India, Iran, Oman to start discussing gas pipeline

India will on Friday open formal talks with Iran and Oman for a deep-sea gas pipeline — three decades after the idea was floated — when external affairs minister Salman Khurshid meets foreign ministers of the two countries.

Khurshid is to meet Oman’s foreign minister Yousuf bin Alawi bin Abdullah in the afternoon and his Iranian counterpart Javad Zarif later in the evening. This is the first time that the project, which could cost around $5 billion, will be discussed at the level of foreign ministers, a government official told HT.

The move comes in the backdrop of the Iran-Pakistan-India pipeline running into trouble on various counts, including Tehran going back on a promised loan of $500 million to Pakistan.

Besides getting natural gas to feed the country’s ever-growing hunger to meet its energy requirements, the meetings give India an opportunity to leverage the drift in energy ties between Iran and Pakistan to strengthen its economic ties with the Iran leadership.

Iran has surplus gas and is keen to sell to India, which imports 75% of its crude oil. Many Indian private firms are already in talks with Tehran.

With Pakistan pipeline plan running into trouble and Iran likely to see further easing of sanctions after signing a historic nuclear deal with six Western nations, New Delhi can hope for greater momentum in bilateral economic ties.

Other than Qatar, Iran is the only country with surplus gas in the Persian Gulf. India is developing Chabahar port in southeastern Iran.

The port is of a great strategic value, giving landlocked Afghanistan, a friendly country, access to sea, bypassing Pakistan that has never tried to hide its opposition to India’s rebuilding effort in the war-ravaged country. Chabahar could may well be India’s entry point to oil and gas-rich Central Asia.

“Earlier, there were plans of lifting the gas via sea bed to India from Chabahar port. But getting it via Oman can be more viable and more strategic,” said a source.

Source: HT

Russia mulls oil pipeline to India

Russia and India can build an oil pipeline between the two countries, Itar-Tass reported on February 26. “This is one of the major infrastructure projects that can be implemented. I think it has a right to exist, but we should make calculations to see how profitable it can be,” Deputy Prime Minister Dmitry Rogozin said on Wednesday, February 26.

The proposal to build an oil pipeline from Russia to India was put forth by India’s Oil and Natural Gas Corporation (ONGC). Its Vice President M.K. Nair told ITAR-TASS that the pipeline could run through Afghanistan and Pakistan.

“We are ready to discuss the details with the Russians,” Nair told ITAR-TASS. “The project is economically beneficial to both India and the Russian Federation. Moreover, it will benefit Afghanistan and Pakistan, and when economic prosperity is on the table, differences tend to be forgotten.” - See more at: http://www.oilandgaseurasia.com/en/node/59723#sthash.xVi8cIob.dpuf

Source: oilandgaseurasia

Rangarajan New Gas Pricing Formula

On 1st April, 2014, the current agreement with Reliance Industries for its gas from the KG Basin will expire. This contract has a clause linking it to global oil prices, with a maximum of $60 per barrel, which is below current levels. It effectively capped domestic gas prices at $4.2 per mmbtu. The Rangarajan committee has recommended that the domestic gas price be indexed with international prices, which implies that the present practice of the Administered Pricing Mechanism (APM) will be scrapped.

Validity & Duration
New formula is valid for 5 years from 1st April, 2014. It applies only to new contracts or renewal contracts when existing ones expire. It does not apply to contracts which contain a specific formula for natural gas price indexation or fixing.

Benchmarks
As per the Rangarajan Committee, there are two broad elements which are used for an average which will be used as an unbiased arm's length price.

1. Netback Price - Price obtained by taking the cost of Liquefied Natural Gas (LNG) imports into India under long-term contracts after removing charges such as transportation to obtain a theoretical price at the point of production in exporting countries.

2. Weighted average of prices at three major gas trading points - the hub price at Henry Hub in the United States, the price at the National Balancing Point of the UK and the netback price at sources of supply for Japan.

Review and Timeline
The prices will be reviewed every quarter, moving away from the monthly reviews to reduce volatility and make it easier for investment decisions.

For both pricing elements, the formula will take the average prices for the four quarters preceding the quarter before the review. For instance, for the quarter starting 1st April 2014, the formula will be based on the four quarters ending December 31, 2012.

Arm's Length Price
The arm’s length price is computed as the average of the two price estimates. This will apply equally to all sectors, regardless of their prioritisation for supply under the Gas Utilisation Policy.

Source: Indian Energy Sector

India's Oil and Gas Sector Continue to Grow in Second Quarter of 2014

Q2 2014 should see some significant changes in the Indian oil and gas sector. Firstly, the government set gas price will double to US$8.4/mnBTU on April 1 creating greater incentive to invest in more costly and technically challenging gas resources. This will be supported by the opening of the NELP X licensing round, where India is due to offer 46 new blocks allowing companies to prospect for all types of hydrocarbon resources, including shale. However, also introduced for NELP X will be a change from profit sharing contracts to revenue sharing contracts. We believe this could dissuade interest from a number of major international oil companies, particularly at more technically challenging developments.

Gas demand in India is rising fast across the industrial, residential and power sectors and consumption has risen by almost 400% since 1995. Average annual demand growth of about 5% is forecast over the next several years, accelerating as domestic field development and liquefied natural gas (LNG) import deals make more gas available. While gas consumption faltered in 2013 due to supply curbs, report expect demand growth to return 2014 and rise to 80bcm a year by 2018.

India's refining sector continues to grow at a strong pace through the addition of both Greenfield and expansion projects. Refining capacity in 2013 stood at around 4.3mn b/d, though we expect almost 1mn b/d of additional capacity over the coming five years. By 2018 we forecast India's refining capacity will reach just under 5.3mn b/d. With a growing refining sector and increasing domestic oil demand, India overtook Japan to become the third largest importer of crude in the world in 2013.

The report contains detailed SWOT analysis of the industry, competitive landscape and company profiles, regional overview and global industry overview.

Source: SBwire

Future demand could dwarf WA oil and gas sector – Minister

With rising global demand for oil and gas, particularly from Asia, Western Australia’s current multibillion-dollar industry could be “dwarfed” by the potential opportunities emerging for the continent, Mines and Petroleum Minister Bill Marmion said.

Delivering the opening address for the 2014 Australasian Oil and Gas Exhibition and Conference, he said that Western Australia’s petroleum sales increased by an average of 9% each year over the past decade.

“[During the] last financial year, petroleum sales reached $24.5-billion - the second-most valuable sector in Western Australia, behind only iron-ore,” he pointed out.

Western Australia, which accounted for 65% of Australia’s conventional natural gas and 73% of crude oil and condensate production, currently had $135-billion in resource projects under construction or committed – $90-billion of which were oil and gas projects.

“But as considerable as the state’s offshore liquefied natural gas (LNG) resources are, there is even more potential onshore,” he said, stating that Western Australia had an estimated 280-trillion cubic feet of recoverable natural gas from shale and tight rock – more than double Western Australia’s known offshore reserves.

“If even a moderate percentage of these estimates are proven, our onshore gas resources present a remarkable opportunity for Western Australia,” Marmion said.

The growth of the oil and gas sector was driven by ever-increasing global demand for energy and gas was likely to overtake coal as the dominant global energy source by 2035.

Asia would drive 65% of the global energy growth until 2035, with China and India alone building almost 40% of the world’s new power generation capacity.

“From Japan and South Korea, to Thailand and India, the demand for natural gas is expected to significantly increase,” Marmion said.

Further, Chinese gas consumption was expected to jump 167% over the next decade, as the country increases the amount of electricity generated by natural gas from 5% of its total electricity generation, to 8% to 10% by 2015 and to 12% to 15% by 2020.

By 2015, China’s LNG import capacity was expected to reach 47-million tonnes a year.

