Petroleum ministry's proposal for gas price pooling in the power sector-I: The matrix

May 17: The petroleum secretary G.C. Chaturvedi gave an elaborate presentation on pooling of gas prices for the power sector so that new power plants can absorb the high cost of LNG.
The following are the major postulates of the mechanism proposed by the petroleum ministry for pooling LNG with domestic gas for the power sector:
8The weighted average price of gas after pooling will be $6.27/mmbtu. But Chaturvedi said that it would be fair to provide a subsidy on this price for around 4.1 MMSCMD gas presently being supplied to the North East region for power (at 60% of the regular price). The subsidy works out to about $2.5/MMBTU (40% subsidy), amounting to a significant Rs 670 crore per annum.
8As a compensatory mechanism, the price of 2.35 MMSCMD of gas being supplied to captive and group captive consumers should be increased to the level of Ras Gas price (about $10.7 per MMBTU during 2012-13 and to $12 per MMBTU during 2013-14 to generate a cash pool. At the Ras Gas price level, it will generate a corpus of about Rs 680 crore during 2012-13 and about Rs 880 crore during 2013-14.
8This corpus can be utilized for providing subsidy to the tune of 670 crore per annum to the North East.
8An additional charge of $0.50 per MMBTU over and above the weighted average price of $ 6.27/MMBTU is further proposed to absorb the domestic quantity reduction (KG-D6 upto 9 MMSCMD), exchange rate fluctuation, incremental RLNG price increase (of up to $1/mmbtu). For 2013-14, if  D-6 gas goes down further by 5 MMSCMD, this additional cushion will have to be increased. The cushion amount will be adjusted during the next year or revised upwards in event of a shortfall.
8Due to this cushion, a uniform price can be offered to power sector consumers for a period of one year and repeated every year.
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Gas price pooling in the power sector-II: Calculation of pool price with incremental RLNG

May 17: The petroleum ministry has worked out various pool price estimates for incremental RLNG quantity ranging between 7 to 20 MMSCMD to be used for pooling with domestic gas. The calculation is based on the quantity of domestic gas to be used for pooling, use of incremental RLNG, its current price and the weighted average price in case of pooling of domestic gas with RLNG.
8The quantity of domestic gas available for pooling has been estimated at 56.21 MMSCMD, at a price of $4.68 per MMBTU, while price of RLNG has been considered as $19 per MMBTU.
8As per the calculation, in case 7 MMSCMD of RLNG is used for pooling with domestic gas available, the weighted average price for pooled gas works out to be $6.27 per MMBTU.
8The weighted price of pooled gas goes up to $6.84 per MMBTU in case 10 MMSCMD of RLNG is available for pooling, to $7.70 per MMBTU for 15 MMSCMD of RLNG and further to $8.44 per MMBTU for 20 MMSCMD of RLNG.
Price calculations are given for every 1 mmscmd increase in RLNG supply from 7 mmscmd up to a maximum of 20 mmscmd.
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Paradip Refinery project: IOC closing in on target

May 17: IOC has finally been able to manage a steady pace of progress on the Rs 30,426 Paradeep refinery project.
8The project has already been delayed by 10 months, from November 2012 to September 2013 and IOC is making all efforts to ensure that it is not delayed any further.
The following is an update on the mega refinery project as on March 2012:
8Scheduled physical progress: 82.40%
8Actual physical progress: 78.9%
8Commissioning date: Commissioning between April-June 2013 and stabilization by September 2013
8Outlay, 2011-12: Rs 9,000 crore
8Expenditure during 2011-12: Rs 8,222 crore
8Cumulative expenditure since inception: Rs 14,627 crore
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Movement of POL by HPCL through various modes: Projections up to 2031-32

