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Dec 2015

The emphasis on controlling pollution will come as a big bonanza for Indraprashta Gas Ltd, the NCR's monopoly gas supplier.
 The following factors are going to help the company to build both its top and bottom lines in the future.
 8Supported by a projected gas demand revival of 4.5% CAGR over FY15-17E, after a sedate FY15, earnings growth of the company is likely to witness a sharp upswing.
 8Meanwhile, secured gas supply for CNG and for domestic PNG coupled with favourable gas economics (19-56% cheaper to petrol and diesel) will spur growth beyond regulated consumption in the medium term as gas outscores
 competing fuels linked to crude.
 8Pollution concerns in Delhi will also help spur volumes for IGL on the back of increased demand for CNG.
 This upsurge will be led by
 8New bus additions in NCR
 8Addition of ~50,000 app-based taxi operators
 8Discretionary conversion by private cars.
 8Meanwhile, Piped Natural Gas (PNG) volumes are likely to ride on domestic customer addition and revival in commercial demand.
 8What is more, IGL is now branching out, expanding its geographical footprint. It has taken a 50% stake in CGD players like Maharashtra Natural Gas (MNGL) and Central UP Gas (CUGL).
 8While MNGL caters to Pune markets and its neighbouring areas, CUGL caters to Kanpur and Bareilly in UP. MNGL and CUGL have reported impressive growth supported by EBIDTA/scm spreads of Rs8.5/scm and Rs 7.0/scm.
 8So all in all, good times are ahead for the company.
 8For reference purposes, the website carries here a set of multi-parameter financial projections on MGL.
 Click on Reports for more Details
It looks like work is going on well on the Jagdishpur-Haldia natural gas pipeline project (JHPL).
 8Work on the pipeline commenced in September, 2015.
 8The project is being developed by GAIL in three phases.
 8For the Phase-I (755 Km) stretch from Phulpur to Dobhi with Spur lines to Gorakhpur, Varanasi, Patna, Barauni, the route survey has been completed.
 8The scheduled date of completion of Phase-I is December, 2018.
 8Cadastral survey for Phase-II and Phase-III is now under progress.
 For reference purposes, the website carries state wise expenditure pattern of the pipeline in terms of the following parameters:
 8Total approved cost
 8Commitment till November, 2015
 8Estimated capex by the end of 2015-16
 8Actual expenditure till November, 2015.
 8The government has clarified that so far, none of the gas customers have executed Gas Transportation Agreement (GTA) for booking pipeline capacity in JHPL.
 Click on Reports for more Details
The fact that there was a large quantum of spare capacity in gas based power plants is evident from the requirement vs supply data released by the government.
 8Considering a Station Heat Rate of 1800 Kilo Calories (Kcal)/ Kilo Watt Hour (Kwh) and a Calorific value of natural gas as 9500 Kcal/ Standard Cubic Meter (SCM), the total gas required to run the stranded powre plants at 90% Plant Load Factor (PLF) is a massive 100.16 MMSCMD.
 8In contrast, the quantum of domestic natural gas and Long Term R-LNG supplied to gas based power  plants during 2014-15 was 25.33 MMSCMD and 1.97 MMSCMD respectively.
 8The gas pooling mechanism has raised the utilization rate for gas based power plants but only up to a point.
 8The scheme envisages supply of imported spot R-LNG to stranded gas based plants as well as the plants receiving domestic gas, up-to the target PLF selected through a reverse e-bidding process.
 8But to be viable, "financial sacrifices" are being made collectively by all stake holders to made R-LNG based power generation commercially viable.
 8The pooling system provides life support to the power plants but how long the scheme will continue to remain viable remains a moot point.
 Click on Reports for more. Details
For reference purposes, the website carries here statistics on irregularities by LPG distributors appointed by public sector oil marketing companies.
 The data is carries here in the following format
 8State-wise irregularities in the following years:
 --2012-13
 --2013-14
 --2014-15
 --2015-16 (April-October)
 Click on Reports for more Details
The government has appointed a one member committee comprising of Ajit Prakash Shah, chairman of the 20th Law Commission of India and former Chief Justice of the Delhi High Court, to look into the ongoing dispute over the drawal of gas through wells drilled in RIL's D-6 block from neighbouring ONGC blocks, KG-DWN-98/2 and the Godavari PML
 The Committee will have the following Terms of Reference:
 8To consider at depth the report submitted by DeGolyer and Mac Naughton (D&M) and recommend the action to be taken by the government thereon considering legal, financial and contractual provisions including those contained in the Oilfield Regulations and Development Act and the Production Sharing Contracts.
 8To recommend the future course of action to be taken on the issue in the light of the findings contained in the D&M report.
 8To quantify the unfair enrichment, if any, to the contractors of the adjacent block, KG-DWN-98/3, and measures to prevent future unfair enrichment to these contractors on account of gas migration and to recommend action to be taken to make good the loss to ONGC and the government on account of such unfair enrichment to the contractors.
 8To consider the acts of omission and commission, if any, on part of the stakeholders including RIL, ONGC, DGH and government and give recommendations on them
 8The committee will submit its report in three months.
 8The committee has been given the right to formulate its own procedure and it may call for any records and examine any witness as it deems fit.
 8The petroleum ministry will provide the necessary administrative support
 Click on Reports for more Details
The website carries here a chart that depicts the fiscal breakeven cost of major OPEC countries.
 8The breakeven point is the price of crude at which the government of the country balances its budget or when revenue from sale of crude equals spending in the economy.
 8The fiscal breakeven point in Kuwait is the lowest at around $58/bbl
 8The breakeven for others are all significantly higher:
 --UAE breakeven is at around $78/bbl
 --For Saudi Arabia, the figure is $90/bbl
 --Iraq is closer to $100/bbl
 --Algeria is at $110/bbl
 --Followed by Venezuela at $117/bbl, Nigeria at $120 and Iran at $122/bbl.
