Time For India To Look At Energy Security From Geostrategic Perspective

India, unlike China, has tended to look at energy security through an economic prism rather than from a purely strategic perspective. China has been aggressively making energy deals – be it acquiring assets or negotiating decades-old procurement deals – without seemingly being worried about the cost to its exchequer, and has thereby succeeded in expanding its influence in several regions of the world by tying up its vast energy market with energy-exporting countries.

But is India now looking at energy through the strategic prism? Its recent signing of the TAPI deal is certainly indicative of that. Why else would New Delhi support a project that, despite the hype surrounding the recent activity regarding the deal, has as little chance of implementation as the IPI (Iran-Pakistan-India) project? Further, given that TAPI does not make much commercial sense, why is there so much optimism surrounding it?

The first, and perhaps the most crucial, aspect of the TAPI project is that it has the blessings of the US. Washington is keen to provide South Asian countries with alternatives to Iranian gas in order to starve Tehran of revenues from the IPI and nudge it towards a more pliant position on its nuclear programme, as well as to break Russia’s monopoly over Central Asia’s energy sector.

Secondly, it gives India the opportunity to gain a foothold in the Central Asian energy sector, which it has been seeking for a while. It is notable that during his recent visit to Ashkabad, Petroleum Minister Dharmendra Pradhan talked about expanding energy cooperation beyond TAPI into other projects in the energy sector – upstream, mid-stream as well as downstream. More importantly, with China raising its profile in the region by tying up energy deals with the Central Asian states, India too wants to mark its presence, and TAPI could be the vehicle for its geostrategic goals in the region.

But the question remains: will TAPI actually translate into a viable project?

As of now, only an expression of intent has been established, with no actual breakthrough having taken place, although the setting up of the TAPI Pipeline Company Limited (TPCL) by the four participating countries, viz., Turkmenistan, Afghanistan, Pakistan and India, which will own, finance, construct and operate the 1,800 km pipeline, was hailed as an indication of the viability of the project.

Secondly, a leader for the project has yet to be chosen by the partners, although the process has to be completed before early February 2015. However, given the continuing instability along the route of the pipeline, it remains to be seen whether a company/consortium will take on the high-risk project. No details regarding pricing of the gas have been discussed, which could make or break the project. After all, one of the reasons for the IPI’s failure was the lack of consensus on gas pricing. Moreover, India was reluctant to tie itself to a project where it would be dependent on Pakistan for transporting the gas. Neither of these factors has changed.

Finally, finding an international company that will accept the risk of financing the project will not be easy. For example, Chevron and Total had initially shown interest in leading the consortium in the TAPI project but backed out after Turkmenistan refused to accept the condition of a stake in the gas field that will source the pipeline. Now there are reports that India may propose a Chinese company to lead the consortium on the grounds that the Chinese are already present in Turkmenistan as well as their growing influence in Afghanistan.

However, the fact that China National Petroleum Company (CNPC) has been given access to Turkmenistan’s on-shore gas fields, including Galkhynysh, which will supply TAPI, may become a source of a problem. Given that developing Turkmenistan’s fields is cost-intensive, it would entail the use of Chinese capital and may require Ashkabad to borrow money from China to meet its share of the development costs. This would not only place Ashkabad in the danger of becoming a debtor nation to China, but could also affect negotiations on the pricing of gas to China, thus placing China in a dominant position. In turn, this could have repercussions on the price of the gas to be fed into the TAPI project as well.

In fact, Turkmenistan is wary of becoming increasingly dependent on China. As a result, Ashkabad is looking at alternative markets. Apart from TAPI, two other projects are also being negotiated — the Trans-Caspian pipeline to deliver Turkmen gas to Europe and the Trans-Anatolia (TANAP) project for transporting gas from both Turkmenistan and Azerbaijan to Europe through Turkey. If these projects take off, the more attractive European market will become a priority for Ashkabad.