“China is already Western Australia’s second-largest market for petroleum exports after Japan … [and] with our close proximity to key Asian markets, our large reserves of gas and historically reliable supply, Western Australia is ideally placed to take advantage of this growth,” he explained.

However, the continent’s proximity to Asia was “not enough to ensure Australia was able to embrace the next wave of LNG investment”, with Australia required to mitigate escalating costs of oil and gas projects and community concerns that could lead to increasing red and green tape.

“We need to focus on ensuring we are cost-competitive in a global market,” he said, committing the Western Australian state government to “do everything within its powers” to drive down cost pressures.

“Personally, I am overwhelmingly optimistic about the future of Western Australia’s oil and gas sector and the opportunity it presents. Yes, there are challenges, but these are challenges that can be overcome,” he concluded.

Source: Mining Weekly

Oil & Gas Boom 2014: Jobs, Economic Growth And Security

For all the climate-based hysteria put out into the public domain in recent weeks attacking the oil and natural gas industry (even the Weather Channel got into that act recently), three key factors continue to give policymakers pause about acting in ways that would negatively impact the ongoing boom.  Those factors are:

Jobs;
Ancillary stimulative impacts on other industries; and
National Security.
The reality for the United States is that the oil and natural gas industry has greatly enhanced the picture around all three of these critical factors in recent years, nowhere more than in my home state of Texas.

Rainbow Rig

Where jobs are concerned, Texas has consistently outperformed the national economy in terms of job creation and rate of unemployment in every month since the advent of the Great Recession and the discovery of the Eagle Ford Shale play, both of which took place in October of 2008.  Indeed, during the 24 month period from July 2009 through June of 2011, Texas created 49% of all new jobs created in the United States, and the vast majority of those jobs were either directly or indirectly the result of the state’s oil and natural gas boom, centered in plays like the Eagle Ford in South Texas, the Permian Basin of West Texas, and the Granite Wash play in the Texas Panhandle.

Nationally, the story is almost as good.  Investors Business Daily ran a great piece on February 19 detailing much of the story from a national standpoint.  Here is a key excerpt:

The oil and gas boom is producing millions of jobs, and not just where you might expect. Employment is up 40% in the oil and gas fields since the recession began in late 2007. But in every one of the 10 states where hydrocarbon production is on the rise, overall employment growth has outperformed the nation.

Direct employment in the oil and gas industry  rose 40% from 2007 through 2013, as compared to a decline of about 3% in the overall U.S. economy.  All the new oil production that has come online since 2008 has reduced oil imports by about 50%, and lower natural gas prices brought about by the boom in supplies of that commodity.  This has in turn attracted a rush to invest in new plant and equipment among industries that use petroleum products as feedstocks – think fertilizers, chemicals, plastics, cosmetics and many more – or service or sell products to the industry.

IBD points out that more than 100 new plants and factories in a variety of such industries are planned to come online by 2017, and “When all are up and running, another $300 billion will be pumped into GDP and 1 million more jobs created.”

One industry that is often overlooked in this discussion is the U.S. shipping industry, which is experiencing a boom of its own as demand increases for the ability to move oil and liquefied natural gas between U.S. ports or overseas.   As CNBC pointed out last October, the Jones Act mandates that all goods moved from one U.S. port to another – as much crude oil must be in order to be refined – be carried on vessels that are built and flagged in the United States.  U.S. shipbuilders are having a field day attempting to fill this new, growing demand for their products, and according to the U.S. Department of Transportation, are experiencing their largest boom in more than 2 decades.

And the boom cascades on down to the ports that service and supply the ships.  About mid-year in 2013, the Port of Houston surpassed the port of New York City to become the nation’s top export market.  To no one’s surprise, this was due mainly to the surge in oil and gas related activity at the port.

The Port of Corpus Christi has also seen a similar rapid ramp-up in activity, and now exports almost 400,000 barrels of oil each day overseas and to other U.S. ports.  The surge in Corpus Christi has come mainly from light sweet crude produced in the nearby Eagle Ford Shale.

The oil and gas boom has also served to significantly enhance the national security positioning of the United States, reducing the country’s dependence on unstable parts of the world, like the Middle East, and enhancing its ability to conduct effective negotiations with hostile nations such as Iran.  Writing in the March/April issue of Foreign Affairs, Robert D. Blackwell and Meghan L. O’Sullivan do a wonderful job of detailing the myriad ways in which the oil and boom enhances U.S. standing in the international community, arriving at this conclusion:

The energy boom will add fuel to the country’s economic revitalization, and the reduction of its dependence on energy imports will give it some measure of greater diplomatic freedom and influence… the huge boom in U.S. oil and gas production, combined with the country’s other enduring sources of military, economic, and cultural strength, should enhance U.S. global leadership in the years to come — but only if Washington protects the sources of this newfound strength at home and takes advantage of new opportunities to protect its enduring interests abroad.

And that is the challenge faced by policymakers at the state and national level:  to avoid – to put it in crude terms – screwing all of this newfound opportunity up with misguided policy decisions.

Hysteria mongers like Ceres, like Bill McKibben, like the Center for Public Integrity, Earthworks and the Center for Biological Diversity would have our policymakers toss away all of these jobs, reject all of this massive economic impact, and toss aside all the strategic advantages the oil and natural gas boom has brought to this country and its people over the last six years. Unfortunately,  we see their talking points and fake ‘studies’ largely parroted without critical examination in much of the nation’s news media on a daily basis, a disservice to the public and to policymakers who need real, accurate information in order to make intelligent decisions.

Even in Texas, we see these groups becoming increasingly active and getting more attention in the state’s media outlets.  Those who feel strongly about the need to avoid bad policy decisions that could prematurely end this ongoing boom should get active and communicate your views to your various government representatives.  They need to hear from you, because you can rest assured they are hearing from the very loud – if tiny – minority who would kill this boom each and every day.

Source: Forbes

Natural gas prices continue to rise

Natural gas futures were near their biggest weekly gain in more than three years amid forecasts that cold weather will return to the U.S.

Futures for March delivery jumped as much as 3.8 percent to $6.294 per million British thermal units in today’s electronic trading on the New York Mercantile Exchange, for a weekly gain of 20 percent, the biggest since October 2010. They were up 2.8 percent at $6.236 at 11:39 a.m. London time. The volume of all futures traded was about 19 percent below the 100-day average.

The contract dropped 1.4 percent yesterday as a government report showed U.S. gas inventories declined less than analysts estimated. Still, prices this week topped $6 for the first time since 2010 on forecasts for a surge of cold air following unusually mild weather this week.

“Cold air is poised to return in stages to the North Central states, the Northeast and interior South beginning this weekend and continuing into next week,” Alex Sosnowski, a meteorologist at AccuWeather Inc. in State College, Pennsylvania, said today on the forecaster’s website.

Chicago’s low on Feb. 26 will drop to 2 degrees Fahrenheit (minus 17 Celsius), 23 below normal, while New York City will slide to 14 degrees on Feb. 27, 17 lower than average, according to AccuWeather. About 49 percent of U.S. households use gas for heating, led by the Midwest and the Northeast, data show from the Energy Information Administration, the Energy Department’s statistical arm.

The EIA said in a report yesterday that gas stockpiles dropped 250 billion cubic feet in the week ended Feb. 14 to 1.443 trillion cubic feet. The median of 24 analyst estimates compiled by Bloomberg expected a decline of 257 billion.

The inventory report showed a decline that was bigger than the five-year average drop of 133 billion cubic feet. The gap compared with the five-year average widened to a record 34 percent from 27 percent in the previous week, yesterday’s report showed. Supplies were 40 percent below year-earlier inventories.

Citigroup Inc. boosted its 2014 natural gas price forecast to an average of $5 per million Btu from a November estimate of $3, the bank said today in an e-mailed report.