 Click on Reports for more Details
One industry that seems to be benefiting a lot for a slide in crude prices is the shipping industry.
 8In the beginning of each year Worldscale flat rates are reset, with the bunker component being the most crucial element to their calculation, based on prices between October and  September.
 8The fall in oil prices has led to a major decline of bunker prices.
 Accordingly, it is projected that for 2016, Worldscale flat rates will decline by more than 25% on long haul routes and by almost 20% on short haul routes.
 8Bear in mind that for long haul routes, bunker costs are undoubtedly the primary expense borne by the ship-owners during a voyage.
 8Lower crude prices also lead to more consumption, which in turn helps the crude carrier industry.
 8A strong market for tankers is expected to last well into 2016.
 8Overall steady Middle East demand last week sustained strong sentiments in the VLCC market
 8The West Africa market moved in a similar way.
 Click on Reports for more Details
The rate of growth of consumption of diesel and petrol are now showing a divergent trend.
 8During the time when diesel was subsidized, consumption grew at a rapid rate but the trend has now reversed after prices have been decontrolled.
 8Petrol consumption continues to grow rapidly at 17% in November and 14.5% cumulatively for April-November 2015 in comparison to the same period in the previous year.
 8In comparison, diesel sales almost stagnant in November, at 1.5% and grew at a slower 6.3% cumulatively in comparison to petrol.
 8This trend is likely to accelerate as Indian cities take drastic steps to cut down on diesel consumption by restricting the supply of diesel vehicles.
 8Diesel is now widely regarded as polluting fuel and in cities like Delhi, a complete ban on sale of diesel cars is now a real possibility.
 8Diesel does have its intrinsic advantages over petrol but the good days for the fuel are now behind us.
 Click on Reports for more Details
Is the growth of demand for gas stymied by substitution from liquid fuels such as naphtha and LDO?
 8The answer could well be "yes", given the furious pace at which substitute petroleum liquids are growing this year even as gas consumption stagnates.
 8Pertinently, the situation was just the reverse when crude prices were high: demand for naphtha, FO/LHSH and LDO were then on the decline while there was a sharp rise in the consumption of gas
 8For the current analysis, a fair comparison of prices will have to be between the landed cost of LNG -- because shortage of domestic gas means that only LNG can be used in industrial furnaces -- with that of naphtha and other fuels.
 8Low crude oil prices have brought about a concomitantly sharper fall in liquid fuel prices than in LNG.
 8Consequently, the substitution effect has come into full play and adversely impacted the acceleration of incremental demand for gas in India that was noticed earlier.
 8A glance at the latest consumption figures will show what is happening on the ground.
 8Naphtha consumption had gone up by a whopping 39.68% in November, 2015 in relation the same month last year. April-November, consumption went up an unprecedented 22%.
 8Similarly, consumption of LDO grew by 10% in November and 13% cumulatively.
 8Clearly, low crude prices create a big substitution effect in a country like India and acts as an inhibitor to the growth in consumption of gas.
 Click on Reports for more Details
Justice (Retd.) Ajit Prakash Shah is the Chairman of the 20th Law Commission of India.
 8He was the Chief Justice of Delhi High Court from May 2008 till his retirement in February 2010.
 8Justice Shah is known for his bold judgments,including the July 2009 ruling that found India's 150-year-old statute prohibiting homosexuality, as discriminatory and therefore a "violation of fundamental rights".
 8"It cannot be forgotten that discrimination is antithesis of equality and that it is the recognition of equality which will foster dignity of every individual," the Bench headed by Justice Shah said in the judgment.
 8He belongs to a family of lawyers; his grandfather, father and uncle were in the legal profession. His father became a Judge of the Bombay High Court and upon retirement served as a Lokyukta.
 8Justice Shah did his graduation from Solapur and his law degree from Government Law College, Mumbai.
 8He was appointed Additional Judge of the Bombay High Court on 18 December 1992 and became a permanent Judge of the Bombay High Court on 8 April 1994.
 8He assumed charge as the Chief Justice of Madras High Court on 12 November 2005 and was transferred as the Chief Justice of the Delhi High Court on 7 May 2008.
 Click on Details for more Details
While seeking a clear road map to resolve the imbroglio, the government is also seeking to fix responsibility for the mess up by expanding the Committee's mandate to look into the acts of omission and commission leading up to the mess-up.
 8"The fact that no one noticed or raised an alarm while the draining the ONGC reservoir went on, is something we need to know more about," highly placed sources in the government told this website.
 8When ONGC chairman D.K. Saraf moved the Delhi High Court, those in the petroleum ministry were miffed by his unilateral action.
 8It is likely that files will be examined by the one man commission leading up to the point where Saraf was forced to seek the court's help without taking the requisite permission from the government.
 8"It is rather surprising that the draining was going on for so many years without anyone raising a red flag," the same official said.
 8"The committee will hopefully clear the air on this mystery," he said.
 Click on Reports for more Details
IOC has got the authorization from the PNGRB to build the evacuation network from its Ennore LNG terminal.
8Permission has been granted to build the Ennore-Thiruvallur-Bangaluru-Nagapattinam-Madurai-Tuticorin pipeline gas pipeline.
8Eliciting the go ahead from the regulator is the easy part of the job.
8The tough part starts when it comes to acquisition of land for the ROU, especially in the face of strong opposition from farmers and the Tamil Nadu government for laying of pipelines through agricultural land.
8Work is till stalled over the construction of GAIL's Kochi-Bangalore pipeline that traverses through the state.
