India makes first crude oil purchase for strategic reserve

India has bought the first oil for its strategic petroleum reserve (SPR), trade sources said on Monday, marking the start of a round of purchases by the world's fourth-biggest oil consumer to build up emergency stockpiles.

Oil prices have almost halved in the past year due to excess global production, leaving traders looking for any signs of new demand to help absorb the surplus.

The sources said state-refiner Indian Oil Corp bought a 2 million barrel cargo of Iraqi crude from Chinese trader Unipec, which will load in May for shipping to the first stage of India's SPR on the country's east coast.

In addition, state-refiners IOC and Hindustan Petroleum Corp Ltd will buy another three Very Large Crude Carriers between them for the Vizag SPR storage site in Andhra Pradesh.

While the first 8 million barrels for Vizag are relatively small compared with the global market, totaling less than 10 percent of daily demand, India's purchases could ramp up later this year as the country completes construction of the next phase.

Two SPR sites, at Padur and Mangalore on India's west coast, will have a capacity of 29.3 million barrels and are expected to be ready by October.

India is heavily reliant on fuel imports, producing less than a third of the nearly 3.7 million barrels per day it consumed in 2013, data from the U.S. Energy Information Administration shows.

Its fast-growing economy has become the world's fourth-largest oil consumer after the United States, China and Japan.

China's own SPR purchases, which have helped support oil prices during the global supply glut, are expected to slow this year with commercial and strategic storage space almost full.

China's strategic stocks were estimated in January at more than 30 days' worth of crude imports. It plans to eventually build reserves of around 600 million barrels, or about 90 days of import cover.

India's SPR should cover approximately 13 days of imports when it is completed by the end of this year.

The east coast Vizag facility has two compartments of 7.55 million barrels and 2.20 million barrels, with the smaller to be used by HPCL for its 166,000 bpd refinery at the site.

The VLCC cargo Basrah IOC bought from Unipec, the trading arm of China's state-backed oil producer Sinopec, was purchased at a premium of 50-60 cents to the official selling price of the Iraqi grade, the sources said.

Separate from the SPR purchases, IOC has re-floated a tender seeking a million barrels of heavy grades for April first half loading, traders said. This tender will close on Tuesday with bids remaining valid till Wednesday.

Brent crude oil prices were down by around $1 a barrel on Monday near $55 a barrel, having fallen from above $110 a barrel in June.

Source: Times Of  India

It’s time for a ‘Drill in India’ campaign: Hind Oil Exploration

India must recognise its strength as a buyer of oil and become a price maker and not a price taker, according to P Elango, Managing Director, Hindustan Oil Exploration Company Ltd.

Unexplored basins
The country needs to transform into a gas-based economy, he said, adding that “we need a ‘Drill in India’ campaign under the umbrella of ‘Make in India’ as two thirds of India’s sedimentary basins are unexplored”.

Elango was speaking at the 16th Energy Summit of Indian oil and gas sector on the theme ‘Towards (a) favourable investment regime’. Mrinal Vohra, Managing Director, Quippo Oil and Gas Infrastructure, called for a friendly policy regime for people to invest in exploration and production (E&P) activity in the domestic market.

“Investments in oil and gas E&P are capital intensive and, therefore, there is long-term requirement for paybacks. We need to categorise this as infrastructure sector so that there is long-term access to capital. Requirements for re-exports of capital assets also need to be amended,” Vohra said.

For development of city gas distribution (CGD), only transparent bidding is acceptable for regulator as the board fixes only transportation tariff and not the final price, said S Krishnan, Chairperson, Petroleum and Natural Gas Regulatory Board.

Bigger role
A longer-term vision keeping in view environmental concerns, desire to graduate to a low carbon economy and volatility of oil in geopolitical context, indicates an increasing role for natural gas, till renewable and nuclear power start playing a significant role, he added.

TNR Rao, Former Petroleum Secretary and Chairman, SAGE, said: “Energy, its price and its efficiency are critical for the success of Make in India campaign.”