“A much colder-than-normal winter sharply drew down gas inventories, pushing the expected end-of-March storage below 1 trillion cubic feet, which was last seen in 2003, when March prices spiked to $9.50,” Citigroup analyst Anthony Yuen said.

Source: Financial Post

Oil and gas auction might be put on hold

With the UPA II-regime getting into exit mode, the tenth round of oil and gas auctions are likely to be postponed till a new government comes to power.

It is not only the ministry of finance that has shied away from taking a call on whether a new revenue-sharing model should be adopted for oil and gas blocks. Even the Planning Commission has asked the petroleum ministry to put the process on hold.

Adding to this, the Narendra Modi-led Gujarat government had created a roadblock for the auctions - New Exploration Licensing Policy (NELP) - by withdrawing clearance for nine blocks in the Cambay basin, seeking a higher revenue share from the Centre. "The finance ministry is yet to give us a reply on what to do on the policy front. Moreover, the Planning Commission has asked us to put the process on hold till the time clarity comes on whether to go ahead with a revenue-sharing model or not," a senior petroleum ministry official told Business Standard.

In 2013, a panel, headed by Prime Minister's Economic Advisory Council chief C Rangarajan, had proposed a revenue-sharing model for NELP-X. However, contrary to this view, a committee, led by Vijay Kelkar, batted for continuation of the current model of production sharing contracts for deep water oil and gas exploration, taking into account of the lower potential in India. This model allowed the operator to recover the costs in advance before sharing profits with the government.

Moreover, Petroleum Minister M Veerappa Moily had even hinted at going for a mixture of both the models together. "Since fiscal terms are not clear, NELP-X is unlikely to happen during this government's tenure. Moreover, the withdrawal of on-land blocks by Gujarat has also cast shadow on it. Moreover, data and blocks are not yet revealed on public domain," said R S Sharma, head of the Ficci Hydrocarbon Committee and former chairman of ONGC.

In January, the government had unveiled 46 blocks for offering in NELP-X, the first auction round in two years. This included 17 onland areas, 15 shallow water and 14 deep sea blocks. In terms of the number of blocks on offer, this round was supposed to be the highest, but with all the nine blocks from the Cambay basin out of race, only seven onland blocks are remaining with Mumbai and five blocks with Andaman basins too.

The decision of not extending the tax holiday on exploration of oil blocks being offered in the ninth round of bidding under the NELP had impacted that round too.

Source: BS

Oil & gas policy

Good policy marred by poor implementation—this sums up India’s oil and gas exploration history. Will the new uniform licensing policy change the country’s hydrocarbon scene? By RICHA MISHRA
Despite an excellent production-sharing contract (PSC) regime, Indian oil and gas block auctions have not attracted the big daddies in the business, the Exxons and the Chevrons. The reason, according to those tracking the industry, is the “uncertainty in policy implementation” and “government interference”.

Under-achievement
The New Exploration Licensing Policy (NELP) was created in 1997. Between 1998 and 2012, there were nine rounds of oil and gas block auction, in which 254 blocks were awarded. Of that 178 are active and 78 have been relinquished.

Although 126 discoveries have been made in 41 active blocks, commercial production has commenced only in three blocks. The reasons for the delay vary from inadequate technology to delayed regulatory approvals. Today, only two blocks—the Reliance Industries-operated D6 block and the Gujarat State Petroleum Corporation-operated Cambay onshore block—are producing oil or gas.

Uniform licensing
The proposed Uniform Licensing Policy for award of hydrocarbon acreages under a new contractual system and fiscal model will lift all restrictions on explorers hunting for hydrocarbons. In keeping with what the explorers have been seeking for long, they can hunt for all kinds of resources: oil, gas, coal-bed methane and shale.

Until now the country has been offering exploration blocks under specific policies: NELP for oil and gas, and CBM policy for coal-bed methane.

The blocks for the tenth round of NELP auctions will be offered under the new policy. This time too the hitch is the fiscal regime, with policy-makers yet to reach a consensus. The new policy does away the current system of cost recovery and replaces it with an incremental production-based system. Under the cost recovery concept, a contractor first recovers his expenditure before sharing the profit with the government.

Under the production-linked system, which is said to be more transparent, the government starts earning revenues from day one of production. According to the Petroleum Ministry, this regime will also mean less intervention in routine exploration activities.

Implementation issue

However, those in the hydrocarbon business in India and even some within the government endorse the cost recovery regime. They argue that the production-sharing contract regime is the most appropriate because the risk is divided. They say the government could opt for different fiscal regimes for onshore and deepwater blocks.

The cost recovery regime requires close scrutiny of costs since there is an incentive for the contractors to book as costs all expenses that do not reflect the true economic cost to them.

A shift in regime may not directly result in more revenues for the government but it will ensure that as the contractor earns more, the government will get progressively higher revenue. Besides, it will also safeguard the government’s interest in case of a windfall arising from a price surge or a surprise geological find.

Uniform exploration will also mean that there will be no overlaps of blocks for exploring oil, gas, shale or CBM. At present, when implementing the CBM policy and the NELP, it is seen that resources in certain blocks cannot be explored owing to separate contractual conditions. Besides, shale horizons, which are not yet awarded to private players, have remained unexploited. Open Acreage Licensing

The government also wants to simultaneously launch the Open Acreage Licensing Policy (OALP), which allows an explorer to study the data available and bid for blocks of his choice. It remains to be seen what kind of fiscal regime will be offered for the OALP. Also, blocks already awarded under the nine NELP rounds will continue to operate under the existing regime.

A major challenge before the government will be to monitor all the fiscal regimes without being intrusive. Can it be done?

Source: Frontline

Global Opportunities in the Shale Gas Market

Growing Demand for Energy from Developing Countries Drives Shale Exploration Activities

This research service examines opportunities in the global shale gas market. With increased demand and higher prices for oil and gas, unconventional resource exploitation has become a lucrative opportunity for producers. In recent years, shale gas is identified as an important unconventional source of natural gas stored in organic, rich, and mature fine-grained sedimentary rock. This study discusses the driving and restraining factors that are expected to impact the development of shale gas across the globe during the forecast period. Furthermore, the study discusses regulations, policies, and other relevant market trends as well as competition in the global market.

Executive Summary—Key Findings

• With increased fuel demand across the globe, the need to locate new energy reserves is also growing. Governments are more focused on the environmental impact of using these resources than ever before. Hence, companies are aiming to locate resources that could have lesser impact when used compared to crude oil. • Shale gas is identified as one of the solutions for addressing the rise in global gas demand. However, the exploitation period of these reserves likely varies from one well to another due to unique characteristics, which leads to uncertainty when it comes to production and price. • Low population density, rich experience in shale gas drilling, and a huge volume of data regarding shale characteristics are identified as the success factors for shale gas development in the US. • Achieving similar success is very difficult as all the aforementioned factors might be different for other countries. However, countries still focus on breaking through to successfully explore and exploit shale gas in their respective country. • Many countries are involved at some level of shale activity, such as policy development, auctioning of shale assets, geological assessment, exploration, or production. Commercial production from countries other than the US is expected to take some time.

CEO's Perspective

1. The shale gas industry is in the early stage of the lifecycle, which means greater promise for development. 2. Companies should ensure the extraction process completely addresses stakeholders' concerns. 3. The expertise of US companies in shale gas development should be leveraged to penetrate the market in other regions. 4. Companies must understand the geological formation before making concrete decisions as a one-size-fits-all argument is not applicable to shale.

Market Overview—Definitions

Market Definition Shale gas is a type of natural gas extracted from the shale formations lying beneath the earth's surface. Shale is a fine-grained, sedimentary rock formation containing a huge volume of oil and gas. This market research study discusses the potential for shale gas reserves in major countries across the globe. It also discusses potential implications for industries and power generation sector.

