Deferring gas pricing to disappoint producers: Vasudeva

In a setback to gas producers the government today postponed revision in natural gas prices by three months pending a "comprehensive" review to make a controversial pricing formula more palatable.
Commenting on the above decision RS Sharma, Former Chmn,  ONGC  said he is deeply disappointed by this status quo decision.

Sudhir Vasudeva, also former chairman, ONGC although not surprised that the government has taken three months time to review the matter, the gas producers are sure to be very disappointed because this would lead to no increase in gas production. However, according to him this could be a temporary set back.
“All said and done, the gas producers want the gas prices increased and which formula would be applicable etc would be the prerogative of the ministry and the CCEA,” said Vasudeva.

According to  Kirit Parikh, Chairman, Integrated Research and Action for Development the government's cautious approach is understood because maybe it does not want to rush into a whole set of decisions. However, he said that Rangarajan formula is right and the government should go ahead with it.
Despite different views on Rangarajan gas pricing formula, BJP’s Energy Cell Head Narendra Taneja feels some tweaking to the formula is required.

The new government needs time to study the gas pricing issue after which they will come out with a solution that will attract more investment, adds Taneja.

Source: MoneyControl

Market pricing of gas and coal denationalisation are essential steps for India’s energy security

The Union cabinet will further review gas prices and no immediate change is in the offing. While a calibration in the Rangarajan formula to work out natural gas prices that would make it cheaper initially is needed, creating an environment for eventual market-based pricing of natural gas must remain at the heart of policy. This makes sense as we are in the midst of eventful changes in the global energy sector at a moment when India needs energy security to kick-start industrial growth. 

Commercial exploitation of gas from shale formations in the US is set to loosen oil's chokehold on the global economy. In this fast-changing environment, India's interests are best served by transitioning to an energy regime where market determined prices provide the main signal in investment and consumption decisions. Most buyers of natural gas are power and fertiliser companies who do not have freedom to increase prices. In this backdrop, a phased transition to market price is the best way forward. Recent gas discoveries in North America and simultaneous massive investments in extraction technology there have begun to open hitherto unviable fields for exploitation. This is the right time for India to prepare itself to take advantage of new developments in natural gas. 

While North America leads the way in shale gas discoveries, NDA should take the initiative here to set right India's coal sector. Coal accounts for more than half of our primary commercial energy. India's power sector will remain heavily dependent on coal. Yet, it is in coal that we remain in a rut and three governments in succession have been unable to make progress. Despite having large untapped reserves, India continues to import coal. The least NDA can do is revive and pass a legislative Bill, first introduced 14 years ago, to denationalise coal. Monopolies harm consumers and Coal India's shoddy performance has extracted an enormous economic toll. 

One of the lessons of the shale gas story is that innovations can quickly change the economics of a source of energy. Even if hydrocarbons continue their dominance, it would not be prudent to write off renewable sources of energy. We could well be on the threshold of a wave of innovations that make them commercially viable. India's energy policy must be tweaked to exploit such a scenario as policy flexibility remains the only constant in a fast-changing world. 

Source: TOI

India’s misunderstood hero

After withstanding accusations of corruption, fraud, incompetence and corporate greed for the past few years, India’s Reliance Industries wants to set the record straight about its infamous Krishna Godavari D6 (KG-D6) Block.

“People without even a fleeting understanding of the sector have touched off a debate over the KG-D6 Block to suggest that Reliance is making windfall profits,” said Reliance, which is owned by India’s richest man, Mukesh Ambani.

In response, it released a 12 megabyte, no-nonsense report this week – India has never been here before: Facts you didn’t know about the KG-D6 – providing facts to counter the “rhetoric and illogic” it fears will drown out serious talk about the country’s energy security.

If you haven’t followed the KG-D6 saga, here is the short version: After the deepwater block was discovered in the eastern Bay of Bengal in 2002, it was hailed as India’s saving grace – capable of doubling its gas supply by providing up to 79 million cubic metres per day (MMcm/d).

Since then, it seems, the KG-D6 has done nothing but disappoint. Production started behind schedule and has fallen from roughly 66 MMcm/d in 2010 to 13 MMcm/d this year. Meanwhile, as Reliance and BP work to develop new fields, they have been calling for a hike in the domestic gas price to justify the big investment required.

The necessary investment is indisputably big, Reliance said in the report. It can cost more than INR 7 billion ($116.2 million) to drill one deepwater exploration well, and another $199-232 million for a development well.

“Against such odds, Reliance developed the block in just six-and-a-half years, redrawing international standards of a 10-year development timeline,” it said.

But contrary to claims from opponents, it is the Indian government that would reap the biggest benefit from a higher price – not Reliance, the company said.

The government is considering introducing a market-based formula that would double the KG-D6 price from the $4.2/MMBtu level fixed in 2008, to $8.4/MMBtu. This, however, is still on the lower end of the $8-12/MMBtu range IHS Cera estimates would be needed to make a deepwater or ultra-deepwater project economically viable. 

