Ashish Gupta, Observer Research Foundation

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

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

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

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

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

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

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 21

Monthly Gas News Commentary: August – September 2018

India

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

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

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

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

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

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

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

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

Rest of the World

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Courtesy: Energy News Monitor | Volume XV; Issue 15

Monthly Oil News Commentary: August – September 2018

India

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rest of the World

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Courtesy: Energy News Monitor | Volume XV; Issue 14

Lydia Powell, Observer Research Foundation

Just prior to the financial crisis, reports from leading economic institutions highlighted how global imbalances are being accentuated by oil price increases. For example, the 2006 world energy outlook of the International Monetary Fund (IMF) highlighted how (1) large global imbalances including a large current account deficit in the United States was matched by surpluses in other advanced economies in emerging Asia and in fuel exporting countries and that (2) the strengthening of oil prices from 2003 driven by strengthening global demand and by concerns over future supply was partly driving this imbalance.[1]

The report observed that the result of an almost $30/barrel increase in oil prices during 2002-05 and to a lesser extent rising production, global oil exports increased. Based on a broad sample of oil exporters, the report concluded that oil exports more than doubled to $800 billion in 2005 and well above previous peak in 1980. On the other hand the import bill of China and USA, two of the largest oil importing countries, had increased to roughly 152 billion (4% of GDP) and 135 billion (1% of GDP) respectively.

Admitting that any long run oil price forecast is subject to enormous uncertainty, it went on to predict that the price shock that started in 2003 would be permanent in nature based on market expectations and an assessment of medium term market fundamentals. The report went on to recommend that consuming (oil importing) countries should pursue full pass through of world oil prices into domestic energy prices accompanied by a monetary stance that guarded against potential spillovers into core inflation.

The 2014 world economic outlook of the IMF observed that global current account imbalances in large deficit countries such as the United States and large surplus countries such as China and Japan had more than halved and that this had reduced the systematic risk to the global economy. [2] The report attributed this correction to demand compression in deficit economies or the growth differentials related to faster recovery of emerging market economies and commodity exporters but did not emphasise the changing nature of oil trade (in terms of geographic origin of stocks and flows) in correcting global imbalances.

A recent paper from the University of Paris on oil shocks and global imbalances points out that the nature of the oil shock mattered in understanding the effects of oil price shocks on global imbalances and that the main adjustment mechanism to oil shocks is based on the trade channel rather than the asset valuation channel.[3] The paper observes that supply driven oil shocks contribute more to the increase in current account imbalances than demand driven shocks and that the impacts of supply driven shocks are closely related to the degree of energy dependence. It also points out that the weak impact on current account imbalances of a demand driven oil shock could be explained by the trade channel when the rise in oil prices comes from an increase in global economic activity. The paper concludes that the trade channel (rather than the asset valuation channel or the real exchange rate) represents the main adjustment mechanism to oil shocks.

This conclusion finds some appreciation in BPs 2014 review of energy markets, though the trade channel here is actually an energy trade channel.[4] The report highlights the linkage between energy and the economy and illustrates how the remarkable shift in physical energy balances has affected global imbalances. Taking China, USA and Russia, the three largest energy consumers and producers (in that order) the report illustrates how the shift in domestic production and consumption of fossil fuels in these three countries have also changed their respective current account balances.

Trade Balances & Energy

Source: BP Statistical Review of World Energy[5]

According to the report, United States had the largest increase in oil and gas production and the largest decrease in oil and coal consumption, China had the biggest increase in coal production and the consumption of all three fossil fuels and Russia had the second biggest increment in oil production. Between 2001 and 2013, China’s deficit for oil and gas worsened by almost the same magnitude by which the US deficit improved. As a result China’s energy deficit overtook that of the United States for the first time in 2013. Russia’s surplus improved for every fossil fuel over this period allowing it to maintain its position as the world’s largest holder of an energy surplus. Given that half of US trade deficit is made up of energy imports, increase in domestic production and falling imports have shrunk and continue to shrink this deficit rapidly. On the other hand energy imports were eating into China’s surpluses.  Russia’s energy exports had given it a trade surplus but as a percent of GDP its trade surplus showed a declining trend.

The take away from these developments is that we can no longer be certain over fundamental assumptions on the geographic origin of stocks (for example assuming that the Middle East will be the holder of most stocks of oil) and directions of flows of oil (from the Middle East to the rest of the World). We cannot even be certain over the direction of oil price movements or the direction of change in global economic output. Given the extent of uncertainties, caution must be exercised in advocating strong responses to importing countries.

Views are those of the author                    

Author can be contacted at lydia@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 22

[1] IMF, 2006. World Economic Outlook, Chapter II: Oil Prices & Global Imbalances

[2] IMF, 2014. World Economic Outlook, Chapter 4: Are Global Imbalances at a Turning Point

[3] ALLEGRET, Jean-Pierrre, MIGNON, Valerie, SALLENAVE, Audry, 2014. Oil Price Shocks and Global Imbalances: Lessons from a model with Trade and financial interdependencies, Working Paper 2014-14, University of Paris,

[4] RUHL, Christof, 2014. Energy in 2013: Taking Stock, World Petroleum Congress, Moscow 16 June 2014

[5] Ibid.

 

Monthly Non-Fossil Fuels News Commentary: August 2018

India

India is all set to comfortably achieve 100 GW of solar energy capacity by 2022 and has already installed solar capacity of 23.12 GW till July this year, Parliament was informed. The data regarding generation of power from various renewable energy projects is consolidated by the Central Electricity Authority. Solar power projects require around 4 to 5 acres of land per MW and the MNRE monitors the development of upcoming and commissioned renewable energy projects with implementing agencies like SECI, NTPC Ltd, state nodal agencies and state governments/UT administrations through regular meetings, video-conferences and on the site visits. Karnataka topped the installed solar energy capacity chart at 5.16 GW followed by Telangana at 3.4GW and Andhra Pradesh at 2.56 GW as on July 31, 2017. The National Institute of Solar Energy has assessed the solar power potential of the country at 748 GW.

The finance ministry said that safeguard duty will not be insisted upon on import of solar cells for the “time being” in deference to interim directions passed by the High Court of Orissa. India had imposed safeguard duty on solar cells imports from China and Malaysia for two years to protect domestic players from steep rise in inbound shipments. The duty was imposed following recommendations by the DGTR under the commerce ministry. It further said that till further direction from the revenue department, solar cells whether or not assembled in modules or panels “would, in respect of safeguard duty, be assessed provisionally” on furnishing of simple letter of undertaking/bond by the concerned person. The circular would provide interim relief from payment of safeguard duty to the solar cell importers. Further, given that it is only an interim relief, whether the solar players should factor the safeguard duty as a cost or not would still be an important decision point. India is targeting to 100 GW solar capacity by 2022. Solar cells, electrical devices that convert sunlight directly into electricity, are imported primarily from China, Malaysia, Singapore and Taiwan. Imports of the cells from these countries account for more than 90 percent of the total inbound shipments in the country.

Imposition of safeguard duty is likely to result in some delay in project implementation of nearly 12,000 MW of under-construction solar capacities, ratings agency CRISIL said. As per CRISIL’s analysis, a 25 percent safeguard duty entails a rise in capital costs by 15-20 percent, which would have a 30-40 paise per unit impact on bid tariffs so as to maintain the same rates of return. Following a petition filed by the Indian Solar Manufacturers Association in December 2017, seeking imposition of safeguard duty DGTR had recommended a 70 percent safeguard duty in January 2018. DGTR reviewed the recommendations and imposed 25 percent duty for the first year followed by 20 percent in the first half of the second year and 15 percent for the rest part of the year. According to the agency, solar power capacity addition is likely to ramp up to 56,000-58,000 MW between fiscals 2019 and 2023, compared with 20,000 GW between fiscals 2014 and 2018, which will be driven by capacities allocated/tendered under the National Solar Mission, state solar policies, other schemes driven by SECI and PSUs.

