COAL POLICY: FOCUS SHIFTING FROM QUANTITY TO QUALITY

Monthly Coal News Commentary: April – May 2017

India

According to NITI Aayog, coal will remain India’s main energy source for the next three decades although its share will gradually fall as the country pushes renewable power generation. India aims to double its output to 1.5 BT by 2020. Based on a quantitative model NITI Aayog said that by 2047, coal’s share of India’s energy mix would shrink to 42-48 percent, from about 58 percent in 2015.  India aims to cut thermal coal imports to zero by the end of this fiscal year and use its abundant domestic stockpiles to address its electricity needs. However, India will have to start importing again after its coal production peaks in 2037, according to NITI Aayog. Imports could rise to as much as 62 percent by 2047 from over 25 percent now if the country does not make its coal mining more efficient. This is not what western activists campaigning against fossil fuels in general and coal in particular would like to hear. A number of ‘not for profit’ organisations have been trying to ‘name and shame’ countries and companies that invest, produce and use coal. Few years ago the UK based not for profit organisation called ‘carbon tracker’ issued reports that India is among countries that has most of what it called ‘un-burnable carbon’.  Most recently another UK based ‘not for profit’ organisation called ‘Influence Map’ has issued a report naming the Government of India and the state owned LIC as the top two investors in coal resources.  While India has no reason to be ashamed of its natural endowment of coal or the use of it to improve the quality of life of its people as it is within its means, it is not clear if those who set up activist organisations against fossil fuels ever look within to see how much fossil fuel based energy they consume to sustain their jet-set lifestyles and to run activities against fossil fuels (using infrastructure underwritten by fossil fuels). By most account this energy alone could light up the first electric bulbs of millions in rural India!

Moving on to coal imports, state-owned power plants imported around 12 MT of coal during FY17, less than a quarter of the volume imported in the previous fiscal and far less than the anticipated 25 MT expected during the year. This year, it is expected to turn zero as these companies have decided to stop imports. According to figures compiled by the CEA, the state sector power companies imported around 7 MT during FY17 while the central sector generators imported around 5 MT. Nevertheless, the private sector power generators imported substantial volume of coal, around 54 MT during the year, of which around 9 MT by independent power producers were for blending with domestic coal, while the rest at 45 MT were by power plants built to consume imported coal. Bulk of the coal by private power companies was imported by Adani for its Mundra facilities. It imported close to 36 MT last year. Government has said it is aiming to bring down to “zero” thermal coal imports of power PSUs like NTPC in the current fiscal, a move that would reduce the country’s import bill by around  ₹ 170 billion. CIL has been looking at the South Asian region to clear surplus stock and for future contracts. CIL has conveyed to the coal ministry that it is exploring the possibilities of exporting coal to neighbouring nations, but nothing concrete has taken shape. The government had said CIL is examining opportunities to export coal with high ash content or high-grade fossil fuel to the neighbouring nations. CIL is reportedly planning to conclude an agreement with the government of Bangladesh this year to start export of coal to that country. Demand for thermal coal recently began picking up, but CIL still has a 69 MT stock as carryover from the previous year’s production. Bangladesh is an immediate consideration, as thermal power giant NTPC, the largest client of CIL, has entered the country by setting up an BIFPC. This is a 50:50 JV between NTPC and the BPDB, to construct two 660 MW coal-based units at Khulna, for an estimated cost of $2 billion. To finance this JV, India’s Exim Bank will provide a $1.6 bn loan. BHEL another Indian government-owned company, was awarded the contract to construct these power plants. With these developments, CIL seems optimistic that BIFPC will prefer Indian coal over others. Last year, CIL had sent a team to Bangladesh to check the feasibility of export. According to BPDB, the installed power capacity of Bangladesh is 12,339 MW, of which coal-based plants comprise only 250 MW or about two percent. By that country’s Power System Master Plan, 2010, the demand in 2030 will be about 30,000 MW and installed capacity is targeted to reach 40,000 MW. Of this, coal-based generation capacity is expected to be 15,000 MW. Quality is an issue that CIL has ignored until now. In this context the news that all mines of CIL have been re-graded following complaints from consumers, including power sector players, about the slippages in fuel grade is welcome development.  The re-grading of CIL mines was done this year by engaging four independent scientific bodies. Currently, third party sampling assessment is continuing. The government’s next target is to supply superior quality of coal to power producers to improve electricity generation and reduce pollution. CIL, which accounts for over 80 percent of domestic coal production, is targeting 1 BT output by 2020. The government’s next target is to supply superior quality of coal to power producers to improve electricity generation and reduce pollution. Recently, fuel quality watchdog Coal Controller had downgraded 41 percent of samples from the mines of CIL. In most cases, downgrading has been of one to two grades.

Meghalaya government said that coal mining could be legally carried out by MMDC in the state where mining of coal was banned three years ago by the National Green Tribunal. Under provisions of the Mines and Minerals (Development & Regulation) Act 1957, MMDC was eligible to apply for coal mining lease under existing laws and with the consent of the people. Once the MMDC has taken the mining lease, the mines need not be routed through auction. India is in the process of throwing open commercial coal mining to private firms for the first time in four decades, with the aim of shifting the world’s third-biggest coal importer towards energy self-sufficiency. The government is working on various auction models with regard to sale of coal blocks for commercial mining by private companies. An inter-ministerial panel under the chairmanship of coal secretary and members from ministries like power and finance would consider the auction models for commercial mining. India is in the process of throwing open commercial coal mining to private firms for the first time in four decades, with the aim of shifting the world’s third-biggest coal importer towards energy self-sufficiency. The government had said that opening up of commercial coal mining to private companies will bring in competition in the coal sector and may also reduce power tariff. The government had said it wants to convey to potential investors that sustainable and efficient mining, not revenue maximisation, is the idea behind commercial coal auction. As per the Coal Mines Special Provision Act of 2015, the government can open up commercial coal mining for private players. State-run power generating companies will now have the flexibility to swap their coal supplies and divert them to more efficient power plants. CIL signed agreements for aggregation of contracted quantity of coal with state and central power generating companies for flexible movement of coal that would help reduce the cost of power generation. The move will allow all coal linkages given to plants of state and central utilities like NTPC to be combined. That is, if a utility has many plants all over the country and has different FSA for each plant, all these linkages will be considered as one FSA. The utilities will have the option of deciding the effective way of utilising the coal, so that efficient plants are run at higher capacity to reduce costs. The Union Cabinet approved the proposal for allowing flexibility in utilisation of domestic coal amongst state-owned power generating stations. The scheme is gradually proposed to be extended to enable coal swaps between government-run and private power plants. Improvement in coal quality and efficiency in supply chain have lowered power generation cost of NTPC stations. Data shows that coal cost for generating power has declined by ₹ 0.39/kWh to less than ₹ 2/kWh in FY17. According to the data, overall cost of power production for NTPC stood at ₹ 2.01/kWh in FY15 which has declined to ₹ 1.94/kWh in April-February of FY17.

Rest of the World

China’s coal output rose 9.9 percent in April from a year earlier to 294.5 MT the National Bureau of Statistics said. It is the second straight month that output has registered a year-on-year increase as mines have scrambled to reverse the government-enforced cuts last year to take advantage of soaring prices. For the first four months of the year, coal production rose 2.5 percent to 1.11 BT data showed. China will suspend approvals for new coal-fired power plants in 29 provinces to reduce overcapacity in the sector. The NEA has put as many as 25 provinces on “red alert”, meaning that new projects would create severe overcapacity or environmental risks, while another four regions were put on “orange alert”. The NEA said that utilization rates at coal-fired power plants were falling as a result of slowing growth in power consumption, and it established the warning system to identify regions that need to curb overcapacity. The China Electricity Council said that utilization rates had dipped further in some regions in the first quarter of 2017, especially in the northeast and northwest, putting margins at power plants under further pressure. The NEA’s new warning system also takes into account the resources and pollution levels of each region, with some coal-dependent provinces facing extreme water shortages or pressure to control smog, including the capital Beijing and the surrounding province of Hebei. Of China’s 32 provinces and regions, only Tibet was not subject to a capacity warning while two were given “green” status. China’s total coal-fired power generation capacity was likely to reach 1,300 GW by the end of 2020, much higher than the 1,100 GW target in China’s 2016-2020 five-year plan. Total coal-fired capacity stood at 940 GW at the end of 2016. Chinese authorities met with the country’s leading power companies to discuss measures to curb low-quality coal imports and fight overcapacity in the world’s top coal consumer. Leading power firms including Huaneng Group and Datang Group were also invited to the meeting. The two companies mainly import Indonesia coal, considered low quality by the Chinese government because of its high sulphur and ash content and low heat value. Restrictions on low-grade coal imports could hit Chinese purchases of Indonesian coal. China’s coal imports in the first four months of the year jumped 33.2 percent to 89.49 MT, General Administration of Customs data showed as utilities and steel mills continued to buy cheaper foreign fuel as Beijing ramped up efforts to phase out overcapacity. The data did not include an April number, but it would equate to about 24.8 MT based on calculations. That would be up from 22.09 MT in March and 18.80 MT in April last year. China’s utilities are readying for a months-long buying spree to shore up thermal coal reserves ahead of the hotter summer months, in a strategy aimed at averting a supply crunch but which may drive prices higher. Top power generating companies will need to purchase more than 40 MT of thermal coal by the end of June to provide a cushion of supply during the third quarter, the second-highest demand period of the year after winter, according to internal government calculations. That is 14 percent of China’s quarterly output, or 15 days of use. The estimate is based on stocks of 90 MT at the nation’s thousands of utilities and a target to reach at least 130 MT by June. That target is equivalent to almost half of the utilities July to September consumption. The plan is to avoid a repeat of last winter’s chaos when government mining cuts tightened domestic supplies, triggering a rally in prices in the world’s top coal consumer and forcing Beijing to take emergency steps to boost supplies to avert an energy crisis.

Beijing will encourage coal companies to merge and restructure to increase efficiency in the industry and take measures to return thermal coal prices to a “reasonable” range, the NDRC said. The comment by the NDRC came after a meeting with coal mining firms as thermal coal prices continue to rally while utilities that consume the fuel lose money. The NDRC issued a similar release following a gathering with utilities. China is enforcing its policy against North Korean coal imports seriously, and there have been no violations, the foreign ministry said after a report that North Korean ships had entered a Chinese port where coal imports are offloaded. Following repeated North Korean missile tests that drew international criticism, China in February banned all imports of coal from its reclusive neighbour, cutting off its most important export product. Several North Korean cargo ships, most fully laden, were heading home after China’s customs department issued an official order, on April 7, telling trading companies to return their North Korean coal cargoes. The Su Pung, which also flies a North Korean flag, was shown to be at a berth at the port’s Jintang coal terminal, data showed. North Korea is a significant supplier of coal to China, especially of the type used for steel making, known as coking coal. In April last year China said it would ban North Korean coal imports in order to comply with sanctions imposed by the United Nations and aimed at starving the country of funds for its nuclear and ballistic missile programs. But it made exceptions for deliveries intended for “the people’s wellbeing” and not connected to the nuclear or missile programmes. March customs data this year showed that China did not import coal from North Korea.

Glencore and Japanese power utilities have settled annual thermal coal contract prices at $84.97/tonne, down from $94.75/tonne in October. Glencore reached the settlement with Japan’s Tohoku Electric after negotiations restarted when an initial round of talks failed to reach agreement. Australian Newcastle spot cargo prices last traded at $77.70/tonne. Glencore is the world’s biggest supplier of sea-traded thermal coal and usually sets pricing for the sector. Myanmar’s plans to grow the country’s desperately needed but polluting coal-fired power plants could kill more than a quarter of a million people in the coming decades, environmentalists said. The country’s air is among the dirtiest in the world and pollution is only expected to worsen as the economy opens up after decades of isolation under the former junta. A new study by Harvard University and Greenpeace warned that the government’s plans to expand its current network of two coal-fired plants to 10 could have a major human toll.  Six of its cities already have higher counts of dangerous microscopic particles known as PM10 than China’s famously smog-filled capital Beijing, according to 2016 data from the World Health Organization. The extra pollution would likely cause more than 7,000 premature deaths a year, totalling 280,000 over the 40-year operating life of the eight new planned plants and the two operating ones, it predicted.  Western concern that over premature death of people in developed countries supposedly on account of coal based pollution ignores death caused by other causes including abject poverty and the lack of basic amenities such as clean water and electricity. This may suggest that their real concern is coal burning and not the heath of people in developing countries. Myanmar has made coal-fired plants a cornerstone of a government plan to provide electricity to its entire population of more than 50 million people by 2030. Less than a third of people have regular access to electricity through the country’s dilapidated power grid, which frequently breaks down, and a lack of power is a major issue for attracting foreign investors.