May 17: The website carries here a primary distribution matrix of petroleum products of HPCL, beginning from 2007-08 and going through till 2031-32.
8Total transportation volumes will grow from 23004 TMT in 2007-08 to 94,539 TMT by the year 2031-32. A sizeable increase indeed.
8The data shows that going ahead, the share of transportation volumes through pipelines will decline while the share of coastal and rail transportation modes will increase.
8In the year 2011-12, 55% of POL products were transported by HPCL via pipelines but this is projected to come down to 41.8% by 2031-32. In comparison, transportation through the railways will go up from 17.7% of the total volume to 30.5% during this period.
8In 2011-12, pipelines accounted for 60% of white oil products transportation but this figure is estimated to go down to 44.9% by 2031-32. The share of railways will go up from 19.6% to 34.2%. The share of road transportation is expected to come down from 7.3% in 2011-12 to 3.8% in 2031-32, the share of coastal transportation of white oil is projected to go up from 20.1% to 23.9% during the same period.
8Specialty products such as MTO, hexane, JBO, lubes and sulphur are not transported through pipelines. As much as 95% of these products are ferried by road.
8The share of the pipeline mode of transportation for I&C products (naphtha, LDO, Bitumen and FO) and ATF stood at 35.7% for the year 2011-12 and this figure is expected to remain unchanged going ahead till 2031-32.
8In terms of volume, HPCL transported 31,321 TMT of POL in the country through all modes of transportation in 2011-12, and this quantity is expected to increase to 94,539 TMT by 2031-32.
8HPCL has also forecasted its crude oil needs for the next eight years. Crude oil requirement for the year 2011-12 stood at 16.8 MMTPA, out of which 13 MMTPA was imported and 3.8 MMTPA was domestic crude. In the year 2019-20, the company has estimated a requirement of 50.5 MMTPA of crude oil for its three refineries at Visakh, Mumbai and Bhatinda as well the new Maharashtra refinery expected to be commissioned by 2015-16, of which 46.7 MMTPA will be imported crude.
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Creating LPG storage and bottling facilities: Investment pegged at Rs 3,516 crore

May 17: The Minister of State for Petroleum and Natural Gas RPN Singh informed the Lok Sabha today (May 17, 2012) that in order to meet the future demand of LPG, the Oil Marketing Companies (OMCs) -- HPCL, BPCL and IOC -- have planned to add about 142 thousand metric tonne (TMT) of LPG storage facilities and another 6,072 TMT per annum (TMTPA) of additional bottling infrastructure facilities during the 12th Five Year Plan period (2012-17).
8The proposed investment on the above augmentation of the LPG infrastructure is pegged at Rs 3,516 crore.
8In addition, the import terminal capacity is also proposed to be increased by 1,200 TMTPA with a proposed expenditure of Rs 655 crore.
8The website carries state-wise details of the storage and bottling capacity expansions planned during the 12th Plan. The details are carried in terms of bottling capacity expansions (in TMTPA), along with storage capacity expansions (in TMT), planned in each state (also UTs) during the plan period.
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TAPI Gas Pipeline Project: Cabinet nod to GAIL to sign GSPA with TurkmenGas

May 17: The Union Cabinet today (May 17, 2012) approved the proposal of the petroleum ministry to permit GAIL to sign the Gas Sale & Purchase Agreement (GSPA) with TurkmenGas, Turkmenistan's national oil company, for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline Project.
 8The TAPI gas pipeline is envisaged to be 1,680 km in length (144 km in Turkmenistan, 735 km in Afghanistan and 800 km in Pakistan) with a capacity of 90 MMSCMD of gas, with 38 MMSCMD each for India and Pakistan and the remaining 14 MMSCMD for Afghanistan.
 8The pipeline is expected to be operational in 2018 and supply gas over a 30-year period.
 8The source of the gas is the South Yolotan Osman field, recently renamed as Galkynysh, which has been certified by a reputed international consultant to be holding proven recoverable gas reserves of 16 trillion cubic metres.
 8The provisions of the GSPA have been structured to protect India's commercial interests as India is at the tail end of the pipeline.
 8Afghanistan and Pakistan have committed to the safety and security of the pipeline through the Inter-Governmental Agreement and the Gas Purchase Framework Agreement signed among the four countries in December, 2010.
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Hiring of RIL's SBM for naphtha exports-I: ONGC extends agreement for one more year

