MIXED SIGNALS FROM THE SOLAR SECTOR

Monthly Non-Fossil Fuels News Commentary: September 2018

India

Solar installations in India plunged 52 percent to 1,599 MW during the second quarter of 2018, mainly due to uncertainties around trade cases and module price fluctuations, according to Mercom India Research’s ‘Q2 2018 India Solar Market Update’. The installations stood at 3,344 MW during the first quarter. The installations during the quarter under review were down nearly 21 percent in comparison to 2,025 MW installed in the corresponding quarter of 2017. During the second quarter of 2018, large-scale installations totalled 1,184 MW as compared to 2,954 MW in the previous quarter and 1,800 MW in the corresponding quarter of previous year. Also, rooftop installations accounted for 415 MW during the quarter under review as against 390 MW during the previous quarter and 225 MW in second quarter of 2017. Cumulative solar installed capacity totalled 24.6 GW at the end of the second quarter of 2018 with large-scale solar projects accounting for 90 percent and rooftop solar making up the remaining 10 percent.

With just about 7 and 11 GW of renewable energy capacity added in the last two fiscals, the country has a long way to go to meet the Centre’s 2022 target of 225 GW. For this, it must add nearly 40 GW of clean energy every year. Analysis of latest data available with the Central Electricity Authority shows that 20.45% of the total installed capacity of the country is from renewable energy sources. Apart from solar and wind, these also include generation from small hydro projects, biomass, and urban and industrial waste. Further break down of data brings to the fore that total energy generation from renewables was only 8.08% between July 2017 and June 2018. The MNRE reports show that the cumulative installed capacity of renewable energy, including grid-connected and off-grid power (till July 2018), is 72.62 GW. Data mentioned in the 39th report of the standing committee on energy for MNRE shows that in the 2015-16 fiscal, around 7.13 GW of new renewable energy capacity was installed. In the next fiscal, it increased to 11.46 GW.

Solar power agencies of the central and state governments have scrapped bids for projects aggregating 9,000 MW capacity, which will lead to a flat growth in capacity addition next year and delay the goal of achieving 1 GW of solar power capacity by 2022, industry data shows. The cancelled tenders represent half of the 18,000 MW bid out by these agencies till August. The cancellations coincide with the pace of solar capacity addition dropping 52% to 1,599 MW in the April-June period from 3,344 MW in the January-March period of 2018. SECI, the Central agency spearheading the National Solar Mission, and agencies of Maharashtra, Gujarat, Uttar Pradesh and Karnataka cancelled tenders after failing to attract tariff bids lower ` 2.44/kWh, the lowest discovered during bidding of Rajasthan’s Bhadla solar park project in May 2017. Enthused by the rock-bottom tariff level, SECI introduced reverse bidding with a ceiling of ` 2.50/kWh.

Notwithstanding the negative signals from industry Moody’s has said that the share of renewable energy in the country’s electricity generation mix is likely to rise to around 18 percent by 2022, from 7.8 percent at present, owing to the continuous focus on capacity addition from solar and wind. The Moody’s report said India is taking positive steps to align its power generation mix with its NDC commitments under the Paris Climate Agreement. The report said that large companies have also announced plans to make their operations more energy-efficient and source more renewable energy. According to the agency, renewable energy’s share in the electricity generation mix is likely to rise to around 18 per cent by 2022, from close to 7.8 per cent as of March 2018. It said that eventually, the share of fossil fuel-based generation capacity is likely to fall to 50-55 percent by 2022, from 67 percent currently. India is targeting 40 percent of cumulative capacity from non-fossil fuel-based sources by 2030, in line with its NDC commitments, which compares with total non-fossil fuel power generation capacity (including nuclear) of 35 percent as of June.

The Supreme Court ruling allowing the government to implement safeguard duty on imported solar panels and modules may also dampen the growth rate.  The Supreme Court ruling set aside an order of the Orissa High Court that stayed the imposition of the levy. The Orissa High Court will continue to hear a petition filed against the safeguard duty, but there will be no stay on imposing it. The Directorate General of Trade Remedies had recommended the safeguard duty on solar panels and modules imported from China and Malaysia in mid-July. It suggested 25% for the first year, 20% for the first six months of the second year and 15% for the remaining six months. The MNRE and solar developers have opposed the safeguard duty, claiming it could potentially put the brakes on India’s programme of setting up 100,000 MW of solar capacity by 2022 because it would lead to higher costs and increased tariffs. India has 23,000 MW of solar capacity.

India has contributed a whopping $1 million for the installation of solar panels on the roof of the imposing United Nations building at the world body’s headquarters. The contribution will help reduce carbon footprint and promote sustainable energy, India is the “first responder” to Secretary-General Antonio Guterres’ call for climate action.

CGHS in the capital will now be able to install solar panels on the rooftops of their buildings without spending a single penny. This has been made possible through the Mukhyamantri Solar Power Scheme. The scheme is applicable to both group housing societies and independent houses. Housing societies will have to sign a tripartite agreement with Delhi government and the service provider for installation of solar panels under Renewable Energy Service Company model. The installation cost would be borne by the private company. CGHS will be able to utilise the energy produced to light up common areas, run elevators and water pumps, among other activities by paying just ` 1/kWh. Though solar energy generation would cost about ` 3/kWh Delhi government will give a GBI of ` 2/kWh on each unit of electricity consumed by the housing societies. In the case of independent house owners, the installation cost of ` 45,000-55,000 will have to be borne by them. Though the government will not be a part of the agreement signed between the house owner and service provider, it will still provide GBI of ` 2/kWh. Additional energy generated through the solar panels can be sold to the grid.

The West Bengal government is the process of commissioning floating solar power plants by next year. The two plants would come up at Sagardighi and Mukutmanipur with generating capacities of 5 MW and 100 MW respectively. The detailed project report of the projects has been already prepared. In the last seven years, industrial demand had increased 27.22 percent. Talks were on with foreign companies to implement new technology for checking carbon emission from old coal-based power plants like Bandel and to keep it operational for another 25 years.

Hydropower generation company NHPC Ltd will put up a 40 MW solar plant in Odisha with an investment of about ` 1.96 billion. The solar power project will come up on about 180 acres of land in the Ganjam district and NHPC is impressing upon the state’s bulk power purchaser, Gridco, for buying the power produced. NHPC had evinced interest for setting up a 100-200 MW solar project in Odisha for the supply of power to Gridco so that the latter could fulfil its renewable energy purchase obligation with assured power purchase agreement. The central PSU has already commissioned a 50 MW solar project in Tamil Nadu and another 50 MW wind power project in Jaisalmer, Rajasthan. Odisha plans to develop a solar park with a production capacity of 1,000 MW. But, land availability is the key hurdle as the mega park needs around 5,000 acres of land. The MNRE has allowed the state government to develop a truncated solar park of 400 MW capacity under the Scheme for Development of Solar Parks and Ultra Mega Solar Power Projects. The development of the park assumes significance as the state government, in its newly approved Renewable Energy Policy-2016, plans to add 2,200 MW capacity of solar energy by 2022. The state has about 175 MW of installed capacity of solar power.

Independent power producer ACME said it has commissioned its 200 MW solar power plant at Bhadla in Rajasthan. With the commissioning of the Bhadla solar park, it’s total operating capacity in solar power stands at 2,400 MW and the company’s total portfolio of solar projects stands at over 5,500 MW making it the largest solar power portfolio in the country, it said. The company won the contract for developing 200 MW at the Bhadla solar project at a low tariff of ` 2.44 per unit till and it has so far invested ` 980 crore in setting up the plant, it said.

Biofuel authority of Rajasthan, with the help of Indian Railways, is planning to establish a biofuel processing plant in Rajasthan, with ‘buy back assurance’, which means that the processed fuel will be bought by the railways. The plant will have the capacity of eight tonne per day and will cost about ` 50 million. The biofuel authority has decided to tie up with the railways as for many years, the state did not have its own processing unit. Oil extracted from the seeds of Jatropha plant are used for the production of Biofuel. There are more than three crore Jatropha plants cultivated in Rajasthan. It is being cultivated on the wastelands and can survive harsh, rocky terrain. Jatropha is suitable for a desert state like Rajasthan, facing water scarcity.

Gujarat’s 500 MW solar tender results have delivered India’s record low tariff of ` 2.44/kWh and this underpins the country’s transformation to clean energy, US-based IEEFA said. Gujarat Urja Vikas Nigam Ltd repealed the equivalent auction they held back in March which saw the lowest bid at an unacceptable ` 2.99/kWh. IEEFA notes the huge technology breakthrough potential of the new Pervoskite solar cells combined with bifacial modules, trackers and other innovations together which could see solar reach of up to 40 percent efficiency within a decade from sub-20 percent efficiency delivered by current Indian projects. With gains from production scalability the modules prices are on an accelerated deflation path and this will reflect on ever-lower solar tariffs in India, IEEFA forecasts declines of 10 percent annually for the next five-10 years.

The PSERC has decided to revise the renewable purchase obligations for PSPCL till 2022 by inviting suggestions from stakeholders while formulating the new norms. As per Section 86(1) (e) of the Electricity Act, 2003, the PSERC is to promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of power to any person. As per the proposal, Punjab is likely to seek 21 percent of its total power consumption from renewable sources by 2022. This would include 10.5 percent from non-solar renewable sources, including wind, biogas, small hydropower stations and 10.5 percent from solar generation. Till last year, the state was sourcing only 4.9 percent of renewable energy to meet the total power demand. As per the data submitted by the PSPCL, it has signed two purchase agreements for the procurement of wind power with the SECI for 150 MW at a rate of ` 2.72/kWh and 200 MW at a rate of ` 2.52/kWh. As per these agreements, the said power is expected to be available in May 2019 and December 2019, respectively. The recent rates of wind power stood at ` 2.51/kWh in the auction and that of solar power is between ` 3.48 to ` 3.55/kWh. The average variable charges of power bought from the independent power producers in the state for 2018-19 has been worked out to be ` 2.45/kWh. The corporation stood to strengthen its financial position with the increase in the renewable sources of energy. The move would also have a positive impact on the carbon footprint in the state.

Trina Solar of China, the largest manufacturer of solar photovoltaic panels globally and India’s biggest supplier, launched its Trinahome product as the country’s first solar home kit suitable for use in residences, small and medium enterprises establishments and other places like schools and hospitals. Trinahome is currently being imported from China, the company aims to assemble it locally in the coming months. The kit includes all the required solar rooftop components, includes modules, inverter, grid box and mounting system, and comes with a 25-year module performance warranty. It is available in capacities of 3 kW, 5 kW and 10 kW and has a dedicated app to enable customers to monitor power generation. The price of the home kit would be announced soon. The country’s total solar energy capacity as at the end of July this year, 21.9 GW came from utility sources and only 1.2 GW from rooftop installations. Nearly 90 percent of India’s solar panels are imported, while Indian manufacturers have to depend on accessories from China.

In a major relief to solar rooftop consumers, MERC has rejected the proposal of MSEDCL to levy surcharge (wheeling charge) on solar rooftop prosumers at the rate of ` 1.28/kWh. Installation of solar rooftop system brings them to lower consumption bracket and in subsidized tariff category thereby reducing MSEDCL’s revenue. More and more consumers are becoming subsidized instead of subsidizing. As of now, 65% of residential consumers use less than 100 units per month and hence are subsidized ones. Net metering of solar rooftop power will increase it further. The commission has also rejected MSEDCL’s proposal to levy surcharge on solar roof top prosumers though it has not given any reason for it. MERC has agreed to MSEDCL’s proposal of creating a separate tariff category for electric vehicle charging stations. These stations would be provided supply at high tension level and the tariff would be ` 6/kWh. In addition, time of the day tariff will be applicable to it whereby the stations would get a discount of ` 1.50/kWh at night while the day tariff would attract a surcharge.

Tata Power Company Ltd plans to offer a range of services from advice and financing to installation and maintenance as it strives to increase its share of the market for rooftop solar panels. Tata Power Solar, the renewable energy arm of Mumbai-headquartered Tata Power, is currently India’s biggest rooftop solar panel supplier. But with a market share of just 6 percent, it sees plenty of scope for growth and aims to leverage its position as an integrated solar power company – with a presence in manufacturing, engineering, construction and maintenance – to offer customers an end-to-end service. India has plans to install up to 175 GW of renewable energy capacity by 2022, out of which 40 GW is expected to come from rooftop solar panels. So far, however, the pace of rooftop installations has been just around 6 percent of the target, according to government figures. Tata Power Solar is also planning to launch a dealer network to better take on its myriad of competitors, which include Chinese companies.

As a part of its plan to create 2,500 MW solar power capacity, MAHAGENCO has decided to build a 100 MW plant at Chandrapur. It will be the biggest solar plant in Vidarbha. MAHAGENCO said unit 1 and 2 of Chandrapur Super Thermal Power Station, of 210 MW capacity, had been scrapped due to pollution problems. The EoI for the Chandrapur plant was floated on 27 August. Pre-bid meeting was held on 7 September and many developers showed interest in the project. MAHAGENCO has a 125 MW plant at Sakri in Dhule district and is setting up a 250 MW plant in Dondaicha, also in Dhule district. In Vidarbha, the second biggest plant of 20 MW capacity is coming up at Gavhankund in Amravati district. MAHAGENCO plans to create 1,500 MW solar capacity for directly supplying to farm pump feeders. Another 1,000 MW will be generated through big solar plants. Of the 1,500 MW, MAHAGENCO has already floated tenders for 550 MW. For the remaining 950 MW, 15 districts have been identified where small plants of total 50 MW capacity will be set up taking the total to 750 MW.

Vikram Solar, Kolkata-based solar energy company, announced it has commissioned a 10 MW solar power project for ONGC in Gujarat. The project will power ONGC’s Dhaej, Gandhar and Hazira plant in Gujarat. The solar plant has been built to meet ONGC’s captive power usage. The solar firm will also provide Operations and Maintenance service to the plant for a period of three years from the date of commissioning. The project is spread across 56 acres of land and the solar plant has 44,144 modules powering the whole unit. The company currently has 750 MW capacity including commissioned and under execution projects.

Clean energy generation firm LGE said it looks to increase its power capacity to 2 GW from existing operational 751 MW and also plans fund infusion of $300 million. The company is expecting to have an installed capacity of above 2 GW by FY2020, it said. The company currently has an operational capacity of 751 MW of wind assets and 400 MW of under construction wind assets. Currently, LGE operates in Madhya Pradesh, Rajasthan, Tamil Nadu, Maharashtra and Gujarat with plans to enter more states immediately. The institutional demand for wind energy is growing and applicable across functions including malls and shopping centres, hospitals and banks among others. In-terms of wind power installed capacity, India is ranked 4th in the World. The wind power generation has significantly increased in the recent years, India is a major player in the global wind energy market. The current total installed wind power capacity is 34.293 GW and is going to expand to 60 GW by FY 2022, it said.

In one of the major green-friendly initiatives, HSL has commenced production from the State’s largest rooftop solar power plant. The plant is built and operated by Clean Max. While there is no investment on the part of HSL, as per the agreement arrived at with Clean Max, the yard has to buy power from it for 25 years. Out of two megawatt capacity, one megawatt production has already started. The full capacity will be generated shortly. HSL is required to buy the generated power from Clean Max at a cost of ₹ 3.93/kWh as against ₹ 5.60/kWh for grid power bought from Eastern Power Distribution Company of AP Ltd.

The Uttarakhand Jal Vidyut Nigam Ltd would produce electricity from bagasse — leftover sugarcane waste — procured from sugar mills in Bazpur, Nadehi and Kiccha. It was decided at the meeting that the nigam would give power royalty to these sugar mills and would also undertake their modernisation. According to the state government, Bazpur sugar mill would produce 22 MW while Nadehi and Kiccha sugar mills would produce 16 MW of power each.

India has the potential to more than triple its trade with its South Asian neighbours to $62 billion against its actual trade of $19 billion, a World Bank report said. For India, the deeper regional trade and connectivity could reduce the isolation of Northeast India, give Indian firms better access to markets of South and East Asia and allow it to substitute fossil fuels by cleaner hydropower from Nepal and Bhutan.

Rest of the World

China will provide more support for its nuclear firms to go overseas and strengthen their position on the international market, according to new draft legislation submitted to the industry for consultation. China aims to bring its total installed nuclear capacity to 58 GW by the end of 2020, up from 37 GW at the end of June this year, but it also has ambitions to dominate the global market and has created a unified third-generation reactor brand known as the “Hualong One” to sell overseas. China has already signed a series of preliminary agreements with countries like Brazil, Argentina, Uganda and Cambodia and it is also undergoing a technical approval process for the Hualong One in Britain. The government published new guidelines aimed at promoting its own technical standards in foreign markets and play a “leading role” in the global nuclear technology standardization process. However, its only overseas nuclear project so far is the Chashma nuclear complex in Pakistan. China’s new draft atomic energy law sets out the government’s responsibilities when it comes to disclosing information about the safety and environmental impact of nuclear power. It also includes clauses calling for the “convergence” of military and civilian research into nuclear energy. China was once regarded as one of the bright spots for the global nuclear sector, but its ambitious domestic reactor building program has slowed considerably, with no new projects approved since 2016. In a bid to guarantee safety in the wake of Japan’s Fukushima disaster in 2011, China promised to deploy only new and safer reactor technology, including Westinghouse’s AP1000 and the EPR designed by France’s Areva. But the untested models have been repeatedly delayed amid design flaws and huge cost overruns, and Beijing is now expected to struggle to meet its 58 GW target.