Source: The Hindu Business Line

IEA sees India, China filling strategic reserves with cheap oil

India and China are set to fill up their strategic petroleum reserves this year, taking advantage of lower oil prices, according to the International Energy Agency. The two nations are building emergency stockpiles with millions of barrels of crude that mirror the reserves of oil and refined products that the US and its western allies amassed after the first oil crisis of 1973 to 1974. “Cheaper oil facilitates the building of strategic reserves,” the Paris-based IEA said on Friday in its monthly oil market report. The purchases, if confirmed, will add to global oil consumption growth, the IEA said, offsetting “current weak fundamentals” of supply and demand and potentially boosting prices. Brent crude, a global oil benchmark, has fallen 47% over the past year to trade at $57.03 a barrel at 8:53 am in London. “Since oil prices began their rapid retreat last June, the import bills of oil-importing economies have declined,” the IEA said.

“This has assisted governments in many of these countries in either adding to their strategic reserves or putting in place firm budgetary provisions to increase oil holdings.” The energy watchdog said China was “expected to again stockpile crude in 2015” as it completes new tanking capacity. Beijing in November for the first time revealed details of its oil stockpiling programme, saying it held about 91 million barrels in four different locations. The US holds 696 millions barrels of oil in its emergency reserve, the largest in the world. Indian storage India has yet to start storing crude oil, but the IEA said the government has approved a $338 million budget to cover the filling of its first emergency tanks this year.

At current prices, that would amount to 6.5 million to 7 million barrels of crude. The Indian Strategic Petroleum Reserves Ltd., the company in charge of the stockpile, has already built a tank farm in eastern India capable of holding 10 million barrels of crude. Another two facilities in western India are expected to be completed by the end of the year, adding a combined 28 million barrels of capacity.

The IEA, adviser to 29 oil-consuming nations, said Vietnam has also used lower oil prices to boost its commercial stockpiles held at refineries. China and India have said in the past they need to build strategic reserves to offset the risk of a disruption in supplies, mostly from the Middle East and North Africa. Western countries have used their strategic reserves only three times over the past 35 years, during the first Gulf War in Iraq in 1991, after hurricane Katrina in 2005 and in 2011, after the start of the war in Libya.

Source: Livemint

Oil Ministry to give CNG marketing licence

Oil Ministry is looking to wrest powers to give CNG retailing licence from sectoral regulator PNGRB as it has issued draft guidelines detailing eligibility for rights to sell fuel to automobiles.

The Ministry on March 5 issued 'Draft Guidelines for granting Marketing Rights for CNG as Transportation Fuel, including setting up CNG Stations' wherein any entity that has invested Rs 500 crore in oil and gas infrastructure can get rights/license to retail the fuel to automobiles by setting up CNG stations.

While the Union government had authorised entities like Indraprastha Gas Ltd and Mahanagar Gas Ltd for retailing CNG to automobiles in Delhi and Mumbai respectively in early 2000, the Petroleum and Natural Gas Regulatory Board (PNGRB) has been doing so through bid rounds since its establishment in 2006.

In the draft guidelines, the ministry stated that like the companies which invested a minimum of Rs 2,000 crore in oil and gas infrastructure were granted marketing rights for petrol, diesel and ATF through the March 2002 notification, entities investing a minimum of Rs 500 crore will be eligible for marketing rights for CNG.

Also, entities authorised by PNGRB or Central Government would also be eligible.

"The eligible entities under these guidelines shall apply to the Government for issuance of 'Grant of Marketing Rights for CNG as transportation fuel'," the guideline says.

Since 2006, entities apply to PNGRB and not the government for rights to retail CNG alongside selling natural gas as fuel within city limits.

While PNGRB has been issuing the licence to retail CNG as well as piped cooking gas (PNG), the ministry guidelines pertain only to rights to sell CNG.

"The entities which have already been granted marketing rights for petrol, diesel and ATF as transportation fuel, under Resolution dated March 8, 2002 will be deemed to have such grants of marketing rights for CNG as transportation fuel," it said.

In 2002, state-owned Oil and Natural Gas Corp (ONGC) besides Reliance Industries, Essar Oil, Royal Dutch Shell and Numaligarh Refineries had won authorisation to set up petrol pumps to sell petrol and diesel.

Besides these firms, fuel retailers Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) as well as gas utility GAIL India Ltd will be eligible for CNG marketing rights.

Firms who get CNG marketing rights will get natural gas allocation and can book capacities in existing pipelines to transport the fuel, the guidelines said.