8IOC however seems confident of handling the problem as it claims that it will lay the gas pipeline on the ROU of an existing product pipeline and wherever fresh ROU Is needed, the company said it would follow state government guidelines.
Click on Reports for more Details
Cairn India Ltd has formally withdrawn a proposal submitted to the PNGRB to lay a 24-inch, 200 km pipeline to link its Raageshwari Deep gas field in the Barmer Block to Gujarat State Petronet Ltd's (GSPL's) Palanpur terminal in Gujarat.
 8The PNGRB has now given permission to Cairn to withdraw the proposal.
 8Instead, it seems the proposal will now be submitted to the regulator by GSPL for the pipeline.
 8Cairn has withdrawn from constructing the pipeline on its own to save on the construction cost of $100 million.
 8Cairn will now not have to lay claim cost recovery on the pipeline.
 8Instead of Cairn, it will be GSPL which will be giving out contracts for the construction of the pipeline.
 8GSPL will now do a thorough review of the costing exercise conducted by Cairn for the pipeline.
 Click on Reports for more Details
The PNGRB has rejected a proposal by GAIL to consider the Hazira Vijaipur Jagdishpur and the Dahej Vijaipur pipeline -- both of which now stands upgraded -- as a single upgraded pipeline.
8The Board has rejected the proposal on the ground that there are no provisions in the regulations for merger of two distinct pipelines into one single entity.
8This is so because the two pipelines were separately authorized and therefore they cannot be merged in regulatory terms.
8But the regulator has conceded that it may become necessary for technical reasons to merge two pipelines and for this purpose integration will be a desirable objective to ensure supply security to a large number of customers.
8For the time being however, GAIL has been asked to submit the updated pipeline capacities separately so that the final terms and conditions for acceptance of of central government authorization for the upgradations can be issued separately.
Click on Reports for more Details
Latest data available with this website shows that 2016 is going to be a bad year for the oil and gas industry.
 8Prices will continue to go down.
 8No doubt, low oil prices have been a boon for consumers, with consumption rising in several key regions this year. China, India and the U.S. in particular have given global demand a boost.
 8Still, the 2.4%  average growth rate for demand recorded this year pales in comparison to the 4.0% average pace of crude oil production growth
 8Over the last few months, the world has been producing roughly 1.5-2 million barrels per day in excess of demand. What’s more, the rise in demand is likely to moderate over the next two years. After a year of low oil prices, the positive impact on demand will diminish. Ultimately, it will largely be up to the supply side to bring the market back into balance.
 8OPEC is in no mood to bring down output and more supplies are now likely to come in from Iran.
 8Non-OPEC production continues to grow but it is now more responsive to price signals, particularly in the US.
 8All told, it appears as though global supply will continue to grow for at least the next 6-9 months, before losing momentum towards the end of 2016. As a result, production will far outpace demand, leaving the global market in a position of excess supply for most of next year.
 8And then again, when production grows more in line with demand, there is a massive amount of inventories that will need to be worked down.
 8As such, prices will be unable to make a meaningful comeback in the near term.
 Click on Reports for more Details
While country specific breakeven costs are high, the price at which crude production breaks even is significantly lower in all OPEC countries
 8For most OPEC countries, oil is the single largest source of revenue and this is used to run their economies. This explains why crude breakeven points are significantly lower than the fiscal breakeven cost of a country.
 --The lowest is of course Middle East crude, with a breakeven point of just $26/Bbl
 --For conventional crude in general, it is $34/bbl
 --Conventional offshore crude breakeven is pegged at around $37/bbl
 --Heavy oil breakeven is at around $38/bbl
 --Russian crude breakeven is nearer to $40/bbl
 --North Sea is at $44/bbl
 --Deepwater crude is $50/bbl
 --US Shale and Tight oil crude has a breakeven point of around $56/bbl
 --Canadian sands are at $82/bbl
 --Crude from the Arctic has the highest breakeven at $110/bbl
 Click on Reports for more Details
 Moving the Delhi High Court to issue directions to the government to act on a host of pending issues relating to the Barmer Block in Rajasthan is a calculated risktaken by Cairn India chairman Anil Agarwal.
 8This government is unlikely to take kindly to court directions on subjects that it believes should be handled only under its ambit..
 8And if the government decides to become intransigent as a consequence, Agarwal may find it very difficult to carry on doing business with it.
 8Petroleum minister Dharmendra Pradhan sounded somewhat miffed, when he said yesterday that the government was already doing enough -- including pushing for an ad valorem rate for cess even as it was building a case to provide a 10-year extension to the PSC after its expiry in 2020 -- to resolve Cairn's problems and that the company shouldn't have gone to court.
 8Agarwal on the other hand had run out of patience when he saw that the ministry, even after constant coaxing, wasn't doing enough to resolve the pending issues.
 8But for Agarwal it is a calculated gamble, for at risk on account of government inaction were billions of dollars of investment both in the acquisition of Cairn India and in future E&P activity in the block that was aimed at securing healthy income streams well into the future. .
 8What the Cairn India boss wants is for the court to take the discretionary power -- such as not agreeing to the signing of a COSA for the entire quantity of crude produced in Rajasthan or pussyfooting on a request to correct the anomaly in the pricing of crude oil or deciding on the timing of the extension of the PSC and the terms and conditions under which such an extension will be granted. -- away from the government.
 8The court, it now transpires, seems to be already in an interventionist mood, as is evident from the time limits set for responses from ONGC and the government on the issue of extension of the PSC and sale of Cairn's Rajasthan crude at a discount to the oil marketing companies.
 Click on Details for more Details
It is clearly evident that a 10-year wait for the Mozambique project will be an interminably long one for ONGC and OIL.
