Gas as transportation fuel

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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Shale gas transforms geopolitics, energy

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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APM gas move: How will it impact consumer industries?

It has taken 5 years for the Govt to finally give in to industrys demand of hiking APM gas prices at USD 4.2/mmbtu, prices are up over a 100%. So what will the impact be on consumer industries like power and fertiliser? 

Oil secretary S Sundareshanhas reason to smile. The oil ministry has managed to wrangle a much needed hike in gas prices to USD4.2/mmbtu. But what is even more surprising is the support from the Finance ministry, which pushed for a steeper one time hike as opposed to a staggered increase. While Oil and Gas industry is relived, users of gas like power and fertiliser sectors are worried. 

While there is some clarity on the impact on power traiffs, CNG providers like Indraprastha are still unlcear on the quantum of hike, and this impacted sentiment in the stock markets, with the IGL stock losing over 5%. But the Oil secretary, defends the move saying it will make prices more equitable as so far only consumers in Delhi and Mumbai enjoyed low prices.

S Sundareshan, Oil Secretary, says, “The other CNG consumers in the country and potential cosnumers would have benefitted from the network of pipe gas supply being extended to other cities would have really had to get gas from other sources other than at APM prices. so govt has done--approx equitable prices of gas from all sources in the country.”

The fertiliser sector will also feel the impact but the govt says the subsidy burden will be more than neutralised by the increase in govt royalty of 16%.

What is going to come back to the govt in terms of additional dividend from upstream companies, the additional taxation, and so o. We have calculated is more than, probably offset the additional burden on subsidising the fertiliser sector that would have to happen because of the increase in prices, says Sundareshan. 

After convincing the cabinet to bite the bullet on gas, the oil ministry is hoping to do the same with the  Kirit Parikh report on fuel prices, which is likely to be discussed by the empowered group of ministers on the 7 June.

Source: http://www.moneycontrol.com

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Administered pricing regime for PSU gas being phased out

Armed with the Supreme Court’s affirmation of the government’s powers to control pricing and allocation of natural resources, the petroleum ministry is planning to do away with the system of administered pricing for the gas produced by state-owned ONGC and OIL. The idea is to move towards a single pricing regime, based on the arm’s-length principle, for both PSU producers and their private sector rivals. Since the government anyway approves the price, the APM regime would be redundant in due course, it is reckoned.

Currently, ONGC and OIL sell APM gas at $1.7 per million British thermal units, which is one of the lowest price for gas sold in the country, and a loss-making venture for the two PSUs. APM price is 68% cheaper than the gas from Panna Mukta Tapti field and 57% cheaper than RIL’s KG D-6 gas.

The government’s new thinking is that rather than the periodic—and often delayed—revision of APM gas price to factor in inflation and other variables, the APM system itself could be done away with. To start with, the PSUs would be allowed to sell gas from the new fields in their nominated blocks at a non-APM price approved by the government, official sources said.

The APM system would subsequently be phased out for gas from the old fields as well. There are many hurdles that come in the way of dismantling APM altogether at this juncture, because a clutch of customers are covered under court orders and the policy of low-cost gas supply to small and medium enterprises.

When contacted, ONGC CMD RS Sharma welcomed the move. “This is a much-awaited decision. We welcome it. This would bring much-needed relief to ONGC in terms of equity and parity in the pricing regime,” Sharma said. He added that a decision to raise APM price was taken by the Union Cabinet in 2005, but because of various uncertainties, it could not be implemented. Now, those uncertainties have ebbed and this is the time to usher in a change in pricing policy, he said.

A senior government official told FE that unless ONGC and OIL are allowed to sell at a viable rate, they will not be able to invest more in gas production or even sustain existing production. “Principles of pricing have to be the same for the nominated fields and other fields,” the official said. Nominated fields are those given to state-run companies before the government brought the auction-based production sharing contract regime.

When implemented, the move would allow the state-owned entities to sell gas at the same benchmark price that the government sets for the private sector. The plan to scrap administered pricing would give significant relief to ONGC and OIL, as it goes beyond the earlier plan of raising the administered price in three stages to the level of $4.2 for million British thermal units, at which RIL sells gas from its prolific KG D-6 field. Minister of state for petroleum Jitin Prasada told the Lok Sabha on April 29 that ONGC has reported an under-recovery (revenue loss) of Rs 4,745 crore in 2008-09 on its gas business, leading to lack of investment for exploration and production activities. ONGC has 297 nominated oil and gas blocks. ONGC is operating mainly in the Western offshore fields, while OIL is operating in Assam and Rajasthan.

APM price for gas was last revised in 2005 at Rs 3,200 per thousand standard cubic metres (mscm). For small-scale consumers and the CNG sector, it was raised in May 2005 to Rs 3,840 per mscm, said a recent report prepared by state-run gas distributor Gail. The government was planning to raise this to $ 4.2 mmBtu in stages, but the latest thinking is that there should be a single pricing regime for both PSU and private producers in the future...

Source: Financial Express

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Deora puts his foot down, seeks tax gains for gas too

The ninth round of bids for oil and gas exploration blocks could be delayed due to an unresolved dispute over tax concessions to the natural gas sector.

The oil ministry has decided not to launch the bidding process under the new exploration licensing policy (Nelp-IX) unless production of natural gas also gets tax concessions, a government official said.