May 17: ONGC has extended the existing contract with RIL for hiring of its Single Buoy Mooring (SBM) system at Hazira for one more year. The contract has been extended on a single-tender nomination basis for the third time.
8The extended contract will be valid from May 26, 2012, upto May 25, 2013.
8The provision for extension was there in the original contract which was signed for a period of two years starting from May 26, 2008, upto May 25, 2010.
8A provision for three extensions for a period of 12 months each was included in the original contract.
8Accordingly, ONGC had availed the first extension of 12 months from May 26, 2010, upto May 25, 2011, and the second extension from May 26, 2011, upto May 25, 2012.
8In fact, ONGC has been hiring this service since May 26, 2004. This contract was valid for a period of two years, upto May 25, 2006, which also had a provision of two extensions of 12 months each. These two extensions were availed by ONGC, thereby, extending the validity of the contract upto May 25, 2008.
8The E&P major needs the service of the SBM system to evacuate the naphtha produced at its Hazira plant for export by ships.
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Hiring of RIL's SBM for naphtha exports-II: Costing details

May 17: As per the fresh extended contract, ONGC will pay a rate of Rs 750 for per MT of naphtha to RIL for using its Single Buoy Mooring (SBM) system at Hazira.
8Taking into consideration the component of service tax at 10.3%, the rate for ONGC works out to Rs 827.25 per MT.
8The total financial implication of the extended 12-month contract works out to Rs 86.87 crore.
8The new rate will come into effect from May 26, 2012, and will remain valid upto May 25, 2013.
8The existing rate which is effective upto May 26, 2012, that is, till the end of the second extension is Rs 700/MT.
8The rate for the first extension -- from May 26, 2010, upto May 25, 2011 -- was also Rs 700/MT.
8However, the rate under the original contract for the two-year period -- May 26, 2008, upto May 25, 2010 -- was Rs 625/MT.
8Before this, ONGC was paying a rate of Rs 500/MT, for the period from May 26, 2004, upto May 25, 2008.
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Hiring of RIL's SBM for naphtha exports-III: ONGC forced to hire SBM due to lack of demand for naphtha in local market

May 17: The rate of Rs 750/MT for transportation of naphtha has been finalized after much haggling between ONGC and RIL.
8As the existing rate is Rs 700/MT, ONGC tried hard to keep the contract going at the same rate.
8A committee was also constituted by the ONGC chairman to negotiate the rate with RIL.
8The committee, after prolonged deliberations, opined that as RIL was not agreeing to reduce the rate despite its best efforts, and also considering the monopoly of the private E&P major in the area, there was no other alternative left with ONGC than to accept the higher rate of Rs 750/MT.
8ONGC cannot do without the service of the SBM system as presently, there is hardly any demand for naphtha from local consumers like KRIBHCO, NTPC, and Essar due to availability of gas and re-gasified LNG in the Hazira area.
8Earlier, these companies used to regularly buy naphtha from ONGC's Hazira plant as fuel. But after they switched over to gas, the E&P major was left with surplus naphtha at its plant which had to be exported because of lack of demand in the local market.
8To facilitate exports, ONGC needed to hire the SBM system of RIL for loading operations of naphtha parcels onto export ships.
8ONGC's Hazira plant produces about 1.3 million metric tonne (MMT) of naphtha per annum. About 70% of naphtha is exported through RIL's SBM, while the remaining 30% is sent to Indian Oil Tanking Ltd (IOTL), Mumbai, which is also exported along with the naphtha produced at the company's Uran Plant.
8Timely evacuation of naphtha is critical for ensuring uninterrupted operation of the Hazira plant. In case, due to any reasons, naphtha produced is not evacuated every month, the whole plant operations including gas supplies to the Hazira-Bijaipur-Jagdishpur (HBJ) pipeline as well as local consumers will be hit.
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Hiring of RIL's SBM for naphtha exports-IV: Exports estimated to touch 1,050 TMT in 2012-13

