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Apr 2016

It may not have been the best idea for the Expert Appraisal Committee to provide an exemption to public hearing for the revamp of the Indmax unit.
8Guwahati refinery's treated water is discharged straight into the Brahmaputra, just 1 km from where the main drinking water supply source is located for this entire city of 3 million people.
8The total water requirement as a result of the revamp will go up, and the point to note is that 456 m3/day of fresh water is used by the refinery and the total effluent generation is of the order of 183 m3/hour.
8While a large quantum of this water will be treated and recycled, a significant portion is discharged into the Brahmaputra.
8There have been murmurs of protest in heavily populated areas downstream of the river, and cases of cancer have seen an increase in households in the area, sources told this website.
8A through health survey of the area was required as the refinery is located just next to the city and a public hearing would have led to a big protest from the local population.
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IOC is going in for a revamp of its indigenously developed Indmax unit, raising its capacity from  0.10 to 0.15 mmtpa.
8The unit allows for de-sulphurization of MS and HSD so as to be able to make it compatible with Euro-IV and Euro-V standards.
8The total cost of the project is pegged at Rs 33 crore.
8The total refinery capacity is however very small, at 1 MMTPA.
8The products will be stored in existing storage facilities available in the refinery.
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A total budget of $513 million was sanctioned for the appraisal of the discovery over a three year period, ending March 2016.
8There wasn't much cost saving as prices only begin falling towards the end of the three year appraisal period.
8The cost allocation for the two appraisal wells was $ 300 million
8Well testing was earmarked $110 million while FEED, geo-technical and studies were meant to take up another $35 million.
8An estimated $25 million was spent on 3D Seismic studies, according to information available with this site.
8$5 million was spent on G&G support while $8 million went into analysis, study and investigations. Project management and G&A costs totaled up to $10 million.
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The exact quantum of reserves in the D-55 discovery in the D-6 block is not known, though Niko had once estimated the reserves at 2.5 tcf but the actual estimate is lower.
8The submission of the DOC by the RIL-led consortium is a first step towards commercial exploitation of the discovery. It is a non-associated gas discovery along with condensate.
8The discovery is in the D-1 and D-3 mining lease area and the discovery was made at depths of 4509 MDRT and 4504 TVDRT
8The geological setting is that of Jurassic-early Cretaceous-Synrift Clastic Reservoir
8The interval tested with the wire line formation tester was in the zone 4140 to 4296 m MDRT.
8Data from subsequent appraisal wells were used to file the declaration of commerciality for the discovery.
8This time around, the RIL-BP duo did file the DOC on time. The discovery was notified on May 23, 2013 and the DOC was meant to be submitted by May 2016  within a period of three years as required by the PSC.
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RIL has welcomed the recent government announcement to raise the price of gas from its deepwater fields.
8The company has now submitted a Declaration of Commerciality for the prolific D-55 discovery to the Management Committee for review.
8And even as output from the D-6 block is inexorably on the decline, the company is readying production from its Sohagpur East and West blocks in Madhya Pradesh.
8The company's pipeline connecting the blocks to Phulpur, where Iffco has a fertilizer plant and also a connection to GAIL's trunk pipeline, is ready for gas-in and testing.
8The production projections for the years 2016-17, 2017-18 and 2018-19, for the two blocks, as furnished by RIL in the Field Development Plan (FDP), are as under:
 --Sohagpur East: 2016-17: 1.46 MMm3; 2017-18: 3.65 MMm3; 2018-19: 109.50 MMm3
 --Sohagpur West: 2016-17: 36.50 MMm3; 2017-18: 142.35 MMm3; 2018-19: 321.20 MMm3.
8Clearly, the CBM scale of production is different from its KG Basin deepwater output.
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Now that diesel and petrol prices have been fully decontrolled, Reliance Industries Ltd is back into the retail selling business in India.
 8RIL has relaunched a total of 950 retail outlets of the 1433 it had set up but shuttered in 2008 when the subsidy driven pricing regime favoured only public sector retail outlets. This is a small figure compared to the massive 54,000 retail outlets that the public sector oil marketing trio of IOC, BPCL and HPCL possess.
8Nevertheless, RIL claims its HSD volumes are up 42%. It achieved the highest average retail outlet throughout 240 KLPM in March 2016 in comparison to its competitors.
8The company has the licence to set up 5000 retail units.
8Channel partners are being drawn in by the growing popularity of the Reliance brand.
8But now that subsidy elements are out, it is on the bulk marketing side that RIL can make the biggest inroads into the share enjoyed by the public sector oil marketing companies..
8RIL has resecured its customer base and has already grabbed a 3.5% market share. Its bulk business grew at 225% in 2015-16.
8RIL claims to be ahead of its public sector competitors in ATF sales in 10 of the 25 airports it operates in. The company refuels 1 aircraft every 4.3 minutes across the country.
8In LPG too, it is exuding strong growth because of domestic production shortage, its business growing by 25 %over the last one year.
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Bitumen consumption registered a growth of 16.8 percent during the month of March, 2016 and cumulatively a growth of 14.6 percent was recorded for the period April 2015 to March 2016.
8The central government has launched the Setu Bharatam programme for building bridges for safe and seamless travel on national highways, spurring its demand
8Currently a lot of road widening work is already in progress in states of Maharashtra, Rajasthan, Tamil Nadu, Telangana and Andhra Pradesh and in Punjab due to approaching assembly elections in 2017.
8All of these projects have led to increase in consumption of bitumen.
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HSD (Diesel) consumption picked up speed in March 2016, recording a growth of 15.1 percent as compared to March, 2015 and a cumulative increase of 7.5 percent for the period April 2015 to March 2016.
8Although the ongoing election campaigns in many parts of India have already increased diesel sales, the improved demand for diesel for wheat harvesting by thrashers and sugarcane crushers in all Northern states has also increased sales volumes .
8Drought like conditions that were prevalent in Bundelkhand and parts of Uttar Pradesh due to scanty rainfall prompted use of DG sets, raising consumption..