If the new pricing formula does take effect, the government will recoup 46% – or $19 billion – from all new gas production revenue through taxes, royalties and its share of revenue. Reliance will earn around $498 million from its own output.

And while India is embroiled in this “debilitating debate” over the domestic gas price, China is locking down future supplies with hundred-billion-dollar deals, Reliance said, pointing to the China-Russia pipeline contract signed last month.

For one thing, China’s pipeline connections with Russia will pose geopolitical implications for India, it said. “But here’s what is of immediate relevance to India’s gas price debate: China is buying gas at about $11/MMBtu from Russia, which is almost the same as its domestic prices. In India, an approved rate of $8.4/MMBtu is on hold while we import gas for $14-18/MMBtu!”

The report is marked as the first volume in Reliance’s Flame of Truth Series, which Wildcat will take to mean there could be more to come in the future. At least we certainly hope there will be, considering its departure from Reliance’s usual tight-lipped response to any questions about the KG-D6. 

Source: Interfaxenergy

Gas pipeline to China: India to talk to Russia for extension

India is set to start negotiating with Russia the extension of a $30-billion gas pipeline Moscow plans to build to China till the Indian border. If the proposed pipeline from Russia via China's Xinjiang province materialises, it will be among the world's most expensive gas pipelines.

Sources said given Narendra Modi government’s intent to bolster sourcing of oil and gas to meet the country’s rising energy demand, an Indian delegation would take up discussions on the proposed pipeline’s extension with Moscow and Beijing during the BRIC summit in July.

The proposal would also be in focus when Russian President Vladimir Putin visits India later this year.
“India is a large importer of energy — in FY14, its net energy imports were 6.3% of the GDP. Without energy imports, we calculate it would have run a  current account surplus of 4.6% of the GDP,” the Goldman Sachs said in a recent report.

India is also working on the $9-billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline.
During the World Petroleum Congress held in Moscow last week, petroleum minister Dharmendra Pradhan is learnt to have discussed the possibility of the pipeline with his Russian counterpart, Alexander Novak. India is looking to set up a pipeline from Russia either through China or the same route as TAPI.
Recently, Russia and China signed a 30-year gas contact worth $400 billion. GAIL (India) has already tied up 2.5 million tonne of liquefied natural gas (LNG) from Russia; the supply will commence from 2020. OVL managing director SP Garg  said India is surrounded by countries rich in oil and gas. “Russia is one such country, which has surplus oil and gas. It will be a very good idea to build a pipeline from Russia to India,” Garg said.

Goldman Sachs said energy imports can be reduced further by switching from oil to natural gas and improving conservation.

“Reforms in the energy sector could reduce India’s annual energy import bill by $40 billion by FY23.  Energy imports in a reform scenario could come down to about 4% of the GDP,  from 6.3% currently,” it said.

Source: FE

Tough choices ahead for India’s energy security

The future of India’s energy sector remains clouded by sputtering investments in power, hydrocarbons and coal mining at home and troubled forays abroad, even as the new government which rode to power on a promise of prosperity and economic revival settles down. Maria van der Hoeven, executive director at the International Energy Agency (IEA), pricked the balloon of energy security floated by India’s policymakers. The target set by the previous central government to turn energy-independent by 2030 was “very ambitious” and an “idealistic challenge”, she said in an interview. 

The new government will have to rework strategies to achieve results. It won’t be an easy task. Some attempts to achieve energy security through overseas investments have run into trouble. ONGC Videsh Ltd’s (OVL) $2.1 billion acquisition of Imperial Energy Corp. Plc’s Siberian deposits is an example. The Comptroller and Auditor General (CAG) had raised questions over the 2009 deal, which was one of the most expensive resource purchases by a state-owned firm. An audit committee later started examining the process behind the purchase. India, the world’s fourth largest energy consumer, imports 80% of its crude oil and 25% of its natural gas requirements. Around 600 million Indians do not have access to electricity and about 700 million Indians use biomass as their primary energy resource for cooking, according to the Planning Commission. OVL, which is tasked with securing energy resources overseas, has faced difficulties in Venezuela. In South Sudan and Syria, production has been hit due to civil strife. Till now, the company has invested Rs.78,000 crore in overseas energy assets. 