May 17: A total of 30 parcels of naphtha (weighing about 35,000 MT each) are expected to be exported from ONGC`s Hazira plant during the extended period of 12-month contract from May 26, 2012, upto May 25, 2013.
8While 25 parcels are expected to be exported from the commencement of the contract, that is, May 26, 2012, upto March 31, 2013, another five parcels are anticipated to be exported during the period starting from April 1, 2013, upto the expiry of the contract, that is, May 25, 2013.
8The first 25 parcels are estimated to add up to 875,000 MT, while the remaining five parcels are estimated at 175,000 MT. In total, the E&P major intends to export 1,050 TMT from its Hazira terminal during the 12-month extended contract period.
8The financial implication for hiring of the SBM for the first 25 parcels works out to Rs 72.40 crore, while the charges for the remaining five parcels will work out to Rs 14.47 crore. The figures are inclusive of the component of service tax at 10% and education cess at 3%.
8As a result, the total estimated expenditure for ONGC for hiring the RIL`s SBM system for the extended 12-month period -- from May 26, 2012, upto May 25, 2013 -- works out to Rs 86.87 crore.
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Hiring of RIL's SBM for naphtha exports-V: ONGC's naptha entirely booked for OPaL petrochemical plant once it becomes operational

May 17: ONGC has chalked out a plan to evacuate its entire production of naphtha from its Hazira plant to ONGC Petro-additions Ltd`s (OPaL) petrochemical plant once it starts functioning.
8A service agreement between ONGC and OPaL was also signed in December 2011 for providing services related to supply of naphtha.
8The OPaL`s petrochemical plant at Dahej is expected to be commissioned in the third quarter of 2013.
8The E&P major intends to transport naphtha through a pipeline to OPaL.
8However, till the time OPaL`s petrochemical plant starts functioning, ONGC has to look for ways and means to dispatch its naphtha produce from its Hazira plant.
8With a view to putting an end to RIL`s monopolistic control over an SBM system in the Hazira area, ONGC has decided to explore all available means for evacuation of the naphtha produced at its Hazira plant after the recently extended contract expires on May 25, 2013.
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Safety of oil installations: Q&A

May 17: The website carries here answers to following queries raised by a Parliamentary Committee on safey of oil installations in the country 
8Were there gaps in the safety preparedness in oil and gas installations before the recommendations made by the M.B. Lal Committee?
8Whether oil and gas installations can handle earthquakes and tsunami threats with the present level of preparedness?
8How does the petroleum ministry penalize companies for violation of safety standards?
8How many manufacturers are available for procurement of items mandated by the M.B. Lal Committee such as foam generators and and activated rim seal fire detection suppression system?
8What will be the estimated expenditure to be incurred to implement the MB Lal Committee recommendations by oil PSUs and private companies?
8What is the preparedness of oil PSUs to deal with oil industry problems like oil spill in offshore locations and contaminations in onshore installation?
8Whether the petroleum ministry has any proposal to review the laws in the oil and gas sector to enchance safety of oil installation in the country?
8Whether there is any proposal to reduce the frequency of carrying out External Safety Audits by the OISD for oil installations from the current frequency of three years?
8Has the petroleum ministry contemplated devising any intermediary mechanism between OISD and the National Disaster Management Authority (NDMA) for effective coordination in the event of any exigencies in oil installations?
8What is the time frame by which the petroleum ministry and PSUs will implement the recommendations of M.B.Lal Committee?
8What is the mechanism to monitor the safety measures implemented by private companies?
8Whether any assessment has been done on the safety measures installed by private companies in pursuance of the MB Lal Committee recommendations?
(Click on our Reports section for more information)

Bhatinda Refinery: A presentation

May 17: The website carries here a presentation by HPCL-Mittal Energy Limited (HMEL) on the recently-commissioned Bhatinda Refinery. The 9-MMTPA refinery was commissioned in March 2012, at a cost of over $4 billion. The presentation outlines the following:
8Refinery configuration
8Commissioning details
8Key partners involved with the project
8Marketing of products
8Associated facilities along the refinery
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Price of Indian Crude Basket (upto May 11, 2012 ): A downward trend