FY: Financial Year, BT: Billion Tonnes, MT: Million Tonnes, UK: United Kingdom,  CEA: Central Electricity Authority, PSUs: Public Sector Undertakings, CIL: Coal India Ltd, BIFPC: Bangladesh-India Friendship Power Company, JV: Joint Venture,  BPDB: Bangladesh Power Development Board, BHEL: Bharat Heavy Electricals Ltd, MW: Megawatt, GW: Gigawatt, MMDC: Meghalaya Mineral Development Corp Ltd, LIC: Life Insurance Corp of India, FSAs: Fuel Supply Agreements, kWh: kilowatt hour, NEA: National Energy Administration, NDRC: National Development and Reform Commission

Courtesy: Energy News Monitor | Volume XIII; Issue 50

Advertisements

April 2015: an uneventful month for energy

India monthly energy briefing

Lydia Powell and Akhilesh Sati, Observer Research Foundation

April 2015 could be labelled as an uneventful month for the Indian energy sector going by standards set in the past: there were no new scams; power generators had sufficient coal stock; power outages were limited to the rural poor (which are accepted as the norm); oil prices were relatively low and stable; the routine statements from the energy ministers of the new government that power outages will be history and that India will re-write energy history with solar energy were made at regular intervals.

The only party that may have been a little uncomfortable in April may be the participants and organisers of coal auctions. While the government has already declared victory as it has supposedly secured Rs 4 trillion as revenue through the auction of coal blocks for captive consumption, the dramatic variation in bid prices, the invalidation of bids on account of presumed gaming, the fear among power generators, consumers as well as lenders to the power sector over how destructive bidding will play out in the longer term appear to tell a different story. Not unlike the story of the United States declaring premature victory over Iraq, the sad and destructive reality will probably unfold slowly and haunt the power industry for years.

As shown in Chart 1 petrol and diesel prices decreased by Rs 0.80 & Rs 1.30 per litre respectively in Delhi during the month. While the change in retail prices were different across the different States in India on account of the different state level taxes, the retail price in Delhi could be taken as an indicative benchmark for the country. The fall in the retail price was the direct consequence of the price of the Indian crude basket (Chart 2) falling from Rs 3618.92 per barrel (Rs 22.76/Litre) for the period Mar 16 to Mar 31, 2015 to Rs 3352.77/bbl (Rs 21.09/Litre) for the period Apr 1 to Apr 15, 2015.

Chart 1- Petrol & Diesel Prices at Delhi

Source: PPAC & IOC                     

Chart 2- Crude Price- Indian Basket

Source: PPAC & IOC

A Rs 1.67 per litre fall in the price of Indian crude basket has translated into only a Rs 0.80 per litre (50 percent) reduction in the price of petrol and Rs 1.30 per litre (78 percent) for diesel in Delhi. The pass through is different for different petroleum products even though there is no difference in cost of production. This raises some questions on the claims over complete ‘deregulation’ of the price of petrol & diesel.

In the electricity sector a significant milestone was crossed at the end of the financial year 2014-15 and announced in April that power generation (from Utilities) crossed the 1 trillion unit (or over 1000 billion unit) mark. This is more than 250 fold increase in generation compared to that in 1947 and around fourfold increase compared to generation in 1990 (Chart 3). If we distribute 1 trillion units (kWh) of electricity uniformly among India’s 1.2 billion people each would get about 874 units which is still way below electricity consumption in OECD economies that stands at more than 5000 units (European Union) per capita.

Chart 3

Source: CEA

As the Chart 4 (which appeared in India Energy Daily News Bulletin) shows industry consumes 44 percent of electricity and other sectors 34 percent leaving only 22 percent for household consumption. If we remove 222 million (NSS 68 Round) number of people who are officially without electricity, and then distribute the total electricity supply available for households among 887 million (NSS 68 Round) people we get a figure of 1180 units per person.

Chart 4

Source: Ministry of Statistics & Programme Implementation

If we treat the price of electricity traded at the exchange as an indicator of the shortfall in supply, we could say that April reflected no substantial change in electricity supply (at least for urban consumers in major cities) with prices at Rs 2.87 per unit (Avg. Market Clearing Price, Day Ahead Market) in the beginning of the month to Rs 2.69 per unit by the end of the month (Chart 5).

Chart 5

Source: Indian Energy Exchange

Domestic production of oil and gas (Chart 6) for April from first week of the month till third week has increased by 3.6 percent and 2.7 percent respectively.

Chart 6

Source: MoPNG

Overall the month was an ordinary month in terms of supply, demand, price and policy. May is likely to be a hotter month for energy in India!

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 46

Why switch sides? India needs coal…

Ashish Gupta, Observer Research Foundation

Recently we have seen key officials from the government visiting many countries and officials from other countries visiting India. Many bilateral meetings also (India – Australia & India – Japan etc.) took place in Delhi.  Much of the discussions were regarding clean energy indicating how the concerned country will be of great importance to India in making the Indian energy sector greener. Interestingly, the combined ministry for coal, power & renewable is in a dilemma on which path to follow: green or brown? In some forums clean energy is projected as the only solution and in another coal is projected as the future for India. The officials appear to be unclear on what will be the appropriate solution for India. Notwithstanding the official confusion, the reality is that coal will remain the mainstay for power generation in India. The logic behind coal dominance is quite simple and needs no explanation: it is economics.

Coal is the most important and abundant fossil fuel in India. It accounts for 55 percent of the country’s energy needs. The country’s industrial heritage was built upon indigenous coal. As for electricity generation, coal dominates both in terms of installed capacity and actual generation. Coal currently accounts for 59 percent of installed generation capacity followed by hydro at 17 percent, renewable (primarily wind) at 13 percent, natural gas at about 9 percent, nuclear at about 2 percent and diesel at less than 1 percent. In terms of actual power generation coal leads with 74 percent, followed by hydro at 13 percent, natural gas at 5 percent, nuclear at 3 percent and renewables at about 4 percent.

Having said that, much of Prime Minister’s plans for industrial revival depend on his ambitious “make in India” programme. But those plans will trip unless the coal supply increases. The “make in India” plan will fructify only when companies are able to manufacture more products cheaply. The manufacturing base will not be able to flourish if they are not provided with cheap electricity. Cheap power is possible only through coal fired plants. Therefore the ministry does not have to think twice before choosing coal as the primary fuel for power generation.

Coal is not only important for economic reasons but equally crucial for sustainable and inclusive development of the country. There is a binding commitment on coal companies (CIL and subsidiaries) that the entire infrastructure related investments will be made by them which has improved the socio economic development of the mining areas. The companies have invested in schools, housing, hospitals and recreational centres for the community living in that area. The coal companies have also contributed to increasing technical knowledge to the local people through their skill development programs. Job creation – be it in mining or other semi-skilled jobs – the local population are provided with vital employment opportunities at the coal mines.

During 2013-14, CIL alone has spent ` 142.70 crore (` 1,427 million) towards corporate social responsibility (CSR). Its subsidiaries spent ` 409.37 crore (` 4,093.7 million) on CSR.  They have also created a green wealth through 81 million plantations including 1.3 million saplings planted during 2013-14.

Some of the projects undertaken by CIL as part of their CSR activity during the year

Organisation to whom Financial Assistance imparted Nature of the Project
KGITC, Uttammarayanpur, WB Setting up of Industrial Training Centre for conducting suitable training of the under privileged and BPL sections of the people in different trades in order to create a pool of talents to cater to the need of technical manpower in different industries with special emphasis to mining industries.
Medical Department, CIL Organised 10 health camps by CIL for economically backward sections of the society like unorganised workers of the Kolkata and out skirts.
Child in Need Institute, Daulatpur, Post Pailan For counselling the expected mothers as well as the child about the health care and nutrition.
Ram Krishna Mission Viveknanda Centenary College, Kolkata For setting up 2 labs for Botany & Chemistry at the college for the benefit of the students.
National Charitable Welfare Society, Pratapgarh, UP Setting up infrastructure facilities i.e. solar powered street lights etc. for people residing in the area.
Children Education Foundation, New Delhi Providing free education to children of Jhuggi Jhopdi on the basis of Sarva Siksha Abhiyan. The objective of the project is to provide free education to the children of rural and slum areas of the country along with other aims and objectives related to education.
South Sundarban Jana Kalyan Sangha, Raghunathpur For safe drinking water supply to backward community of the Sundarban area by way of installation of 10 tube wells in the village.

Coal auctions have also increased the size of the pie for social investments. States with coal mines will get a large share of the revenue through the coal mines auction apart from their share of royalty. This money is likely to be utilised for the development purposes and it could also be used for increasing economic activity in the State. This could arrest outmigration and contribute to higher incomes.

With regard to renewable sources the social benefits are unlikely to match that of coal in terms of scale.  Far flung villages in Bihar, Jharkhand, Odisha and Madhya Pradesh could benefit from decentralised renewable solutions but so far there is no project that has proved to be economically viable without external aid in the long term.  Many have switched to grid based electricity (even if power is available only for few hours). Ironically coal based generation is likely to be the saviour for renewables because the more coal based power is produced the more money will be available for underwriting the renewable sector. The Minister for Power has acknowledged this when he stated at a forum that dirty energy will fund clean energy.

India as a country needs to be clear that industrial development is impossible without fossil fuels. No country in the world could have industrialised without fossil fuels. As long as coal is used efficiently it can contribute to much larger volumes of carbon emission reduction while also providing cheap electricity. Efficient use of coal is the area where India must look for assistance from the developed nations in bilateral forums.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 47

CBM PRODUCTION TAKES OFF ON THE WINGS OF PRICING FREEDOM

Monthly Gas News Commentary: April – May 2017

India

CGD through the JHBDPL named Urja Ganga Project started taking shape in the PMs parliamentary constituency Varanasi, with GAIL (India) Ltd starting the pipeline laying work. GAIL is investing ₹ 5.7 billion for laying over 129 km pipelines in four district of Varanasi division under this project. This project is aimed at fulfilling energy requirement for households, industries, hotels, cold storages, dairies and vehicles. It will also help in bringing natural gas based crematoriums at Manikarnika and Harishchandra ghats in Varanasi. The project is likely to benefit a population of 3.65 million in 1535 km2 of Varanasi district. 50,000 families will get PNG connection while 500,000 cylinders will be given in rural area within five years. Besides, 20,000 vehicles will be converted CNG in Varanasi, where 20 CNG stations will be coming up. According to GAIL, the ambitious 2540 km Urja Gnga project for five eastern states will fulfill energy requirement of 40 districts and 2600 villages. The total cost of project is nearly ₹ 130 billion of which the union government has sanctioned ₹ 51.76 billion. CGD is also planned for seven major cities- Varanasi, Patna, Jamshedpur, Kolkata, Ranchi, Bhubaneshwar and Cuttack, all on the pipeline route. One of the co-benefits of the projects is that it will secure millions of votes for the ruling party at no expense to the party as it will be underwritten by public funds.

RIL has become the first buyer of CBM produced from its own block in central India after agreeing to pay the highest price for the fuel. The company bid $4.23/mmBtu outbidding others such as urea maker Deepak Fertilisers & Petrochemicals Corp and GAIL.  RIL will use the entire initial daily volume of 400,000 cubic meters of gas from coal seams at the Sohagpur block in Madhya Pradesh state at three of its petrochemical plants. RIL’s sale to itself is the first test of the marketing and pricing freedom India introduced in March for CBM producers to attract investments and boost production. The price is 71 percent higher than the $2.48/mmBtu price of natural gas from conventional fields in the country. It will also partially replace the costlier imported gas used at the petrochemical plants in the western Indian states of Maharashtra and Gujarat. RIL’s price was higher than the $4.159/mmBtu bid by Deepak Fertilizers and $4.009/mmBtu bid by GAIL. Electricity generators GMR Rajahmundry Energy Ltd and GMR Vemagiri Power Generation Ltd., which quoted a price of $2.48/mmBtu each, were the remaining qualified bidders. RIL, which became the third producer of gas from coal seams after Great Eastern Energy Corp and Essar Oil Ltd, started commercial production in March from the block, known officially as SP(West)–CBM–2001/1. It plans to increase CBM output to 2.5 mcm/day by March 2018. Production will increase in the next 15-18 months as the company plans to drill 600-800 more wells and expand infrastructure in the next phases of development, according to the RIL.

The production from RIL’s Sohagpur CBM fields will gradually ramp-up in the next 15-18 months making RIL among the largest unconventional natural gas producers in India.  RIL has drilled more than 200 wells connected to two gas gathering stations in the first phase of development. The company expects to drill 600-800 wells further and develop associated infrastructure over the next phases of development. Reliance Gas Pipelines Ltd, a wholly owned subsidiary of RIL, laid a 302 km Shahdol Phulpur Gas Pipeline that connects Sohagpur CBM fields from Shahdol to Hazira-Vijaipur-Jagdishpur pipeline network of Gail at Phulpur. With this new pipeline network, these CBM gas fields are now connected with the Indian Gas Grid. RIL holds another CBM block in Sonhat, Chhattisgarh. Initial gas output from RIL block could be around 0.4 mmscmd. Peak output, however, is envisaged at 2.5-3 mmscmd.