Small to mid-sized renewable energy companies in India are starting to look like attractive takeover targets as lenders and investors withhold funds, worried by the stiff competition, weak bond markets, low tariffs and high debt besetting the sector. The small companies’ difficulty in raising cash is keeping them away from government power project auctions, restricting their growth and crippling their ability to refinance loans, a consultant from a top global consultancy firm said. With many smaller operators being gobbled up or offering themselves for sale, the number of projects being developed could fall, potentially keeping India from its renewable energy targets, the consultant said. In a few years, there may be only a few big companies and a few regional firms active in India’s renewable sector. The trend goes back at least to 2016, when Tata Power bought solar and wind company Welspun Renewable Energy, but the pace is expected to pick up. One of India’s largest renewables companies, Greenko Group, said in June that it was buying 750 MW of solar and wind assets from Orange Renewables, because the Singapore-based company saw few opportunities for growth. The deal has yet to be closed. Tata Power said it plans to invest $5 billion to increase its renewable capacity in India fourfold over the next decade to 12 GW. More than doubling India’s renewables capacity by 2022 will require $76 billion, including debt of $53 billion, the Ministry of New and Renewable Energy said.

The SWR has installed solar panels in 19 buildings, including railway stations, workshops and offices, with a total capacity of 3,605 kWp. The annual energy requirement of KSR railway station is 3.13 million units and about 13.9% of it is now being met by solar panels. SWR said these solar panels generate about 3 million units per annum on an average, saving revenue of about ₹ 700,000. SWR hopes to meet the full energy requirement of Hubballi and Mysuru workshops with solar energy, making them carbon neutral. In addition to the 12 railway stations in SWR that have solar panels, it has identified 60 more stations where solar panels will be installed during 2019-20, increasing the total capacity to 4,685 kWp, which translates to about 7 million units on an average per year, contributing 15% of annual energy requirements (other than for running of trains) of SWR. The annual energy requirement of SWR is about 47 million units, which includes 17 million units for Bengaluru division. Rooftop solar panels installed at platform 7 and 8 at Bengaluru City railway station

The next time the floodlights are up for a day-night match at the Brabourne stadium, it will be solar power panels on the roof that will be powering them. The stadium, which has several sports activities inside the CCI complex and is mostly used for first-class cricket matches, earned the distinction of becoming the first cricket stadium in the world to generate 865 kW, which translates to 1.15 million units per year, of solar power. It amounts to 30% of the overall power consumption of approximately 3.5 million units per year. The plant over a stadium that can save power bills worth ₹ 12.5 million is praiseworthy. The Chinnaswamy stadium in Bengaluru had around 430 kW power from solar panels. The generation of solar power will reduce carbon emissions from the thermal power generation that can be equated with planting 1,600 new trees every year in the initial period. The CCI club and the stadium consumes power worth ₹ 50 million every year. Though floodlights will require generators, normal power and other back-ups going by the intensity of power needed by them, indirectly more than the same amount of green power would have already been supplied to the grid. In effect, it will be green power that will be fed to the stadium and other club areas. While Tata power executed the project, the Excelsior Engineering Solutions acted as the project consultant. The solar panels were imported from China.

The SECI is likely to revise downwards its 2,500 MW wind-solar hybrid project tendered in June to 1,200 MW, as evacuation-related challenges continue to affect the sector. The SECI had earlier deferred the last bidding date from 8 August to 7 September. The SECI plans to amend the standard bidding document for the project and has proposed to the MNRE to introduce a separate bidding guidelines for hybrid wind-solar power projects. The plan to reduce the capacity comes in the wake of cancellation of wind and solar auctions in the last two months as developers faced evacuation-related issues and the difference in tariffs of first and second bidder was too wide. A lot of developers did not have commitment from the central or state transmission utilities to evacuate power from the project site. The 2,500 MW wind-solar hybrid tender was invited by the SECI in June with 8 August as the last date for submission of bids. However, the date was later extended to 7 September after developers requested change in bidding documents. The ceiling tariff for the project is ₹ 2.93/kWh.

Andhra Pradesh inaugurated a 2 MW floating solar power plant built on Mudasarlova reservoir. The power plant envisages saving the burning of 1,540 tonnes of coal a year and release of 300 tonnes of carbon dioxide. As part of the ‘Smart City’ initiative, the solar power plant was built in 20 acres of the reservoir, among the oldest man-made water bodies, on the outskirts of the city, at a cost of ₹ 11.34 billion. The works were executed by DES Engineers of Hyderabad under the supervision of AECOM, consultants for the Smart City projects. The works for the plant began in May this year and prior to it, the reservoir was de-silted at a cost of ₹ 2 million.

Power trading solutions provider PTC India announced that it has operationalised the flow or supply of 126 MW inter-state wind power commissioned capacity to different beneficiary states under government scheme. The power will flow (be supplied) to Uttar Pradesh, Bihar, Jharkhand, and Odisha, PTC India said. According to PTC India, the commissioned capacities are part of Ministry of New and Renewable Energy Wind Scheme (Tranche-I) of 1050 MW in Jun 2016. The SECI had conducted the competitive bidding and e-reverse auction for selection of wind project developers in Feb 2017 and the tariff discovered was ₹ 3.46 per kWh setting a new benchmark for the wind sector at that time, it said.

In what could set the template for other state governments that find themselves facing the hump of safeguard duty on solar gear, the Madhya Pradesh government has revised the conditions for its rooftop solar tender. The state was in the middle of a tender when the Centre on 30 July notified a safeguard duty ranging from 15-25 percent on solar cells and panel. The state has amended Clause 3.29 of the request for proposal, dealing with tax and duties, through a corrigendum to the tender. The Madhya Pradesh government had floated a tender to put up 28 MW peak of rooftop solar projects through RESCO model. The amended clause specifies how changes in tax would be passed on in the tariff. This adjustment in tariff because of change in capital cost can be done till three months before the project’s scheduled commissioning specified in the power purchase agreement.

A switch from conventional diesel- and electric-powered irrigation pumps to solar-powered ones can help the country achieve 38 percent of its envisaged 175 GW renewable energy target by 2022. The shift to solar-powered irrigation pumps can also save enormous sums of money and generate additional income for farmers, the US-based Institute for Energy Economics & Financial Analysis report said. The report said that the idea of replacing some 30 million grid-attached or diesel pumps with solar pumps is gaining traction but the pace of deployment is slow. The Government of India’s KUSUM scheme and the Gujarat government’s Suryashakti Kisan Yojana are steps in the right direction for solar-powered irrigation initiatives. The KUSUM scheme mandates deployment of 2.75 million solar pumps in the first phase of its implementation. The initiative would produce an additional 4 GW of installed solar power, thus giving a material boost to the country’s renewable energy deployments.

Leading wind turbine maker Suzlon is looking to capture about 30 percent of the 20,000 MW of wind capacity likely to be commissioned by financial year 2020-21, the company said. According to industry estimates, with the thumb rule of ₹ 650 million per MW. The domestic wind market is on a growth trajectory with 7,500 MW of capacity already auctioned, 10,000 MW of bids in the pipeline, and another 3,000 MW soon to be auctioned. The company at present has a 20 percent share in the 7,500 MW wind capacity already auctioned, according to him. Suzlon, with an installed manufacturing capacity of 4,200 MW, has a strong presence across the entire wind value chain with a comprehensive range of services to build and maintain the projects, which include design, supply, installation, commissioning of the project and dedicated life cycle asset management services. The company is currently a market leader in the country with over 11.9 GW of installed capacity and global installation of 17.9 GW spread across 17 countries in Asia, Australia, Europe, Africa and the Americas.

The government announced the country’s first wind power project connected to the ISTS was commissioned by Ostro Kutch Wind Private Ltd in Gujarat. SECI had conducted the first auction of wind power projects in February last year in which tariff of ₹ 3.46 was discovered, much lower than the feed-in tariffs in vogue at the time. Companies placed bids for 1,000 MW capacity of projects to be connected on ISTS where power generated in one resource-rich state could be transmitted to other renewable deficient states. Five firms including Mytrah, Inox, Ostro, Green Infra and Adani won the bids. The energy generated from this project is being purchased by Bihar, Odisha, Jharkhand and Uttar Pradesh.

