor for 12 consecutive years by the country’s trade publication Engineering News-Record (ENR).

India has already identified about half-a-dozen locations for setting up nuclear plants. They are in Andhra Pradesh, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Tamil Nadu and West Bengal. The government is also considering new sites such as Mahi-Banswara in Rajasthan, Kaiga and Mannur in Karnataka, and Rajauli in Bihar.

India, which wants to build 10,080 mw of nuclear power generation capacity by 2017, needs private investment to achieve that goal. India’s current nuclear power capacity is 4,560 mw.

Source: Economic Times

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Coal to power RIL's future ambitions

2010-06-02T15:05:00.000+05:30

Reliance Industries, freed from its non-compete agreement with the Anil Dhirubhai Ambani Group (ADAG) that barred it from investing in high-growth sectors, is likely to make its first big-ticket investment in coal-fired power plants.

RIL, which is looking to invest surplus cash, is likely to settle on coal-based power plants thanks to the surging demand for electricity and the attractive rates of return, a person familiar with the group’s thinking said.

An RIL spokesperson declined to comment on the issue.

As part of the peace formula announced by RIL and ADAG two weeks ago, the non-compete agreement signed between the two companies in 2005 was scrapped, allowing Mukesh Ambani’s group to enter power, telecom, and financial services. The deal also gave ADAG the freedom to enter the petroleum, refining, and petrochemicals sector.

RIL’s possible entry into the power sector could throw up the intriguing possibility of the two brothers going head-to-head for the first time. But there is unlikely to be a clash as ADAG is already implementing two large power projects and may not be in a position to bid aggressively for more, the person said.

RIL is unlikely to enter the telecom sector, which has seen a steady fall in margins and rising competitive pressures, unless it can find a new-generation technology that will be capital efficient, the person said. He did not, however, rule out the possibility of RIL acquiring an existing telecom company. As far as financial services are concerned, RIL is unlikely to get into the space immediately as the market is still evolving, he added.

The company is clear that among the three new sectors open to it, power is the most lucrative and the challenge will lie in developing plants in record time and with the best technology. “The challenge is to come in before demand starts petering out, which is in the next six to seven years. We will have to build the plant within three years if the normal practice is five years and most importantly, we have to adopt cost-effective technology like clean coal to maximise the returns,” the person added.

The rationale is simple. The sector has a demand-supply gap of 14%, requiring capacity addition of 90,000-100,000 mw every five years, and power-generating companies rake in a healthy rate of return of around 20% on an average. The company would have to become a player within the next three years or else would miss the bus, the person said.

As the second-largest growing economy, India is still far below global standards in electricity capacity. China, for instance, adds 100,000 mw of capacity every year to fuel its economy.

RIL may have preferred to get into the gas-based clean power sector since it is the largest gas producer. But having reserved that sector for ADAG for the next 12 years, the company is looking at cashing in on mega coal-based power projects.

It is estimated that the average return on an efficient coal-based power project is upwards of 20%. Add to this the new policy that allows power companies to sell a percentage of the electricity generated in the spot market (industry jargon as merchant power).

States looking to set up power plants

For such players, the rate of return is easily as much as 25%. Jindal Power, which developed a 1,000 mw plant, has sold most of its power at merchant rates that could be as high as Rs 11-12 per unit at peak times.

According to Power Trading Corporation chairman TN Thakur, as much as 4%, or 30 billion units of electricity generated in the country, is traded in the short term where tariffs average Rs 5-7 per unit.

There is a huge demand-supply gap in the power sector and the next five to six years would see new capacities being built to meet the economy’s growing needs. According to the integrated energy policy, the country needs to add 8 lakh mw by 2032 to sustain GDP growth at 9%-plus.

RIL sees a huge potential in this. Several states, including Mahatrashtra, Gujarat, Madhya Pradesh, Tamil Nadu Andhra Pradesh, have been advertising and inviting expressions of interest from potential power plant developers. In many of these, the state governments have already secured land, environmental clearances and even coal linkage so that the plant can be put up fast.