India’s production of CBM grew more than 44 percent last financial year to around 565 mmscm as compared to 393 mmscm in 2015-2016. This comes as a major boost for the government’s efforts to cut down India’s import dependence for energy supply. The huge growth in CBM output in FY17 was, however, lower than the government’s projections.  India’s CBM production was pegged to quadruple to 1,449 mmscm at the end of FY17. CBM is likely to contribute to 5 percent of natural gas production by 2017. Data published by PPAC shows that in FY17 domestic production of CBM contributed to 1.78 percent of India’s total natural gas production of over 31,000 mmscm. In a bid to incentivize production, the CCEA had last month approved a new policy allowing marketing and pricing freedom for CBM gas. The new policy allows contractors to sell CBM at arm’s length price in the domestic market. The oil ministry gave multiple reasons for slow production of CBM including overlapping with coal blocks, delay in land acquisition and statutory clearances, water handling problems and lack of gas infrastructure in CBM blocks. Despite the hurdles, the ministry is confident of healthy growth in output going forward that will result in the share of CBM in total gas production rising to 5 percent from the current less than 2 percent.

Indian gas company H-Energy is to begin importing LNG from the third quarter of 2018 via a ship-based terminal leased from French group Engie. India is the world’s fourth biggest LNG importer even though gas accounts for just seven percent of its coal-dominated energy mix, but consumption is growing fast in response to cheap LNG prices as new cities and industry are added to the grid. The government aims to more than double LNG import capacity to 50 mtpa and grow gas’s share in the energy mix to 15 percent by late 2020. Under the deal with Engie, H-Energy will be able to import up to 4 mtpa of LNG from late next year once the terminal, dubbed GDF Suez Cape Ann, is in place. The FSRU, will be berthed at India’s west coast port of Jaigarh, also the starting point for a 635 kilometre coastal pipeline H-Energy is building to open up new gas markets. The FSRU will convert LNG shipped from multiple suppliers back into gas, before transferring it onshore.

ONGC expects to increase gas production by nearly 30% over the next three-four years with an investment of around $11 billion. ONGC will put its blocks in the KG Basin (KG-DWN-98/2) and Ratna and R-Series oilfields in Mumbai offshore into production by 2019. The CBM blocks in Jharkhand will begin production by 2020, while the Daman offshore fields, which have been pressed into production this month, will be ramped up next year.  While KG-DWN-98/2 will be pushed into production by 2019, Daman will begin production shortly and be ramped up by 2018. ONGC currently produces around 23 bcm of gas a year, which is expected to go up to 29-30 bcm in four years. However, gas production at some existing fields is projected to drop to 11.8 bcm in four years from the current 19.73 bcm. The company plans to invest more than $10-11 billion in exploration, a major chunk of which would go towards developing the KG block. ONGC approved the field development plan for fields falling under Cluster II, the first cluster to be developed. The development will involve a capital expenditure of $5.08 billion. Cluster II will produce its first gas by June 2019, according to the ONGC.

Cairn India Ltd, along with its partners is set to invest ₹ 32.40 billion in the Ravva Fields in the KG Basin, to undertake 20 Developmental Wells and for setting up related infrastructure, as the oil and gas production is dwindling from the existing wells. The Ravva field (PKGM-1 Block) located in the shallow offshore area of KG Basin, has completed 21 years of successful operations with, Cairn India as the operator with 22.5 percent participating Interest. Currently, there are eight unmanned offshore platforms and a 225 acre onshore processing facility at Surasaniyanam in East Godavari of Andhra Pradesh which processes the natural gas and crude oil produced from the field.

Conglomerates in India now have a ₹ 170 billion investment theme built around an industrial fuel-LNG. The Essar, Adani and JSW Groups, among others, are setting up LNG terminals along India’s eastern and western water margins as natural extensions to the port infrastructure, reflecting the increasing demand for the gas as an alternative energy source in the country as global prices of the fuel head south. Essar Ports, part of the Essar Group, has won the recent bid for a ₹ 4.5 billion, 1 mtpa LNG import terminal at the Haldia port in West Bengal. The Kolkata Port Trust had called bids for the terminal, for which Petronet LNG and V Energy were also in the race.

Rest of the World

It was advantage Russia this month with the announcement that there will be no disruption to Russian natural gas supply to Germany via the Yamal-Europe Pipeline after Poland ends its own purchases from Russia’s Gazprom according to the Polish energy market regulator URE. The 4,200 km pipeline delivers around 33 bcm of natural gas to Europe. A transit deal with Poland expires in 2019 while Poland’s contract to buy up to 10.2 bcm of gas from Gazprom per year expires in 2022 and Warsaw has said it will not be renewed. Poland’s ruling Law and Justice party aims to switch from Russian gas after 2022 to deliveries from Norway via a new pipeline and to more LNG supplies. Russia plans changes as it looks to double the capacity of the 55 bcm Nord Stream pipeline which crosses the Baltic Sea to Germany.

A new pipeline from Russia’s Arctic fields to Germany will boost Moscow’s share of the European gas market despite competition from Qatar and the United States, and will also mean much less fuel goes via Ukraine, Russian gas monopoly Gazprom said. Supplies via Ukraine would fall after 2020, but not stop entirely as Moscow has previously threatened, when the world’s largest gas firm opens a pipeline under the Baltic Sea. Gazprom’s Western partners agreed to provide half the financing for the €9.5 billion ($10.32 billion) Nord Stream 2 pipeline, removing a big hurdle for a Russian plan to pump more gas to Europe from 2019. Gazprom supplies a third of Europe’s gas needs, with its share rising from a quarter in the past two decades. It believes it could ship more despite the EU’s fears that the bloc is becoming too reliant on Russian energy. Gazprom sold a record 179 bcm of gas to Europe in 2016, helped by a collapse in oil prices on which gas is priced and cold weather on the continent. Customers are requesting more gas this year and Gazprom believes in the next 15 years it can provide the bulk of an additional 100 bcm a year for Europe, which the continent needs by 2035 as domestic output falls. The EU has sought to reduce reliance on Russia after a decade of gas disputes between Moscow and Ukraine over pricing, which led to several supply disruptions during harsh winters.

Gazprom may hold more auctions to sell gas into Europe’s hub markets this year and could lift gas exports above record levels hit in 2016 as it plans to add major new reserves.  Gazprom plans to increase reserves by 470 bcm of gas this year on the back of developments in east Siberia, the Yamal Peninsula and around Sakhalin island. Gazprom held a trial gas auction in late 2015, selling more than 1 bcm for delivery to north-western Europe from 3.2 bcm on offer. Gazprom exports met around 34 percent of European gas demand in 2016, a record high.

Malaysian oil company Petronas is looking to tap new markets to sell LNG, including as fuel for ships. Petronas also sees significant growth potential for LNG in India, Pakistan, Bangladesh and some parts of Southeast Asia. Asian spot LNG prices have dropped by more than 70 percent since 2014, with production growing faster than demand. Spot prices for June delivery stood at about $5.70/mmBtu compared with $20-plus/mmBtu in 2014. Malaysia is the world’s third-biggest LNG exporter behind Qatar and Australia. The top destinations for its LNG are Japan, South Korea and China, but Petronas is broadening its horizons and the first cargo from its floating LNG facility was shipped to India. Petronas is also in preliminary talks with partners over the sale of LNG as shipping fuel. Petronas is working on an oil price assumption of $45-$55/bbl for the next three to four years. Brent crude was trading at about $48/bbl. Like other oil majors, Petronas has taken a hit from lower crude prices. Benchmark Brent crude prices have more than halved since mid-2014. Malaysia relies on its only Fortune 500 company for nearly a third of its oil and gas-related revenue. Though reduced operating expenses helped Petronas to post a 12 percent rise in full-year net profit in March, the company gave a cautious outlook for 2017.

Iran is buying equipment to avert a possible disruption in output at its share of the world’s biggest natural gas field, in the event the US decides to impose additional sanctions on its economy according to the state-run operator Pars Oil & Gas Co. The company is buying ‘essential equipment’ it would need to avert a halt in operations at the offshore South Pars deposit, in case the US imposes new curbs on Iran. Under new sanctions, the company’s purchase of a simple valve for the field would become ‘a most challenging task’. Iran signed a preliminary $4.8 billion deal with Total SA and China National Petroleum Corp in November for the 11th phase of South Pars. It was the country’s first joint venture with international partners since sanctions were eased in January 2016. Total will approve the project if sanctions aren’t modified. The 24 development phases at South Pars have a combined production capacity of 570 mcm/day of gas.

Iran, holder of the world’s biggest natural gas reserves, boosted output by inaugurating six projects at the giant South Pars offshore field. The country raised total production capacity at South Pars to 570 mcm/day of gas, putting it almost on par with neighbouring Qatar, which produces from an adjacent portion of the same deposit. Iran invested $20 billion to complete the six projects.  Even so, Iranians won’t have much gas to export because they are likely to use most of the new production themselves. Half of Iran’s gas goes to warming homes, with the rest used mostly to generate power and for industrial use. New production can barely keep up with domestic demand, and consumption almost doubled to 191.2 bcm in 2015 from 102.7 bcm in 2005, according to BP Plc statistics. Each of the new projects produces 28 mcm/day. They include phases 17 through 21, with phase 19 having two parts. Qatar announced earlier this month that it was ending a 12-year ban on new projects at its section of the shared field. Qataris call their part of the deposit the North Field, which together with South Pars forms the world’s largest reservoir of non-associated gas.  Iran targets exporting 50 mcm/day of gas to neighbouring Iraq once that country can arrange for a letter of credit to finance the purchase.

Mozambique’s glittering future was expected to be transformed by one of the world’s largest LNG projects. But construction has fallen far behind schedule and the town’s fate is uncertain after gas prices fell and the government became engulfed in a $2 billion debt scandal. The discovery of gas reserves in 2010, estimated at about 5 tcm in the surrounding Rovuma Basin, was the biggest natural gas find in recent decades. Experts have predicted that Mozambique could become the world’s third-largest exporter of LNG, and an African version of wealthy Qatar. Initial estimates were that the first LNG would come on stream in 2016 but now it is expected in 2023 — or later. The plunge in global gas prices has led energy companies to slow down capital expenditure.

Turkmenistan has discovered a potentially large natural gas field close to its Caspian coast. Gas exports are the main source of hard currency for the former Soviet republic which is in talks with the European Union about building a pipeline across the Caspian to link its fields to European markets. Turkmenistan, whose reserves include the world’s second-largest gas field, Galkynysh, has faced foreign currency shortages after Russia, one of the biggest customers, stopped buying Turkmen gas last year, leaving China as the main buyer. The Ashgabat government is trying to diversify exports by discussing the Trans-Caspian link to Europe as well as investing in a pipeline through Afghanistan to Pakistan and India Total SA will spend $500 million over three to four years to develop a shale-gas field in Argentina as the country’s government lures investors by pledging a minimum price. The French energy giant has given the go-ahead to develop the first phase of the Aguada Pichana Este license in the Vaca Muerta formation. To spur drilling at Vaca Muerta, one of the largest shale formations outside North America, the Argentine government has extended a program that ensures a minimum price for the gas companies produce until 2021. Total, already enjoying lower drilling costs following crude’s slump, has highlighted the need to get new projects off the ground to avoid a future shortfall in energy supply. The announcement on Vaca Muerta marks the first of 10 large final investment decisions on new oil and gas ventures that Total plans for this year and next. The company is budgeting as much as $17 billion a year in capital expenditure, including resource renewal, through 2020. Gas from the Vaca Muerta project will be treated at the existing Aguada Pichana plant, which will ramp up to its full daily capacity of 16 mcm or 100,000 boe, according to Total. The company produced 78,000 boe/day in Argentina last year.

Chevron Corp is selling its three Bangladesh gas fields, worth an estimated $2 billion, to a Chinese consortium as the US based oil and gas group looks to shed non-core assets this year. The deal, if completed, would mark China’s first major energy investment in the South Asian country, where Beijing is pumping in billions of dollars in a race with New Delhi and Tokyo for influence. The gas fields, which account for more than half of the total gas output in Bangladesh, are being sold to Himalaya Energy. ZhenHua Oil had signed a preliminary deal with Chevron to buy the Bangladesh natural gas fields. Chevron sells its entire output from the Bangladesh fields (16 mtpa of oil equivalent) to state oil company Petrobangla under a production-sharing contract. The gas fields, Bibiyana, Jalalabad and Moulavi Bazar, had average net daily output of 20 mcm of gas and 3,000 barrels of condensate, or liquid hydrocarbon produced with gas. Chevron said that it planned to sell assets worth about $10 billion by 2017, including the Bangladesh gas fields and geothermal projects in Indonesia and the Philippines, amid a prolonged slump in energy prices.