Nevertheless, from a geostrategic perspective, India should remain engaged with the project, and initiate discussions with Moscow on bringing gas through a pipeline transiting the restive Xinjiang province of China. However, at the same time, India should also actively pursue the Iran option — though not necessarily the IPI model — as a more viable option. While Iran is still not out of the sanctions woods, there are signs that over the next few months it may reach a rapprochement with the US. Once that happens, Iran will, in all probability, prefer to pursue the more profitable European market for its gas. While the IPI project may not be acceptable to India due to its relations with Pakistan, the deep sea pipeline project through Oman should be looked at more closely, despite American opposition. After all, if the Modi government can seriously pursue the pipeline option with Moscow despite sanctions being imposed on Russia, the sub-sea pipeline from Iran, either through Oman or Qatar, is far more feasible, both technically and commercially. The window of opportunity with Iran is open for now, but may soon close if kept pending for much longer.

Source: Eurasiareview.com

Asia’s Energy Producers Focused on Long Game

Shock and awe: that’s an apt description of Joko Widodo’s approach to shaking up Indonesia’s energy industry.

Having warmed the president’s chair for less than two months, Joko has moved quickly to stamp his authority on Indonesia’s national oil company, Pertamina, as part of the new government’s plan to reform the corruption-riddled oil and gas industry and underwrite the energy security of the world’s fourth most populous nation.

The blood-letting has been quick - and brutal. Pertamina’s entire board of directors was dismissed, while long-time cement industry executive Dwi Soetjipto has been parachuted in as new chief executive and charged with reviving the fortunes of the national oil company at a time when Indonesia’s production of oil and gas has fallen. It’s hard to believe that the one-time member of the Organization of Petroleum Exporting Countries (OPEC) has become an increasing larger importer of foreign oil. Having barely settled into the job, Dwi announced plans during the week to build new refineries and upgrade existing facilities to reduce Pertamina’s fuel imports to zero by 2019. If successful, Pertamina will play a substantial hand in reining in the country’s hefty current account deficit.

But the sharpened focus on energy policy is not unique to Southeast Asia’s largest economy. Policymakers across the region are addressing all aspects of energy policy, be it fuel subsidies, the need to boost production of oil and gas, and the embrace of new technologies to bolster energy efficiency and combat pollution. The need to increase oil and gas production remains a focus for many countries in the energy hungry region. While the slump in oil prices to a four-year low has prompted the gnashing of teeth and a lot of handwringing in the Middle East and the U.S. shale industry, many Asian companies – both state-backed and publicly listed – continue to push ahead with projects that will ensure longer term energy security.

Given the forecast for Asia’s longer term energy demand, it’s little surprise that many Asian companies are continuing to invest despite the weak price environment. The International Energy Agency expects China to overtake the U.S. as the world’s largest oil consumer by 2030, with India and Southeast Asia emerging as growing sources of demand. On a shorter term horizon, JPMorgan expects Asian oil demand growth of around 500,000 barrels a day in 2015, a similar level to 2014 as rising demand from China, India and Southeast Asia offsets weaker demand in Japan. The broker is forecasting Chinese demand growth of around 300,000 barrels a day, driven mainly by rising demand for petrol amid increasing car ownership in the world’s second largest economy. India’s oil demand is expected to grow between 3% and 4% next year.

The robust demand outlook helps explain why many Asia-based producers are pushing ahead with new projects or deals, a stark contrast to the ongoing debate about who will blink first and cut oil production, Middle East oil producers or U.S. shale players. Over the past couple of weeks, we’ve seen PetroChina ( 857.HK ) and its partners commit to investing over $4 billion to drilling for shale in the China’s Southwestern municipality of Chongqing. Meanwhile, the partners in Australia’s massive North West Shelf Project liquefied natural gas project have committed $1.2 billion to the development of the Persephone gas field. This is the third major gas development in six years for the country’s largest operating oil and gas project. Two of the joint venture partners include BHP Billiton ( BHP.AU ) and Woodside Petroleum ( WPL.AU ), the latter being the operator of the NWS, which has exported LNG to Asia for 25 years.

Meanwhile, India’s Oil and Natural Gas Corp (500312.IN) is set to extend its reach well beyond the borders of the world’s second most populous country. The company, which was recently analyzed by Barron’s Asia’s Thomas Streater, is expected to ink an agreement next week to take a stake in two Siberian oil fields. Timed to coincide with the visit by Russian president Vladimir Putin to India, the deal involves Rosneft (ROSN.RU) selling a 10% stake in the Vankor field, the largest field to have been brought into production in Russia over the past 25 years. The deal comes quickly on the heels of an agreement to sell a 10% stake in Vankor to China’s CNPC in early November.