The oil ministry says the Union cabinet had granted a seven-year tax holiday for producing both oil and gas from blocks awarded under Nelp. “Restricting the tax holiday only to oil production is not true to the spirit of the Cabinet decision,” the official said, requesting anonymity.

The controversy over tax concessions for natural gas started when the then finance minister P Chidambaram proposed to redefine “mineral oil” in the 2008-09 budget.

The Finance Bill said “the term mineral oil does not include petroleum and natural gas” for the purpose of enjoying the tax holiday.

While crude oil producers got to enjoy a seven-year tax holiday on their profits, the new definition prevented natural gas producers from availing the exemption.

The finance ministry withdrew the definition of mineral oil for the purpose of section 80-IB(9) stating that the proposed change in the Bill was aimed at clearing the ambiguity as different tax tribunals had taken varied positions on the issue.

The situation didn’t change even after the move, as the income tax department continued to accept the tax holiday only in respect of production of crude oil.

In his July 2009 budget, finance minister Pranab Mukherjee had made a one-time exception for Nelp-VIII. He allowed tax concession to gas production as well, but restricted the benefit to blocks awarded under Nelp-VIII.

The oil ministry says that mineral oil must be defined as hydrocarbon, which can be either crude oil or natural gas or both. It says exploration & production (E&P) is undertaken for hydrocarbon and not for either oil or gas. An energy firm may find oil and gas both from the same block. Offering tax holiday for crude oil and not for gas is illogical. The purpose of the tax holiday is to encourage E&P and attract investments.

“The anomaly must be corrected for better response in Nelp-IX,” an oil ministry official said, requesting anonymity.

Source: Economic Times

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Gas still remains a pipe dream

Shale gas, a little-known form of energy till recently, is bringing about tectonic shifts in the global energy market.

Shale gas, a little-known form of energy till recently, is bringing about tectonic shifts in the global energy market. The new gas, which is set to redraw the energy map globally, is now being championed in the US as the green answer to the carbon-intensive liquid fuels. Although the US has taken the lead in making shale gas a commercial alternative to liquid hydrocarbons, it is beginning to have its impact in other geographies too. The commercialisation of this gas, unlike other new-found expensive gas in deep waters, has come as a boon for the US economy. Shale gas is found on-land and the US, which has been largely dependent on imports, now aims to meet 30-40% of its energy requirements through shale gas.

The question is whether India’s policymakers are taking note of these developments. The reduced dependence of the US on gas or LNG from west Asia is beginning to show: there is a glut in the gas market today. Countries with scaled-up LNG infrastructure facilities that have the geographical advantage of being closer to the gas hotspots will make the best of this situation by striking long-term deals at mouthwatering prices. Energy analysts say that LNG is a less politically-loaded option in Asia than pipelines, given the turbulent political climate in the region.

Pipeline diplomacy requires a high degree of mutual trust, which India and its neighbouring nations in Asia are yet to attain. The Iran-Pakistan-India pipeline remains a pipe dream. Even countries in Europe that have been getting gas from Russia for years have been subject to disruptions. But India and its energy players perhaps have been caught napping. And, it may have already missed the bus for want of adequate infrastructure to capitalise on glut in the gas market.

Shale gas is set to change the geopolitics of the energy world. As the world shifts to cleaner energy forms, countries with large reserves of natural gas will begin to command a higher economic advantage. So, Qatar, Australia or even Iran — if it were to abandon its nuclear expansion plans and emerge as a responsible member of the global community some day — with large reserves of natural gas will be the energy leaders in this century. But the game changer in the energy act is the discovery and commercialisation of shale gas, a non-conventional form of sustainable energy. This is not to say that shale gas did not exist before, but the popular acceptance of this fuel and the high investments by major energy companies only reflect the potential of this fuel.

Not surprising then, that Indian energy companies have also begun their journey and are making efforts to acquire a share of this pie. If Reliance Industries has made the first foray overseas by buying a stake in Atlas, a listed US company having large acreages of shale gas, Cairn India and ONGC are tapping domestic potential. The geological studies in India have shown healthy prospects for shale gas in the western and north-eastern regions of the country.

Plummeting gas prices are putting pressure on gas-rich countries in west Asia such as Qatar that dictated the terms till recently, forcing energy-dependent countries such as India, Japan or China to accept, at times, highly-lopsided term contracts for supplies of liquefied natural gas. This, even as crude oil prices continue to hold firm at close to $80 a barrel.

Some of this price behaviour can be attributed to the global recession that pushed down demand in the US and Europe. What remains a mystery, however, is how oil prices bounced back while gas continues to plummet from the highs of $14-16 per million metric British thermal unit (mmBtu) to about $3-4 per mmBtu. Oil prices that fell sharply from the record high of $147 a barrel in July 2008 to almost $40 a barrel during the downturn, rose sharply, at a much faster pace even as major economies were just about limping out of the slowdown.

The price behaviour of crude oil and natural gas appears to be getting delinked. From being directly proportionate all these years, despite different market fundamentals, the two forms of energy are gradually finding their price index getting delinked from one another. Nymex and Henry Hub, the two indices of crude and natural gas in the US, may show completely divergent price behaviour as consumption patterns change across the globe.