The Australian government said it was ‘encouraged’ on steps taken to avert a gas crisis after meeting with producers and the energy market operator, but it held out the threat of regulatory steps to address any supply shortages. France’s Engie SA and Origin Energy, have sealed deals to ensure gas supply to power plants at peak times, easing some short-term concerns about shortages that have already helped to trigger blackouts. The Australian Energy Market Operator warned in March of a shortage set to hit eastern Australia just as the country becomes the world’s top LNG exporter. At least one of the east coast LNG plants, Gladstone LNG – operated by Australia’s Santos – is drawing gas out of the domestic market to help meet its export contracts.

CGD: City Gas Distribution, FY: Financial Year, JHBDPL: Jagdishpur-Haldia and Bokaro-Dharma Pipeline, LNG: Liquefied Natural Gas, PNG: Piped Natural Gas, CNG: Compressed Natural Gas, PM: Prime Minister, RIL: Reliance Industries Ltd,  CBM: Coal Bed Methane, mmBtu: million metric British thermal units,  mmscmd: million metric standard cubic meter per day, PPAC: Petroleum Planning and Analysis Cell, CCEA: Cabinet Committee on Economic Affairs, mtpa: million tonnes per annum, boe: barrels of oil equivalent, km: kilometre, bbl: barrel, FSRU: Floating Storage and Regasification Unit, ONGC: Oil and Natural Gas Corp, bcm: billion cubic meters, mcm: million cubic meters, KG: Krishna-Godavari, US: United States, EU: European Union

Courtesy: Energy News Monitor | Volume XIII; Issue 49

CARBON EMISSIONS: PEAKING PREMATURELY IN CHINA AND INDIA

The report by working group III of the intergovernmental panel on climate change (IPCC) released last year contained a chapter on energy systems.[1] It noted that the energy sector was responsible for 35 percent of total anthropogenic green house gas (GHG) emissions and that despite the efforts of the united nations framework convention on climate change (UNFCCC) and the Kyoto protocol, emissions from the energy sector grew more rapidly between 2001 and 2010 than in the previous decade. Energy sector GHG emissions accelerated from 1.7 percent a year in the period 1991-2000 to 3.1 percent a year from 2001-2010. The main contribution to this growth is said to have come from rapid economic growth in developing countries (primarily China and India) and the increase in the share of coal in global fuel mix (on account of growth in coal consumption in India and China).

The report argues that in the absence of mitigation policies, energy related CO2 (the largest component of GHG) emissions are likely to increase to 50-70 GtCO2 by 2050. It then goes on to say that concentration of CO2 in the atmosphere can only be stabilised if global net emissions of CO2 emissions peak and decline towards zero in the long term.

The report also says that in majority of low stabilisation scenarios (limiting concentration of CO2 equivalent in the atmosphere to 450-530 ppm), the share of low carbon energy in electricity supply increase from 30 percent to 80 percent. This conclusion which according to the IPCC is based on ‘robust evidence’ and ‘high agreement’ among the contributors was probably used to extract the following statement from China in 2014 when the president of the United States visited China in 2014:

 ‘China intends to achieve the peaking of CO2 emission around 2030 and make best efforts to peak early and intends to increase the share of non-fossil fuels in primary energy consumption to around 20 percent by 2030.’   

According to the world energy outlook 2014 (WEO 2014) of the international energy agency (IEA) coal’s share in global primary energy fuel mix has increased by 5 percentage points over the past decade to reach 29 percent in 2013 making it the second most important fuel behind oil.[2] WEO 2014’s projections under the new policies scenario show coal use growing by one-third in non-OECD countries to 2040 but coal’s relative importance is expected to change markedly over the projection period in leading coal consuming countries.

Though China is expected to remain the leading source of coal demand growth in the current decade as per WEO 2014 projections, growth is expected to slow sharply thereafter as China’s policies to limit coal consumption take effect. WEO 2014 expects China’s coal demand to peak around 2030 (the same text used in China’s joint statement with the United States on climate change) at which stage India is expected to become the largest source of incremental non-OECD coal demand till 2040.

India is also expected to become the second largest consumer of coal during the current decade overtaking the United States. BP’s projections for 2035 expect India and China to contribute 87 percent of global coal growth till 2035 (chart 1).[3]

Source: WEO 2014 projections under new policies scenario & used generalised conversions from (MTCE to Million Tons) IEA’s Medium Term Coal Market Report 2014.

China is expected to remain the single largest coal consumer accounting for 51 percent of global consumption by 2040 while India is expected to take the second place with 13 percent of global consumption overtaking the United States in 2024. BP’s projections which reflect its ‘most likely’ scenario expect China’s coal demand growth to decelerate rapidly from 1.3 billion tonnes (6.1 % a year) in 2005-15 to just 19.5 million tonnes (0.1 % a year) in 2025-35 (Chart 2).

Source: BP Energy Outlook 2035

BP also expects China’s coal demand to peak around 2030 and for it to decline at -0.1 percent a year from then on. Both the IEA and BP give credit to structural changes and policy measures such as China’s move from a manufacturing and industry driven economy to a service and domestic demand driven economy along with efficiency improvements and stringent environmental policy for the rapid fall of coal demand in China. India did not receive the importance that China did over the question of emission peaking year because India’s coal consumption is less than one fourth of that of China and consequently its carbon emissions peaking year is expected only by 2040. A report by Bernstein argues that China will stop importing coal by 2015 and that China’s coal demand will start declining by 2016 (Chart 3).[4]

Source: Bernstein Research

This (paper) analyses some issues that arise around the narrative of carbon ‘peaking year’ such as (1) Is the ‘event’ of carbon emissions peaking in India and China part of natural course of economic development or policy induced (especially policies taken up under pressure from multilateral bodies committed to address global warming) (2) Does this reflect a positive development if so why and for whom?

The decline of coal demand growth

Climate Tracker, a group that describes itself as ‘a team of financial specialists making climate risks real’ has attempted to present the decline in growth in demand for coal as exhibit 1 in its self proclaimed attempt to ‘make climate risks real’. In its report released in March 2015 celebrating the ‘coal crash’ in the United States, it argues that the decline in demand for coal in OECD countries will not be made up by China and India. It points out that the price of seaborne thermal coal has weakened and much of exported production (to China and India) will not cover costs and that future prices of coal are unlikely to show much improvement.[5] It also points out that China’s coal consumption fell for the first time in 14 years by 2.9 per cent and predicts that China’s coal consumption will peak before 2020. Carbon Tracker may be right but this may not have much to do with China’s efforts to decrease carbon emissions. Other reports on the decline of coal demand in China roughly say the same thing as Climate Tracker.

The Economist in its last issue for March 2015 points out that China’s coal consumption decreased by 1.6 percent in 2014 despite economic growth of 7.3%.[6] It observes that though the coal industry has capabilities to cope with cycles in the coal business, the current slowdown could be a structural shift driven by (1) China following the western world in beginning to phase out coal (2) India increasingly producing its own coal and (3) gas displacing coal in most other coal consuming countries.

Is the peak in coal demand part of natural course of things rather than the result of policy shifts enforced by China (and to a lesser extent India) on account of carbon emissions as the reports quoted above claim? A more comprehensive and objective look at developments in the coal sector show that shifts in demography and the changes in manufacturing productivity appear to be closely correlated to the decline in demand for coal rather than policies to reduce the use of coal on account of carbon emissions. If we take a short digression into demographic shifts and structural changes in the economies of China and to a lesser extent India the close correlations become visible.

Demographic & Structural shifts

Demographic shifts as a driver of change is something we often overlook.  Peter Drucker, a management expert argued that while it was sensible for investors in real estate to focus on ‘location, location and location’, the rest of us (including those who have made it our mission to write obituaries for coal and other fossil fuels) must focus on ‘demographics, demographics and demographics’. In 1937 John Maynard Keynes pointed out that ‘a change-over from an increasing to a declining population may be very dangerous.’ In 1938 Alvin Hansen, another economist worried that ‘America was running out of people, territory and new ideas and that the result was secular stagnation.’[7] The secular stagnation that Keynes and Hansen feared may be unfolding now in China. Recent studies[8] show that most of the world, excluding Africa and some parts of South America is now at a point where the support ratio defined as the ratio of producers to effective consumers is shifting sharply from being beneficial to being adverse (Chart 4).

Source: Charles Goodhart & Philipp Erfurth, 2014, Demography and economics: Look past the past, November 4th 2014, VoxEU.org

Chart 4 shows the decline in support ratio for China begins around 2010 and will continue for the foreseeable future.  For India though the decline in support ratio does not begin until 2040, it does not cross 1 in the entire period. Support ratios above 1.2 in the period 1990-2013 in China explains the tremendous boost to manufacturing in China and consequently the dramatic increase in coal consumption. In the period 2013-2050, support ratio begins to decline in China but it is still above 1 compared to less than 1 for India. The reasons are beyond the scope of this paper but the point to note is that China is unlikely to see similar support ratios in the period 2013-2050. Apart from the fall in support ratio, the absolute number of those in working age (20-65 years) is beginning to decline and it is expected to be much lower in the next 35 years (2015-50) than the past 35 years (1980-2015). China is expected to see a 10 percent decrease in workforce in the period 2013-2050 compared to an increase of over 18 percent in the period 1990-2013. Though the decrease in workforce is much worse for Japan and Germany, in the context of coal consumption what matters is the change in China (Chart 5). Furthermore, the slower growth in the number of workers is expected to slow down absolute economic growth rate if there is no change in growth of output per worker (productivity Chart 6).

Speaking at a World Resources Institute event this month (June 2015) Zou Ji, Deputy Director General, National Centre for Climate Change, China, underlined the importance of the Joint Announcement from the world’s top two economies and emitters USA and China. He noted the significance of China’s aim to peak emissions before reaching the income level of USD 20-25,000 per person. The question is whether China will reach incomes of USD 25,000 per person ever in the context of the dramatic change in coal consumption? What incomes will Indians have when its emissions peak? What do historical records of other countries show? We will look at these questions in part III of this article.

Source: Charles Goodhart & Philipp Erfurth, 2014, Demography and economics: Look past the past, November 4th 2014, VoxEU.org

Carbon Peak & Income Peak

A 2014 paper published in nature climate change argues that developing countries can reduce their emissions and prosper materially only if economic growth is disentangled from energy related emissions.[9] It cautions that though this is possible in theory, the required transformation would impose considerable costs on developing nations and that ‘drastically re-orienting development towards low carbon growth is not realistic’. Another 2014 paper published in the same journal argues that pushing China to peak emissions will actually end up increasing carbon emissions as it would merely drive industries to less efficient countries.[10] The paper argues that though China had committed itself to reducing carbon intensity of its economy (CO2 emissions per unit of GDP) by 40-45 percent during 2005-2020, China experienced a 3 percent increase in carbon intensity between 2002 and 2009 because gains in efficiency were offset by movement towards carbon intensive economic structure. The move towards a more carbon intensive economic structure can be rephrased as a move towards greater industrialisation for higher employment and consequently higher qualities of life for its people. While China is well into its process of industrialisation, India is just beginning to aim for greater industrialisation for generating higher employment.

Will the push for greater industrialisation for higher employment succeed? If so will carbon emissions increase? According to new research by Dani Rodik, the former is unlikely, especially in India, which means that the latter is unlikely. In a 2015 paper on premature deindustrialisation Dani Rodik shows that many developing countries including India are becoming service led economies without having had the experience of industrialisation.[11]

Rodik’s paper shows that India and many sub-Saharan nations had reached their peak manufacturing employment share at income levels of USD 700 per person. In a related blog post Arvid Subramaniam, India’s chief economic advisor shows that at a given stage of development, countries are specialising less in the manufacturing sector and that the point of time in which industry peaks (or de-industrialisation begins) is happening earlier in the development process. He shows that in 1988 the peak share of manufacturing was 30.5 percent and attained at a per person income of USD 21,000.

In 2010 the peak share of manufacturing was 21 percent (a drop of nearly a third) and attained at a level of USD 12,200 (a drop of 45 percent). In a related joint paper on the Indian dilemma on development Arvind Subramaniam says that ‘if globally, there is de-industrialization, India is de-industrializing big time’.[12] He then says that ‘to call the Indian phenomenon de-industrialization is to dignify the Indian experience, which is more aptly referred to as premature non-industrialization because India never industrialized sufficiently in the first place.’