PNGRB recently opened fifth round of bidding for city gas distribution (CGD) licences even though it had issued license to entities for only first two rounds. Licences for the remainder are stuck over disputes.

Source: Business Standard

Private oil companies cut capital expenditure and cost on weak crude demand outlook for 2015-16

 Indian energy majors are slashing their capital expenditure and have initiated cost cutting measures, responding to the weak crude prices and dismal price recovery outlook for 2015-16.

Crude oil prices have plummeted almost 45% since June due to oversupply in the market. Benchmark Brent crude touched lows of $45 per barrel in January as against a high of $115 last summer.

Oil has seen gains recently and reached $60 a barrel again for the first time this year but the outlook remains muted as demand is unlikely to see a pick-up.

Global energy majors have cut capex, trimmed human resource and are taking severe cost saving measures, something that Indian companies have now started doing. Cairn India has reduced its capex by less than half to $500 million from $ 1.2 billion for 2015-16 and has also laid off 250 of its 1,800 staff. Reliance Industries continues with its capex plans across its businesses, but is implementing "austerity measures" in its exploration and production business, given the challenging times. Essar Energy is holding back capex plans and is also believed to be exploring cost saving steps. While state-run ONGC bucks the trend by increasing capex, it is trying to negotiate lower rates for new tenders to keep costs low. "Energy E&P business has been hit globally due to the fall in crude prices and Indian companies would be affected too. While ONGC would continue investment backed by government's push, companies like Cairn have no option but to cut capex.

RIL and Essar are diversified and may be able to manage with severe cost cuts," said Dhaval Joshi, research analyst, Emkay Global Financial Services. Cairn India has said it will undertake only economically viable projects, and has the board's approval for Raag Deep Gas Project, but will defer rest of the plans. It is also working on reengineering projects and re-negotiating contracts to reduce costs.

While a detailed query sent to RIL remained unanswered, ET is in possession of an email from PMS Prasad, executive director of the company, dated February 17, in which he urges his colleagues in the E&P business to cut down on costs, given the "turbulent time" for the industry. "Considering the current business scenario, as an austerity measure, we at E&P are required to curtail business costs, wherever possible, without compromising on the smooth continuity of the business," Prasad said.

"As a first step towards achieving this, we are seeking your cooperation to cut down on our business travel cost wherever possible." Essar Oil told ET that as a refiner, the company was "agnostic" to crude oil prices, adding "we have no major capex plans lined up and hence the fall in crude oil prices has not impacted our plans". The company said it was working on an energy efficiency programme, which includes conversion of vacuum gas oil into more valuable middle distillates in an attempt to improve its gross refining margins by $1 a barrel. The Union Budget 2015-16 stated that state-run oil firms would invest over Rs 76,565 crore on capex in 2015-16, up 5% on year. Of this, ONGC alone would invest Rs 36,250 crore, as against target of Rs 34,813 crore in the current fiscal. "All development projects in ONGC are evaluated, considering post discount prices available to ONGC and there is no issue of viability at existing prices. We are also going for exploration as per our approved work programmes. We envisage this as an opportunity of getting more competitive rates for oilfield services.

This is also an opportunity of new acquisitions at competitive prices for which ONGC Videsh is working out options to meet longterm energy needs of the country," ONGC said in a response to ET's query. Global oil and gas companies have already announced cut in capex to the extent of over $85 billion from their 2015 budgets to protect themselves from low oil prices, according to industry estimates. RBC Capital Markets said in a note that the 122 global companies in its coverage could see a 20% decline in capital expenditure in 2015 to $349.2 billion.

Source: Economic Times

Offshore Pursuits Gain Speed In India

As energy demand continues to outpace production, it’s no wonder that India is aggressively pursuing the country’s more than 50 Bbbl and 1.3 Tcm (47 Tcf) of proven oil and gas reserves both onshore and offshore.

Companies such as state-run Oil and Natural Gas Corp. (ONGC) and Gujarat State Petroleum Corp. Ltd. (GSPC) along with Reliance Industries Ltd. and BP are planning to spend billions in offshore hydrocarbon pursuits, tackling deepwater prospects, while others such as Cairn India are tapping EOR technology to improve recovery rates at existing fields onshore.

