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Feb 2016
Indraprastha Gas Limited argues, for example, that the new regulations will adversely affect the economic viability of infrastructure that the entity had built, under the government's instructions, to ensure domestic LNG connections on a “Mission mode” not just within urban limits of Delhi but also in its rural parts while being unmindful of the cost and has appealed for extension of the exclusivity period.
8At another level, the IGL is also arguing that the PNGRB only been invested with the right to flesh out the guiding principles to determine the end of exclusivity and does not have the power issue directives on the subject.
8Likewise, Central UP Gas Ltd too has said that it is still commissioning its CNG stations in Kanpur and Bareilly and it will be unfair at this juncture for new players to come in. Gujarat Gas which operates the Surat-Bharuch-Ankleswar CGD networks, has gone a step ahead, to challenge the PNGRB Act which it states is not vested with the power to end exclusivity, but only to provide declaration of entitities as common carriers. t further stipulates that the Board is bound by the statute under which it was created and requires to uphold the “principles of natural justice” in deciding the end of exclusivity or the extent and limits of geographical areas that come under the purview of the CGDs.
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8At another level, the IGL is also arguing that the PNGRB only been invested with the right to flesh out the guiding principles to determine the end of exclusivity and does not have the power issue directives on the subject.
8Likewise, Central UP Gas Ltd too has said that it is still commissioning its CNG stations in Kanpur and Bareilly and it will be unfair at this juncture for new players to come in. Gujarat Gas which operates the Surat-Bharuch-Ankleswar CGD networks, has gone a step ahead, to challenge the PNGRB Act which it states is not vested with the power to end exclusivity, but only to provide declaration of entitities as common carriers. t further stipulates that the Board is bound by the statute under which it was created and requires to uphold the “principles of natural justice” in deciding the end of exclusivity or the extent and limits of geographical areas that come under the purview of the CGDs.
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Surprisingly GAIL has on the other hand welcomed the end of exclusivity period for CGD networks.
8All that the gas major insited upon what that the PNGRB must ensure that the exclusivity of the network operated by Gujarat Gas and Sabarmati Gas shold also be terminated just as others ought to be.
8The two Gujarat based state sector companies operate the the Surat-Bharuch-Ankleswar and the Gandhinagar-Mehsana- Sabarkanta networks, respectively as an oppportunity for industrial consumers who would be now able to source natural gas at more competitive prices.
8Clearly GAIL seems to be happy sharing the networks in which it has a stakeholder. The reason is that its monopoly gas pipeline network will be better utilized if more local players come into the picture.
8Currently GAIL's pipeline infrastructure has a capacity utilization of less than 50%.
8Then again, the public sector major is salivating at the prospect of gaining entry into rival CGD entities such as the networks controlled by state owned entities in Gujarat.
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8All that the gas major insited upon what that the PNGRB must ensure that the exclusivity of the network operated by Gujarat Gas and Sabarmati Gas shold also be terminated just as others ought to be.
8The two Gujarat based state sector companies operate the the Surat-Bharuch-Ankleswar and the Gandhinagar-Mehsana- Sabarkanta networks, respectively as an oppportunity for industrial consumers who would be now able to source natural gas at more competitive prices.
8Clearly GAIL seems to be happy sharing the networks in which it has a stakeholder. The reason is that its monopoly gas pipeline network will be better utilized if more local players come into the picture.
8Currently GAIL's pipeline infrastructure has a capacity utilization of less than 50%.
8Then again, the public sector major is salivating at the prospect of gaining entry into rival CGD entities such as the networks controlled by state owned entities in Gujarat.
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Indian Oil Corporation (IOC) is one entity that seems to be excited that the exclusivity period is coming to to an end. It has called for a fair and non discriminatory access mechanism to be put in place.
8IOC has called for removal of ambiguities in the regulations about the points at which entry and exit will be given to a CGD infrastructure and a guarantee that the infrastrcuture will be adequately available and maintained.
8The public sector refiner has also recommended that the payment of any "overrun charges" should be required only if it is clearly established that there is a breach of system capacity or any loss has been convincingly established. IOC referred to similar regulations put in place by the Federal Regulatory Energy Commission of the USA ( FERC) to argue that "overrun charges b elevied “only to the extent necessary to prevent impairment of reliable services”.
8On the issue of Imbalance Charges , IOC has suggested that PNRGB's recommendation for fortnightly charges should be modified to quarterly charges and then subsequently phased away to annual basis.
8Overrun Charges too, IOC has recommended should not be levied on quantity but on MDQ, while the payment cycle offered by the shipper to its customers be made at least in excess of 4 days than what is offered by the authorized entity to ensure a level playing field to the shipper.
8In the PNGRB regulation (Regulation 8) that allows for expansion of the pipelines and infrastructure during the economic life of a CGD network by the authorised entity, IOC points out this conflicts with the provisions made in Sub-Regulation 8 , and sub-Regulation 11( iii) which provides for payments to be made by shipper for facilities required to be provided by the CGD entity to allow access to its network. The imbalance caused in the shipper’s offer if it is uneconomical compared to the CGD entity's should be plugged by removing the additional levies on the shipper for measurement and delivery facilities.
8Further the entry and exit points for capacity bookings must be made known by the CGD entity to the PNGRB and they should be given at all major demand centres along the CGD entity's network well before the actual capacity booking process is initiated.
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8IOC has called for removal of ambiguities in the regulations about the points at which entry and exit will be given to a CGD infrastructure and a guarantee that the infrastrcuture will be adequately available and maintained.
8The public sector refiner has also recommended that the payment of any "overrun charges" should be required only if it is clearly established that there is a breach of system capacity or any loss has been convincingly established. IOC referred to similar regulations put in place by the Federal Regulatory Energy Commission of the USA ( FERC) to argue that "overrun charges b elevied “only to the extent necessary to prevent impairment of reliable services”.
8On the issue of Imbalance Charges , IOC has suggested that PNRGB's recommendation for fortnightly charges should be modified to quarterly charges and then subsequently phased away to annual basis.
8Overrun Charges too, IOC has recommended should not be levied on quantity but on MDQ, while the payment cycle offered by the shipper to its customers be made at least in excess of 4 days than what is offered by the authorized entity to ensure a level playing field to the shipper.
8In the PNGRB regulation (Regulation 8) that allows for expansion of the pipelines and infrastructure during the economic life of a CGD network by the authorised entity, IOC points out this conflicts with the provisions made in Sub-Regulation 8 , and sub-Regulation 11( iii) which provides for payments to be made by shipper for facilities required to be provided by the CGD entity to allow access to its network. The imbalance caused in the shipper’s offer if it is uneconomical compared to the CGD entity's should be plugged by removing the additional levies on the shipper for measurement and delivery facilities.
8Further the entry and exit points for capacity bookings must be made known by the CGD entity to the PNGRB and they should be given at all major demand centres along the CGD entity's network well before the actual capacity booking process is initiated.
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Maharashtra Gas the CGD carrier for Pune- Pimpri Chinchwad network has sought an extension to the exclusivity period on grounds of having invested in time and extensive resources for laying of pipelines to provide CNG to more than 50000 households in the current fiscal year. The entity claims that it has not yet been able to elicit a reasonable return on its investment and the creation of duplicate access will not be in the economy's interest.
8Eyeing access the Kakinada and Vijayawada CGD networks, KEIRSOS Petroleum and Energy has urged that GAIL and other existing CGD entities should be called upon to provide guaranteed and "friendly access" to their pipeline networks to source gas from isolated fields and wells of the KG basin to the two CGD networks.
8KEIRSOS also recommends that new entities that can source their own gas from oil wells and fields must be allowed to set up their CNG stations in these two networks. The company goes on to say that entities should be allowed to market CNG in cascades to consumers who have no access to new CNG stations in the two GAs.
8Meanwhile, the Jhagadia Industrial Association in a memorandum has accused GGCL, the carrier for the Surat- Bharuch-Ankleswar CGD, that the exclusivity granted to the entity has prevented consumers from buying LNG from other suppliers. It further observes that while falling oil prices have resulted in lowering price of gas everywhere, GGCL has not brought down its rates causing the closure of many small and medium industries in the Jhagadia district.
8Alleging that the exclusivity rights has aided the discriminatory and monopolistic strategies of the entity in marketing gas in the region, the Associated reiterates that the PNGRB must remain committed to its principles of transparency while declaring exclusivity rights and keep healthy competition among entities.
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8Eyeing access the Kakinada and Vijayawada CGD networks, KEIRSOS Petroleum and Energy has urged that GAIL and other existing CGD entities should be called upon to provide guaranteed and "friendly access" to their pipeline networks to source gas from isolated fields and wells of the KG basin to the two CGD networks.
8KEIRSOS also recommends that new entities that can source their own gas from oil wells and fields must be allowed to set up their CNG stations in these two networks. The company goes on to say that entities should be allowed to market CNG in cascades to consumers who have no access to new CNG stations in the two GAs.
8Meanwhile, the Jhagadia Industrial Association in a memorandum has accused GGCL, the carrier for the Surat- Bharuch-Ankleswar CGD, that the exclusivity granted to the entity has prevented consumers from buying LNG from other suppliers. It further observes that while falling oil prices have resulted in lowering price of gas everywhere, GGCL has not brought down its rates causing the closure of many small and medium industries in the Jhagadia district.
8Alleging that the exclusivity rights has aided the discriminatory and monopolistic strategies of the entity in marketing gas in the region, the Associated reiterates that the PNGRB must remain committed to its principles of transparency while declaring exclusivity rights and keep healthy competition among entities.
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The Additional Chief Secretary to the government of Assam that the Upper Assam Gas Distribution Network of the state run Assam Gas Company, unlike other CGD entiries, covers a thinly populated area comprising rural and semi rural habitats which are fed by Piped Natural Gas and not CNG, unlike in most urban and suburban areas across the rest of the country.
8This though commercially limited, is socially and environmentally conducive to the region.
8Then again, the Assam Gas Company has drawn up a plan to bring CNG into the entire Dibrugarh town area by March 2016, an exercise that has been on for several years now.
8Most of the area is fed natural gas from isolated wells and 20 take off points by the Assam Gas company which cannot be replicated by other players, a rationale on which the company deserves to be granted extension of exclusivity for another decade, the bureaucrat claims.
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8This though commercially limited, is socially and environmentally conducive to the region.
8Then again, the Assam Gas Company has drawn up a plan to bring CNG into the entire Dibrugarh town area by March 2016, an exercise that has been on for several years now.
8Most of the area is fed natural gas from isolated wells and 20 take off points by the Assam Gas company which cannot be replicated by other players, a rationale on which the company deserves to be granted extension of exclusivity for another decade, the bureaucrat claims.
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OIl India Ltd will be one of the few companies in the world which have been able to keep its bottomline more or less intact even as oil prices drop by record levels.
8Now that the subsidy to refining companies has been withdrawn, OIL posted a net profit of Rs 410 crore in Q3 as against Rs 498 crore in Q-3 of the previous year.
8For the nine month period ending Q3, 2015-16, net profits stood at Rs 1860 crore as against Rs 1958 crore for the same period earlier.
8The difference is because the actual price elicited by OIL -- after taking out the discounts given earlier to oil refiners -- remains more or less the same.
8This only prove how perversely subsidies work through the system.
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8Now that the subsidy to refining companies has been withdrawn, OIL posted a net profit of Rs 410 crore in Q3 as against Rs 498 crore in Q-3 of the previous year.
8For the nine month period ending Q3, 2015-16, net profits stood at Rs 1860 crore as against Rs 1958 crore for the same period earlier.
8The difference is because the actual price elicited by OIL -- after taking out the discounts given earlier to oil refiners -- remains more or less the same.
8This only prove how perversely subsidies work through the system.
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An analyst has pointed out that India should ban the use of ethanol for blending in petrol.
8Back-of-the-envelope calculations suggested that ethanol, which has 60% of the calorific value of petrol, was competitive at a crude oil price of $70/barrel.