“Private power producers that comprised just 10% in the 10th Plan period are expected to go up to 45% by the end of the 12th Plan,” says RV Shahi, former power secretary.

So while RIL will concentrate on offshore investments as far as oil and gas and petrochemical are concerned, where it will be open to inorganic growth, its big play in the domestic market will be coal-based power.

The company plans to get as much as 30% of revenues from offshore operations. It has made a beginning with shale gas. A foray or a buyout of petrochemical assets abroad also cannot be ruled out.

Source: Economic Times

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Shale gas transforms geopolitics, energy

2010-06-02T14:30:00.000+05:30

The Indian government remains asleep to the revolutionary potential of shale gas, which promises to revolutionise both the world energy scene and global geopolitics. Russia, Iran and Opec are going to be greatly weakened, while the US, Europe and China will be greatly strengthened. India can be a major beneficiary.

First, shale is a common sedimentary rock found in most countries, so shale gas can hugely reduce the dependence of most countries (including India) on imported energy. Second, the geopolitical clout of major gas exporters — Russia , Iran, Algeria, Bolivia — will fall dramatically . Third, some countries may start converting their transport fleets into gas-based ones, hitting the demand for and prices of petrol and diesel. Fourth, converting gas into oil will become economic.

Shale has long been known to contain natural gas, but this was not worth extracting with conventional technology. Now a new technology, ‘fracking' , plus horizontal drilling, have greatly increased shale gas productivity, so extraction is now viable at $3-4 /mmbtu. The new technology has been pioneered in the US so successfully that the US has overtaken Russia as the world's biggest gas producer. US gas reserves have increased from 30 years consumption to 100 years consumption. Port terminals to import LNG (liquefied natural gas) into the US will instead export LNG to Japan.

The US dream of energy independence remains fanciful, but its dependence can indeed fall dramatically. Historically , the price of gas was linked to that of oil: gas cost one-sixth to oneseventh the price of oil. That equation has been smashed in the US, where oil costs $72/barrel but gas costs one-eighteenth as much ($4/mmbtu).

Poland and Ukraine, totally dependent on Russian gas, are rushing to find shale gas and free themselves from Moscow. Georgia, another Russian dependent , also seeks energy freedom. Russia has an iron grip on its ‘near abroad' , countries that used to be part of the USSR. But that grip will loosen dramatically if shale gas is found in large quantities in Eastern Europe.

Many Western European countries are rushing to acquire shale gas technology . Exxon Mobil is the front-runner in European exploration, but Shell is following suit. This dismays Algeria, a major supplier to Western Europe, which wants to create a gas cartel like Opec. The chances of this are zero. Indeed , LNG facilities created in the Persian Gulf to supply the US are becoming redundant, so supplies will have to be dumped on Europe and Asia. India must take advantage of this.

Gazprom, the Russian gas monopolist , admits that it has been forced to delink 15% of its supplies from the price of oil, and instead accept links to spot gas prices at trading hubs like Louisiana's Henry Hub, which sets the US benchmark price. Holland has a gas hub at Zeebrugge and Britain at National Balancing Point, and a new hub is coming up in Germany. At these hubs the spot price is determined by the interaction of multiple buyers and sellers, replacing the old prices linked to oil. The Financial Timesreports that half the gas contracts in Western Europe are now linked to spot prices.

Petrochina estimates that China may have 45,000 billion cubic metres of shale gas, more than Russia's proven conventional gas reserves. China used to be an oil exporter but in recent decades has become a major importer of oil and LNG. Chinese demand helped push oil to $150/barrel in 2008. In the next 10 years, shale gas may significantly reduce China's import demand. World oil prices may keep rising for another five years, but could plateau or fall after that. China is also exploiting its coal-bed methane reserves of 170 billion cubic metres.