Development of an increasing number of shale gas fields in the US coupled with the recession have left gas-rich countries such as Qatar with shiploads of LNG that they want to contract out to energy-hungry countries in Asia. Both China and India that were at the receiving end till recently, accepting gas prices linked to a crude benchmark known as the Japanese Crude Cocktail, are now beginning to demand better terms. The gas market has shifted from a sellers’ market to one of buyers. This should be good news for India. But as has been proved in many of the infrastructure sectors, India’s large appetite for products is left unmet due to the lack of adequate capacity.

The ability to track the changing dynamics of the gas market, the emergence of new products such as shale gas in the US was completely lost on policymakers and even the industry. Today, India has LNG facilities at three points: Petronet LNG that took the lead and set up a facility at Dahej — soon to be expanded to 10-million-tonne capacity — Shell’s facility at Hazira — that needs to be expanded soon — and Dabhol’s LNG plant, that was the maiden venture still remains to be completed after beginning work almost two decades ago. A missed opportunity!.

Source: Economic Times

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Cost of exploration

The oil exploration and production (E&P) industry is highly capital intensive and has a long gestation period. To encourage E&P activities, most countries, including India, provided for a special accounting and tax regime with the objective of attracting investments. E&P companies outsource to oilfield service (OFS) contractors. Typically, OFS contractors work on seismic data processing, provision of drilling rigs, floating production storage and offloading vessels and so on. Such services are closely connected with the overall E&P value chain making them an integral part of the process.

To simplify tax provisions for the OFS industry, the government introduced Section 44BB in the Indian Income Tax law for non-resident OFS contractors. Under this, 10% of the gross receipts of the non-resident are deemed its taxable income (resulting in an effective tax of 4.223%) and the non-resident is not required to maintain any books of accounts in India. Revenue authorities have contested the applicability of Section 44BB to OFS contractors, alleging that these are ‘technical’ services and, therefore, should not get the benefit of presumptive taxation. However, the courts have been taking an almost consistent view that if the services (irrespective of their nature) are in connection with E&P activities, the income of the non-resident should be computed in accordance with Section 44BB.

The Budget 2010 seeks to withdraw this regime for companies providing ‘technical services’, even if services are in connection with E&P. This amendment may also increase the overall project cost since service providers will be inclined to pass on the additional tax cost to upstream companies. Given that the Indian hydrocarbon reserves are largely under-developed and require foreign technology and expertise, the proposed amendment by the Budget will have a negative impact on the development of the sector.

Source: Financial Express

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Govt to review Reliance's gas allocation from KG basin

The Government intends to review the allocation of Reliance's gas produced from the Krishna Godavari (KG) Basin D6 field. It could re-fix allocation as per the amounts drawn so far by the customers.

Ministry officials told Business Line that the Petroleum Secretary, Mr S. Sundareshan, had conducted a review meeting recently on off-take of KG gas by the allottees.

He is understood to have asked them to come back in a fortnight's time with details on their off-take, and how much they can actually absorb.

A final view will be taken in mid-April, based on which a decision will be taken on the unused quantity. If necessary, a decision on re-allocation could be also considered, officials said.

Asked if there were any penal provisions in the Gas Sales and Purchase Agreement (GSPA) that Reliance has entered into with these customers for non-drawal of gas, sources said “no penal provisions have been provided for non-drawal of gas by the consumers during initial six months of the supply.”

RIL is currently producing 60-62 mscmd of gas, which has been allocated to identified customers from the priority sectors — power, fertiliser, steel, city gas distribution, gas-based LPG plants, petrochemicals sector, and refineries — based on a decision of an empowered group of ministers.

Reliance, which had planned to ramp up its production to 80 mscmd by March, claims that for want of customers and choked pipeline network, it has not been not able to do so.

2 categories of customers

There are two categories of customers — one comprising those who are drawing less than what they have been allocated, and two, those who were supposed to start drawing gas by March 2010 but are not ready to draw (mainly power units yet to be commissioned).

The need to review the allocation of gas has arisen due to these two reasons, sources said, adding that “this was restricting the allocation to those who needed gas. It needs to be considered whether volumes to such customers can be reduced and allocated to those who are already drawing gas and require more.”

At present, RIL is supplying almost 30 mscmd of gas to the power sector, 12.86 mscmd to fertiliser, 7.63 mscmd to refineries (including RIL's own refinery), 4.65 mscmd to steel, 0.64 mscmd to city gas distribution sector, 1.17 mscmd to petrochemicals (RIL's Hazira plant), 2.59 mscmd to gas-based LPG units.

Source: Hindu Business Line

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Natural gas from Krishna-Godavari basin for south India from 2012

Union Petroleum Secretary S Sundareshan on Saturday that south India will start getting natural gas from the Krishna-Godavari basin from 2012. 

The Ministry of Petroleum and Natural Gas had called for a meeting of Reliance Industries Ltd (which owns the gas fields) and Gas Authority of India Ltd (which lays pipelines) about ten days ago and told them to implement the project in a “strict timeframe”. 

Reliance has been authorised by the government to lay a pipeline from Kakinada to Chennai and this pipeline would further extend to Tuticorin. Reliance would also lay a pipeline between Chennai and Bangalore, he told a press conference here. 