But to be clear, not all Asian energy producers are immune to the pain being inflicted by low oil prices. Malaysia’s national oil company, Petronas, has delayed a decision on its proposed Pacific Northwest LNG terminal due to concerns about the project’s high costs at a time when its revenues are being squeezed by lower oil prices. Meanwhile, Australia’s Santos ( STO.AU ), which is developing a major LNG project in the Australian state of Queensland, continues to be brutalized by investors. The stock plumbed to a 10-year low this week after the company announced it had pulled a EUR500 million hybrid capital raising and said it would review its spending plans for 2015.

While the low price environment will weed out those projects with dubious economics, longer term investments in Asian energy make sense given the robust outlook for demand. It is a point well appreciated by the many of the region’s energy companies, especially those with political masters who see the value in long term energy security. Energy stocks may be on the nose among investors, but seeking out those producers who can withstand the short term pain of lower prices in order to benefit from the gains provided by strong Asian demand over coming years could reward patient investors over the long term.

Source: barrons.com

Reliance Industries charters smaller vessel to ship diesel to Singapore

India's Reliance Industries has chartered a medium-range vessel to carry diesel from India to Singapore in December, a rare move for the refiner that typically uses larger vessels for the route, traders said on Friday.

Medium range vessels can carry about 35,000 to 40,000 tonnes of diesel. Reliance usually ships diesel to Singapore in long-range 2 sized vessels, or Aframaxes, that can carry about 80,000 to 100,000 tonnes of fuel, or in a long-range 1 sized vessel, or Panamaxes, that can carry about 50,000 to 60,000 tonnes.

As much as possible, Reliance ships diesel to Europe or Africa when arbitrage economics are viable and moves the fuel to Singapore only when demand in Europe is weak, traders said. "It is not economical in terms of freight costs to move the cargo in a smaller ship to Singapore, compared with moving larger volumes to the west from India," a shipbroker said.

It is unclear if Reliance plans to store the oil product in Singapore or sell it directly to a customer in the region. India shipped about 94,000 tonnes of diesel to Singapore in the week to Dec. 3, data from International Enterprise shows.

Reliance, controlled by billionaire Mukesh Ambani, operates the world's biggest refining complex in India's western state of Gujarat, where its two adjacent plants can process about 1.4 million barrels per day of oil.

In the past, it has sold diesel to countries like Australia, which is Asia's top diesel importer and where import demand is growing due to closures of its ageing refineries, traders said.

Source: HBL

cheap oil may change India’s destiny

Petroleum prices touched a new four -year low of $72.5 per barrel after the Organization of Petroleum Exporting Countries (OPEC) decided last week against reducing production . The 35 per cent price drop is a huge relief for India, where petroleum products comprise a third of the import bill. Cheaper oil means narrower current account and fiscal deficits, and reduced prices at the pump for consumers shopping for food-grains, vegetables, cement and steel.

Can this happy situation last? Will 2015 be the year in which high oil prices do not disadvantage India? Judging by history, it may be.

Before oil prices began to rise in 2003, a 20-year run of price stability fuelled global growth. But cheap oil killed off investments in exploration and production. OPEC gained market share, from 30 per cent of global production in 1983 to over 40 per cent by the end of 1990s.

Then the cycle turned: the lack of alternatives to OPEC and accelerating oil demand through the 1990s pushed oil prices up again to over $100 per barrel.

High oil prices revived investments in new exploration and alternatives in the last decade; both became financially rewarding. Huge oil and gas discoveries were made in Uganda, Mozambique and Brazil. From zero known oil reserves, Uganda now sits on 6.5bn barrels of oil, discovered since 2006. Mozambique has seen similar finds of natural gas.

But the largest new discoveries have come from the Americas. Brazil, already an important oil producer, has added 5bn barrels to its reserves. Argentina also has large shale oil and gas reserves. Ditto with shale gas in the US, the oil sands of Canada (reserves at 167.8bn barrels) and the Orinoco heavy crude of Venezuela (reserves of 220bn barrels). Canada and Venezuela alone account for a quarter of the world’s oil.

