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