8So, mixing ethanol with petrol made eminent sense at the time. But does this make sense today, when oil is barely $26/barrel?
8Well, it does not, the analyst argues.
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8Back-of-the-envelope calculations suggested that ethanol, which has 60% of the calorific value of petrol, was competitive at a crude oil price of $70/barrel.
8So, mixing ethanol with petrol made eminent sense at the time. But does this make sense today, when oil is barely $26/barrel?
8Well, it does not, the analyst argues.
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There seems to be a rather strange de-coupling of data trends in the economy of late.
8While the Index of Industrial Production (IIP) has gone down, consumption of petroleum products continues to go up sharply.
8A case at point is the negative growth of 1.3% in the the IIP in December 2015 even as consumption of petroleum products grew at 8.3 percent during the month in relation to the same month in the previous year.
8There was a jump of 9.3% in the consumption of HSD, MS, naphtha, lubes, LDO, FO/LSHS, bitumen and ATF.
8This kind of consumption growth should clearly have rubbed off on the IPP but did not.
8What could explain the dichotomy? One reason could be the substitution effect of a decline in gas consumption.
8While gas consumption grew at double digits last year, it is in negative territory in the last few months despite a fall in both long term and sport rates.
8Concomitantly, the consumption of naphtha and FO/LSHS has gone up sharply as the cheaper oil prices have made these more attractive than gas.
8So in effect, what is happening is a mere substitution of one industrial fuel with others, leaving the overall IPP stagnant or negative.
8But what explains the sharp growth in the sale of MS, ATF and bitumen? Passenger vehicle sales, air traffic and highway construction continued to go up at a furious pace and yet the IPP is down.
8Clearly, this phenomena needs some explanation.
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8While the Index of Industrial Production (IIP) has gone down, consumption of petroleum products continues to go up sharply.
8A case at point is the negative growth of 1.3% in the the IIP in December 2015 even as consumption of petroleum products grew at 8.3 percent during the month in relation to the same month in the previous year.
8There was a jump of 9.3% in the consumption of HSD, MS, naphtha, lubes, LDO, FO/LSHS, bitumen and ATF.
8This kind of consumption growth should clearly have rubbed off on the IPP but did not.
8What could explain the dichotomy? One reason could be the substitution effect of a decline in gas consumption.
8While gas consumption grew at double digits last year, it is in negative territory in the last few months despite a fall in both long term and sport rates.
8Concomitantly, the consumption of naphtha and FO/LSHS has gone up sharply as the cheaper oil prices have made these more attractive than gas.
8So in effect, what is happening is a mere substitution of one industrial fuel with others, leaving the overall IPP stagnant or negative.
8But what explains the sharp growth in the sale of MS, ATF and bitumen? Passenger vehicle sales, air traffic and highway construction continued to go up at a furious pace and yet the IPP is down.
8Clearly, this phenomena needs some explanation.
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Consumption of petroleum products continued to gallop in January 2015.
8It went up by a whopping 12.70% as compared to a growth of 9.8% in April-January, 2015-16.
8Here again, the growth was lead by a 11.4% spurt in MS consumption.
8Naphtha sales went up 22% while ATF was up 10%.
8There was an incredible jump of 38% in the consumption of lubrications and greases.
8Bitumen consumption was up 11.65%.
8Petroleum coke uptake saw a rise of a massive 28%.
8All this is an indication that industrial activity is picking up speed.
8Will this reflect on the IPP?
8We will have to wait till the IPP data comes in to figure out what happens next.
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8It went up by a whopping 12.70% as compared to a growth of 9.8% in April-January, 2015-16.
8Here again, the growth was lead by a 11.4% spurt in MS consumption.
8Naphtha sales went up 22% while ATF was up 10%.
8There was an incredible jump of 38% in the consumption of lubrications and greases.
8Bitumen consumption was up 11.65%.
8Petroleum coke uptake saw a rise of a massive 28%.
8All this is an indication that industrial activity is picking up speed.
8Will this reflect on the IPP?
8We will have to wait till the IPP data comes in to figure out what happens next.
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The website had said earlier that a fall in business secured by Engineers India Ltd in recent months is an indication of a slowdown in project activity in the core petroleum related segments in India, brought about by a crash in oil prices.
8Punj Loyd is a more diversified engineering and EPC company than EIL but the disappointing growth posted by it points to a continued depression in project stat-ups.
8The company's income is down by 27% at Rs 1,013 crore in Q-2, 2015-16. Losses are up at Rs 300 crore in comparison to Rs 148 crore.
8For the nine month period, income is down to Rs 2,715 crore against Rs 3,682 crore for the same period in the previous year while losses are up at Rs 1182 crore as against Rs 755 crore.
8The poor performance is on account of delay in the award of projects already won as companies deferred investment decisions.
8Negotiations with clients for impending new business has also shown little traction.
8Then again, non-availability of incremental working capital has slowed down projects.
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8Punj Loyd is a more diversified engineering and EPC company than EIL but the disappointing growth posted by it points to a continued depression in project stat-ups.
8The company's income is down by 27% at Rs 1,013 crore in Q-2, 2015-16. Losses are up at Rs 300 crore in comparison to Rs 148 crore.
8For the nine month period, income is down to Rs 2,715 crore against Rs 3,682 crore for the same period in the previous year while losses are up at Rs 1182 crore as against Rs 755 crore.
8The poor performance is on account of delay in the award of projects already won as companies deferred investment decisions.
8Negotiations with clients for impending new business has also shown little traction.
8Then again, non-availability of incremental working capital has slowed down projects.
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Atul Punj chairman of Punj Loyd sees a silver lining in the dark clouds surrounding the core infrastructure sector in the months ahead.
8In Q-3, the company won four highway contracts worth Rs 1,555 crore and two orders have come in from NTPC for rural electrification.
8The government seems to be pushing hard to shore up investments in the segments in which it is active.
8"This we believe is a reflection of a gradually improving environment and should this continue, we are confident that Punj Lloyd, which possesses the requisite scale and capability, will be better positioned, Punj said.
8In projects which have been stalled, funding issues are slowly getting addtressed, Punj noted.
8He expects improved execution going ahead.
8The company's order backlog currently stands at Rs 23,330 crore.
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8In Q-3, the company won four highway contracts worth Rs 1,555 crore and two orders have come in from NTPC for rural electrification.
8The government seems to be pushing hard to shore up investments in the segments in which it is active.
8"This we believe is a reflection of a gradually improving environment and should this continue, we are confident that Punj Lloyd, which possesses the requisite scale and capability, will be better positioned, Punj said.
8In projects which have been stalled, funding issues are slowly getting addtressed, Punj noted.
8He expects improved execution going ahead.
8The company's order backlog currently stands at Rs 23,330 crore.
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Feb 15 : Depression in the oil and segment-V: Will India be able to escape global economic slowdown?
The global economy is markedly cooling down and this is going to have an impact on India through the external sector.
8The still healthy US economy is showing signs of slowing, with the 2016 growth rate projected to be under 2%.
8The structural adjustments in Europe and Japan are still getting resolved, and these economies are unlikely to show uptrends.
8Then again, the Chinese economy is trying to transition to becoming service oriented from being manufacturing led and this is going to be a long and painful process, as companies have been left debt ridden without the concomitant ability to service the loans.
8The bust in commodity prices has put emerging economies in a tight spot and growth is not expected from this segment.
8All this leaves India as the bright spot but if exports continue to be depressed, the domestic economy will have to compensate for the loss.
8Can the economy grow fast enough for this to happen? Is it possible for the Indian economy to decouple from the rest of the world?
8This is something only time will tell.
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8The still healthy US economy is showing signs of slowing, with the 2016 growth rate projected to be under 2%.
8The structural adjustments in Europe and Japan are still getting resolved, and these economies are unlikely to show uptrends.
8Then again, the Chinese economy is trying to transition to becoming service oriented from being manufacturing led and this is going to be a long and painful process, as companies have been left debt ridden without the concomitant ability to service the loans.
8The bust in commodity prices has put emerging economies in a tight spot and growth is not expected from this segment.
8All this leaves India as the bright spot but if exports continue to be depressed, the domestic economy will have to compensate for the loss.
8Can the economy grow fast enough for this to happen? Is it possible for the Indian economy to decouple from the rest of the world?
8This is something only time will tell.
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As for the oil and gas sector, the global depression continues as oil prices fail to pick up momentum.
8The industry had cut capital expenditure by $200 billion in 2015.
8The news now is that expenditure will be down another $200 billion in 2016.
8The projections are that the the number of operating oil and gas drill units globally will go down by 30% in 2016 following the decommissioning of nearly a half of the number of drill units for the last two years.
8The number of operating drill units has reduced by 47%, from 3736 in February 2014 until now
8Eventually however there has to be a balancing out, when lower investments cause output to dip and prices to rise.
8When that happens is the billion dollar question.
8Some projections are carried here of how oil prices are going to behave year-wise from 2016-2020.
8The data show a price range of $42 to $70/bbl or so.
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8The industry had cut capital expenditure by $200 billion in 2015.
8The news now is that expenditure will be down another $200 billion in 2016.
8The projections are that the the number of operating oil and gas drill units globally will go down by 30% in 2016 following the decommissioning of nearly a half of the number of drill units for the last two years.
8The number of operating drill units has reduced by 47%, from 3736 in February 2014 until now
8Eventually however there has to be a balancing out, when lower investments cause output to dip and prices to rise.
8When that happens is the billion dollar question.
8Some projections are carried here of how oil prices are going to behave year-wise from 2016-2020.
8The data show a price range of $42 to $70/bbl or so.
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The demand for LNG reduces as more transnational gas pipelines are commissioned.
8News that the third section, Line C of the Kazakhstan-China gas pipeline that connects Turkmenistan, Uzbekistan, Kazakhstan and China, has been commissioned in Zhambyl district of Almaty region will have a depressing impact, albeit indirectly, on LNG demand. The total length of Line C of the Kazakhstan-China gas pipeline is 1,303 km.
8The pipeline has successfully passed all preproduction test runs. Line C and Lines A, B of the gas pipeline Kazakhstan-China run across South Kazakhstan, Zhambyl and Almaty regions and provide gas for local consumers in these regions along the way. The Kazakhstan-China main pipeline is part of the 7,500-km cross-border gas pipeline, Turkmenistan-Uzbekistan-Kazakhstan-China.
8In contrast, the Turkmenistan-Afganistan-Pakistan-India pipeline is showing very slow progress.
8Whether work can progress on the Iran-Pakistan-India pipeline or the ambitious undersea pipeline remains to be seen.
8This website had argued in great detail in the past that the India must build transnational pipelines even if the financial and security risks are big as it will help the country to pit pipeline suppliers with those of LNG to elicit better gas prices.
8Europe does this to great benefit while negotiating with Russia for gas pipeline gas supply even as its LNG terminals remain empty..
8The sunk cost of such pipelines will come out of lower gas prices on account of a stronger bargaining position.
8Despite hiccups with Pakistan, South Block must send instructions to Indian interlocutors for the TAPI pipeline to continue pushing ahead with its construction regardless of anything else.
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8News that the third section, Line C of the Kazakhstan-China gas pipeline that connects Turkmenistan, Uzbekistan, Kazakhstan and China, has been commissioned in Zhambyl district of Almaty region will have a depressing impact, albeit indirectly, on LNG demand. The total length of Line C of the Kazakhstan-China gas pipeline is 1,303 km.
8The pipeline has successfully passed all preproduction test runs. Line C and Lines A, B of the gas pipeline Kazakhstan-China run across South Kazakhstan, Zhambyl and Almaty regions and provide gas for local consumers in these regions along the way. The Kazakhstan-China main pipeline is part of the 7,500-km cross-border gas pipeline, Turkmenistan-Uzbekistan-Kazakhstan-China.
8In contrast, the Turkmenistan-Afganistan-Pakistan-India pipeline is showing very slow progress.