What’s worse, gas from Mozambique’s Rovuma deepwater basin, where OVL, Oil India Ltd and Bharat Petroleum Corp. Ltd together hold 30% stake, will first go to China, Japan and Thailand. Reserves at the largest gas find off Africa’s east coast are valued at $60 billion, with estimated recoverable reserves of 45-75 tcf. “There is no output in the terms of energy security. It is more on the lines of financial security. We have faced similar problems in Myanmar as well, wherein Indian firms were involved in developing the block, (but) the gas finally went to China,” a top Indian government official aware of the faux pas said, requesting anonymity. Progress with fuel pipelines—once seen as the one-stop solution for energy woes—has been dismal. While India is no longer part of the proposed Iran-Pakistan-India pipeline, even the Turkmenistan-Afghanistan-Pakistan-India project has turned out to be non-starter in the absence of anchor investors to share risks. The Bharatiya Janata Party (BJP), which came to power on a decisive mandate, is aware of the challenges. The party “realizes the need to focus on generation and distribution of power as a national security issue so that growth is not negatively impacted due to supply issues in the energy sector. The overarching goal of the energy security is to ensure affordable energy for various consumer segments”, its election manifesto had said. Things remain bleak on the domestic energy front as well. Interest in finding hydrocarbons has waned, with around 70% of Indian basins still largely under-explored.

 India’s energy demand is expected to more than double from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500mtoe by 2035, according to estimates made by the oil ministry. The government must decide on whether to stick to an existing production-sharing agreement with oil and gas explorers or move to a revenue-sharing one, with support emerging for both proposals. Explorers want the existing system to continue. The new government will also have to bring investors back to the power sector. A slowing economy, costly loans, delayed land acquisition and environmental clearances and fuel shortages have plagued the sector. The slowing power sector has dragged down the capital goods sector with it as orders for power equipment dry up.

 Power sector is critical to Asia’s third largest economy, where the investment cycle is linked to the power cycle. About 30% of the country’s capital expenditure is determined by the electricity sector. In the year ended March, the Indian economy is estimated to have grown a mere 4.7%. About 9% of India’s power capacity of 2,45,393.54 megawatts (MW) is fuelled by gas and 59% by coal. With state-run Coal India Ltd and Reliance Industries Ltd’s Krishna-Godavari D6 gas block unable to meet fuel demand fully, many power plants are operating below capacity. 

The process of allotting coal mines has also been questioned after allegations of preferential treatment and corruption, including at a time when the coal ministry was handled by former Prime Minister Manmohan Singh. The health of the power distribution sector holds key to the success of generation projects in a sector seen as a key bottleneck in efforts to sustain and boost economic growth. Analysts, however, are hopeful. “It seems the industry has big expectations from the new government (not a surprise really) and is hopeful of structural reforms in many areas, including domestic coal production and power distribution,” UBS Global Equity Research wrote in a 19 May report. “However, the view of independent sector experts is a little more cautious.” “With decisive policymaking and higher bureaucratic efficiency, we think the new government can attack losses in power distribution sector (with the help of states) and sluggish growth in domestic coal production,” the report added.

Source: LiveMint

Reforms can reduce India's energy import bill by USD 40 bn by FY23: Goldman Sachs

India is a large importer of energy in FY14, its net energy imports were 6.3% of GDP. Without energy imports, India would have a current account surplus of 4.6% of GDP, as per Goldman Sachs. 

Goldman Sachs said India's annual energy imports could rise to USD 230 billion by FY23 from USD 120 billion currently, driven by economic growth, greater industrialization and urbanization. 

"Despite an increase in energy intensity, our projections show that energy imports as a share of GDP have likely peaked, and can moderate over the next decade, based on the assumption of subdued commodity prices," it opined. 

Energy imports can be reduced further by switching from oil to natural gas and improving conservation, it said. 

Further Goldman Sachs said, "We show that reforms in the energy sector could reduce India's annual energy import bill by USD 40 billion by FY23. Energy imports in a reform scenario could come down to about 4% of GDP, from 6.3% of GDP currently." 

If India were to improve its energy efficiency by 15% over the next ten years, it could save USD 32 billion annually by FY23, as per Goldman Sachs. 

The reduction in energy imports as a share of GDP could improve India's current account on a structural basis, which in turn could be positive for the INR over the medium term, it opined.

Source: My IRIS

Reform of India’s gas price regime urgent: BP

The Indian government urgently needs to reform the gas price regime, London-based energy firm BP’s chief executive Bob Dudley said in Moscow on Tuesday.

A news report by Platts quoted Dudley as saying that his company’s experience in India so far had been “disappointing.” Oil and gas companies, such as BP and its Indian partner Reliance Industries (RIL), have been vehemently demanding a hike in the price of domestic natural gas as they claim that the current prices aren’t remunerative given the increased costs of hydrocarbon exploration and production.

In 2011, BP paid $7.2 billion to pick up a 30% stake in RIL’s main oil and gas blocks in India. The deal, according to RIL, was necessary as the company was banking on BP’s expertise in deepwater drilling to address the challenge of declining gas production at the former’s primary gas reservoir, KG-D6, which lies off the eastern coast of India.

"It has been disappointing, the pace at which certain things have been approved — the price rising up towards a market price, there have been a number of delays in seabed surveys and the appraisals of various projects," Dudley was quoted by Platts as telling journalists at the World Petroleum Congress in Moscow.