8Cheaper diesel promoted a growth in public transport and carrier Road repair and widening projects also boosted sales
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For reference purposes the website carries here the following tenders:
8Supply of Variable Area Flowmeters [EIL]  Details
8Inspection and repair assessment for Recycle Gas Compressor rotor of CCR unit, Paradip Refinery [IOC]  Details
8Mechanical and civil related jobs for laying crude line header, Paradip [IOC]  Details
8Procurement of Carbon Steel Seamless Pipes, Flanges or Fittings, Digboi Refinery [IOC]   Details
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For reference purposes the website carries here the following Newsclips:
8ONGC to drill 17 exploratory wells for shale gas  Details
8Reliance Industries takes steps for talent retention  Details 
8CNG more harmful for environment than diesel: Govt to Gujarat HC  Details 
8Volatile crude to put pressure on RIL's gross refining margins   Details 
8Reliance buys Iranian oil after six-year hiatus  Details
8Government fixes 2017-end target for 100% Aadhaar-enabled DBT  Details
8Cairn India cuts capex by a third to $100 million for fiscal 2017  Details
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The month of March, 2016 witnessed a sizzling 16.4% increase in petroleum product consumption compared to the same month in the previous year.
8Public investment and urban consumption were the major drivers of growth, according to a government analysis.
8Except for SKO and Lubes & Greases, all other products recorded a positive growth.
8On cumulative basis, a growth of 10.9 percent was registered for the period April 2015 to March 2016.
8SKO and Lubes/Greases are the only products which have recorded a negative growth of -3.7 percent, and -2.7 percent respectively during the period April 2015 to March 2016.
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LPG consumption recorded a positive growth of 14.2 percent during March, 2016 and a cumulative growth of 8.6 percent for the period April 2015 to March 2016.
8LPG for domestic consumption registered a 13.2 percent rise during during March, 2016 and a cumulative growth of 7.1 percent during the period April 2015 to March 2016.
8The previous year saw the release of 203.3 lakh new connections and 102.9 lakh DBCs, contributing to the furious growth of the packed LPG consumption. A growth of 24.4 percent was achieved in the release of new connections in the current financial year. 
8LPG for non domestic consumption registered a massive upswing of 34.8 percent in March, 2016 and cumulative growth of 39.3 percent during April 2015 to March 2016.
8During 2015-2016, high growth in LPG Packed Non-Domestic demand is mainly due to easy availability and lower price of non-domestic LPG and fall in diversion of subsidized domestic cylinders after the launch of DBTL.
8Bulk LPG recorded a negative growth of 14.5 percent during March, 2016 and a growth of 0.2 percent during April 2015 to March 2016.  In March 2015 however, a growth of 41.4 percent was noticed while for 2014-15 as a whole, an increase of 14.6 percent was observed.
8Auto LPG registered a growth of 3.3 percent in March, 2016 and 4.3 percent between April 2015 and March 2016.
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FO and LSHS consumption registered a growth of an incredible 39.4 percent during March, 2016. On cumulative basis, there has been growth of 11.9 percent for the period April 2015 to March 2016. The growth is mainly from power, steel, others and other general trade sectors.
8Petcoke consumption registered a substantial growth of 43.0 percent during March, 2016 and a cumulative growth of 25.9 percent was registered during the period April 2015 to March 2016. Multi-fuel cement plants use petcoke for their production and fall in prices of petroleum products makes it very lucrative to use.
8LDO consumption recorded a growth of 32.1 percent in the month of March, 2016 and a growth of 11.4 percent on cumulative basis for the period April 2015 to March 2016.
8LDO month-wise demand also fluctuates depending on its requirement at power plants for boiler restarts in summer.
8LDO is also extensively used in various types of furnaces and increase in manufacturing activity leads to increase in its consumption.
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It is estimated that big oil companies spent an estimated $500 million in anti climate change lobbying every year.
8A study shows that lobbying by just a handful of big firms -- Shell and Exxon Mobil -- and select industry associations total up to $115 annually.
8This represents the direct spending on climate obstruction by ExxonMobil ($27m), Shell ($22m), the American Petroleum Institute (API) ($65m) and $9m by two smaller trade associations - the Western States Petroleum Association (WSPA) in the US and the Australian Petroleum Production & Exploration Association (APPEA) in Australia.
8Shell and ExxonMobil contribute almost $10m between them to the above three trade associations' obstructive lobbying spending.
8The study says that by extrapolating across the oil and gas sector and accounting for other sectors (e.g. chemicals, automotive, utilities) and multi-sector trade associations like the US Chamber of Commerce (with an annual budget of around $200m),  it is not unreasonable to estimate that an excess of $500m is spent by the corporate sector globally on obstructing ambitious climate policy and regulations in line with achieving less than 2C warming.
8The interesting part is that on the other side of this spend, there are increasingly well-funded forces advocating ambitious climate policy in line with a less than 2C rise in global temperature.
8But their clout, though growing, is not as large as that of Big Oil and is unlikely to be so for a long time to come.
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IOC's Barauni refinery, with a capacity of 6.0 MMTA, is implementing a BS-IV project along with a revamp of its coker facility coupled with the installation of a Biturox unit and a HS crude maximization plan.
The refinery will need the following new facilities:
8A Biturox unit of 150 TMTPA Bitumen production capacity.
8Replacement of reactors and allied modernization equipment for the coker unit
8A revamp of the Naphtha Hydro treating unit (NHTU)  from 0.3 MMTPA to 0.47 MMTPA.
8Catalytic Reforming Unit (CRU) revamp, from 0.3 MMTPA to 0.47 MMTPA.
8Diesel Hydro Treating Unit (DHDT) revamp, from 2.2 MMTPA to 3.3 MMTPA.
8Additional new naphtha Splitter Unit (NSU) to enhance present capacity from 0.464 MMTPA to 0.76 MMTPA.
8Additional new Cracked Gasoline Desulphurization Unit to raise capacity from 0.4 MMTPA to 0.76 MMTPA.
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The petroleum ministry claims to be doing enough to push green initiatives in the industry.
The update provides information on what the government has done at different levels, involving:
8The auto fuel policy
8Bio fuel policy
8CNG
8Petrol and diesel pricing
8Shale oil and gas
8Various measures taken by upstream and downstream companies
8Measures taken by the Petroleum Conservation Research Association
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Stock analysts have predicted a surge in the valuation of pubic sector Oil Marketing Company (OMC) shares.
8It is going to be a golden run they say. Multiple levers are at play to drive valuations including:
8A GRM boost from better execution of brownfield instead of greenfield expansions
8The freedom to source crude that can can raise GRM by $1/bbl and EPS by 8-12%.
8Fuel marketing margins will go up as a result of the freedom to price petroleum products
8The unveiling of non-fuel retail opportunities will also boost profitability.
8A revival in crude and gas prices can unlock value for BPCL's E&P portfolio.
8There remains value unlocking potential from IPOs for JV refineries in HPCL (9 mmt Bhatinda) and BPCL (6mmt Bina)
8Then again the shift to paying LPG subsidies through bank accounts and lower prices have helped curtail under recoveries.