8Whether work can progress on the Iran-Pakistan-India pipeline or the ambitious undersea pipeline remains to be seen.
8This website had argued in great detail in the past that the India must build transnational pipelines even if the financial and security risks are big as it will help the country to pit pipeline suppliers with those of LNG to elicit better gas prices.
8Europe does this to great benefit while negotiating with Russia for gas pipeline gas supply even as its LNG terminals remain empty..
8The sunk cost of such pipelines will come out of lower gas prices on account of a stronger bargaining position.
8Despite hiccups with Pakistan, South Block must send instructions to Indian interlocutors for the TAPI pipeline to continue pushing ahead with its construction regardless of anything else.
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For those who are watching crude and commodity price movements must keep track of the correlations mentioned mentioned below. The website carries here the data back for each of these hypotheses.
8Crude oil prices react to a variety of geopolitical and economic events
8World oil prices move together due to arbitrage
8Crude oil prices are the primary driver of petroleum product prices
8Economic growth has a strong impact on oil consumption percent change (year-on-year)
8Changes in expectations of economic growth in can affect oil prices
8In OECD countries, price increases have coincided with lower consumption
8Rising oil prices held down global oil consumption growth from 2005-2008, despite high economic growth
8Changes in non-OPEC production can affect oil prices
8Non-OPEC supply expectations indicate changes in market sentiment concerning oil supply
8Changes in Saudi Arabia crude oil production can affect oil prices
8Unplanned supply disruptions tighten world oil markets and push prices higher
8During 2003-2008, OPEC’s spare production levels were low, limiting its ability to respond to demand and price increases
8The years 2003-2008 experienced periods of very strong economic and oil demand growth, slow supply growth and tight spare capacity
8Inventory builds go hand-in-hand with increases in future oil prices relative to current prices (and vice versa)
8Open interest in crude oil futures grew over the last decade as more participants entered the market
8Physical participants’ (producers, merchants, processors, and end users) U.S. futures market contract positions
8Money managers tend to be net long in the U.S. oil futures market
8Crude oil plays a major role in commodity investment
8Commodity index investment flows have tended to move together with commodity prices
8Correlations (+ or -) between daily price changes of crude oil futures and other commodities generally rose in recent years
8Correlations (+ or -) between daily returns on crude oil futures and financial investments have also strengthened.
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8Crude oil prices react to a variety of geopolitical and economic events
8World oil prices move together due to arbitrage
8Crude oil prices are the primary driver of petroleum product prices
8Economic growth has a strong impact on oil consumption percent change (year-on-year)
8Changes in expectations of economic growth in can affect oil prices
8In OECD countries, price increases have coincided with lower consumption
8Rising oil prices held down global oil consumption growth from 2005-2008, despite high economic growth
8Changes in non-OPEC production can affect oil prices
8Non-OPEC supply expectations indicate changes in market sentiment concerning oil supply
8Changes in Saudi Arabia crude oil production can affect oil prices
8Unplanned supply disruptions tighten world oil markets and push prices higher
8During 2003-2008, OPEC’s spare production levels were low, limiting its ability to respond to demand and price increases
8The years 2003-2008 experienced periods of very strong economic and oil demand growth, slow supply growth and tight spare capacity
8Inventory builds go hand-in-hand with increases in future oil prices relative to current prices (and vice versa)
8Open interest in crude oil futures grew over the last decade as more participants entered the market
8Physical participants’ (producers, merchants, processors, and end users) U.S. futures market contract positions
8Money managers tend to be net long in the U.S. oil futures market
8Crude oil plays a major role in commodity investment
8Commodity index investment flows have tended to move together with commodity prices
8Correlations (+ or -) between daily price changes of crude oil futures and other commodities generally rose in recent years
8Correlations (+ or -) between daily returns on crude oil futures and financial investments have also strengthened.
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Petronet LNG Ltd's current expansion plan at its Dahej terminal is on track and 15 MMT of capacity will be available by November 2016.
8The company has already spent Rs 1600 crore of the total capex of Rs 2200 crore, with the remaining amount will be spent in coming quarters.
8Orders are to be awarded this year for the expansion of the terminal from 15 MMT to 17.5 MMT
8The company meanwhile has not taken any regas tariff cut on stranded power plant volume
8Higher Regas volumes replaced the long term volumes and there is likely to be a demand pick up from the power and fertilizer sectors.
Kochi terminal
8Capacity utilization was 2-3%
8Currently, company is charging ~ Rs71.8/mmbtu as a Regas charges
8Delivery from Gorgon in Australia will start from November 2016 and full ream-up is expected from 2017 end.
8There are now some positive movement in the building of the Kochi–Manglore pipeline , after supreme court order
8Key consumers along the pipeline route could be the MFCL fertilizer plant, OPAL and MRPL with a potential demand of 1 MMTPA.
8The company will have to find more consumers along the way to be able to ensure higher capacity utilization for the Kochi terminal.
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8The company has already spent Rs 1600 crore of the total capex of Rs 2200 crore, with the remaining amount will be spent in coming quarters.
8Orders are to be awarded this year for the expansion of the terminal from 15 MMT to 17.5 MMT
8The company meanwhile has not taken any regas tariff cut on stranded power plant volume
8Higher Regas volumes replaced the long term volumes and there is likely to be a demand pick up from the power and fertilizer sectors.
Kochi terminal
8Capacity utilization was 2-3%
8Currently, company is charging ~ Rs71.8/mmbtu as a Regas charges
8Delivery from Gorgon in Australia will start from November 2016 and full ream-up is expected from 2017 end.
8There are now some positive movement in the building of the Kochi–Manglore pipeline , after supreme court order
8Key consumers along the pipeline route could be the MFCL fertilizer plant, OPAL and MRPL with a potential demand of 1 MMTPA.
8The company will have to find more consumers along the way to be able to ensure higher capacity utilization for the Kochi terminal.
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Oil marketing companies are in the process of adding more aggregators for providing industrial fuels such as naptha, FO, LSHS, LDO and industrial alcohol in the country.
8The caveat is that these aggregators will be able to sell only to the MSME segments.
8No volumes will be guaranteed by the oil marketing companies
8These aggregators will not be allowed to sell any volume to large industries.
8Oil marketing companies will sell directly to these companies.
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8The caveat is that these aggregators will be able to sell only to the MSME segments.
8No volumes will be guaranteed by the oil marketing companies
8These aggregators will not be allowed to sell any volume to large industries.
8Oil marketing companies will sell directly to these companies.
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The RIL-BP-Niko combine has put investments in new discoveries on hold until gas prices improve.
8This was official announced by its junior partner Niko today.
8Using benchmark prices for the period of January 1, 2015 to December 31, 2015, the combine has estimated that the price for gas sales from the D6 Block in India for the April 2016 to September 2016 period could go down to approximately $3.15 / MMbtu GCV (approximately $3.50 / MMbtu NCV).
8Under government gudelines, gas prices are to be determined on a semi-annual basis and calculated based on a volume weighted average of prices in the US, Canada, Europe and Russia, based on the twelve month trailing average price with a lag of three months, and deductions for transportation and treatment charges.
8Development of numerous existing discoveries in the D6 Block is dependent on the future economic viability of the required investments.
8The price for oil and condensate sales in the block for the third quarter of fiscal 2016 decreased by approximately 25 percent compared to the third quarter of fiscal 2015 as a result of the decline in world oil prices.
8The price announced by the GOI for October 2015 to March 2016 of $3.82 / MMbtu GCV (equates to approximately $4.24 / MMbtu NCV) represents a reduction of approximately 18 percent from the price for natural gas sales for the April 2015 to September 2015 period. This price is now going to fall further in the new financial year.
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8This was official announced by its junior partner Niko today.
8Using benchmark prices for the period of January 1, 2015 to December 31, 2015, the combine has estimated that the price for gas sales from the D6 Block in India for the April 2016 to September 2016 period could go down to approximately $3.15 / MMbtu GCV (approximately $3.50 / MMbtu NCV).
8Under government gudelines, gas prices are to be determined on a semi-annual basis and calculated based on a volume weighted average of prices in the US, Canada, Europe and Russia, based on the twelve month trailing average price with a lag of three months, and deductions for transportation and treatment charges.
8Development of numerous existing discoveries in the D6 Block is dependent on the future economic viability of the required investments.
8The price for oil and condensate sales in the block for the third quarter of fiscal 2016 decreased by approximately 25 percent compared to the third quarter of fiscal 2015 as a result of the decline in world oil prices.
8The price announced by the GOI for October 2015 to March 2016 of $3.82 / MMbtu GCV (equates to approximately $4.24 / MMbtu NCV) represents a reduction of approximately 18 percent from the price for natural gas sales for the April 2015 to September 2015 period. This price is now going to fall further in the new financial year.
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For the fourth time in 14 months, the government is looking for a new chairman and managing director for Oil India Ltd. (OIL)
8This time around, private sector professionals have been invited for interviews after the search committee failed to find a suitable candidate from among public sector peers.
8The vacancy has been in the limelight ever since the government rejected the candidature of OIL's current finance director Rupshikha Saikia Borah.
8Borah was not selected in the first round of interviews but she topped the list in the second round but her file was shot down by the PMO when it questioned what changed between February and November last year for the search committee to have a change of heart.
8Borah, a chartered account and an alumni of the Delhi School of Economics, figured in the list when a third round of interviews was held but the Public Enterprises Selection Board in a notice said, "The Board decided to see more candidates".
8After a hiatus of four months, a notice has now been issued seeking professionals from the private sector for the job along with those from the government and the public sector.
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8This time around, private sector professionals have been invited for interviews after the search committee failed to find a suitable candidate from among public sector peers.
8The vacancy has been in the limelight ever since the government rejected the candidature of OIL's current finance director Rupshikha Saikia Borah.
8Borah was not selected in the first round of interviews but she topped the list in the second round but her file was shot down by the PMO when it questioned what changed between February and November last year for the search committee to have a change of heart.
8Borah, a chartered account and an alumni of the Delhi School of Economics, figured in the list when a third round of interviews was held but the Public Enterprises Selection Board in a notice said, "The Board decided to see more candidates".
8After a hiatus of four months, a notice has now been issued seeking professionals from the private sector for the job along with those from the government and the public sector.
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Stock brokerage houses have begun placing "buy" orders on GAIL on reports that the PNGRB is likely to raise tariffs for the gas major's trunk pipelines.
8According to one brokerage house, GAIL expects the tariff rates to go up five times but punters are betting on the rate going up but not as as much as GAIL has predicted.
8Brokers are of the view that the upswing in tariffs is likely to be significantly enough to have a big impact on GAIL's share price.
8The PNGRB had found the tariff sought to be charged by GAIL on a clutch of trunk pipelines to be gold plated and had slashed them to a fraction of what GAIL had wanted to charge.
8The tariffs were cut as an "interim measure" pending pronouncements of final rates.
8GAIL has appealed against these interim orders to the Appellate Authority which upheld the tariffs imposed by PNGRB but asked the regulator to pass a reasoned and speaking final order.
8The brokerage houses seems to have got wind of an order that will be favourable to GAIL, wherein the bet is that the PNGRB will fix the final rates higher than the interim tariffs fixed.
8Clearly, lobbies are at work in this high stakes game though it is very unusual that punters are getting into the act as if they already have a hint which way the ball is going to swing.
8At stake are a total of six pipelines in which interim orders were passed and now final orders are due.
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8According to one brokerage house, GAIL expects the tariff rates to go up five times but punters are betting on the rate going up but not as as much as GAIL has predicted.
8Brokers are of the view that the upswing in tariffs is likely to be significantly enough to have a big impact on GAIL's share price.
8The PNGRB had found the tariff sought to be charged by GAIL on a clutch of trunk pipelines to be gold plated and had slashed them to a fraction of what GAIL had wanted to charge.
8The tariffs were cut as an "interim measure" pending pronouncements of final rates.