Gas can readily substitute fuel oil in industry and power generation, and kerosene in cooking. But the bulk of oil consumption is in transport. Compressed natural gas (CNG) is powering buses and three-wheelers in Delhi and other cities. However, setting up CNG facilities across countries and converting vehicles to run on CNG remains a major challenge. It may never happen in the US. Authoritarian China, however , will surely push through such a change. This may be phased over a decade or more, but the price impact will start showing up earlier.

India has large shale deposits, with good prospects in the Gangetic plain, Punjab, Rajasthan, Gujarat. Tamil Nadu , Andhra and the north-east . India must get cracking on seismic surveys followed by allotment of exploratory blocks. Companies should be able to acquire blocks any time based on a predetermined revenue-sharing formula. Mukesh Ambani will probably be the first to start exploration, but others will follow quickly, including Anil Ambani (who is already in unconventional gas through coal-bed methane).

Large shale gas discoveries should embolden India to convert transport fleets in all cities from petrol and diesel to CNG. That will reduce not only energy dependence but pollution too.

Reliance has considered converting some KG gas into oil. Now that gas has become cheap relative to oil, it should go ahead. Other refiners — Essar, IOC, BPCL and HPCL — should consider this option too.

For decades India has kowtowed to Gulf countries, notably Iran. It can now afford to act much tougher. Iran supported Pakistan in Indo-Pak wars, and blasted India for Pokharan-II , and demanded that India sign the NPT. Iran nationalised the Rostam and Raksh oilfields in which the ONGC had a stake. It reneged on a contract to supply cheap LNG top India after Ahmedinejad came to power. Despite this India has been deferential to this potentially powerful energy supplier.

That must now change. India must tell all Gulf producers that it will pay gas prices linked not to oil but to the Henry Hub price. The best starting point is not Iran but Qatar, which has just completed a gigantic expansion to become the world's largest LNG supplier. This is now in surplus. Qatar wants $10/ mmbtu. India must offer just $4. Once Qatar gives way, so will other LNG exporters, including Australia.

Source: Economic Times

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Govt hikes price of natural gas by more than 100%

2010-06-02T14:01:00.000+05:30

The government has, from today, raised the prices of natural gas by more than 100% to $4.20 per mmBtu, leading to a hike in power and fertiliser production costs.

However, a hike in CNG rates will come into effect only from next week.

The cabinet had -- last month -- approved the raising of gas price from Rs 3,200 per thousand cubic metres ($1.79 per million British thermal units) to Rs 6,818 per thousand cubic metres ($3.818 per mmBtu). After adding royalty, the price for user industries would be Rs 7,500 per thousand cubic metres (Rs 7.5 per cubic metre) or $4.2 per mmBtu.

"The decision has been notified with effect from June 1," an official said, adding, "Natural gas to power and fertiliser units is being sold at revised rates from today, but the same for city gas projects will come into effect from June 8."

The increase in input cost would result in the price of Compressed Natural Gas (CNG) going up by Rs 5.60 to Rs 27.50 per kg in the national capital. But this would come into effect only from June 8.

The price of piped natural gas would be raised from Rs 15.92 per cubic metre to Rs 16.85 per cubic metre.

"Gas producers Oil and Natural Gas Corp (ONGC), C (OIL) and gas marketer GAIL India have been informed of the decision. They have started billing customers according to the new rates," he said.

The hike in gas price would also lead to a rise in the cost of fertiliser production and power generation. However, fertiliser prices will not increase as the government subsidises the sector.

The increase in power tariff would be marginal as only 11 per cent of the total electricity generated in the country comes from gas-based power projects. And, of these, only one-third use the gas with the increased price tag.

ONGC and OIL would gain about Rs 5,000 crore and Rs 700 crore in revenue respectively due to the gas price increase.

GAIL India, which has been allowed to charge Rs 200 per thousand cubic metres or 11.2 cents per mmBtu as marketing margin, would gain Rs 150-200 crore in revenue annually.

State-run ONGC and OIL produce 54.32 million cubic metres of gas per day -- about 40 per cent of the total amount originating from the country -- through fields given to them on a nomination basis. The gas, APM, is sold at government-controlled rates of $1.79 per mmBtu.