French gas and power group Engie warned that the extended outages at its Belgian nuclear plants would push its 2018 net recurring income to the low end of its €2.45 billion-€2.65 billion ($2.9 billion-$3.1 billion) forecast range. It said the longer outages would result in a shortfall of around €250 million in core earnings before interest, tax, depreciation and amortisation (EBITDA) and net recurring income. Engie said the availability factor of its Belgian reactors is expected at 52 percent for 2018 and 74 percent for 2019. In the first half of 2018, the Benelux contribution to Engie core earnings nearly halved to €133 million from €242 million. Engie said that following the discovery of problems with the concrete in some of the nuclear plants operated by its Belgian unit Electrabel, it had decided to prolong the outages at its Tihange 2 and 3 reactors. Tihange 2 will now restart on 1 June 2019 instead of 31 October 2018 while Tihange 3 will restart on 2 March 2019 instead of on 30 September 2018. Belgium’s nuclear power regulator said it had detected concrete degradation in two bunkers adjoining Electrabel reactor buildings. Electrabel operates seven nuclear reactors in Belgium, four at Doel and three at Tihange, producing about half the country’s electricity.

Russian state atomic energy firm Rosatom would start the construction of two new reactors at the Paks power nuclear plant in Hungary soon. Hungary plans to expand its Paks nuclear power plant and build two Russian VVER 1200 reactors.

Kenya has postponed its plan to build a nuclear power plant by nine years to 2036 in favour renewable energy projects and coal plant. Updated power development plan prepared by the energy ministry and covering the period 2017 to 2037, now show that the earliest the country can build the nuclear plant is 2036 and not 2027 as initially planned. In the revised plan, the first unit is expected to be completed in 2036, followed by another in 2037, making it the last project in the ministry’s 20-year plan for power generation expansion. Initially, Kenya was to construct two nuclear power plants, each with a capacity of 1,000 MW at a total cost of $4.05 billion per plant. However, the new plan is to have each plant with a capacity of 600 MW at a cost of $4.84 billion (Sh484) billion. Kenya was already hunting for a partner to produce nuclear power by 2022 to help match-up rising demand and diversify from hydropower and geothermal. It joins South Africa South Africa, which in August cancelled plans to add 9,600 MW of nuclear power by 2030 and will instead aim to add more capacity in natural gas, wind and other energy sources.

The Energy Ministry of Kenya expects to set up the body to regulate nuclear electricity next year in a move that will concretise plans to build Kenya’s first nuclear power plant by 2027. The KNEB said the bill providing for the set-up of the regulator as well as other institutions that will oversee the country’s nuclear power over the next decade had received approval from the cabinet. The State expects to put up a 1,000 MW plant once plans are finalised. KNEB said the bill would be tabled in the Parliament in the coming weeks and was hopeful that it would go through the House by the end of the year. KNEB has an analysis of the national electricity grid and is currently undertaking studies on possible sites for a nuclear power plant. Among the locations identified for the initial plant include areas around Lake Victoria, Lake Turkana and along the Kenyan coast. Kenya is short of nuclear skills capacity and KNEB has been training some of its personnel in other countries such as South Korea, China and Russia.

Austria plans to appeal against a ruling by Europe’s second-highest court which rejected its objections to Britain’s plans for a nuclear power plant at Hinkley Point, the country’s Sustainability Minister Elisabeth Koestinger said. French utility EDF and China General Nuclear Power Corp aim to have the Hinkley Point C nuclear power station on line in 2025 with costs for the project seen at 19.6 billion pounds ($25.3 billion). One aspect Vienna objects to is a guaranteed price for electricity from the plant which is higher than market rates. It also opposes state credit guarantees of up to 17 billion pounds being provided for the project. Opposition to nuclear power is widespread in Austria, which built a nuclear reactor but never brought it on line. Voters rejected plans to bring it into operation in a referendum in 1978 and the reactor, at Zwentendorf on the Danube northwest of Vienna, now serves as a training center.

China will speed up efforts to ensure its wind and solar power sectors can compete without subsidies and achieve “grid price parity” with traditional energy sources like coal, according to new draft guidelines issued by the NEA. As it tries to ease its dependence on polluting fossil fuels, China has encouraged renewable manufacturers and developers to drive down costs through technological innovations and economies of scale. The country aims to phase out power generation subsidies, which have become an increasing burden on the state. The guidelines said some regions with cost and market advantages had already “basically achieved price parity” with clean coal-fired power and no longer required subsidies, and others should learn from their experiences. China’s solar sector is still reeling from a decision to cut subsidies and cap new capacity at 30 GW this year, down from a record 53 GW in 2017, with the government concerned about overcapacity and a growing subsidy backlog. According to the NEA, the government owed around 120 billion yuan ($17.46 billion) in subsidies to solar plants by the middle of this year.

Procurement of solar energy by US utilities “exploded” in the first half of 2018, prompting a prominent research group to boost its five-year installation forecast despite the Trump administration’s steep tariffs on imported panels. A record 8.5 GW of utility solar projects were procured in the first six months of this year after President Donald Trump in January announced a 30 percent tariff on panels produced overseas, according to the report by Wood Mackenzie Power & Renewables and industry trade group the Solar Energy Industries Association. As a result, the research firm raised its utility-scale solar forecast for 2018 through 2023 by 1.9 GW. The forecast is still 8 percent lower than before the tariffs were announced. Procurement soared in part because the 30 percent tariff was lower than many in the industry had feared. Utilities are eager to get projects going because of a federal solar tax credit that will begin phasing out in 2020. Next year will be the most impacted by the tariffs, Wood Mackenzie said. Developers will begin projects next year to claim the highest level of tax credit but delay buying modules until 2020 because the tariff drops by 5 percent each year. In the first half of the year, the US installed 4.7 GW of solar, accounting for nearly a third of new electricity generating capacity additions. In the second quarter, residential installations were roughly flat with last year at 577 MW, while commercial and industrial installations slid 8 percent to 453 MW.

Total subsidiaries have won tenders for 15 French solar power projects and 5 tenders for small-scale hydropower generation units which will add around 112 MW of capacity to its portfolio, the energy producer said. The solar power projects will produce around 120 gigawatt hours of electricity annually, meeting the requirements of around 45,000 households, Total said. Total is expanding power generation capacity after its $1.7 billion acquisition of alternative electricity provider Direct Energie as it makes a play for the French power market dominated by former state monopoly EDF. In July, it acquired two gas-fired power plants as part of plans to have a global electricity generation capacity of 10 GW by 2023.

IFC, a member of the World Bank Group, announced it has signed an agreement with the government of Afghanistan to design a 40 MW solar power plant that will more than double the country’s current solar energy capacity. In Afghanistan, electricity consumption is among the lowest in the world with only about 28 percent of Afghans connected to the grid. The country imports up to 80 percent of its energy and frequent blackouts reaches up to 15 hours a day in some parts of Afghanistan. The Government of Afghanistan will work with IFC on an initial 40 MW solar plant that will develop a new model for subsequent solar projects, helping the country to reach its 2,000 MW goal. The agreement will see IFC’s public-private partnership advisory experts supporting the government to design and competitively tender the project, helping attract solar companies to develop the solar photovoltaic power plant.

The world’s largest offshore wind farm will open off the northwest coast of England when Danish energy group Orsted unveils the Walney Extension project. The wind farm has a capacity of 659 MW, enough to power almost 600,000 homes, and overtakes the London Array off England’s east coast which has a capacity of 630 MW. Britain is the world’s largest offshore wind market, hosting 36 percent of globally installed offshore wind capacity, data from the Global Wind Energy Council showed. Walney Extension was among the first renewable projects to secure a so-called contract for difference subsidy from the British government in 2014.

Iberdrola SA, the world’s biggest wind power producer, plans to expand its renewable capacity in the US by about 50 percent over four years as part of the Spanish electric utility’s global plan to reduce carbon emissions. The company expects to spend about $15 billion in the US on its transmission and distribution system and increase its renewable generation to around 10,000 MW by the end of 2022. Iberdrola committed to reduce its carbon dioxide emissions intensity by 50 percent by 2030 compared to 2007 levels and become carbon neutral by 2050. More than half of its 48,800 MW of generation around the world is renewable with the remainder fueled mostly by natural gas, nuclear and coal. The company wants to shut its last two coal plants, which are located in Spain, by 2020. Through its majority-owned Avangrid Inc subsidiary, Iberdrola has over 6,500 MW of renewables in the US. It is the country’s third-biggest wind power provider behind NextEra Energy and Berkshire Hathaway. Iberdrola is developing an offshore wind farm in North Carolina and in other US East Coast states and a $950-million power transmission line to transport up to 1,200 MW of renewable energy from Quebec to New England.

The US EPA published new data detailing how it drastically expanded a biofuels waiver program for oil refiners since President Donald Trump’s administration took office, responding to pressure from the corn lobby to boost transparency over the opaque program. The details published on the EPA’s website showed the agency issued exemptions for 29 small refineries for 2017, freeing them from their requirement under the RFS to blend biofuels into gasoline and diesel, according to agency data. That was up from 19 waivers granted for 2016 and 7 in 2015, the EPA said. The data provides the most complete picture of the EPA’s expansion of the controversial small refinery waiver program to date. The waivers save the oil industry money, but biofuels groups worry they also cut into the nation’s demand for ethanol and other biofuels, and have criticized Trump’s EPA for over using the exemptions. The data showed that the number of gallons exempted from the RFS under the 29 waivers granted in 2017 amounted to $13.62 billion, nearly double the $7.8 billion exempted in 2016. The EPA is still considering five waiver requests for 2017, and has received a total of 11 requests for 2018, all of which are also still pending, according to the data. The RFS requires oil refiners to blend increasing amounts of biofuels like ethanol into their fuel each year, or purchase credits from those that do.

The European Commission has decided not to impose provisional import tariffs on a flood of low-priced Argentine biodiesel until it gathers more information, although it considers the fuel to be subsidized and a potential threat to local producers. The decision comes as a major blow for European producers of fuels made from vegetable and recycled oil. They have been hit hard since the EU scrapped duties last year in response to a ruling by the World Trade Organisation. The Commission said Argentina provided support to its industry through a set of measures, including export duties on soybeans, a biodiesel feedstock, that depressed prices to an artificially low level to the advantage of the downstream biodiesel industry.

The French government will barely increase spending on renewable energy next year, with a planned rise of 1.3 percent effectively flat after taking inflation into account, France’s ecology ministry draft’s budget showed. Spending on renewables projects will total €7.3 billion ($8.60 billion) next year and will mostly go towards wind and solar projects. France is lagging its European rivals in renewables, and falling behind its long-term target to develop renewables which could help it to curb its dependence on nuclear power that currently accounts for over 75 percent of its needs. Households and businesses face €2.9 billion in additional environmental taxes next year, including €1 billion from scrapping a tax break farmers and construction firms get on heavy vehicles fuel. Meanwhile, the government will increase incentives to help consumers switch to cleaner vehicles.

Nepal’s new government has reversed its predecessor’s decision and has asked China Gezhouba Group Corp to build the nation’s biggest hydropower plant. The $2.5 billion deal with the Gezhouba Group to build the Budhi Gandaki hydroelectric project was scrapped last year by the previous government. Nepal Electricity Authority was to have built it. China and India are both jostling for influence in Nepal by providing aid and investment in infrastructure projects. Nepal’s rivers, cascading from the snow-capped Himalayas, have vast, untapped potential for hydropower generation, but lack of funds has made Nepal lean on neighbour India to meet annual power demand of 1,400 MW.

In the first in a series of corporate announcements ahead of the Global Climate Action Summit, one of the world’s largest electronics and entertainment companies Sony Corp announced to join RE100. RE100 is a global corporate leadership initiative led by The Climate Group in partnership with CDP, bringing together more than 140 multinationals committed to 100 percent renewable power. RE100 members are creating demand for 182.4 terawatt hour of renewable energy per year — more than enough to power a medium sized country, such as Thailand or Poland. Sony Corp, with consolidated sales of $77 billion (FY2017), commits to sourcing 100 percent renewable electricity for its global operations, spanning Europe, North America and Asia. McKinsey and Company, the first management consultancy to globally step up and join RE100, and Royal Bank of Scotland joined RE100, commit to source 100 percent renewable electricity.

California has set a goal of phasing out electricity produced by fossil fuels by 2045 under a new legislation. The renewable energy measure would require California’s utilities to generate 60 percent of their energy from wind, solar and other specific renewable sources by 2030. That’s 10 percent higher than the current mandate. The goal would then be to use only carbon-free sources to generate electricity by 2045. It’s merely a goal, with no mandate or penalty for falling short.

Scientists have developed a semi-artificial photosynthesis system that uses sunlight to produce hydrogen fuel from water. Photosynthesis is the process plants use to convert sunlight into energy. Oxygen is produced as by-product of photosynthesis when the water absorbed by plants is ‘split’. It is one of the most important reactions on the planet because it is the source of nearly all of the world’s oxygen. Hydrogen which is produced when the water is split could potentially be a green and unlimited source of renewable energy. Researchers from the University of Cambridge in the United Kingdom used semi-artificial photosynthesis to explore new ways to produce and store solar energy. They used natural sunlight to convert water into hydrogen and oxygen using a mixture of biological components and manmade technologies. Artificial photosynthesis has been around for decades but it has not yet been successfully used to create renewable energy because it relies on the use of catalysts, which are often expensive and toxic. Researchers not only improved on the amount of energy produced and stored, they managed to reactivate a process in the algae that has been dormant for millennia. The findings will enable new innovative model systems for solar energy conversion to be developed.

MW: megawatt, GW: gigawatt, MNRE: Ministry of New and Renewable Energy, SECI: Solar Energy Corp of India, NDC: Nationally Determined Contribution, CGHS: Cooperative Group Housing Societies, kWh: kilowatt hour, GBI: generation-based incentive, PSU: Public Sector Undertaking, US: United States, IEEFA: Institute for Energy Economics and Financial Analysis, PSERC: Punjab State Electricity Regulatory Commission, PSPCL: Punjab State Power Corp Ltd, kW: kilowatt, MERC: Maharashtra Electricity Regulatory Commission, MSEDCL: Maharashtra State Electricity Distribution Company Ltd, MAHAGENCO: Maharashtra State Power Generation Company, EoI: Expressions of Interest, ONGC: Oil and Natural Gas Corp, LGE: Leap Green Energy, FY: Financial Year, , HSL: Hindustan Shipyard Ltd, KNEB: Kenya Nuclear Electricity Board, NEA: National Energy Administration, IFC: International Finance Corp, EPA: Environmental Protection Agency, RFS: Renewable Fuel Standard, EU: European Union

Courtesy: Energy News Monitor | Volume XV; Issue 18

 

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POWER SECTOR TURNAROUND AWAITS CONSOLIDATION AND RESTRUCTURING

Monthly Power News Commentary: September 2018

India

The government has readied a raft of power sector reforms, including implementing the DBT scheme in the electricity sector for better targeting of subsidies, freeing renewable energy from licensing requirement for generation and supply, and promoting retail competition. According to the draft amendments to the Electricity Act, 2003, which is available on the power ministry’s website, the government is trying to give consumers wider choice by promoting competition in the distribution sector and addressing contracting issues with medium- and long-term power purchase agreements. The government has been pushing for separating the so-called carriage and content operations of existing power distribution companies, and electricity supply business. Such a move will allow consumers to buy electricity from a power company of their choice. According to the draft amendments, there will be a price cap for electricity tariffs in a particular area under which multiple supply licensees can operate. The electricity (amendment) bill, 2014, was introduced in the Lok Sabha in December 2014. It was then referred to the standing committee on energy, and after its recommendations, consultations were held with the states.

The State Bank of India hopes to resolve 7-8 stressed power assets with an exposure of around ₹ 170 billion during the breather given by the Supreme Court till 11 November. The Supreme Court has asked the banks to maintain status quo and not to initiate insolvency proceedings against defaulting power companies till 11 November 2018, when it would hear the case again. During this period lenders would be able to resolve stressed assets.

Union Bank of India hopes to recover ₹ 20 billion from the resolution of three stressed thermal power units as there has been interest from other operators in these projects. Three projects, including GMR Chhattisgarh Energy Ltd and Prayagraj Power Generation Co Ltd, a subsidiary of Jaiprakash Power Ventures Ltd where the bank has exposure, are at different stages of resolution. The project cost of GMR project was ₹ 115.42 billion with debt component of ₹ 81.73 billion while equity of ₹ 33.67 billion. In case of Prayagraj Power, the project cost was revised upwards to ₹ 155.37 billion which was met through ₹ 45.43 billion equity and ₹ 109.93 billion debt. The total exposure of the bank in the power sector is about ₹ 60 billion.