The gas would start flowing to Tamil Nadu anytime between March 2012 and the end of that year, he said. There would be connectivity to Madras Fertilisers Ltd and SPIC, he said, referring to the two fertiliser companies, whose operations are suffering for want of natural gas.

On the issue of pricing of petroleum products, he said, “It is not possible to insulate consumers continuously from the volatile international crude price and the government has to take a hard decision in the future.

At present, subsidy component for petrol is Rs.5 per litre, for diesel Rs. 3, for kerosene Rs. 16 and for LPG Rs. 260 a cylinder. Due to under-pricing the government had incurred an expenditure of Rs.45,000 crore in the current financial year. Poor people were forced to pay for supplying subsidised petrol and petroleum products to those who were affluent. 

Increasing demand 

The Secretary said oil marketing companies were fully geared to meet the increasing demand for petroleum products, which had been increasing at 15 per cent per annum for petrol, 8 to 9 per cent for diesel, and 10 per cent for LPG. In Tamil Nadu every year there had been a 10 per cent increase of LPG consumers. The State had achieved a coverage of 75 per cent in respect of LPG supply in the State, which might increase to 83 per cent in the next four or five years. 

There was no shortage of LPG supply in the State and new connections were being released to prospective consumers without any waiting list and efforts were being made to supply refills expeditiously.

To meet future demand, infrastructure was being augmented and LPG storage facilities were being put up in Coimbatore, Ilayangudi, Tiruchi, Ennore and Gummidipoondi, he added.

Source: The Hindu

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Budgeting for deregulation?

The oil and gas sector was banking on Budget 2010-11 to deliver a pretty long wish list. But when the FM finally delivered his speech, it was a rare display of fiscal prudence. He kept in line with the recommendations of the 13th Finance Commission, even against the challenging backdrop of recessionary hangovers coupled with spiralling food inflation.

The Budget saw customs duty of 5% restored on crude petroleum and excise duty on both petrol and diesel increased by Re 1 per litre. As a result of this measure, petrol prices will rise by Rs 2.71 per litre and diesel by nearly the same amount, considering Delhi as the benchmark. Predictably, this measure did not win kudos from the Opposition, which staged a dramatic walkout when it was announced. The Opposition says it is worried about the potential impact that increased duties on petroleum products will have on inflation in general. The oil and gas industry, however, appears to have mixed feelings about the entire gamut of measures that have been proposed in this Budget.

The issue of rationalisation of excise duties on petroleum products (especially petrol and diesel) needs to be put in perspective. We must see them in the light of this Budget, but also historically. In line with the recommendations of a number of government committees that have deliberated the rationalisation of duties on petrol and diesel from time to time, the government has been reducing excise duties in a progressive manner on branded petrol and diesel. It reduced the excise duty from 30% and 14% respectively (that existed till February 2005) to Rs 6.5 per litre and Rs 2.75 per litre respectively from July 2009. This progressive but major rationalisation from ad valorem to a specific structure should be commended even at the first instance. After all, it has already proved successful in weeding out a chunk of cascading effect from the tax structure itself. In this light, the increase of excise duty on petrol and diesel to Re 1 per litre and its potential cascading effect is insignificant. It also needs to be kept in mind that the lion’s share of the distortions in petrol and diesel prices comes from state level irrecoverable duties (like octroi, entry taxes and transit taxes). These are mostly ad valorem and need to be rationalised at the first instance in order to minimise the cascading effect.The question is whether the Budget’s moves imply that the government is getting ready to announce further reforms in the oil sector. It needs to be mentioned at the outset that any increase in excise or customs duties goes straight to the government coffers as additional revenue. Thus, the rise in fuel prices that results from this increase in duties does not directly benefit the public sector oil companies, which are facing mounting under recoveries. However, the corollaries that the FM came out with in this Budget—in terms of pegging subsidy on petroleum products to Rs 3,108 crore in the next fiscal compared to a figure of Rs 14,954 crore this fiscal—does have the whiff of progressive reforms.

The government has also decided to compensate oil companies in cash terms rather than by issuing oil bonds with debt implications. The cash compensation has been fixed at Rs 12,000 crore for the three public sector oil marketing companies for this fiscal against their demand of Rs 31,000 crore merely on account of cooking fuel. All these measures suggest a movement towards deregulation and freeing of pump prices of petrol and diesel in line with the Parikh Committee’s recommendations, the implementation of which now seems imminent and inevitable. But with the Opposition already staging a walkout on changes in excise duties, one has to consider that reforms may attract a strong political backlash. The FM, however, in his Budget speech has relegated that responsibility to the petroleum ministry, although it is common knowledge that decisions would be taken in consensus.

The restoration of the basic customs duty on crude to 5% will have positive implications for upstream oil producers like ONGC and OIL as it enhances the protection of indigenous crude. However, the implication for down-stream refiners would be negative for the obvious reason of increase in prices of procured crude.

One of the measures, however, that has not gone down well with the industry is the increase of Minimum Alternate Tax (MAT) from 15% to 18%. Given the fact that GDP received a much-needed boost in 2009-10 from the KG basin and that Cairn Energy has commenced crude production in Rajasthan, the business of oil and natural gas exploration and production was actually seeking more fiscal incentives. This would have helped them take more risk in untapped areas. One incentive that the industry had hoped for was exemption from MAT provisions. However no such exemption has been granted on profits derived from commercial production or refining of mineral oil—which are otherwise fully exempted from payment of income tax for a period of seven years (usually referred to as tax holiday).