Chart 7: CO2 emissions and gross domestic product (GDP) per capita

Source: Jakob, Michael, et al. 2014. Feasible Mitigation Actions in Developing Countries. Nature Climate Change 4, 961–968 (2014) 29 October 2014

Chart 7 shows that Carbon emissions of industrialised countries peaked at per person income levels of well over USD 10,000 – USD 15,000 (1990 dollars). Though the USA is an outlier with per person CO2 emissions peaking at well over 20 tonnes, countries in western Europe peaked at CO2 levels of about 10-15 tonnes at comparable incomes. China aims to reach a per person income of about USD 25,000 before peaking. India may not touch USD 10,000 at peak if we go by current trends. The question arises as to why India (and to a lesser extent China) should be forced into a path of de-carbonisation when it is already on a path to de-industrialise which will automatically limit carbon emission and perversely also limit its incomes (and quality of life). In 2010 India committed to a reduction of carbon intensity (carbon emission per unit of GDP) by 20-30 percent by 2020. This means that India needs to achieve an average reduction of carbon intensity of over 2 percent per year. To achieve the objective of reducing global carbon emissions by 50 percent by 2050 while continuing with current lifestyles, countries have to decarbonise reducing the amount of carbon dioxide produced for each unit of economic activity at greater than 4 percent per year. This seems like an achievable target but in reality this rate is three times the 1.3 percent per year global average rate sustained since the 1860s. Most of the reduction in carbon emission was achieved without any radical policy interventions. Fuels with higher carbon to hydrogen ratio such as firewood were replaced with cheaper fuels with lower carbon to hydrogen ratio such as coal, oil and gas. Some countries in OECD have achieved the target India has set for itself which is a 2 percent reduction in carbon intensity but this was not necessarily because of a shift towards alternative fuels or greater efficiency in using energy. Structural changes in the economy such as a move towards a service oriented economy played a big part. The shift was natural as most OECD countries had already completed their industrialisation processes. Decarbonisation rates sustained from 1971-2006 range across the 26 OECD nations from a 3.6 percent per year. The un-weighted average rate for all 26 OECD nations is 1.5 percent per year, only 16.5 percent faster than long-term global decarbonisation rates (1.3 percent per year).

Many OECD nations also decarbonised by exporting their polluting industries to other countries. Japan had an explicit policy of locating heavily polluting industries in foreign countries. European Union (EU) reduced carbon dioxide emissions by 6 percent from 1990 to 2008 by exporting production to developing countries. In the same period EU import of embodied carbon from developing countries increased 36 percent. 18 percent of embodied carbon was through exports from China. India and China have few options for exporting their polluting industries.

To peak GHG emission by 2030 China must achieve a 4.5 percent reduction in its energy intensity. In the light of the fact that achieving a 4 percent per year or greater rate of decarbonisation is unprecedented in recent history this is a very brave target that China has set for itself.

China’s income per person increased from $151 (2005 constant US$) in 1971 to $3122 in 2011 and its energy use per person increased by more than 300% during the same period. For the same period, India’s income per person increased from $272 (2005 constant US$) to $1086 while its energy use per person increased by more than 100%. This shows that income increases are closely co-related to energy consumption (and consequently carbon emissions) until structural shifts in the economy move the country towards low carbon paths.

Country Indicator 1960 1971 2011
China Energy use (kgoe) per Capita 466 2029
GDP Per Capita (2005 US$) 151 3122
India Energy use (kgoe) per Capita 276 614
GDP Per Capita (2005 US$) 272 1086
US Energy use (kgoe) per Capita 5642 7645 7032
GDP Per Capita (2005 US$) 15792 21557 44342
Germany Energy use (kgoe) per Capita 1953 3895 3811
GDP Per Capita (2005 US$) 17978 38470
UK Energy use (kgoe) per Capita 3033 3733 2973
GDP Per Capita (2005 US$) 13479 18663 39809

Source: The World Bank

The artificial shift that is being engineered in China and India is necessarily pre-mature as they have not attained income levels of industrialised countries (Chart 8).

Chart 8: Energy Use Per Capita Vs GDP per Capita (1971 to 2012) – India & Other Countries

Source: The World Bank

Another question over decarbonisation is over equity and fairness. Is it fair to ask countries in different stages of industrialisation to peak their emissions? A working paper from Tohoku University in Japan points out that the methodologies of GHG emission reduction efforts sharing referenced by climate action tracker (2014) and the EU Commission are un-equitable as they are based on equal marginal abatement costs (to minimise global GHG emission costs) it is disadvantageous for emerging economies such as India and China with lower historical emission.[13] On the basis of its unfair distribution of responsibilities, the EU has even suggested that the on the basis of a ‘fair and ambitious GHG emission reduction target’ China should peak its emissions by 2023.

As Kipling put it 1899, the white man’s burden, when he was actively colonising the world, was to correct the ‘captive’, the ‘fluttered and wild folk’, the ‘half-devil, half child’, the ‘serf’, the ‘sweeper’, the ‘silent and sullen’ people through conversion to Christianity because he was scared of other religions. Post colonisation, the white man’s burden was to hypnotise the ‘silent and sullen people’ in poor countries to grow economically and ‘develop’ because he was scared of communism. Now the white man’s burden is to de-carbonise the ‘fluttered and wild folk’ because he is scared of global warming. We may bend over backwards to ease the white man’s burden but we must keep in mind that in engineering each of the shifts, the white man was thinking only of his burden not that of the brown, yellow or black man.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 49

Courtesy: Energy News Monitor | Volume XI; Issue 51

Courtesy: Energy News Monitor | Volume XI; Issue 52

 

[1] Bruckner, Thomas, Bashmakov, Igor Alexeyevich, Yacob Mulugetta (2014) Intergovernmental Panel on Climate Change, Working Group III, Chapter 7, Energy Systems

[2] International Energy Agency (2014). World Energy Outlook 2014

[3] BP Energy Outlook 2035, January 2914

[4] Bernstein Research (2013). Asian Coal & Power: less, Less, Less…The Beginning of the End of Coal

[5] Luke Sussams and Andrew Grant, 2015, US Coal Crash, Carbon Tracker

[6] Coal Mining: In the Depths, Economist March 28th, 2015

[7] The Economist, 2014, ‘No country for young people’ November 22nd 2014 quoting Economic Progress and Declining Population Growth by Alvin Hansen, American Economic Review, March 1939

[8] Charles Goodhart & Philipp Erfurth, 2014, Demography and economics: Look past the past, November 4th 2014, VoxEU.org

[9] Jakob, Michael,     et al. 2014. Feasible Mitigation Actions In Developing Countries. Nature Climate Change 4, 961–968 (2014) 29 October 2014

[10] Guan, Dabo et al. 2014. Determinants of Stagnating Carbon Intensity in China. Nature Climate Change 4, 1017–1023 (2014) 05 October 2014

[11] Rodik, Dani, 2015. Premature De-industrialization. School of Social Science, Institute for Advanced Study, Princeton, draft paper

[12] Subramanian, Arvind and Amrit Amirapu. 2015. Manufacturing or Services? An Indian Illustration of a Development Dilemma. CGD Working Paper 409. Washington, DC: Center for Global Development.

[13] Asuka, Jusan. 2015. Assessment of China’s GHG Emission Reduction Target for 2030: To peak CO2 Emission in 2013 instead of 2013? Tohoku University Research Unit for Building a Management Scheme for Atmospheric Environment of North East Asia, Working Paper 2015-2

 

DYNAMIC PRICING OF PETROLEUM PRODUCTS: INDIA IN STEP WITH THE WORLD

Monthly Oil News Commentary: April – May 2017

India

The proposed daily pricing of transport fuels in India would improve confidence in the sustainability of the market pricing regime as regular smaller changes in currency and crude oil prices should be easier to pass through to customers, US investment banker Jefferies said. The All India Petroleum Dealers’ Association said the oil marketers plan to roll out a dynamic fuel pricing pilot project from May 1 in five cities where transport fuel prices would be changed daily so as to better cope with volatility in global crude oil prices. Under the pilot project, the companies will change the price of transport fuels everyday based on crude price movements. Dynamic pricing is followed in many developed countries. The project is to be implemented in the cities of Puducherry and Vizag in southern India, Udaipur in the west, Jamshedpur in the east and Chandigarh in the north.

Currently, state-run fuel retailers, IOC, BPCL and HPCL revise petrol and diesel prices on the 1st and 15th of every month based on average international price of the fuel in the preceding fortnight and the currency exchange rate. Although state-run fuel retailers have the capability to revise petrol and diesel prices on a daily basis, what needs to be monitored is how consumers react to price volatility. Besides, global fuel prices and currency exchange rate, central and state taxes account for a major part of the fuel prices. It accounts for half of retail petrol price and 46% of retail diesel price. The central government collected ₹ 645 billion from petrol as excise duty in FY17 up to end-February, 20% more than what was collected in the whole of FY16. Excise receipts from diesel jumped 36% in the same period to ₹ 1.37 trillion.

India was reported to have toppled Japan as the world’s second-largest importer of LPG as Prime Minister seeks to win rural votes. Imports of LPG, mostly used as cooking fuel, soared 23 percent during the financial year that ended March 31 to 11 MT according to PPAC. Japan’s imports slipped 3.2 percent during the same period to 10.6 MT according to its finance ministry. The drive to provide free cooking gas connections to women from extremely poor households, aimed partly at winning rural votes led to a record distribution of 32.5 million new cooking gas connections during the year. Free gas connections coupled with at least two other government programs have taken India’s active LPG user count to about 200 million, about 60 percent more than Japan’s entire population. India aims to increase LPG usage to cover 80 percent of its households by March 2019, against 72.8 percent as on April 1. India’s consumption of LPG during the year to March 31 was 21.55 MT registering a 9.8 percent growth from the previous year. Demand for the fuel may touch 35 MT by 2031-32 due to an increase in the penetration of cooking gas connections in rural areas. According to estimates by the PPAC, India’s LPG consumption is expected to grow 9.7 percent in the current financial year that started April 1 to 23.7 MT. Overseas purchases are poised to become the dominant source of the fuel in FY18, as consumption surpasses local production, according to the oil ministry. India imports 40 percent of its LPG requirements, predominantly from the Middle East, and is discussing long-term import contracts with exporting nations. Rapid adoption of cooking gas in homes and increased supply of electricity have encouraged the central government to steeply cut subsidised kerosene supply to states. Consumption of kerosene, mostly used by rural poor for lighting and cooking, has dropped by a fifth in FY17.

The centre had launched another campaign ‘GiveItUp’ in order to prompt people who could afford LPG connections at market prices to give up their subsidy voluntarily. The subsidy given up is being used to provide LPG connections to BPL families. Under the scheme, more than 10 million families gave up LPG subsidy which enabled the government to provide more than 6.3 million new LPG connections to BPL families. In the next phase of PMUY, the centre is going to increase focus on ramping up LPG penetration in the rural areas and north-eastern states. The LPG coverage in rural areas as on March 2017 stood at 46 percent against national coverage of 71.7 percent. North-Eastern states,  including Assam, Nagaland, Manipur, Tripura and Meghalaya, have LPG penetration less than 71.7 percent.

The top five states in the list of beneficiaries of subsidised gas cylinders included Uttar Pradesh, West Bengal, Bihar, Madhya Pradesh and Rajasthan. Under the scheme, Uttar Pradesh received more than 5.1 million new subsidized LPG connections followed by West Bengal with 1.96 million connections, Bihar with 1.91 million connections, Madhya Pradesh with 1.88 million connections and Rajasthan with more than 1.53 million connections. India’s LPG penetration at the end of financial year FY17 increased to 71 percent from 56 percent in 2014. OMCs managed to release 32.5 million new LPG connections in FY17 the highest number of LPG connections released in a financial year in the country’s history.

Prices of subsidised cooking gas and kerosene will continue to rise gradually and slowly reduce the subsidy burden on the fuels as the government has renewed its directive that allows state-run oil firms to raise prices by a fixed amount every month. The price of subsidised cooking gas has risen by ₹ 22/cylinder since June, or about 5%, while the price of subsidised kerosene increased by ₹ 4/litre, or about 27%, in the same period. In comparison, prices of petrol and diesel, which are no more controlled by the government, went up just about 1% and 3% respectively. Price of crude oil, increased 6% between June 1 and April 1.

Last year, the government had directed IOC, BPCL and HPCL to raise prices of kerosene by 25 paise/litre every fortnight for 10 months that ended in February. It had also directed them to increase cooking gas prices by ₹ 2/month, without indicating how long the hikes can continue. The oil ministry has issued a fresh order, allowing state firms to raise prices of kerosene by 25 paise/litre/month for another four months beginning April 1. Similarly, companies have been allowed to increase cooking gas prices by ₹ 2/month until further orders. Cooking gas prices rose about ₹ 6/cylinder on April 1 to ₹ 440.90 in Delhi, a steep hike to compensate for keeping prices unchanged in the quarter to March, when elections to five state assemblies were underway. In Delhi, cooking gas price was ₹ 419.18 on June 1, after which state firms started monthly increases. Subsidised kerosene is not supplied in Delhi. But in Mumbai, the price of kerosene jumped from ₹ 15.02/litre in June to ₹ 19.03 now.