The RBI has refused to be part of the cabinet secretary-led panel set up by the Prime Minister’s Office in July to resolve issues of the stressed thermal power sector. The RBI has formally communicated to the government that the matter is sub judice and that its well-known views on handling loan defaults have already been articulated on many forums in the past. RBI kept away even as lenders and private companies expect the banking regulator to clarify on treatment of stressed assets till the next date of hearing on 14 November in Supreme Court, which has ordered a status quo until then. The committee met for the second time after its first meeting on 31 August and discussed measures to alleviate the sectoral stress to a large extent. The terms of reference of the committee includes suggesting changes required in provisioning norms and obstacles in fuel supply, sale of electricity and payment problems that made many plants unviable. Companies had moved courts after RBI refused extension of deadline for completing resolutions of stressed power plants. While the Allahabad High Court ruled in favour of RBI, the Supreme Court had ordered status quo on the projects and transferred all cases on the circular to itself.

ICICI Bank, together with BSE and PTC India, has sought a licence from power market regulator Central Electricity Regulatory Commission to set up a new power exchange, the bank said. The power sector has of late emerged as the source of much of the stress in the banking sector. A number of projects have failed to repay their loans to banks and other financial institutions because of a lack of PPAs or other regulatory hurdles. ICICI Bank’s exposure to the power sector at the end of the June quarter stood at ₹ 466.25 billion, of which 30% was classified as stressed. As per the RBI’s February 12 circular, lenders will have to file for insolvency proceedings against stressed power assets worth about ₹ 1.8 trillion after the Allahabad High Court refused to provide any interim relief to power companies from the circular, which mandates early detection of bad loans. Analysts’ estimate resolution under this process could result in hefty haircuts of up to 70% for banks.

India is planning to sell its stake in SJVN Ltd and Power Finance Corp to other government-controlled companies in deals that may fetch the federal government about ₹ 200 billion, helping it to rein in the fiscal deficit amid growing risks of a slippage. The government plans to sell its 63.8% stake in hydropower producer SJVN to NTPC Ltd, the nation’s largest thermal power producer, to garner about ₹ 8,000 billion. The other deal being considered will see Rural Electrification Corp Ltd buying the federal government’s 65.6% ownership in Power Finance Corp Ltd.

A high level panel for power sector is considering payment security mechanism for private sector power generators, which has been the main cause of stress in the sector. The committee’s meeting was held on 31 August, where detailed deliberations were done on ensuring payment for power supplied by private sector firms. Payments for supplied power to private sector generators has been an issue, which is one of the main reason for their stress as they are not paid for more than six months in some cases. State-owned firms, like NTPC, have an advantage as they get the payment well in time but private sector firms have to deal with the delay in the absence of any payment security mechanism. The Centre will pursue states for improving power procurement. In the second meeting of the HLEC, the power ministry said it was in discussions with states for improving the power demand scenario. The HLEC has been formed under the Cabinet Secretary to formalise resolution plans for the power sector. The committee has members from the ministries of coal, power, finance and railways.

Copying the vote winning move of the Delhi government Haryana’s power distribution company Dakshin Haryana Bijli Vitran Nigam has slashed electricity tariffs. The new rates come into effect from 1 October. According to the revised rates, consumers using up to 50 units per month will be charged at ₹ 2/kWh compared with ₹ 2.70/kWh levied now. Similarly, residents who restrict their power consumption within 200 units per month will be billed at a rate of ₹ 2.50/kWh instead of ₹ 4.50/kWh. Power consumption in the 200-250 and 250-500 units ranges will be charged at ₹ 5.25/kWh and ₹ 6.30/kWh, respectively. However, the reduced tariff is only applicable for those households where the power consumption is below 500 units per month. If the consumption exceeds the limit, the existing rate will continue which is ₹ 4.50/kWh for the first 200 units.  In case a family limits its monthly electricity consumption up to 50 units, the electricity rate would then be applicable at the rate of ₹ 2/kWh. The reduced tariff would ensure saving of ₹ 437 per month to consumers. It would benefit 4.153 million domestic consumers in the state. Free electricity connections would be provided to those ‘dhanis’ (hamlets) in the state which are situated within one km of ‘Lal Dora’ of villages. Another scheme is also under the active consideration of the state government under which a cluster of 11 houses within one km radius would be provided free electricity connection when they apply for the same.

Delhi voters were also assured relief from the recently hiked fixed charges on electricity bills. The electricity rates were the “lowest” under the current government. In March this year, Delhi Electricity Regulatory Commission had increased fixed charges for every consumer, but brought down the unit cost of power.

States pacing up to electrify 100 percent of the households under the Centre’s Saubhagya scheme has triggered an accelerated buying at the spot energy exchanges. Indian Energy Exchange, which has a whopping 97 percent share of online power trade has seen its volumes surging 22 percent to 14.43 billion kWh in April-June quarter. The power bourse closed FY18 with a trading volume of 46,214 million kWh, marking a compounded annual growth rate of 38 percent with FY2009 as the base year. Exchanges have 36 percent share in short-term power transactions. The short-term power market accounts for only 10.6 percent of the country’s total power purchase- the rest 89.4 percent is met by PPAs. Power deficit dogged the states of Jammu & Kashmir, Chhattisgarh, Gujarat, Uttar Pradesh and Puducherry in April-August. These states also witnessed rapid electrification of households under Saubhagya scheme. Jammu & Kashmir and Uttar Pradesh were saddled with the steepest AT&C losses at 53.8 percent and 37.9 percent respectively. The AT&C losses are unlikely to moderate in the year as the implementation of Saubhagya remains a top priority for states. The nationwide AT&C losses have widened to 23.1 percent in Q1 of this fiscal from 20 percent in 2017-18, a grim pointer to the slippages in the implementation of the UDAY scheme. The Saubhagya or ‘Power for All’ scheme, launched in September 2017, targets 100 percent electrification of all households across the country by December 2018. At the time of the announcement of the scheme, there were 32.8 million un-electrified households. A year later, 19.5 million or nearly 60 percent of the households are still waiting to be electrified. As many as 8.8 million households were electrified during April-August period of the current fiscal. Uttar Pradesh lags other states with 31 percent of its households not electrified yet.

The Himachal Pradesh State Pollution Control Board ordered the disconnection of power supply of 14 industrial units and hotels in the Shimla district. It was found that these units had been operating without obtaining a valid consent and renewal of consent as required under the provisions Section 25 of Water (Prevention and Control of Pollution) Act, 1974 and Section 21 of Air (Prevention and Control of Pollution) Act, 1981. These units were given opportunities to apply for the consent.

Assam Government proposed to replace fixed “electricity duty” of 0.20/kWh with an ad-valorem rate of five percent on overall energy charge, having a scope to further increase it to 10 percent. The government plans to have the electricity duty at an ad-valorem duty of five percent. Currently, “electricity duty” is charged at 0.20/kWh and there is no scope to raise it beyond this amount. Once the bill is passed by the Assembly and notified by the government, this step will effectively increase the electricity bill of the consumers.

Chandigarh electricity department has failed to implement power sector reforms, especially preparing the online data of consumers, power connections and entire power infrastructure of the city. The work on this programme was started in 2012 but is far from completion. The Restructured Accelerated Power Development and Reforms Programme project has been initiated to bring down the transmission and distribution losses by upgrading the power infrastructure and introduction of the Information Technology. As per the proposal, the UT electricity department had planned to implement power reforms, including the introduction of management integrated system, geographical information system among other initiatives to boost e-governance in the working of the department. Under the proposed plan, computerisation of the UT electricity department will be done. A round-the-clock call centre for consumer grievance redress will also be set up. With the computerisation, the UT electricity department will be able to create a database of the information, including electrical loads, sanctioned connections, consumers’ grievances, billing etc. As per the plan, the UT will put in place the MIS to speed up day-to-day work procedures in the department. With the introduction of MIS, the department will adopt the use of IT applications for meter reading, billing, collection, energy accounting, auditing, redressal of consumer grievances etc. Around six 66 kV sub-stations have crossed their life span and the number of such sub-stations will continue to grow. As per the plan, a total of 12 new 66 kV grid sub-stations will be established while all the existing 66 kV sub-stations will be upgraded in next 10 years. The department has set a deadline of 10 years for completion of the work.

The Uttar Pradesh government has sought details from AMC regarding how much it has saved on power consumption by installing LED bulbs across 100 municipal wards on the city. Under the Street Light National Program, a total 30,509 LED street lights were installed in the city. On orders of the state government, the AMC had assigned work for replacing old street lights with energy-efficient LED bulbs to EESL, a joint venture company of PSUs of the union power ministry. But after installation of the bulbs, the civic body did not share details of savings on power consumption made with the state government. The AMC is responsible for maintaining 38,567 street lights in the city. According to ESSL, the installation of LEDs will help AMC to save over 3,955 kilowatt per hour deemed units’ demand annually which is over 60% of power consumption of conventional street lights. This means electricity bills will be reduced by ₹ 80 million a year.

Power generation capacity of Tamil Nadu has to be increased by 1,000 MW every year to ensure uninterrupted power supply and efforts are under way to add 4,000 MW to the power generation capacity by 2022.

Industrial technology provider ABB said it will supply equipment to enhance power quality at rail line along the country’s longest freight corridor, helping trains run at optimum speed. ABB will supply fixed and dynamic reactive power compensation panels at 23 traction substations. The solution will be implemented in the western segment of the DFC between Mumbai and Dadri that covers a distance of more than 1,500 kilometre. The DFC will run between the four cities known as the Golden Quadrilateral – Delhi, Mumbai, Chennai and Kolkata – and will be developed by the DFCCIL. DFCCIL expects to transport up to 15,000 tonne of load for long distances and will have a container capacity of 400 units per train, among the highest in the world. To cope with the volume, DFCCIL is pioneering the operation of double stack containers on electrified routes in India. The potential risk of non-compliance to grid codes can also lead to financial penalties. By improving the reliability of the grid and reducing downtime, ABB’s innovative Power Quality Compensator Reactive technology will help DFCCIL optimise the operating costs of its freight network.

Tata Power and India Power Corp Ltd have bid to acquire Odisha’s CESU, being privatised again after 17 years. This is first discom privatisation after licences for Delhi Vidyut Board were handed over to Tata Power Delhi Distribution Ltd and BSES Delhi discoms. Orissa Electricity Regulatory Commission had called bids for the sale of CESU in December last year. The successful bidder will manage, invest and operate the company for 25 years. CESU distribution area comprises 19% of the state with major cities of Bhubaneswar, Cuttack, Paradeep, Angul and Talcher and a revenue potential of about ₹ 30 billion. Odisha was the first state to privatise power distribution sector by dividing the state into four companies.

Increased demand in agriculture coupled with a rise in temperature has pushed up electricity consumption across Gujarat. The power demand in the state touched a record high of 17,652 MW. Industry experts attribute the spike in demand from agriculture sector to daily temperature rising to 36 degrees in the wake of inadequate rainfall. The demand is even higher than the summer months. The state usually witnesses the highest demand in September-October period. Electricity consumption in agriculture sector has crossed the ‘100 million units a day’ mark, which normally remains between 60 to 70 million units during September-October. Among all the Indian states, Gujarat has provided the highest amount of power to agriculture sector.

Power discoms in Gujarat, Uttarakhand and Andhra Pradesh are among the top performers while discoms in Telangana, Haryana, and Hubli in Karnataka are severely lacking on key parameters, according to a latest study on the financial health of discoms by India Ratings. The Fitch group research agency analysed the performance of 19 discoms using data for two years – 2015-16 and 2016-17 — and judged the discoms on key financial and operational metrics in a report. The performance indicators included power purchase cost, leverage, profitability, working capital, and operational efficiency. The report did not cover some of the largest discoms in the country including those in Uttar Pradesh, Bihar and Punjab.

The chances of tapping the 3,000 MW unexplored power potential in the Sutlej basin have brightened with the Centre giving nod for the laying of a transmission line near Wangtoo to evacuate power from the tribal districts of Kinnaur and Lahaul Spiti. Several mega projects have been in the pipeline but not executed for want of a transmission line. A high-level team from the Central Electricity Regulatory Authority and Powergrid visited the area to assess the feasibility of the almost 200 km transmission line which would cost over ₹ 30 billion. The state government too has shot off a letter to the power ministry following receiving the approval. Earlier, there was a proposal to have a provision for power evacuation through the Rohtang tunnel but since the move did not materialise, Himachal had been keen that a transmission line was laid to be able to evacuate power from Kinnaur and Lahaul Spiti.

State-run power major NTPC’s trading arm NVVN will begin power supply of 300 MW to Bangladesh. According to the NTPC, NVVN signed a PPA with BPDB on 6 September 2018 at Dhaka for supply of 300 MW power from DVC and back to back agreement has also been signed with the DVC. The company said the testing of additional 500 MW Baharampur (India) Bheramara (Bangladesh) High Voltage Direct Current link has been completed. This will be used to supply power to Bangladesh. BPDB had invited bids for buying 500 MW power from Indian firms under short-term (1 June 2018 – 31 December 2019) and long-term (1 January 2020 – 31 May 2033) timeframes.

Rest of the World

The value of deals in the global power and utilities sector reached an all-time high of $180 billion in the first half of this year, research by accounting firm EY showed. The record high occurred despite a decline in the second quarter of 14 percent to $83 billion compared to the same period last year.

China wants grid companies to restructure and turn their electricity trading arms into independent firms, the NDRC said. The plan is part of China’s year-long efforts to liberalise its electricity market. All types of companies will be encouraged to invest in the new electricity trading firms, with non-grid companies taking at least 20 percent stakes. Grid companies must submit their plans for reforming electricity trading arms to central government by the end of September, and the reforms need to be completed by the end of this year.

Shares in top global aluminium producer China Hongqiao Group tumbled after its home province of Shandong announced new fees for onsite power plants. The declines came after the Shandong commodity price bureau said owners of captive power plants would have to pay 0.05 yuan ($0.0073) per kWh of electricity generated from July 2018, rising to 0.1016 yuan per kWh after the end of 2019. China wants to curb the use of onsite coal-fired electricity plants – which provide cheaper power than the grid – as part of a campaign for cleaner air. Shandong is one of the first provinces to publish such fees after China’s top economic planner, the NDRC, said in July it would force factories with onsite power plants to pay fees to help fund $12 billion in cuts to commercial and industrial electricity prices.

Siemens AG and rival General Electric Company are battling for a mega contract worth an estimated €13 billion ($15 billion) to develop power stations in Iraq, an order that would hand the winner a badly needed boost amid a deep slump in the industry.  The project will install 11 GW of power generation capacity over four years and create thousands of jobs. While Siemens’s chances for winning the order are “high,” the government hasn’t picked a winner or set a price tag on the order.

By 2015, Uganda had 850 MW of installed capacity with effective generation of approximately 710 MW, of which approximately 645 MW is hydro and 101.5 MW is thermal generating capacity. The Resettlement Action Plan implementation at Opuyo -Moroto – Ayago Interconnection project 132 kilovolt is currently ongoing at 88% progress, according to UETCL. Information from UETCL also indicates that feasibility study on the 60 kilometre long Bulambuli – Mbale industrial park transmission line is on-going.

Turkmenistan completed an upgrade of its largest electric power plant, which it hopes will help boost exports and eventually allow supplies to Pakistan, which would require the construction of a new transmission line. The upgraded gas- and steam-turbine plant in the southern Mary province would boost power exports by 3 billion kWh from the current 3.3 bn kWh a year. In addition to its current customers — Afghanistan, Iran and Turkey — Ashgabat plans to tap Pakistan’s market by building a power transmission line through Afghanistan, where it is already laying a gas pipeline in the same direction.

A coal-fired power plant supplying half of Japan’s northern Hokkaido island was damaged in a powerful earthquake that struck earlier, the country’s industry ministry said. Hokkaido Electric Power, the plant’s operator, said earlier it shut down all its remaining fossil fueled plants in the immediate aftermath of the quake, leaving all of its 2.95 million customers without power. The 350 MW capacity No.1 unit and the 600 MW No.2 unit at the Tomato-Atsuma plant operated by Hokkaido Electric Power have been damaged, the ministry said. Hokkaido Electric is preparing to restart the plant’s 700 MW No.4 unit.

Poland plans to hold its first power capacity auction in November as part of a planned scheme in which electricity producers are paid for their readiness to provide electricity when needed. Poland generates most of its electricity from coal, mostly in outdated power plants, many of which need to be shut down in the coming years, raising risk for its security of supply.