"ONGC and OIL have been making substantial losses in their gas business. The (current) low prices of gas have discouraged national oil companies from making investments (in raising dwindling output). Therefore, it became essential to increase the price of gas," the official said.

Source: Business Standard

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Oil product sales up 3.8% in April

2010-06-01T14:34:00.000+05:30

The sale of oil products in the country rose 3.8 per cent in April to 12.13 million tonne year-on-year.

To meet the increase in demand, the domestic refiners imported 6.6 per cent more of crude oil in April against the same month last year.

Crude oil purchase by domestic refineries stood at 11.7 mt or 2.87 million barrels a day in April, according to a provisional data.

The country's crude oil production in April was up 5.2 per cent at 2.87 mt or 7,01,480 barrels a day, a Petroleum Ministry data showed.

The domestic refiners (17 public sector refineries and 2 private refiners, data for Reliance SEZ refinery is not available) processed 5.3 per cent more of crude at 13.136 mt during the month under review.

The refiners utilised 102.9 per cent of their capacity.

While Indian Oil Corporation processed 1.6 per cent more of crude at 4.4 mt, Reliance Industries from its first refinery in Jamnagar processed 5.5 per cent more about 2.9 mt. Diesel sales, which accounts for almost a third of the total refined products consumption, saw an increase of 13.5 per cent in April, while petrol climbed 9.8 per cent. Exports of oil products fell by 49 per cent to 1.3 mt.

Increase in domestic crude oil output during April was mainly due to higher production from onshore fields including Cairn India's Rajasthan oil fields. Production from onshore fields in April was up 16.3 per cent. According to the data, production from ONGC's fields fell by 0.1 per cent.

The country's natural gas production rose by 54.2 per cent at 4.52 billion cubic metre.

Source: Hindu Business Line

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New urea plants could get subsidised gas

2010-05-31T11:56:00.000+05:30

In a bid to woo fresh investments into the urea sector, the government is considering the option of giving natural gas to new urea manufacturingplantsatadiscountedprice for a limited period and ask stateownedgasdistributorGAILIndia toguaranteelong-termavailability of the feedstock to them. The move is part of the proposed new ureainvestmentpolicy .

A previous policy , aimed at boosting investments in the sector broughtouttwoyearago,didnotal low new entrants to get gas at the government-administeredpriceof $ 1.79 per million British thermal unit (mmBtu), the lowest price for gas in the country until recently. This had dampened the enthusiasmof investorsintheureasector. "One of the options under consideration is to give subsidised gas for a limited time. If 80% of the cost of urea production is attributable to natural gas price, there should be certainty on the price as well as sufficient supplyof gasfornewinvestments tocomein,"saidagovernment official, who asked not to be named.

The move comes in the wake of governmentraisingtheadministered price to the level at which RILsellsitsK-GD6gas--$4.2. Also, Anil Ambani-promoted RNRL's efforts to get gas from the prolific K-G D6 field at a cheaper rate than the government-fixed price was blocked byaSupremeCourtorderthat said pricing and allocation of gas has to be as per government policy . But the view among some officials is that since the urea sector badly needsinvestments,itcouldget adifferentialpricefora"limitedperiod."

Another government official, who too did not wish to be identified, told FE that at the currentglobalpriceof urea,the feedstock price of $4.2 per mmBtu is viable, but that may notbethecaseif gaspricegoes up. In a gas-based urea plant, there would be a fixed cost of $150 and a variable cost of 21 times the cost of gas for makingatonneof thefertilizer." At the current (administered and KGD6) gas price of $4.2mmBtu, the total production cost works out to $276 a tonne of urea, when the product sells in global markets at $290 a tonne. That makes the $4.2aviablefeedstockpricefor urea. But if it goes up, the plant’s viability will be affected,”explainedtheofficial,emphasising the need for firm commitments on price and supplyof naturalgas.