Geographic Scope North America: US and Canada Europe: UK, Poland, and Norway Latin America: Mexico and Argentina Asia Pacific: Australia, China and India Africa: Algeria and South Africa
Key Questions This Study Will Answer

How is the shale gas development evolving across the globe? Are the global regions likely to leverage US experience to develop their domestic reserves? Will the current solutions in the US applicable for all other regions? How are the government policies in the respective regions expected to impact the shale gas development? Are the vendors in the space self sufficient in other countries, or do they need partnerships to take their businesses to the next level?

Source: Sacbee

Shale Gas – Demystifying the Prospects and Challenges for India!

India in the recent times has found it challenging to keep up the pace of exploration and production of crude oil to meet the rising demand. Currently India satisfies nearly 70% of its requirements through oil imports, a scenario that eventually results in pressurising Indian currency against unreasonable foreign currency escalation. As a result, it becomes imperative for India to explore various non-conventional fuels in addition to conventional fuels to meet its’ growing demand. In quest of it, it becomes interesting to understand the prospects of Shale Gas for India, its Shale Gas Exploration policy and challenges it might confront on both critical fronts i.e. being commercially viable and environment friendly.

What is Shale Gas?

Shale Gas means natural gas generated in-situ and retained in Shale matrix storage, adsorbed onto organic particles, or within fractures in shales of source rock origin and obtained there form through boreholes. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.

Keep a view of Figure 01 to better understand the section. Because shales ordinarily have insufficient permeability to allow significant fluid flow to a well bore, most shales are not commercial sources of natural gas. Shale gas is one of a number of unconventional sources of natural gas; others include Coalbed methane, tight sandstones and methane hydrates. Shale gas areas are often known as resource plays (as opposed to exploration plays). The geological risk of not finding gas is low in resource plays, but the potential profits per successful well are usually also lower.

Shale has low matrix permeability, so gas production in commercial quantities requires fractures to provide permeability. Shale gas has been produced for years from shales with natural fractures; the shale gas boom in recent years has been due to modern technology in hydraulic fracturing (fracking) to create extensive artificial fractures around well bores.

Horizontal drilling is often used with shale gas wells, with lateral lengths up to 10,000 feet (3,000 m) within the shale, to create maximum borehole surface area in contact with the Shale.

Shales that host economic quantities of gas have a number of common properties. They are rich in organic material (0.5% to 25%) and are usually mature petroleum source rocks in the thermogenic gas window, where high heat and pressure have converted petroleum to natural gas. They are sufficiently brittle and rigid enough to maintain open fractures.

Some of the gas produced is held in natural fractures, some in pore spaces, and some is adsorbed onto the organic material. The gas in the fractures is produced immediately; the gas adsorbed onto organic material is released as the formation pressure is drawn down by the well.

Shale Gas in India
Prospects

Shale Gas have often been quoted as Game Changer for United States of America and largely due to shale gas discoveries, estimated reserves of natural gas in the United States in 2008 were 35% higher than in 2006. Also figure shows the proportion of shale gas from the overall natural gas production.

India is estimated to hold 63 trillion cubic feet of recoverable shale gas.  India has several Shale formations indicating the presence of Shale Oil/Gas. Preliminary estimates suggest that fairly thick sequences with high shale gas potential are extensively present in the oil, gas and coal sedimentary basins such as Cambay, Gondwana, Krisha-Godawari on land and Cauvery on-land. Directorate General of Hydrocarbons (DGH) has initiated steps to identify prospective area for Shale Gas exploration and acquisition of additional geo-scientific data. With new exploration technologies, such as multistage hydraulic fracturing or “fracking” combines with horizontal drilling, Production of shale gas has become easier and economic; contrary to the different countries has the potential to bring about drastic changes in composition of their energy basket.

A recent study (April 2011) by Energy Information Administration (EIA), USA indicates that there is a significant potential for Shale Gas that could play an increasingly important role in global natural gas markets. The Report assessed 48 Shale Gas basins in 32 countries. India is one of the countries covered in this Report along with Canada, Mexico, China, Australia Libya, Brazil etc. The initial estimate of technically recoverable shale gas resource in these countries (5,760 TCF2), and USA (862 TCF) put together works out to 6,622 TCF. This study has assessed risked gas-in-place of 290 TCF with technically recoverable resource of 63 TCF for 4 out of 26 sedimentary basins in India.
In a study conducted by the USGS in 2011-12, technically recoverable resource of 6.1 TCF has been estimated in 3 out of 26 sedimentary basins in India. The study also indicates potential for shale oil in Indian basins. Further, process of identification of potential shale oil/gas resources in 11 other basins has also been initiated.
Policy
Shale Gas exploration is expected to include high technicality. In such scenario the policy of keeping private companies out of shale gas exploration will pose altogether new set of challenges in the times to come. It expected that the two government owned firms, ONGC and Oil India Limited, will only be first allowed to explore shale gas in the reserves on acreage already awarded to them under NELP – 1999. NOCs are to apply for grant of shale gas and oil rights in their respective exploration and mining lease acreages are required to undertake a mandatory minimum work programme, said the statement released by cabinet committee. Companies are permitted three assessment phases of a maximum period of three years each. Royalty, cess and taxes would be payable at par with conventional oil and gas being produced from the respective areas, says the statement.
In the next phase, the government will allow state owned companies and industry to explore shale gas. Such disparity may not be well perceived by the industry which expects a level playing field and also a pre-cursor to replicate the success that the USA has achieved in Shale Gas exploration. Industry friendly regulations, a favourable price regime, a developed onshore services (OFS) sector, an extensive gas distribution network and market driven gas prices are needed to make shale gas a success in India. This view can be re-inforced with fact that Reliance Industries Limited are already engaged in Shale Gas exploration in the United States with huge investments.
Challenges
Amid the hype that Shale Gas is creating, it remains interesting to magnify and notice the other side of game-changes Shale Gas.
One of the key determinants of the viability of this technology is the availability of large quantities of clean water. This policy brief raises a red flag on this complementary input for exploiting shale gas resources in India, given that India is a water stressed country, and is fast approaching water scarcity conditions.
The shale gas exploration involves few critical challenges which cannot be ignored by a country that embarks on journey of recovering shale gas.
Firstly it is very drilling intensive activity. For example, if a country needs to delineate conventional oil or gas reservoir, it may need to drill 12 well but vis-a-vis for similar size unconventional hydrocarbon recovery, it will have to drill not less than 700 wells.

Secondly, as a consequence of it, we need huge contiguous land to undertake such mammoth drilling operations and hence embarking on shale gas exploration journey would prove futile if you have access to only small patches of land. Hence in India, with minimal land ownership, oil and gas ministry and Government of India might have to negotiate with large number of farmers. But in US such problems doesn’t arise because landlords have thousands of acres under their control.

Thirdly, there is no as such stark conclusive evidence that Shale Gas exploration has resulted in an environmental damage but there are serious concerns that the combination of water, chemicals and salt could result in ground water pollution leading eventually to surface water pollution.

Fourth challenge that is confronted by India’s Shale gas exploration industry will be produce it economically. In USA, with state of art upstream service support in place, the cost of exploring and producing shale gas is three times the exploration and production  of conventional oil and gas. But in India, with service industry of upstream being in nascent stage, we’ll find it difficult to recover our shale gas economically unless we provide incentives, both operational and financial.

Fifth concern that endangers India’s shale gas exploration aspirations are the environmental concerns in using water for fracking (see Figure below) have been considerably downplayed and their significance underestimated. Further, enforcing legislation on environmental and water issues is a problem in India, and such legislation has been more in breach than in observance.
The policy has identified some of the water issues in the exploitation of shale gas and these are reproduced verbatim hereunder:


-       Optimal exploitation of shale gas/oil requires Horizontal and Multilateral wells and multistage Hydraulic fracturing treatments of stimulate oil and gas production from shale.