The measures suggested in Budget 2010-11 do hint at imminent reforms. It is also extremely important to understand that there could be no better time to reform the oil sector than now, as the economy is recovering and the international crude market is much less volatile. In this light, the argument for universal insulation of auto fuel prices—primarily used by the more affluent—is also on very weak ground. Withdrawal of such insulation will, after all, be the first step towards inculcating conservation habits and encouraging energy security. From this perspective, the marginal increase in excise duty is just the tip of an ice-berg as far as necessary measures are concerned.

Source: Financial Express

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Implications of introducing negative tariff protection on SKO & LPG

Background: 

Recent notification by the Ministry of Finance has maintained customs duty on domestic LPG & PDS SKO as nil while increasing the customs duty on crude from nil to 5%. This implies a negative tariff protection of 5% to SKO & LPG, which together constitute over 17% of consumption barrel. 

In addition, the NCCD (National calamities Contingency Duty) of Rs.50 per MT on imported crude is also retained. The NCCD is not passed on to the consumers in the pricing structure and is absorbed by the refining industry. Worse still, even on exports the refineries absorb this element. 

The implications of the changes in tariff are as detailed below. 

Impact on the refining industry: 

1. Negative protection (including NCCD) is against the considered opinion of economists and experts: 

Various industry & tax reform committees set up by the government have concurred on eliminating negative protection on finished goods in order to promote domestic industry. Some highlights from a few notable committees is given below: 

Tax Reforms Committee, Dr. Raja J Chelliah Aug 1992 

Government should rigidly adhere to one basic principle, namely, while consumers should not be asked to bear undue burden through unwarrantedly high protection to particular groups of producers, domestic producers should not be exposed to unfair competition in the name of not adding anything to the cost of ?essential goods? 

Strategic Planning Group on Restructuring of Oil Industries (R Group), Dr. Vijay Kelkar Sep 1996 

The current tariff rates contradict the rational tariff structure of keeping import duty on raw materials lower than that on final products. In the case of petroleum sector, the import duty on crude is 27% ad-valorem which the import duties on finished product are a maximum of 32% on MS, HSD and ATF; nil on Naphtha and SKO; and only 10% on LPG.  Such a duty structure is somewhat perverse in the sense that it provides a negative rate of protection to refining sector PSUs while giving a high rate of effective protection to private sector petrochemical companies? 

Expert Technical Group Nirmal Singh 1997    

The committee suggested eventual tariffs of 15% on MS, HSD, LDO, ATF , 10% on LPG & 0% on SKO while maintaining crude at 0%, thus ruling out negative protection for any finished product. 

Kelkar Task Force, Dr Vijay Kelkar 2002    

The committee suggested eventual tariffs of 10% on petroleum products & 5% on crude, thus ruling out negative protection for any finished product. 

The anomalies of negative tariff protection that existed in the petroleum industry were gradually removed in line with the above recommendations as is evident from Exhibit 1. 

Exhibit 1: Phasing out of negative duty protection on petroleum products 

2. Negative protection will force refineries to change the production pattern leading to import of LPG & SKO 

The country is refining surplus. The refining capacity is 178 million tonnes (MMT) and the expected demand of petroleum products is about 135 MMT tonnes in 2009-10. The production capacity for LPG (about 9.5 MMT) is not enough to meet the demand fully (about 12.5 MMT), forcing imports. Fiscal incentives encourage production of LPG will retain imports at this level. Now that negative duty protection is a reality, for LPG & SKO, refineries may adjust their production more in favour of MS and ATF for exports. This will increase the quantum of imports in the coming years. This will lead to additional foreign exchange outflows in respect of higher product prices and net freight payable on LPG and possibly SKO imports. 

3. Negative protection is detrimental to the high investments required in the refining sector 

However, refining capacity is higher than demand at present; economic growth projections will soon necessitate additions to refining capacity. In addition, India is likely to become a refining hub.  The expansion needs investment. With SKO & LPG constituting around 17% and fuel & loss around 8%, refineries will not be able to recover duty paid on crude on 25% of the production barrel. This will be a heavy burden on refining sector and will act as a disincentive for fresh investments required in the sector. Negative protection on LPG and SKO may result in our revisiting the years when we imported finished products heavily. 

The profitability of refining industry has been declining. Older and less efficient refineries may close down, which may take several years. In the meantime, our refining industry must become financially strong to become an international force to reckon with. Saddling them with negative protection at this time may mean we lose the opportunity of becoming an efficient refining hub in a few years down the line. We stand to lose a great opportunity and hence the negative protection needs to be removed. 

4. Negative protection does not exist for any petroleum products anywhere in the Asia Pacific region 

Conclusion 

In order to encourage investments in domestic refining, strengthen our refining industry and discourage unnecessary imports it is imperative that the negative protection on LPG & SKO be removed. There is no justification to continue with NCCD, unless it is recovered from the ultimate consumers via identified increase in refinery prices to oil marketing companies.   