Renewable energy company Siemens Gamesa has announced the commissioning of 3.375 MW of wind-solar hybrid power pilot project for NTPC. This being smart grid based renewable energy’s (SGRE’s) first hybrid project for the thermal power giant. The Wind Solar Hybrid project consists of an SG 2.0-114 wind turbine in hybrid with 1.375 MW High Efficiency HiT solar panels, which was executed in Bijapur District in Karnataka. This is the first pilot renewable energy hybrid project in India that was developed from the engineering design stage by Siemens Gamesa. Present in India since 2009, the accumulated base installed by Siemens Gamesa recently topped the 5-GW mark.

India aims to increase the use of biofuels to cut its oil import bill by ₹ 120 billion ($1.7 billion) by 2022 and reduce carbon emissions. India is the world’s third-biggest oil importer and consumer and ships in about 80 percent of its crude needs, but is gradually building capacity to increase its output of biofuels. The South Asian nation plans to build 12 bio-refineries costing 100 billion rupees to produce fuel from items including crop stubble, plant waste and municipal solid waste. Building the bio-fuel refineries would create 150,000 new jobs, but did not give a timeframe for when they would all be up and running. India, a signatory to the Paris Climate deal, plans to reduce its carbon footprint by increasing ethanol content, a sugar by-product, in its gasoline to 10 percent by 2022 and to 20 percent by 2030. India aims to ramp up ethanol production to 4.5 billion litres in the next four years, a move that could cut the country’s gasoline consumption. Use of gasoline in India has been growing rapidly as millions more households buy motor cars and motor cycles due to rising income levels and cheaper credit.

The government has imposed restriction on import of bio-fuels including ethyl alcohol and other denatured spirits, bio-diesel, petroleum oils and oils obtained from bituminous minerals other than crude, through an amendment in import policy. The import of these items, which was free earlier, will now only be allowed for non-fuel purpose on actual user basis. Import policy of bio-fuels revised from ‘free’ to ‘restricted’ and allowed for non-fuel purpose on actual user basis as per the National Bio-Fuel Policy, the Directorate General of Foreign Trade said in a notification. In another notification, the government said export of beach sand minerals has been brought under state trading enterprise and shall be canalised through Indian Rare Earths Ltd.  Export of rare earth compounds classified as beach sand minerals, permitted anywhere in the export policy, will now be regulated.

India’s first Biofuel-powered flight was successfully tested for domestic operations between Dehradun and New Delhi. The Bio-fuel is expected to reduce India’s dependency on ATF and help bring down air fares. ATF price is the key component in the aviation industry, and in the coming days, India is hoping to reduce its import dependency in this area. Made from Jatropha crop, Biofuel has been developed by the Council for Scientific and Industrial Research-Indian Institute of Petroleum, in Dehradun. It has been recognised by American Standard Testing Method and meets the specification standards of Pratt and Whitney and Bombardier for commercial application in aircraft. SpiceJet had last year placed orders for 205 Boeing 737 Max fuel-efficient planes that are expected to reduce fuel consumption by about 15% and will leave 40% lesser noise footprint. SpiceJet said that the company intends to use the mixture of 75% ATF and 25% Biofuel in its operations. According to International Air Transport Association, aviation industry contributes to 2% of the total greenhouse gas emissions in the world. The advantage of Biofuel as compared to ATF is that it reduces carbon emissions and enhances fuel efficiency.

A part of kerosene subsidy savings in India could be invested in helping the vulnerable section of society access clean lighting through off-grid solar lighting technologies, a new study by leading think tanks International Institute for Sustainable Development and The Energy and Resources Institute explored the business model for a ‘kerosene-solar subsidy swap’ has suggested. It said a shift to solar lighting will reduce the need for ongoing expenditure on subsidies because any government support would help cover one-off capital costs, not consumption costs. Their report released said since 2013-14 the central government has cumulatively saved ₹ 264.70 billion by gradually reducing kerosene subsidy expenditure. This makes sense fiscally and environmentally but leaves some households with high lighting costs. The report also reviews the suitability of Uttar Pradesh and Odisha to host a subsidy swap pilot study, assessing the real-world impact of increased adoption of solar energy and a reduction in kerosene consumption. Moreover, almost 51 percent of subsidised kerosene is lost and marketed for other purposes. Policy makers are aware of these problems, and the government has been winding down kerosene subsidy expenditure through increased prices, reduced allocation of subsidised fuel to states and by encouraging cities such as Chandigarh and New Delhi to voluntarily give it up.

The CIAL has suffered an estimated loss of over ₹ 2.2 billions in the floods. The CIAL management has launched rebuilding of the damaged infrastructure including 2.5 kilometre long airport walls that collapsed after Periyar river overflowed. The solar power system of the world’s first solar-powered airport has also suffered damage in the floods.

The RND is gearing up to add new ferries to its fleet. While three new ferries will ply on the existing routes, the government is also seeking bids to launch the state’s first solar-powered ferry service. The tender for either of these is expected to be floated by the end of the month, RND said. RND said that attempts are being made to ensure that the three new ferries are aesthetically better looking than the existing ones. In April this year, RND had launched three new ferries which are now operational on the state’s waterways. An expression of interest will also be published for the solar-powered ferry launch service. The ferry will run on solar energy and battery-run electric energy. The vessel will be supported by a generator onboard to be used as back-up. The eco-friendly technology of a solar-powered ferry launch service will be a 75-seater vessel.

GAIL (India) Ltd has sought shareholder nod to amend the charter of the company to invest in start-ups, build solar power plants and set up battery charging stations for EVs as it looks to diversify its portfolio beyond gas and petrochemicals. The nation’s biggest natural gas transporting and marketing company wants to insert six new sections in the main objects clause of the memorandum of association of the company, according to shareholder notice. GAIL said that there is a necessity to adopt new and different pathways to provide clean, cost-effective and efficient mobility services that are safe, reduce dependence on oil imports and achieve more efficient land-use in cities with the least environmental footprints and impacts on human health. With the government planning to make a major shift to EVs by 2030, GAIL felt that charging infrastructure for EVs in India has not been fully developed yet.

The government’s plan to revive stalled hydropower projects through a bailout package of ₹ 160 billion is lying in a limbo for a year now. Lack of funds through budgetary support is a major reason for the delay, as the finance ministry asked the ministry of power to rework the scheme. Last year, the Centre drafted ₹ 160 billion package to revive projects with a capacity of nearly 11,000 MW. This includes 4 percent interest subvention to projects totalling 11,639 MW, creating a Hydro Power Development Fund. The installed capacity of hydropower projects has remained at around 40,000 MW for the past three years, while that of the renewable energy sector has increased about 20 percent in the same period. In the past decade, renewable energy (solar and wind power) has grown by 89 percent while hydro has grown only 28 percent.

Strictly sticking to the slogan ‘perform or perish’, the Arunachal Pradesh government has decided to terminate 100 more hydroelectric projects allotted to various private developers, days after terminating 15 project with a total generating capacity of 1,586.4 MW of power. Two major hydroelectric projects would be commissioned this year – the 600 MW Kameng and the 110 MW Pare projects which will substantially overcome the power needs of the State.

Locals opposing the construction of Jaitapur nuclear power plant in coastal Konkan held a protest march, opposing land acquisition for the project. Villagers, including women in large numbers, gathered at Madban village in Ratnagiri district and shouted slogans against the proposed power plant. Almost 80 percent of the land acquisition of the total 930 hectares owned by 2,500 persons, has been completed. However, some farmers and villagers are opposing the project, citing forced rehabilitation and loss of livelihood. The proposed nuclear power plant will take over land that currently belongs to the villagers in five different fishing villages: Madban, Varliwada, Karel, Niveli and Mithgavane. In March, French Ambassador to India Alexandre Ziegler said construction of the Jaitapur nuclear power plant is expected to begin this year-end. India and France had inked an agreement to expedite the project. On completion, the Jaitapur project will be the largest nuclear power plant in the world, with a collective capacity of 9,900 MW.