     This may require large volume of water ~3-4 million gallons per well (11,000 to 15,000 cubic metres of water required for drilling/hydro fracturing depending upon the well type and Shale characteristics).
-       The water after Hydraulic fracturing is flowed back to the surface and may have high content of Total Dissolved Solids (TDS) and other contaminants (typically contains proppant (sand), chemical residue occur in many geologic formation, mainly in shale). Therefore, the treatment of this water before discharge to surface/subsurface water needs to be in line with the Central/State Ground Water Authority regulations.
-       Possibility of contamination of Aquifier (both surface and subsurface) from hydro-fracturing and fracturing fluid disposal and the need for safeguarding the Aquifer. Multiple casing programmes (at least 2 casings) will be a mandatory requirement across all sub-surface fresh water aquifers.
Hence, while the potential shale gas reserves overshadow those of conventional gas, we have a long way to go in identifying shale gas rich basins and acquiring the necessary technology and experience to extract shale gas. Meanwhile, the water situation will only get worse due to the reducing availability of fresh drinking water year by year, dropping groundwater levels, and the increasingly polluted rivers and other water bodies. Unless, there is some revolutionary technological breakthrough, which does not need the use of fresh water and chemicals, it is vital that we seriously ask ourselves this question: Should we further endanger a rapidly depleting resource on which all life depends? The answer should be a resounding “NO”.

Meeting India’s Energy demands
Following are quick focus points which India’s Oil ministry should target in years to come.
ü  Removing the bottlenecks in CBM exploration and production while safeguarding the environment:
ü  Establishing a national research and development (R&D) Centre for gas hydrates, as requested by DGH Hydrocarbons:
ü  Expanding our exploration of conventional gas through investor friendly policies by reducing their risks and allowing market driven prices
ü  Acquiring gas equity abroad:
ü  Continuing to import LNG from the Middle East and expanding our sourcing to the US, Australia, etc.
ü  Giving a big push to renewable energy
ü  Last, but not the least, taking urgent steps to protect, augment, and conserve our water resources for other critical uses.

Source: http://theindianeconomist.com/

Vote on Account 2014: Oil & Gas Sector- road ahead

For an import dependent country like India, oil and gas sector, not only represents the country's growth engine but also provide impetus to the Government (both central and different states) in earning a chunk of its total tax revenue. 

Indian oil and gas sector is projected to touch US $ 139,814.7 million by 2015 from US $ 117,562.9 million in 2012, thereby, providing vast opportunities for investors. 

And for the growth to sustain and investment to flow in this sector, it is imperative that express clarity is provided in the Indian tax framework for oil & gas sector and new tax reforms should be introduced for this sector. 

Although the Budget to be presented by UPA Government in February 2014 is not expected to do much on the policy front (since it will be a vote on account), it will be important for the incumbent government to consider the followings expectations of the oil & gas industry to provide the necessary impetus it requires for growth. 

Clarity on deductibility of expenditure for overseas block 

As Indian oilBSE -1.56 % & gas companies have acquired energy assets abroad or are aggressively scouting for opportunities outside India with an objective to acquire energy security, clarity should be provided on the deductibility of drilling and exploration activities by an Indian company with overseas block (s), as section 42 of the Indian Income Tax Act, 1961 only provides for deduction of expenditure incurred on drilling and exploration activities in relation to the agreement entered into with the Central Government of India. 

Express clarity on applicability of tax holiday provisions to production of natural gas 

Tax holiday provisions introduced in 1997 to stimulate investment in the Indian oil and gas sector, always meant to include natural gas within the meaning of the term 'mineral oil'. However, express clarity should be provided in the tax holiday provisions to stop any unnecessary litigation on this matter. 

Extension and flexibility to claim tax holiday 

Tax holiday for an undertaking engaged in the commercial production or refining of mineral oil, is available for an initial seven years. As in the initial year, the undertakings incur considerable expenditure and actual benefit of tax holiday does not flow to them, there is a need to extend the period of tax holiday to, may be ten years and allow flexibility of choosing this period in the initial fifteen years of operation. 

Clarity on presumptive taxation regime for technical assistance 

Amendment introduced in 2010 to withdraw the presumptive taxation regime for companies providing 'technical services', even if services are in connection with exploration / production of oil & gas has resulted in litigation and further challenged the almost settled tax position. Therefore, continuation of presumptive taxation regime for technical assistance provided by foreign oil & gas serviceproviders should be clarified.

Deduction for infructuous or abortive exploration expenditure 

Deduction for unsuccessful exploration expenses is allowed only in respect of an area surrendered prior to the beginning of commercial production. As a result, deduction of expenses on account of abortive exploration is not available in the year when expenditure was incurred and is permitted only on surrender of area. 

As Government of India, in its interest, would want exploration companies to fully explore the areas and not get merely induced by the deduction claim, the condition of 'surrender' of area may be deleted. 

Clarity on applicability of service tax on 'cash calls' paid by parent companies to the subsidiaries 

Cash calls, being mere contribution of expenses by members of a consortium is a 'transaction in money' and transactions in money have been specifically excluded from the definition of service. Hence, cash calls should not be liable to service tax. However, since there is no specific exclusion provided to cash calls, authorities have wrongly been issuing show cause notices on the issue. 

Given the above ambiguity, the Central Board of Excise & Customs (CBEC) should clarify that cash calls being in the nature of a 'transaction in money' should not attract service tax. 

Exemption from duties / taxes to exploration sector 

Currently, crude oil and natural gas is subject to nil rate of excise duty. Therefore, excise duty and service tax paid goods and services used in exploration and extraction of these products becomes costs to the exploration companies, as these become taxes become non creditable. The inverted duty structure leads to cascading and increase in cost of petroleum products. 

An exemption should be provided form duties / taxes levied on goods and services used in the exploration of crude oil and natural gas. Appropriate conditions may be attached, so as to confirm that the input and input services have been directly used in exploration activities. 

Levy of excise duty on decompression of natural gas at the City Gas Station and subsequent compression of the natural gas at the CNG Pump. 

There is ambiguity surrounding the point in time where excise duty should be paid on compression/decompression of natural gas. This has a further impact on issues of registration, valuation and availment of Cenvat credits. Therefore, a clarification is required with respect to the stage where excise duty should be paid on compression / decompression of natural gas. 

Further, a specific exemption and concessions from excise duty on compression/decompression of natural gas would lower its cost when supplied to industrial, transport and household consumers and would give much needed impetus to the CGD players. 

If the above expected tax measures are endorsed by the Government, it will have a dual advantage of accelerating growth in the industrial output and increasing investment in this sector. 

Also, the previous budgets have focused on introducing policy reforms, but its implementation have not been smooth which has not provided the necessary impetus to the oil and gas sector. And as the oil & gas sector contributes a significant portion to Government in the total tax revenue, it is imperative that the new Government should consider substantial tax relaxation and other fiscal benefits for the industry, besides the above tax measures, so as to battle with the economic and financial challenges and to remain one of significant tax revenue contributors. 

Source: ET

Will global oil majors invest more in India?

Will doubling gas price for domestic producers draw the ExxonMobils and Chevrons of the world to invest in India’s oil and gas sector?

The petroleum ministry under M Veerappa Moily is justifying the hike in gas prices saying this would incentivise and attract investors, experts see no global major taking part in the NELP-10 round of auction for 56 oil and gas exploration blocks.

“Why should gas producers in India (ONGC, OIL, RIL, Cairn and others) be paid double the existing price of $4.2 a unit for producing gas in India? Nowhere in the world do domestic gas producers get a price as high as $8.4 a unit,” said the head of a leading state-owned oil and gas enterprise in India on condition of anonymity.

“While a higher gas price will surely incentivise producers, the government is duty-bound to strike a balance between producers and the user industry such as power and fertiliser sectors (while setting prices),” he said.

The $8.4-per-unit price is actually the weighted average price of gas in international markets. “It is not the actual cost of production incurred by developers,” he pointed out.