8GAIL has appealed against these interim orders to the Appellate Authority which upheld the tariffs imposed by PNGRB but asked the regulator to pass a reasoned and speaking final order.
8The brokerage houses seems to have got wind of an order that will be favourable to GAIL, wherein the bet is that the PNGRB will fix the final rates higher than the interim tariffs fixed.
8Clearly, lobbies are at work in this high stakes game though it is very unusual that punters are getting into the act as if they already have a hint which way the ball is going to swing.
8At stake are a total of six pipelines in which interim orders were passed and now final orders are due.
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What are brokerage houses saying on the tariff hikes?
8They have made the following observations:
8"Though GAIL has agreed that PNGRB has the authority to regulate gas pipeline tariffs, it has questioned incorrect/ erroneous interpretation of tariff calculation methodology, which has led to lower than expected tariffs. GAIL has argued that while PNGRB has violated provisions of the PNGRB Act on few parameters (like volume divisor, depreciation rate and unaccounted gas losses), it has adopted impractical approach on other parameters (future capex, number of working days, inflation rate and retrospective implementation)."
8"An open house discussion has been scheduled later this month with industry players to discuss the points raised, which might lead to finalization of pipeline tariffs."
8""Street have built in 10-15% increase in pipeline tariffs for GSPL and GAIL, which is much lower than GAIL’s anticipated 5x hike."
8"Though PNGRB may accept some recommendations of GAIL, the belief is that such a huge quantum of increase may not be approved, which might lead to arbitration. Notably, IGL was able to get a favorable judgment against the Board earlier, which led to the Supreme Court quashing the power of the regulator to regulate the CGD companies. If the gas pipeline companies are able to get a meaningful increase in tariffs, it would drive re-rating."
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8They have made the following observations:
8"Though GAIL has agreed that PNGRB has the authority to regulate gas pipeline tariffs, it has questioned incorrect/ erroneous interpretation of tariff calculation methodology, which has led to lower than expected tariffs. GAIL has argued that while PNGRB has violated provisions of the PNGRB Act on few parameters (like volume divisor, depreciation rate and unaccounted gas losses), it has adopted impractical approach on other parameters (future capex, number of working days, inflation rate and retrospective implementation)."
8"An open house discussion has been scheduled later this month with industry players to discuss the points raised, which might lead to finalization of pipeline tariffs."
8""Street have built in 10-15% increase in pipeline tariffs for GSPL and GAIL, which is much lower than GAIL’s anticipated 5x hike."
8"Though PNGRB may accept some recommendations of GAIL, the belief is that such a huge quantum of increase may not be approved, which might lead to arbitration. Notably, IGL was able to get a favorable judgment against the Board earlier, which led to the Supreme Court quashing the power of the regulator to regulate the CGD companies. If the gas pipeline companies are able to get a meaningful increase in tariffs, it would drive re-rating."
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It is unfortunate that stock brokers are punting on a future PNGRB order.
8The anticipation that GAIL will be left off the hook by the regulator seem to suggest some form of collusion between different stakeholders in this game.
8PNGRB had already gone soft on the gas major when it imposed only token penalties for what critics claimed was a criminal mishandling of the KG Basin gas pipeline network that lead to a blast that killed dozens of people in their sleep in 2014.
8Clause 49 of Chapter IX of the PNGRB Act is very clear: "Every person who willfully removes, destroys or damages any pipeline shall for each such offence be punishable with imprisonment, which may extend to three years or with fine which may extend to twenty five crore rupees or with both..."
8Willful neglect was clearly established on the part of GAIL by an independent investigation carried out by the OISD and the culpability was subsequently upheld by the PNGRB.
8Nevertheless, the PNGRB tuned a blind eye to the provisions of the law when it imposed a civil penalty of a laughable Rs 20 lakh on GAIL, proving once again that human lives indeed come very cheap in India.
8Will the PNGRB go soft on GAIL, as stock brokers have predicted, while fixing the final tariffs for the pipelines as well, turning back on its own interim tariff orders?
8Will the regulator forsake the interests of hundreds of buyers of gas in favour of a gas monopoly which willfully violates the law?
8GAIL claims that it will make losses unless pipeline tariffs are revised upwards is entirely false. A perusal of its Q-3 results will show that natural gas transmission revenues went up by a whopping 22% over the corresponding period of the previous year while its profits for the quarter went up by 51% to Rs 664 crore in comparison to Rs 441 crore in the previous quarter.
8Anything is possible in today's word but it will indeed be a sad commentary on the plight of India's statutory bodies if the PNGRB through its various acts of commission or omission end up compromising the very interests that it is meant to protect.
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8The anticipation that GAIL will be left off the hook by the regulator seem to suggest some form of collusion between different stakeholders in this game.
8PNGRB had already gone soft on the gas major when it imposed only token penalties for what critics claimed was a criminal mishandling of the KG Basin gas pipeline network that lead to a blast that killed dozens of people in their sleep in 2014.
8Clause 49 of Chapter IX of the PNGRB Act is very clear: "Every person who willfully removes, destroys or damages any pipeline shall for each such offence be punishable with imprisonment, which may extend to three years or with fine which may extend to twenty five crore rupees or with both..."
8Willful neglect was clearly established on the part of GAIL by an independent investigation carried out by the OISD and the culpability was subsequently upheld by the PNGRB.
8Nevertheless, the PNGRB tuned a blind eye to the provisions of the law when it imposed a civil penalty of a laughable Rs 20 lakh on GAIL, proving once again that human lives indeed come very cheap in India.
8Will the PNGRB go soft on GAIL, as stock brokers have predicted, while fixing the final tariffs for the pipelines as well, turning back on its own interim tariff orders?
8Will the regulator forsake the interests of hundreds of buyers of gas in favour of a gas monopoly which willfully violates the law?
8GAIL claims that it will make losses unless pipeline tariffs are revised upwards is entirely false. A perusal of its Q-3 results will show that natural gas transmission revenues went up by a whopping 22% over the corresponding period of the previous year while its profits for the quarter went up by 51% to Rs 664 crore in comparison to Rs 441 crore in the previous quarter.
8Anything is possible in today's word but it will indeed be a sad commentary on the plight of India's statutory bodies if the PNGRB through its various acts of commission or omission end up compromising the very interests that it is meant to protect.
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Output from the D-6 block continues to go down, according to latest reports, and is likely to do so sharply in 2016-17 as the RIL-BP duo have decided to halt further side tracking work in the D-1 and D-3 fields on account of diminishing returns resulting from increasing sand ingress and high water cuts.
8Already, sale volumes were at 390 mmcfe/d in the Q-3 2015-16 in relation to 440 mmcfe/d for the same period in the previous year.
8Similarly, production for the first nine months of the year was at 410 mmcfe/d in comparison to 47 mmscfe/d for the same period in the previous year.
8The fall has been attributed to "natural production declines in the field".
8The declines would have been steeper had they not been offset by incremental production from sidetracks and reactivations.
8Meanwhile, Niko, a 10% partner in the D-6 block, has confirmed that the drilling programme for the block has concluded at the end of the third quarter.
8There are no drilling plans in the offing until 2016-17 when one or more additional sidetracks are likely but only in the MA crude oil field, where associated gas is also produced.
8It looks like the RIL-BP combine has abandoned further sidetracking and revival activities in the two main gas fields in the block
8This could well mean that the decline in output from the D-1 and D-3 gas fields will now be at a faster rate than before.
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8Already, sale volumes were at 390 mmcfe/d in the Q-3 2015-16 in relation to 440 mmcfe/d for the same period in the previous year.
8Similarly, production for the first nine months of the year was at 410 mmcfe/d in comparison to 47 mmscfe/d for the same period in the previous year.
8The fall has been attributed to "natural production declines in the field".
8The declines would have been steeper had they not been offset by incremental production from sidetracks and reactivations.
8Meanwhile, Niko, a 10% partner in the D-6 block, has confirmed that the drilling programme for the block has concluded at the end of the third quarter.
8There are no drilling plans in the offing until 2016-17 when one or more additional sidetracks are likely but only in the MA crude oil field, where associated gas is also produced.
8It looks like the RIL-BP combine has abandoned further sidetracking and revival activities in the two main gas fields in the block
8This could well mean that the decline in output from the D-1 and D-3 gas fields will now be at a faster rate than before.
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Is the rather sharp fall in the in EIL's business secured in the first three quarters of this year an indication of a slow down in the core petroleum related business in India?
8While the government seems to let us think that the economy is in fine fettle, the lack of business for engineering companies such as EIL seems to tell a somewhat different story.
8EIL's total business secured has seen a fall in all three quarters of the current year, with the third quarter recording orders worth just Rs 196 crore as compared to Rs Rs 309 crore in the same period in the pervious year.
8Business in Q2 and Q1 were at Rs 129 crore and Rs 492 crore as against Rs 385 crore and Rs 1295 crore for the corresponding quarters of 2014-15.
8There is a sharp fall in business procured overseas reflecting the depressed oil and gas climate worldwide.
8Disturbingly, EIL has secured no turnkey contracts this year as against Rs 385 crore in three quarters of the pervious year.
8The order book is pegged at Rs 3371 crore at the end of Q3 as against Rs 3640 crore at the end of 2014-15.
8A slowdown in orders secured will whittle down the order book position over the next few quarters.
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8While the government seems to let us think that the economy is in fine fettle, the lack of business for engineering companies such as EIL seems to tell a somewhat different story.
8EIL's total business secured has seen a fall in all three quarters of the current year, with the third quarter recording orders worth just Rs 196 crore as compared to Rs Rs 309 crore in the same period in the pervious year.
8Business in Q2 and Q1 were at Rs 129 crore and Rs 492 crore as against Rs 385 crore and Rs 1295 crore for the corresponding quarters of 2014-15.
8There is a sharp fall in business procured overseas reflecting the depressed oil and gas climate worldwide.
8Disturbingly, EIL has secured no turnkey contracts this year as against Rs 385 crore in three quarters of the pervious year.
8The order book is pegged at Rs 3371 crore at the end of Q3 as against Rs 3640 crore at the end of 2014-15.
8A slowdown in orders secured will whittle down the order book position over the next few quarters.
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For reference purposes, the website carries here the details of the projects won by Engineers India Ltd in the first nine months of 2015-16:
8Project Management Consultant for Construction Of Fifth Oil Berth At Jawahar Dweep, Mumbai Harbour
8EPCM-1 for Propylene Derivative Petrochemical Project (PDPP) of BPCL's Kochi Refinery
8Consultancy Services for Integrity Check of Platforms under PRP-4 Project of ONGC
8Change orders for the 400,000 BPSD Refinery and 600,000 TPA Polypropylene Plant at Lekki Free Trade Zone, Nigeria.
8EPCM for Diesel Hydro-Treater (DHT) and Associated Facilities at BPCL, Mumbai Refinery
8EPCM services for DHDT Project at Numaligarh Refinery
8Project Management Consultancy (PMC) Services (Phase-I) for Revamp and Capacity Enhancement Project of BORL Refinery
8Pre-project activities for Vizag Refinery Modernization Project
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8Project Management Consultant for Construction Of Fifth Oil Berth At Jawahar Dweep, Mumbai Harbour
8EPCM-1 for Propylene Derivative Petrochemical Project (PDPP) of BPCL's Kochi Refinery
8Consultancy Services for Integrity Check of Platforms under PRP-4 Project of ONGC
8Change orders for the 400,000 BPSD Refinery and 600,000 TPA Polypropylene Plant at Lekki Free Trade Zone, Nigeria.
8EPCM for Diesel Hydro-Treater (DHT) and Associated Facilities at BPCL, Mumbai Refinery
8EPCM services for DHDT Project at Numaligarh Refinery
8Project Management Consultancy (PMC) Services (Phase-I) for Revamp and Capacity Enhancement Project of BORL Refinery
8Pre-project activities for Vizag Refinery Modernization Project
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PNGRB has failed to satisfy concerns of probable bidders for the Contai-Dattapulia-Jaipur-Dhamra-Cuttack-Paradip gas pipeline on whether gas from the 4 MMTPA Contai Floating Storage Regasfication Unit (FSRU) -- being set up by H-Energy Pvt Ltd -- will be available on time to justify building some segments of this pipeline.