Technology has helped. Cheaper natural gas is now used as vehicle fuel, and the last five years has seen 80 per cent more gas-driven vehicles globally. They’re still just 2 per cent of all vehicles, but increasing. The energy efficiency focus has also paid off. The US, Japan, Germany, UK, France, Spain and Italy have cut oil consumption by 3.5m barrels per day between 2003 to 2013.

The boom-bust pattern is predictable. The oil shocks of the 1970s led to lower energy prices, which undermined exploration. After a generation, the global oil market found itself at the same spot – lacking alternatives and higher prices.

This time too, the pattern is similar, but with two new considerations:

1. China may be nearing its consumption peak. Its infrastructure build-out is complete, and growth is starting to slow. In the recently-inked US-China climate deal, it pledged to peak its emissions by 2030.

2. Renewable energy sources – sun and wind – are now large enough to dent fossil fuel demand. From 0.67 per cent in 2003, they now comprise 2 per cent of world energy supply – and will be 20 per cent of new demand over 30 years.

That means continued low and stable oil prices for at least two decades.

US speculators claim that OPEC, by keeping prices down, is sabotaging the development of US shale resources . This is unlikely. Most shale oil is produced by private companies, which can stay profitable longer than many OPEC governments can remain solvent.

Civil war and terrorism have not hit oil production or the infrastructure of major producing nations such as Iraq, Nigeria or Libya. Indeed, terrorists depend on illegal oil exports for financing their world domination objectives, and therefore they protect oil assets.

So, barring a catastrophic geopolitical event like Iran or Saudi Arabia seeing a major output disruption, oil will stay low. India’s fuel bill then, is set to fall drastically and remain there through the administration of Narendra Modi, the Indian prime minister.

Now is the time for India to build its strategic petroleum reserve – currently at a miniscule 10 days worth of oil use (compared to 90 days for OECD nations). It should also tie up contracts with emerging suppliers in North and South America, diversifying away from West Asia.

Lastly, New Delhi can invest in a more energy-efficient economy. Petroleum products in India are used for transporting goods and people. Investment in public transport and stringent standards for vehicle fuel consumption are easy to mandate. After years, a major global shift – low energy prices – has provided India an opportunity to improve energy security and shock-proof the economy.

Amit Bhandari is a fellow for energy and environment studies at Gateway House, Indian Council on Global Relations, a foreign policy think tank based in Mumbai

Source: FT Blog

India receives its biggest shipment of liquefied natural gas

India has received its biggest shipment of liquefied natural gas (LNG) by ship as it looks to diversify supplies and economise parcel size to meet growing energy demand. A Q-Max LNG vessel, the largest LNG carrier in its class, with a capacity of about 261,000 cubic meters, was received at Petronet LNG Ltd's Dahej import terminal in Gujarat yesterday.

The receipt of the ship, carrying cargo from Ras-Laffan, Qatar, has set another benchmark, the company said in a statement here. Last year, Petronet had successfully unloaded 1,000th cargo at Dahej in a short span of about 9 years.

"We are glad to receive first Q-Max LNG vessel, one of the biggest size LNG ships available today, at Dahej Terminal and expect to receive more such cargoes in future," Petronet Managing Director & CEO Ashok Kumar Balyan said.

In April, Petronet had signed a short-term contract with Qatar's Ras Laffan Liquefied Natural Gas Co to import 800,000 tonnes of LNG over 12 months to supply to refineries. Petronet currently imports 7.5 million tonnes a year of LNG from RasGas on a long-term contract that was signed in 2004.

"The global energy supplier currently makes regular deliveries to Petronet's Dahej and Kochi terminals. After South Korea, India is RasGas' largest recipient of LNG by volume," the statement said. RasGas will load its 1,000th cargo destined to Dahej in mid-December.

"The safe berthing and unloading of the Mekaines Q-Max vessel at Dahej is another significant milestone to highlight relationship between RasGas and Petronet. "As the largest single supplier of LNG to India, RasGas stands ready to assist Petronet in meeting India's growing demand for eco-friendly fuel.