But there is much ground to cover.

For the most part, India’s sedimentary basins are largely unexplored. Yet not even the government’s launch of a new exploration licensing policy about 15 years ago, which established the auction framework to award licenses under production-sharing contracts, has sparked a worldwide bidding frenzy despite the potential for commercial discoveries.

“Participation by international players remains low, with only 12% of the total acreage and about 7% of total contracts awarded to foreign players to date,” Dilip Khanna, oil and gas partner for EY India, told E&P. “This is due to the following challenges faced in the past few years by international E&P players: comparison of prospects in India relative to other countries, perception of slow and bureaucratic decision-making, and disputes arising between the government and operating companies on matters of cost recovery and obtaining environmental and land clearances from various government departments.”

The drop in crude oil prices could further slow investment from the private sector, while the blow to ONGC and Oil India is softened by the government’s decision to exempt the upstream companies from paying the fuel subsidy with crude prices below $60/bbl.

“The new government in India is [aware] of these issues and is taking positive steps to encourage foreign investments in India’s E&P sector,” Khanna added. “Some significant changes include the new market-linked gas pricing formula currently in force, the new revenue-sharing model for upstream projects being considered, creation of the National Data Repository for all upstream blocks and upcoming bidding rounds for marginal fields and E&P blocks.”

In the meantime, the Indian government pushes a Made in India initiative, which brought together ONGC and Pan-IIT—a research consortium of seven premier Indian Institutes of Technology—in search of technologies to enhance not only hydrocarbons but also alternative energy sources. Research areas identified include geoscience, reservoir characterization, enhanced oil and gas production, and unconventional hydrocarbon exploration as well as software development, engineering solutions and alternate energy resources.

This comes as oil and gas companies advance their E&P plans.

On The Fast Track

ONGC Ltd. is moving ahead to develop the northern part of the KG-DWN-98/2 deepwater block in the Bay of Bengal using a cluster method.

“Considering the vast area for development, ONGC is using [a] cluster approach to bring oil and gas finds in the Block KG-DWN-98/2, or KG-D5, which sits next to Reliance Industries' KG-D6, to production," said Dharmendra Pradhan, India’s petroleum and natural gas minister.

So far, the explorer has made 11 oil and gas discoveries in the KG-DWN-98/2 Block, which spans 7,295 sq km (2,817 sq miles) and is divided into the Northern Discovery Area (NDA) and Southern Discovery Area (SDA).

The company will initially take on the development of 11 fields in the NDA of KG-D5 along with a gas field in the adjacent Block-IG (PEL) under a three-cluster plan, the minister said. The prospects, identified after two exploration phases, are located in water depths ranging from 594 m to 1,283 m (1,949 ft to 4,209 ft).

Pradhan also said the developer is aiming to produce first gas from NDA fields by mid-2018 and first oil by mid-2019.

“Parallel execution of a number of project activities are in progress to ensure fast-track development of these fields,” Pradhan added.

Development of the UD-1 gas discovery in SDA will be taken up in the later stage. “Considering the water depth [2,400 m to 3,200 m, or 7,874 ft to 10,499 ft] and the constrained techno-economic solutions, execution of this [SDA] is presently not being pursued for development,” he said. “Scouting for [a] suitable technology/solution for field development is in progress.”

Closer Look At Clusters

Considering many discoveries in the NDA are not independently viable, ONGC is tying up the prospects in clusters for development. It will develop 11 fields in NDA and one in the adjacent Block IG in three clusters by drilling 43 development and injection wells.

·         Cluster 1, a gas cluster, is comprised of the D and E fields of KG-DWN-98/2 and the G-4 Field in the adjacent IG Block. The plan involves drilling eight wells in the G4 Field, two wells in the D Field and one well in the E Field.
The development wells will target hydrocarbon prospects identified after the two-phase exploration work in these three fields. As per the declaration of commerciality (DoC) report, a peak production rate of 14.5 MMcm/d (512 MMcf/d) is expected from this cluster with a 15-year field life.

·         Cluster 2A focuses on the A2, G2-P1, M3, M1 and G-2-2 fields in the NDA of KG-D5. The operator plans to drill 14 oil wells and 10 water injectors in this cluster, which is considered be a major oil prospect. According to the DoC, this cluster is expected to produce about 31.5 MMmt of oil in 15 years with a peak production rate of 91,000 bbl/d.