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NTPC signs for more KG-D6 gas

State-owned power utility NTPC Ltd has signed agreement to buy 1.2 million cubic meters a day of more gas from Reliance Industries' eastern offshore KG-D6 fields at the government-approved price of USD 4.2 per mmBtu.

NTPC signed Gas Sale and Purchase Agreement (GSPA) to buy more gas on February 16, taking its total supplies from KG-D6 to 1.81 mmscmd, sources in the know said.

The government had in October 2009 allocated NTPC 3.85 mmscmd, beyond the 0.61 mmscmd it had earlier signed for.

But NTPC did not want to use the KG-D6 gas at its Kawas and Gandhar power plants in Gujarat, which are connected with pipelines ferrying KG-D6 gas from the Andhra coast. So, a swap arrangement was worked out wherein state-owned gas utility GAIL India was to divert gas from other sources to NTPC and supply Reliance gas to its existing customers.

 However, limitations in GAIL's pipeline capacity restricted the swap to just 1.2 mmscmd, sources said, adding that additional gas supplies to NTPC would begin by next week.

 NTPC's Anta plant in the national capital region currently gets 0.61 mmscmd of KG-D6 gas.  Sources said the state-run utility does not want to use KG-D6 gas at its Kawas and Gandhar plants as it is seeking RIL gas for expansion projects at the two sites at the price of USD 2.34 per mmBtu that Mukesh Ambani-firm had committed in a 2004 tender. 

Source: PTI

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Partnership acquires Gulf brand from Chevron

Gulf Oil LP, Framingham, Mass., acquired all rights, title, and interest to the Gulf brand in the US from Chevron USA Inc. and plans to expand its use of the brand throughout the US.

Although the brand has been in existence nearly 110 years, for the last 20 years Gulf-branded gasoline in the Lower 48 has been available only in an 11-state region in the Northeast through a licensing agreement between Chevron and Gulf Oil’s parent Cumberland Farms Inc. The limited partnership is one of the Northeast's largest wholesalers of petroleum products.

In 2005, Gulf Oil initiated an extensive overhaul of its marketing and business strategy to enhance the brand value of Gulf and to restore the image and perception of Gulf as a premium gasoline retailer.

The forerunner Gulf Oil Corp., formed in 1907, was a major international oil company that once ranked among the top “Seven Sisters.” In the first decade of the 20th century, the company promoted the concept of branded products by selling gasoline in containers and from pumps marked with a distinctive orange disc logo. It is credited with establishing the first drive-in service station in 1911. Gulf Oil was merged into Chevron in 1984. To comply with federal antitrust provisions, Chevron sold some Gulf stations to Cumberland Farms in 1985.

Source: Oil and gas Journal

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Gas price to consumer could be uniform

The government is weighing policy options to end the differential pricing of natural gas which has resulted in a fragmented market for this benign fuel—a potential turn-off for investors.

Uniform pricing of gas from various sources to the consumer by way of pooling of prices doubtless has many advantages, said petroleum secretary RS Pandey in an exclusive interview with FE. Under pooling of prices, the producer will get the price, as per the production sharing contract between him and the government. But the consumer prices will be uniform, irrespective the source of gas, he explained. Pandey also spoke about the achievements of the ministry of petroleum and natural gas of the past year and the government’s handling of the RIL-RNRL dispute over supply and pricing of KG D6 gas.

The importance of gas, a comparatively benign fuel, in the energy economy of the country is on the ascendancy. Isn’t it time the government started thinking of ending the fragmentation of the gas market where multiple pricing methods exist?

There is already a thinking in that direction. Currently, there are so many prices for natural gas within the country, and there is a thinking that why can’t there be uniform pricing? Uniform pricing by way of pooling of prices doubtless has many advantages. But it needs to be examined how far the pooling is feasible. This is the subject matter of a study by GAIL India which is expected to come out with its findings this month.
There are several potential implications for such pooling, and these need to be examined. There is administered pricing on about half of the volume of gas produced. Since APM price is cheap, consumers are happy with it, but the producing companies are adversely affected. Then there is the K-G DG gas that is priced at $4.2 per million British thermal unit (mmbtu). There is also gas from various other sources priced between $3.5 to $5.7 per mmbtu.

Imported gas (in the form of LNG which needs to re-gasified on Indian soil) comes at an even higher price of $4.5 per mmbtu. The spot prices of LNG are around $6 per mmbtu. Pooling of prices will have several implications—financial, legal and administrative--for different stakeholders. We have to study all these aspects.
Under pooling of prices, the producer will get the price, as per the production sharing contract between the producer and the government. But there are several questions that need to be answered in this connection: At what price will the gas go to the consumer? Would pooling of prices affect the contractual liabilities of the parties? How the whole process would be managed and who exactly would do that? What would be the implications of uniform pricing on future production sharing contracts?

The production sharing contract now allows 100% cost recovery and is very conducive for investors. Even in a changed scenario, investor interests as well as the consumer interests will need to be protected.

Won’t a fixed price to all consumers amount to thwarting the principle of free market? Isn’t well-regulated free market a better option?

Pooling prices for the consumers is not necessarily a market distortion. Even price fixation is there in many sectors. For example, consumer price of electricity continues to be determined by state regulatory commissions. The price at which state electricity Boards buy from producers is also regulated. At the same time, a part of the power is traded freely in the market.