"The delivery of the Q-Max cargo to Dahej Terminal demonstrates our flexibility in meeting our long-standing customer's needs," said Khalid Sultan R. Al Kuwari, RasGas' Chief Marketing and Shipping Officer. Petronet currently has two operational LNG import terminals - 10 million tonnes a year Dahej facility in Gujarat and 5 million tonnes per annum facility at Kochi in Kerala.

The firm, which meets about 30 per cent of the country's gas demand, has so far sourced over 1,250 cargoes at its Dahej LNG terminal. "The Dahej terminal is further being expanded to 15 million tonnes capacity. In September, 2013, Petronet has commissioned its 5 million tonnes LNG terminal at Kochi. "Petronet is also pursuing setting up of its third terminal at Gangavaram on the East Coast of India," the statement added.

Source: ET

Govt will focus on gas-based power: Narendra Modi

Prime Minister Narendra Modi said on Monday that the government would promote gas-based generation to power India's economy. On the last leg of his three-day visit to the Northeast, Modi announced state-owned ONGC would double its exploration budget for natural gas.

Modi was addressing a public rally after the inauguration of ONGC Tripura Power Company (OTPC)'s second unit of 363 Mw at Palatanam, in which ONGC holds 50 per cent equity in the project, while ILF&S has a 26 per cent stake. Prime Minister Narendra Modi said on Monday that the government would promote gas-based generation to power India's economy.

On the last leg of his three-day visit to the northeast, Modi announced state-owned Oil and Natural Gas Corporation (ONGC) would double its exploration budget for natural gas.

Modi was addressing a public rally after the inauguration of ONGC Tripura Power Company (OTPC)'s second unit of 363 Mw at Palatanam, in which ONGC holds 50 per cent equity in the project, while ILF&S has a 26 per cent stake.

During his speech, Modi said the government would convert its 'Look East' policy into 'Act East'. He added the government had signed an agreement with Japan to open an economic corridor with Myanmar, which would start from the northeast and boost employment in the region.

"Since the 21st century is said to belong to Asia, the northeast has the potential to become the gateway to Asia," Modi noted. Towards this end, the government would build modern infrastructure in the northeast, to unlock the region's potential, Modi added. He also said that if Bangladesh wanted to buy power, India was willing to sell it.

Striking a different cord, Tripura chief minister Manik Sarkar said the state government was keen on setting up gas-based urea and petrochemical plants instead of using gas just for the power plant.

The Palantala power plant has a capacity of 726 Mw, of which Assam has an allocation of 240 Mw, Tripura 196 Mw, Meghalaya 79 Mw, Manipur 42 Mw, Nagaland 27 Mw, Arunachal Pradesh 22 Mw, Mizoram 22 Mw and 98 Mw is to be sold on merchant basis by OTPC. Bangladesh is likely to get power from OTPC's share.

ONGC owns significant natural gas reserves in Tripura. However, these could not be commercially developed owing to low industrial demand in the region. In order to optimally utilise the gas available in the state, ONGC decided to monetise the gas reserves by setting up the 726.6-Mw Combined Cycle Gas Turbine power plant close to its gas fields along with an associated power transmission system from the project site to Bongaigaon in Assam.

During his speech, Modi said the government would convert its 'Look East' policy into 'Act East'. He added the government had signed an agreement with Japan to open an economic corridor with Myanmar, which would start from the northeast and boost employment in the region.

"Since the 21st century is said to belong to Asia, the northeast has the potential to become the gateway to Asia," Modi noted. Towards this end, the government would build modern infrastructure in the northeast, to unlock the region's potential, Modi added. He also said that if Bangladesh wanted to buy power, India was willing to sell it.

Striking a different cord, Tripura chief minister Manik Sarkar said the state government was keen on setting up gas-based urea and petrochemical plants instead of using gas just for the power plant.

The Palantala power plant has a capacity of 726 Mw, of which Assam has an allocation of 240 Mw, Tripura 196 Mw, Meghalaya 79 Mw, Manipur 42 Mw, Nagaland 27 Mw, Arunachal Pradesh 22 Mw, Mizoram 22 Mw and 98 Mw is to be sold on merchant basis by OTPC. Bangladesh is likely to get power from OTPC's share.