·         Cluster 2B, a gas cluster, is a group of four fields—R, U3, U1 and A1—in the NDA. The plan envisages drilling eight free gas wells in these four fields. This cluster is likely to produce 32.5 Bcm (1.1 Tcf) of gas in 14 years with a peak production rate of 12.5 MMcm/d (441 MMcf/d), according to the DoC.

Dynamic modeling results suggest total gas production from gas fields in the NDA along with the G-4 Field of 84.41 Bcm (3 Tcf) with a peak gas rate of 33 MMcm/d (1.2 Bcf/d) over a period of 15 years.

The NDA is estimated to have reserves of 121 million tons of oil in place and 78 Bcm (2.8 Tcf) of initial gas in place, while the SDA holds 80.9 Bcm (2.9 Tcf) of initial gas in place. Based on the geological and geophysical analysis, the KG-D5 Block holds substantial upside potential of about 265 MMmt.

ONGC is looking at hiring the spare gas transportation facilities of the adjacent KG-OSN-2001/3 Block being developed by GSPC to bring the production from Cluster-I. The cluster’s three fields are near the 23-km (14-mile), 20-in. subsea pipeline planned by GSPC to transport oil and gas from its Deen Dayal Field in KG-OSN-2001/3 to an onshore terminal at Mallavaram on Andhra coast.

Production from Cluster-2A and 2B, however, will be transported through facilities that ONGC plans to develop. The targeted 90,000 bbl/d of oil from Cluster-2A will be transported to an FPSO vessel, and 12.5 MMcm/d of gas from Cluster-2B will be piped to an onshore terminal at Odalarevu on Andhra coast via a subsea pipeline. ONGC has awarded Technip a contract to develop the onshore terminal at Odalarevu to source oil and gas from KG-D5 and the neighboring shallow-water VA and S1 fields.

Offshore Push Grows

With 56% of India’s proven reserves in offshore basins, Khanna said that Indian companies have made substantial investments offshore, pointing out gas exploration in proven Mumbai Offshore and Krishna Godavari (KG) offshore basins.

“ONGC announced plans to invest about $1 billion by 2017 in the redevelopment of Mumbai High, an offshore oil and gas field on the West Coast. Further, RIL-BP, ONGC and GSPC are slated to make major investments (more than $5 billion) in the next three years in the KG Basin,” Khanna added. “Given the proven prospectivity of these regions, investments and further exploration are expected to continue at a steady rate.”

The government also is encouraging investment in the offshore Cauvery, Mahanadi and Kerela-Konkan basins, Khanna continued, noting “prospectivity has been identified in these regions; however, foreign and private investment are required to drive further exploration and proving up of reserves.”

ONGC and GSPC aren’t the only ones making strides offshore.

Cairn India Ltd. highlighted offshore production growth Jan. 22, 2015, during a conference call on the third-quarter financial results for the period ended Dec. 31, 2014. The company said it posted a 24% sequential production growth, reaching 39,000 boe/d. Building on the success of finds in the Ravva Basin, quarter notables also included a new discovery in Block RE-6 that is estimated to have between 10 MMbbl and 15 MMbbl of hydrocarbons in place. The company aims to produce about 4,000 boe/d.

“Ravva continues to be an excellent example of good reservoir management too, with a world-class recovery rate of 48% achieved this quarter. Gross daily production of about 28,000 barrels equivalent in the third quarter has been aided by eight infill wells drilled this fiscal [quarter],” Cairn CEO Mayank Ashar said in Cairn’s online transcript of the call.

In addition, optimization initiatives in Cambay helped lead to production growth of 10% year-on-year on a nine-month basis.

“Gross daily production of over 11,000 barrels equivalent was higher this quarter largely on account of successful ramp-up post well surveys. For the next quarter, a coil tubing campaign has been planned,” Ashar said. “This could impact volumes in the period but would aid production growth in subsequent quarters. Our recent success in Ravva and Cambay both point toward our constant endeavor to maximize value for shareholders through continued efforts.”