 8More so as both ONGC and OIL had already invested a whopping $5 billion on just acquiring a stake in the project.
 8Just the interest cost element alone, compounded annually, will double the cost of acquisition of the stake, leave alone currency depreciation and other imponderables.
 8And if gas prices continue to remain competitive, the duo may never get a return on the investment for an interminably long time.
 8Will this investment be a complete washout?
 8That is a probability too, if disruptive technologies like the electric car and grid sized battery storage gain traction along with higher levels of energy efficiency, they will end up dampening the appetite for fossil fuels, including gas.
 8Gas is being touted as a cleaner substitute to coal but what if in 10 years the world jumps from fossil fuel dependency to renewal energy in one gigantic technology-enabled step?
 8These variables will come into play if the Mozambique asset has to wait for 10 years to go into production
 Click on Reports for more Details
 It is possible that this government may act tough on Cairn India for going to court.
 8For example, the discretion is with the government to decide on the fresh terms under which the PSC for the Barmer block is to be extended.
 8And it is within its right to seek a higher share of profit petroleum even if the PSC says that government's take cannot exceed 50% of the overall profit.
 8The government can well turn around and say that Cairn should be entitled to a reasonable post tax return on investment from the block, like in the case of power and fertilizer companies, after an extension is granted. After all, the argument can go, Cairn has already made its money from the block and now that the geology is well established, the risks associated with a typical E&P block no longer exists. And all that Cairn should get is a fixed return on investment and any return beyond this point should go to the government's coffers.
 8And when Cairn objects to such a possibility, will the court then have the jurisdiction to determine the exact mix of profit that the government and Cairn should share?
 8Then again, the tax and duty structures in the Barmer block are loaded against ONGC under the PSC. It will be difficult for the court to contest the government's right to seek better terms for the public sector E&P company under the extended PSC. If the balance is corrected, as it should be, it will have an adverse impact on Cairn's take from the block.
 8If the government is to become vindictive, there is nothing that prevents it from providing a five year instead of a 10-year extension to the block. Sure, a gas block is entitled to a 10 year extension, while only a five year extension is a prerequisite for an oil block.
 8But the point to note is that the Barmer block is primarily an oil block even through a significant quantity of gas -- at around 1 TCF -- has been discovered recently.
 8An argument can always be made out that the block as such should be given a five year extension. Or there should be a demarcation of the block, with the oil bearing areas eliciting a five year extension while Rageshwree Deep, where gas has been found, should be given a 10 year extension.
 8No one will deny that taking the government to court comes with its attendant risks Details
ONGC and OVL had spent a total of $5.19 billion to pick up a 20% stake in the Rovuma Area of Mozambique.
 8On hindsight that seems to be too high a price to pay for a block where the upstream development and the attendant LNG trains are yet to be constructed.
 8According to an estimate made by PriceWaterhouseCoopers, the capex needed to build a two-train LNG project in Mozambique was a massive US$2.14 million per bcf of net gas volume. That’s a total investment of US$26.1 billion whereas Anadarko -- the operator of the project -- had last year pegged the cost lower at around $20 billion. Some estimates are now saying that the steep fall in the cost of equipment and services in the petroleum sector can bring the the price tag lower still.
 8The price tag means that the OVL-OIL combine would have to shell out another $4 billion towards the project. Or if the project cost comes down to $15 billion, the consortium's investment will be around $3 billion
 8Cumulatively, the two Indian companies would have invested between $8-9 billion for a 20% charge on the two trains of LNG with a capacity of 6 MMTPA each. This is over and above the freight and gasification charges that will have to be paid additionally
 8It is patently evident that the IRR will be negative on such investments, given the abysmally low price of gas at present or anytime soon in the future.
 8Even for Bharat Petro Resources Ltd (BPRL), a subsidiary of BPCL, which walked into the project much earlier in 2008 without paying the high upfront premium paid by ONGC and OIL, the cost economics were turning out to be below the hurdle rate on its 10% stake.
 8The IRR for BPRL was 11.75% assuming a gas price oof $12 but now that the gas price has plunged, the  IRR has gone below the hurdle rate of 10%.
 Click on Reports for more Details
The India government had said in a public statement yesterday that the Mozambique plant will come on stream in 2020.
 8But there is no certainty that this deadline will be adhered to.
 8The main project promoter, Anadarko, which has a 26.5% stake, had said that an investment decision on going ahead with the project would be taken only in the second half of 2016. This implies that the project may not be viable at this point in time or else work would have gone straight ahead.
 8No reasons have been attributed to the delay in taking a decision but indications are that the current glut of LNG terminals, leading to a problem of oversupply, and low gas prices, have coaxed Anadarko to put off taking a decision by a whole year.
 8Even after a year, a decision may not be forthcoming as the air might not clear up in just one year.
 8A leading research paper on the global LNG scenario has said that the project will be viable only after the year 2025 -- when the current glut in the market works itself out -- and not before that.
 8The report however claims that the project viability will stand established, albeit only after 2025, because of economies of scale available given the massive size of the project, and its proximity to the Indian market.
 8But that will be at least 10 years from now and way off from the timeline estimated by the government in yesterday's statement.
 Click on Report for more Details
The research paper claims that at the current benchmark LNG price of around $7/mmbtu (in Japan), just the cost of infrastructure of the Mozambique project at current cost levels will be around 80% of this price.
 8This does not leave enough scope to recoup upstream and shipping costs at current price.
 8Clearly, the breakeven price is far in excess of the LNG market price in Japan.
 8The suggestion therefore is to pare down the infrastructure cost as far as possible.
 8This can only be done if suppliers of equipment and services are pushed into bringing down their prices substantially, both for the LNG trains and upstream E&P activity..