Rest of the World

South Africa has cancelled plans to add 9,600 MW of nuclear power by 2030 and will instead aim to add more capacity in natural gas, wind and other energy sources. Africa’s only nuclear power has an installed capacity of 1,860 MW but plans under the government of former President Jacob Zuma to have six times that output by 2030 hit hurdles over cost and other issues. The plan also showed that electricity demand on the grid has been declining. Russian state-owned firm Rosatom was seen as a frontrunner to build the additional nuclear capacity. Several meetings between Zuma and Russian President Vladimir Putin led to speculation that Rosatom had secured the deal before the launch of the public tender. The plan calls for additional capacity of 8,100 MW from wind and 8,100 MW from gas, 5,670 MW from photovoltaic panels, 2,500 MW from hydro and 1,000 MW from coal by 2030.

Russia’s state civil nuclear power corporation Rosatom has started to load nuclear fuel at the fourth power unit of the Tianwan NPP in China, Rosatom said. Overall, 163 fuel assemblies are planned to be loaded into NPP’s fourth power unit. Nuclear fuel loading signifies the start of the stage of the power unit’s launch into operation. In the next stage, the power unit will be launched with its connection to China’s power grid. The second stage of Tianwan NPP (the third and fourth power units) is being built with the assistance of ASE, Rosatom’s engineering division.  Currently, three VVER-1000 power units built under the Russian project are operational at the Tianwan NPP. NPP is the largest facility of the Russian-Chinese economic cooperation. The first stage of NPP (the first and the second power units) was launched in 2007. The launch of the third power unit of NPP dates back to December 2017.

Iran urged Europe to speed up efforts to salvage a 2015 nuclear deal between Tehran and major powers that US President Donald Trump abandoned in May, saying French oil group Total has formally pulled out a major gas project. Efforts by the remaining signatories – EU members Britain, France and Germany plus China and Russia – to avoid the agreement’s collapse are struggling as Washington has said any firms dealing with Teheran will be barred from doing business in the US.

Iran has resumed talks with Russia to build a new nuclear power plant capable of generating up to 3,000 MW of electricity. The Islamic Republic currently has the capacity to produce 1,000 MW of nuclear electricity. Iran already runs one Russian-built nuclear reactor at Bushehr, its first. Russia signed a deal with Iran in 2014 to build up to eight more reactors in the country. The US in May pulled out of a deal between Tehran and major powers to limit Iran’s nuclear ambitions, and Washington imposed new sanctions on Tehran in August.

Four of Japan’s biggest nuclear operators and plant builders have started talks on a potential partnership in atomic energy, as the sector struggles to reboot in the wake of the Fukushima disaster seven years ago. TEPCO, Hitachi Ltd, Toshiba and Chubu Electric Power Company have signed an initial agreement that will be fleshed out in discussions.  The companies had begun talks on an alliance that would initially focus on decommissioning old reactors. That could be extended to building and maintaining nuclear plants, with the moves likely to spur a broad realignment in Japan’s nuclear industry. Japan’s nuclear sector provided about 30 percent of the country’s electricity supply before a tsunami and earthquake caused reactor fuel meltdowns at TEPCO’s Fukushima Daiichi station in March 2011. The disaster highlighted regulator and industry failings and turned swathes of the public against nuclear power, with all reactors needing to be relicensed by a new regulator to meet tougher safety standards. Japan had 54 operational reactors before the disaster, but utilities have announced plans to decommission nine units in the aftermath, in addition to the six reactors at Fukushima, where a decades long clean-up is in progress.

China’s State Council said it would promote the use of China’s nuclear industry’s independent technological standards worldwide, aiming to play “a leading role” in the global standardization process by 2027. Its two major nuclear project developers, China National Nuclear Corp and the CGN, are jointly promoting an advanced third-generation reactor known as the Hualong One to overseas clients, with CGN aiming to deploy the technology at a proposed nuclear project at Bradwell in England. China aims to raise its total nuclear capacity to 58 GW by the end of the decade, up from 37 GW at the end of June. Capacity could reach as high as 200 GW by 2030, and China also has ambitions to dominate the global nuclear industry via its homegrown technologies.

Britain’s ONR has notified EDF Energy Nuclear Generation Ltd and Doosan Babcock of its intention to prosecute both companies over a non nuclear-related health and safety matter, the ONR said. The charge relates to an incident in April at the Hinkley Point B nuclear plant owned by France’s EDF, which resulted in injury to a Doosan Babcock employee.

Exxon Mobil Corp has been looking to buy renewable energy for delivery in Texas. The largest US oil company sent out a request for proposals with a 8 June deadline, inviting solar or wind power suppliers to pitch contracts that would last 12, 15 or 20 years. Exxon, based in Irving, Texas, is seeking at least 100 MW and would consider proposals for more than 250 MW. Exxon has been slow to follow Big Oil rivals such as Royal Dutch Shell Plc and BP Plc into renewable energy technologies. But as the price of renewable power declines, the company may see the value in consuming wind or solar, even if it eschews producing that kind of energy. Texas is the biggest wind-producing US state, with power prices occasionally going negative on windy days, and solar power is cheaper than coal in many parts of the world. The number of companies contracting to buy renewables continues to expand. Excluding utilities, companies and agencies agreed to buy 7.2 GW of clean energy worldwide through July, shattering the record of 5.4 GW for all of 2017.

The EU will scrap import controls on solar panels and cells from China in September, rejecting a request from EU producers who argue that the bloc will be opening its doors to a flood of dumped products. The EU first imposed anti-dumping and anti-subsidy measures for Chinese solar panels, wafers and cells in 2013 and extended them in March 2017 by 18 months, signaling that they should then end. Chinese manufacturers are allowed to sell solar products in Europe free of duties if they do so at or above a minimum price that has progressively declined. If sold for less than that price, they are subject to duties of up to 64.9 percent.

Biofuel producer and oil refiner Neste sees good opportunities for its renewable jet fuel despite a canceled pilot project in Switzerland. The Finnish company is hoping to get a boost for its biofuels business in the coming years from proposed reductions of CO₂ emissions in aviation. The pilot project was due to replace at least 1 percent of jet fuel used at Geneva airport with Neste’s biofuel, until Swiss authorities told Neste they had decided not to back the scheme. The International Civil Aviation Organization is targeting carbon-neutral growth in aviation from 2020. Alongside Neste, at least one other company, US AltAir Fuels, has tested biofuel for aircraft with pilot projects.

Indonesia made public a revised regulation that gives the country’s palm crop fund more leeway to support the expanded use of biodiesel in Southeast Asia’s largest economy. Indonesia announced plans to require all diesel fuel used in the country to contain a 20 percent bio-component from September. The move aims to reduce diesel fuel imports, boost palm oil consumption and support the rupiah currency. The revised regulation for the Estate Crop Fund, signed by President Joko Widodo and made public, widens the fund’s ability to subsidize the price gap between biodiesel and petroleum-based diesel fuel. The current retail price of diesel is 5,150 rupiah ($0.3526) per liter compared to 7,600 rupiah for unblended biodiesel. The Estate Crop Fund collects levies from palm oil exporters and the proceeds are used to finance government palm oil programs such as biodiesel and crop replanting. Separately, Indonesia’s energy ministry planned to issue its regulation and guidance regarding the blending and biodiesel supply quota allocations.

Indonesia plans to require all diesel fuel used in the country contain biodiesel starting next month to boost palm oil consumption, slash fuel imports, and narrow a yawning current account gap. While the proposal has been welcomed by the palm oil industry and government, it has raised concerns among the automobile industry the fuel could impact engine performance. Environmentalists fear the boost to local palm oil consumption will hasten Indonesia’s already fast spreading deforestation. In Indonesia, the bio component in biodiesel consists of FAME made from palm oil. Indonesia has 26 FAME producers, including units of palm oil giants like Sinar Mas Group, Wilmar, and Musim Mas, according to the Indonesian Biofuels Producers Association.

Britain’s Drax said that its fourth biomass generation unit has started operations at its power plant in North Yorkshire. Drax converted its first three coal units to use biomass between 2013 and 2016. The cost of converting the fourth unit is below the level of previous conversions at around 30 million pounds ($38 million) Drax said it will now continue work to replace its remaining two coal units with gas-fired power generation units. Proposals for these conversions has been submitted to the Planning Inspectorate and a final decision is expected next year.