8The FRSU is to be stationed115 km off the coast of Haldia and it is meant to supply gas both to India as well as Bangladesh.
8PNGRB has sought bids to to link a pipeline from the FRSU which will course through Bengal and Odisha, all the way to Paradip.
8Possible bidders for the pipeline include Adani Gas Ltd, H-Energy Pvt Ltd and IOC.
8All bidders have expressed concern about the uncertainty over the supply of gas from the FRSU.
8They claim that two segments of the pipeline -- the Contai-Haipur and the Nandkumar-Dattapulia segments -- were entirely dependent on demand build-up in Bangladesh based on which the FRSU is being set up.
8The bidders have demanded that H-Energy be subjected to credible pre-determined milestones connected with the construction and availability of gas from the FRSU.
8H-Energy should be asked to also provide year-wise expected gas volumes for export including the export point pressure to be maintained at Dattapulia, the bidder have said.
8Non-achievement of milestones should be considered as a Force Majeure event relieving the bidder of the obligation to build these pipeline segments, the argument goes.
8Also, the bidders should be given commensurate extension for the delay in achievement of these milestones, the bidder have claimed.
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8The FRSU is to be stationed115 km off the coast of Haldia and it is meant to supply gas both to India as well as Bangladesh.
8PNGRB has sought bids to to link a pipeline from the FRSU which will course through Bengal and Odisha, all the way to Paradip.
8Possible bidders for the pipeline include Adani Gas Ltd, H-Energy Pvt Ltd and IOC.
8All bidders have expressed concern about the uncertainty over the supply of gas from the FRSU.
8They claim that two segments of the pipeline -- the Contai-Haipur and the Nandkumar-Dattapulia segments -- were entirely dependent on demand build-up in Bangladesh based on which the FRSU is being set up.
8The bidders have demanded that H-Energy be subjected to credible pre-determined milestones connected with the construction and availability of gas from the FRSU.
8H-Energy should be asked to also provide year-wise expected gas volumes for export including the export point pressure to be maintained at Dattapulia, the bidder have said.
8Non-achievement of milestones should be considered as a Force Majeure event relieving the bidder of the obligation to build these pipeline segments, the argument goes.
8Also, the bidders should be given commensurate extension for the delay in achievement of these milestones, the bidder have claimed.
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The PNGRB has failed to give a convincing reply to the queries raised by the bidders for the pipeline.
8All the PNGRB has said that it is for the bidders to "obtain all information related to the present gas supply position and existing and future customers, if any, falling along the route of the proposed natural gas pipeline".
8The problem is that what if the FRSU does not come up on time the investment in a pipeline will become infractuous. The terminal is dependent on gas demand in Bangladesh, which in turn is influenced by tariff rates and international agreements.
8The Contai-Suttapulia-Jaipur-Dhamra-Cuttack-Paradip pipeline will also be linked to the Jagdishpur-Haldia and Surat-Paradip gas pipelines. While timely completion of these pipelines is also in doubt, the uncertainty is more in connection with the segments connecting to the Contai terminal.
8The PNGRB cannot absolve itself of the responsibility of supporting efforts to estimate gas supply from a source from where it wants a pipeline to be drawn.
8For if that should be the case, then the regulator can merely connect a pipeline from any two points and call for bids without taking the concomitant responsibility of ensuring gas supply.
8The suggestion that gas suppliers also adhere to fixed project milestones is an important ingredient of the pipeline building process.
8A pipeline is a capital intensive process and no pipeline segment can ever elicit reasonable bids if the gas supply timing and source are left open ended.
8Even though H-Energy has submitted an EOI for building the pipeline, it is incumbent on the PNGRB to provide supply milestones if it wants to other bidders to bid for the pipeline.
8When H-Energy is a competitor to build the pipeline, it is near impossible for a contending bidders to elicit any information from same company which is also building the FSRU.
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8All the PNGRB has said that it is for the bidders to "obtain all information related to the present gas supply position and existing and future customers, if any, falling along the route of the proposed natural gas pipeline".
8The problem is that what if the FRSU does not come up on time the investment in a pipeline will become infractuous. The terminal is dependent on gas demand in Bangladesh, which in turn is influenced by tariff rates and international agreements.
8The Contai-Suttapulia-Jaipur-Dhamra-Cuttack-Paradip pipeline will also be linked to the Jagdishpur-Haldia and Surat-Paradip gas pipelines. While timely completion of these pipelines is also in doubt, the uncertainty is more in connection with the segments connecting to the Contai terminal.
8The PNGRB cannot absolve itself of the responsibility of supporting efforts to estimate gas supply from a source from where it wants a pipeline to be drawn.
8For if that should be the case, then the regulator can merely connect a pipeline from any two points and call for bids without taking the concomitant responsibility of ensuring gas supply.
8The suggestion that gas suppliers also adhere to fixed project milestones is an important ingredient of the pipeline building process.
8A pipeline is a capital intensive process and no pipeline segment can ever elicit reasonable bids if the gas supply timing and source are left open ended.
8Even though H-Energy has submitted an EOI for building the pipeline, it is incumbent on the PNGRB to provide supply milestones if it wants to other bidders to bid for the pipeline.
8When H-Energy is a competitor to build the pipeline, it is near impossible for a contending bidders to elicit any information from same company which is also building the FSRU.
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Real estate developer Hiranandani Group plans to set up a Rs 2,400 crore floating LNG import terminal off Haldia, West Bengal, and supply imported gas to users as far as Paradip in Odisha.
8H-Energy Pvt Ltd, the Energy arm of the Hiranandani Group, is the promoter of the 4 million tons a year FSRU and the expected commissioning date is Q-1, 2019.
8Liquefied natural gas (LNG) will be imported in cryogenic ships to the FSRU and moved to an onshore terminal.
8H-Energy is also a bidder for the pipeline for a pipeline that will link Contai all the way to Paradip. It has submitted an initial EOI based on which the PNGRB had sought EOIs from other interested bidders for the pipeline.
8While the Contai-Paradip-Dattapuli main line will be 553-km in length, H-Energy wants to lay 152-km of spur lines to reach customers in Cuttak and Bhubaneshwar in Odisha and Haldia, Kolkata and Kolaghat in West Bengal.
8Total demand for natural gas along the proposed pipeline is expected to be 14.4 mmscmd by 2019, H-Energy said in an application to the PNGRB.
8It listed Indian Oil Corp's (IOC) Paradip and Haldia refineries as potential customers of the gas. Besides fertiliser plants in Paradip and Haldia and Haldia Petrochemical Ltd (HPL), the firm also listed "gas demand in Bangladesh" as major customers of the imported LNG.
8City gas requirements in Kolkata, Bhubaneswar, Cuttack and Haldia as also industrial demand was listed as likely consumers.
8"Currently, the states in east India viz West Bengal, Odisha, Jharkhand and Chhattisgarh are devoid of a continual gas source to meet their requirements of power and feedstock and hence have to depend on other alternative and costlier sources of fuels," the company said in its application.
8H-Energy said all major engineering studies for FSRU have been completed. An MoU with the FSRU supplier has been executed, environment clearance obtained and land acquired for the onshore terminal.
8While the FSRU will cost Rs 2,400 crore, another Rs 2,700 crore will be spent on gas pipeline system.
8H-Energy's plea is that potential competitors are raising frivolous queries to stymie the building the pipeline when the company has unilaterally undertaken to build it.
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8H-Energy Pvt Ltd, the Energy arm of the Hiranandani Group, is the promoter of the 4 million tons a year FSRU and the expected commissioning date is Q-1, 2019.
8Liquefied natural gas (LNG) will be imported in cryogenic ships to the FSRU and moved to an onshore terminal.
8H-Energy is also a bidder for the pipeline for a pipeline that will link Contai all the way to Paradip. It has submitted an initial EOI based on which the PNGRB had sought EOIs from other interested bidders for the pipeline.
8While the Contai-Paradip-Dattapuli main line will be 553-km in length, H-Energy wants to lay 152-km of spur lines to reach customers in Cuttak and Bhubaneshwar in Odisha and Haldia, Kolkata and Kolaghat in West Bengal.
8Total demand for natural gas along the proposed pipeline is expected to be 14.4 mmscmd by 2019, H-Energy said in an application to the PNGRB.
8It listed Indian Oil Corp's (IOC) Paradip and Haldia refineries as potential customers of the gas. Besides fertiliser plants in Paradip and Haldia and Haldia Petrochemical Ltd (HPL), the firm also listed "gas demand in Bangladesh" as major customers of the imported LNG.
8City gas requirements in Kolkata, Bhubaneswar, Cuttack and Haldia as also industrial demand was listed as likely consumers.
8"Currently, the states in east India viz West Bengal, Odisha, Jharkhand and Chhattisgarh are devoid of a continual gas source to meet their requirements of power and feedstock and hence have to depend on other alternative and costlier sources of fuels," the company said in its application.
8H-Energy said all major engineering studies for FSRU have been completed. An MoU with the FSRU supplier has been executed, environment clearance obtained and land acquired for the onshore terminal.
8While the FSRU will cost Rs 2,400 crore, another Rs 2,700 crore will be spent on gas pipeline system.
8H-Energy's plea is that potential competitors are raising frivolous queries to stymie the building the pipeline when the company has unilaterally undertaken to build it.
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While bidders for the pipeline seem to be concerted on the fate of the LNG terminal at Contai, there is also uncertainty over whether other sources of gas for the pipeline will be available on time to justify the building of the pipeline.
8For example, little progress has been made so far in GAIL's Surat-Paradip pipeline being set up by GAIL.
8The PNGRB had authorized the pipeline in 2012 but progress has been next to zero.
8The latest progress report shows that only Rs 1.50 crore has been spent on the line. This actually means that the pipeline is on hold.
8Clearly, the PNGRB has to take a call on whether the withdraw the authorization from GAIL for the pipeline or set stricter milestones for its completion.
8What is more adequate penalties will have to be necessarily imposed on the gas major if progress remains slow.
8As for the Jagdishpur-Haldia pipeline (now known as the Phulpur-Haldia pipeline), work is now on only for Phase-I, covering the distance between Phulpur and Dobhi in Bihar.
8This part is to be completed by December, 2018 in synchronization with the commissioning of new fertilizer plants.
So far, a 10.6% physical progress has been made, and money spent is just Rs 53.66 crore out of the total Rs 3561 crore.
8While GAIL seems to making some progress, goaded by the Modi government who wants to hold up the pipeline as a showpiece investment, real progress will depend upon how quickly anchor fertilizer projects come up on the pipeline route.
8None of the fertilizer projects enroute have reached the zero date as yet.
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8For example, little progress has been made so far in GAIL's Surat-Paradip pipeline being set up by GAIL.
8The PNGRB had authorized the pipeline in 2012 but progress has been next to zero.
8The latest progress report shows that only Rs 1.50 crore has been spent on the line. This actually means that the pipeline is on hold.
8Clearly, the PNGRB has to take a call on whether the withdraw the authorization from GAIL for the pipeline or set stricter milestones for its completion.
8What is more adequate penalties will have to be necessarily imposed on the gas major if progress remains slow.
8As for the Jagdishpur-Haldia pipeline (now known as the Phulpur-Haldia pipeline), work is now on only for Phase-I, covering the distance between Phulpur and Dobhi in Bihar.
8This part is to be completed by December, 2018 in synchronization with the commissioning of new fertilizer plants.
So far, a 10.6% physical progress has been made, and money spent is just Rs 53.66 crore out of the total Rs 3561 crore.