 8It is pertinent to note that the project cost estimate for Mozambique has gone through a fair number of revisions.
 8But at current estimated infrastructure cost for both the upstream and LNG segments, the delivered price of gas in Japan or anywhere else from the Mozambique project does not just add up to the prevailing market prices.
 Click on Reports for more Details
Cairn India may have pulled back its investments in the Barmer block in Rajasthan on account of low crude prices and uncertainties over the kind of extension that will be granted to the PSC once the existing contract ends in 2020.
 8Yet, to keep its operations going, it will continue to spend a reasonably large amount of money.
 8Cairn is now seeking quotes for a large variety of pipes and fittings required for its oil field operations with the aim of entering into long term rate contracts on a call-out order basis.
 The requirements are for:
 --Pipes of various sizes and quality
 --Pipe fittings of different varieties
 --Gaskets
 --Fasteners
 --Valves of different types
 --Strainers
 --Steam Traps & Couplings
 --Structural steel sections and grating materials
 Click on Reports for more Details
 The fact that the world sits on an abundant quantity of gas that can last for a very long time is evident from the latest global estimates of shale gas.
 8Shale gas reserves have been pegged at 7,576 trillion cubic feet in 48 countries, including the US.
 8So even if conventional gas were to run out, shale reserves of this magnitude can keep the world going for a long time indeed.
 8However, only four countries States, Canada, China, and Argentina) are currently producing oil and natural gas from these resources at commercial scale, with the United States alone providing 4.4 million b/d, or more than 90%of global tight oil production and 42 Bcf/d, or more than 89%, of global shale natural gas production.
 8Which portions of these resources that become economically recoverable will depend on gas market prices, as well as the capital and operating costs and productivity within the areas where gas is found
 Click on Reports for more Details
One of the reasons why gas prices are sliding down is because US inventory of natural gas liquids storage was at a record 209.7 MMBBL. This is a high level of inventory by any yardstick. The inventory level is almost 30% above the five year historical average. It is about 8.5% above the five-year high.
8The OPEC daily basket price continued its inexorable downward climb. The price was at $32.60/bbl, on Monday, December 14, 2015. In contrast, the crude price of the Indian basket was at $34.39 on the same day against the day earlier price of $35.72/bbl. These are very low prices indeed and extremely worrisome for Indian E&P companies.
Click on Reports for more Details
The current low crude price has helped the Indian government to complete the filling up of the Visakhapatnam strategic storage facility, with a capacity: 1.33 MMT,
 8A total of 4 MMT of storage capacity is currently under various stages of completion.
 8This includes the Mangalore (storage capacity: 1.5 MMT) and Padur (2.5 MMT) facilities.
 8A detailed feasibility report has been prepared for construction of additional 12.5 MMT  of strategic crude oil storages in Phase-II at four locations.
 The locations are:
 --Bikaner (3.75 MMT)
 --Rajkot (2.5 MMT)
 --Chandikhol (3.75 MMT)
 --Padur (2.5 MMT)
 Click on Reports for more. Details
The world is finally out.
8The petroleum ministry has said in a formal statement that there is no proposal for decontrol of the price of gas.
8This is bad news indeed for the domestic E&P industry, and for those companies with deepwater gas discoveries, such as ONGC, RIL-BP and GSPC, among a few others.
8This also indicates that the government will stick to the concept of providing a "premium" to deepwater discoveries in some manner or other.
8Since the domestic price will not be decontrolled, the so called "premium" can at best be a subset of the market price.
8Clearly, hemmed in by the ceiling price of low cost LNG and the "premium" that has not yet been decided, domestic companies will face an uphill task in ensuring viability of their discoveries.
Click on Details for more Details
For reference purposes, the website carries here the following data on the City Gas Distribution industry in India:
 8State
 8Name of the Geographical Area
 8Number of consumers in each Geographical Area in terms of
 -- PNG Domestic
 -- PNG Industrial
 -- PNG Commercial
 -- CNG stations
 Click on Reports for more Details
The government is currently undertaking an appraisal of unappraised onland basinal area through 2D seismic studies.
 8The project is being implemented through ONGC and Oil India Ltd. The unappraised offshore area is being covered through the policy of non-exclusive multi-client speculative survey through service providers.
 8More tenders are expected on this count.
 8India has a total sedimentary area of about 3.14 Million Sq. Km spread over all 26 sedimentary basins covering onland, shallow water (less than 400m bathymetry), and  deepwater areas (beyond 400m bathymetry).
 8As of now, only 48% of the basinal areas have been appraised
 The website carries here the following data on the subject:
 8Type of basinal area (onland, offshore) in terms of
 --Million sq km
 --% of total area covered under seismic surveys
 -- Current Appraisal area
 --Appraisal area as percentage of total area.
 Click on Reports for more Details
For reference purposes, the website carries here data on all overseas assets held by public sector Indian companies. It is a very detailed list and the data is carried here under the following parameters:
 8Country
 8Name of the block
 8Consortium partners
 8Value of the stake acquired
 8Latest update
 Click on Reports for more Details
For reference purposes, the website carries here the following data on the petroleum sector:
 8Turnover and PAT of public sector oil companies in the last three years, including April-September, 2015-16
 8Price build-up of major petroleum products: petrol, diesel, LPG and kerosene
 8Total subsidy and under-recovery in petroleum products in the last three years, including April-September, 2015-16
 Click on Reports for more Details
For reference purposes, the website carries here details of the latest block-wise and round-wise status of CBM blocks in the country under the following parameters:
 8CBM Round
 8Block
 8State
 8Square km
 8Contractor PI
 8Comprehensive information on present status
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For reference purposes, the website carries here the latest government data on CBM production in the next three years.