"You just have to look at the natural gas prices around the world. It seems not right that it would be more economical to produce gas in Australia and sell it to India at $20 per million cubic feet, than be able to develop the resources in India." Platts quoted Dudley as saying that he hoped gas prices in India would be revised upwards as per the earlier government’ decision, which has been put on hold.

The price of gas was fixed at $4.2 per million British thermal units (mmBtu). In December 2012, a committee led by C Rangarajan, then chairman of the Prime Minister’s Economic Advisory Council, suggested a new formula for pricing natural gas to make it more market-linked.

BP, RIL and their third partner in India, Niko Resources, issued an arbitration notice to the government last month seeking expeditious enforcement of new gas prices.

Chief executive meets oil minister

With delays in regulatory nods and gas price revision frustrating its attempts to reverse falling gas output from KG-D6, BP chief executive Bob Dudley met petroleum minister Dharmendra Pradhan to press for early decisions. Dudley, along with BP India head Sashi Mukundan, met Pradhan on the sidelines of the World Petroleum Congress to make a case for early decisions, officials said.

Source: FE

India plans to ease foreign investment in oil and gas sector

With foreign investment almost drying up in India's oil and gas sector, Petroleum Minister Dharmendra Pradhan today promised an overhaul to make policies predictable, transparent and fair to investors.

Three years of policy paralysis and regulatory policy uncertainty over issues such as natural gas pricing had led to companies deferring their investments, resulting in domestic production stagnating.

In his opening remarks at the ministerial session of the World Petroleum Congress in Moscow today, Pradhan said the Narendra Modi government "intends to bring in policies which would ease the way for large foreign investments in the oil and gas sector."

Stating that there was an urgent need to facilitate an increase in oil and gas production, Pradhan said his ministry was in the process of ushering in a new exploration and production policy after amending the existing New Exploration Licencing Policy (NELP).

"The priority of the government led by Modi would be to put in place transparent systems and time-bound delivery of government services.

"Creation of a policy environment which is predictable, transparent and fair would be a very important action. Our motto is 'Minimum Government & Maximum Governance'," he said.

The ministry proposes to replace NELP with a uniform licensing policy to facilitate production of all forms of hydrocarbons - from oil to shale gas - under a single policy regime.

The next round of oil and gas block auctions will be offered with all statutory clearances that will derisk exploration activities to some extent.

More than 1,48,000 square kilometres of exploration acreage has been identified for auction under the 10th round of NELP, an official statement said.

"India is at a critical stage of development and the new government led by Narendra Modi is giving it the much-needed impetus for further growth," Pradhan said.

India consumes about 4.5 per cent of the world's primary energy and ranks fourth globally in energy consumption, making it imperative for steps to be taken to facilitate availability of energy for every single person, thereby ensuring inclusive growth, he said.

The World Petroleum Congress, the 'kumbh' of the oil and gas sector, is held every three years. The theme of the 21st Congress, being held in Moscow from June 15 to 19, is Responsibly Energising a Growing World.

Source: My Digital Fc

BP chief urges India gas price hike to 'preserve' industry

India's new government must reform its gas price regime for the survival of the gas industry in the country, BP CEO Bob Dudley said Tuesday, adding the company's experience so far had been "disappointing."

BP and its partners in India issued an arbitration notice to the previous government last month after the government put on hold a gas price hike sought by the industry in January.

BP made a $7 billion investment in India's Reliance Industries in 2011 to help explore and develop deepwater fields offshore eastern India.

"It has been disappointing, the pace at which certain things have been approved -- the price rising up towards a market price, there have been a number of delays in seabed surveys and the appraisals of various projects," Dudley told journalists at the World Petroleum Congress in Moscow.

"You just have to look at the natural gas prices around the world. It seems not right that it would be more economic to produce gas in Australia and sell it into India at $20 per million cubic feet, than be able to develop the resources in India."

"I'm very hopeful that the price will move up, per the previous government's decision, which has been put on hold. It's very important, or the entire offshore industry in India is at risk. I'm hopeful that the new government will move the price up. It's actually essential to preserve that industry."

Source: Platts

Petroleum ministry asks Modi to resolve gas pricing formula

As opposition grows against the proposed hike in natural gas prices, the petroleum ministry is writing to Prime Minister Narendra Modi to take a final call — along with ministers of concerned departments — on the pricing formula approved by the previous UPA government. Last week, petroleum secretary Saurabh Chandra suggested his minister Dharmendra Pradhan to rope in the PM to review the entire gamut of gas pricing so as to finalise a decision before the deadline of July 1 — as indicated to Reliance Industries Ltd (RIL).

“(Petroleum Minister) may consider requesting the PM to schedule a presentation on the subject, in the presence of finance minister, ministers of power, chemicals and fertilisers and other ministers and officials concerned,” Chandra wrote on June 9.