EU state aid regulators approved three Danish renewable energy schemes, worth a total €144 million ($164 million), as part of the Scandinavian country’s goal of loosening its dependence on fossil fuels by 2050. The three projects will support electricity production from wind and solar this year and next. Danish aid will be granted for 20 years. One is a €112 million scheme which involves onshore and offshore wind turbines and solar installations. A second, worth 27 million euros, is for onshore wind test and demonstration projects. The third project, with a €5 million budget, is a transitional measure for onshore wind. The European Commission said the Danish aid was in line with the bloc’s state aid and environmental objectives.

British renewable energy investor Quercus said it will halt the construction of a €500 million ($570 million) solar power plant in Iran due to recently imposed US  sanctions on Tehran. The solar plant in Iran would have been the first renewable energy investment outside Europe by Quercus and the world’s sixth largest, with a 600 MW capacity. Iran has been trying to increase the share of renewable-produced electricity in its energy mix, partly due to air pollution and to meet international commitments, hoping to have about 5 GW in renewables installed by 2022. In June, before the US-imposed sanctions, more than 250 companies had signed agreements to add and sell power from about 4 GW of new renewables in the country, which has only 602 MW installed, Iranian energy ministry data showed. Quercus has a portfolio of around 28 renewable energy plants and 235 MW of installed capacity. The 600 MW plant it aimed to construct in Iran would be the firm’s largest investment.

MW: megawatt, GW: gigawatt, MNRE: Ministry of New and Renewable Energy, SECI: Solar Energy Corp of India, UT: Union Territory, DGTR: Directorate General of Trade Remedies, PSUs: Public Sector Undertakings, SWR: South Western Railway, kWp: kilowatt peak, CCI: Cricket Club of India, kW: kilowatt, kWh: kilowatt hour, RESCO: Renewable Energy Service Company, US: United States, KUSUM: Kisan Urja Suraksha Evam Utthaan Mahaabhiyan, ISTS: Inter-State Transmission System, ATF: aviation turbine fuel, CIAL: Cochin International Airport Ltd, RND: River Navigation Department, EVs: electric vehicles, NPP: Nuclear Power Plant, EU: European Union, TEPCO: Tokyo Electric Power Company, CGN: China General Nuclear Project Corp,  ONR: Office for Nuclear Regulation, CO₂: carbon dioxide, FAME: fatty acid methyl esters

Courtesy: Energy News Monitor | Volume XV; Issue 13

The continuous increase in imports of coal in the past few years has become a major source of concern, especially in the light of increasing current account deficit during the last few years. Coal is becoming a major import item and this is being viewed as a source of vulnerability to the Indian economy. If one compares figures in the X^th Plan (initial year) with that in the XII^th Plan (initial year), one can easily see how imports have risen and how supply of coal to various power plants are declining on continuous basis. The comparison is given below:

Comparative Analysis

Xth Plan 1st Year (2002-03) Actual					XIIth Plan 1st Year (2012-13) Actual
Power
	Utilities	CPP	Total Power	Total (Including other sectors 2002-03)	Utilities	CPP	Total Power	Total (Including other sectors 2012-13)
Consumption (MT)	255.5	19.6	275	363.4	461.5	45.3	506.9	707.8
Domestic supply (MT)	252.2	17	269.2	340.1	399	45.3	444.3	570.2
Imports (MT)	3.3	2.5	5.8	23.3	62.5	0	62.6	137.6
Consumption, Domestic supply and Imports (%)
Consumption	70.3	5.4	75.7	100	65.2	6.4	71.6	100
Domestic supply	74.2	5	79.2	100	70	7.9	77.9	100
Imports	14.1	10.9	25	100	45.5	0	45.5	100
Consumption, Domestic supply and Imports in Total consumption (%)
Consumption	100	100	100	100	100	100	100	100
Domestic supply	98.7	87	97.9	93.6	86.5	100	87.7	80.6
Imports	1.3	13	2.1	6.4	13.6	0	12.3	19.4

In the year 2002-03, domestic supply of coal to power utilities were at 98.7% and for captive power plants it was 87%. 97.9% of the total demand of the power sector was met through indigenous supply. Total supply including the demand from other sector was 93.6%. Total imports were 23.3 Million Tons (MT) which was only 6.4% of the total consumption. These figures are fairly impressive. But in the year 2012-13, domestic supply of coal to the power utilities reduced to 86.5%. Interestingly, supply to captive power plants was entirely met through indigenous supply even when total supply reduced from 97.9% to 87.7%. Also the total indigenous supply of coal to the all coal consumers reduced dramatically from 93.6% to 80.6%. Total imports rose to 137.6 MT (19.4 %) from the meagre 6.4 % in 2012-13 which is shocking.  What were the reasons behind this sudden surge in imports? Is it possible to identify reasons merely by looking at past coal production trends?

There is always uncertainty over whether India can become self reliant in domestic thermal coal supply? Unfortunately, after analysing the production growth from 2002-03 to 2012-13, the goal of becoming self reliant looks next to impossible, despite improvements in the production rate from 2007 -08 to 2009-10. These three years were quite impressive as growth in coal production improved continuously from 6.1 % to 7.8 % to 8 % respectively.

Coal Production Growth

Year	Production (MT)	Growth%
Xth Plan
2002-03	341.3
2003-04	361.2	5.9
2004-05	382.6	5.9
2005-06	407.0	6.4
2006-07	430.8	5.8
XIth Plan
2007-08	457.1	6.1
2009-09	492.8	7.8
2009-10	532.0	8.0
2010-11	532.7	0.1
2011-12	540	1.4
XIIth Plan
2012-13	557.5	3.13

The main reasons behind this impressive performance was the sudden increase of coal based installed capacity during 2007-08 to 2011-12 (27,000 MW) and continued pressure from state utilities on coal suppliers to fulfil their demand. Also in these years there were only few strikes. The year 2009-10 in which coal production achieved 8 % growth, there was no strike at all and consequently no man days lost. Whereas in 2010-11 when production remained stagnant at 532.7 MT, 2 industrial strikes took place leading to a shortfall of 8.1 MT.  Similar incidents happened in 2012-13 when 2 strikes reducing the coal production by 5.58 MT. These strikes are becoming a regular feature of the Indian coal sector showing how coal production is vulnerable to these unionised labour forces.

The fall in production after 2009 onwards was also due to introduction of the idea of ‘no-go’ area and moratorium on mining in polluted areas due to enforcement of Comprehensive Environmental Pollution Index (CEPI) norms adopted by the environment and forests ministry. Coal projects have struggled to get environment clearances since 2009, when the ministry’s ‘no-go’ classification disallowed mining in 203 coal blocks and CEPI norms had prohibited mining in areas with high pollution index even if pollution was because of some other industry. The enforcement of these approaches forced many utilities to go for costly imported coal.

Apart from the regulatory, administrative and labour issues, inadequate drilling capacity, backlog in the overburden removal, mismatch between excavation and transportation capacities, low availability and under utilisation of heavy earth moving machinery are cited as a major hindrance for increasing the coal production. As per the Comptroller and Auditor General of India, target for detailed drilling by Central Mine Planning & Development Institute (CMPDI) for CIL blocks was 7.50 lakh metre and 13.7 lakh metre for non-CIL blocks against which the achievements were only 5.88 lakh metre and 7.82 lakh metre respectively leading to a shortfall by 1.62 lakh metre for CIL blocks and 5.88 lakh metre for non-CIL blocks. Unfortunately, whatever planning was undertaken in this regard it was limited to paper only and no concrete steps were implemented on the ground.

With regard to mismatch in excavation and transportation capacity, CMPDI reported in 2011 that in 31 projects the excavation capacity is more than transportation capacity and in 12 projects excavation capacity was much lower than the transportation capacity.  This is a major issue showing administrative and regulatory measures are not taken in a timely manner to bridge this imbalance. In the year 2011, CIL requested the railways to provide them 200 rakes/ day but got only 186 rakes/ day which translated into loss of loading of 50,000 tonnes/ day. The same trend is continuing every year.