DBT: direct benefit transfer, RBI: Reserve Bank of India, PPAs: power purchase agreements, HLEC: High Level Empowered Committee, kWh: kilowatt hour, km: kilometre, FY: Financial Year, AT&C: Aggregate Technical and Commercial, Q1: first quarter, UDAY: Ujwal Discom Assurance Yojana, IT: Information Technology, UT: Union Territory, MIS: management integrated system, kV: kilovolt, AMC: Agra Municipal Corp, LED: light emitting diode, EESL: Energy Efficiency Services Ltd, PSUs: Public Sector Undertakings, MW: megawatt, GW: gigawatt,  DFC: Dedicated Freight Corridor, DFCCIL: Dedicated Freight Corridor Corp of India Ltd, CESU: Central Electricity Supply Utility, discoms: distribution companies, NVVN: NTPC Vidyut Vyapar Nigam, BPDB: Bangladesh Power Development Board, DVC: Damodar Valley Corp, NDRC: National Development and Reform Commission, UETCL: Uganda Electricity Transmission Company Ltd

Courtesy: Energy News Monitor | Volume XV; Issue 17

STATES IMPORT COAL WHILE CIL LOOKS FOR EXPORTS

Monthly Coal News Commentary: August – September 2018

India

CIL wants a policy on coal exports before it could finalise commercial contracts for exporting the dry fuel. Earlier, government was planning to export coal with high ash content or of higher grades. CIL was scouting for export opportunity at the time when pithead coal stock was high as close to 70 mt in May 2017. Pithead coal finds comparatively low interest due to evacuation and cost issues. With sudden spiralling demand from the power sector, the pithead stock had reduced to 23 mt now. In the recent months the miner was failing to fulfil coal demand for power and non-power sectors like aluminium and cement sector. CIL had revised its internal production target to 652 mt against 630 mt fixed earlier following pressure from the ministry to increase production. Notwithstanding CILs foray into exports domestic users of coal are facing shortages.

Power supply to North India including Delhi and Uttar Pradesh, Bihar, Jharkhand and West Bengal is vulnerable to disruptions as fuel supply to 4,200 MW of generation capacity that feeds these states has fallen sharply heightening the risk of a shutdown from events like heavy rain. CIL’s supply has fallen because the mine supplying coal to NTPC Ltd’s large plants in the east has almost run out of pit head stock, while land acquisition problems have stymied expansion. CIL’s supply from Rajmahal mines in Jharkhand has fallen to 40,000 tonnes a day from about 55,000 tonnes. On a rainy day, the supply halves. At NTPC’s Farakka plant, stocks have plummeted to 4,000 tonnes from 2.5 lakh tonnes almost two months ago, NTPC said. CIL said reserves at Rajmahal mines is almost depleted but it can be replenished by acquiring land in two villages, Bansbiha and Taljhari adjacent to the existing project. CIL hopes to expand slowly with the help of some land that has been recently acquired. It hopes to resolve the issue in two months.

With MAHAGENCO deciding to import coal, the claims of WCL and other coal companies regarding supply of adequate coal have fallen flat. The generation company has recently floated tenders for importing 2 mt coal for new units of Koradi, Chandrapur and Bhusawal power plants. Imported coal is costlier than domestic coal and consumers will have to pay for it by way of higher power tariff. MAHAGENCO has not been importing coals since the last three years. NTPC is also bringing in coal from abroad after a gap of four years. This happens at a time when the coal ministry has claimed the country has produced record coal. Import of coal also raises question mark over MAHAGENCO’s decision to sell coal to private power companies. The coal meant for one unit each in Bhusawal and Nashik power plants has been provided to Dhariwal plant (185 MW) near Chandrapur and Ideal Energy plant (250 MW) at Bela (Nagpur district). The tender process will be completed in September and the imported coal will reach MAHAGENCO’s power plants in late October or November. WCL had claimed in an affidavit before the high court that coal dispatch to power plants should be 119 railway rakes (wagons) per day. Central Railway had earlier claimed there was an increase of 29% in coal rakes (wagons) supplied by it to WCL in 2017-18 as compared to 2016-17. The number of rakes supplied to Parli power station in Marathwada increased by 773% from 26 to 227 while the increase for Koradi was 148%. The overall loading for MAHAGENCO power stations by Nagpur division of Central Railway had risen from 9.6 rakes per day in 2016-17 to 12.4 rakes per day in April-January of 2017-18.

CIL said it has increased the coal supply to NTPC’s Kahalgaon and Farakka power plants as the units were operating at higher than the targeted level, resulting in additional consumption of fuel. Both the plants, put together, have generated 9.795 billion kWh against the target of 9.191 billion kWh during April-July 2018. Both Kahalgaon and Farakka power plants, it said, were operating at higher than the targeted level of generation during the current year, resulting in higher consumption of coal. The company has already stepped up the supplies, and has supplied more than 45,000 tonnes of coal from Rajmahal and above 20,000 tonnes from non-Rajmahal fields to Farakka and Kahalgaon for maintaining their coal stock. Coal stock position at linkage based thermal power stations in the country stood at 14.69 mt as of the referred date. In the northern region, only one power plant is listed as critical. With majority of the plants of NTPC situated at the pit-heads and based on captive modes of transport of coal, there is no major issue for movement of coal, it said. Coal stock at NTPC’s Badarpur TPS could have been comfortable, had it not restricted the supplies during the lean generation season, it said.

CIL has drawn up a plan to send 16 rakes per day to TANGEDCO in view of its increased demand for the dry fuel. The state-run-miner’s subsidiaries, Mahanadi Coalfields Ltd, Eastern Coalfields Ltd and CCL will supply 13 rakes, two rakes and one rake, respectively. TANGEDCO reportedly asked for 20 rakes of coal per day. The Tamil Nadu government has decided to import about 3 mt of coal for its generation units, supply of which is expected to start from October. India’s coal import is to the tune of about 200 mtpa. CIL has also requested Indian Railways to supply more rakes to ensure delivery of coal to TANGEDCO.

The Kawai plant has not imported any coal in March-April this year, while it had imported 2.8 mt and 1.6 mt of coal in FY17 and FY18 respectively. Adani Power has shut down a 660 MW unit at its Kawai power plant in Rajasthan due to shortage of coal. The shutdown underscores the ongoing issue of coal shortage at power plants, mainly due to insufficient railway rakes to ferry the fuel. The Kawai power plant was one of the ten electricity generation stations to receive assurance on coal supply under the scheme to harness and allocate koyla transparently in India (Shakti scheme), which was specifically designed to salvage power plants with power purchase agreements but without fuel supply agreements. Under Shakti, linkages have been granted to 10 power plants with 11,549 MW capacity. The power ministry had claimed that since five stressed projects with 8,490 MW capacity would receive coal under Shakti, these plants should be taken out of the list of the 34 stressed assets (38,870 MW). To be sure, the Kawai plant is not among the 34 stressed power projects. The Rajasthan Electricity Regulatory Commission allowed Adani Power Rajasthan, which runs the 1,320 MW Kawai power plant, to recover the additional cost on account of having to import coal due to reduced supplies from CIL. The company estimated the additional cost due to coal shortage to be ₹ 12.21 billion per annum since 2014.

One of the standout commodity performers this year has been thermal coal, but not all coal is created equal and disparities in pricing may help explain why India’s imports have stayed strong despite the higher costs. The main benchmark for thermal coal in Asia is priced at Australia’s Newcastle Port, the world’s largest coal-export harbour. The price has gained 11.8 percent so far this year, to close at $114.66/tonne in the week to 2 September. What has been somewhat surprising is that India, the world’s second-largest coal importer behind China, has defied its prior history of being a price-sensitive buyer and boosted its imports this year. But delving into the detail offers an explanation as to why this is the case, the price of the bulk of the coal India imports has been declining, especially in recent months. India imported 128.7 mt of coal in the first eight months of the year, up 10.6 percent on the same period last year, according to vessel-tracking and port data. India tends to import lower quality coal from Indonesia, with a typical grade being fuel with an energy rating of 4,200 kilocalories per kilogram. Given the recent difficulties state-controlled CIL has experienced in meeting domestic requirements, it’s little surprise that Indian buyers have ramped up purchases from Indonesia. It’s also worth noting that India hasn’t increased the amount of coal it buys from other top suppliers. Australia is India’s second-largest supplier, but it ships almost exclusively coking coal used in steelmaking, and is thus not a competitor with Indonesia.

Higher demand for thermal power and lower-than-required growth in domestic coal output may push up coal imports to 62 mt this fiscal, Credit rating agency Ind-Ra said. According to Ind-Ra, imported coal requirement is likely to increase to 62 mt this fiscal from 56 mt in FY18 to meet the incremental power generation. According to Ind-Ra, in a scenario of lower-than-required growth in domestic coal output, short-term power prices would remain firm and are likely to be determined by the marginal cost of energy production undertaken using imported coal.

India’s coal import rose 11.9 percent to 78.7 mt in the first four months of the current fiscal. The country had imported 70.3 mt coal in April-July period of the last fiscal, mjunction services, a joint venture between Tata Steel and SAIL, said. The country’s coal import in July increased by 42 percent to 20.79 mt (provisional), over 14.64 mt (revised) in the same month previous year. The increase in coal and coke imports in July is mainly due to a 12.9 percent growth (month-on-month) in non-coking coal shipments, it said. The government earlier said that during 2017-18 coal imports increased to 208.27 mt due to increase in demand by consuming sectors. The country’s coal import fell from 217.7 mt in 2014-15 to 190.9 mt in 2016-17.

CIL which is looking to rationalise its underground mines in view of safety and financial viability, could close about 53 such mines this year. Manpower would “not be retrenched” if any mine is closed and workers would be re-trained and re-skilled for getting employed in other mines. CIL has 369 mines at the beginning of the current fiscal, of which 174 are underground, 177 opencast and 18 mixed mines. Coal production from underground mines in 2017-18 was 30.54 mt compared to 31.48 mt during 2016-17. Production from opencast mines during 2017-18 was 94.62 percent of total raw coal production. However, the miner is also taking up new coal mining projects. A total of 11 coal blocks have been allotted to Eastern Coalfields, Bharat Coking Coal and WCL and these new blocks will help these subsidiaries produce more than 100 mt of coal per annum in the near future. Four coal mining projects with an ultimate capacity of 24.6 mtpa and a total capital investment of ₹ 41.55 billion were approved. There are 26 operational mines which are contributing more than 55-60 per cent of total production. CIL has undertaken rail infrastructure projects for planned growth in production and sales and as many as 13 projects for coal evacuation have been identified. Two coking coal washeries were commissioned and plans are on the anvil to set up a non-coking coal washery in Odisha’s Ib-Valley for which a letter of intention was issued.

The coal ministry along with CIL and Singareni Collieries have decided to bring 70,000-odd coal contract workers under the ambit of the CMPFO. CIL said bringing contract workers under CMPFO will offer them social security and give them higher returns apart from helping the fund itself, which is facing an asset-liability mismatch. CMPFO is an organisation meant for coal workers and its operation is similar to the EPFO. Members of the fund contribute a monthly amount, which is matched by their employer. At present, the minimum wage for workers on CIL’s payroll is around ₹ 1,200 per day while contract workers would be getting around ₹ 800 following the recent hike. Currently, some coal contract workers are covered by EPFO but a large number of them have remained uncovered. To start with, the government is planning to transfer workers covered by EPFO in the coal mining industry to CMPFO. This will be followed by bringing contract workers that are not members of any provident fund organisation under the ambit of CMPFO.

CIL subsidiary South Eastern Coalfields Ltd produced a record 144.71 mt of coal in 2017-18, according to its annual report. The production rose by 3.36 mt in 2017-18 against 140 mt in 2016-17. The 2017-18 financial year witnessed a record production of 144.71 mt which is not only the highest coal production amongst all subsidiaries of CIL but also accounts for more than 21 percent of the total coal production of India, the company said. The company is operating 75 opencast and underground mines spread over the states of Chhattisgarh and Madhya Pradesh. From opencast mines, the company produced 130.25 mt coal, registering a rise 3.83 percent as against 125.45 mt in the preceding fiscal. However, it witnessed a fall of 0.62 percent from underground mines at 14.46 mt as against 14.55 mt in 2016-17.

CIL arm CCL said its 17 out of the 21 ongoing mining projects worth ₹ 40.95 billion are facing delays due to various reasons including non-grant of green clearances. Of the 21 projects, Parej East and Hurilong projects could not be started due to non-grant of environment and forest clearances, CCL said. Kalyani open cast project, one of the ongoing projects, will be started after green clearances, it said. As on 31 March 2018 there are 21 ongoing and 34 completed mining projects under CCL with sanctioned capacity of 112.85 mt it said.

The opposition party asked the government to appoint a special counsel in the Bombay High Court in the case of alleged over-invoicing of coal imports by the Adani group. It observed that the Gujarat government has accepted the recommendations of a three-member panel to raise the cost of power purchased from three private entities including Essar, Tatas and Adanis that will cost ₹ 1.30 trillion in the next 30 years. The opposition party said a special counsel to defend the DRI for accepting its Letters Rogatory to seek information on the alleged ₹ 290 billion scam in over-invoicing of coal imports from Singapore. In March 2016, the DRI had initiated probe against some Adani Group firms for alleged overvaluation of coal imports from Indonesia between 2011 and 2015. The DRI had alleged that the companies inflated the price of coal they were importing from Indonesia to siphon off money abroad and to avail higher power tariff compensation. The documents required to prove the ₹ 290 billion coal scam are with Singapore branch of the State Bank of India. A show cause notice has been served on four companies importing coal but not on Adani group, which is importing 80 percent of the total coal imported.

Earlier, a Singapore court had rejected Adani Global’s plea, seeking a stay to produce documents pertaining to coal imports to India mostly from Indonesia. After that, the group moved the Bombay High Court on August 28.

The ISRO will help India’s largest power generation utility, NTPC, to use its technology to reduce pilferage of coal when transporting them on wagons on railway tracks. Following the successful pilot project undertaken by ISRO on one such coal wagon train through its NavIC or Indian Regional Navigation Satellite System, NTPC wants to incorporate this on a permanent basis. This seven-satellite system aims at providing India a satellite system so that it becomes independent of the GPS of the US. The problem of coal being stolen has been a perennial problem with NTPC, particularly in areas in Bihar, Jharkhand and West Bengal. Many police cases have been booked in these states for coal thefts by unknown persons. Despite Railway Protection Force personnel providing security, the large numbers who come to take away the coal when stoppages occur far outnumber the security provided. The pilot done by ISRO on one train heading to West Bengal for nearly a year by attaching a NavIC system onto the wagon revealed where exactly the train had an unscheduled stop and the number of minutes it halted too. The issue of coal thefts plagues energy companies in the Eastern part of the country with a coal mafia said to rule roost. Coal is stolen enroute as well as when loading them. The largest state-owned producer of coal, CIL has deployed vehicle tracking systems and GPS at its mines to handle the issue. Some companies have applied for permission to use drones to tackle the menace. NavIC Systems are now being deployed across different spheres.

Rest of the World

Australian miner New Hope Corp said thermal coal prices would push higher in coming months, extending a rise that helped boost its profits in the last financial year. The company said its full-year pre-tax profit climbed 6 percent to $107.49 million from $140.6 the year before, as markets for thermal coal priced in Australian dollars soared on the back of pollution-linked output curbs in major supplier China. Australian spot thermal coal cargo prices in recent months hit their highest in six years, and at $120/tonne remain a third above lows in seen in April. New Hope, one of Australia’s main coal miners, is waiting on approval to extend its Acland operations in the state of Queensland, with regulators set to consider the move in early October. New Hope sells most of its coal to Japan and Taiwan, ahead of China. It has also seen a pick-up in demand from Vietnam.

Australia’s WICET obtained court approval for a $3.2 billion debt refinancing plan, offering respite to its owners who would have had to start repayments. The Queensland-based terminal, known as WICET, is 40 percent owned by miner and commodities trader Glencore and was built to service a consortium of eight coal companies during a period of high commodity prices. It will now have the maturity of $2.6 billion in senior debt extended from this month until September 2026, court documents showed. Glencore and its four partners faced a tight deadline to refinance the loan or start repayments. Glencore and seven partners began negotiations to build WICET in 2008 near the height of a coal boom, but as prices plunged, three of the partners became insolvent, leaving Glencore to foot an increasing share of the liability.

South African power utility Eskom said that it had less than 20 days of coal supplies at 10 of its 15 coal-fired power stations, posing a threat to national power supplies. Cash-strapped Eskom is critical to Africa’s most industrialised economy as it supplies more than 90 percent of its power and is one of its most indebted state firms.

German utility RWE, its works council and trade unions say they oppose plans to end coal-fired power generation in Germany around 2035, raising questions over a possible compromise between a government commission and environmentalists. Coal-to-power production both from brown coal and imported hard coal accounts for 40 percent of Germany’s total power production, making the exit from coal difficult while maintaining reliable supply to industries and households. Utility companies such as RWE and Uniper have said they are prepared, having absorbed declining coal plant revenues due to competition from renewable power and developed their own phase-out plans stretching into the 2040s. The commission will try to broker compromises and help allocate federal funds to bring new industries into regions that are now dependent on coal mining.

Russia has resumed coal supplies through the North Korean port of Rajin. Rajin has in the past been a transit point for Russian coal exports to South Korea. Andrey Tarasenko, the acting head of the Primorsky region, said the move did not violate Western sanctions against Pyongyang.

Botswana’s Minergy Ltd said it has started construction at its Masama Coal Mine, which is set to be the country’s first privately-owned coal mine, following government approval. Botswana has an estimated resource of 212 bt of coal but has only one operating coal mine, the state-owned Morupule Coal Mine that produces 3.5 mtpa. Commissioning of its 400 million pula ($37 million) Masama Coal Mine is scheduled for January 2019, and production of first saleable coal slated for the following month. Most off-site construction for Masama mine, which will produce 2.4 mtpa is already complete with some of the funding already secured.  In November 2017 the company – which will export its coal to South Africa and Asia – will list on AIM on the London Stock Exchange after receiving a mining licence.