Manufacturers who have not availed the previous urea investment policy of 2008 get gas at the APM price and gets a 12% post tax return on the commodity,w hich is under pricecontrol.Beneficiariesof the policy were to get a better price for urea but had to rely on non-APM gas. But the policy didnothelpmuchintheabsence of guaranteed availability of affordable gas.

Therehasbeennonewinvestments in the urea sector for more than a decade,making supplies fall short of demand by an estimated 1.9 crore tonne by the end of next year.

Now, under the proposed new policy, the government is alsolookingatprovidingsome incentives for building gas pipelines to new urea production facilities as gas is more efficient a feedstock than naphtha,saidtheofficial.

“There is no point in askingproducerstoshifttogasin, say three years,ift here are no pipelines,” the official said.

Source: Financial Express

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Added risks in gas exploration

2010-05-31T11:53:00.000+05:30

The Supreme Court’s verdict on the Ambani dispute is likely to stifle private sector participation in future exploration and production.

The dust has settled on the Ambani vs Ambani imbroglio. However, the Supreme Court judgment along with the current set of policies will have far-reaching implications on the future of the exploration and production business in India.

First, the view held by the Supreme Court that exploration of oil and gas resources needs to be carried out exclusively by public sector undertakings (PSUs) is in contradiction to the very spirit of the New Exploration Licensing Policy (NELP). Most of the reserves over the course of the policy have been discovered by private enterprise (domestic as well as foreign)-led consortia.

Second, production-sharing contracts have been structured in such a manner that the contractor, who has taken all the risks in attempting to discover and bring gas to the market and has incurred a huge capital expenditure, has the first call on the revenue stream that flows from the sale of the gas. The contractor then needs to be reimbursed his operating costs and gets a share of the profit. Over a period of time, this share comes down and the government’s share of profit gas (it is the government’s share of gas under the production-sharing contracts in the gas fields awarded under various rounds of NELP) correspondingly goes up. The contractor is, therefore, encouraged to market gas, since the sooner he recovers costs, the earlier the government gets its share of gas/oil.

According to the model production-sharing contracts applicable from the first to the sixth round of NELP, the contractor of the block has to value the gas at arm’s-length prices that benefit the parties to the contract. Moreover, the production-sharing contract provides the contractor the freedom to market gas and sell its entitlement. However, according to the Supreme Court verdict, the contractor has to sell the gas at a price approved by the government and only as per the government’s gas utilisation policy. This verdict may stifle private sector participation in future exploration and production.

Third, the Union Budget for 2008-09 excluded natural gas from the definition of mineral oil, thus taking away the income tax holiday enjoyed by the operators under the NELP regime. Such an ad hoc change in policy is unfair, as it is not known in advance whether oil, gas or both will be discovered. The impact of this was felt when NELP-VIII was delayed and a number of investors expressed their concern over the issue.

Fourth, foreign companies are needed not only for their technical expertise but also to bear part of the investment risk involved in the exploration of oil and gas under a joint-venture agreement. While Indian companies will ultimately cave in to the government pressure, foreign companies will take their business elsewhere. British Gas, Norway’s Statoil and Brazil’s Petrobras walked out of the Oil and Natural Gas Corporation (ONGC) block in the KG basin due to procedural delays and lack of clarity on major policy issues.

Fifth, some commentators have recommended a pan-India gas pipeline network to be a prerequisite to encourage upstream investments. This is like putting the cart before the horse. Gas pipelines, unlike roads and railways, are not public goods and need to be commercially justified through an assured source of supply, guaranteed demand at a price and a pipeline tariff policy that gives them a reasonable profit.