8The data shows a sharp spike in output in 2016-17 over the pervious year and a similar jump in 2017-18.
8The data shows the CBM will contribute a reasonably significant amount of gas by the year 2017-18
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8The outlook for gas prices in the US remains poor.
 8Recently, the US Energy Information Administration forecast that the Henry Hub natural gas spot price would average $2.47/MMBtu this winter through to March 2016, compared with $3.35/MMBtu last winter.
 8US gas production has proven remarkably resilient to low prices over the last few years, in part because a lot of gas is produced in association with shale oil. With the latter now in decline,
 8US gas production may not prove so resilient in future.
 8Nonetheless, like the oil market, gas inventories remain high and producers are likely to remain focused on maintaining output to preserve cash flow even as profits become paper thin. Details
8What is your interpretation of OPEC's decision to keep the output unchanged? 
 There are a few vocal members within the organisation, led by Venezuela, that have been urging the organisation to reduce output and reclaim its traditional role of swing producer, but Saudi Arabia, which wields the most influence on the final decision, and its Arab neighbours have dug in their heels to defend market share rather than prices.
 8How long can the OPEC resist a production cut?
 The chances of OPEC capitulating in the coming months are next to nil. Also, with the group having done away with individual member country quotas since 2012, they will not be able to return to the system in the current environment of mistrust and deep philosophical divisions within the ranks. 
 8What is the outlook on prices?
 Crude might be adrift and move mostly sideways for some time to come, susceptible to another leg down when the incremental Iranian barrels start flowing into the market as Western sanctions against the country are lifted. 
 8Oil prices have dropped nearly 50% in the last 18 months. Is it possible that the next 12 – 18 months could shave-off another 50% from the current levels?
 That’s a possibility, though a tipping point well before that could happen, which means supply starts responding and the rebalancing process can begin. The other factor hanging in the balance is US shale and how tight oil responds to sustained prices in the low-$40s or below. 
 8Do the prices factor in the possibility of a slowing global growth?
 Global oil demand growth does hang in the balance, and the recent renewed softness in crude likely factors in growing pessimism over global economic growth and oil consumption in addition to expectations of a supply glut.
 With the Chinese economic growth still cooling down, and given that a lot of refined product has piled up in storage in China, there is a question-mark on the rise in consumption next year. Even if Indian demand continues to be healthy, it is but a third of Chinese consumption and not a significant contribution on a global scale. On balance, demand could have reached its elastic point. The “tailwinds” of low oil prices can only go so far in buoying the emerging market economies, which are facing challenges on several other fronts.
 8Are the oil markets factoring in a US Fed rate hike?
 A stronger dollar puts downward pressure on oil. For now, though, a modest US Fed rate hike seems to have been already factored in to the currency markets, and by extension the oil markets Details
Those who want the conventional petrol engine to survive the onslaught of the electric vehicle are trying very hard to make it smaller as as fuel efficient as possible.
 8For years the motor industry lived by the mantra, "bigger is better" but now the a new mantra is taking over which says, "small is beautiful". 
 8Many thought that the one litre engine would not be able to deliver enough power but now increasingly smaller engines are being fitted with torbocharges.A turbocharger employs a turbine, spun by hot gases from the exhaust, to drive a compressor that squeezes extra air into the cylinders and increases combustion Today, a one-litre, three-cylinder device—delivers more power than a 1.6-litre, four-cylinder engine of the previous generation.
 8Although many carmakers reckon a one-litre engine is about as small as they might go, some engineers are thinking of shrinking things still further. One design, promoted by Shell, is developing an experimental three-seater city car with a 660cc engine and a target fuel economy of more than 100mpg (2.8 litres per 100km). The engine is being designed to minimize internal friction as much as possible and the vehicle will be built with lightweight composite panels.
 8It looks like oil companies like Shell are trying to keep the petrol engine alive in their own self interest but just how far internal-combustion engines will shrink remains to be seen. Every improvement keeps the oil companies in the race with those who would shrink the number of cylinders to zero, and replace them with electric motors.
 Click on Details for more Details
Changing engine oil is a messy business in more ways than one.
 8The waste oil is an environmental hazard.
 8Changing engine oil is always a messy affair
 8A new technology has now been developed that wherein the oil and the filter come in a sealed unit along with some economics.
 8An oil change begins by selecting the vehicle’s service mode, which tells the engine’s oil pump to transfer oil in the sump into the cartridge. That can then be unclipped and swapped for a new one which contains fresh oil and a clean filter.
 8Castrol has developed the technology and the company claims that the cartridge should cost about the same as a conventional oil change, but will be better in several ways.
 8It will, for example, be able to monitor the condition of the oil more closely and ensure it is replaced in a timely fashion.
 Click on Details to know more Details
The international crude oil price of the Indian basket is hovering at less than $35/bbl.
8At these prices, do Indian companies, such as ONGC, continue to make money?
8The answer still seems to be "yes".
8According to ONGC sources, the cost of production is at around $26.50/boe in 2014-15. The figure is likely to go down in 2015-16 on account of a steep fall in the cost of oil field equipment and services though not by enough as the companywill not be able to take advantage of the slide as its existing contracts are fixed price in nature.
8It is only for new contracts that the E&P major will be able to negotiate the prices down.
8In 2013-14, the cost of production was $26.70/boe
8The cost of product includes opex, statutory charges and recouped cost.
8There is a still a $9/boe cushion available for ONGC at current ruling prices.
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For ONGC, eliciting a low price for crude is not a new phenomena
8In 2014-15, the average price that was paid for crude produced through its JVs was $90/bbl 
8What ONGC received was just $47/bbl as the the differential went as a discount on the sale of crude to pay for under recoveries of oil marketing companies.