A vessel hauling a shipment of coal from the US switched its destination to South Korea from China, according to ship tracking data, a day after China imposed 25 percent tariffs on the US fuel. The Underdog was loaded with 63,000 tonnes of coal on 23 July in Long Beach, California, and sailed to China, where it arrived off the coast of Nanshan on 17 August. The Underdog was one of several US cargoes that have rerouted amid the US trade dispute with China. Last month, a coal cargo on the Navios Taurus shifted to Singapore after originally heading to China. US coal exports to China dropped in July, with only two other tankers, the Navios Altair I and Glory, departing from California to China, and carrying a combined 128,000 tonnes of coal. No ship with US coal departed for China in August. The US shipped 3.2 mt of coal to China last year, up from less than 700 tonnes in 2016, making it China’s seventh largest supplier.

CIL: Coal India Ltd, mt: million tonnes, bt: billion tonnes, MW: megawatt, MAHAGENCO: Maharashtra State Power Generation Company, CCL: Central Coalfields Ltd, WCL: Western Coalfields Ltd, kWh: kilowatt hour, TANGEDCO: Tamil Nadu Generation and Distribution Corp, mtpa: million tonnes per annum, FY: Financial Year, Ind-Ra: India Ratings and Research, CMPFO: Coal Mines Provident Fund Organisation, EPFO: Employees Provident Fund Organisation, DRI: Directorate of Revenue Intelligence, ISRO: Indian Space Research Organisation, NavIC: Navigation in Indian Constellation, US: United States,  GPS: Global Positioning System, WICET: Wiggins Island Coal Export Terminal

Courtesy: Energy News Monitor | Volume XV; Issue 16

Synthesis Report of the IPCC: More Measured?

Lydia Powell, Observer Research Foundation

The IPCC’s synthesis report for policy makers was released this week with a message that must be familiar to those who have seen the three working group reports released last year: ‘unless something drastic is done the world is well on its way to climate disaster’.[1] Though this message appears to be an embedded in many of its observations, it is not conveyed directly as the media led us to believe.

For example, the BBC reported that the IPCC had concluded that ‘fossil fuels must be phased out by 2100’.[2] This line has been captured and repeated or rephrased by other media sources across the world.  For example the Times of India declared ‘Phase out fossil fuels by 2100: IPCC’[3]. As many of us do not go beyond media headlines, we may conclude that this is a climate commandment that cannot be questioned.  What the synthesis report actually says under section 4.3 on Response Options for Mitigation is:

‘In the majority of low‐concentration stabilization scenarios (about 450 to about 500 ppm CO2-eq, at least as likely as not to limit warming to 2°C above pre-industrial levels), the share of low‐carbon electricity supply (comprising renewable energy (RE), nuclear and Carbon capture and storage (CCS), including bio-energy with CCS) increases from the current share of approximately 30% to more than 80% by 2050, and fossil fuel power generation without CCS is phased out almost entirely by 2100.’

What this says is that fossil fuels without CCS are phased out by 2100 in one of the low GHG concentration scenarios that it has generated. Scenarios are not forecasts on the future and what the text above says is very different from what the media headlines say. In fact the text could actually be interpreted as an acknowledgement that fossil fuels will continue to be used in 2100 with CCS even under low carbon scenarios.

Most of the messages in the report are hedged with either a qualitative term or a quantitative probability measure (high/low confidence, 33-66%/93-100% probability etc). But overall the report appears to be more measured than previous reports probably because of the growing influence of developing countries on what should be emphasised from a policy perspective. The only thing that the report says with 100% certainty is that it is not sure of anything.  This is not necessarily a bad thing.  When talking about complex issues such as climate change and its impact on societies it is not wise to be sure.

Even the key message on warming that underpins the argument for mitigation action is relatively subdued.  Under section 2.2 on Projected Changes in the Climate System, the report says that ‘the global mean surface temperature change for the period 2016-2035 relative to 1986-2005 will likely be in the range 0.3°C-0.7°C (medium confidence), assuming that there will be no major volcanic eruptions or changes in some natural sources (e.g., CH4 and N2O), or unexpected changes in total solar irradiance. The use of two qualifying terms, ‘likely’ and ‘medium certainty’ along with the caveat on natural causes that may affect warming reflects an overdose of hedging.  Notwithstanding the uncertainty embedded in this observation, the report goes on to say that ‘by mid-21st century, the magnitude of the projected climate change is substantially affected by the choice of emissions scenario’. Surprisingly, this observation that essentially calls for expensive mitigation action is not hedged and does not contain even a hint of uncertainty. The contradiction is probably the result of varying degrees of influence different countries or country groupings had on the text in the report.

According to the updates on the negotiating process by the Third World Network (TWN), information relevant to Article 2 of the UN Framework Convention on Climate Change (UNFCCC) had become a bone of contention between the representatives of developed and developing countries. Article 2 of the UNFCCC reads as follows:

‘The ultimate objectives of this Convention and any related instruments that the Conference of Parties may adopt is to achieve, in accordance with the relevant provisions of the Convention, stabilisation of green house gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.  Such a level should be achieved within a timeframe sufficient to allow eco-systems to adopt naturally to climate change to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.’

As reported by TWN, one of the versions of the text proposed by developed countries in the context of Article 2 of the UNFCCC read as follows:

‘Challenges in climate that have already occurred have caused impacts on natural and human systems on all continents and across the oceans; continued emission of green house gases will cause further warming and changes in all components of the climate system; mitigation scenarios limiting temperature increases to 2C show that GHG net emission reductions of 40% and 70% between 2010 and 2050, with emissions falling towards zero or below by 2100; prospects for climate resilient pathways for sustainable development are related to what the world finally accomplishes with climate change.’

TWN also reports that developing countries led by Saudi Arabia, Bolivia and China had repeatedly called for the inclusion of texts that brought more balance in the information provided particularly in relation to adaptation, sustainable development and international cooperation in finance and technology transfer. TWN also reports that one version of the text proposed by developing countries included the following additions so that it reflected ‘findings in a policy neutral way’:

‘The effectiveness of adaptation can be enhanced by complimentary actions across levels including international cooperation; Policies across all scales supporting technology development, diffusion and transfer as well as finance for response to climate change can complement and enhance the effectiveness policies that directly promote adaptation and mitigation; Sustainable development and equity provide a basis for assessing climate policies and highlight the need for addressing the risks for climate change; Limiting the effects of climate change is necessary to achieve sustainable development and equity, including poverty eradication; At the same time, some mitigation efforts could undermine action on the right to promote sustainable development’

In the end, the sentence that got the approval of all countries was:

‘This report includes information relevant to Article 2 of UNFCCC’

What we may conclude from the above is that adaptation, equity, technology transfer and finance and sustainable development were among words that developed countries did not like while mitigation was the only word that developing countries did not like. It would be simplistic to view the positions of each side from a narrow instrumental aim of limiting warming to 2C and conclude that the block that pushed for mitigation is good (or responsible) and the other bad (or irresponsible). The positions of different blocks reflect concerns over who mitigates, who gains and who pays and these are questions that are more real and more important for many countries. The master discourse that justifies all other discourses in climate negotiations is the nation state and national interest.  While mitigation is likely to serve global interest it may take a heavy toll on national interest and this precisely is the concern for many nations who are yet to develop. As David Victor, one of the extended core writing team members of the synthesis report has concluded in his book, it is state power, interests and capacity that decide their positions and not scientific conclusions.[4]

The question of fossil fuels becoming stranded assets is mentioned in the report under section 3.4: Characteristics of Mitigation Pathways.  According to the report:

Mitigation policy could devalue fossil fuel assets and reduce revenues for fossil fuel exporters, but differences between regions and fuels exist (high confidence). Most mitigation scenarios are associated with reduced revenues from coal and oil trade for major exporters (high confidence). The availability of CCS would reduce the adverse effects of mitigation on the value of fossil fuel assets (medium confidence).

Though the text above seems to be implying that the risk (which could be mitigated by the adoption of CCS according to the report) is only for producers and exporters, there is an equal if not higher risk for consumers of fossil fuels (directly as fuels for power generation and transport or as products manufactured using fossil fuels and transported by fossil fuels). This would include almost all products and services that constitute modern industrial life.

What the synthesis report says on the possibility of a compromise on development (poverty eradication) when mitigation is imposed is encouraging:

‘Key measures to achieve such mitigation goals include decarbonising (i.e., reducing the carbon intensity of) electricity generation (medium evidence, high agreement) as well as efficiency enhancements and behavioural changes, in order to reduce energy demand compared to baseline scenarios without compromising development (robust evidence, high agreement).’

The possibility of compromise on development on account of mitigation reflected in the text cited above may have been squeezed out by developing countries during the negotiating process.  This compromise is the most intuitive and probably the most static conflict between developing and developed countries in climate negotiations.  It is likely that it will remain the bone of contention in Paris next year.

Another important observation in the report that many have failed to notice is on the key drivers of carbon emission:

‘Globally, economic and population growth continued to be the most important drivers of increases in CO2 emissions from fossil fuel combustion. The contribution of population growth between 2000 and 2010 remained roughly identical to the previous three decades, while the contribution of economic growth has risen sharply’

From a climate perspective it is possible to use this information to assign blame entirely on developing countries growth in both population and economic activity has been far higher in developing countries in this period.  However a more nuanced view would be that this was the period when some of the poorest people in the world were lifted out of poverty.  According to the UN globally the number of extreme poor dropped by 650 million in the last three decades a level of progress the world has never seen.[5] According to the World Bank, in 1981 more than half the people in developing countries lived on less than $ 1.25 a day.  In 2010 less than 21% of the population in developing countries lived below the $1.25 a day line. This is despite the fact that the population in developing countries increased by 59% in this period.[6]  Some may prefer lower carbon emissions to lower number of poor people but that does not make it the right choice.

Views are those of the author                    

Author can be contacted at lydia@orfonline.org

[1] IPCC, 2014. IPCC Synthesis Report available at http://www.ipcc.ch/pdf/assessment-report/ar5/syr/SYR_AR5_LONGERREPORT.pdf

[2] http://www.bbc.com/news/science-environment-29855884

[3] http://timesofindia.indiatimes.com/home/environment/global-warming/Phase-out-fossil-fuels-in-power-by-2100-IPCC/articleshow/45017278.cms

[4] VICTOR, David, 2011. Global Warming Gridlock. Cambridge University Press

[5] United Nations, 2013. Fast Facts: Poverty Reduction, available at http://www.undp.org/content/undp/en/home/librarypage/results/fast_facts/poverty-reduction/

[6] World Bank, 2013. State of the Poor, available at http://www.worldbank.org/content/dam/Worldbank/document/State_of_the_poor_paper_April17.pdf

Courtesy: Energy News Monitor | Volume XI; Issue 21

Will this Election end the Tom & Jerry Chase in Delhi’s Power Sector?

Ashish Gupta, Observer Research Foundation

Fresh elections are likely to be held and electricity tariff may play a crucial role in deciding who will win. The factual details on why there is a power crisis in Delhi have been discussed in detail in the analysis piece ‘Coal, Gas or Kejriwal’ in volume 11 Issue 20. Though stable government is seen as a critical issue, ‘Bijli & Paani’ (Electricity & Water) will remain the key issue for many in the coming elections.

Before moving ahead the question that needs to be asked is whether Delhi consumers are sensitive to tariff hikes. Going by views of discoms Delhi consumers will pay for the reliable supply. Well there is no denying that consumers want reliable supply but it should be coupled with affordability. Discoms’ understanding on consumer behaviour with respect to tariff is not solid. Delhi consumers are price sensitive and they are likely to vouch for the political party who will come out with concrete measures on the electricity tariff front.

Delhi has witnessed in the last election how political parties come out with tried and tested method and a few innovative methods to reduce electricity prices for attracting Delhi voters. This election will not be an exception and most of the political parties will again have electricity tariff in their manifesto. There is no harm if Delhi consumers benefit.  But so far this has not happened.  Though the Aam Admi Party’s (AAP) understanding on the power sector is not comprehensive, their work on electricity tariffs during the 49 days tenure was commendable. Those 49 days were a good period for Delhi’s retail consumers but it did not last long because the Chief Minister resigned. AAP acted as a whistleblower by raising questions on the opaque management style of the discoms in the capital. The Comptroller & Auditor General of India (CAG) was appointed to conduct an audit of the discoms but nothing has moved in this regard and currently the case is in the Court.

The major opposition Bhartiya Janta Party (BJP) and currently the ruling party at the centre also came out with a manifesto last time to reduce electricity tariffs by 30%. The party said this would be achieved by bringing more competition in the Delhi power sector. Well the idea was good but they need to strategise how this can be implemented. The answer to the question is not simple; it is highly complex. But this does not mean that it should begin and end with political speeches. Therefore one needs to wait and watch how the BJP will prepare their manifesto this time to tackle such a crucial and complex issue.

Any reduction in power bills of the consumers in the capital must be backed with factual data and strategies that flow from them rather than be used as a tool for winning election. The last option for parties would be to reduce tariffs by increasing the subsidy which will be burden on the State. The Delhi voters must not be lured with false promises but with clear and transparent roadmap on how they will manage the power mess in the capital. Can we see such an election this time in Delhi?

There must be a warning given to all political parties that they should not ask any specific community consumer/ voter, not to pay their power bill till the elections are over and when they come to power they could clear their dues. This is not the way forward. On the contrary, all political parties must educate people that without payment no service can be provided. If there are problems, grievances may be corrected through negotiation or at the extreme through the legal route. Discoms are companies and they must be allowed to run commercially and not be used as political tools. Otherwise the discoms will take a toll by increasing tariff and the ruling party has to bail them out every time. Rather than creating a vicious circle it is best to choose the rational option. There is genuine scepticism from all quarters with regard to electricity tariffs and the truth can only be brought out through a transparent CAG audit. Discoms should not be allowed to ask for tariff revision on account of fuel shortage especially coal. Quoting from the analysis Coal, Gas or Kejriwal – as per publicly available information there has been loss of 86 Million units on account of coal shortage in the year 2013-14 (up to December). This was only 0.93% of expected generation for that year which means that coal shortage did not have a huge impact on Delhi’s power supply. Therefore audit results are required.  Whoever wins the election must expedite the CAG audit for reaching a logical conclusion. If they are financially unstable, relief must be given to discoms and if they are not, relief must be provided to the consumers through reduced electricity tariffs. Discoms cannot have all the fun!

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 21

GAIL EXPANDS PIPELINE NETWORK

Monthly Gas News Commentary: August – September 2018

India

India wants to raise share of natural gas in its energy mix to 15 percent in next few years from about 6.5 percent as the world’s third-biggest oil importer and consumer wants to cut its massive import bill and reduce its carbon footprint. GAIL (India) Ltd has also booked 1.5 mt a year re-gasification capacity at Dhamra LNG terminal in eastern Odisha state. The company’s current annual gas marketing portfolio comprises 14 mt. GAIL is currently is currently executing new 5,000 km of trunk pipeline across the country at an estimated cost of ₹ 250 billion. The company is also investing around ₹ 35 billion in the current financial year along with its joint venture partners and its subsidiary firm in setting up city gas distribution networks. GAIL had first started allowing open access to other entities for its pipelines in 2004. However, applications for access had to be given physically. The launch of the online portal for common carrier capacity is a step towards a functioning natural gas trading hub, the company said. Guidelines set by PNGRB the country’s downstream oil and gas regulator, stipulate providing 25 percent of the total pipeline capacity as common carrier capacity, for providing non-discriminatory open-access on first-come-first-served basis for transporting third party gas for a period of less than one year. The total earmarked common carrier capacity under GAIL’s pipelines, almost 33 percent of the capacity was used by third party transporters during the last financial year ended March 2018. Apart from re-negotiation of LNG contracts the company has started supplying gas through its own ships in the European and Middle-East markets based on delivered-ship basis. The first phase of Urja Ganga project that involves setting up gas pipelines will be commissioned in the current calendar year ahead of schedule. GAIL is the country’s largest natural gas company and operates more than 11,400 km of natural gas pipelines across the country.

A diversified supply base, the lure of fat margin, and the confidence earned with some recent overseas deals have boosted ambition at GAIL, which is now preparing to up its game in the international trade. GAIL’s gas marketing portfolio, including the locally-produced gas, is set to expand to 97 mmscmd in 2018-19 from 86 mmscmd in 2017-18, aided by overseas LNG supply. Of the 97 mmscmd, locally-produced gas comprises about 51mmscmd. Nearly a quarter of the balance 46 mmscmd of LNG supply has been tied up for sale to international customers with the remainder planned to be shipped to India. GAIL is also contemplating setting up an office in Europe to be close to customers—it already has offices in Singapore and Houston. It is planning to beef up its LNG trading desk, sharpen its hedging tools, and build a team of analysts to develop better insight into the international LNG market.

The railways signed an MoU with state gas utility GAIL to use natural gas in its workshops and production units. The aim is to replace industrial gases like dissolved acetylene, LPG and furnace oil/HSD with environment-friendly natural gas. In the first phase, around 23 workshops will use natural gas by 31 December. It will be expanded to all 54 workshops and production units, and railway establishments — including base-kitchens, guest houses, hostels — by 30 June next year. The use of natural gas has a potential to replace fuel worth ₹ 700 million per annum. GAIL and the Indian Railways Organization for Alternate Fuel would prepare a project report by 30 September.