How would you chronicle the past year’s achievements of the ministry of petroleum and natural gas?

The past year was one of many unprecedented happenings in India’s petroleum sector. It was marked by unprecedented volatility in crude prices, unprecedented nationwide strike by oil PSU officers, unprecedented attack and calumny against the ministry in the wake of RIL-RNRL case and yet, significant rise in domestic production of oil and gas which was also unprecedented in the last about a decade. Again, the acquisition abroad of the British company, Imperial Energy with producing assets in Russia was the first of its kind as it was acquired lock, stock and barrel.

Externalities continued to decisively impact the sector due to our need to import large quantities of crude oil. To the surprise of every observer, crude prices saw violent swings in the year, tumbling from the July 2008 peak of $147 a barrel to $35 in February this year, and again, to recover to the current level of $80. To manage the situation arising out of price volatility was indeed a tough job, yet we managed to get over the tumult through some kind of balancing exercise.

We were able to ensure, most of all, that the interests of consumers are protected. At the same time, we did take care of the oil companies and the national economy sufficiently circumspectly. It may be noted like in the absence of right policy interventions and administrative measures, such volatility could have been ruinous for us, like it actually was for several other economies.

The strike by officers of oil PSUs threatened to cripple the mobility and the economy. The government was, however, able to manage that with fairness and firmness.

The heartening feature was that, after a decade of near stagnation, the past year saw a significant rise in the production of crude oil and natural gas. In 2009-10, crude oil production would go up by 11%, while natural gas production would increase by 53%.

Major improvements came about in the area of distribution of petroleum products as well. All bans on issuing new liquefied petroleum gas (LPG) connections and on the issue of double cylinders were removed. A grievance redressal mechanism was put in place. There has been a noticeable improvement in consumer satisfaction.

We have also been able to present Vision 2015 to the nation, highlighting the milestones to be achieved in several areas, with consumer interest on the top of our mind. A roadmap for city gas service was also brought out.

Another issue which dominated the scene was the big court case between Reliance Industries Ltd and the Reliance Natural Resources Ltd in the backdrop of which an unprecedented attack and calumny against the ministry of petroleum and natural gas (was launched) through paid advertisements in several national dailies and otherwise. We could overcome that phase with equanimity.

Another highlight of the year was ONGC Videsh’s acquisition of Russia’s Imperial Energy. This is the first full-fledged acquisition of a foreign oil company by us. Other overseas investments through ONGC were for taking participative interests along with other global entities in both producing/ exploration fields in various parts of the world.

What exactly helped increase hydrocarbon output in 2009?

The first major output of New Exploration & Licensing Policy (Nelp) was in the form of K-G D6 production and this has the potential of doubling domestic production at its peak, expected in the next few months. Another major breakthrough was in the area of crude oil. Cairn Energy’s production from Rajasthan’s Barmer district has commenced and the expectations are that this would account for 25% of India’s domestic oil production at the peak, expected in about a year.

The government had to take several decisions to facilitate the production. Any procrastination in this regard would have adversely affected the projects.

Are you open to more acquisitions abroad?

Of course. We are open to more such acquisitions. We have to have energy security and one way is to go shopping abroad for assets. We do look out for possible acquisitions all over the globe. It is an ongoing process, but at this stage, nothing more can be said about any deal.

Recently, the finance ministry hinted at footing oil subsidy bills by way of direct cash from the Union Budget, instead of the fiscally not-so-prudent practice of issuing oil bonds for the purpose. Your views please.

Under-recovery of oil marketing companies in respect of LPG and kerosene will have to be paid for by the government. If it can be through cash, it’s still better. Or else, bonds have to be issued. We have already asked for a sum of Rs 20,000 crore for adjusting the under-recoveries from LPG and kerosene sales. For the whole year, under-recoveries on these two fuels are estimated to be of the order of over Rs 30,000 crore.

There would be another Rs 12,000 crore (under-recoveries) on account of motor spirit and diesel.

With yet another committee—the one headed by Kirit Parikh—dwelling upon the vexed issues of pricing of oil products and the subsidies, what would be the petroleum ministry’s inputs to it?

All stakeholders have submitted their views to the Parikh committee, which I’m sure, would find a solution to the question. Since the oil marketing companies are the main pillars of the country’s energy security system, their interest cannot be compromised. At the same time, consumer interest should be kept in mind, too. It is indeed a tough exercise.

In the Nelp-VIII auction, many blocks received single bids, that too from state owned-ONGC. What can we do to make future auctions more attractive?

Every year we hold pre-bid conferences with the industry and then take a decision on the auction of fields in the light of their views. We will meet the industry again this year for the next Nelp auction.

Managing the carbon emission of state owned oil companies is integral to India’s efforts to reduce the carbon intensity of GDP.

One way, of course, is to consume more gas than oil, as the former is a relatively cleaner fuel.

Already, the trend is in that direction, and with the potential of more extensive pipeline network, gas could emerge as the pre-eminent fuel in the years to come, substituting oil in a major way. All oil companies are taking concrete measures to reduce their carbon footprint. In both the upstream and downstream areas, various pollution control projects are underway.