ONGC owns significant natural gas reserves in Tripura. However, these could not be commercially developed owing to low industrial demand in the region. In order to optimally utilise the gas available in the state, ONGC decided to monetise the gas reserves by setting up the 726.6-Mw Combined Cycle Gas Turbine power plant close to its gas fields along with an associated power transmission system from the project site to Bongaigaon in Assam.

Source: B.S

National interest, energy security more important than procedures: CAG

The national auditor, in a clear departure from its past stance, has asked the oil ministry to let national interest and energy security determine its approach towards commercial discoveries instead of niggling with procedural issues and sought "critical review and rationalisation" of contractual provisions that have troubled the industry.

In a keenly watched report on production sharing contracts for oil and exploration firms tabled in Parliament on Friday, the Comptroller & Auditor General (CAG) said in view of energy security, the country cannot afford to lose out on even a small discovery as it urged the government to speed up approvals of budgets and work programmes of blocks, which have been delayed by as much as 16 months after the end of the fiscal year.

The auditor also kept an eagle eye on the expenditure and claims by companies such as Reliance Industries, Cairn India and state-run ONGC, citing contractual provisions in observations about lapses. The report revealed that the price of crude oil produced from Cairn India's Rajasthan block had still not been finalised by the government, making payment of royalty, tax and state share of profit, tentative. It also recommended disallowing some costs of Reliance Industries in the KG-D6 block, and noted that state-run ONGC sold its share of gas from a joint venture to Torrent Power at a price lower than what was prescribed.

This report of CAG was keenly watched because its previous audit had made stern observations that prompted the oil ministry to initiate action against Reliance Industries. This led to arbitration and the company said its contract has a provision only for a financial audit, not the comprehensive performance audit by the CAG.

In what should cheer industry, the latest report highlighted huge delays in approvals of budgets for oil and gas blocks and called them a matter of concern.

"Timely approvals for budgets and development plans, efficient decision-making on the part of government in respect of valuation of hydrocarbons, signing commercial agreements, etc, are areas where delays are a matter of concern," it observed and urged the ministry of petroleum and natural gas (MoPNG) and the directorate general of hydrocarbons (DGH) to take timely action.

The ministry has already informed the audit team that DGH had given an assurance that from next year, the work programme and budget would be received by December 31 and all efforts would be made to approve it in three months. CAG said certain provisions of the contractual regime needed a thorough relook.

"Provisions relating to relinquishment of contract area, declaration and assessment of the viability of discoveries and their commerciality, sharing of risk, approval of development plans are some of the areas in the existing PSC model, which may require critical review and rationalisation so that there are no loose ends or vagueness."

It demonstrated this approach in its scrutiny of hurdles to exploration activity carried out in what is defined as a "discovery area", where Reliance Industries had spent $427 million.

CAG observed that "normally" the entire expenditure of $427 million would have to be disallowed for cost recovery because of certain contractual provisions.

However, from a pragmatic point of view, it has to be kept in mind that the exploration has resulted in commercial discovery viz D34 for which a development plan has already been approved. In three other cases viz D29, D30, D31 discoveries, review of commerciality is under finalisation," CAG noted.

"At this stage, keeping in mind the national interest and energy security, audit recommends that MoPNG should accept sharing of exploration cost of only those of the above mentioned wells which resulted in a commercial discovery and disallow the cost recovery of $118.99 million already effected by the operator on the remaining wells," it said.

Responding to the CAG report, RIL said it had "differences " on "basic issues" with the national auditor. "Our attention has been drawn to the CAG report tabled today in the Parliament. There are obvious differences between the CAG and RIL on certain basic issues concerning the Production Sharing Contract (PSC). Once we receive a formal communication of audit exceptions by the government, we will respond to the government in accordance with the provisions of the Accounting Procedure under the PSC and also exercise such other rights as are available to us in law," RIL said.

On the issue of gas reserves in the producing fields of the KG-D6 block, which turned out to be much lower than what was envisaged in the field development plan (FDP), the CAG report noted that the oil ministry and DGH are responsible for scrutinising the FDP before approving it.

Source: ET