Moily, however, thinks otherwise. “The government needs to take bold decisions if it wants the Chevrons and the Exxons of the world to come and invest in India’s energy sector,” he said.

“India was losing out to China...where are the big global energy companies in India, only one BP Plc has come, which, too, we are driving away by opposing important decisions,” Moily said.

Source: http://www.pressdisplay.com/pressdisplay/viewer.aspx 

Demystifying India's gas pricing policy

How is gas price fixed? 

Before 1987, ONGCBSE -3.29 % and Oil India LtdBSE -1.52 % fixed gas prices. But from January-end 1987 the government began regulating prices on a cost-plus basis. The last revision under this so-called administered price mechanism was effective July 2005. When the government began bidding out oil and gas blocks under the New Exploration and Licensing Policy (NELP), it opted for marketdetermined rates for gas.

The producer enjoyed marketing freedom but needed to get the pricing formula approved through 'arm's length pricing'. (This is a transaction where buyers and sellers act independently. They have no relationship with each other. This ensures that both parties are acting in their own selfinterest and are not subject to any pressure or duress from the other party). In 2006 the first controversy began when Reliance IndustriesBSE -1.22 % invited bids from users and arrived at a price of $4.32 per million metric British thermal units. The matter was referred to an empowered group of ministers headed by Pranab Mukherjee which agreed on a price of $4.20 a unit after suggesting a few changes to RIL's formula, including elements to do away with volatility.

What change did government introduce last July? 

The Cabinet Committee on Economic Affairs approved a new formula based on recommendations of a committee headed by C Rangarajan, chairman of the Economic Advisory Council to the PM. The new policy was based on the price of Indian liquefied natural gas (LNG) imports. Then, the weighted average price at major trading hubs in the UK, the US and Japan was also calculated.Finally, a simple average of the prices of imported LNG and the average international price was calculated. Based on this formula, the current price of domestically-produced gas works out to $6.7 a unit, which will go up to $8.4 a unit from April when the new five-year pricing policy kicks in.

Why was the change undertaken? 

The change was undertaken because the current pricing policy expires at the end of March 2014. The Rangarajan Committee had suggested the new formula arguing that no market-determined arm's length price was available in India and is unlikely to happen for several more years.

Why is the new formula controversial? 

Apart from the impact on consumers, many, including some MPs, have alleged corporate influence in policy formulation. Some cabinet ministers questioned the rationale for price revision although officially, the government has maintained that the guidelines will help incentivize investment and check cartelization.

Source: ET

Oil Imports from Canada could benefit RIL

Canada, the world's third largest oil reserve (Behind Saudi Arabia and Venezuela) could be India's savior with regards to the ever-increasing oil prices. Oil companies in India, particularly Reliance Industries Limited (RIL) could receive a shot in the arm as cheaper Canadian crude from Alberta oil sands will reach Indian shores in large quantities four years from now. The production volume right now is quite low; however, it would be ramped up by 2018 with the assistance of a pipeline from the reserve to the east coast. The oil then would be transported to India using ships.

Oil imports from Canada are seen as having a significant impact on the revenues of companies. Take the example of Mukesh Ambani's RIL- Canadian crude can be 14% cheaper for them than the Indian basket. This could turn out to be even cheaper with proper infrastructure for transport in place. An oil ministry official explained that it costs $11-12 per barrel for the transportation of oil by rail from Alberta (located in western Canada) to export terminals on the east coast of the country, and then further shipping the oil to India. India could therefore buy this oil at around $14-15 per barrel lower than the price at which oil is procured at in other markets.

Oil output from Alberta could reach 1.1 million barrels per day. India, at present imports 3.86 million barrels, mostly from West Asia. If Indian companies can get hold of a major chunk, it could mean costs going down, leading to huge savings on oil import bill and oil subsidies. In 2012-13, India's oil imports grew by 9.22% to $169.25 billion from $154.96 billion in 2011-12. In the current fiscal, crude oil imports are seen rising to about 196 million tonnes from the 184.795 million tonnes it imported in 2012-13, but relatively low prices have been a solace.

Canadian high commissioner Stewart Beck is aware of the huge interest firms like RIL hold in his country's oil deposits. "It (discount) has been as high as $ 40 and probably hovering around $20-25. Reliance has the biggest refinery in the world and they very much like synthetic crude because they can develop a lot more products. The new IOC refinery is also interested in synthetic crude. You get more value from the same barrel of conventional crude," said Beck.

Another reason why companies are pursuing oil sands is because of their nature.They are a natural mixture of sand, water, clay and a type of heavy oil called bitumen. Bitumen must be removed from the sand and water before being upgraded into crude oil and other petroleum products. What is more, the synthetic oil extracted from oil sands can help refiners develop a wider range of petroleum products.

Notes to Editor

Mukesh Ambani's Reliance Industries Limited continues to invest in foreign nations. In Canada, RIL hopes to import oil sands from Canada where the overall cost is 14% lower than the present and the raw extract can also be used to develop a wider range of petroleum products.

Source: IndiaPRwire

BP recommits to refineries, pumps here

Oil and gas major BP has dismissed speculation about its future in Australia, declaring that it wants to be a ''major player'' in the local fuel market for the forseeable future.

Despite promising to sell $US10 billion worth of assets from its global portfolio over the next 22 months, BP ended months of speculation by saying it was ''fully committed'' to its Australian petrol stations and refineries.

The pledge to continue in Australia is a rare piece of good news for the local manufacturing industry, which was rocked on Monday when multinational Toyota said it would cease manufacturing here in 2017.

The retail fuel sector has been under intense scrutiny in recent weeks since Shell said it had received expressions of interest from suitors for its Geelong refinery and parts of its marketing portfolio.

ExxonMobil also struck a deal with 7-Eleven in January to put the Mobil brand back on the service stations it sold three years ago, in a move that is partly designed to show the company is committed to the local downstream sector.

BP had been drawn into the speculation about the sector in recent weeks, but sought to put an end to the rumours on Monday. ''While BP does not usually comment on market rumour and speculation, the time is now right to dismiss the somewhat persistent claims that BP is considering the sale of its Australian downstream business,'' said a spokesman for the company.

''BP intends to remain a major player within the domestic fuels market and the company remains fully committed to its business partners and customers.'' BP owns about 300 service stations in Australia, and has its branding on a further 1000 that are externally operated.

It has fuel refineries at Kwinana in Western Australia and Bulwer Island in Queensland, as well as a substantial presence in upstream oil and gas. Ironically the commitment to its downstream division came as BP confirmed the divestment of six petrol stations in rural NSW to long-time business partner Westoil Petroleum.

BP would not disclose the transaction price, but said the deal would allow BP to continue to supply fuels and have branding on the service stations, but would transfer management to Westoil. The deal is expected to be finalised mid-year and affected staff will be able to join Westoil.\

BP's commitment to its local downstream assets was welcomed by Colin Long from the Service Station Association. ''It's a very good thing to hear that one of the oil majors is committed to the future of refining in particular,'' he said. Mr Long said it was particularly good news for the nation's western half given that the refinery at Kwinana was the only big refinery not on the east coast.

Source: smh.com.au

NELP X provides larger operating area to firms

Petroleum Minister M. Veerappa Moily has set the ball rolling for the next round of the new exploration licencing policy (NELP). It is the tenth round of the NELP, probably the last, as it may soon be replaced by Open Acreage Licensing Policy, which will permit companies to select the blocks they want to explore without waiting for the government to make an offer.     

The change this time is that NELP X offers an integrated approach to exploration. The block operator will be allowed to go ahead irrespective of the fuel found - coal bed methane, shale gas, conventional gas or oil. "There will be the same contract with no distinction relating to the source of gas," says P. Elango, CEO of Cairn India. "This is a step forward." Currently, companies can only explore the fuel specifically mentioned in their contracts. 