“It is submitted that a decision on the new pieces for (RIL’s) KG-DWN-98/3 has to be taken well before July, 1 2014,” he wrote. Pradhan, said sources, would be writing to the Prime Minister this week.
Chandra’s move to take on board the BJP stalwarts heading these ministries follows sharp protest by BJP and its allies to near-double price of gas envisaged under the UPA-approved formula that was agreed to by the Cabinet Committee on Economic Affairs (CCEA) in June 2013 for implementation from 1 April 2014.
The notification of new price got delayed as the Election Commission deferred it until the Model Code of Conduct was lifted. The previous government did not raise prices even when the EC stay expired, leaving the decision to the incoming government.

The ministry on April 21 informed RIL that “the earliest possible date in the normal course for applying the revised prices would be July 1, 2014” . RIL is selling gas from its eastern offshore KG-DWN-98/3 fields at the old rate of $4.2 per million British thermal unit even after its term had expired.
RIL has served arbitration notice on the Centre disputing the decision to postpone the implementation of revised price guidelines due to the EC order.

Petitions have also been filed in the Supreme Court against UPA’s decision arguing that the hike was devised to benefit RIL. According to the formula, firmed up by a panel under then PM’s economic advisory council head C Rangarajan, gas price would double to $8.3 per unit.
The ministries of power and fertilisers had opposed the formula even at discussions in the CCEA during the UPA regime.
Other stakeholders too criticised the formula over inclusion of benchmarks such as average spot purchase price of liquid gas and Japanese gas purchases.
The new formula was devised for effect from April 1 as the previous formula for pricing gas from NELP blocks, which was approved by an empowered group of ministers in 2007, was applicable until March 31.

Source: Indian Express

GAIL offers to sell US gas at cheaper rate than Liquefied Natural Gas from Qatar

State gas utility GAIL India Ltd is offering gas supplies from the US at $12-13, at least a dollar less than the price at which India currently imports the fuel from Qatar on long-term contracts.

GAIL, which has agreed to buy 3.5 million tonnes of liquefied natural gas (LNG) a year for two decades from Cheniere's Sabine Pass terminal in western Cameron Parish, Louisiana, proposes to resell it to Indian customers at prices tied to the US benchmark as an alternative to contracts linked to oil prices.

"We had recently signed LNG procurement contracts from US indexed to Henry Hub prices. We are offering the same Henry Hub indexation price to customers in India," GAIL Chairman and Managing Director B C Tripathi said.

The delivered price of US gas at Indian ports will be in the range of $12 to 13 per million British thermal units.

"It will certainly be less than $13," he said.

In comparison, the landed cost of the LNG that India buys from Qatar on long-term contracts at oil-indexed prices is $13.8. Natural gas produced in India is priced at $4.2 and may double after it is revised shortly.

Tripathi said supplies from the US are expected to start from 2017-18.

"GAIL has an internal requirement of about 1 million tons a year and we are hopeful of tying up customers for the remaining 2.5 million tons," he said.

Natural gas was trading at $4.7 per mmBtu at Henry Hub, the Louisiana clearing house and North American benchmark.

After adding the cost of turning the gas into liquid (LNG) and shipping it to India, the landed cost will come to between $12 to 13 per mmBtu.

Petronet LNG Ltd, the nation's largest liquid gas importer, buys 7.5 million tons a year of LNG from Qatar. At an oil price of $100 per barrel, the landed cost of Qatar LNG is $13.8.

LNG contracts tied to oil make them vulnerable to spikes in crude prices. The US has some of the world's lowest gas prices.

Apart from the 3.5 million tons of LNG from Sabine Pass, GAIL has booked 2.3 million tons a year capacity in the Cove Point LNG liquefaction terminal at Lusby, Maryland.

GAIL, Tripathi said, was confident of booking all of the US volumes by offering Henry Hub-indexed rates in next 2-3 months.

Source: ET

Canadian provinces keen on energy relations with India

At a time when India is trying to downsize its oil import bill, trade delegations led by premiers of western Canadian provinces are planning to meet Prime Minister Narendra Modi and his team.
Come September, the premier of British Columbia (BC) Christy Clark is likely to visit India. The provinces of Alberta, British Columbia, Saskatchewan and Quebec play a major role in Canada's energy security.

Sources said a delegation of senior ministers of the Canadian government along with representatives of companies involved in oil and gas, power, petrochemicals, fertilizers and coal sectors are likely to visit India.
Speaking to BUSINESS TODAY, Steve Carr, Deputy Minister for Natural Resources in BC, said the Canadian government is looking for a closer partnership with Indian companies. He said the British Columbia government wants Indian companies to invest in the manufacturing sector and also lay crucial pipelines that could help the province transfer oil from inland Alberta to its ports.

In February, India's biggest refiner Indian Oil Corporation had received a cargo of million barrels of heavy oil from Alberta-based oil producer Husky Energy Inc. Through similar moves Canada seems to be slowly positioning itself as the exporter of North American oil. In Canada, Indian companies are competing with players from China, Korea and Japan.