Productivity is another area which was not given much importance in Indian coal mines and thus far remained merely a tool for comparative analysis with other coal producing countries. There is no denying that there has been continuous rise in production from open cast mines. However there was aggregate shortfall of production by 9.1 MT Eastern Coalfields (ECL), 5.80 MT Central Coalfields (CCL) and 22.86 MT Mahanadi Coalfields (MCL) during 2006 to 2011. Interestingly, ECL which occupies the first rank in labour force with 74,276 workers, where as CCL stands at rank third with 46,686 workers and MCL which occupies the rank fourth with 52,484 workers were not able to effectively utilise their workforce. Companies are aware of good practices but they rarely apply them in day to day operations. Ironically, there is a section on productivity in the Annual Reports of all the companies but productivity given fails to translate into actual performance.

On the private sector participation in commercial coal mining there is always scepticism but it is pushed in the name of efficient practices and lower coal shortages. Well, the foundation was laid by the Ministry of Coal to amend the Coal Mines Nationalisation Act and was approved by the Cabinet on 11/02/1997 and subsequently on 27/05/1997 after new government took charge. The Bill got vetted by Ministry of Law and Justice on 08/07/1997 but before it could be introduced in the Parliament, strike notice was served by the trade unions demanding withdrawal for the Bill. In 1998 the matter was re-examined and in 1999, a fresh note was sent to the Cabinet Secretariat. The Group of Ministers (GoM) convened several meetings in this regard and the last meeting was held in 09/04/2002. The Bill is still pending and no final decision has been taken by GoM on the issue whether to pursue Coal Mines Nationalisation Amendment Bill 2000 in the Parliament in view of threat of strikes by the Trade unions. The government currently wants to end this dilemma through the Coal Ordinance 2014. But there is a problem because government does not have muscle in the upper house (Rajya Sabha) whose consent is crucial!

In the wake of these existing challenges, the government announced that Indian coal production target must reach to 1 billion tons by 2019. Unfortunately until the structural issues discussed above are not addressed in a time bound manner, the ambitious goal looks impossible. Another statement issued by the coal ministry in which it stated that India will reduce thermal imports to nil in three years time does not seem logical. This is because some imports are institutionalised by the very fact that many coastal based power plants are based on imported coal. It is a good that India will reduce its coal imports but still imported coal will be required.

The government wants to disinvest its share from CIL to bridge current account deficit by reducing its shareholding from 89.65 % by another 10 %. The move is very logical as it brings required funds as well as transparency and accountability. But let us not forget the fact that the move will also invite more strikes, which means more man days lost and consequently less production. This means that more imports will be required to bridge the shortfall. How can problems be solved? Well solutions are known but how solutions will be implemented, that is a call on the government!

Source:

Coal Controller Office, Coal Statistics

Ministry of Coal, Annual Reports

Ministry of Coal, Legislation Document

Occasional Working Paper Series, Ministry of Coal

The Comptroller and Auditor General of India (CAG) audit report on coal block allocation

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 23

Monthly Power News Commentary: July – August 2018

India

The Revised Framework for Resolution of Stressed Assets issued by the RBI has forced the electricity sector towards NPAs and the new guidelines will only deepen the sector’s crisis, a Parliamentary panel has noted. India has around 175,000 MW of operational coal-based power generation capacity. Of this, around 60,000 MW capacity is under financial stress. Lenders have exposure to around ₹ 3 trillion of these stressed assets. With a view to clean-up the books of the banks, RBI had issued the revised framework which substituted the then existing guidelines with a simplified generic framework for resolution of stressed assets.

The government is likely to recommend that bankruptcy proceedings for stressed power plants should kick in after 360 days of default, giving relief to banks and companies that are struggling to meet the 180-day deadline set by the RBI in its controversial 12 February circular. The recommendation is expected to be presented to the Allahabad High Court which is hearing petitions against the circular and had asked the government to present its views after consulting all stakeholders. Separate recommendations are likely to be made for power projects depending on their operational status and resolution plans drawn by the lenders. Stressed operational projects and those under execution may be recommended for an extra 180 days over and above the 180-day deadline expiring 27 August. Special dispensation has been sought for projects resolved through CIL supplies (Shakti scheme) and those already in NCLT. A high-level committee to address cross-sectoral issues including delayed payment of private power companies is also being mulled. The power ministry and private power firms have demanded that stressed power projects should not be categorised as stressed in 90 days of default, while the deadline of 180 days to resolve a bad loan, after which liquidation process is immediately triggered, be extended to 270 days.

India may be looking at a huge electricity surplus in most part of the country in the current financial year, according to the latest data released by the power ministry’s technical planning wing CEA. The country is likely to experience energy surplus of 4.6 percent and peak power surplus of 2.5 percent in the fiscal year through March 2019, the CEA has said.  Three states are expected to witness peak time power surplus of more than 30 percent including Tripura at 30.6 percent surplus, Himachal Pradesh at 35.7 percent and Sikkim at 79.2 percent, apart from areas served by Damodar Valley Corp at 40.4 percent. However, five states are likely to have peak power deficit of more than 15 percent — Punjab with 19.6 percent power deficit, Bihar at 18.9 percent, Uttar Pradesh at 17.4 percent, Assam at 17.4 percent and Jammu and Kashmir at 15.1 percent. In 2017-18, CEA had projected an all-India peak power surplus of 11,471 MW or 6.8 percent but the country suffered from a peak power deficit of 2 percent. Experts said the Indian power system is becoming energy surplus but peak deficit due to increased share of renewables and reducing share of hydro and gas-based power generation. CEA said the assessment of the anticipated power supply position for 2018-19 has been made taking into consideration power availability from various stations in operation and renewable energy sources apart from fuel availability and anticipated water availability at hydro stations.

Average spot price of power increased 39 percent to ₹ 3.46/kWh in July over a year ago at IEX. The price however declined 7 percent sequentially compared to ₹ 3.73/kWh in June this year. It said ‘One Nation, One Price’ was realised for 21 days last month. The DAM experienced minor transmission congestion of 6 percent mainly in import of power towards northern region. According to the National Load Dispatch Centre statistics, the all India peak demand touched 168 GW on July 10, 2018, about 1 percent decline over the previous month. The electricity market at IEX TAM and DAM combined traded 4,148 mu last month vis–vis 5,053 mu in June, and 3,729 mu in July last year. Good monsoon rains dampened the power demand as well as prices in July this year vis–vis the preceding month. The DAM traded at 4,028 mu in July registering a decline of 19 percent over 4,965 mu in June, and 10 percent increase over 3,669 mu in July 2017, it said. On a daily average basis about 130 mu were traded during the month with average daily sell bids at 237 mu and average daily buy bids at 161 mu, it said.

The CEA has undertaken a study to ascertain the cheapest power mix in 2030. The outcome of the study will also act as components to the regulators in determining power tariffs. According to estimates by the power ministry, the share of renewable energy in India’s electricity mix is set to increase to around 55 percent by 2030. At present, renewables account for nearly 20 percent of the total installed capacity. India has committed to produce about 40 percent of its installed electricity capacity from non-fossil fuel sources by 2030. It has also set a target of adding 175 GW of renewable energy capacity by 2022. Meanwhile, the CEA is also closely working with stakeholders in building a cost-effective power evacuation infrastructure in Leh and Ladakh region of Jammu and Kashmir. It can be executed by a combination of underground cables and towers installed by airlifting, he said.

Bangladesh, which is importing around 700 MW of power from India, is looking to ramp up its electricity import from the country, the neighbouring nation said. The neighbouring country is aiming at importing 10,000 Mw from India. Power sector cooperation between the two countries is “not limited to transmission and supply only.” India is “supporting its neighbouring country to enhance the capacity building”, particularly, human resource development for power generation, transmission and distribution.

Bihar initiated power projects worth over ₹ 75 billion and it is anticipating that each household in the state would be electrified by the end of this year.  Three power units in the state – Kanti, Navinagar and Barauni – have been handed over to the NTPC Ltd which was likely to “ensure better power generation and availability of electricity to consumers in Bihar at cheaper rates”. Subsidy to domestic consumers besides developing special “agriculture feeders” to cater to the electricity requirements of those involved in farming is expected to improve efficiency in the electricity sector.