EOR Efforts Continue

While developments move forward offshore, operators also are progressing with the development of onshore fields. Cairn said it continues to focus on its core Mangala, Bhagyam and Aishwariya (MBA) reservoirs, which have 2.2 Bbbl of discovered hydrocarbons in place, concentrating on “infrastructure creation and prudent reservoir management in both waterflood and EOR implementation.”

“Over 90% of our production volumes are from core fields of MBA, Ravva and Cambay. These fields are resilient to volatility in oil prices due to their low operating cost and high margin,” Ashar said. “In addition, we have a rich set of optionalities for growth in the areas of exploration, satellite fields, Barmer Hill and the gas business.”

Ashar later spoke of the combination of good geology, technology adoption skills and growth options that uniquely position the company. The Mangala EOR project is among the examples of how the company is using technology to grow production. At the end of October 2014, Cairn marked the tie-up of three major projects—the first polymer injection at Mangala, which the company said is one of the largest polymer floods in the world.

“The Mangala EOR full ramp-up is progressing well; the commissioning of critical packages is in advanced stages of completion. High-performance rigs continue to drill additional EOR wells,” the company said in a statement. “After positive water cut and oil trends observed in the Mangala ASP pilot, we have progressed to testing of potential oilfield chemicals. We would be concluding the pilot within fourth-quarter fiscal year 2015 as planned.

“First injection of polymer at the field and full field ramp-up is underway to enhance recovery rates by 7% to 10%,” the company added. “We expect it would take about six months for the production to see the impact.”

The Mangala EOR project is one of several in which Cairn is using technology to improve its understanding of geology and improve capital efficiency as the industry continues to endure a downturn marked by low oil prices, too much supply and too little demand.

Reflecting on previous downturns and companies’ resilience in capital allocation, cost control and using employees’ creative capability, Ashar said, “My learning has been that there are always opportunities for good companies with good assets, and Cairn is no different.”

Ravi Prasad is an India-based contributor to E&P. Velda Addison is the associate online editor for E&P.

Source: http://www.epmag.com/offshore-pursuits-gain-speed-india-785196#p=full

Natural gas could save up to $27 million annually, new study says

Bringing natural gas to Kincardine, Arran-Elderslie and Huron-Kinloss could save up to $27 million per year, according to a new report from Elenchus Research Associates Inc.

“The report concludes that annual energy savings in the residential, commercial, agricultural, industrial and municipal sectors could total $27 million per year once the new gas utility is fully up and running,” the media release from the Municipality of Kincardine reads.

The Elenchus report, released Feb. 25, 2015, examines the potential economic gain from bringing natural gas to the area, chief administrative officer Murray Clarke said.

"Or looking at it from the inverse, the annual economic loss being experienced in not having the utility," he added.

It comes on the heels of last fall's natural gas business case, which examined anticipated demand and expected capital cost to bring the utility to the region.

“The natural gas business case we released to the public last fall shows that a new gas utility could be viable for our area,” said Arran-Elderslie mayor Paul Eagleson. “This latest report underscores the conclusions and recommendations in the business case.”

The report assessed potential benefits from bringing natural gas to the area in three categories: direct energy cost savings for potential customers; the environmental benefit for Ontario from reduced carbon footprint; and indirect benefits to the communities.

Areas without natural gas are at an economic disadvantage compared to their neighbours, the report states. It says southern Bruce County is lagging behind the growth of other nearby communities, which are more attractive to potential industry and homeowners who “expect natural gas to be available wherever they locate.”

“By finally having access to natural gas, we will remove and impediment to development in our area by leveling the playing field with neighbouring municipalities who already have gas,” Huron-Kinloss mayor Mitch Twolan said. “Having no access to natural gas is clearly an impediment to new investment and jobs in our communities.”

In terms of environmental benefit, the report states that switching to natural gas could reduce annual carbon dioxide emissions by 20,356 kilograms per year.

The report concludes that natural gas is a “more attractive” option than propane, heating oil and electricity based on economic, environmental, financial and operational reasons.

Municipality of Kincardine mayor Anne Eadie said the next step for the three municipalities is to canvas the marketplace for potential partners and operators.

“We expect to receive information proposals from multiple potential partners by late spring,” she said.

Source: http://www.lucknowsentinel.com/2015/03/03/natural-gas-could-save-up-to-27-million-annually-new-study-says