ONGC has made oil and gas discoveries in Madhya Pradesh and West Bengal that may potentially open up two new sedimentary basins in the country. ONGC had previously opened six out of India’s seven producing basins for commercial production. It is in the process of adding the eighth by putting Kutch offshore on the oil and gas map of India. The firm has found gas deposits in a block in Vindhyan basin in Madhya Pradesh that is being. ONGC has drilled four wells after the discovery and will now hydro-frack it by the end of the year to test commerciality of the finds. Similarly, an oil and gas discovery has been made in a well in Ashok Nagar of 24 Parganas district in West Bengal. ONGC is on the way to putting the Kutch offshore discovery to production. This would make Kutch India’s eighth sedimentary basin. Cauvery was the last Category-I producing basin which was discovered in 1985. ONGC had made a significant natural gas discovery in the Gulf of Kutch off the west coast a few months back, which it plans to bring to production in 2-3 years. India has 26 sedimentary basins, of which only seven have commercial production of oil and gas. Except for the Assam shelf, ONGC opened up for commercial production all the other six basins, including Cambay, Mumbai Offshore, Rajasthan, Krishna Godavari, Cauvery, and Assam-Arakan Fold Belt. The discovery in Kutch offshore may hold about one trillion cubic feet of gas reserves.

The government may from October raise price of domestic natural gas by over 14 percent, a move that will translate into higher CNG price and increased cost of electricity and urea production. Price paid to most of the domestic producers of natural gas is likely to be hiked to $3.5/mmBtu from 1 October, from the current $3.06. Natural gas prices are set every six months based on average rates in gas-surplus nations like the United States, Russia and Canada. The price revision is likely to be announced shortly. India imports half of its gas which costs more than double the domestic rate. The $3.50/mmBtu rate would be for six months beginning 1 October and will be the highest since October 2015 to March 2016 when $3.82/mmBtu price was paid to domestic producers. The increase in price will boost earnings of producers like ONGC and RIL but will also lead to a rise in price of CNG, which uses natural gas as input. It would also lead to higher cost of urea and power production.

Royal Dutch Shell said it will acquire French oil major Total SA’s 26 percent stake in the company that operates 5 mtpa Hazira LNG terminal in Gujarat. The size of the deal was however not disclosed. Hazira LNG & Port venture comprises two companies — Hazira LNG that operates an LNG regasification terminal in Gujarat and Hazira Port, which manages a direct berthing multi-cargo port at Hazira. This portfolio action is consistent with Shell’s strategy to deepen its presence in the gas value chain in India, the fourth largest LNG consumer in the world, Royal Dutch Shell said.

India has sought re-negotiation of the natural gas price it is to source through a proposed $10 billion TAPI pipeline in view of the slump in global energy markets. The four nations to the pipeline projects had in 2013 signed a gas sale purchase agreement that benchmarked the price of natural gas that Turkmenistan is to export at 55 percent of the prevailing crude oil price. This translates into a price of about $7.5/mmBtu at current oil prices at the Turkmen border. Added to this would be transit fee and transportation charges which would jack up the rates to over $10.5/mmBtu at the Indian border. For a consumer, the price would be around $13/mmBtu after adding local taxes and transportation charges. The price of Turkmen gas is more than double of the $3.6/mmBtu rate paid for post natural gas producers in India. Turkmenistan would export 90 million standard cubic meters per day of gas through TAPI, with Afghanistan getting 14 mmscmd and India and Pakistan 38 mmscmd each. India had previously used its position as world’s fastest-growing energy consumer to renegotiate gas import deals with Australia, Russia and Qatar.

GE Power said it has got a ₹ 2.20 billion order to supply gas turbine and generator for a captive power unit planned at HPCL’s refinery at Visakhapatnam. The order for the supply of a 6F.03 gas turbine and a generator was placed on it by BHEL – the principal contractor for the project. The HPCL Vizag order also marks the foray of GE’s F-class technology into India’s refinery segment, which offers a significant opportunity for technology upgrades in future, it said. GE’s gas turbine fleet in the oil and gas sector in India comprises of an installed base of approximately 2.5 GW.

Rest of the World

China appears set to once again boost its purchases of LNG for the northern winter, but unlike last year’s rush, this time the process is likely to be more organized and stable. In recent weeks there have been several indicators that China is planning on increasing the use of natural gas in winter heating, replacing boilers that use more polluting coal. Curbing winter air pollution has been a major aim of the authorities in Beijing, but they were stung by criticism last year that the switch to natural gas was made too quickly and the resulting shortages left some people without adequate heating. It’s often a challenge with China to work out exactly how official pronouncements will translate into real world action, but in all likelihood China is going to increase LNG imports in coming months. China imported about 4.55 mt of LNG in August, the highest since January, according to the shipping data.

China’s Sinopec expects to ramp up natural gas supplies by 1.8 bcm this winter to meeting increasing demand, the company said. Gas supplies for the winter of 2018 will be up 11 percent from the 15.1 bcm Sinopec provided last winter, according to company data. New supplies are mainly supported by the opening of the Tianjin receiving terminal and more production from domestic gas fields, Michael Mao, gas analyst with consultancy Sublime China, said.

China’s Sinopec Corp has teamed with Zhejiang Energy Group Company Ltd on a 3 mtpa LNG terminal in east China, with the first phase set for operation at end-2021. The project, to be built in Wenzhou of Zhejiang province, includes four tanks each able to store 200,000 cubic meters of LNG, a berth to dock tankers of 30,000 cubic meters to 266,000 cubic meters, as well as a 26 km(16 mile) pipeline. The two companies launched new entity Zhejiang Zheneng Wenzhou LNG Co Ltd that is 51 percent owned by the Zhejiang group, 41 percent by Sinopec and 8 percent by a local investment firm, Sinopec said. The Wenzhou terminal puts the Zhejiang group into China’s so-called “second-tier” of LNG players, which are local-government-backed city gas distributors that are emerging as new merchants in the global gas market.

PetroChina and local firms in southwestern Chongqing municipality started building a new underground storage for natural gas, as part of China’s efforts to boost supplies for the cleaner fuel, PetroChina’s parent CNPC said. The new facility, able to store 1.5 billion cubic meters of natural gas a year, will be built out of the depleting gas field Tongluoxia in mountainous Chongqing. Beijing has called state energy producers and local piped gas distributors to add storage facilities to cope with demand spikes, after a severe supply crunch last winter exposed the weak link in storages. When completed in 2020, the Tongluoxia storage will be able to supply 9 million cubic meters of gas Qatargas said it had agreed on a 22-year deal with PetroChina International Company, a unit of PetroChina Company, to supply China with around 3.4 mt of LNG annually, as the nation stepped up efforts to combat air pollution. The Qatari state-owned company will supply LNG from the Qatargas 2 project – a venture between Qatar Petroleum, Exxon Mobil Corp and Total – to receiving terminals across China, with the first cargo to be delivered this month. The deal allows flexibility in delivering LNG to Chinese terminals including those in Dalian, Jiangsu, Tangshan and Shenzhen, using the Qatargas fleet of 70 conventional, Q-Flex and Q-Max vessels, the company said. China requires LNG for its push to replace coal with cleaner burning natural gas, a way to reduce air pollution. After Beijing started the program last year, China has overtaken South Korea as the world’s second-biggest buyer of LNG. China’s LNG imports may surge 70 percent to 65 mt by 2020, according to consultancy SIA Energy. Last year, China imported a record 38.1 mt, 46 percent more than the previous year. Meanwhile Qatar, the world’s biggest LNG producer, is seeking buyers for a planned expansion of its output.

Russian President Vladimir Putin told German Chancellor Angela Merkel during a meeting that Russia would continue pumping gas via Ukraine to the rest of Europe. The Kremlin-backed Nord Stream 2 pipeline that aims to supply Russia’s natural gas to Germany is under persistent fire by the US and Ukrainian governments. Washington is pressing Berlin to halt the project.

Poland, unlike Germany, strongly opposes Russia’s plan to build a new gas pipeline across the Baltic Sea, and shares US opinion that the project would help strengthen Moscow’s market position. Berlin has given political support to the building of a new, $11 billion pipeline to bring Russian gas across the Baltic Sea called Nord Stream 2, bypassing traditional routes through Ukraine, despite qualms among other EU states. In July the US President criticised Germany for supporting the pipeline deal with Russia. Poland buys most of the gas it consumes from Russia but has taken steps to reduce that reliance. He reiterated Poland’s concerns that Nord Stream 2 was a harmful and political project that will strengthen Russia’s dominant position in the gas market and be a threat to Ukraine.

Russian natural gas producer Gazprom is revisiting plans to build a pipeline to South Korea across North Korea after noting signs of easing tensions on the Korean peninsula. Gazprom has long planned to build the natural gas pipeline to South Korea, but the project has not materialized amid decades of tension between the two Koreas.

LNG exports from Novatek’s Yamal terminal in the Arctic have come on stream faster than expected over the summer and exceeded volumes from Russia’s only other LNG facility, Sakhalin, for the first time in August. Novatek said it had begun commissioning the third train, or plant, and that its first two trains were running at capacity, which is 11 mtpa. Russian LNG exports amounted to 10.8 mtpa last year, almost all of which came from Gazprom’s Sakhalin-2 site. Full production at the current trains of Yamal and Sakhalin doubles Russian LNG output to just over 20 mtpa, making the country the fifth largest LNG exporter in the world.

Ghana has chosen two Chinese companies to build the infrastructure it needs to import liquefied natural gas, resurrecting the $350 million Tema terminal project that would make the country the first in sub-Saharan Africa to buy LNG. Tema LNG, backed by Africa-focused private equity firm Helios Investment, signed deals with China Harbour Engineering Company to build onshore facilities and Jiangnan Shipyard for a FSRU, the Ghanaian government said. LNG is expected to be sourced by Russian oil giant Rosneft , which has a 12-year deal to supply 1.7 mtpa with Ghana National Petroleum Corporation, although the project has had previous LNG suppliers lined up. Ghana has been trying to get an LNG import project off the ground for years, with two leading FSRU operators, Golar and Hoegh, earmarking their giant vessels for the country’s eastern Tema port only to withdraw due to delays over contracts. According to the government, the FSRU will be ready in 18 months which means first LNG imports potentially in March 2020, some 5 years after initial start dates when LNG projects were first proposed for Ghana. The terminal will be able to import 2 mtpa, leaving 0.3 mtpa of supplies either yet to be negotiated or free for spot deliveries.

Qatar Petroleum, the world’s top supplier of LNG, is talking to German energy firms Uniper and RWE about cooperating on a potential local LNG terminal. There were two ways of participating in an LNG terminal, either by securing capacity to open up supply, or by taking a stake in the terminal infrastructure. RWE, Germany’s largest power producer, said talks with Qatar Petroleum were about potential gas deliveries to Germany, not about a shareholding in a potential German LNG terminal. Germany, Europe’s largest energy consumer, shelved plans for an LNG terminal of its own a few years ago, with major operators participating in foreign projects – including Rotterdam’s Gate terminal – instead. However, talks about installing an LNG terminal have been revived in the wake of increasingly dynamic global flows of the fuel and discussions about its use in shipping to meet looming requirements for cleaner fuels. A consortium comprising Dutch gas network operator Gasunie, German tank storage provider Oiltanking and Dutch oil and chemical storage company Vopak, is currently trying to get such a project off the ground. A funding decision by the consortium, dubbed German LNG Terminal, expected by the end of 2019. Uniper said it has repeatedly pointed out that a German LNG terminal would be beneficial in light of declining gas resources in Europe, adding that Qatar Petroleum subsidiary, Qatargas, had been a strategic partner for years.

Venezuela will launch a new payment system for its heavily subsidized gasoline in border areas as part of a pilot program meant to reduce smuggling. The country’s gasoline prices, the lowest in the world, should rise to international levels.

US energy giant ConocoPhillips has asked Indonesia’s energy ministry to extend its operations in the Corridor natural gas block after its contract ends in December 2023. ConocoPhillips (Grissik) Ltd had submitted a letter regarding its Corridor plans but still needed to submit a formal proposal. Indonesia is pushing to nationalize more of its oil and gas assets as it tries to reduce imports and boost government revenue, but experts warn that this approach discourages investors and global energy companies with expertise crucial to maintaining its energy output. Corridor produced 828.4 mmcfd of natural gas on average from January to July this year and is expected to churn out 810 mmcfd in 2019, recent SKKMigas data showed.

EGAT is seeking to directly import LNG for the first time, as part of a government plan to boost competition in the power sector. Thailand joins other Asian countries such as China where LNG imports have risen exponentially over the past few years driven by strong economic growth and a push for cleaner air. EGAT is requesting expressions of interest for up to 1.5 mtpa of LNG via Thailand’s existing Map Ta Phut LNG Receiving Terminal in the eastern part of the country, according to a document issued by the company. EGAT, the country’s largest power producer, typically buys gas from state-owned PTT, which is Thailand’s sole gas supplier and its only LNG importer. EGAT is seeking expressions of interest for the delivery of LNG through an agreement with PTT’s LNG terminal for 4 to 8 years from March 2019, according to the document. The LNG will feed its power plants, including South Bangkok, Bang Pakong and Wang Noi, as part of Thailand’s target to increase competition in the downstream gas sector. PTT will be allowed to participate in EGAT’s tendering process. Expressions of interest are due by 31 August. EGAT also acquired access to 1.5 mtpa of regasification capacity from PTT LNG at the current terminal, over a 38-year period from 2019 to 2056, the document said. EGAT is also planning its own 5 mtpa FSRU in the Gulf of Thailand, expected to be ready by 2024, it said. The FSRU will be linked to Thailand’s existing gas pipeline network.

Premier Oil will press ahead with the development of the Tolmount gas field in Britain’s North Sea, which is expected to produce around 500 bcf of gas from late 2020. The approval of Tolmount is the latest in a series of moves by oil and gas companies showing their commitment to the North Sea, traditionally a high-cost environment which is experiencing a revival as costs have fallen. Premier expects to pay $120 million for the development, which includes a minimal facilities platform and a pipeline commissioned from Saipem leading to British energy group Centrica’s Easington terminal. Construction for the project, in which Dana Petroleum holds 50 percent, is to start this year. Centrica Storage Ltd, a subsidiary of the British energy company, said it had been awarded a 120 million pound ($153 million) contract to process gas from the field which will extend the lift of its Easington gas terminal in Yorkshire until at least 2030. Centrica said it will modify the terminal so it can receive and process the gas from the Tolmount field starting in the winter of 2020 when it is scheduled to come on stream. The field is expected to produce gas for 10 to 15 years. An ExxonMobil-operated gas project in Papua New Guinea has agreed a deal to supply LNG to a unit of British oil giant BP, Australia’s Oil Search Ltd said. The agreement will provide BP with about 450,000 tonnes of LNG annually over an initial three-year period, rising to about 900,000 tonnes for the following two years, Oil Search said. The company said that, on behalf of the project, ExxonMobil was in negotiations with several other parties over an additional 450,000 tonnes per year of supply. Oil Search resumed operations to produce oil at the Agogo Production Facility, which was knocked out by a major earthquake in Papua New Guinea in February.

The US energy regulator has approved a request by Cheniere Energy to feed the first gas into its new LNG facility in Corpus Christi, Texas, marking the beginning of a commissioning phase for the export terminal. The approval from the Federal Energy Regulatory Commission, issued, means Cheniere will be able to produce the first commissioning cargo by the fourth quarter of this year, if not earlier. Train 1 at the Corpus Christi facility will become the first LNG export terminal in Texas and the third functioning one in the US as the country ramps up the sale of the super-chilled gas to unprecedented levels in the coming years. Cheniere’s Chief Executive Officer, Jack Fusco, told analysts the facility would produce its first LNG in the fourth quarter, implying a commercial startup of the facility earlier than the slated first half of 2019. The LNG market looks out for facility startups not only because they ultimately add supply but because the commissioning cargos tend to be traded on the spot market, whereas initial commercial deliveries go to prearranged long-term buyers.

Japan’s Mitsubishi Corp said it has agreed to acquire 25 percent of Bangladesh’s Summit LNG terminal and plans to help develop an offshore receiving site in the South Asian country. The other 75 percent of the Summit LNG terminal will remain with Summit Corp. Summit LNG’s project plans call for a FSRU to be installed off the coast of Moheshkali, where it will receive and regasify LNG procured by Petrobangla, the country’s national oil and gas company. Construction of the terminal has already begun, with commercial operation expected to start in March 2019. The planned LNG import volumes are about 3.5 mtpa, Mitsubishi said. Summit and Mitsubishi have agreed to jointly pursue other LNG projects in Bangladesh, said the Japanese company, from the supply of the super-chilled fuel to power generation.

Panama will sign an agreement with the US Treasury and Energy departments aimed at paving the way for more private investment to expand the importation and distribution of US LNG in Latin America. The agreement is part of a Treasury-led initiative called America Crece, incorporating the Spanish word for growth, aimed at boosting US LNG exports, developing Latin American energy resources and downstream demand. The $1.15 billion AES facility on Panama’s Caribbean coast, which is expected to begin commercial generating operations on 1 September, and LNG tank distribution operations in 2019, took in its first US LNG cargo in June.