8While GAIL seems to making some progress, goaded by the Modi government who wants to hold up the pipeline as a showpiece investment, real progress will depend upon how quickly anchor fertilizer projects come up on the pipeline route.
8None of the fertilizer projects enroute have reached the zero date as yet.
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The PNGRB needs to spruce up its pipeline project monitoring network in order to keep itself on top of developments.
8The regulator has failed to coax GAIL for example to submit its quarterly progress reports on time for the Phulpur-Haldia and Surat-Paradip pipelines.
8Information is available on these pipeline only up to September, 2016 when the data for the October-December quarter must have been in by now.
8A system has to be evolved by which pipeline companies submit data at regular intervals.
8This will ensure that the regulator is able to see progress in relation to established milestones.
8Warnings can be issued in case work slackens.
8In extreme cases, authorizations can also be withdrawn.
8There is also a provision for PNGRB to seek any data that it deems fit over an above what is sent in a prescribed format.
8But clearly it does look like the regulator had ever exercised this right.
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8The regulator has failed to coax GAIL for example to submit its quarterly progress reports on time for the Phulpur-Haldia and Surat-Paradip pipelines.
8Information is available on these pipeline only up to September, 2016 when the data for the October-December quarter must have been in by now.
8A system has to be evolved by which pipeline companies submit data at regular intervals.
8This will ensure that the regulator is able to see progress in relation to established milestones.
8Warnings can be issued in case work slackens.
8In extreme cases, authorizations can also be withdrawn.
8There is also a provision for PNGRB to seek any data that it deems fit over an above what is sent in a prescribed format.
8But clearly it does look like the regulator had ever exercised this right.
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The fact that the Modi government is talking of service contracts for ageing oil fields in Assam is a step in the right direction.
8Earlier governments had dabbled with the idea but could not proceed ahead as they found it too complicated to handle.
8The model involves bringing oil field services companies to an ageing oil field with the aim of raising output.
8These companies use the latest technologies, best work practices and enhanced oil recovery processes to increase output.
8Contracts are generally for a period of 15-20 years and while control of all assets are with the asset owner, all capital expenditure is made by the services company, which in turn charges a certain $/bbl for incremental production.
8Globally, national oil companies have adopted this method of raising output. Among those who used the service contract route were Petronas, Romgaz, Pemex, Ecopetrol, KOC and a clutch of Chinese NOCs.
8The ministry seems to have studied different types of models and have figured out that a fee in USD per barrel for incremental production above the base production profile of a field will be the most viable option.
8Under a bidding process (which the government says will be an electronic one), only the H-1 base line for the next 10-15 years will be taken into consideration. Subsequently on the H-1 baseline, bids will be sought in terms of $/barrel for incremental production.
8Bidders offering the lowest $/bbl incremental production will be the winner.
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8Earlier governments had dabbled with the idea but could not proceed ahead as they found it too complicated to handle.
8The model involves bringing oil field services companies to an ageing oil field with the aim of raising output.
8These companies use the latest technologies, best work practices and enhanced oil recovery processes to increase output.
8Contracts are generally for a period of 15-20 years and while control of all assets are with the asset owner, all capital expenditure is made by the services company, which in turn charges a certain $/bbl for incremental production.
8Globally, national oil companies have adopted this method of raising output. Among those who used the service contract route were Petronas, Romgaz, Pemex, Ecopetrol, KOC and a clutch of Chinese NOCs.
8The ministry seems to have studied different types of models and have figured out that a fee in USD per barrel for incremental production above the base production profile of a field will be the most viable option.
8Under a bidding process (which the government says will be an electronic one), only the H-1 base line for the next 10-15 years will be taken into consideration. Subsequently on the H-1 baseline, bids will be sought in terms of $/barrel for incremental production.
8Bidders offering the lowest $/bbl incremental production will be the winner.
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The Modi government is pitching for new IOR and EOR technologies to shore up production in North East to begin with ans elsewhere later.
Among the new techniques that oil companies have been told to pitch for are:
8Miscible gas injection and thermal injection methods such as steam flooding and cyclic steam injection systems which are used to heat crude oil and chemical injection which is utilized to aid mobility.
Horizontal drilling and J-bend deviated wells
8Stimulation services such as hydraulic fracturing and matrix acidisation
8Polymer flooding and microbial technology
8Advanced drilling methods such as redial drilling, extended reach drilling, and multilaterals.
8For improved subsurface imaging, the national oil companies are looking to push airborne gradiometry, AEM-PTP passive source electronic magnetic efforts and passive seismic tomography.
T8hose who stand to gain are companies such as CGG, ARKeX, Bell Geospace and MacPhar for they have expertise in gradiometry surveys that the NOCs are now keen on acquiring.
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Among the new techniques that oil companies have been told to pitch for are:
8Miscible gas injection and thermal injection methods such as steam flooding and cyclic steam injection systems which are used to heat crude oil and chemical injection which is utilized to aid mobility.
Horizontal drilling and J-bend deviated wells
8Stimulation services such as hydraulic fracturing and matrix acidisation
8Polymer flooding and microbial technology
8Advanced drilling methods such as redial drilling, extended reach drilling, and multilaterals.
8For improved subsurface imaging, the national oil companies are looking to push airborne gradiometry, AEM-PTP passive source electronic magnetic efforts and passive seismic tomography.
T8hose who stand to gain are companies such as CGG, ARKeX, Bell Geospace and MacPhar for they have expertise in gradiometry surveys that the NOCs are now keen on acquiring.
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The credit for the Hydrocarbon Vision 2030 for the North East of India must actually go to petroleum secretary, K.D. Tripathi, ably assisted by additional secretary Ajay Sawhney and joint secretary UP Singh.
8Tripathi maintains a low profile but he is an outstanding officer from the Assam cadre, known for his hard work and integrity.
8He has fully leveraged his knowledge of the North East to hammer together the basic framework of this ambitious policy.
8Crisil was hired to work with the DGH and officers from across all oil PSUs and state governments to flesh out the report.
8Unlike other Vision documents, this one has specific numbers to work with along with a firm action plan.
8What is remarkable is that the document does not look at the energy sector in isolation but at mitigation of socio-political fears, inter-state tensions, trans-border discomforts and infrastructure development constraints under a single development paradigm.
8Concepts such as viability gap funding for gas pipelines, service contracts for ageing fields, incentives for the E&P sector and a series of other policy measures are spelled out in intricate detail to help push the development agenda forward.
8The road map is not without its problems. For one, getting refinery capacity additions in the North East without heavily subsidizing such investments is going to be a challenge as also pushing trans-border petroleum deals among a bunch of skeptical neighbours.
8Making the remote North East a production hub for oil field equipment also looks like a far fetched idea.
8Nevertheless the Vision document is commendable for its sheer ambition and its rich documentation.
8Never before have the challenges and opportunities offered by the petroleum sector in the North East of India been highlighted in such candid detail.
8Tripathi needs to be commended for the good work done.
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8Tripathi maintains a low profile but he is an outstanding officer from the Assam cadre, known for his hard work and integrity.
8He has fully leveraged his knowledge of the North East to hammer together the basic framework of this ambitious policy.
8Crisil was hired to work with the DGH and officers from across all oil PSUs and state governments to flesh out the report.
8Unlike other Vision documents, this one has specific numbers to work with along with a firm action plan.
8What is remarkable is that the document does not look at the energy sector in isolation but at mitigation of socio-political fears, inter-state tensions, trans-border discomforts and infrastructure development constraints under a single development paradigm.
8Concepts such as viability gap funding for gas pipelines, service contracts for ageing fields, incentives for the E&P sector and a series of other policy measures are spelled out in intricate detail to help push the development agenda forward.
8The road map is not without its problems. For one, getting refinery capacity additions in the North East without heavily subsidizing such investments is going to be a challenge as also pushing trans-border petroleum deals among a bunch of skeptical neighbours.
8Making the remote North East a production hub for oil field equipment also looks like a far fetched idea.
8Nevertheless the Vision document is commendable for its sheer ambition and its rich documentation.
8Never before have the challenges and opportunities offered by the petroleum sector in the North East of India been highlighted in such candid detail.
8Tripathi needs to be commended for the good work done.
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A five-day conference on Carbon Capture Storage and Utilization (CCSU) held in India recently threw up a wealth of data and ideas.
8Experts from different fields in India highlighted various ways in which CCSU take place.
8Several carbon mitigation measures were discussed by experts representing the Indian industry, the academia and the government.
8One estimate was that 140 billion tonnes of carbon can be stored in 50 large oil fields which will also lead to an additional production of 470 billion barrels of oil. Though these figures may look exaggerated from an oil man's point of view, they are being bandied around by scientists of repute.
8All kind of mitigation measures were mooted including bio-sequestration of carbon dioxide, CO2 capture through gas permeation technology and good agricultural practices and the use of gas hydrates to capture carbon.
8There were also suggestion to build a pilot CCSU unit.
8Eventually, there was an agreement that in a coal-centric country such as India, CCSU is the only way forward.
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8Experts from different fields in India highlighted various ways in which CCSU take place.
8Several carbon mitigation measures were discussed by experts representing the Indian industry, the academia and the government.
8One estimate was that 140 billion tonnes of carbon can be stored in 50 large oil fields which will also lead to an additional production of 470 billion barrels of oil. Though these figures may look exaggerated from an oil man's point of view, they are being bandied around by scientists of repute.
8All kind of mitigation measures were mooted including bio-sequestration of carbon dioxide, CO2 capture through gas permeation technology and good agricultural practices and the use of gas hydrates to capture carbon.
8There were also suggestion to build a pilot CCSU unit.
8Eventually, there was an agreement that in a coal-centric country such as India, CCSU is the only way forward.
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The fact that the oil and gas industry is a large emitter of fugitive carbon dioxide is well known but recent measurements have shown that the scale of such emissions is mind bogglingly large.
8An estimate made by the Indian Institute of Petroleum has claimed that refineries alone emit as much as 8 to 10% of all carbon emissions in India.
8That is a very large figure by any yardstick
8An independent study in the US has shown that emissions by the oil and gas industry together are higher than tailpipe emissions from burning gasoline or diesel while jet fuel emissions were several times less.
8These studies note that there is an immediate need to curb such emissions from the industry.
8Extensive data is carried here on emissions by the oil and gas extraction and refining industries.
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8An estimate made by the Indian Institute of Petroleum has claimed that refineries alone emit as much as 8 to 10% of all carbon emissions in India.
8That is a very large figure by any yardstick
8An independent study in the US has shown that emissions by the oil and gas industry together are higher than tailpipe emissions from burning gasoline or diesel while jet fuel emissions were several times less.
8These studies note that there is an immediate need to curb such emissions from the industry.
8Extensive data is carried here on emissions by the oil and gas extraction and refining industries.
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The volatility noticed in crude carrier prices leveled off last last week, restoring some semblance of balance to the market.
8But sentiments remained subdued.
8VLCC rates from the Middle East were down marginally last week whereas West African business was particularly thin compared to the week prior
8The Chinese New Year is expected to put some traction to rates this week but not beyond a point.
8West Africa failed to secure a premium for Suezmax rates for yet another week as tonnage supply remained generous, while numbers in the Black Sea/Med were also soft.
8Aframax rates in the Med also lost ground last week, while the North Sea market remained steady.
8Rates for the Caribs Afra cashed in on news of USG weather delays, covering a big chunk of the losses noted during the past couple of weeks.
8Going by the sluggish market trends pretty much all of last year, the newbuilding activity appears sluggish going forward and orders are likely to be slow to come by.
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8But sentiments remained subdued.
8VLCC rates from the Middle East were down marginally last week whereas West African business was particularly thin compared to the week prior
8The Chinese New Year is expected to put some traction to rates this week but not beyond a point.
8West Africa failed to secure a premium for Suezmax rates for yet another week as tonnage supply remained generous, while numbers in the Black Sea/Med were also soft.
8Aframax rates in the Med also lost ground last week, while the North Sea market remained steady.