8Even at these prices, ONGC posted handsome profits.
8However, today, the price is just $35/bbl and there is now talk that the price may come down further in 2016 on account of a glut in the crude market.
8Margins are to be impacted badly if prices continue to plunge.
Click on Details for more Details
There are many who believe that if oil and gas prices remain low, the whole thrust on renewal energy will slow down.
8After all, renewal energy is meant to replace or substitute fossil fuels and if it is more expensive to do so, market forces will work to correct the imbalance.
8But it has now been estimated that the outlook for mature renewable energy sources such as wind and solar would be only significantly affected if the oil prices drop to about $20-30 per barrel.
8Significantly, oil is not used for power generation, gas is but the price of gas moves in consonance with the price of oil.
8A study has shown that electricity generated from oil would cost about $0.08/kWh at the oil price level of $40 per barrel.
8Given that unsubsidized rooftop solar electricity typically costs between $0.08-$0.13/kWh, oil prices would have to drop well below $40 to make electricity generated from solar power uncompetitive (after subsidies are taken into account) when compared to that generated from oil.
Comment: In this context, does Saudi Arabia's fight to the finish, involve not just sending the US shale oil and gas producers scurrying for cover, but also making the renewal industry unviable, by pushing crude prices to the below $30/bbl mark in 2016 as is predicted by some analysts? If so, the consequences will be brutal not just for the oil & gas industry but for the energy sector as a whole. It will upset the cost economics all around. And it will take a long time for all stakeholders, be it the fossil fuel or the renewable industry producers, to recover from the mess. Saudi Arabia can perhaps withstand low crude prices for a longer period than other producers but the heat will eventually be felt by everyone.
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For anyone in the oil and gas sector, it is important to also understand what the global economic outlook is going to be in 2016 and 2017. If the news is bad, it is natural that the uptake in business will be less than if the outlook is good.
 82015 hasn't been a great year globally. Output grew at a mere 2.4%, well below expectation.
 8The global economy is projected to grow at 2.9% in 2016 and 3.2% in 2017.
 8India's growth rate has been high and will remain that way for the next two years: 7.2% in 2015, going up marginally to 7.2% and 7.5% in the next two years.
 8But the projections notwithstanding, things can go badly wrong.
 8A lot will depend on how and when the US Federal Reserves (Fed) raises interest rates as that will lead to a flight of capital away from developing countries. The world is prepared for an interest hike in the US but the downside will arise if rates are raised more than what the world expects.
 8A spike in yields could set off a significant re-pricing of global risk assets. This reaction would intensify if the Fed finds itself behind the curve as inflation rises from a tight labor market.
 8Beyond the Fed, a sharper-than-expected slowdown in China next year would have obvious knock-on effects on commodities, global trade and emerging markets.
 Click on Reports for more Details
There is a lurking fear that the Made in India thrust by the Modi government will hurt the E&P industry in India. There is the anticipation that buyers will be forced to accomodate substandard Indian products and services when the bid evaluation criteria in public sector buying are tilted in favour of domestic rather than foreign companies through government fiat
8The point to note however is that rooting for domestic business is something that everyone does, including the biggest multinationals.
8For a recent multi-billion pound contract for the Quad2004 project in the North Sea, the London headquartered BP brought out a press release, where it specifically mentioned the quantum of business that it had awarded British companies.
8Despite being a multinational with its tentacles spread across the globe, BP felt it appropriate to appease the domestic lobby in the UK by coming out with the release.
8Among the contracts awarded were a £27 million award to Amec Foster Wheeler for FPSO hook-up and commissioning support, £6 million to Emerson Process Management for commissioning and support for an integrated controls safety system, £2.9 million to Cape for the provision of scaffolding services, £2.6 million to Enermech for winch engineering and associated operations and materials, £2.5 million award to Amec Foster Wheeler for FPSO follow-on engineering, £2 million award to Qedi for provision of electrical and instrumentation technicians.
Comment: This is a point that the government must take note of. Sure, Indian companies do not have to expertise of a Foster Wheeler or a Emerson or Enermech but we still have our L&Ts and EILs and Punj Lloyds. It is time for ONGC and IOC and others to come out with similar information, like BP has done, about how much of a particular contract has been awarded to Indian companies. Since this government is known not to be corrupt, then the government should have little trouble in being transparent. After LOIs are given for every contract, a sanitized version of the Procurement Committee notes should be made public. After all, what is there to hide if the selection process has been objective and fair?
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GSPC has drawn up a plan to connect additional 12 wells in the pre-NELP CB-ON/2 block -- also known as the Tarapur block -- to an existing EPS in the block in Gujarat.
 8ONGC and Geo Global are the JV partners in the block along with GSPC, which is the operator.
 8Already three wells in the Tar Dev-1 field are connected to the EPS in the block.
 8The EPS will now be expanded to include production of crude and associated gas from the additional wells.
 8The associated gas will be supplied to local buyers such as Ricasil, Duravit and Cema though underground lines to be built by the buyers themselves from the EPS gas manifold.
 8Click on Reports for well-wise oil and associated gas production along with flow line connections in the EPS.
 Click on Reports for more Details
For equipment and service providers, there is a business opportunity for the following kind of equipment involved with the expansion of the EPS at Tarapur;
 8Separators
 8Storage Tanks
 8Chemical dozing pumps
 8Bath Heaters
 8Fire fighting facilities
 8Monitors
 8Pumps
 8Captive Generation sets
 Click on Reports for more Details
Commodity prices -- particularly crude oil prices -- are always difficult to predict.
 8There is now a consensus that prices won't rise -- if at all they do -- by much in 2016.
 8The reason is that there is a marked slow down in demand. Incremental demand is going to be down to 1.2 million barrels per day (mb/d) next year from 1.8 mb/d in 2015.