May 17: The price of the Indian crude basket in the month of May 2012 (till May 11) showed a downward trend compared to the previous month. The average price of the Indian crude basket stood at $112.60 per barrel. The corresponding price in April 2012 was $118.04 per barrel.
8The average price for Dubai, Oman, Brent (Dated) and WTI during May 2012(till 11 May) also went down to $111.66, $111.73, $114.32 and $100.14 per barrel respectively. In comparison, the average prices for the same grades of crude in April 2012 stood at $117.30, $117.44, $119.54 and $103.35 per barrel respectively.
8The highest price for the Indian basket of crude for the period was recorded on May 2, at $116.97 per barrel. The lowest price for the same period was $109.63 per barrel on May 8.
8The average price of the Indian crude basket in the last fiscal (April-March, 2011-12) was $111.89 per barrel. The average price in the last fiscal for Dubai, Oman, Brent (dated) and WTI was $110.14, $110.70, $114.58 and $97.16 per barrel respectively.
8The website carries here detailed information on the price variations of Indian basket of crude, along with that of Dubai, Oman, Brent (dated) and WTI grades of crude till May 11, 2012.
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Jet/Kero prices (up to May 11, 2012 ): Prices go down

May 17: The average jet/kero prices in the Arab Gulf and Singapore markets in the month of May 2012 (till May 11) stood at $125.44 and $128.21per barrel respectively, which was lower than the average prices for all of April, at $130.59 per barrel for the Arab Gulf and $133.26 per barrel for the Singapore market.
8The highest prices for Arab Gulf and Singapore markets during May 2012(till May 11) was recorded on May 2, at $130.36 and $133.16 per barrel respectively.
8The lowest prices for the same period for Arab Gulf was recorded on May 8, at $122.90 and for Singapore markets on May 8, at $125.68 per barrel.
8The average price of jet/kero in the Arab Gulf and Singapore markets in the last fiscal (April-March, 2011-12) was $125.99 and $128.37 per barrel, respectively.
8The website carries here detailed information on daily price variations of jet/kero, along with prices of gas oil, in major world markets till May 11, 2012.
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Naphtha prices (up to May 11, 2012 ): Prices fall down

May 17: The average naphtha prices in the Arab Gulf and Singapore markets in the month of May 2012 (till May 11) stood at $101.21 and $104.55 per barrel respectively, which was lower than the average prices for all of April, at $110.94 per barrel for Arab Gulf and $114.44 per barrel for Singapore market.
8The highest prices for Arab Gulf and Singapore markets during May 2012(till May 11) was recorded on May 2, at $105.12 and $109.35 per barrel respectively.
8The lowest prices for the same period for Arab Gulf and Singapore markets were recorded on May 10, at $98.63 and $101.60 per barrel respectively.
8The average price of naphtha in the Arab Gulf and Singapore markets in the last fiscal (April-March, 2011-12)was $103.51 and $105.57 per barrel respectively.
8The website carries here detailed information on daily price variations of naphtha, along with prices of gas oil, in major world markets till May 11, 2012.
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Lower D-6 output sends power sector into a tizzy-I: No D-6 gas for power sector by 2013-14

May 16: The latest gas supply projections from the D-6 field -- projected to average 28 mmscmd in the current financial year, and was then expected to slide to around 24 mmscmd in 2013-14 and subsequently to 20 mmscmd by 2014-15 -- has sent the power sector into a complete tizzy.
 8A calculation by the Central Electricity Authority (CEA) has drawn up a grim picture: given the priority of allocation to the fertilizer and LPG sectors, net availability of D-6 gas to the power sector is likely to be nil by the year 2013-14.
 8Availability of domestic gas from sources other than the D-6 block is estimated at 24 mmscmd in 2012-13 and 21 mmscmd in 2013-14 against the current availability of 38 mmscmd.
 8There was hope that LNG can be pooled with domestic gas by the power sector but such hope has been dashed by the petroleum ministry`s projection that only 10 mmscmd of additional LNG will be available in 2012-13 and 16 mmscmd in 2013-14 because of infrastructure constraints. This is too little LNG for the pooling mechanism to work efficiently.
 8About 9,500 MW capacity of power plants are expected to be commissioned shortly. With a combined capacity of 25,000 MW (15,000 MW existing and 9,500 MW new). The CEA has estimated that with such dismal availability figures, the plant load factor (PLF) is likely to come down to a mere 32% from the present level of around 55%., the power plants are estimate to operate at a plant load factor (PLF) of only 30%.
 8Operation of a gas power plant below the 50% PLF is considered financially and technically unviable.
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Lower D-6 output sends power sector into a tizzy-II: Pullok Chatterjee gets into the act