8Analysts therefore believe that current valuations do not reflect the actual value that these companies have created.
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   Details
The other more realistic scenario that researchers are looking at is a slowdown in demand as a direct result of climate change mitigation measures.
8Demand for oil will be significantly lower than in a business-as-usual case: by around 11 mbpd in 2030 and by 60 mbpd in 2050. This analysis found that vehicle efficiency standards implemented globally between 2000-2015 have already prevented the consumption of around 5 billion barrels of oil. Policies that further push vehicle efficiency and electric-drive technologies into the market and reduce fuel consumption by aircraft and ships could lead to an inflexion point in 2025, after which oil consumption would steadily decline.
8Cumulatively, these policies could cut oil demand by 260 billion barrels between 2015 and 2050.
8This reduction in demand delays the need to invest in extracting increasingly expensive oil from non-conventional sources, and the long-term market price of oil would settle around a stable band between $83 and $87 per barrel from 2030 to 2050. In other words, the global deployment of technologies to mitigate CO2 emissions would cause oil prices to be lower than they would otherwise be in a business-as-usual scenario: Around 8.5% lower in 2030; 24% lower in 2040; and 33% lower in 2050, according to the results of this analysis.
8The central findings of this study reinforce the conclusions of the International Energy Agency (IEA).
8The pertinent point to note is that in neither of these scenarios are oil prices going to hover at the current $30-40/bbl levels.
8Prices are going to firm up from what they are now but not by as much as they ordinarily would have had there been no climate change mitigation measures.
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Steeped as we all are  in the present, we sometimes fail to understand the various forces that go to shape our future.
8Predicting how oil prices are going to behave is fraught with all kinds of uncertainties.
8New data from the likes of Exxon Mobil that shows that the world has an inexhaustible supply of oil and gas reserves that can last for two hundred years further complicates our view of the future.
8But some of the finest research in the world, based on rigorous modeling, continues to argue that oil and gas prices are going to firm up going ahead.
8Short-term factors, such as geopolitics, speculation and sentiment, play a role in setting spot prices for oil, but in the long-term the most important factors are those that affect the marginal cost of development.
8The global crude oil market in 2015 had an excess of 2 mbpd of supply over demand due to rapid increases in US production and OPEC’s strategic response to maintain market share. However, research shows that the anticipated growth in oil demand out to 2020 should absorb this over-supply, and existing production will continue to decline, aggravated by under-investment amid current low oil prices. This would lead to a situation in the 2020s where significant investment in new non-OPEC production capacity is needed, and oil prices will need to rise to around $80 per barrel to stimulate that production. Ultimately, without major new finds or step changes in production techniques, increasing demand would push world prices above $90 per barrel by 2030 and over $130 per barrel by 2050 (in 2014 prices).
8Under this business as usual scenario, these prices assume a rapid increase in demand from 94 million barrels per day (mbpd) in 2015 to 112 mbpd in 2030, an increase of 19%. By 2050, demand would grow by a further 35% to 151 mbpd, primarily driven by economic growth in Asia and higher demand for aviation.
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For reference purposes, the website carries here the following data related to the fertilizer industry that will be of significance to our readers:
8India's ranking in terms of consumption of nitrogenous, potassic and phosphatic fertilizers.
8Production, import and sale of different kinds of fertilizers in India
8Number of units manufacturing different kinds of fertilizers in India, installed capacity, production and imports as percentage of total demand
8The cost of domestic and imported urea and the percentage of this cost in relation to the price at which urea is sold to the farmer.
8Consumption of domestic gas and RLNG and percentage of domestic and imported gas supply to total consumption
8Production of urea from domestic and imported gas respectively.
8Details of government policies which have an impact on the fertilizer industry.
8The optimal price of gas for the fertilizer industry.
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For reference purposes, the website carries here the monthly delivered pooled price of gas for the fertilizer industry in comparison to the price of domestic gas for the period July, 2015 to March, 2016.
8There is a huge difference between the two sets of prices.
8Considering a ratio of domestic gas to imported gas of 50:50, the price of RLNG still works out to be a whopping 2.5 times that of domestic gas.
8As late as March, 2016, when the price of LNG had fallen, the pooled price was $7.28/mmbtu as against the domestic price of a mere $3.82/mmbtu.
8Clearly, the price of imported LNG is till too high and it needs to come down further.
8The price differential also reflects the government's dilemma over raising the price of domestic gas, for any increase will go to directly inflate the fertilizer subsidy payout from the exchequer.
8For every $1/mmbtu increase in gas price, the cost of production and the consequent subsidy paid to the urea industry goes up by Rs 1632/MT (Energy Average mmbtu 24 * Rs/mmbtu1* ER Rs./$ 68 = Rs./MT.
8This translates into a subsidy outgo of almost Rs.3590 crore per year for every dollar rise in gas price (Rs./MT 1632*22MMT gas based urea = Rs.3590 crore).
8One way out of the problem is to raise the price of urea but this is a taboo subject among politicians. That leaves the government with no choice but to keep the price of gas -- which makes up 80% of cost of urea -- as low as possible.
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The pool gas price mechanism in India is operated through GAIL India Ltd.
8An Empowered Pool Management Committee (EPMC) made up of representatives of oil ministry, department of fertilizer, department of expenditure and GAIL approves plant-wise gas supplies to be made under gas pool mechanism and GAIL goes around filling up the gap through LNG purchases.
8GAIL and the EPMC have now decided to tie up 80% of the LNG needed by the fertilizer industry to long term LNG supplies by RasGas.
8The other 20% is tendered out and the only other company that occasionally muscles into these tenders is GSPC and sometimes IOC, which quotes prices that are lower.
8But then GAIL puts up entry barriers by refusing to share pipeline capacity though after much haggling and after the EPCM weighed in, GSPC has been allowed to book capacity in GAIL's networks for stretches of one week for supply to urea units.
8Private LNG suppliers will be up against big odds when trying to break into this market.
8The seller will not only have to handle GAIL and its monopoly position but also the EPMC.
8Eventually however the grip of long term contracts in the fertilizer supply matrix will weaken unless long term prices converge to the tender price for the marginal 20% gas fed into the fertilizer system.
8So in other words, if long term contracts from RasGas were to retain their market share, their price will have to be equal to the spot price of LNG.
8The EPMC keeps a hawk eye on gas prices -- since such prices are a pass through under the cost plus pricing system -- and it is unlikely that it will allow higher priced long term contracts, especially when oil prices go up, to hold sway for too long.
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The big debate in the fertilizer industry has always been over whether India should import fertilizers or make it in India.