 8The main drivers of last year's demand was China, India and the US.
 8But the slowing down of the economies of both China and the US means a lesser demand for crude in 2016.
 8Meanwhile, inventories of crude will continue to pile up until late 2016.
 8The pace of the inventory build-up will slow down over time but nevertheless higher inventory levels will have a detrimental impact on prices.
 8In 2015, OPEC continueed to pump higher volumes -- going up by 1.6 mb/d while non-OPEC output growth went down but not by as much as OPEC's output is going up.
 8The net effect is the continuing build up of inventories.
 8There are those who say that prices will slip further but predicting how prices will behave is a dangerous game.
 Click on Reports for more Details
All kinds of conspiracy theories are going around over allegations that RIL stole gas from the neighbouring ONGC block in the KG Basin
 8It was claimed that RIL had drawn 58.67 bcm from the wells up to 31 March 2015, of which around 9 bcm, or 15%, may have belonged to ONGC. This gas at $4.2 per million British thermal unit (mBtu) was worth more than Rs 11,000 crore.
 8Even if the figures are true, was there really a conspiracy behind it?
 8There is no doubt that ONGC chairman Dinesh K Sarraf acted with alacrity when he took the issue to the Delhi High Court fearing that the political masters in Shastri Bhaven may drag their feet over taking action on the subject
 8But was there really a conspiracy to take out the gas?
 8RIL may have known that it is drawing gas from the neighbouring block and may have chosen to stay quiet but ONGC too woke up rather late to the threat.
 8When accounts are settled, it will be seen that RIL did not really make any money from the block. Whatever was spent was just about recovered.
 8The money RIL made was from the 30% stake sale to BP for $7.2 billion dollars. That was a neat pile to make but it was from the sale of stake and not a direct earning from the block. After all BP had a good look at the block before buying into it.
 8Where will this imbroglio lead to? Surely to arbitration and litigation.
 8Like with other issues connected with the D-6 block, expect no solution anytime soon.
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With a claim of Rs 11,000 crore from ONGC, over and above the recovery of "gold plated" capital cost from profit petroleum by the government, what are the options left for the RIL-BP combine in the KG D-6 block?
 8Is it easier to just keep pumping away at its existing wells in the D-1, D-3 and MA reservoirs and fold up operations when excessive water cut and sand ingress do not justify fresh investments in working over the wells? 
 8What about the new discoveries?
 8Clearly, the consortium will have to work out a different kind of IRR for this block, taking into account all contingent liabilities.
 8Is it possible to elicit a positive NPV from fresh investments after taking all factors into account?
 8Even if the gas price is market denominated, will it make sense to invest in the block?
 8By how much has the cost of bringing these discoveries to fruition come down -- given the steep fall in the cost of equipment and services of late -- from the $10 breakeven price that the company had touted in 2014?
 8Then again, if ONGC's breakeven price is going to be $6-/mmbtu from the neighbouring block, can the RIL-BP price be much higher and that too from a brownfield development?
 8For the consortium, there is a ceiling gas price-- set by the landed price of LNG -- that will work as the upper limit to how much every mmbtu of gas can fetch
 8The duo will have to do the arithmetic well before figuring out their next step.
 8All of this however is subject to a decision by the government to free the price of gas.
 8Anything less, such as a "deepwater premium price", will just not do.
 8The sooner the government realizes this, the better it is for everyone.
 Click on Details for more. Details
The PNGRB has reformulated the data entry formats for CGD entities and pipeline operators for providing information about their business activities.
8The data entries pertain to CGD entities, gas pipeline operators and petroleum products pipeline operators.
8If the PNGRB were to publicly host the data that comes in through these formats, it would help provide the much needed transparency in these hitherto opaque segments of the oil and gas industry.
8So far, such data was provided only to the petroleum ministry in a somewhat hush hush manner. What is more the data submitted was skeletal in nature and was lost on the harried petroleum ministry babus who were served with the information.
8In contrast, the reporting formats evolved by the PNGRB are far more exhaustive in nature.
8All stakeholders will be able to see the action of every pipeline entity over multiple parameters in terms of progress made and capacity pumped.
8For reference purposes, the draft data collection tables are carried here.
8The new draft was prepared after an Open House session with all relevant stakeholders.
8The PNGRB has now asked for comments on the new draft before a formal notification is brought out.
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Desalinization as a way to produce water in industrial quantities will be the new trend in water starved coastal provinces of India.
 8A large number of such plants are planned in the country
 8For those who are looking for business development opportunitiesin this area, the website carries here a full 160 page report on what it takes to set up such a plant in India.
 8Different kinds of project delivery models can be chosen, including the following:
 --Engineering, Procurement, and Construction Management (EPCM)
 --Design - Build (DB)
 --Design - Build - Operate (DBO) and maintain (DBOM)
 --Build - Own - Operate - Transfer (BOOT)
 --Build - Own - Operate (BOO)
 8The contract delivery model that has been used to construct several desalination projects worldwide are either DBOM or EPCM along with operation and maintenance contracts which are normally for 7 years
 Click on Reports for more Details
The website also carries here benchmark costs of a desalinization plans in India.
 8The desalination plant solutions are location specific and cost estimation of the plant are dependent on the local factors, end users, economics of the scale, capacity of the plant, product water quality, additional redundancy, type of tanks and buffer storage, location specific intake and outfall system and prevailing tax structures
 8It is not always possible to compare the cost of the same capacity elsewhere.
 8Nevertheless cost benchmarks have been evolved
 8NPVs have been calculated for a standard plant of 20 MLD capacity
 8Payback periods are in the range of around 6 years
 Click on Reports for more Details
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