The MERC has allowed Adani Power to recover additional expenses incurred by its subsidiary APML due to introduction of the GST. The company put the total impact of the GST to be ₹ 0.35/kWh  which amounts to about over ₹ 4.025 billion till February 2018. APML had filed a petition with the MERC in April to adjust tariffs of electricity sold to the state from its 3,300 MW Tiroda power plant. The company sought the electricity regulator’s approval to offset financial consequences of GST and evacuation facility charge by CIL.

Power discoms in Delhi sold 615.5 mu of electricity to customers outside the state during April-June despite the AAP-led government’s allegation that the capital was staring at power crisis in peak summer season due to coal shortage at plants. According to official data, discoms in Delhi sold 296.228 mu of electricity in June 2018 against 233.578 mu in May, registering an increase of 26.8 percent. Among distribution companies, BYPL sold 144.14 units, BRPL sold 4.29 mu and TPDDL sold 106.381 mu in June.  In May, BYPL sold the maximum 130.047 mu, BRPL sold 16.594 mu and TPDDL sold 64.071 mu to outside customers. BSES said that due to the nature of the power business in India, power demand is arranged keeping in mind the peak power demand. In June, the AAP government wrote to the Power Minister that Delhi was staring at a power blackout due to the fast depleting coal stockpiles at power plants in the city and urged for action with the Railways which transports coal to the national capital.

Faced with reduced supply of electricity by private sector companies under power purchase agreements, GUVNL has invited bids to procure 1,000 MW power on short-term basis through tariff based competitive bidding. The apex electricity utility intends to procure 1,000 MW, which includes 500 MW round the clock and 500 MW for twelve hours, for the months of September, October and November. For December, GUVNL has invited bids for 250 MW round clock power and 500 MW for twelve hours. Meanwhile, the power demand across the state increased to 13,500 MW. The demand had declined to 11,000 MW after heavy rains lashed the state.

Goa said that to improve the power situation in the state a 10-15% hike in the electricity tariff was needed. The electricity department is “seriously working” on improving the power equipment in the state. The department has issued various work orders to the tune of ₹ 4.1 billion, as also kept ₹ 1.13 billion for underground cabling, ₹ 7.55 billion to take up priority work and ₹ 750 million for automating the electric distribution network. Additionally, this year, the government has kept budgetary support of ₹ 3.17 billion for various subsidies, including power connections for households and agricultural farms. Work worth ₹ 4.11 billion is underway. The government will come out with a policy to regularise meter readers and line helpers.

Rest of the World

Iran said it had resumed supplies of electricity to Iraq and other neighbouring states 10 days earlier, after shortages in Iraqi cities sparked unrest in July. Tehran stopped supplying electricity to Iraq in July due to unpaid bills and because of a rise in Iranian consumption during the summer. The power shortage in Iraq sparked protests in Basra and other cities, as people blamed what they called an inept and corrupt Iraqi government. A number of protests have also broken out in Iran in recent months over regular power cuts and water shortages. Saudi Arabia offered to sell electricity to Baghdad at a discount, part of an effort by the kingdom to curb the influence of its rival Iran in Iraq.

Brazil’s Eletrobras (Centrais Eletricas Brasileiras) has delayed the auction of a power distributor based in the state of Amazonas to 26 September from 30 August, while keeping the original date for three other units, the power generation company said. Amazonas Distribuidora de Energia will be put on the block in September while Eletroacre, Ceron and Boa Vista Energia will be auctioned off in August, the company said. Eletrobras is seeking to offload heavily indebted distributors ahead of government plans to privatize the overall company.

A Bosnian regional government agreed to guarantee a €614 million ($700 million) loan from China’s Exim bank to help Bosnian utility EPBiH to add a new generating unit at its Tuzla coal-fired power plant. The amount covers 85 percent of the total value of a contract signed last November for the largest investment into Bosnia’s postwar energy infrastructure, the government of autonomous Bosniak-Croat Federation said. In 2014 EPBiH picked a consortium of China Gezhouba Group and Guandong Electric Power Design to add the 450 MW unit, but the project has been delayed by red tape and negotiations over financing. Under its guarantee terms, the government cited a 20-year loan repayment, including a five-year grace period, and a one-off payment by EPBiH of 47.6 million Bosnian marka ($27.7 million) into a regional guarantee fund. The guarantee deal is expected to receive the required approval from parliament if the issue is put to the lawmakers before Bosnia’s 7 October general election. The government said the new unit at the 715 MW Tuzla plant is necessary to replace its three outdated units, adding that the latest environment-friendly technologies will be used in its construction.

In Australia residential consumers are paying 18 percent lower since 2012 and 8 percent below their global counterparts. According to a survey done by Australian-based consulting firm IEC, Meralco’s tariffs have decreased to P 7.77 per kWh in January 2018 from January 2012’s price point of P 9.57 per kWh. The bad news is Australia is still the third highest electricity rates in Asia behind Japan and Singapore. Japan and Singapore were reported to be among the top Asian countries with the highest electricity rates, placing Meralco’s average tariff 24^th highest out of 46 markets surveyed. The study identified markets such as Thailand, Indonesia, Malaysia, Korea and Taiwan as having the lowest electricity rates due to annual subsidies amounting to $ 800 billion from their respective governments. These subsidies are in the form of cash grants, subsidized fuel or deferred expenditure. To reduce energy costs for the consumer, IEC recommended a focus in adding retail competition on top of more power generation facilities.

The Asian Development Bank has approved more than $375 mn made up of a loan and grants to help Bangladesh provide electricity to all its citizens. The package will go towards a project to develop two power lines in support of the government’s national target of electricity for all by 2021. The government of Bangladesh has pledged to address infrastructure deficiencies, including modern and affordable energy services. About 35 million people in the country are without access to electricity. The government will contribute $174.5 mn towards the total cost of the project, estimated at $532 mn, which is due to be complete at the end of June 2023.

The German government said it took a minority stake in electricity transmission firm 50Hertz for “national security” reasons, thwarting Chinese investors from buying into the strategic company. Berlin has therefore tasked a public bank with purchasing a 20-percent stake put up for sale by Australian infrastructure fund IFM and which has been sought by China’s State Grid. The Chinese group had already tried to take a minority stake in 50 Hz. But their first attempt was blocked as 50 Hz’s majority shareholder — Belgian power transmission system operator Elia — snapped up the stake and expanded its holdings to 80 percent.

State-sponsored Russian hackers appear far more interested this year in demonstrating that they can disrupt the American electric utility grid than the midterm elections, according to US intelligence officials and technology company executives. By comparison, according to intelligence officials and executives of the companies that oversee the world’s computer networks, there is surprisingly far more effort directed at implanting malware in the electrical grid. The Department of Homeland Security reported that over the last year, Russia’s military intelligence agency had infiltrated the control rooms of power plants across the US. In theory, that could enable it to take control of parts of the grid by remote control.

RBI: Reserve Bank of India, NPAs: non-performing assets, MW: megawatt, CIL: Coal India Ltd, CEA: Central Electricity Authority, kWh: kilowatt hour, IEX: Indian Energy Exchange, DAM : day-ahead market, GW: gigawatt, TAM: term ahead-market, mu: million units, MERC: Maharashtra Electricity Regulatory Commission, APML: Adani Power Maharashtra Ltd, GST: Goods and Services Tax, discoms: distribution companies, AAP: Aam Aadmi Party, BRPL: BSES Rajdhani Power Ltd, BYPL: BSES Yamuna Power Ltd, TPDDL: Tata Power Delhi Distribution Ltd, GUVNL: Gujarat Urja Vikas Nigam Ltd, IEC: International Energy Consultants, Hz: Hertz, US: United States

Courtesy: Energy News Monitor | Volume XV; Issue 12

 

Lydia Powell, Observer Research Foundation

Last week, the United States and China released a ‘Joint Announcement on Climate Change’. Some of the mainstream media outlets concluded that it was a historic agreement (see for example BBC which called it a historic green house gas pledge[1] or CNN which said simply that it was a historic agreement[2]). On the other hand, the Indian media outlets conveyed shock over the unexpected announcement and the impact the deal could have on the Indian position (see for example Times of India which said that pressure would increase on India to match with similar pledges[3] or the Hindustan Times which said that it was a surprise for India[4]).