8Given the fact that the price of pooled gas -- by mixing domestic and LNG prices --  is more than thrice as expensive as the Henry Hub price, India does not have the comparative advantage of making fertilizers in India, leading some to argue that India should import rather than make fertilizers in India.
8But the other side of the story is that international urea suppliers work through a cartel and if India, already the largest buyer of urea in the world, were to become more import dependent, then the cartel will send the price shooting through the roof. Since farmers get urea at a very cheap price, the difference between the cost of import and the price to the farmer is subsidized. If import prices go up, the subsidy burden to the government will go up proportionately.
8In this context, it is important for India to have a large domestic production base for fertilizers while importing a part of its demand from the outside.
8The Modi government however has embarked on a different policy. It has decided to to meet of India's demand for urea within the country, using the pooled price mechanism. Several new ammonia-urea plants -- each worth Rs 6000 crore -- are coming up and this will create a higher demand for gas. Each standard unit will consume 2.4 mmscmd of gas.
8Where the private sector seems not interested in the new units, the PMO has roped in Coal India Ltd, ONGC and  Oil India Ltd to build some of these plants.
8In other words, the attempt to build fresh urea capacity is being entirely pushed through the public sector, through companies such as RCF, NFL and EIL.
8It is pertinent to note that the Modi policy rests on the other extreme of the pole that wants India to import rather than make urea locally.
8The problem is that if all of India's urea manufacturing becomes high cost based on increasing use of LNG, the agriculture sector will suffer a comparative cost disadvantage, and will eventually create a base for high cost agriculture.
8There is also the possibility that finding itself without a market (because India is a very big buyer in the global market), the international suppliers lobby may drop its price so low that the government may find it easier to keep some of the domestic capacity idle, like it has done in the past, while importing low cost urea from outside.
8This is a clear risk and the private sector urea industry in India knows it and is therefore reluctant to put up fresh capacity.
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For any supplier of gas in India, the fertilizer industry is a very large buyer. But very few of them understand the dynamics of the cost-plus retention pricing system under which the fertilizer industry operates.
 Increasingly however new LNG suppliers will have to look at the fertilizer industry not just because of its size but also because more than half of its gas consumption is made up of LNG.
8As on February 2016, it consumed 20.91 mmscmd of domestically produced gas while 22.93 mmscmd was made up of imported LNG. In other words, 52.30% of  the fertilizer industry's gas consumption is made up of LNG.
8Juxtaposed against this is the fact that around 55% of India's fertilizer consumption is imported.
8This means that since about 52% of the indigenous production of fertilizers is made from imported LNG, the overall import content is even higher.
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For reference purposes the website carries here the following tenders:
8Composite contract for Process Chemical Treatment in GCU-2, Pata [GAIL]   Details
8Pipeline LPG Evacuation and Vaccum Drying of Feeder lines, Vizag [GAIL]    Details
8Procurement of Gas Analyzer Spares, Digboi Refinery [IOC]   Details
8Supply of Heat Exchanger Spares, Assam [IOC]   Details
8Supply of Calibration Standard Gas, Haldia Refinery [IOC]   Details
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For reference purposes the website carries here the following Newsclips:
8GAIL India to swap US LNG  Details
8India’s crude output falls but consumption soars  Details 
8Oil market, prices to return to balance by 2017: IEA chief Fatih Birol  Details 
8Crude oil import bill halves to $64 bn in 2015-16   Details 
8US oil output continues to fall, will fall to average 8.6 million barrels a day this year  Details
8U.S. Senate passes bill to bolster power grid, speed LNG exports  Details
8Lukoil CEO sees oil price of $50 per bbl by year-end  Details
8Petrobras' output down in March, but maintains 2016 goal  Details  
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GAIL will also take the opportunity provided by the two cargoes setting sail to India from the US to cross check the technology to use for the LNG carriers that it plans to build to ferry some of the LNG that it has contracted to buy from the US.
 8Propulsion efficiency of the vessels and the efficiency of use of Boil of Gas (BOG) will be the two main determinants as the journey time is long.
 8Given that landing cargoes in India will have to be at highly competitive rates, every bit of efficiency gain will matter, sources in GAIL told this website.
 8There are also many variants of propulsion systems which attempt to reconcile the objective of low fuel consumption with the necessity of consuming the Boil of Gas in LNG vessels, and an audit is needed on whether GAIL is making the right choice.
 8However, GAIL technology choice is limited as there are only two bidders in the race, and with the added complication of choosing one that has a tie-up with an Indian shipyard, GAIL may have limited maneuvering in determining the right technology for its vessel fleet.
 8Samsung Heavy Industries, which also entered into an indigenization contract with Cochin Shipyards, has developed a new version of the membrane containment system but it remains a moot point whether it will be deployed for GAIL's vessels and also whether it is the most efficient technology for long haul tonnage.
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GAIL is looking for an energy services company which will build a 15-20 MW power plant based on flue gas from its massive Hazira compressor station.
 8In one of its compressor stations at Hazira, there are two gas turbine driven compressors with a capacity of 26 MW each.
 8GAIL wants to utilize the flue gas from the turbines (at a temperature of 450 – 500 Degree C) for electricity generation using a third party.
 8GAIL's role will be limited to supplying the gas at a price and it will be upto the energy services company to sell electricity to the end consumers.
 8The contractor will own and operate the power plant.
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The website also carries here an interesting write-up on how to deal with Iran.
 8Iran already has a large and trained workforce and they are very proud of what they achieved in the oil and gas arena when sanctions were imposed.
 8So to that extent, unlike in other Gulf countries, manpower exports will be limited only to highly skilled personnel willing to plug the knowledge gap of the Iranians.
 8Local content is going to be high and Indian companies will have to build strong local strengths.
 8Trust will be a key factor, and it will be necessary to show how higher salaries will justify the expected results.
 8Government policy states that projects have to utilise Iranian content, and this is likely to become even tighter going forward.
 8The Labour Law separately states that only one in five workers (20 per cent) can be foreigners.
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For reference purposes, the website carries here details of the Iranian fields where investments will be needed
 8Pertinently, it looks like the Chinese have taken a march over India in some of the new field development programmes.
 8Sinopec and CNPC were developing five of the 9 big ongoing projects
 8Future production plans hinge chiefly on the super-giant fields--  the Azadegan and Yadavaran (discovered in the early 2000s) -- in which the the OOIP is estimated at a massive 26 billion and 18 billion barrels respectively, which between them could produce 900,000 bpd, equivalent to Oman's total output.