Recently, the petroleum ministry declared the shale gas policy. which allows only PSUs to participate in exploration. But under NELP X, even private companies can tap shale reserves if discovered in the blocks allotted to them for exploring other fuels. In 2009/10, US-based Joshi Technologies had informed the Directorate General of Hydrocarbons (DGH) that it had hit upon shale rocks while exploring its block in the Cambay basin off Gujarat. But it was not given clearance to go further, since no policy had been formulated.

Much has changed. In a significant policy decision, the petroleum ministry notified the new gas pricing formula for domestic gas, which in fact has paved the way for the current auction of blocks. The new formula links the gas price with the price of gas at four international hubs. "Now things are much more streamlined," says an official in petroleum ministry. The pricing  formula for gas having been determined, the ministry is pushing for a revenue sharing model, he adds.   

All necessary approvals are in place for the auction of the 46 blocks, according to Moily. Of these 17 are onland, 15 are shallow water and 14 are deepwater blocks. This round will include the auction of blocks in two of India's basins with proven potential - one in Rajasthan and the other near the Reliance Industries' (RIL) owned KG D6.  

But in his hurry to announce the new round of NELP, the petroleum minister seems to have ignored the fact that the cabinet is yet to decide on the fiscal regime for the round. Officials in the DGH also say the list announced by Moily is not final yet and 10 to 15 more blocks might be auctioned, along with the 46 shortlised. The minister has not yet announced the auction date.

Moily himself is keen on revenue-sharing contracts with explorers, replacing the current profit-sharing mechanism or the cost recovery model. This was also suggested by a committee headed by the Prime Minister's Economic Advisory Council Chairman, C. Rangarajan. A revenue-sharing contract would not be linked to the cost incurred by the operator. This is important in the wake of the controversy involving RIL - the company has been accused by some of 'gold-plating' (inflating) its KG-D6 gas field costs to take a larger share of revenues than it should have.

But a revenue generation contract, which does not factor in the cost incurred by the operator, is unlikely to go down well with the private sector.  "This might not be an attractive regime for the biggies of the world," says Aashish Mehra, Managing Partner of the US based Strategic Decisions Group's Asia Pacific chapter. India,  in any case, is not an attractive destination for investments by oil and gas exploration companies. In the last nine rounds of NELP auctions over 16 years, India offered 254 blocks, which-after 128 discoveries from 42 blocks-are producing a meagre 6,938 barrel of oil per day, and 14.14 mmscmd of gas.  In contrast,  a pre-NELP block in Rajasthan  operated by Cairn India produces 200,000 barrels daily.

This is the reason many cabinet ministers want to continue with the existing cost recovery model. "The cabinet has to take a view on the financial regime. Some Cabinet colleagues have their own views, we will weigh them and then take a decision," says Moily. In a recent report, a high-level committee headed by Vijay Kelkar also ratified the cost recovery model.

Moily, then, appears to be pushing ahead with NELP X without tying up all the loose ends. Also, experts believe that to invite international players, India needs to do extensive marketing including road shows, at which the minister's presence is required. "When general elections are round the corner, it looks really impractical to have bids before it," says an industry expert, on condition of anonymity.

Source: Business Today

Indian Oil Corporation may buy minority stake in Canada Shale Gas & LNG Project for $1 billion

State-run Indian Oil Corporation (IOC), country’s biggest refiner and fuel retailer, plans to acquire a minority stake in a Canadian shale gas and liquefied natural gas project for about $1 billion. The Cabinet is expected to approve it this month, senior government and industry officials said. The company is in advanced talks of negotiations for the assets that include a 10% stake in Progress Energy Resources Corporation, officials with direct knowledge of the matter said.

“The preliminary due diligence exercise is almost over. The proposal has been discussed with top government officials before seeking approval of the Cabinet Committee on Economic Affairs (CCEA) by the end of February,” a senior government official said requesting anonymity. IOC chairman RS Butola said the company was looking for “several opportunities overseas including Canada,” but declined to comment on specific deal until an agreement was signed.

According to government and industry sources, oil secretary Vivek Rae had convened an urgent meeting last week at the headquarters of IOC to discuss the proposal.

Rae heads an empowered committee of secretaries that examines and recommends IOC’s overseas acquisitions before seeking CCEA’s approval. Secretaries of finance, foreign, law, department of public enterprises and Planning Comission are its other members. “The proposal has inprinciple approval of the empowered committee,” an official said. The panel facilitates inter-minisby terial consultations on overseas acquisition proposals and makes recommendations to CCEA directly to avoid delays. According to officials, IOC may rope in other state-run oil companies to acquire Canadian shale gas and LNG assets of Progress Energy.

Malaysian oil major Petronas had acquired Progress Energy last year for about $5.2 billion. Progress Energy has shale gas assets in northeastern British Columbia and its sister concern, Pacific NorthWest LNG is planning to build an LNG export facility on Canada’s west coast.

Petronas recently sold a 3% interest in Progress Energy’s gas assets and the LNG export facility to Petroleum Brunei.

IOC is expected to follow the same model. Earlier in April, Japan Petroleum Exploration Company had acquired 10% interest in the Canadian shale gas and LNG projects for an undisclosed amount. Progress Energy is producing more than 350 million cubic feet gas per day in northeast British Columbia and northwest Alberta. IOC’s proposed acquisition would be the third major overseas acquisitions by India’s state-run oil firms in the current financial year involving deal size of $1 billion and more. India is focusing on acquiring stakes in producing oil and gas fields and exploration blocks abroad to secure fuel supply for energy deficient country, which imports 80% of crude oil it processes.

Source: ET

 

BP seeks licence to sell jet fuel in India

Europe’s second-largest oil company BP Plc has applied for licence to retail jet fuel or aviation turbine fuel (ATF) at airports in India, oil secretary Vivek Rae said on Monday.
Having invested close to $8 billion in India’s oil and gas sector, BP is eligible for a licence to retail petrol, diesel and ATF but the London-based firm is keen to enter the aviation space for now.
“They (BP) are looking at marketing of ATF and I think they have applied for a licence,” Rae told reporters in New Delhi. BP made the application for ATF retailing last month.

Fuel retailing in India is permitted to companies who have invested Rs.2,000 crore in oil and gas infrastructure in india. “They are entitled to it (retailing licence) and they will get it,” Rae said.
A BP spokesperson confirmed BP’s intent to enter into the aviation business through the company’s subsidiary, Air BP. “Air BP, our global aviation services division continues to grow in new locations. As part of this growth, we plan to expand our footprint into material emerging markets in the world, including India. With that long-term intent, we would like to secure a licence to market ATF in India,” the BP spokesperson said. The spokesperson said BP was not interested in auto fuel retailing (setting up petrol pumps) in the country. “BP’s potential entry in retail fuel marketing is entirely speculative. We have no such plans at the moment.”

Rae said ATF sale is a deregulated sector and any company which is able to tie-up logistics can enter the sector. While jet fuel bunkering at most of the airports in the country are owned and controlled by state-owned firms, the refuelling infrastructure at new airports being built by private firms is bid out and allows third party access to the infrastructure. “BP can either buy ATF from local refineries like Reliance Industries Ltd or can import. That is not an issue,” Rae said.
The third party access to the storage and refuelling infrastructure at the airports would allow BP access but the challenge would be to arrange for logistics to carry the fuel from refinery or port of import to the airport because unlike state-owned firms, BP does not own pipelines to transport it.
India had in 2002 allowed entry to private companies into fuel retailing subject to the minimum investment criteria. RIL, Essar Oil Ltd and Royal Dutch Shell Plc got licences and opened petrol pumps.

RIL, however, shut pumps and other companies went slow on expansion as government gave huge subsidy to state-owned firms, practically making it impossible for private companies to compete.