According to Tim Lisevich, Managing Director (investment and corporate banking) at BMO Capital Markets, most of the Indian firms that evince interest in Canadian assets are not confident of partnering with smaller firms there. Carr hopes that the new dispensation in Delhi will soon set things right.

Officials in the Canadian government say there is a very good scope for Indian companies to be part of integrated oil exploration projects. "The delegation led by the premier will discuss several such propositions. We understand that India wants to diversify its energy mix and sources. We also want to diversify our sources. It is just a perfect marriage," says Carr.  

BC is expecting federal government nod to the 'controversial' $7 billion Enbridge Northern Gateway Pipelines Project across the state that connects hydrocarbon sources to the pacific coast. Carr says that there are issues related to sharing of royalties between BC and Alberta and talks are on.

Earlier this year, IOCL had bought 10 per cent stake in Pacific Northwest LNG from Malaysia's Petronas Group. This had given IOCL access to at least 8.35 trillion cubic feet of gas reserves in BC fields controlled by Petronas's Progress Energy Canada Ltd. IOCL aims to bring LNG from there to India.
In Quebec, Indian fertilizer company IFFCO riding on cheap gas available there is all set to start a fertilizer plant. Meanwhile, Saskatchewan province is seeking Indian investment in mining of uranium, a much-need resource for India's nuclear power plants.

Source: Business Today

India's gas production to stagnate without pricing reforms: IHS

India's natural gas production will stagnate at current levels if pricing reforms are not implemented and it will have to import heavily to meet the demand, a report by US-based consultancy IHS has warned.

IHS said low regulated gas prices have precipitated a supply shortfall in India, but proposed that reforms to the pricing formula could yield higher domestic production and boost India's economy.

"At (current gas price of) $4.2 per million British thermal unit and with no reforms enforced, the production will stagnate at 3 billion cubic feet (Bcf) per day and India will need to import around 9.7 bcf per day LNG to meet demand. The unmet demand would imply a significant drag on India's economy," it said.

If rates are allowed to increase to $8.5, as set out in the reforms initiated by the previous UPA government, an additional output of 1.95 Bcf per day could come in 10 years.

The previous government had approved a new pricing formula that would have almost doubled rates of all domestically produced natural gas from April 1. However, before a new rate could be unveiled, the general elections were announced and its implementation got deferred. The new NDA government is examining its implementation.

"The long-term distortion of India's gas pricing regime has brought about a major gas supply shortfall, acting as a brake on economic activity. India's gas pricing reforms represent an important policy shift and should stimulate domestic production, soften growth in reliance on expensive LNG and accelerate India's economy," the report said.

The planned increase to the gas prices has a potential to improve India's balance of payments outlook, enhance security of supply and attract investments into the service industry and supply chain, IHS said.

"India's economy is fragile, struggling with low growth and high inflation," said Rajiv Biswas, chief economist, Asia Pacific at IHS. "Unmet gas demand now represents a considerable drag on economy and the cost of maintaining subsidised, low gas prices has become unsustainable."

According to the IHS study titled 'India Gas Pricing: When Reform Becomes Unavoidable', the nation's prior gas-market pricing policies have long distorted its gas supply and demand patterns, weakened investment into domestic gas exploration and accelerated inefficient consumption habits.

All of these factors have contributed to the country's reliance on LNG imports, making India the world's fifth-largest liquefied natural gas (LNG) consumer.

"Indian government figures for offshore exploration and production showed investments fell from USD 6 billion in 2007-08 to USD 1.8 billion in 2011-12. Meanwhile, the Indian energy firms invested more than triple this value on projects outside of India," IHS report said.

Source :ET

India's Paradip Port eyes setting up second LNG terminal as part of development plans

India's Paradip Port Trust, or PPT, is trying to attract investment to build a second LNG terminal at Paradip Port in the eastern coastal state of Odisha, a senior company official said in Mumbai late Friday.

PPT, which operates the Paradip Port, is negotiating with other companies to build a second terminal as it carries out development plans and constructs breakwater facilities, Paradip Port Trust Chairman S S Mishra said Friday.

But he did not give details about the second terminal.

PPT has already signed a memorandum of understanding with gas transportation utility GAIL in October 2013 to build a floating storage and regasification unit at Paradip.

GAIL has committed to invest Rupees 31 billion ($525 million) to build the first phase of the terminal with an export capacity of around 5 million mt/year of LNG by 2017. It will invest a further Rupees 25 billion to add another 5 million mt/year capacity in the second phase, Mishra said Friday.

While the plan is to build an FSRU in the first phase, there is enough land to build a onshore storage facility if GAIL so wants, Mishra added.

GAIL has just completed the pre-FEED study for the terminal and has license to lay gas pipelines from Paradip to Surat on the western coast in Gujarat, Mishra added.