 8A comparison is also carried here of Iran's oil and gas reserves and production in comparison with its other Middle Eastern neighbours.
 8Iran’s revival would have a significant impact on global oil markets and, in the longer term, on the international gas trade.
 8The opportunities across the hydrocarbons sector, and at all levels of the market, are therefore substantial.
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The website carries here an analysis of Iran as a potential destination for Indian oil and service companies given that it plans to make an investment of around $250 billion in the upstream industry alone between 2016-25.
 8Around $150 billion will be needed immediately, going up the year 2020.
 The following important aspects will have to be kept in mind while looking at Iran as a viable and long term business opportunity by upstream equipment and service providers:
 8Iran possesses the largest natural gas reserves (ahead of Russia) and the second largest conventional oil reserves (after Saudi Arabia), estimated at 34 trillion cubic metres and 157.8 billion barrels.
 8Despite vast experience, Iran’s oil industry is in dire need of investment and new oilfield technology, which it has been deprived of for almost three decades.
 8Iran is among the very few energy producers with an exceptionally high reserve-to-production (R/P) ratio.
 8Iran's cost of production is very low at $10/bbl in both onshore and offshore fields. So production can be sustained even at low oil prices.
 8Profitability of projects is underpinned by low E&P cost, and low-risk investment for enhanced oil recovery (EOR) and improved oil recovery (IOR) projects.
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The Gulf region -- which now includes Iran -- will continue to provide a huge business development opportunity to Indian companies with a focus on the area.
 8The latest survey has shown that investments will grow and not slow down in the next five years.
 8There will be a 19% increase in investment activity through 2020 in the area, reaching a total of $900 billion.
 8$289 billion of new investments have already been committed to projects under execution in the region, while an additional $611 billion worth of development is planned.
 8For reference purposes, the website carries here a list of projects where investments are planned until 2020.
 8The boost to investment is coming from Iran, which will be only next to Saudi Arabia in terms of total quantum of investment.
 8Even though worrying budget deficit and expenditure curbs are emerging in these countries, all of them are keen on pushing up their energy investments.
 Details on country specific investments are also carried here. Details
Atanu Chakraborty has taken over as the new Director General of Hydrocarbons.
 8And while taking over, he has shot of a message to everyone.
 Emphasizing on higher domestic production of crude oil in line with the Prime Minister's ambitious target of reducing crude imports by 10% in 2020, Chakraborty made the following points:
 -- There should be a much more progressive and conducive atmosphere for the E&P sector.
 -- The DGH will work as an enabler and facilitator  to ensure a level playing field.
 -- Upstream development cannot prosper without all out positive support of E&P companies and service providers.
 -- The need of the hour is to make utmost efforts to smoothen out the bottlenecks with mutual cooperation and support with highest level of transparency and procedural alignment.
 8The DGH promised speedy resolution of contractual and technical issues within the ambit of DGH in the near term.
 8He also sought suggestions and ideas from stakeholders on all upcoming E&P projects with an eye at smoothening the interface between the DGH and operators.
 Click on Reports for more Details
Oil prices are slowly climbing down after the failure of supply talks last weekend in Doha.
 8A week ago, oil prices jumped as rumours swirled that a deal was close at hand between Russia and OPEC to cap output and stabilise prices.
 8With Iran choosing at the last minute not to send its oil minister to the Doha talks, it at best scuppered the deal, and at worst sabotaged it. Without Iran present, no deal would have credence. Saudi Arabia insisted that any deal must include its regional rival Iran.
 8Oil prices have certainly increased from a nadir below $30 a barrel in January and forecasting agencies such as the International Energy Agency and Energy Information Administration have grown more confident that there will be a significant rebalancing of the oil market later this year.
 8While oil stocks are expected to grow by 1.5 million barrels a day in the first six months of 2016, the IEA now expects that to slow to 200,000 b/d in the second half of the year because of the drop in high-cost production in places like the United States.
 8Improving supply and demand fundamentals make a formal production freeze less important for oil prices than they would have been two months ago.
 Click on Reports for more Details
HPCL has lined up investments worth Rs 25,000 crore to expand its refining capacity by around 500,000 barrels per day by 2020.
 8To begin with, the capacity of its Mumbai refinery is sought to be raised to 190,000 bpd from 130000 bpd by July 2019.
 8The company is also planning to partially replace existing volumes of crude purchases from Iraq and UAE with Iranian crude.
 8However, because of only partial lifting of sanctions by the US, banking and insurance issues with Iran are still to be sorted out.
 8HPCL has an annual deal to buy 65,000 bpd of Basra from SOMO and about 25,000 bpd of Basra and UAE's Murban oil from Total with an option to raise the quantities.
 8HPCL has renewed its contract to buy 50,000 bpd from Saudi Arabia and 20,000 bpd from Abu Dhabi National Oil Co (ADNOC), along with an option to buy 20,000 bpd from Kuwait.
 Click on Reports for more Details
The following are the major characteristics of the four wells that are sought to be taken for drilling:
 8Target depth: 4850 metres
 8Anticipated hydrocarbons: Gas and condensate
 8Expected BHST: 157 degree centigrade
 8BHP: Att around 10,000-12,000 psi at target depths
 8Final well status: Producer wells
 8The contractor is meant to handover the four wells to ONGC in a state that is suitable for long term production.
 Click on Reports for more Details
For the first time, ONGC is attempting to successfully complete the drilling of High Pressure HIgh Temperature (HPHT) exploratory wells in the onland Cauvery and KG basins in India.
8Earlier attempts to drill such wells had failed owing to one or the other HPHT related well complications.
8This time around however, the company is determined to go through with the drilling of four wells.
8Two wells will be drilled in the Periyakudi field in the Cauvery basin in Tamil Nadu and another two in the Bantumilli South field in the KG Basin in Andhra Pradesh.
8ONGC is looking for an integrated service provider capable of providing the entire set of services, including a drilling rig, well materials, downhole equipment, mud engineering services, cementing and hydrofracturing services to complete the four wells.
8The mobilization time will be six months and the execution time for all four wells has been fixed at 20 months.
Click on Reports for more Details
The swapping arrangements are never going to be easy to implement.
 8GAIL can be left high and dry if the counterparty ends up dishonouring a deal because of choppy market conditions.
 8GAIL claims that one of the drivers for such deals is that they are environmentally friendly as they save on transportation costs.
 8But the challenge, of finding partners with adequate financial muscle power and LNG handling experience, particularly in trading and shipping, is going to be a big one.