India is expected to augment its refining capacity to 600 MT from the present 230 MT to meet the growing demand. India is considering a plan for home delivery of petroleum products to consumers if they make a pre-booking, to cut long queues at fuel stations. About 350 million people come to fuel stations every day. Annually, ₹ 25 billion ($387.00 million) worth of transactions takes place at fuel stations.

India’s petroleum exports grew by more than 6 percent in the first 11 months of FY17 to 58.9 MT on the back of domestic surplus of petroleum products. Petroleum exports during the first 11 months of FY17 constituted 10.6 percent of India’s gross exports in value. India’s petroleum exports in value increased by 3.18 percent to $25.9 billion up to February 2017. According to ICRA report the compounded average growth rate in domestic consumption of petroleum products over the last five-year period has been high at 9 percent for petrol, 4.4 percent for diesel and 4.1 percent for aviation fuel.

The credit outlook for India’s oil refining and marketing sector remains stable owing to high capacity utilization of domestic refining companies, low under-recoveries of OMCs and timely subsidy reimbursement by the centre, research and ratings agency ICRA has said. It said the demand for petroleum products in India is expected to revive going ahead on the back of improved economic activity even as it emerges from the impact of demonetisation. According to ICRA, the crack spreads of most of the petroleum products are expected to decline leading to weakening of GRMs in the near to medium term. But volatility in crude oil prices may lead to inventory gains or losses for the refiners. Despite the recent rise in crude oil prices, India’s OMCs are likely to continue to share nil or low burden in GURs on sensitive petroleum products, which are anticipated to be at moderate levels. Apart from brownfield expansion or debottlenecking projects, the new investments in the sector are still in the planning stages, ICRA said. The investment in auto-fuel retailing is the major area of interest for private companies in the near to medium term. According to ICRA, overall, notwithstanding moderation in GRMs, the credit outlook for companies in the refining and marketing sector remains stable owing to high capacity utilisations of domestic refiners, low GURs of OMCs and timely subsidy reimbursement from the centre.

In contrast to the activity on the downstream side, there was little movement in the domestic upstream sector.  The only news item worth a mention was that O&G companies operating pre-NELP blocks and chosen for extension of their contracts by the Union Cabinet would be granted 10-year extension based on their past performance. The firms would have to furnish third party reserves audit report on the availability of balance recoverable reserves from their blocks while submitting the application for extension, an oil ministry’s notification showed. The Cabinet Committee on Economic Affairs approved a new policy for the grant of extension of PSCs to contractors who had been awarded O&G exploration rights during the pre-NELP regime. The government has identified 10 different blocks being operated by Cairn India, Gujarat State Petroleum Corp, Essar, Hindustan Oil Exploration Company, Oil and Natural Gas Corp and Focus Energy which would be eligible to avail and 10 year PSC extension if the conditions laid down by the new policy are met. According to the new policy, the government will only grant the extension if the past performance of the contractor is satisfactory. The grant of extension will be subject to the contractor drilling at least 70 percent of the development wells as proposed in the earlier field development report. As per the new policy governing PSC extension, contractors will have to submit an application approved by the Operating Committee for extension of Contract to the oil ministry at least two years in advance of the expiry date of the contract.

Prime Ministers of India and Bangladesh flagged off a goodwill rail rake consignment carrying High Speed Diesel from NRL’s Siliguri Marketing Terminal to Parbatipur storage depot of BPC in Bangladesh. The goodwill rail rake consignment for supply of 2,284 MT High Speed Diesel is an outcome of the discussion between the two governments. According to NRL, the present consignment is a symbolic gesture of friendship and cooperation that exists between India and Bangladesh. It was agreed to jointly work towards implementation of this ‘Indo-Bangla Friendship Pipeline’, a 135 km pipeline project (5 km in India and 130 km in Bangladesh) with a capacity to carry 1 MTPA from Siliguri terminal to Parbatipur depot of BPC. The export of petroleum products from India to Bangladesh is also in line with the ‘Neighbourhood First Policy’ of Government of India to boost bilateral trade between the two countries and sub-regional cooperation within SAARC. Presently, Bangladesh meets its requirement of petroleum products through imports at Chittagong port. The products are subsequently transported to the rest of the country using river route. Once the NRL refinery expansion from present 3 MTPA to 9 MTPA is complete, India will be in a position to export petroleum products on a regular and long-term basis to Bangladesh.

Rest of the World

The IEA trimmed its forecast for global oil demand growth in 2017 by 40,000 bpd to 1.32 million bpd. It warned this could prove optimistic given slowing consumption in the US and developed Asian economies such as Australia, Japan and South Korea. On the supply front, the agency said global production fell by 755,000 bpd in March to 95.98 million bpd as OPEC and its partners complied with their joint deal to cut output by 1.8 million bpd in the first half of this year. The OPEC stuck to its pledge in March, bringing compliance to a “robust” 99 percent, the IEA said. For 2017, the IEA said it expects non-OPEC supply to rise by 485,000 bpd, above its previous estimate of 400,000 bpd, led by increases in US production growth.

Global demand for oil is finally close to outstripping supply after nearly three years of surplus production, despite growth in the overhang of unused crude, the IEA said. The agency said oil stocks across the OECD fell by 17.2 million barrels in March. Over the first three months of the year, stocks were up by 38.5 million barrels, or 425,000 bpd, after a large increase in January. Overall, OECD stocks fell by 8.1 million barrels in February to 3.055 billion barrels as demand outpaced supply to the tune of around 200,000 bpd between January and March, the IEA said. The IEA said Iranian offshore stocks fell to 4 million barrels in March from 28 million barrels when sanctions were lifted in early 2016. Globally, oil held offshore fell to 58.4 million barrels in March from 82.6 million barrels at the end of 2016, the IEA said.

New figures published by the IEA show that global oil discoveries dropped to a record low of only 2.4 billion barrels in 2016, while sanctioned projects fell to their lowest levels in over 70 years. The trend in low oil projects has been attributed mainly to oil companies which have been cutting their spending on oil discoveries and projects. These two trend could continue this year as well, the report warned. The report stated that oil discoveries have fallen to 2.4 billion barrels last year, compared to an average of 9 billion barrels annually over the past 15 years. At the same time, conventional resources sanctioned for development last year also fell to 4.7 billion barrels, which was 30% lower than previous year. Final investment decisions have also dropped to the lowest level since the 1940s, the report noted. The slowdown in the activities of oil sector is claimed to be the result of reduced investment spending driven by low oil prices. It also adds concern to global energy security. Falling investments in oil sector also contrasts with the resilience of the US shale industry. In the US, there has been a rebound which increased investments sharply and the output increased and production costs also reduced by 50% since 2014. This growth has been a fundamental factor in balancing low activity in the oil industry.

Leading Gulf oil producers Saudi Arabia and Kuwait gave the clearest signal yet that OPEC plans to extend into the second half of the year a deal with non-OPEC producers to curb oil supplies. Consensus is growing among oil producers that their supply restraint agreement should be extended after its initial six-month term, but there is as yet no agreement, Saudi Energy Minister said. Kuwait’s Oil Minister said he expected to see an extension of the agreement. If OPEC and non-OPEC oil producers decide to extend their six-month agreement, the cuts may become less deep as oil demand is expected to be stronger for seasonal reasons in the second half of 2017.

OPEC Secretary-General said that all oil producers taking part in a supply-cut pact are committed to bringing global inventories down to the industry’s five year average and restoring stability to the market. Compliance data in March showed better conformity by the oil producers with the agreement than in February.

Russian Energy Minister said the oil market was improving with production cuts by OPEC and non-OPEC members, including Russia, trimming surplus supply that had squeezed prices for years. OPEC and non-OPEC countries meet on May 25 to discuss extending curbs agreed last year that cut crude oil output by 1.8 million bpd two-thirds of that from OPEC. Russia’s decision on whether to extend a deal to curb oil output into the second half of the year would depend on how well the OPEC and other producers stick to their production cut pledges.

Iran has sold all the oil it had stored for years at sea and Tehran is now struggling to keep exports growing as it grapples with production constraints. Since the easing of international sanctions in January 2016, Iran tried to make up for lost sales by releasing millions of barrels parked on tankers offshore. Iran had sold its last stocks from the floating storage in the past two weeks. Much of the oil stored was condensate, a very light grade of crude. The OPEC pledged to reduce output but Iran was allowed a small increase to compensate for years of isolation. Yet it has produced less in the past three months than it was allowed. Iranian Oil Minister said Tehran was prepared to produce 3.8 million bpd if OPEC agreed to extend cuts to the second half of 2016, effectively signalling there was little hope of a steep rise in Iranian output.

The world’s top oil exporter Saudi Arabia has stepped up sales of light oil to Asia by offering buyers more cargoes on top of the full contract volumes it will provide for May. The offers will add to a glut of light oil supplies in Asia, increasing competition with fellow Gulf producer Abu Dhabi National Oil Co and Russia. Saudi Aramco plans to supply full volumes of crude to least six buyers in Asia in May, despite cutting production to comply with a deal between the OPEC and non-OPEC producers. OPEC and some non-OPEC producers pledged to cut output in the first half of 2017 to support oil prices. To comply with the deal, Saudi Arabia has cut production of medium-heavy oil to keep its overall output lower. But it has kept supplies to Asia steady so far this year as it defends its market share in the world’s fastest oil-demand growth region against other producers.

Iraq may seek to be exempt from a deal between oil exporters to reduce global supply in order to support crude prices and ask to boost its own output. Baghdad could ask to be exempted from taking part in the supply curbs as the nation needed its oil income to fight Islamic State. Iraq is OPEC’s second-largest producer, after Saudi Arabia, with an output of 4.464 million bpd in March, a reduction of more than 300,000 bpd on levels before OPEC cuts were implemented from January 1. Baghdad reluctantly agreed to take part in the current agreement to restrain output Oil prices could fall again by the end of the year due to a rapid increase in US shale production. Crude has recovered from lows reached in January 2016 and has mostly hovered above $50 a barrel since the beginning of the year following an agreement by the OPEC to cut production. US shale oil producers are planning to expand production following the rebound in prices.

China added 9.34 million barrels of crude oil to SPR, worth just over one day’s imports, during the first half of 2016, government data showed. Since 2015, China’s record amount of crude oil imports have been driven more by flows into the country’s independent refineries rather than government stockpiling. China boosted its SPR across nine bases by adding 1.28 MT of crude oil in the first half of 2016, the commerce ministry said. By mid-2016, the government had 33.25 MT of crude oil, equivalent to 243 million barrels, up from 31.97 MT at the start of 2016. That equates to an average fill rate of 52,000 bpd. Based on data provided from China’s National Bureau of Statistics, the country had marked 43 million barrels during the second half of 2015, suggesting a fill rate of around 240,000 bpd.

Cut off from lucrative fuel export markets and seeing their margins squeezed by new taxes, China’s independent oil refiners are branching out into new sectors from clean energy and lumber as well as expanding their trading to overcome the challenges. These independents, known as “teapots” since they are smaller companies than their state-owned rivals, are scrambling to survive shifting government policies at the same time domestic oil demand growth is slowing, undermining their ability to expand by just serving their home market. In 2016, China’s annual fuel demand growth was at a three-year low. Late last year, Beijing suspended fuel export quotas for the independents, handing control of diesel and gasoline exports to the dominant state refiners. Other government moves may also squeeze the independent’s margins. Top state refiner Sinopec overhauled its fuel buying policy by centralizing all purchases at its Beijing headquarters and China plans to slap consumption taxes on refinery by-products such as light cycle oil, sold as diesel, and mixed aromatics, which are added to gasoline to improve fuel quality.

Shandong Dongming Petrochemical Group, a 260,000 bpd refinery is looking to invest in small-scale onshore fields. It also aims to boost trading operations by combining physical O&G trading with financial services such as offering credit facilities for fellow teapots at better rates than banks. Shandong Hengyuan Petrochemical Co, a refiner backed by a local government and the first teapot to own a refinery abroad, wants to become a regional player, combining assets at its home base in Shandong with the refinery in Port Dickson, Malaysia, that it recently acquired from Shell. As part of the expansion, it will set up a trading desk in Kuala Lumpur to secure crude for the two plants with a combined capacity of 160,000 bpd and also supply 4 millions of tons of fuel annually to Shell under a 10-year pact.

A Chinese firm, the Mingyuan Holdings Group Company Ltd, has said that it is keen to set up a huge oil refinery with an investment of two billion dollars in Pakistan’s Sindh province. The Sindh government said that the refinery will have an installed capacity to process 10 million tons of crude oil annually. Sindh Board of Investment chairperson said that the Chinese company has initially expressed an interest to acquire 400-500 acres of land in Sindh to set up the refinery. The Chinese firm is expected to establish the refinery around Port Qasim or in places such as Dhabeji, Gharo, Nooriabad, Thatta and Kotri. The firm may consider establishing the refinery in a special economic zone to acquire tax incentives. Pakistan is a net oil importing country. It meets 75 percent need for oil for transport, electricity production and industrial and commercial use through import of petroleum products. The balance is met through local oil exploration where refineries play a very important role in catering to the domestic markets’ needs.