In the RIL-RNRL dispute and litigation over supply and pricing of KG D6 gas, the government’s role has been criticised in certain quarters. The allegation is that the petroleum ministry did not intervene in time even as it was clear that the feud between the Ambani brothers could potentially undermine the government’s ability to perform its function as the guardian and owner of natural resources. Later, when the government intervened after the Bombay High court judgement, some quarters saw a bias in favour of one of the brothers.

The case is still sub judice. Hence it may not be appropriate to delve into the merits or otherwise of the case as such. However, the charges against the ministry are completely incorrect and unfounded. Ordinarily, the government need not intervene in private dispute between parties. But the government cannot merely watch when the case adversely impacts national interests. The ministry had intervened even earlier in the case in the Bombay High Court in the wake of injunction on production and sale of gas and got the injunction vacated.

Again, the cause of action for filing a special leave petition in the Supreme Court arose after the judgment of the Bombay High Court which, for the first time, gave effect to the family MoU between the two parties which was contrary to the government’s policies on utilization and pricing of gas which flowed from the Production Sharing Contract and the government’s ownership of gas.

The judgment also revealed the contents (relating to gas) of the MoU which had appropriated the entire gas-- not only from KG D6 field, but from all fields being operated and to be operated by RIL in future between the parties. This would have adverse implications for development of gas-based industries in the country and would have set wrong precedents for other contractors as well. The users of gas based industries also represented to the ministry that their interests be protected in the wake of the judgement of the Bombay high Court. It was therefore, appropriate for the government to intervene. It would have rather been inappropriate not to intervene. Unfounded allegations or fear of such allegations cannot deter government from following the right course of action. The government’s intervention in the matter has been without favour or fear....

Source: Financial Express

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Petrobras to exit ONGC block, Shell keen to get in

Brazil's Petrobras had decided to quit Oil and Natural Gas Corp's (ONGC) prolific gas discovery block in the Krishna Godavari basin a vacancy that Royal Dutch/Shell and BP Plc are keen to fill-in.

Petroleo Brasileiro SA or Petrobras, Brazil's state- controlled oil firm, wants to offload its 15 per cent stake in KG-DWN-98/2 to ONGC as it wants to concentrate on developing massive oil and gas finds back home, a top official said.

The vacancy may not last long as Shell and BP Plc have expressed interest in taking the stake in the block that sits next to Reliance Industries' giant KG-DWN-98/3 or KG D6  block off the east coast.

Shell has offered technology to convert natural gas into liquid (liquefied natural gas) at a floating offshore facility at the deepsea and then transporting the fuel in ships to the shore. BP on the other hand has offered the conventional technology of producing gas at an offshore platform and then transporting it to land through under-sea pipelines.

"For us, Shell technology makes more sense," he said, adding, a decision to induct Shell or BP can only be taken after ONGC acquires Petrobras' shareholding in the block.

ONGC has made 10 gas discoveries, including the ultra deepsea UD-1 find in the block where Hydro Oil and Energy India BV, a unit of Norway's StatoilHydro, and Cairn India hold 10 per cent a piece. The discoveries are estimated to hold anywhere between 5 and 15 trillion cubic feet of inplace reserves.

Petrobras had an option to raise its stake to 30 per cent in the KG-DWN-98/2 block where UD-1 alone had been assessed to hold 2.08 trillion cubic feet of reserves. "They (Petrobras) has told us that it wants to withdraw to concentrate back home," the official said, adding the Brazilian firm refused to contribute to further drilling in the block.

Petrobras told ONGC that it is putting all its resources on developing finds off the Atlantic coast, including the 8 billion barrels Tupi oil find. The over USD 100 billion spend may allow Brazil to overtake the output of all OPEC members except Saudi Arabia.

"We don't have technology to bring the UD-1 gas find in ultra deepsea to production. Thats why we got Petrobras and Statoil," the official said.

ONGC plans to tie up gas discoveries in KG-DWN-98/2 (excluding UD-1) with the G-29, GS-4 and Vashistha gas finds in a shallow water block KG-OS-DW4 in the same KG basin. The gas finds in KG-DWN-98/2 (excluding UD-1) and three in adjacent block together hold 6.37 Tcf of inplace reserves.

Gas production may begin by 2013, he said, adding Vashistha and neighbouring S-1 discovery alone would yield six mmscmd of output.

Overall gas production from the integrated project is estimated at 25 mmscmd. Without UD-1, KG-DWN-98/2 block is assessed to hold just over 5 Tcf of inplace gas reserves.

"We plan to drill six appraisal well in KG-DWN-98/2 block and three in KG-OS-DW4. Following this we will prepare a detailed development plan," the official said. "As of now, we think we will need 58 wells to produce the oil and gas planned for the fields."

The block was awarded to Cairn Energy India Ltd in the first round of bidding under New Exploration Licensing Policy (NELP) in 1999. CEIL sold 90 per cent of the stake in the block to ONGC in 2004.

ONGC gave stakes to Petrobras and StatoilHydro to get their world renowned expertise in deep sea exploration. "We have found gas in the ultra deep sea in the block. India does not have technology to exploit that so foreign partners were roped in," the official said.

Petrobras has technical expertise in ultra deep-water oil and gas production which ONGC has been looking to tap for a while now. The block lies in water depths of over 5,500 metres.

Source: Economic Times

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