 So GAIL has laid down a series of per conditions for its partners, including:
 810 years experience either as a buyer or seller of LNG
 8Experience of handling a minimum contracted volume of 0.5 MMTPA of LNG in each of the last three years.
 8Experience of being a charterer for at least two LNG ships for three years separately for each LNG ship in the previous five years.
 8For the period between 2018-2023, the counter party should have signed single or multiple flexible LNG off take contracts for at least 0.5 MMTPA for a minimum duration of 5 years.
 8Flexible contract means that there are no destination restrictions on the contracted volume, with the bidder being the sole legal entity to determine delivery destinations.
 Click on Reports for more Details
GAIL has already begun looking for a swapping deal for some of its 3.5 MMTPA of LNG that it is obliged to offtake from the Sabine Pass terminal.
 8The exact quantum of LNG that it intends to swap has not been specified.
 8GAIL only says that it wants to swap "some" of its entitlement.
 8The counter party will deliver an equivalent quantity of LNG that it offtakes from the Sabine Pass terminal on DES basis in the regasification terminals located in India.
 8The deliveries in India will be from the counterparty's own offtake arrangements or supply portfolios.
 8GAIL is specifying a minimum five year period for the swapping arrangement.
 Click on Reports for more Details
The recent US spot cargoes bought in by GAIL will not have the same pricing characteristics as that of the 3.8 MMTPA of LNG that the gas major had tied up for 20 years for supply from Cheniere Energy beginning 2018.
 8The long term cargoes are going to be far more expensive because as per the terms of the offtake agreement, GAIL is obliged to pay a fixed charge of $3/mmbtu over and above 125% of the Henry Hub price to Cheniere Energy before they areLNG loaded on to vessels.
 8Assuming a $2/mmbtu gas price and loading up this value to the $3 fixed cost, GAIL's cargoes becomes uncompetitive for the Indian market at the outer flange of the Cheniere LNG terminal.
 8When the cost of the long journey to India is taken into consideration, the price will far exceed the likely $4/mmbtu spot value in India.
 8GAIL really had just two options to get its long term US LNG cargoes to India
 8One is to be able to get Cheniere Energy to cut the fixed processing charge of $3/mmbtu to $1/mmbtu while at the same time hope that the Henry Hub base price declines to a point where it pays sub $2/mmbtu for gas supplies (including the premium).
 8If this is not possible, GAIL will have to look for reliable swap options to get an equivalent quantity of gas swapped for delivery to India.
 Click on Reports for more Details
The LNG industry in India is watching with much interest the sail of two LNG cargoes contracted by GAIL from Cheniere Energy Inc's Sabine Pass terminal in the US to Petronet LNG Ltd's Dahej regasification terminal.
 8The pricing of these cargoes has been kept a secret both by GAIL and Cheniere Energy but sources are speculating that the ex-ship price at Dahej would be $5/mmbtu.
 8This is still higher than the current spot LNG price of around $4.30/mmbtu.
 8But the very fact that US cargoes, indexed to Henry Hub prices, are headed to India is in itself a historic moment.
 8It is quite likely that both Cheniere Energy and GAIL have put together a price that is acceptable to the Indian consumer. These would be the first US LNG cargoes to land in Asia and they have strong symbolic value.
 8GAIL has a captive Indian portfolio which can be fed by the two US LNG cargoes.
 8It is the sole administrator of a gas pooling mechanism in place for the fertilizer industry which can absorb the gas without anyone complaining.
 8This is on account of the fact that the entire gas price is a pass through under the cost-plus retention pricing system currently in vogue in the fertilizer industry. The gas price is entirely underwritten by the government.
 8Sources also claim that the GAIL price will be comparable or a tad lower than the long term oil-indexed cargoes that Qatar is supplying to India, thereby making it easier to absorb US LNG into the Indian system.
 Click on Details for more Details
For reference purposes the website carries here the following tenders:
8Procurement of High Speed Diesel, Pata [GAIL]   Details
8Screening and loading of catalyst in CCR Platformer Reactor, Panipat Refinery [IOC]    Details
8Supply of Displacer Level Transmitters, Haldia Oil Refinery [IOC]   Details
8Annual inspection of Utility Boiler and Heat Recovery Steam Generation Units, Vijaipur [GAIL]   Details
8Miscellaneous Hot & Cold Maintenance, Piping & Furnace Heater jobs, Panipat Refinery [IOC]   Details
You can also click on Tenders for more
For reference purposes the website carries here the following Newsclips:
8The politics of oil: How oil chokes in Saudi-Iran spat  Details
8Odd-even impact: IGL clocks highest ever sales  Details 
8Low oil prices may help companies improve performance: SBI report  Details 
8Cochin Shipyard stuck with 3 LNG carriers as pvt fims back out   Details 
8Crude oil may be heading towards $30 mark, but that’s not a problem  Details
8OPEC stands aloof of oil price regulation: Russian energy minister  Details
8GAIL seeks interest in swapping out U.S. LNG supplies  Details 
You can also click on Newsclips for more Details
There is no better time to drive innovation than at the time of a crisis.
 8Leading hydrocarbon experts are now looking at the aerospace industry for inspiration on how to push innovation and drive down costs.
 8There were about 160 odd big suppliers when the A 320 was commercialized by Airbus in 1994
 8By the time the A 350 was launched in 2014, the number of suppliers had halved.
 8Similarly, the number of suppliers to Bombardier fell by 70% between the launch of its CRJ 700-900 in 2001 and the C series in 2014
 8Rolls Royce too saw a 80% drop in number of suppliers between the commissioning of the Trent 500 model in 2002 and the Trent XWB in 2014.
 8According to DNV-GL, specifications for a typical subsea project have grown sevenfold in the past three years: from 15,000 man-hours in 2012 to 120,000 today, with each of the 120,000 documents being revised an average of three times. This is a time consuming affair and takes months to resolve in a company such as ONGC.
 8In contrast, Airbus has 2,000 suppliers working concurrently on a single digital mock-up of the airplane, updated at the end of each week; and large European aerospace companies and tier-one contractors jointly developed BoostAerospace, a collaboration and supply chain management platform that integrates nearly 2,000 clients and suppliers.
 8As said earlier, the oil and gas industry too is trying to build innovation eco-systems with a few suppliers who work as collaborators instead of following the tendering system every time for its requirements.
 8The advantages of such a model is now well known. Companies in other industries have faced the same challenges, figured how to make ecosystems work and now enjoy levels of project performance that would seem unattainable to the upstream industry.
 8The questions that remain are how fast will the lessons be learned, and how aggressively a few players in the oil and gas sector will pursue this strategy.