As the UN Security Council decides whether to tighten the sanctions screws on North Korea, the country’s increasingly isolated government could lose a lifeline provided by CNPC. According to Reuters the Chinese oil giant has sent small cargoes of jet fuel, diesel and gasoline from two large refineries in the northeastern city of Dalian and other nearby plants across the Yellow Sea to North Korea’s western port of Nampo. CNPC also controls the export of crude oil to North Korea, an aid program that began about 40 years ago. The crude is transported through an ageing pipeline that runs from the border town of Dandong to feed North Korea’s single operational oil refinery, the Ponghwa Chemical factory in Sinuiju on the other side of the Yalu river, which splits the two nations.

President Donald Trump’s administration is focusing its North Korea strategy on tougher economic sanctions, possibly including an oil embargo, a global ban on its airline, intercepting cargo ships and punishing Chinese banks doing business with Pyongyang. North Korea imports all its oil needs, mostly from China and a much smaller amount from Russia. It bought about 270,000 tonnes of fuel, from gasoline to diesel, last year, according to China’s customs data. Crude oil exports from China to North Korea have not been disclosed by customs for several years, but the sources say it’s about 520,000 tonnes a year. In North Korea, diesel has been critical for farming, especially at this time of year, ahead of the planting season and also around October for harvesting. Gasoline is mainly used by the transport industry and the military, experts said.

The US President signed an executive order to extend offshore oil and gas drilling to areas that have been off limits – a move meant to boost domestic production but which could fall flat due to weak industry demand for the acreage. The order could open up swathes of the Atlantic, Pacific and Arctic oceans, as well as the US Gulf of Mexico, that former President Barack Obama had sought to protect from development after a huge BP oil spill in 2010. The president of the API trade group welcomed the order, while API said the order could help the industry over the long term. The order directs the US Department of Interior to review and replace the Obama administration’s most recent five-year oil and gas development plan for the outer continental shelf, which includes federal waters off all US coasts. Obama had banned new oil and gas drilling in federal waters in the Atlantic and Arctic oceans, protecting 115 million acres (46.5 million hectares) of waters off Alaska and 3.8 million acres in the Atlantic from New England to the Chesapeake Bay.

Norway’s Statoil played down concerns that drilling in the Arctic is risky, days before it kick-starts its drilling campaign in the Barents Sea, where the country believes around half of its remaining resources could be located. Despite opposition from environmentalists, the company plans to drill five wells in the Norwegian sector of the Barents Sea, including Korpfjell, which will be the world’s northernmost well and in a formerly disputed border area with Russia. Greenpeace, which is taking the Norwegian government to court over Arctic drilling plans, said any permanent oil platforms in the region would be particularly risky. Statoil said the statistical probability of a blowout, an uncontrolled oil spill from a well, was 0.014 percent – or one for every 7,100 exploration wells. Statoil said Norway and Russia had a joint contingency plan in case an oil spill from the Korpfjell well drifted to Russian waters some 37 kilometers away.

BP Plc is considering the sale of its stakes in three Canadian oil sands projects, as part of the British oil company’s strategy of retreating from noncore businesses. BP’s 50 percent stake in the Sunrise project near Fort McMurray in Alberta, where Husky Energy Inc owns the rest and is the operator, is the most valuable of the three assets. If the sale proceeds, BP would deploy capital in more attractive regions, such as the Permian basin in the US, where the rate of return tends to be higher. BP’s planned move comes after other global energy majors, including ConocoPhillips and Royal Dutch Shell have cut their exposure to Canada’s oil sands operations, which are among the world’s most expensive oil plays to develop. BP is focusing its operations in Egypt, Azerbaijan, the Gulf of Mexico, the North Sea and Trinidad in the coming years. Husky said in February that current production at the Sunrise project is about 36,000 barrels of oil per day. It is in the process of ramping up the project to full capacity of 60,000 bpd but progress has been slower than expected and the company is drilling extra wells to try to speed up production. Husky lowered the 2017 production forecast to 40,000-44,000 bpd from 60,000 bpd.

FY: Financial Year, Indian Oil Corp, BPCL: Bharat Petroleum Corp Ltd, HPCL: Hindustan Petroleum Corp Ltd, US: United States, PPAC: Petroleum Planning and Analysis Cell, PMUY: Pradhan Mantri Ujjwala Yojana, BPL: Below Poverty Line, OMCs: Oil Marketing Companies, GRMs: Gross Refinery Margins, GURs: Gross Under-Recoveries, O&G: Oil and Gas, NELP: New Exploration Licensing Policy, PSCs: Production Sharing Contracts, MTPA: Million Tonnes Per Annum, NRL: Numaligarh Refinery Ltd, BPC: Bangladesh Petroleum Corp, MT: Million Tonnes, LPG: liquefied petroleum gas,  bpd: barrels per day, SAARC: South Asian Association for Regional Cooperation, IEA: International Energy Agency, OPEC: Organization of the Petroleum Exporting Countries, OECD: Organisation for Economic Co-operation and Development, SPR: Strategic Petroleum Reserves, UN: United Nations, CNPC: China National Petroleum Corp, API: American Petroleum Institute  

Courtesy: Energy News Monitor | Volume XIII; Issue 48

SOLAR: MAKING HAY WHILE THE POLICY SUN SHINES

Monthly Non-Fossil Fuels News Commentary: April 2017

India

The extent to which India adds solar capacity declared on a monthly or even weekly basis is not only the perfect alibi for distracting western and domestic liberals from illiberal acts of the government but also a means to channel investment into sectors that would not be typically funded by the market. This month was no different with a number of news items reporting declarations by government officials on the extent of solar capacity added and how cheap solar power is in India.

India is reported to have added 5,525 MW solar power generation capacity in FY17 taking the total from this clean source to 12,288 MW. The country’s solar power potential has been estimated to be 748 GW. The government has envisaged 4,800 MW from rooftop solar and 7,200 MW from large scale solar power projects in the country. India has plans to add 5,000 MW of rooftop solar and 10,000 MW from large scale solar power projects in FY18. Among states, Andhra Pradesh tops the chart with largest cumulative solar generation capacity of 1,867 MW as on March 31, 2017 followed by Rajasthan and Tamil Nadu at 1,812 MW and 1,691 MW respectively. The Rewa Ultra Mega Solar Park is said to have achieved a landmark of ₹ 2.97/kWh solar tariff.  Two sets of PPAs were signed by the project developers, Mahindra Renewables, ACME Solar Holdings and Solengeri Power, with the Madhya Pradesh government-owned distribution companies and the DMRC. Besides the PPAs, various agreements for land transfer and coordination were signed between the developers, Madhya Pradesh Power Management Company, DMRC, Rewa Ultra Mega Solar Ltd, New and Renewable Energy Department, Power Grid Corp and the department of finance in the Madhya Pradesh government. What is not said as loudly by the media is that the PPAs are ‘take or pay’ contracts where the buyers (both government owned) have to pay irrespective of whether they actually draw solar power. For those who remember the power sector in the 190s, ‘take or pay’ contracts signed by Maharshtra with Enron destroyed the finances of its distribution company. According to the world bank that is involved in the project the ‘take or pay’ contract is risk sharing at its best. Obviously the World Bank has not consulted the rate payer and tax payer who will ultimately pick up the bill. They may think that this is socialising risk at its best! Socialising risk is a technique perfected by illiquid banks after the financial crisis!

Promoting the Rewa project, the President of the World Bank said that it was better to move towards solar energy than to continue to build coal plants citing India’s massive efforts in solar energy which has made it “cost effective” and “quite competitive”. He said there was need to keep doing that as the options around the world, even in emerging markets, have gone down below three cents a kWh at which point it “becomes cost effective”. He said climate change issue continued to be a priority for the Bank. On coal, he identified six countries – China, India, the Philippines, Indonesia, Pakistan and Vietnam which are putting most of the coal-based carbon in the air.

In a bid to encourage the use of rooftop solar power, the MNRE has exempted customs and excise duties on materials used in solar rooftop projects of more than 100 KW capacity. The move is expected to cut down the overall cost of power generation through solar rooftop projects. Currently, grid tariff for rooftop solar hovers around ₹ 6/kWh. By 2022, India aims to achieve 40 GW of grid connected solar rooftops. So far, only about 500 MW have been installed and about 3,000 MW has been sanctioned. Apart from the private sector, the railways, airports, hospitals, educational institutions and government buildings have been spotted as potential solar rooftop sites. The MNRE had said that at least 5,900 MW power and annual financial savings of ₹8.3 billion can be achieved through rooftop solar projects in government properties. The key word here is government property not solar rooftop! As a later news item reveals few private households are interested in the scheme!

It was reported that India’s solar power prices may be set to fall below those of thermal (coal) energy. This is based on an expected cost of around ₹ 2.90/kWh for the solar power projects at Bhadla in Rajasthan that have received 51 bids. This price is less than the average rate of power generated by the coal-fuelled projects of India’s largest power generation utility, NTPC Ltd, at ₹ 3.20/kWh. SECI, which is running the bid process for 750 MW of solar power capacity at two parks, has received bids totalling 8,750 MW. The solar space has already seen a significant decline in tariffs from ₹ 10.95-12.76/kWh in 2010-11. The previous low was ₹ 3.15/kWh bid by France’s Solairedirect SA in an auction to set up 250 MW of capacity at Kadapa in Andhra Pradesh.  Those who fully grasp the economics of solar power may put this item into the category of fake news because comparing base-load thermal power (always on) and intermittent solar power is like comparing apples and avocados!

It is probably because the common man in MP understood the difference between apples and avocados that he did not take up the MP Urja Vikas Nigam offer of solar panal installation with net metering in Bhopal. Under the net metering, non-conventional energy generated by individuals is first used in building as per requirement and surplus power is fed to the grid. Consumer gets paid back in terms of energy credits and adjustments in his bill against power transferred to the grid. The development also coincides with the SECI extending the bid-submission deadline for 1,000 MW grid-connected rooftop solar scheme for government buildings. SECI has received no bids for tenders for the scheme.

But the common man does take up solar options when subsidies are offered upfront as in the case of farmers in Peth, Surgana and Trimbakeshwar in Maharashtra.  About 59 farmers across Nashik district have received solar agriculture pumps to gush out water from the ground for irrigation purposes. The dream became a reality after the government increased the ceiling of land holding by the farmers from 5 acres to 10 acres. The government had decided to provide a total of 130 solar power pumps for FY17. A total of 230 farmers applied for the scheme, of which the district collector headed committee selected 130 beneficiaries. Out of these beneficiaries, 79 were finalised and asked to pay the dues of their share. The DC power pumps are in demand as a result of which 43 such pumps were sought by the beneficiaries. The farmers who wish to apply for the scheme should fit the criteria of having up to 10 acre of land, no power connection within 500 meter and that once a beneficiary, the farmer can never apply for power connection from the MSEDCL. The scheme is different from the one subsidised by the ministry of new and renewal energy facilitated by the National Bank for Rural Development, which is not related to the MSEDCL.

The MP government would soon follow and provide nearly 18,500 solar-powered water pumps to farmers in the state at subsidised rates. MP Urja Vikas Nigam would be the nodal agency to make available the solar pumps to the farmers, New and Renewable Energy Department Principal Secretary. Chhattisgarh and Rajasthan governments had provided 11,000 and 10,000 solar pumps respectively to farmers at subsidised rates. The state energy department said in the last fiscal, the MP government provided power subsidy of ₹ 70 billion to farmers for use of the water pumps.

While Ministers hailed solar pumps as a means to nirvana for farmers (water for free!) those concerned about ground water depletion are making noises that free solar pumps will accelerate ground water depletion and lead to water scarcity!

Indian renewable energy companies have raised over $1.62 billion during the first quarter of 2017 in transactions ranging from VC funding, debt financing, project funding and M&A, according to data from Mercom Capital Group LLC., a global clean energy consulting firm. Transactions in Indian solar and renewable energy companies made up for nearly half of the total global funding raised by solar companies around the world in the first three months of 2017. The global solar sector raised total corporate funding of $3.2 billion in the first quarter of 2017—nearly double of $1.6 billion raised in the fourth quarter of 2016, Mercom said in a report. The growth in the first quarter is higher by 15percent when compared with the total corporate funding of $2.8 billion raised in the first quarter of 2016, the report said. In its study, Mercom tracked 233 new large-scale project announcements worldwide in the first quarter of 2017, totalling 12.7 GW.