Norway’s Hoegh LNG has won a tender to supply a floating LNG import terminal for a consortium aiming to import liquefied natural gas to Australia’s east coast from 2020 in a push to boost local supply. Australian Industrial Energy, a consortium that includes Japan’s JERA and Marubeni Corp, said it signed an agreement giving it the right to lease one of Hoegh LNG’s FSRU, to be docked at Port Kembla. Wholesale gas prices have nearly tripled over the past two years following the opening of three LNG export plants on Australia’s east coast that have sucked gas out of the domestic market. To help fill the supply gap, Australian Industrial Energy and AGL Energy have advanced plans to import LNG. ExxonMobil Corp, the dominant gas supplier to the southeastern market over the past several decades from gas fields in the Bass Strait, and a private firm are also considering importing LNG from around 2021 or 2022.

PNGRB: Petroleum and Natural Gas Regulatory Board, ONGC: Oil and Natural Gas Corp, RIL: Reliance Industries Ltd, mt: million tonnes, km: kilometre, LNG: liquefied natural gas, mmscmd: million metric standard cubic meter per day, LPG: liquefied petroleum gas, HPD: high speed diesel, MoU: Memorandum of Understanding, CNG: compressed natural gas, mmBtu: million metric British thermal units, mtpa: million tonnes per annum, TAPI: Turkmenistan–Afghanistan–Pakistan–India, BHEL: Bharat Heavy Electricals Ltd, HPCL: Hindustan Petroleum Corp Ltd, bcm: billion cubic meters, CNPC: China National Petroleum Corp, US: United States, EU: European Union, mmcfd: million metric standard cubic feet per day FSRU: Floating Storage and Regasification Unit, EGAT: Electricity Generating Authority of Thailand, bcf: billion cubic feet

Courtesy: Energy News Monitor | Volume XV; Issue 15

RISING OIL PRICES AND FALLING RUPEE CHALLENGE ECONOMY

Monthly Oil News Commentary: August – September 2018

India

Credit rating agency Moody’s Investors Service said there are risks of India breaching the 3.3 percent fiscal deficit target for the current financial year as higher oil prices will add to short-term fiscal pressures. Higher oil prices add to short-term fiscal pressures, following cuts in the goods and services tax on some items and relatively high increases in minimum support prices for some crops. Also driven by higher oil prices and robust non-oil import demand, Moody’s expects the current account deficit to widen to 2.5 percent of GDP in the fiscal year ending March 2019, from 1.5 percent in fiscal 2018. According to Moody’s higher oil prices and interest rates will put pressure on the government’s budget and the current account. However, growth prospects remain in line with the economy’s potential, around 7.5 percent this year and next. Moody’s said oil prices at current levels will raise expenditures and add to existing pressures on the fiscal position stemming from the lowering of GST rates on a range of consumer goods and a tax cut for small businesses as well as the relatively high minimum support prices set for this year. Although the deregulation of both diesel and gasoline prices has reduced the fiscal impact of rising oil prices, LPG and kerosene remain regulated and subject to subsidies, which were budgeted at 0.5 percent of government expenditures for the year ending March 2019. While the government may cut back on capital expenditures to limit fiscal slippage, as has happened in previous years, such cuts may not fully offset the revenue losses and higher spending on energy subsidies and price support for crops.

India’s crude oil import bill is likely to jump by about $26 billion in 2018-19 as rupee dropping to a record low has made buying of oil from overseas costlier. Besides, the rupee hitting a record low of 70.32 to a US dollar in the opening deal will also lead to a hike in the retail selling price of petrol, diesel and cooking gas or LPG. India, which imports over 80 percent of its oil needs, spent $87.7 billion (₹ 5.65 trillion) on importing 220.43 mt of crude oil in 2017-18. For 2018-19, the imports are pegged at almost 227 mt. The rupee has been among the worst performing currencies in Asia, witnessing 8.6 percent slump this year. Fanned by a higher oil import bill, India’s trade deficit, or the gap between exports and imports, in July widened to $18 billion, the most in more than five years. Trade shortfall puts pressure on the CAD, a key vulnerability for the economy. Rupee depreciation will result in higher earnings for exporters as well as domestic oil producers like ONGC who bill refiners in US dollar terms. But this would result in rise in petrol and diesel prices, with full impact likely to be visible later this month.  Rates are highest in two months. Fuel prices in Delhi are the cheapest in all metros and most state capitals due to lower sales tax or VAT. If oil prices continue at these levels and rupee at 70 a dollar, retail rates should go up by 50-60 paisa a litre. State-owned oil firms had in mid-June last year dumped 15-year practice of revising rates on 1st and 16th of every month in favour of daily price revisions.

When the one-nation-one-tax regime of GST was implemented in July last year, five petro-products — petrol, diesel, crude oil, natural gas, and ATF — were kept out of its purview for the time being. The Union finance ministry has not mooted any proposal to bring petrol and diesel or even natural gas under GST but took up the issue at the last GST Council meeting on 4 August based on media reports. If the two fuels are put under GST, the Centre will have to let go ₹ 200 billion input tax credit it currently pockets by keeping petrol, diesel, natural gas, jet fuel and crude oil out of the GST regime. The Centre currently levies a total of ₹ 19.48/litre of excise duty on petrol and ₹ 15.33/litre on diesel. On top of this, states levy VAT – the lowest being in Andaman and Nicobar Islands where a 6 percent sales tax is charged on both the fuel. Mumbai has the highest VAT of 39.12 percent on petrol, while Telangana levies highest VAT of 26 percent on diesel. Delhi charges a VAT of 27 percent on petrol and 17.24 percent on diesel. The total tax incidence on petrol comes to 45-50 percent and on diesel, it is 35-40 percent. Under GST, the total incidence of taxation on a particular good or a service has been kept at the same level as the sum total of central and state levies existing pre-1 July 2017. This was done by fitting them into one of the four GST tax slabs of 5, 12, 18 and 28 percent. For petrol and diesel, the total incidence of present taxation is already beyond the peak rate and if the tax rate was to be kept at just 28 percent it will result in a big loss of revenue to both centre and states.

As petrol and diesel prices hit new highs, former Union Finance Minister said the Centre and states must act together to bring petrol and diesel under GST immediately. Prices of petrol and diesel, already at unprecedented levels in the country, rose even as analysts said the dual impact of rising oil prices and the depreciating rupee increases regulatory risks for state-run oil and gas firms.

India is allowing state refiners to import Iranian oil with Tehran arranging tankers and insurance after firms including the country’s top shipper SCI halted voyages to Iran due to US sanctions. New Delhi’s attempt to keep Iranian oil flowing mirrors a step by China, where buyers are shifting nearly all their Iranian oil imports to vessels owned by National Iranian Tanker Company. The moves by the two top buyers of Iranian crude indicate that the Islamic Republic may not be fully cut off from global oil markets from November, when US sanctions against Tehran’s petroleum sector are due to start. SCI had a contract until August to import Iranian oil for MRPL. Eurotankers, which had a deal with MRPL to import two Iranian oil cargoes every month, has also said it cannot undertake Iranian voyages from September.

HPCL does not have any more oil purchases from Iran at least till November as the trigger date for the US led sanctions inches closer. The US has imposed the sanctions from November 4, threatening companies to fully wind down activities with Iran or risk exclusion from the American financial system. This has led to insurers refusing to extend their services to crude oil tankers directed from Iran. HPCL had to cancel a consignment last month.

IOC has bought 6 million barrels of US crude for delivery in November to January, as the nation’s top refiner scouts for alternatives to Iranian oil ahead of impending US sanctions. IOC will buy 2 million barrels of Mars oil in November, a combination cargo containing 1 million barrels each of Eagle Ford and Mars in December and 2 million barrels of Louisiana Light Sweet in January. India has asked refiners to prepare for a drastic cut or even zero imports from Iran after the US withdrew from the 2015 nuclear deal and announced a renewal of sanctions on Tehran. While some sanctions started from 6 August, others, most notably in the petroleum sector, will be applied from 4 November. Lower purchases by Chinese buyers is also aiding the flow of US oil to India.

Iran is keen to invest in the ₹ 300 billion expansion of Chennai refinery but the fate of banking channels to route such investment is uncertain in view of US sanctions against the Persian Gulf nation, IOC said. IOC plans to pull down the 1 mtpa Nagapattinam refinery of its subsidiary, CPCL and build a brand new 9 mtpa unit in next 5-6 years. NIOC, which holds 15.4 percent stake in CPCL, is keen to participate in the expansion project, Singh said. Singh said the expansion was to originally cost ₹ 274.6 billion but is now estimated to cost anything between ₹ 250 billion and ₹ 300 billion. The government later disinvested 16.92 percent of the paid-up capital. The company was listed in 1994. IOC acquired the government stake in 2000-01 and holds 51.89 percent stake in CPCL while NIOC has 15.40 percent. IOC said it has “adequate alternate supplies” ready to meet any shortfall that may arise from Iran.

Concerned over the continuous fall in crude oil production by ONGC the government has asked the state-run explorer for detailed, time-bound work plans regarding as many as 86 PML areas awarded to it, where production is yet to commence. While ONGC is learnt to have agreed to submit the work plans, the missive from the Directorate General of Hydrocarbons indicates the government may have plans to ask the explorer to relinquish the PMLs if the regulator is not satisfied with the progress made by the company. After appraising the discoveries, PMLs were given for development of the area and production of oil and gas. ONGC has 337 such PMLs, the largest in the industry, while Oil India Ltd also a PSU has 22 and 66 PMLs are with private players or their joint ventures with state-run explorers. Though one PML would typically cover one development area only, more areas could be added later. Usually, the government monitors production at the asset level and does not get into micro surveillance such as the one DGH is now doing. The DGH move comes at a time when the government has called for a time-bound reduction in India’s onerous import dependence for oil and gas 10% by 2022 and 50% by 2030, with a commensurate increase in domestic production. According to data from the Petroleum Planning and Analysis Cell, however, against domestic consumption, India’s oil imports were 78.3% in FY15 and the figure has since grown to 80.6% in FY16, 81.7% in FY17 and further to 82.8% in FY18.

The Indian government has asked its biggest state-owned firm, ONGC to list its overseas unit OVL according to the letter from the Department of Investment and Public Asset Management to ONGC. The move to float the unit – which has investments in 11 producing assets in countries including Russia, Brazil and Iran – is part of a government push to sell state-assets to raise funds. A listing would also help unlock value in the unit by improving its corporate governance and efficiency, the letter said. The letter said any state-owned firm with a positive net worth and no accumulated loss should be listed to unlock value. The government has a target to raise a record ₹ 1 trillion ($14.25 billion) from the sale of state assets in the current fiscal year ending in March 2019.

Geleki Toilyakhetra Suraksha Vikas Mancha, an umbrella organisation of 19 different social and youth organisations, has protested the ONGC’s stance over the move of the Ministry of Petroleum and Hydrocarbons to hand over the Geleki oil field to Schlumberger Overseas SA for enhancing production from the mature field terming it as a ploy to privatise the PSU in phases. The Mancha has been spearheading a movement to stall alleged government plans to privatise aging oil fields in Assam against the interests of the local communities and the state. It said that ONGC authority did not have a formal meeting with the Mancha prior to giving out the press release and it is very surprising that Geleki, one of the most high yielding oil fields in the country now is being sought to be given to a private company which allegedly does not have a good track record with the Assam Asset itself. The ONGC authority also clarified that ONGC signed the Summary of Understanding with Schlumberger Overseas SA to enhance production, strengthen surface and sub-surface activities by inducing state of the art technology provided by Schlumberger, a global leader in the sector.

India launched its second auction of small discovered oil and gas blocks, as the south Asian nation  looks to quickly monetise its hydrocarbon resources. The bidding for 59 fields will begin in the first week of September and will close on 18 December. The contracts will be awarded in January.   The blocks offered under the latest round has reserves of about 1.4 billion barrels.

The government has notified a new policy requiring ONGC and OIL to pay royalty and cess tax only to the extent of their equity holding in certain pre-1999 oil and gas fields. The ‘Policy Framework for Streamlining the Working of Production Sharing Contracts in respect of Pre-NELP and NELP Blocks’ was notified in the Gazette of India. Till now ONGC and OIL had to pay 100 percent royalty and cess tax on 11 pre- NELP fields that were given to private firms prior to 1999. The government had awarded some discovered oil and gas fields to private firms in the 1990s with a view to attracting investments in the country. To incentivise such investments, the liability of payment of statutory levies like royalty and cess was put on state-owned firms, who were made licensees of the blocks. ONGC and OIL were allowed right to back in or take an interest of 30-40 percent in the fields, but were liable to pay 100 percent of the statutory levies. The new rule, which approved by the Cabinet, will apply to 11 fields like Dholka field in Gujarat that is operated by Joshi Oil and Gas. It will also apply to HOEC-operated PY-1 field in Cauvery basin. Section 42 of Income Tax allows the companies to claim 100 percent of expenditure incurred under a PSC as tax deductible for computing taxable income in the same year. While signing PSC of pre-NELP discovered fields, 13 contracts out of 28 contracts did not have provision for tax benefit under Section 42 of Income-tax Act. Now, this will bring uniformity and consistency in PSCs and provide an incentive to the contractor to make an additional investment during the extended period of PSC. The approvals given are expected to help in ensuring the expeditious development of hydrocarbon resources.

Monetisation of heavy oil discovered from the oldest sedimentary rock of Rajasthan now seems a reality with trials for producing heavy oil from 570 million year old rock beds being started by OIL. OIL has claimed a major breakthrough for extraction of heavy crude oil from Jaisalmer fields after almost 26 years of its discovery. Highly viscous heavy oil was discovered by OIL in infra-Cambrian rock (570 million years old) in the Baghewala area of the district in 1991. However, in case of Baghewala heavy oil scientists opine that it originates from algae/fungi types of plant as only these plants were available during that time of earth’s evolution. In the last 25 years, several attempts have been made to get sustainable production. However, due to high viscous nature of the crude, these efforts have failed. Recent experiment by steam injection using mobile steam generator has given encouraging result. Based on the recent production from steam injection, the sale of heavy crude oil has become a reality through ONGC pipeline at Mehsana to IOC’s refinery at Koyali (Gujarat).

Vedanta Ltd has bagged 41 out of 55 oil and gas exploration blocks offered in India’s maiden open acreage auction, upstream regulator DGH said. OIL won nine blocks, while ONGC managed to win just two. GAIL (India) Ltd, upstream arm of BPCL and HOEC received one block each, DGH said, giving out the list of winners of Open Acreage Licensing Policy round-1. Vedanta, which had put in bids for all the 55 blocks, won the right to explore and produce oil and gas in 41 of them.  The government has set a target of cutting oil import bill by 10 percent to 67 percent by 2022 and to half by 2030. Import dependence has increased since 2015 when the government had set the target. India currently imports 81 percent of its oil needs.

Public sector undertaking IOC will invest over ₹ 2.86 billion to enhance its LPG gas bottling capacity, including setting up of two greenfield plants, in North East by 2020. The company is establishing two new facilities at Agartala in Tripura and Barapani in Meghalaya at a total investment of ₹ 2.17 billion. Apart from the above two units, the company is adding capacities to its existing bottling facilities at Silchar, Bongaigaon and North Guwahati.

BPCL will be expanding the storage capacity of its Cherlapalli LPG bottling plant. The company, which caters to 22 lakh individual LPG customers in Telangana, added 200,000 connections last fiscal. This year, thanks to Ujjwala Scheme, it has been able to provide over 150,000 connections in the state. BPCL state head (LPG) said currently only 2% of its customers use the app and that the company would like more people to make use of it for a hassle free experience while making payments, applying for a new connection, among others.

Over 70,000 LPG connections have been provided under Ujjwala Yojna in Himachal Pradesh. 73,074 LPG connections have already been provided to eligible families in the hill-state. More households will get the connections by the end of next year. The Pradhan Mantri Ujjwala Yojana under which women belonging to BPL families will be provided with clean cooking fuel was launched by the government on 1 May 2016 in Ballia, Uttar Pradesh. The scheme aims to provide LPG connections to five billion BPL households by 2019 across the country and offers assistance of ₹ 1600 for one connection. Petrol and diesel will not come under the purview of GST in the immediate future as neither the central government nor any of the states are in favour on fears of heavy revenue loss.

Rest of the World

Global oil markets could tighten toward the end of this year due to strong demand and uncertainty of production in some oil producing nations, the International Energy Agency head Fatih Birol said. Birol said that Venezuela’s oil production was expected to slide further after falling by half in recent years.

The world crude oil market is currently balanced, Algerian Energy Minister said. A Joint Ministerial Monitoring Committee meeting is due to take place in Algiers on 23 September. The committee includes OPEC members Algeria, Saudi Arabia, Kuwait, Venezuela and non-OPEC producers Russia and Oman.

Saudi state oil giant Saudi Aramco remains committed to meeting future oil demand through continued investments. Despite an improved market picture, the oil industry’s preparedness for the future remained in question as the sector had lost an estimate $1 trillion in planned investments since the start of the market downturn. The company discovered two new oil fields, Sakab and Zumul, and a gas reservoir in the Sahba field, Aramco said in the report.