 Click on Reports for more Details
The website had last week talked at length on a collaborative model where a band of operators can join hands with a select group of suppliers. This model can be put to play in the KG Basin development.
 8India in fact will have a first mover advantage as such models have rarely been deployed elsewhere in the world.
 8Internationally, individual companies are working on some aspects of this model. Shell, for instance, has teamed up with Technip and Samsung to design, construct and install multiple floating liquefied natural gas (FLNG) facilities for the next 10 years, planning to enjoy the benefits of standard solutions and a supply chain ecosystem. Another example is Anadarko, which has chosen to work intensively with FMC and Technip on a segment of its offshore developments.
 8The advantage with the KG Basin is that BP is already present there. It has the finest minds and the best-in-class expertise to drive change. And BP, with over $7 billion in sunk cost, is under tremendous pressure to bring in returns. The multinational will only be too happy to drive change if it is given the opportunity.
 8All the KG Basin players among them have massive financial, managerial and technological muscle power that only a few others can put together elsewhere in the world. 
 8The collaborative model will require inputs from the finest consultancies in the world.
 8The model can allow for each player to concentrate on its strengths.
 8Studies have tried to look at emulating the collaborative environments in industries such as automobiles and aerospace in the oil and gas sector. It is estimated that equivalent developments in the oil and gas industry could well achieve 50 percent less capex, 20 percent lower lifting costs, 50 percent faster time to first oil, and a five-year lead time on new technology implementation.
 8There is no reason why the KG Basin cannot be an innovation centre that the world would like to imitate.
 8The Make in India programme is not just about manufacturing in India but bringing in global scale and technological innovation to a local environment. The KG Basin can be the best place to put the finest tenets of this programme into play.
 8No other business segment in India provides the fiscal and technological breath to innovation as the KG Basin deepwater development programme does.
 8Pradhan must take it up. And the Prime Minister must be roped in.
 Click on Reports for more Details
A time has come to look at the KG Basin as one holistic block and all players as one in exploiting the hidden gas reserves in this gigantic block.
 8Such a view can being about transformative change, a once-in-era opportunity that can change the face of the Indian hydrocarbon industry altogether.
 8And the time to act is now, before it is too late.
 8For change to occur, targets will have to be looked at holistically, in terms of potential and prospective resource in the KG basin, going forward to 3P, 2P and 1P reserves, finally leading up to production of hydrocarbons. The math can be done for the KG Basin to begin with and then escalated to include the country as a whole.
 8BP had once done an exercise in which it said that a massive quantity of gas was waiting to be tapped in the basin under the right policy environment. Similar projections were made for blocks on the west coast, beyond Mumbai High, by BHP Billiton, the world's largest mining company, which eventually had to abandon the search after opposition from the Indian navy.
 8Thankfully for the KG basin, some of the homework has already been done.
 8The best collaborative business model will have to be identified, taking all the players into account, and with an eye at the investment needed to achieve the desired national production goals for the KG Basin. The cost economics will have to be such that India can compete in an environment where supply exceeds demand, where the world says its gas reserves should stay untapped, where Qatar can bring down the price of LNG supplied to India to any level to retain market share, and where the price of gas will be in the range of $4-5/mmbtu for a long time to come.
 8The Aker report should be reinstated, and more work done on it quickly.
 8The CVC rules will have to be modified, and the government will have to take the initiative to build a collaborative model in which RIL and BP will work in tandem with ONGC, OIL, and GSPC as if all of them are working on a single block which they jointly own.
 8A gas production target must be set for the basin as a whole and everyone must work towards a targeted gas price.
 8Advanced analytics, continuous improvement, and technical innovation should drive this ambition. New operating models, enhanced organizational efficiency and improved process functionality should be the order of the day. The collaborative model must question how reserves are exploited, how to involve service and engineering companies earlier in field development, and how supply chains can be reconfigured.
 8If Dharmendra Pradhan can get this done, with the help of the Prime Minister, his contention to becoming India's best petroleum minister will be unassailable.
 8And all of this innovation can easily be done -- and ONGC has already lead the way while hiring Aker --  in a transparent manner that will keep politics out of it.
 Click on Reports for more Details
Aker did submit a draft report to ONGC that , according to press reports, said that the public sector E&P major could extract cost savings of up to $800 million or more by using RIL's infrastructure.
 8That's a lot of money by any yardstick.
 8The report said that ONGC will process its gas output from some of its fields in the KG-Basin in RIL's facility and in return RIL will get a processing charge. That way, sharing of infrastructure will be beneficial for both the companies if they decide to go ahead and implement the Aker report.
 8The Aker estimate of cost savings has been found to be conservative and sources now tell this website that ONGC's savings could actually climb up to as much as Rs 10,000 crore because a lot of extra commonality can worked in with RIL's plans to develop its own discoveries in the KG basin. Then again, given that RIL's infrastructure is lying unused, ONGC will be able to drive a hard bargain to keep the cost of use low.
 8It is said that ONGC will be able to bring down cost of development of the KG-DWN-98/2 field by anywhere between 20 to 30% by using RIL's spare capacity.
 8On a pro rata basis the price of gas to clear ONGC's hurdle rate can be pushed down to the sub $5/mmbtu range, even going down to $4.5, if common infrastructure is used and tight cost control measures on a broad front are implemented.
 8These are clearly back-of-the-envelope calculations but there is no denying the fact that ONGC is capable of bringing about significant savings if it goes into a deal with RIL for sharing of infrastructure.
 8There are huge benefits for RIL too. The company's cost of producing new gas from its discoveries will come down as fees will be paid for use of spare capacity. This will drive down costs which in turn will reflect in a lower breakeven price for gas for RIL.
 Click on Reports for more Details
A lot of water has flown down the Yamuna since Aker was hired to do the job for ONGC.
8A new government come into power that initially scorned at public-private tie-ups, particularly in the oil and gas sector, on the somewhat prejudiced assumption that such deals were necessarily in favour of private sector. partners.
8Then again, ONGC's strident positioning on the diversion of gas from its own block through wells drilled in the neighbouring KG D-6 block queered the pitch.
8The Modi's government's disdain for long drawn arbitration procedures preferred by RIL and BP accentuated the divide.
8In the charged political environment of the day, all talk of collaboration was dropped.
8Sensing the mood of the hour, ONGC decided to shelve the bid to collaborate with RIL
8The cost of the project, once estimated at a mere Rs 8,500 crore, shot up to a massive Rs 53,000 crore.
8A drastic cost cutting exercise by ONGC has brought down the price tag to Rs 34,000 crore and yet the price of gas could still be far too high to be viable.