Finally, as recommended by the Supreme Court, the government must clearly lay down a natural gas pricing policy. In the RIL case, the government tweaked the price formula determined by RIL through limited competitive bidding to arrive at a price of $4.2/mmBtu. There has to be clarity on the price discovery process. Usually, a production-sharing contract clearly spells out the price discovery process that will be adopted for gas, such as linking domestic prices to free-on-board prices of gas, or to crude oil, or to alternative fuels like fuel oil. The government also needs to clarify the meaning of “at arm’s length” and “competitive bidding”. The pricing formula, which varies from field to field, will have to be finely balanced, as a high price could deter customers from buying the gas, thus impacting the volumes. A low price, on the other hand, will delay the investment recovery, and the profit share of both the contractor and the government will reduce. What is surprising is that with the ink hardly dry on the Supreme Court judgment, the government raised the current prices ex ONGC/OIL’s nominated fields to equate them with RIL’s $4.2/mmBtu — this decision has no logical basis and seems more driven by the one-size-fits-all concept.

RIL recently clarified that prices of gas from other fields in the KG basin will be higher than those from the current producing fields. Similarly, the ONGC chairman has stated that gas from ONGC’s wells in the KG basin will need to be priced at around $7/mmBtu to compensate for the investment that the company will be making. The country should, therefore, be prepared to pay higher prices in the future, and the consumer has to be sensitised that the Reliance price ($4.2/mmBtu) is by no means a benchmark for the future natural gas prices.

The government needs to draw some lessons from the events pertaining to the KG basin gas discovery, so that we do not have a similar situation arising again, which will ensure that the development of the exploration and production sector proceeds smoothly, for the benefit of not only the contractor but also the government, infrastructure developers and the ultimate consumer.

RK Batra is a distinguished fellow at The Energy and Resources Institute (Teri) and Ruchika Chawla is fellow, the Centre for Research on Energy Security, Teri

Source: Business Standard

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Bottomline positive

2010-05-28T11:09:00.000+05:30

Deepak Pareek, research analyst, oil & gas at Angel Broking on the impact of the APM gas price hike

The Government of India has approved a hike in APM gas price sold by ONGC and OIL from nomination blocks from Rs 3.20/scm to Rs 6.82/scm. After the hike, APM prices are now in line with EGoM-determined gas prices for the KG-D6 (US $4.2/mmbtu; pre-royalty adjusted), from US $1.9/mmbtu earlier. APM gas prices have been at Rs 3.2/scm (at 10,000 Kcal) since July 2005. However, adjusted for calorific value, ONGC’s realisations were at Rs 2.88/scm (US $1.8/mmbtu). This move follows the finance ministry’s suggestion of bringing about pricing parity between APM and KG gas in one swift move rather than a phased increase in the APM gas prices as proposed by the petroleum ministry. The prices will be effective until March 2014.

In a related development, the cabinet has also approved marketing margins of US $0.112/mmbtu (Rs 200/scm) for GAIL on APM gas marketing volumes. Earlier, GAIL did not receive any marketing margin on sales of APM gas.

The decision comes as a big trigger for ONGC and Oil India, as it substantially improves the profitability of both the companies. The move would benefit ONGC, which had lost Rs 4,745cr in revenues on selling 17.71bcm of gas at the government’s fixed rate in FY2009. The move would lead to some profits now from the gas business for ONGC. The price hike is a pleasant surprise, both from the quantum as well as the timing perspectives. We were expecting a gradual hike in gas prices instead of an increase in one go; thus, the quantum of the hike is much higher than our estimates.

We expect ONGC to gain around Rs 6,086 crore on the topline, and Rs 4,047 crore on the bottomline during FY2012E on account of the price hike. Similarly, we expect Oil India to gain around Rs 941 crore on the topline and Rs 622 crore on the bottomline during FY2012E. Given the fact that Oil’s net gas realisations were lower than that of ONGC’s APM realisation, it stands to benefit more on account of the increase in the gas prices to US $4.2/mmbtu.

Though GAIL uses gas for its petrochemical and LPG operations yet, as it was not procuring APM gas, the company is not likely to be impacted by the gas price hike. However, we believe that marketing margins allowed to GAIL will add to its topline and profitability. According to our calculations, GAIL benefits by around Rs 344 crore on the PBT and Rs 239 crore on the bottomline.

Source: energybusiness.in

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