OTHER LNG TERMINAL PROJECTS COMING UP IN INDIA

GAIL is also working on an FSRU at Kakinada in Andhra Pradesh, which is connected to the western coast by the existing Reliance Gas Infrastructures East West pipeline. The pipeline was originally designed to deliver gas from Reliance Industries Ltd.'s eastern offshore gas block KG-D6.

Meanwhile, India's leading LNG importer, Petronet LNG, is also close to starting construction work on a 5 million mt/year LNG terminal at Gangavaram in the eastern coastal state of Andhra Pradesh, a senior Petronet LNG official said Friday.

"They [PPT] are developing the [Paradip] port and we had talks with them. There is nothing beyond that right now. We are committed to Gangavaram project," said R K Garg, finance director, Petronet LNG.

Apart from the proposed Paradip, Gangavaram and Kakinada LNG terminals, state-owned refiner Indian Oil Corporation is also expected to set up a 5 million mt/year LNG terminal in Ennore near Chennai on the eastern coast.

IOC has three Single Point Mooring facilities at Paradip Port to handle crude oil imports for its Barauni and Haldia refineries. It is close to commissioning its 15 million mt/year refinery at Paradip, Platts has reported.

State-owned refiner Bharat Petroleum Corp. Ltd. is also looking at setting up an SPM at Paradip, Mishra said Friday.

Source: Platts

Higher gas prices could help India's energy economy rebound

India's gas pricing regime has brought about a major gas supply shortfall, effectively halting economic activity, according to research from IHS Inc. India's gas pricing reforms, which are expected to come into effect this year, represent an important policy shift, and should stimulate domestic production, soften growth in reliance on expensive liquified natural gas (LNG) and accelerate India's economy, the research concludes.

The planned increase to the gas prices has a potential to improve India's balance of payments outlook, enhance security of supply and attract investments into the service industry and supply chain, the report says.

"India's economy is fragile, struggling with low growth and high inflation. One of the key factors underlying the difficult economic outlook is India's unfolding energy crisis. Unmet gas demand now represents a considerable drag on India's economy and the cost of maintaining subsidized, low gas prices has become unsustainable," said Rajiv Biswas, chief economist -- Asia-Pacific at IHS. "The current set of policy reforms increases the price of domestically produced gas, thereby stimulating additional domestic exploration and production activity. The resultant new gas supplies would boost India's economy at a time when business and consumer sentiment is fading, investment inflows have slumped and manufacturing is in recession."

India's prior gas-market pricing policies have long distorted India's gas supply and demand patterns, weakened investment into domestic gas exploration and accelerated inefficient consumption habits, according to IHS. All of these factors have contributed to the country's reliance on LNG imports, making India the world's fifth-largest LNG consumer.

Indian government figures for offshore exploration and production showed investments fell from $6 billion in 2007 to 2008 to $1.8 billion in 2011 to 2012. Meanwhile, the Indian energy firms invested more than triple this value on projects outside of India, resulting in a decline of nearly 60 percent in Indian offshore drilling activity over the 2007 to 2013 period, IHS says.

The newly-announced gas pricing regime is expected to roughly double gas prices to $8.50 per million Btu (MMBtu) -- from $4.20 per MMBtu in 2010 -- maintained over the next five years, the report says.

"Until 2004, India met its own natural gas needs, but now the country's energy supply relies on expensive LNG imports, priced at more than triple the Administered Price Mechanism (APM) rate, which now accounts for 35 percent of its overall supply," said Kash Burchett, senior analyst at IHS Energy. "The government has begun to deregulate gas prices, but the extent of the reforms is not yet clear. A higher APM rate could pave the way for increased domestic production, reduce the reliance on expensive LNG imports and help foster local industrial supply chain development without compromising the economy's competitiveness."

By implementing the energy reforms and doubling the gas price, the Indian government will not only allow Indian gas producers to achieve significant gains, but also encourage explorations of more expensive gas fields -- especially offshore

The IHS study says that although the new price outlook implies significant additions from the middle of next decade, gas production will not recover overnight, but it could stimulate domestic economic activity and ease the call on LNG. Consequently, despite the planned increase in India's gas price and associated growth in domestic output, in the short term, India's dependence on LNG imports will inevitably rise through the present decade. The majority of new imports will come from new production sources in North America and offshore East Africa

Source: Fierce Energy

Oil firms' revenue loss could halve by end of FY16

Given the efforts to move towards market-linked diesel prices and an expected decline in crude oil prices, underrecoveries on petroleum products are expected to drop to half those in 2013-14 through this financial year and the next, CRISIL has said in a report.

The report, ‘Road Ahead Clears Up for Oil PSUs’, says the decline in underrecoveries, or losses oil-marketing companies incur on selling petroleum products below market price, will have a significant positive impact on both upstream and downstream public-sector oil companies.