8Rates for the Caribs Afra cashed in on news of USG weather delays, covering a big chunk of the losses noted during the past couple of weeks.
8Going by the sluggish market trends pretty much all of last year, the newbuilding activity appears sluggish going forward and orders are likely to be slow to come by.
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The rampant decline in commodity prices that started two years ago seems to have finally put an end to the epic boom most commodities experienced during the early part of this century, a research paper argues.
8Almost no commodity has escaped the furious price correction and prices are yet to find a floor.
8While the current oil price near $30 seems too depressed by this century's standards, it still looks high by 1998 standards, when oil prices could be found at $10.
8The current slump is an overreaction, but so was the prior boom, the paper insists.
8The last thirty years have been marked by double-digit Chinese growth and artificially low level of interest rates, both of which helped to create a commodities boom that changed the global economy.
8But the time for a reversion in policy has come as central banks have run out of easy money options and the commodities market is at risk of fully reverting to its 1990s levels.
8The paper then goes on to claim that the fate of commodities lies with how central banks and the Chinese economy behaves, both of which now seem to have limited maneuverability.
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8Almost no commodity has escaped the furious price correction and prices are yet to find a floor.
8While the current oil price near $30 seems too depressed by this century's standards, it still looks high by 1998 standards, when oil prices could be found at $10.
8The current slump is an overreaction, but so was the prior boom, the paper insists.
8The last thirty years have been marked by double-digit Chinese growth and artificially low level of interest rates, both of which helped to create a commodities boom that changed the global economy.
8But the time for a reversion in policy has come as central banks have run out of easy money options and the commodities market is at risk of fully reverting to its 1990s levels.
8The paper then goes on to claim that the fate of commodities lies with how central banks and the Chinese economy behaves, both of which now seem to have limited maneuverability.
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The adjustment in supply in the oil markets is not yet complete, which means further price declines and increases in volatility are to be expected in 2016, according to another writer.
8The world needs to adapt to a new reality: one where China will no longer lead global growth and where manufacturing is no longer their top priority.
8Emerging markets, in particular those used to making a living from exporting commodities, will need to reposition their economies.
8Saudi Arabia will run into difficulties, as they're no longer in control of oil prices; and while they try to bust everyone by keeping production levels unchanged, they're going to burn the astonishing amount of reserves they have accumulated so far – $100 billion is already gone.
8They will start taxing the pop-lation and the 30-year peg of the riyal to the dollar may be at stake.
8The new kid in the block seems to be Iran, which is now flexing its muscles after the lifting of US sanctions.
8Iran is willing to offload its 150 billion barrels in reserves. It is also planning to pump more oil, riding on the belief that it stands to make money even at low oil prices because its cost of production is under $10/bbl. The Iranian deputy petroleum minister said yesterday in Moscow that its oil industry will remain profitable even if prices drop to $8/bbl
8Venezuela meanwhile has already descended into chaos and there is the looming threat of Brazil and Russia going into default.
8So the paper reiterates the earlier view that worse is not over yet for the global economy.
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8The world needs to adapt to a new reality: one where China will no longer lead global growth and where manufacturing is no longer their top priority.
8Emerging markets, in particular those used to making a living from exporting commodities, will need to reposition their economies.
8Saudi Arabia will run into difficulties, as they're no longer in control of oil prices; and while they try to bust everyone by keeping production levels unchanged, they're going to burn the astonishing amount of reserves they have accumulated so far – $100 billion is already gone.
8They will start taxing the pop-lation and the 30-year peg of the riyal to the dollar may be at stake.
8The new kid in the block seems to be Iran, which is now flexing its muscles after the lifting of US sanctions.
8Iran is willing to offload its 150 billion barrels in reserves. It is also planning to pump more oil, riding on the belief that it stands to make money even at low oil prices because its cost of production is under $10/bbl. The Iranian deputy petroleum minister said yesterday in Moscow that its oil industry will remain profitable even if prices drop to $8/bbl
8Venezuela meanwhile has already descended into chaos and there is the looming threat of Brazil and Russia going into default.
8So the paper reiterates the earlier view that worse is not over yet for the global economy.
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There is no doubt that China invested heavily in infrastructure capacity to keep their economy growing at two-digit rates.
8From $1.2 trillion in 2000, Chinese GDP grew to $3.5 trillion in 2007 and to $10.4 trillion in 2014.
8Such spectacular growth could never be the result of productivity improvements alone; it could only be the result of an astonishing credit creation that increased the national debt from $1 trillion in 2000 to $25 trillion in 2014.
8The huge growth experienced by China boosted the appetite for commodities, in particular for those that are important inputs in manufacturing, pushing their prices higher and seducing companies around the world to invest heavily in new mines.
8But with debt rising from 1x to 3x GDP, one can easily speculate that the current trend is unsustainable.
8China has been borrowing too much from its own future and boosting an artificial demand for commodities.
8This process now seems to be unwinding.
8Everyone is now looking at India to become another China but will India be able to replicate the Chinese success story?
8That a question only time will answer.
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8From $1.2 trillion in 2000, Chinese GDP grew to $3.5 trillion in 2007 and to $10.4 trillion in 2014.
8Such spectacular growth could never be the result of productivity improvements alone; it could only be the result of an astonishing credit creation that increased the national debt from $1 trillion in 2000 to $25 trillion in 2014.
8The huge growth experienced by China boosted the appetite for commodities, in particular for those that are important inputs in manufacturing, pushing their prices higher and seducing companies around the world to invest heavily in new mines.
8But with debt rising from 1x to 3x GDP, one can easily speculate that the current trend is unsustainable.
8China has been borrowing too much from its own future and boosting an artificial demand for commodities.
8This process now seems to be unwinding.
8Everyone is now looking at India to become another China but will India be able to replicate the Chinese success story?
8That a question only time will answer.
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Why is it that the RBI governor is a firm critic of low interest rates and quantitative easing (QE) policies of western central banks.
8This is because he believes that deflation is the new villain of the world economy and QE has diminishing marginal returns. The more you do it, the less it works.
8The dramaticand sudden fall in the oil price and concerns that it may not go back up again in the medium term, have triggered deep anxieties that this will be the catalyst for a major global deflation.
8The problem occurs when deflation shrinks economies which had already borrowed heavily in he past.
8Despite lower interest rates, the shrinkage in their economies due to deflationary impact is so rapid that they are unable to repay their own debts.
8A research paper now predicts that Japan -- which is now entering an era of negative interest rates -- will be the first country to default followed by the Euro zone as it runs out of cash.
8The paper says that the defaults will prove the Keynesian model right, that there is an apparent asymmery between inflation and deflation. Inflation, he the model says, just effects prices but deflation diminishes both prices and employment. This is because deflation stifles investment and therefore reduces demand.
8In a deflationary world, output contracts in both nominal and real terms, but debtors still have to repay debts that were taken out when price levels were higher. For a person or company with no debt, you could argue that, net-net, life continues as before. But for companies that have financed investment by debt, their capacity to repay that debt is enfeebled and what holds good for companies also hold true for economies.
8The paper says that the worst is yet to come for the global economy.
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8This is because he believes that deflation is the new villain of the world economy and QE has diminishing marginal returns. The more you do it, the less it works.
8The dramaticand sudden fall in the oil price and concerns that it may not go back up again in the medium term, have triggered deep anxieties that this will be the catalyst for a major global deflation.
8The problem occurs when deflation shrinks economies which had already borrowed heavily in he past.
8Despite lower interest rates, the shrinkage in their economies due to deflationary impact is so rapid that they are unable to repay their own debts.
8A research paper now predicts that Japan -- which is now entering an era of negative interest rates -- will be the first country to default followed by the Euro zone as it runs out of cash.
8The paper says that the defaults will prove the Keynesian model right, that there is an apparent asymmery between inflation and deflation. Inflation, he the model says, just effects prices but deflation diminishes both prices and employment. This is because deflation stifles investment and therefore reduces demand.
8In a deflationary world, output contracts in both nominal and real terms, but debtors still have to repay debts that were taken out when price levels were higher. For a person or company with no debt, you could argue that, net-net, life continues as before. But for companies that have financed investment by debt, their capacity to repay that debt is enfeebled and what holds good for companies also hold true for economies.
8The paper says that the worst is yet to come for the global economy.
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Indian NOCs have found the service contract model complicated to implement as controversies have risen over what should be the base production profile and the incremental profile. A spurt in incremental production above the base profile may lead to unanticipated gains for the service company and this can be the subject of criticism.
8This has happened before in the past in developed fields that were allocated under the joint venture route before the NELP rounds began..
8These fields were found to be more prolific than what it was earlier assumed, and this lead to allegations that they werelet off at a discount to private partners.
8Today's big private sector oil and gas companies such as RIL, Cairn, Jubilant, Videocon and others had gained experience and made large piles of money from out of these very fields even as allegations were leveled that they were parceled out under terms which were only beneficial to the private sector partners and not the NOCs.
8In this context, service contracts will have to be carefully structured so as not to leave anything open ended.
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8This has happened before in the past in developed fields that were allocated under the joint venture route before the NELP rounds began..
8These fields were found to be more prolific than what it was earlier assumed, and this lead to allegations that they werelet off at a discount to private partners.
8Today's big private sector oil and gas companies such as RIL, Cairn, Jubilant, Videocon and others had gained experience and made large piles of money from out of these very fields even as allegations were leveled that they were parceled out under terms which were only beneficial to the private sector partners and not the NOCs.
8In this context, service contracts will have to be carefully structured so as not to leave anything open ended.
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International connectivity is the theme of Modi's Look East Policy as unveiled in Guwahati.
8There is the transnational highway going up to Myanmar.
8Roads are to be connected to Bangladesh as well.
8An India-Bangladesh railway network is also planned.
8Airport hubs will also cater to the region
8But somehow China that borders the North East has been left out of the North East story.
8But the government's sensitivity to China must end, for developing the North East requires the help of our giant neighbour.
8In terms of technology and money, China can be a catalyst in the transformation of the region.
8For if China can be included, then the entire connectivity paradigm gets a different outlook entirely.
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8There is the transnational highway going up to Myanmar.
8Roads are to be connected to Bangladesh as well.
8An India-Bangladesh railway network is also planned.
8Airport hubs will also cater to the region
8But somehow China that borders the North East has been left out of the North East story.
8But the government's sensitivity to China must end, for developing the North East requires the help of our giant neighbour.
8In terms of technology and money, China can be a catalyst in the transformation of the region.
8For if China can be included, then the entire connectivity paradigm gets a different outlook entirely.
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The Modi roadmap is clearly aimed at delivering a strong economic incentive to the North East at a time when the Assam elections are around the corner.
8Subsequent to the scathing criticism over the withdrawal of the subsidies under the North East Industrial Policy, the government is now planning to re-introduce it albeit in a different format that will encourage medium scale industries and manufacture of ancillary parts related to the hydrocarbon industry.
8All this however going to cost money, and budgetary allocations have to be made for the inborn subsidies that they will require.
8The grand plan is to incentivise the making of drill pipes, drilling rigs, nits and bolts, casing and tubings, well head equipment to cater not just to the North East but also to Myanmar, Bangladesh and even Malaysia.
8There is also a service providers hub in the offing.
8NRL also plans to put up a big bamboo based bio-ethanol refinery on the North East.
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8Subsequent to the scathing criticism over the withdrawal of the subsidies under the North East Industrial Policy, the government is now planning to re-introduce it albeit in a different format that will encourage medium scale industries and manufacture of ancillary parts related to the hydrocarbon industry.
8All this however going to cost money, and budgetary allocations have to be made for the inborn subsidies that they will require.
8The grand plan is to incentivise the making of drill pipes, drilling rigs, nits and bolts, casing and tubings, well head equipment to cater not just to the North East but also to Myanmar, Bangladesh and even Malaysia.
8There is also a service providers hub in the offing.
8NRL also plans to put up a big bamboo based bio-ethanol refinery on the North East.