Source: Live Mint

India may be sitting on huge oil & gas reserves on J&K borders

Oil exploration may be a game of gamble, they say. After years of exploration in the Himalayan region, the oil major ONGC is yet to strike gold in the highly fragile mountainous region despite drilling in several areas like Jammu and Himachal Pradesh.

But ONGC experts now say that India may be sitting on huge oil and gas reserves on the 100 km long Bhimbargali-Naushera border belt in Jammu and Kashmir for which the oil exploration has become a major challenge owing to security reasons. “We have conducted studies where there are chances that oil and gas can be found in the vast borders with Pakistan in the Bhimbargali-Naushera belt in Poonch and Rajauri districts,” said top ONGC officials.

ONGC has not been able to carry out drilling in this belt owing to growing tension between India and Pakistan. Pakistani troops had been firing regularly on Indian positions in these areas. On the other hand, Pakistan has found more than 50 oil wells across the border. “If Pakistan can discover lots of oil and gas across the border why can’t India also discover hydrocarbons in these areas which are very close to the borders,” asked another ONGC official.

However, ONGC officials said the oil company is of the view that the centre should change its policy of allotting oil blocks in this area and instead go for auction. “We can buy these blocks through auction and carry out our drilling with the help of the army,” said a top ONGC official. Under the oil policy, the centre allocates blocks to oil companies through a bidding process.

On the other hand, ONGC had been carrying out drilling regularly in Jammu and Himachal Pradesh where it has not been able to strike any gas or oil. Recently, ONGC drilled 5000 meter deep at Kasauli block in Himachal Pradesh. After Kasuali, ONGC is now set to take up oil drilling in one more block in Jawalamukhi area in Himachal shortly. ONGC spends around Rs 100 crore for drilling one oil block. 

When contacted, ONGC Director (Exploration) N K Verma confirmed that ONGC’s studies show that there are chances of oil and gas in Bhimbargali-Naushera belt in Jammu and Kashmir.

Source: BS

India has huge growth prospects in oil and gas space

Since liberalizing its economy in the ‘90s, India has witnessed unprecedented levels of economic expansion. Driven primarily by demographic changes, rapid industrialization and a strong export-oriented services framework, the Indian gross domestic product grew more than 3.3 times from 2002 to 2012, second only to China’s.

As its economy flourished, India’s demand for energy has risen by more than 70 percent. And this trend is expected to continue in the next decade making India the third largest energy consumer globally by 2020. With the growth in automobiles, power and fertilizers, oil and gas as an energy source now represents more than 45 percent of the country’s total energy consumption.

However, this rapid surge in demand for hydrocarbons has not translated proportionately toward the growth of domestic exploration and production (E&P) in the oil and gas industry.  A case-in-point is that of the 11th five-year plan period, for which India committed to produce 206.8 million tonnes (MT) of crude oil but the actual production was 176.9 MT, equating to an incremental import burden of over $20 billion for the period at today’s prices.

In the last decade, India has taken important steps toward ensuring energy security. For instance, the New Exploration Licensing Policy (NELP) was designed to attract new activity in oil and gas exploration, and the country agreed to allow 100 percent foreign direct investment (FDI) in the upstream sector. Despite this, an FDI investment of just over $2.5 billion was recorded in the E&P sector since 2005.

Ensuring long-term energy self-sufficiency appears to be a formidable task for India, given the magnitude of the country's energy needs, the complexity of technologies involved, the large investments required, and the obstacles in the political landscape to overcome.

Despite these challenges, India has large possibilities for growth in the oil and gas sector. Only half of the country’s potential basins have been explored, and large blocks offshore remain untested, especially in deep water.  India’s total hydrocarbon reserves are estimated to be around 2 BMTOE (Billion Metric tonne of Oil Equivalent) (approximately 15 BBOE (Billion Barrels of Oil Equivalent)).  With the current oil production level of around 815,000 barrels per day, on estimated reserves of 1.2 BMT (Billion Metric Tonne), the reserves-to-production ratio is 25 years.  The potential for gas seems brighter; at the current production level of around 40 BCM (billion cubic meters) per year on an estimated reserves base of around 1,500 BCM, translating to a reserves-to-production ratio of more than 30 years. The nine rounds of NELPs have seen 247 blocks being awarded, but only 16 of those have been developed so far.

This presents great opportunities for companies across the oil and gas value chain to be involved in industry growth. New technologies and easier access to capital allows for increased activity, which may cater to requirements spanning upstream operations to downstream refineries.

GE is uniquely positioned as a key contributor toward the sustainable growth of the oil and gas industry in India. We continually partner with local companies to innovate and develop technology solutions to help businesses around the world.

Our company has an advanced technology and research center in Bangalore with approximately 5,000 researchers and engineers working on next-generation technologies. In keeping with GE’s commitment to local development, we are investing approximately $200 million in a multi-technology and multi-business manufacturing facility on a 60-acre plot in Pune.

Meeting India’s energy requirements is cornerstone in ensuring that the nation’s economic growth continues. It is imperative the government works toward energy self-sufficiency. In this regard there have been some positive moves in the form of NELPs, but the immediate need is an actionable operating philosophy and favorable framework of policies that can help accelerate the efforts for exploring and developing oil and gas, thereby ensuring energy self-sufficiency for the nation.

Source: Money Control

Petronet to lease out half of Dahej LNG capacity from ’17

India’s Petronet LNG will lease out almost half of the capacity at its Dahej liquefied natural gas (LNG) terminal to state companies from 2017 as prices for the high-cost fuel have cut demand, its head of finance told Reuters yesterday. LNG has only made tiny inroads into India, because the government sets low prices for domestic output, deterring buyers of the fuel and discouraging investment in LNG infrastructure even though the country faces massive energy shortages.

Petronet, the country’s biggest LNG importer, and GAIL, India’s largest gas pipeline company, both operate their LNG facilities below capacity. Petronet has now signed 20-year deals to lease a total 6mn tonnes of the Dahej terminal’s annual capacity from 2017 to GAIL, Indian Oil Corp, Bharat Petroleum Corp  and the GSPC Group in western Gujarat state.

It will also lease 1.25 mtpa of capacity to GSPC from April this year for 20 years once a second jetty at the terminal is operating, likely in March 2014, he said.

“As a terminal operator, it gives me assurance ... that irrespective of price our terminal will operate at full capacity,” R K Garg said.

The contracts are on a use or pay basis, meaning the state companies will have to pay even if they don’t use the facility. State-run firms see a potential rise in LNG imports to meet the local demand as the country struggles to arrest a decline in its local output.

Gas demand in the country is expected to rise to 473mn cubic metres a day (mmscmd) by 2016/17, up from 286 mmscmd in 2012/13, when domestic output and LNG arrivals were only able to meet about 50% of the demand.
In the fiscal year that ended March 31, 2013, only about a quarter of the available supply came from LNG.
India’s domestic gas prices are currently set about $4.20 per million British thermal units (mmBtu), against benchmark Asian LNG prices of about $19/mmBtu.

Petronet’s Dahej terminal in western India now has a capacity of 10mn tonnes per annum (mtpa), but that will be expanded by 50% by end-2016, Garg said. The company has approval to raise the capacity to 20 mtpa if required, he added. Petronet currently takes 7.5 mtpa of LNG from Qatar’s RasGas under a long-term contract and buys the remaining 2.5 mtpa under spot and short term deals as needed. In the most recent December quarter Petronet regassified about 12% less LNG than a year ago, as demand for the high-priced fuel declined.
The quantity Petronet buys through spot or short term deals will fall to 1.25 mtpa in the 2013/14 fiscal year, when the first deal with GSPC goes into effect, Garg said.

When Petronet has completed the Dahej expansion and when all the lease deals are in force in 2017, the amount it takes on spot or short-term deals will fall to just 0.25 mtpa, he said.
Petronet will continue using half of the Dahej terminal’s capacity to take LNG from Qatar.

Source: Gulf Times