“PAT (profit after tax) of downstream companies will increase by Rs 3,300-3,600 crore on a year-on-year basis in 2014-15 and by another Rs 700-1,000 crore in 2015-16, as their interest cost will decline and they won’t have an underrecovery burden,” CRISIL has said. “On the other hand, upstream companies, which typically share 40-50 per cent of the total underrecovery burden, will see a sharper Rs 10,500-12,000 crore year-on-year improvement in PAT in 2014-15 and a further improvement of Rs 7,000-7,500 crore in 2015-16.”

If the benefit from a potential rise in gas price to $8.4 a million British thermal units (mBtu) is taken into account, upstream companies’ PAT will further increase by Rs 7,000-7,500 crore in 2014-15, resulting in an overall increase of Rs 21,500-23,000 crore, says the report.

In the past few years, high underrecoveries on sale of petroleum products have hit the financials of oil companies (both upstream and downstream). This is because petroleum products like diesel, liquefied petroleum gas and kerosene are sold in India by downstream public-sector oil marketing companies (OMCs) at regulated prices, well below the cost (petrol prices were de-regulated in June 2010). The resultant loss is usually shared by three parties — the government, upstream oil companies (Oil and Natural Gas Corporation, Oil India Ltd and GAIL) and oil marketing companies (Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation) — in a proportion determined by the government every year.

Through the years, the sharp increase in overall underrecoveries and, consequently, the government’s contribution to underrecoveries has led to a surge in the interest cost of OMCs, the report says. The interest cost has risen due to a significant rise in working capital requirements, owing to delay in payments from the government. Over the years, the average delay in payments by the government has been three-six months; OMCs’ interest costs have more than tripled — from Rs 3,000 crore in 2007-08 to Rs 10,400 crore in 2012-13, before declining to Rs 7,800 crore in 2013-14 (due to dollarisation of rupee loans and a decline in the underrecovery burden). The total debt of these companies doubled from Rs 67,300 crore in 2007-08 to Rs 1,32,500 crore in 2013-14. Since 2007-08, the short-term debt as a percentage of total debt has stood at an average 75 per cent, in line with the rising working capital requirement. Due to conversion of rupee-denominated working capital loans to foreign long-term loans (external commercial bor

rowings of tenures of at least three years), the share of short-term debt declined in 2013-14.

The sharing of underrecoveries between the government and public-sector upstream and downstream companies is on an ad hoc basis, depending on the financial positions of these companies, as well as government finances.

In the past few years, with underrecoveries soaring from Rs 77,100 crore in 2007-08 to Rs 1,40,000 crore in 2013-14, the contribution of upstream companies towards underrecovery-sharing (in absolute terms) increased from Rs 25,700 crore in 2007-08 to Rs 67,000 crore in 2013-14. As a result, these companies have not benefitted from the combined effect of high crude oil prices and a weak rupee.

Between 2008-09 and 2013-14, crude oil prices rose at a compound annual growth rate (CAGR) of five per cent to $108 a barrel. During the same period, the rupee depreciated from 46 a dollar to 61 a dollar (six per cent CAGR). However, upstream public-sector companies could not benefit from rising oil prices and a weak currency, as their net realisation declined from $48 a barrel in 2008-09 to $41 a barrel in 2013-14, owing to an increased share in underrecoveries.

Source: BS

ONGC, Reliance Industries likely to get higher gas prices soon

Given the crippling shortage of gas, and the fact that India imports 25-30% of its needs at $12-15 per mmBtu even today, the petroleum ministry will recommend a hike in prices paid to local suppliers such as ONGC, Reliance Industries (RIL) and Cairn. The move is in keeping with the December 2012 recommendations of the Rangarajan committee. Based on the formula, today’s price will be in the $8.50-9 per mmBtu range.

While the UPA notified the decision on January 10, it was not implemented after the election process began. Implementing the Rangarajan formula is the top item of the presentation to be made by the petroleum ministry to Prime Minister Narendra Modi any time over the next few days. “Perhaps we may have to go to the Cabinet,” a ministry official said. “We would have more clarity by Tuesday.”

Though a gas price hike has been opposed by many on the grounds it will raise electricity and fertiliser prices, this is only partially true. For one, of the biggest beneficiaries of a price hike will be the government which will get more royalties/cess, so the government can partially subsidise the affected sectors.

Also, India’s gas imports are estimated to rise from the 25-30% levels now to 42% in FY17. Even though GAIL’s gas from the US is priced at the Henry Hub price of $4.50, once liquefaction, regassifying and transport costs are added, the price will be $11-12 per mmBtu.

Paying local producers even $9-10 will be cheaper than importing gas, which is the only other alternative. A study by global consulting firm IHS Cera says 85% of India’s natural gas is viable only at prices above $10 per mmBtu — ONGC, for instance, has asked for a price of $13 if it is to develop its Mahanadi block.

If gas prices are raised, an investment of $15-20 billion can be expected over three to four years — RIL, which has filed an arbitration case against the government for not implementing the Rangarajan formula, has itself committed to investing $8-10 billion over three to four years.

Source: FE