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The pipeline connectivity plan for the North East is also very ambitious. The plan includes:
8A Paradip-Siliguri-Numaligarh crude pipeline
8Capacity enhancement of the Barauni-Bongaigaon crude pipeline
8New gas pipeline from Agartala to Bongaigoan
8Extension of the Duliajan-Numaligarh gas pipeline to Guwahati and Bongaigoan
8Myanmar-Silchar gas pipeline
8Siliguri-Parbatpur product pipeline
8Guwahati-Lumding-Silchar-Imphal product pipeline
8Numaligarh-Itanagar product pipeline
8Numaligarh-Dimapur-Imphal LPG pipeline
8Chittagong-Sabrum-Agartala-Silchar-Aizwal LPG pipeline
8Durgapur-Siliguri-Guwahati pipeline as an alternative to the Chittagong pipeline.
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8A Paradip-Siliguri-Numaligarh crude pipeline
8Capacity enhancement of the Barauni-Bongaigaon crude pipeline
8New gas pipeline from Agartala to Bongaigoan
8Extension of the Duliajan-Numaligarh gas pipeline to Guwahati and Bongaigoan
8Myanmar-Silchar gas pipeline
8Siliguri-Parbatpur product pipeline
8Guwahati-Lumding-Silchar-Imphal product pipeline
8Numaligarh-Itanagar product pipeline
8Numaligarh-Dimapur-Imphal LPG pipeline
8Chittagong-Sabrum-Agartala-Silchar-Aizwal LPG pipeline
8Durgapur-Siliguri-Guwahati pipeline as an alternative to the Chittagong pipeline.
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For reference purposes, the website carries here a full report on how the hydrocarbon plan is going to work in the North East.
8There is no doubt a large business opportunity here for Indian and foreign companies and policy makers within them must look at the document carefully.
8Trunk product and gas pipelines are to be built connecting the North East to the rest of India, and there are opportunities there for suppliers and service providers.
8Also, the government has spelt out a novel service contract mechanism to enhance production from the region's ageing oil fields. This is a new concept and the details show that it is indeed possible to implement such a scheme.
8National oil companies will be allowed to provide their services to third parties in the region for a fee.
8There is also a grand plan to create a service providers hub in the north east with a range of incentives.
8Challenging blocks in the North East will be given the status of deepwater blocks, with timelines extended to 12 years instead of 8, with the tax holiday period also pushed up to 12 years.
8Single window environmental clearances, batch clearances for exploratory wells, flexibility to carry out exploration work in similar blocks, time bound approvals matrices for PSCs, and introduction of what is being called as Zero Phase exploration period are among the initiatives which will be undertaken in the region, according to the report.
Click on Reports for more Details
8There is no doubt a large business opportunity here for Indian and foreign companies and policy makers within them must look at the document carefully.
8Trunk product and gas pipelines are to be built connecting the North East to the rest of India, and there are opportunities there for suppliers and service providers.
8Also, the government has spelt out a novel service contract mechanism to enhance production from the region's ageing oil fields. This is a new concept and the details show that it is indeed possible to implement such a scheme.
8National oil companies will be allowed to provide their services to third parties in the region for a fee.
8There is also a grand plan to create a service providers hub in the north east with a range of incentives.
8Challenging blocks in the North East will be given the status of deepwater blocks, with timelines extended to 12 years instead of 8, with the tax holiday period also pushed up to 12 years.
8Single window environmental clearances, batch clearances for exploratory wells, flexibility to carry out exploration work in similar blocks, time bound approvals matrices for PSCs, and introduction of what is being called as Zero Phase exploration period are among the initiatives which will be undertaken in the region, according to the report.
Click on Reports for more Details
The Modi government has unveiled a massive Rs 1,30,000 crore plan to rejuvenate the petroleum business in the North East of India over a 15 year period.
8The grand plan was announced by petroleum minister Dharmendra Pradhan in Guwahati.
8Of the total investment, Rs 80,000 crore would be required for upstream activities, Rs. 20,000 crore for midstream and Rs 30,000 crore for downstream segments..
8The minister said every year around Rs 10,000 crore would be pumped as part of the ‘Hydrocarbon Vision’.
8The present crude oil production in North East is around 12,444 TPD and average rate of gas production is around 11.32 mmscmd. The total refining capacity of four Assam-based refineries presently stand at around 7 MTPA and the total length of pipeline network in the region is around 32,000 km. The plan is to double these figures in the next 15 years.
8The key initiatives in the upstream sector will include introduction of production enhancement contracts, promotion of new technology, enhancement of new exploration activities, providing a premium on price for gas produced from challenging blocks and development of service provider hubs at Dibrugarh, Jorhat and Agartala.
8The midstream initiatives would include new pipeline projects for crude, natural gas, petroleum products and LPG, and development of an energy corridor that connects the North East to the rest of India and to neighbouring Myanmar, Bangladesh and Bhutan.
8The downstream activities would include expansion of refinery capacity from 7 MTPA to around 16 MTPA and promotion of the production of bio ethanol and other special products in the region.
8“The objectives of the plan are to leverage the region’s hydrocarbon potential, enhance access to clean fuels, improve availability of petroleum products, facilitate economic development and to link common people to the economic activities in this sector,” said Ajay Sawhney, additional secretary in the petroleum ministry who is the architect of the plan.
Click on Reports for more Details
8The grand plan was announced by petroleum minister Dharmendra Pradhan in Guwahati.
8Of the total investment, Rs 80,000 crore would be required for upstream activities, Rs. 20,000 crore for midstream and Rs 30,000 crore for downstream segments..
8The minister said every year around Rs 10,000 crore would be pumped as part of the ‘Hydrocarbon Vision’.
8The present crude oil production in North East is around 12,444 TPD and average rate of gas production is around 11.32 mmscmd. The total refining capacity of four Assam-based refineries presently stand at around 7 MTPA and the total length of pipeline network in the region is around 32,000 km. The plan is to double these figures in the next 15 years.
8The key initiatives in the upstream sector will include introduction of production enhancement contracts, promotion of new technology, enhancement of new exploration activities, providing a premium on price for gas produced from challenging blocks and development of service provider hubs at Dibrugarh, Jorhat and Agartala.
8The midstream initiatives would include new pipeline projects for crude, natural gas, petroleum products and LPG, and development of an energy corridor that connects the North East to the rest of India and to neighbouring Myanmar, Bangladesh and Bhutan.
8The downstream activities would include expansion of refinery capacity from 7 MTPA to around 16 MTPA and promotion of the production of bio ethanol and other special products in the region.
8“The objectives of the plan are to leverage the region’s hydrocarbon potential, enhance access to clean fuels, improve availability of petroleum products, facilitate economic development and to link common people to the economic activities in this sector,” said Ajay Sawhney, additional secretary in the petroleum ministry who is the architect of the plan.
Click on Reports for more Details
In the downstream sector too, the plans are ambitious. The plan includes:
8Expansion refineries of NRL and IOC
8Raise LPG output by using INDMAX technology
8High level committee to look at export of petroleum products to Bangladesh, Myanmar, Bhutan and Nepal
8Development of CGD networks through the PPP or nomination routes
8A series of product and LPG pipeline networks along with development of small scale industries.
Click on Reports for more Details
8Expansion refineries of NRL and IOC
8Raise LPG output by using INDMAX technology
8High level committee to look at export of petroleum products to Bangladesh, Myanmar, Bhutan and Nepal
8Development of CGD networks through the PPP or nomination routes
8A series of product and LPG pipeline networks along with development of small scale industries.
Click on Reports for more Details
Interestingly, the energy expansion is sought to be dovetailed with the development of core infrastructure in the region. This includes:
8Four laning of highways
8Connecting Agartala with main national highways
8Upgradation of regional airports
8A National Waterway-II
8Development of Common User Facilities
8Incentives to build CGD networks
8Use of flared gas in LNG skid mounted trucks or cascades
8Building of power plants and fertilizer units.
Click on Reports for more Details
8Four laning of highways
8Connecting Agartala with main national highways
8Upgradation of regional airports
8A National Waterway-II
8Development of Common User Facilities
8Incentives to build CGD networks
8Use of flared gas in LNG skid mounted trucks or cascades
8Building of power plants and fertilizer units.
Click on Reports for more Details
Oil prices will stay low for as long as 10 years as Chinese economic growth slows and the U.S. shale industry acts as a cap on any rally, according to Vitol Group BV, the world’s largest independent oil-trading house.
8Vitol has predicted that oil prices are likely to stay in the $40 to $60 type of band for as long as a decade.
8Vitol trades more than five million barrels a day of crude and refined products, enough to meet the needs of Germany, France and Spain together, and its views are closely followed in the oil industry.
8The problem, according to the company, is that there is too much supply while demand is slowing down as the world becomes more efficient in the consumption of oil.
8The point to note is that trading companies stand to gain from the current volatility in prices.
8They take advantage from a market structure called contango, where forward prices are higher than current costs.
8This allows traders to buy oil, store it in tanks and use derivatives to lock in a higher selling price
Click on Reports for more Details
8Vitol has predicted that oil prices are likely to stay in the $40 to $60 type of band for as long as a decade.
8Vitol trades more than five million barrels a day of crude and refined products, enough to meet the needs of Germany, France and Spain together, and its views are closely followed in the oil industry.
8The problem, according to the company, is that there is too much supply while demand is slowing down as the world becomes more efficient in the consumption of oil.
8The point to note is that trading companies stand to gain from the current volatility in prices.
8They take advantage from a market structure called contango, where forward prices are higher than current costs.
8This allows traders to buy oil, store it in tanks and use derivatives to lock in a higher selling price
Click on Reports for more Details
The February report of the IEA has confirmed that demand for crude oil is slowing down rather dramatically in 2016.
8Having peaked, at a five-year high of 1.6 million barrels per day (mb/d) in 2015, global oil demand growth is forecast to ease back considerably in 2016, to 1.2 mb/d, pulled down by notable slowdowns in Europe, China and the United States.
8Early elements of the projected slowdown surfaced in the last quarter of 2015.
8On the other hand, global oil supply dropped 0.2 mb/d to 96.5 mb/d in January, as higher OPEC output only partly offset lower non-OPEC production.
8Non-OPEC supplies slipped 0.5 mb/d from a month earlier to stand close to levels of a year ago. For 2016 as a whole, non-OPEC output is expected to decline by 0.6 mb/d, to 57.1 mb/d.
8OPEC crude oil output rose by 280 000 barrels per day in January to 32.63 mb/d as Saudi Arabia, Iraq and a sanctions-free Iran all turned up the taps.
8Supplies from the group during January stood nearly 1.7 mb/d higher year-on-year.
8Worryingly, OECD commercial stocks built counterseasonally by 7.6 mb in December to stand at 3 012 mb at the end of January, a massive 350 mb above average.
Click on Reports for more Details
8Having peaked, at a five-year high of 1.6 million barrels per day (mb/d) in 2015, global oil demand growth is forecast to ease back considerably in 2016, to 1.2 mb/d, pulled down by notable slowdowns in Europe, China and the United States.
8Early elements of the projected slowdown surfaced in the last quarter of 2015.
8On the other hand, global oil supply dropped 0.2 mb/d to 96.5 mb/d in January, as higher OPEC output only partly offset lower non-OPEC production.
8Non-OPEC supplies slipped 0.5 mb/d from a month earlier to stand close to levels of a year ago. For 2016 as a whole, non-OPEC output is expected to decline by 0.6 mb/d, to 57.1 mb/d.
8OPEC crude oil output rose by 280 000 barrels per day in January to 32.63 mb/d as Saudi Arabia, Iraq and a sanctions-free Iran all turned up the taps.
8Supplies from the group during January stood nearly 1.7 mb/d higher year-on-year.
8Worryingly, OECD commercial stocks built counterseasonally by 7.6 mb in December to stand at 3 012 mb at the end of January, a massive 350 mb above average.
Click on Reports for more Details