May 16: The dismal gas availability scenario prompted Pulok Chatterjee, Principal Secretary to the Prime Minister, to call a meeting of power producers and representatives of the power and petroleum ministries. 
 8The power developers made an adamant demand for amending the order of priority for gas allocation stipulated by the EGoM and accord first priority to the power sector in place of the fertilizer sector. The power companies have argued that while power cannot be imported, fertilizer can be procured from the international market to meet domestic requirements.
8At worst, the power sector demanded that pro rata cuts in gas allocation be done uniformly across all sectors instead of imposing such cuts only on power units.
8But Chatterjee ruled out any such changes in the order of priority in allocation of gas to the fertilizer sector. 
8The Principal Secretary was of the view that pro rata cuts on the fertilizer sector would increase the subsidy bill sharply as urea imports would go up as a consequence. .
8It was further argued that fertilizer units should get priority because they use both the chemical and thermal properties of gas.
8PMO`s decision also stemmed from the fact that India was a very large importer of urea in the world market and any further increase in import will sharply escalate international prices, thereby increasing the subsidy bill.
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Lower D-6 output sends power sector into a tizzy-IX: Existing plants oppose move

May 16: The following views were aired by the power companies on the proposed gas pricing pooling within the power sector:
8NTPC: The public sector company had categorically stated that it was not in favour of pooling of RLNG with domestic gas and instead, wanted that existing gas allocations should not be disturbed. As per the company, the pooling of existing gas with RLNG would make the plants completely unviable and even at the present price, there was little or no off take of power from these costly gas based projects and this would only get costlier with pooling.
8Torrent Power: The company stated that pooling and distributing available domestic gas to all the projects would make all the plants operate at a very low PLF which was not advisable as the O&M cost would go sky high and auxiliary consumption would also go up. Therefore the supply of gas to existing stations must not be disbursed. The entire exercise would raise transportation costs and taxes. It would also involve a re-negotiation of the contract with GAIL and discoms.
8GSEC and MAHAGENCO: The companies wanted status quo to be maintained. They opined that the existing arrangement of gas supply should not be disturbed. They suggested that a mechanism be found for using gas based power plants for "peaking" purposes, as at the level it would be possible to sell power in the grid.
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Lower D-6 output sends power sector into a tizzy-VII: Tata power opposes pooling of price

May 16: In the meeting convened by the CEA, there were very few takers for the proposal to pool the price of gas. The proposal met with stiff resistance from project developers, chief being Tata Power. The company opposed the proposal on the following grounds:
8It already had a pooling arrangement in place at its Trombay power station. The Trombay station was allocated 1.5 mmscmd of gas when ONGC first started flaring as in Mumbai High. Currently the station received only 0.7 mmscmd of APM gas from ONGC, forcing it to use around 0.3 mmscmd of RLNG to bridge the gap, thus already resorting to the pooling of prices at their end. The company  claimed that its plants would not be able to sell power in the merit order system if prices were pooled across the power sector as the tariff rate would be unviably high.
8The company also argued that the regulator would not favor any increase in tariff in case the price of gas went up on account of pooling.
8The mixing of KG-D6 gas with RLNG might be in order but mixing a dwindling quantity of APM gas with RLNG was not advisable.
8Pooling of prices would require revoking the Power Purchase Agreements (PPAs) with concurrence of the discoms and reapproval by the regulators after public hearing.
8The company, instead, had suggested that plants running solely on RLNG could provide ancillary support to grid at Unscheduled Interchange (UI) charges, which were presently at Rs 8.65 per unit. The other possibility could be to have gas plants running totally on RLNG to provide peaking power.
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