Subsequent news stories in the Indian mainstream media quoted the Minister for Environment & Climate Change as saying that the ‘US-China deal was a good beginning but not ambitious enough’.[5] We will have to wait for India’s follow up response to see if the Minister implied that India would be coming out with a more ambitious target or that India would follow the leaders and get away with an announcement lacking in ambition.  In the mean time here is some unsolicited advice on the best option for India.

Going strictly by the text of the joint announcement[6], China said that:

‘It 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% by 2030 and intends to increase the share of non-fossil fuels in primary energy consumption to around 20% by 2030.’

And the United States said that:

‘It intends to achieve an economy-wide target of reducing its emissions by 26%-28% below its 2005 level in 2025 and make best efforts to reduce it to its emissions by 28%.’

For good measure both sides also said that:

‘They will continue to work to increase ambition over time’

The numbers and the language used in the announcement by two of the largest carbon emitters in the world that together account for 35.7% of global emissions[7] do not justify labelling it as ambitious or game changing.  One could even say that the agreement is deliberately irresponsible as the loop holes are too large even by the loose standards permitted in global diplomacy.

As many observers have pointed out, the two countries only intend to act and so it is not a guarantee of future action. But the word ‘intend’ is not something that China and USA inserted wilfully to avoid commitment. They were merely responding to the invitation by the UNFCCC which asked countries to communicate their intended nationally determined contributions (INDCs) to the agreement in the first quarter of 2015.

In reality, China’s announcement that it intends to peak its emissions could be seen as a statement on the natural course of its economic life. In the context of peaking, the question is not whether China would peak in emissions, but when it will peak and at what level. On both, China’s announcement is uncertain. Here is a tip for India. There is no risk in making announcements on peaking irrespective of whether it is about oil production or carbon emission as long as the date is uncertain. These will peak eventually just as any human being will die eventually. The key is to be uncertain as to exactly when this will happen.

Many commentators have concluded that China only intends to peak its emissions at around 2030 and that this means that China’s emissions will continue to grow even after 2030. They use the low per person consumption of energy in China compared to industrialised economies and the fact that only a small share of the population own cars and other energy consuming appliances in China to make their case for continued growth in emissions in China. This may not be an accurate assumption. As pointed out by the World Energy Outlook 2014 (WEO 2014) released by the International Energy Agency just a week ago, China’s emissions may peak just after 2030.[8] As for the level at which it would peak there appears to be some inaccuracy. In 2011, China’s annual per person CO₂ emissions was estimated to be 7.63 tonnes of CO₂ (tCO₂). This was just below the EU average (EU 28) of 8.4 tCO₂ and higher than world average of 6.58 tCO₂.[9] Surprisingly according to WEO 2014, China’s per person emissions will be 7.1 tCO₂ in 2040, lower than what it is today, under its New Policies Scenario.  We will have to examine WEO 2014 closely to see how exactly this will be achieved.

China’s promise that it will increase consumption from non-fossil energy sources to 20% can be kept on solely the basis of its existing policies. But the numbers are fascinating, especially for Indian energy observers. China has said that it will have in place over 800-1000 GW of non-fossil fuel capacity (including 180 GW nuclear and 130 GW hydro) by 2030.[10] This is roughly the same as the 800 GW coal based capacity that China has today (or equal to total power generating capacity of the United States) and just over three times India’s total power generating capacity today).

India could draw some inspiration from WEO 2014 for its follow-up announcement and easily reiterate what former Prime Minister Manmohan Singh promised on per person emissions. This would be in line with the tendency of the new government to modify old policy positions and convey them as path breaking measures through the obliging media. As per WEO 2014, India’s per person emissions will not exceed global average even by 2040 at just 2.9 tCO₂ under WEO’s New Policies scenario and its emissions would peak sometime around that time.

Coming to the announcement by the United States, some analysts have concluded that China offered to do nothing and in return the United States agreed to tighten its belt further. This is not necessarily true. What the United States agreed to is merely a slightly modified version of what it plans to do anyway. This is not very different from what China has agreed to do. The United States stated intention is essentially an extension of its existing commitment to reduce emissions by 17% below 2005 levels by 2020 as admitted in the fact sheet issued with the announcement.[11] This can be achieved with almost no additional effort on the part of the United States. According to WEO 2014, coal and oil use peak somewhere between 2015 and 2020 while gas use continues to grow until 2040 under its New Policies Scenario. With gas availability and use increasing in the United States, the slight improvement in its promise of emission reduction would be achieved any way, whether or not the Climate mandate required the United States to do so.

Moving on, the text of the joint announcement says that ‘the United States and China hope that by announcing these targets they can inject momentum into the global climate negotiations and inspire other countries to join in coming forward with ambitious actions as soon as possible, preferably by the first quarter of 2015’.[12] Given that the only politically acceptable behaviour now is to become weather-wanes to the direction in which winds from China and the United States are blowing, India could easily oblige by an announcement that says India would peak in emissions sometime after China and that India’s per person emissions would not exceed that of global average.  India may achieve this target without even trying.

All this is fine for the diplomatic dance that countries have to perform until the music stops, but what about the contribution all this will make to reducing emissions. The answer simply is: not much. According to WEO 2014, even under the New Policies Scenario (which assumes that countries will deviate from business as usual paths and implement policies to reduce carbon emissions) carbon emissions will grow by over 20% to 38 GtCO₂ by 2040 that is over the prescribed budget for that period.  If intentions of USA and China are implemented, the WEO expects a saving of 1.3 tCO₂ and 2.9 tCO₂ that will make no difference to the concentration of Green House Gases in the atmosphere. Anyone from Mars (or Venus) will wonder why the supposedly intelligent human race continues to invest in fooling itself year after year that it can and it will change the climate.

Views are those of the author                    

Author can be contacted at lydia@orfonline.org

Courtesy: Energy News Monitor | Volume XI; Issue 23

[1] http://www.bbc.com/news/world-asia-china-30015545

[2] http://www.cnn.com/2014/11/12/world/us-china-climate-change-agreement/

[3] http://timesofindia.indiatimes.com/home/environment/global-warming/US-China-climate-deal-may-put-pressure-on-India-to-pledge-substantially-to-limit-emission/articleshow/45127388.cms

[4] http://www.hindustantimes.com/india-news/india-caught-unaware-on-us-china-climate-deal/article1-1285442.aspx

[5] http://timesofindia.indiatimes.com/home/environment/global-warming/US-China-climate-deal-is-not-so-ambitious-says-India/articleshow/45151932.cms

[6] http://www.whitehouse.gov/the-press-office/2014/11/11/us-china-joint-announcement-climate-change

[7] World Resources Institute, CAIT 2.0, WRI’s Climate Analysis Tool available at http://cait2.wri.org/wri/Country%20GHG%20Emissions?indicator%5B%5D=Total%20GHG%20Emissions%20Excluding%20Land-Use%20Change%20and%20Forestry&indicator%5B%5D=Total%20GHG%20Emissions%20Including%20Land-Use%20Change%20and%20Forestry&year%5B%5D=2011&sortIdx=0&sortDir=desc&chartType=geo

[8] International Energy Agency. 2014. World Energy Outlook 2014

[9] World Resources Institute, CAIT 2.0, WRI’s Climate Analysis Tool available at http://cait2.wri.org/wri/Country%20GHG%20Emissions?indicator%5B%5D=Total%20GHG%20Emissions%20Excluding%20Land-Use%20Change%20and%20Forestry&indicator%5B%5D=Total%20GHG%20Emissions%20Including%20Land-Use%20Change%20and%20Forestry&year%5B%5D=2011&sortIdx=0&sortDir=desc&chartType=geo

[10] http://www.whitehouse.gov/the-press-office/2014/11/11/fact-sheet-us-china-joint-announcement-climate-change-and-clean-energy-c

[11] Ibid.

[12] http://www.whitehouse.gov/the-press-office/2014/11/11/us-china-joint-announcement-climate-change