 Click on Reports for more Details
The challenge to the collaboration model is to tackle the legacy of distrust and conflict of interest among the players in the KG Basin.
 8The way out is to ring fence the legacy conflict areas while allowing for collaboration in the rest.
 8For example, the gas diversion issue can be put to reconciliation and arbitration without impacting collaboration at the field development level.
 8Then again, RIL's arbitrations with the government can be allowed to be carred forward without impacting the collaboration process.
 The website carries here some of the other challenges of the collaboration model that it had highlighted last week. Among them are:
 8The problem will be to reconcile long-term engagement of suppliers with activity unpredictability.
 8Then again, how will members of the same ecosystem compete with each other and how can they comply with competition regulations?
 8How will the collaboration IT platforms interface with the systems of each ecosystem member?
 8How would the cost and benefit be calculated and apportioned among players?
 8What is the bigger picture—the “end-game” for the eco-system—and what role will each of the participants play in its development?
 Click on Reports for more Details
ONGC in fact went a step further in trying to push for a possible deal for sharing of infrastructure with RIL.
 8It went all the way to Central Vigilance Commission to get a special sanction to Aker Engineering & Technology that would allow the consultant to also bid equipment and services packages that it will be help ONGC to put together for the KG-DWN-98/2 field.
 8In the usual course, there is a conflict of interest if a consultant who is fashioning the EPC packages is also a bidder for such packages.
 8The issue of awarding the consultancy to Aker was referred to the CVC because of questions raised over conflict of interest. As per CVC guidelines, affiliates, JV partners and subsidiaries of the consultant appointed for design services are disqualified from participating in tenders relating to the project.
 8This would have meant that Aker being the consultant would not have been eligible for participation in the supply and installation tenders relating to the project. As supply and installation tenders are of high-value, several competent consultants refrain from bidding for the relatively low-value consultancy component. Aker made freedom to bid for EPC pcakages a precondition to being a consultant for the project
 8As Aker was involved in the development of RIL's KG-D6 facilities, it was better placed to handle the issue related to tie-in of ONGC's facilities to that of the D6 block. As awarding the consultancy contract would have debarred Aker from participating in subsequent high-value tenders, ONGC approached CVC for a special dispensation for Aker.
 8The CVC, after going through the case, restricted Aker's role upto the stage of preparing generic specifications based on functional requirements, which will have to be vetted by independent (third party) domain experts. 
 8In light of this, in the tenders where Aker intends to participate as a bidder, ONGC was asked to ensure that the contractor is not involved in the tender process as a consultant but only as a bidder.
 8The bids in such cases would be evaluated by ONGC with the help of independent domain experts only.
 Click on Reports for more Details
This is not the first time that such an issue of conflict of interest had arisen in the E&P industry.
8Worldwide there have been numerous cases where such issues have been settled keeping the interest of all the stakeholders in mind.
8Arguing its case, Aker pointed out it is not always that it had bagged high-value tenders where it was the consultant. There were cases where it had carried out subsea conceptual studies and contracts were awarded to other vendors and contractors.
8The hardware contracts relating to the Statoil's Gullfaks extension and the Pan Pandora project, were awarded to other vendors despite Aker being the consultant. Then again, the hardware contract for the Det Norske Jetta project was awarded to Cameron where it was the consultancy service provider. In Exxon's (Hibernia subsea) and Total's (Laggan Tormore) project too, the hardware contracts had gone to other vendors.
8To bolster its case, Aker furnished details of projects where it had carried out conceptual study, FEED and detailed design but subsequently high-value EPC works were awarded to other major EPC contractors such as Samsung, Keppels, SOME/Mustang, Worley Parsons and Daewoo. 
8After ONGC was convinced that such practices were followed worldwide, it decided to award the contract to Aker.
 Click on Reports for more Details
As part of the collaboration model that this website had advocated last week, ONGC will have to revive the feasibility report submitted by Norway-based Aker Engineering & Technology for integrating the development of ONGC's KG-DWN-98/2 field with RIL's existing infrastructure facilities set up for the KG-D6  field in the eastern coast of India.
 8ONGC had appointed Aker by defying conventional tender norms. The consultant was hired on a nomination basis because it was responsible for putting together RIL's massive D-6 infrastructure and had a better understanding than any other consultant of how ONGC's new development can tie up with the D6 facilities.
 8The decision to hire Aker was taken before the Modi government came to power.
 8There was some innovative thinking behind the decision to bring in Acker. Depending upon what Aker would throw up, the ONGC board had gone ahead and given permission to the management to sign a formal agreement with RIL for sharing of the D6 infrastructure.
 8At that time the ONGC Board had desired that the agreement with RIL should have adequate legal safeguards to protect the interests of the public sector E&P major and a long-term commitment for collaboration from the private E&P giant.
 8The infrastructure created by RIL at its D6 field was lying idle as the natural gas output from the block had fallen drastically from the targeted 80 MMSCMD. RIL in fact had created a robust facility that could handle not just 80 but 120 mmcmd of gas that it thought it could extract from the field. The government subsequentlywent for a capital recovery of the idle infrastructure from RIL.
 8As per the consultancy contract, Aker would assist in the preparation and evaluation of technical bid packages for supply and installation of gas development activities in the KG-DWN-98/2 as well as for hooking-up to existing D6 facilities.
 Click on Reports for more Details
The website wants to further push the argument it made last week that while ONGC's first wave of cost cutting in the KG-DWN-98/2 block -- from Rs 53,000 crore to Rs 34,000 crore -- was necessary to achieve short-term reductions to counteract the gas price plunge, the E&P major still has to do a lot more to address the underlying structural changes needed to survive in a $4/mmbtu price environment.
 8The price of gas for Indian deepwater blocks is pegged to the ex-ship spot LNG price in the West Coast. This price however is plunging rapidly and is unlikely to go beyond $4-5/mmbtu for a long time to come given the massive oversupply in the LNG market.
 8ONGC has publicly proclaimed that it gets a 15% return on a gas price of $6.5/mmbtu in the block even after conducting the massive cost cutting exercise.
 8Clearly, the company is staring at the possibility of a negative return on its investment unless it begins to carefully review the underlying operating models to determine what’s necessary to restore competitiveness in a low-price, high-volatility environment.
 8What ONGC needs to do is to go after 90 percent of project costs, rather than the 10 percent margins of its suppliers.
 8The good news is that significant potential exists to bring down costs in the block.
 8And this is where the government more than the ONGC brass needs to pick up the gauntlet.
 Click on Reports for more Details
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