Ind-Ra estimates a possible refinancing opportunity for more than ₹ 560 billion out of the total debt of 1.73 trillion across various infra sub-sectors in its portfolio till FY19. Of this, solar is expected to be in the forefront in terms of the number of deals with refinancing to the tune of 33 percent. Ind-Ra believes that the renewable energy sector, especially solar energy, would reduce its borrowing costs further by at least 100bp through bond issuances or bank loans. Around 45 percent of the potential refinancing candidates in Ind-Ra’s portfolio are from the renewables space. The sector is also likely to be benefited from the government’s thrust on the development of the second phase of 20 GW solar energy and evolving payment security mechanisms. However, the limited improvement in the current issues such as grid curtailments, receivable days, plant load factor volatility could hinder the refinancing prospects for renewables.

IWTMA said the wind power generation capacity in the country has crossed 32 GW mark. However, according to the CEAs report for March 2017, the installed wind power generation capacity is around 28.7 GW, lower than the ITWMA estimates. There should be at least 6 GW of capacity addition every year to meet the target of having 60 GW by 2022, IWTMA said.  The government has decided to go through the bidding route as the first ever auction of wind power projects in February 2017, where power tariffs dropped to all-time low of ₹ 3.46/kWh. Wind power capacity of 1 GW was auctioned by the Solar Energy Corporation of India in February. Globally, India is at the fourth position after China, the US and Germany, in terms of wind capacity installation.

India is aiming to cut its oil products imports to zero as it turns to alternative fuels such as methanol in its transport sector.  India is also planning to start 15 factories to produce second generation ethanol from biomass, bamboo and cotton straw as it aims to develop its mandate to blend ethanol into 5 percent of its gasoline. India imported about 33 MT of oil products over April 2016 to February 2017, up nearly 24 percent from the same period a year ago. The majority of the imports comprise petroleum coke and LPG. To cut the country’s carbon footprint, the government wants to raise the use of natural gas in its energy mix to 15 percent in three to four years from 6.5 percent now.

Issues relating to hydro power development in Arunachal Pradesh is said to have received some attention.  The 2,000 MW Lower Subansiri project will be put on track immediately and there will no further delay. Fast tracking the Khuppi-Bomdila-Tawang 132 KV transmission line and Bomdila-Kalaktang 132 KV transmission line is also on the cards. Establishing a Centre of Hydro Power Excellence to build local engineering capabilities for project preparation, NERIST is also reported to be a priority for the government.

Hydro power generation in the country posted a marginal growth of under a percent in FY 17 after two-years of consecutive dip in FY 16 and FY 15 over the respective corresponding period. This year the CEA has fixed a target of 141 billion kWh of hydro power generation, an increase of 15.6 percent over the last financial year. The water based renewable energy generation stood at 122.3 billion kWh in FY17 compared to 121.3 billion kWh in FY16 primarily due to better precipitation in the country. The generation has been affected by scanty and scattered rains in the last few years in the country. The generation witnessed an increase of 0.77 percent in FY17 after it dropped by 6percent in FY16 and 4percent in FY15 compared to the respective corresponding period. Primarily, drought like conditions in South and low water level in reservoirs has affected the generation in the last fiscal. It has reduced availability of low cost power to states like Punjab and Haryana. The hydro generation missed the target of 134 billion kWh set by the CEA for FY17. The two-largest hydro power companies SJVN Ltd and NHPC Ltd surpassed the target set by the CEA by 4.8 percent and 2 percent in the last financial year. But the less rains during monsoon in FY17 to 3 percent and 2 percent lower generation in SJVNL and NHPC Ltd compared to FY16.

Forty three hydro-electric projects, with total generating capacity of 11,928 MW, are under construction. Out of these 43 projects, 16 are stalled due to financial constraints and other reasons. The total power generation capacity of the 16 projects is 5,163 MW and the anticipated completion cost of these projects would be about ₹ 523 billion while their original cost was about ₹ 270 billion.

Non-fossil fuels, renewables, nuclear and large hydroelectric power plants, will account for more than half (56.5 percent) of India’s installed power capacity by 2027, according to a draft of the NEP3. The draft notes that if India achieves its target to install 175 GW of renewable energy capacity by 2022, as committed under the 2015 Paris Agreement — it will not need to install, at least until 2027, any more coal-fired capacity than the 50 GW currently under construction. NEP3 outlines how the government expects the electricity sector to develop over the five years from 2017 to 2022, as well as the subsequent five years to 2027.

When the draft was released, India had installed just over 50 GW of renewable power capacity, of which wind energy made up 57.4 percent and solar 18 percent. This gave renewables a 15 percent share in total installed capacity of just over 314 GW, while coal made up 60 percent,  the remaining being large hydropower, nuclear, gas and diesel. NEP3 projects that not only will the 2022 target be achieved, renewable power capacity will reach 275 GW in 2027. This is three times the projection made in NEP2, of 70 GW, and significantly more ambitious than publicly proclaimed targets. Comparing NEP3 with India’s INDC under the Paris Agreement reached at the COP21 to the UNFCCC in 2015 shows a higher level of ambition to reach a low-carbon economy faster. In its INDC, India had said it planned to achieve 40 percent cumulative installed capacity from non-fossil fuel-based energy resources by 2030. NEP3 is significantly more upbeat, predicting that non-fossil power will make up 46.8 percent of total installed capacity by 2021-22 and 56.5 percent by 2027 — 10 years from now. If the NEP3 target is met as per the projected timelines, total installed renewable capacity will surpass coal-based capacity around 2024. While all this sounds very nice if you are a fan of green energy, for those who are economically inclined the mere creation of capacity which involves a huge cost will not make much economic sense.

Moving on to nuclear energy, India signed three pacts with Bangladesh in the field of nuclear energy, second such deal with a South Asian neighbour. The pact entails knowledge sharing and training of Bangladeshi personnel in the area. The first agreement is the general cooperation pact for peaceful uses of nuclear energy. The second one was signed between the Atomic Energy Regulatory Board of India and its Bangladeshi equal Bangladesh Atomic Energy Regulatory Authority, which calls for exchange of technical cooperation and sharing of information in the field of nuclear safety and radiation protection. The third agreement focuses on Indo-Bangla collaboration regarding nuclear power plants in Bangladesh. Besides Bangladesh, India has signed civil nuclear deals with the United States, the United Kingdom, Russia, South Korea, Mongolia, France, Namibia, Argentina, Canada, Kazakhstan, Australia, Vietnam, Sri Lanka and Japan. After India and Pakistan, Bangladesh is the third South Asian nation which has plans to harness nuclear power.

India has taken over full operational control of Unit 1 of the Kudankulam Nuclear Power Plant. India signed a joint statement with Russia on the final takeover of the unit, formally marking the full transition. The agreement was signed between representatives of Nuclear Power Corp of India Ltd and the ASE Group of Companies, a subsidiary of Rosatom State Atomic Energy Corp of Russia. With the deal, the Russian and the Indian sides have confirmed fulfilment of all warranty terms and obligations of the contractor for the construction of Unit 1, Rosatom said. The commercial operation and the warranty period of Unit 1 started in December 2014. The warranty is typically for one year, which ended in December 2015. However, the final takeover agreement was delayed to ensure the reliability of the plant and equipment as this is the first of a series of six reactors. Unit 1 had encountered technical issues and was shut down briefly after it commenced power generation. On March 30, 2017, the joint protocol on provisional acceptance of Unit 2 of the plant was signed, which marked the start of its commercial operation.

Rest of the World

Global VC funding for the solar sector saw a 78 percent rise in the first quarter of 2017 with $585 million in 22 deals compared to $329 million raised in the same number of deals in the fourth quarter of 2016, the report said. The amount raised was also higher when compared to $406 million raised in 23 deals in the first quarter of 2016.  There were 29 solar M&A transactions in the first quarter of 2017 compared to 20 transactions in the fourth quarter of 2016 and 14 transactions in the first quarter of 2016. About 7.4 GW of solar projects were acquired in the quarter compared to 5 GW in the previous quarter, Mercom said. However, residential and commercial solar funds dropped to $630 million sequentially from $1.5 billion, the report said.

In Japan the Governor of Saga province approved the restart of two reactors at the Genkai nuclear power plant, with each scheduled to go online as early as this summer. The decision to clear reactor 3 and 4 at the Kyushu Electric Power Co. facility in the town of Genkai is likely to draw strong reactions from municipalities and residents opposed to their reactivation amid persisting widespread concerns about the 2011 Fukushima disaster. The reactors in January passed the tougher safety requirements introduced in response to the nuclear disaster. All four reactors at the Genkai plant were halted by December 2011 in light of the Fukushima disaster. Kyushu Electric has decided to decommission the aging No. 1 reactor.

China is reported to be aiming for non-fossil fuels to account for about 20 percent of total energy consumption by 2030, increasing to more than half of demand by 2050, the NDRC said. The NDRC said CO2 emissions will peak by 2030 and total energy demand will be capped at 6 billion tonnes of standard coal equivalent by 2030, up from 4.4 billion tonnes targeted for this year.

According to Greenpeace which has taken it upon itself to pick on China, the amount of electricity wasted by China’s solar and wind power sectors rose significantly last year. China promised to improve what it called the “rhythm” of construction of power transmission lines and renewable generation to avoid “curtailment,” which occurs when there is insufficient transmission to absorb the power generated by the renewable projects. But Greenpeace said wasted wind power still rose to 17 percent of the total generated by wind farms last year, up from 8 percent in 2014. The amount that failed to make it to the grid was enough to power China’s capital Beijing for the whole of 2015, it said. Greenpeace said total solar and wind investment between now and 2030 could reach as much as $780 billion. But, rising levels of waste had cost the industry as much as 34.1 billion yuan ($4.95 billion) in lost earnings over the 2015 to 2016 period, it said. China produced 12.3 billion kWh of solar power in the first quarter of 2017, up 31 percent year-on-year but accounting for just 1.1 percent of total generation over the period, according to data. Wind rose to 62.1 billion kWh, 4.3 percent of the total, but was dwarfed by the 77.9 percent share occupied by thermal electricity.

The US said it would start an investigation into imports of biodiesel from Indonesia and Argentina for possible dumping and subsidization. The US International Trade Commission is scheduled to make a preliminary decision on whether such imports hurt US producers, the US commerce department said. The step, comes after some US biodiesel producers last month asked their government to impose anti-dumping duties on imports of biodiesel from Argentina and Indonesia that they say have flooded the US market and violated trade agreements. Total US biodiesel imports rose to a record 3.5 billion litres in 2016, according to US government data published in March. Argentina represented about two-thirds of US foreign imports, followed by Indonesia and Canada. Indonesia is also facing pressure in Europe, with its government filing a WTO complain against European Union anti-dumping duties on Indonesian biodiesel. Meanwhile, the European parliament voted to call on the EU to phase out use of palm oil in biodiesel by 2020. Indonesia, along with Malaysia, plans to send a joint mission to Europe next month to prevent the adoption of that resolution.

Morocco’s King Mohammed VI launched in the fourth and final stage of Noor Ouarzazate, the world’s largest solar plant. The Noor Ouarzazate IV power station in the southern province of Ouarzazate, spanned over an area of 137 hectares (1.37 square km), will be set up with over $75 million with PV technology. The power station, scheduled to start operating in the first quarter of 2018, will be built as part of a partnership involving the Moroccan Agency for Sustainable Energy (Masen), and a consortium of private operators led by the Saudi Arabian ACWA Power group and German development bank KfW. While the first station has started operating in 2016, the second and third power stations of Noor solar complex have reached a completion rate of 76 and 74 percent respectively. The mega project will generate 582 MW and provide electricity to over a million homes when completed by 2020. The plant represents a critical step in the Moroccan Solar Energy Program, which aims to generate 42 percent of its electricity needs through renewable energy by 2020 and 52 percent by 2030.

FY: Financial Year, MW: Megawatt, GW: Gigawatt, KW: Kilowatt, PPAs: Power Purchase Agreements, DMRC: Delhi Metro Rail Corp, kWh: kilowatt hour, MNRE: Ministry of New and Renewable Energy, MP: Madhya Pradesh, SECI: Solar Energy Corp of India, CO2: carbon dioxide, DC: direct current, MSEDCL: Maharashtra State Electricity Distribution Company Ltd, VC: venture capital, M&A: merger and acquisitions, Ind-Ra: India Ratings and Research, IWTMA: Indian Wind Turbine Manufacturers Association, CEA: Central Electricity Authority, US: United States, MT: Million Tonnes, KV: Kilovolt, NERIST: North East Regional Institute of Science and Technology, NEP: National Electricity Plan, INDC: Intended Nationally Determined Contribution, UNFCCC: United Nations Framework Convention on Climate Change, COP21: 21st Conference of Parties, NDRC: National Development and Reform Commission, PV: Photovoltaics, WTO: World Trade Organization, SECI: Solar Energy Corp of India

Courtesy: Energy News Monitor | Volume XIII; Issue 47