Top oil exporter Saudi Arabia is expected to keep prices for the light crude grades it sells to Asia largely unchanged in October from the previous month to keep its oil competitive against other suppliers. Saudi Arabia has cut the prices for Arab Light and Arab Extra Light to Asia over the past two months as it fends off competition from other Middle East oil suppliers, Europe and the United States. Since June, the OPEC and non-OPEC producer Russia have increased production to make up for falling output from Venezuela, Libya and ahead of US sanctions on Iran. The rise in exports from the Middle East and Russia, plus arbitrage flows from Europe and the US, has kept Asia well-supplied, especially in light grades. State oil giant Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.

Russia’s oil industry is awash with cash and will be able to withstand the planned 1 trillion rubles ($15 billion) in extra taxes over the next six years. The new oil tax changes will see an increase in the mineral extraction tax and a gradual reduction in oil and oil products export duty. The changes will be introduced step by step over the next six years starting from 1 January 2019. The oil tax reform was unlikely to affect domestic oil production, which is close to a 30-year high of more than 11.2 million barrels per day. The negative excise tax would amount to around 600 rubles per tonne of oil on average under a scenario where the oil price was $60 per barrel and the rouble at 58 per $1. The government in May decided to curb excise tax on fuel to rein in fast rising retail gasoline prices, which led to protests among drivers across the country. Excise tax on fuel would rise in 2019, as initially planned.

Qatar has set the August retroactive OSP for its Marine crude at $72.90 per barrel, down from $73.55 a barrel for the previous month, a document issued by the company showed. That set the August OSP differential for Qatar Marine at 41 cents a barrel above Dubai quotes, 2 cents lower than a month ago.

Brazil has relaxed local content requirements for companies developing the Libra offshore oilfield, the government said, in a move it expects will unlock $16 billion in investment for Latin America’s top oil producer. The Libra field is located in Brazil’s Santos basin in the pre-salt oil play, where billions of barrels of oil under a thick layer of salt have lured oil majors to lock in stakes. The changes will be made through an addendum to the production sharing agreement in effect for the field, which is being developed by Brazil’s state-controlled oil giant Petroleo Brasileiro, Total, Royal Dutch Shell and China’s CNPC and CNOOC. Brazilian oil regulator ANP received hundreds of requests for waivers from companies arguing they could not meet the requirements based on Brazilian market conditions, prompting Brazil’s center-right President Michel Temer’s administration to relax rules.

Petrobras, Royal Dutch Shell, Total and Repsol have registered to bid on oil cargo the Brazilian government will be auctioning, Pre-sal Petroleo SA, the state company managing contracts to develop the coveted offshore pre-salt layer, said. The oil cargo is the government’s share of production in the Mero, Lula and Sapinhoa fields in the Campos and Santos offshore basins. A previous attempt by the government to sell its share of the oil failed. The auction will take place on 31 August.

Investing $8 billion in Brazil’s waning offshore Campos Basin could boost its oil production by 230,000 boepd by 2025, consultancy Wood Mackenzie said in a report. Oil majors have already plowed billions into Brazil, now Latin America’s top producer, to lock in stakes in its pre-salt offshore oil play, where billions of barrels of oil are trapped beneath a thick layer of salt under the ocean floor. Meanwhile, oil and gas production in the Campos Basin, where activity began about forty years ago, has fallen by a third over the last seven years to 1.3 million boepd, raising the specter of hefty outlays to close down operations. Under a more optimistic scenario, where Brazil boosts its recovery factor in the basin to levels seen in the Gulf of Mexico and the North Sea, 5 billion barrels of additional oil could be recovered, it estimates.

Norway’s Equinor will invest up to $15 billion in Brazil over the next 12 years to develop oil, gas and renewable energy sources, the company said. Coinciding with an expected drop in output from many aging oilfields off the cost of Norway, Brazil is expected to become a core region for Equinor as the firm takes advantage of the country’s opening in recent years to more foreign investment. The company plans to raise its Brazilian output to between 300,000 and 500,000 boepd by 2030, from 90,000 boepd by developing new fields, including the giant Carcara discovery.

Brazil’s oil industry regulator ANP said it has approved six energy companies to bid for four pre-salt blocks in the Campos and Santos Basins to be auctioned on 28 September. The companies approved to bid are Shell, Total, BP, Germany’s DEA, QPI from Qatar and Chinese-owned CNODC Brasil Petróleo e Gás Ltda. The fifth pre-salt round is the last chance for oil companies to lock in stakes in Brazil’s coveted offshore oil deposits before the country’s October presidential elections, the uncertain outcome of which could change the rules for future auctions.

Turkey will sign an economic and trade partnership agreement with Qatar, in order to secure cheaper supply of refined oil products and natural gas, Turkish trade ministry said. The deal, which the ministry said will target a comprehensive liberalization of goods and services trading between the two countries, will also include telecommunications sector and financial services.

China’s decision to remove crude oil from its latest tariff list in an escalating trade war with the US was a relief to state oil firms prompted by a strong lobbying effort by main importer the Sinopec Group. Dropping crude oil from the final tariff list on $16 billion in US goods announced late underscores the growing importance of the US as a key global producer and critical alternative supply source for top importer China, which is seeking to diversify its oil purchases. Removing crude imports, worth roughly $8 billion annually based on Sinopec’s earlier forecast of 300,000 bpd for 2018, also gives Beijing room to manoeuvre in future negotiations with Washington, especially as it may soon lose some Iranian oil shipments due to reimposed US sanctions. The revision came after Sinopec – Asia’s largest refiner and biggest buyer of US oil – suspended new bookings until at least October over worries that a 25 percent tariff would prohibit it from finding buyers in China.

Chinese oil importers are shying away from buying US crude as they fear Beijing’s decision to exclude the commodity from its tariff list in a trade dispute between the world’s biggest economies may only be temporary. Not a single tanker has loaded crude oil from the US bound for China since the start of August, ship tracking data showed, compared with about 300,000 bpd in June and July. To replace US oil, China has been turning to the Middle East, West Africa and Latin America, according to shipping data and traders. Although China’s biggest oil suppliers are the Middle East, Russia and West Africa, the US has become an important global supplier since it opened up its market for exports in 2016. Beyond the short-term complications of finding replacements for American oil, the Sino-US trade dispute also poses risks to economic growth.

Chinese oil importers are shying away from buying US crude as they fear Beijing’s decision to exclude the commodity from its tariff list in a trade dispute between the world’s biggest economies may only be temporary. Not a single tanker has loaded crude oil from the US bound for China since the start of August, ship tracking data showed, compared with about 300,000 bpd in June and July. To replace US oil, China has been turning to the Middle East, West Africa and Latin America, according to shipping data and traders. Although China’s biggest oil suppliers are the Middle East, Russia and West Africa, the US has become an important global supplier since it opened up its market for exports in 2016. Beyond the short-term complications of finding replacements for American oil, the Sino-US trade dispute also poses risks to economic growth.

Chinese oil importers are shying away from buying US crude as they fear Beijing’s decision to exclude the commodity from its tariff list in a trade dispute between the world’s biggest economies may only be temporary. Not a single tanker has loaded crude oil from the US bound for China since the start of August, ship tracking data showed, compared with about 300,000 bpd in June and July. To replace US oil, China has been turning to the Middle East, West Africa and Latin America, according to shipping data and traders. Although China’s biggest oil suppliers are the Middle East, Russia and West Africa, the US has become an important global supplier since it opened up its market for exports in 2016. Beyond the short-term complications of finding replacements for American oil, the Sino-US trade dispute also poses risks to economic growth.

The US DOE is offering 11 million barrels of oil for sale from the nation’s SPR ahead of sanctions on Iran that are expected to reduce global supplies of crude. The delivery period for the proposed sale of sour crudes will be from 1 October through 30 November, according to notice. The US government has introduced financial sanctions against Iran which, beginning in November, also target the petroleum sector of OPEC’s third-largest producer. US President Donald Trump complained this year that oil prices are “artificially very high” and a potential release from the SPR, ahead of the US midterm elections in November, was widely seen as a way to bring relief to motorists who have seen gasoline prices jump in the past year. However, American drivers are unlikely to see prices at the pump fall by crude releases from the SPR because US oil production already is sky high, analysts have said. Still, prices could temporarily dip thanks to seasonal factors. Earlier this year, the DOE sold about 5.2 million barrels of oil from the SPR to five companies including top refiners Valero Energy Corp and Phillips 66. SPR crude oil samples are not available prior to deliveries, the DOE said.

Six companies, including ExxonMobil Corp, bought a total of 11 million barrels of oil from the US Strategic Petroleum Reserve, a Department of Energy document showed, in a sale timed to take place ahead of US sanctions on Iran that are expected to remove oil from the global market. Sale of the oil from the reserve was mandated by previous laws to fund the federal government and to fund a drug program, but the Trump administration took the earliest available time to sell the crude under the law. In May, Trump pulled the US out of the Iran nuclear agreement between five other world powers and Tehran. The administration is urging countries to cut purchases of Iranian oil from the Islamic Republic to zero or face possible sanctions after November. The US in certain cases will consider waivers for countries that need more time to wind down imports of oil from Iran while reimposing sanctions against Tehran, US Treasury Secretary Steven Mnuchin has said. Exxon bought about 3.3 million barrels of oil from the reserve, held in a series of underground caverns in Texas and Louisiana. The other companies purchasing the oil were Marathon Petroleum Corp, which bought nearly 1.4 million barrels, Motiva Enterprises LLC, with 2.4 million barrels, Phillips 66, with more than 2 million barrels, Royal Dutch Shell PLC, with nearly 1.6 million barrels, and Valero Energy Corp bought 330,000 barrels. The oil, for shipping by both pipeline and vessels, sold in a range of $67.66 a barrel to $69.05 a barrel.

OPEC and non-OPEC oil producers will aim to formalize their long-term cooperation later this year by approving a charter that will make possible further joint action on output, according to a draft charter. Russia and several other non-OPEC countries have joined OPEC producers in reducing oil output since 2017 in a move that has helped raise oil prices to $80 per barrel from less than $30. Moscow and Riyadh have said they want to maintain a close level of cooperation even after the oil market stabilizes and the current output reduction deal expires. The draft charter, to be discussed by OPEC and non-OPEC Minister later this year, said its fundamental objective is to coordinate policies aimed at stabilizing oil markets in the interest of producers, consumers, investors and the global economy. The charter also aims to promote better understanding of oil market fundamentals among participants as well as to promote oil and gas in the global energy mix for the long term.

Mexico’s incoming government is considering indefinitely suspending auctions for oil and gas projects, and giving state-owned Pemex authority to pick its own joint-venture partners rather than holding competitive tenders, according to policy guidelines. The document, drafted by energy advisers to leftist President-elect Andres Manuel Lopez Obrador, also recommends forging closer ties with leading oil producer cartel OPEC while withdrawing from the IEA, which represents the interest of oil-consuming countries. It was not clear to what extent the guidelines would translate into formal policy after Lopez Obrador takes office in December. They would be a sharp break with outgoing President Enrique Pena Nieto’s 2013 constitutional overhaul, which opened up production and exploration to private oil companies. Since ending Pemex’s decades-long monopoly, Pena Nieto’s government has forecast hundreds billions of dollars in investment from over 100 new contracts awarded to mostly foreign and private oil companies. The new guidelines would return greater responsibility for the sector to the government.

Iran’s crude oil and condensate exports in August are set to drop below 70 million barrels for the first time since April 2017, well ahead of the 4 November start date for a second round of US economic sanctions. The US has asked buyers of Iranian oil to cut imports to zero starting in November to force Tehran to negotiate a new nuclear agreement and to curb its influence in the Middle East. The total volume of crude and condensate, an ultra-light oil produced from natural gas fields, to load in Iran this month is estimated at 64 million barrels, or 2.06 million bpd, versus a peak of 92.8 million barrels, or 3.09 million bpd, in April, preliminary trade flows data showed. The NIOC has slashed its crude prices to keep buyer interest amid the August export drop. It has set the OSP for Iranian Heavy crude for September loading at the biggest discount since 2004, according to trade data. Iran is currently the third-largest producer among the members of the OPEC and benchmark oil futures traded in London have surged to their highest since June in anticipation of the loss of Iranian supply.

Oil exports from southern Iraq are on course to hit another record high this month, adding to signs that OPEC’s second-largest producer is following through on the group’s agreement to raise output. Southern Iraqi exports in the first 19 days of August averaged 3.7 bpd, according to ship-tracking data, up 160,000 bpd from July’s 3.54 million bpd – the existing monthly record. The increase follows June’s pact among OPEC and allied oil producers to boost supply after they had curbed output since 2017 to remove a glut. Iraq in July provided the largest increase among OPEC members that took part in the previous cuts. Northern exports have also increased in August, averaging about 350,000 bpd so far, according to shipping data, up from about 300,000 bpd in July. That is still far below levels of more than 500,000 bpd in some months of 2017. Iraq told the OPEC that it boosted production by 100,000 bpd month-on-month in July, while Saudi Arabia cut back.

Iraq’s state oil marketer SOMO is close to a deal with China’s state-run Zhenhua Oil to boost the OPEC member’s crude oil sales to the world’s top oil importer. Iraq is the second-largest producer in the OPEC. The move will bolster Iraq’s position in Asia, the world’s biggest and fastest-growing oil-consuming region, which already takes 60 percent its oil exports at some 3.8 million bpd. It is not clear where the JV would be located, but the port city of Tianjin, near Beijing, was under discussion. Singapore is also among the options. China is under the pressure to cut oil purchases from Iran, OPEC’s third-largest producer, as the United States re-imposes sanctions on Tehran and threatens to choke off the Islamic republic’s oil exports to zero. Amid the trade dispute between Washington and Beijing it is also unclear whether Chinese importers will be able to continue to import US crude. The SOMO-Zhenhua deal would give China another crude supply option as the Iran and U.S. oil flows are threatened. Last year, Zhenhua won a term contract to supply diesel fuel to SOMO for the first time, and it also recently entered a deal to develop Iraq’s East Baghdad oilfield. Zhenhua, the smallest of China’s state-run oil and gas majors, has over the past three years expanded its foothold in oil sales to independent Chinese refiners, which were only allowed to start importing crude from 2015 and now make up some 20 percent of China’s total crude imports. Zhenhua’s crude sales to such independents, sometimes known as “teapots”, hit a record 6.5 mt last year, or 131,000 bpd, equivalent to about 7 percent of overall teapot purchases, according to industry estimates.

South Sudan has resumed pumping 20,000 bpd of crude from Toma South oil field, where production had been suspended since 2013. South Sudan’s oil output currently stands at 130,000 bpd and is expected to reach 210,000 bpd by year-end. South Sudan’s oil is shipped to international markets via a pipeline through Sudan. OPEC and other oil exporting producers are expected to agree on a mechanism to monitor their crude production before the end of the year. A committee set up by the OPEC and allied non-OPEC exporters would review their crude output at a meeting in Algeria next month, he said. The committee that will meet in Algeria on 23 September, known as the JMCC, is chaired by Saudi Arabia and includes OPEC members Algeria, Kuwait, United Arab Emirates and Venezuela, as well as non-OPEC members Oman and Russia. Iran asked to attend the meeting to defend its market share which could be impacted by US sanctions due to take effect on its oil industry in November.

Venezuela’s heavily subsidized domestic gasoline prices should rise to international levels to avoid billions of dollars in annual losses due to fuel smuggling, President Nicolas Maduro said. Venezuela, like most oil producing countries, has for decades subsidized fuel as a benefit to consumers. But its fuel prices have remained nearly flat for years despite hyperinflation that the International Monetary Fund has projected would reach 1,000,000 percent this year.

GDP: Gross Domestic Product, GST: Goods and Services Tax, LPG: liquefied petroleum gas, mt: million tonnes, CAD: Current Account Deficit, ONGC: Oil and Natural Gas Corp, VAT: Value Added Tax, ATF: aviation turbine fuel, SCI: Shipping Corp of India, US: United States, MRPL: Mangalore Refinery and Petrochemicals Ltd, HPCL: Hindustan Petroleum Corp Ltd, IOC: Indian Oil Corp, mtpa: million tonnes per annum, CPCL: Chennai Petroleum Corp Ltd, NIOC: National Iranian Oil Company, PML: petroleum mining lease, PSU: Public Sector Undertaking, DGH: Directorate General of Hydrocarbons, FY: Financial Year, OVL: ONGC Videsh Ltd, OIL: Oil India Ltd, NELP: New Exploration Licensing Policy, HOEC: Hindustan Oil Exploration Company, PSC: Production Sharing Contract, BPCL: Bharat Petroleum Corp Ltd, BPL: below poverty line, IEA: International Energy Agency, OPEC: Organization of the Petroleum Exporting Countries, OSP: official selling price, CNPC: China National Petroleum Corp, CNOOC: China National Offshore Oil Corp, boepd: barrels of oil equivalent per day, bpd: barrels per day, DOE: Department of Energy, SPR: Strategic Petroleum Reserve

Courtesy: Energy News Monitor | Volume XV; Issue 14