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New gas price: Should it be based on Gross Calorific Value or Net Calorific Value?

April 16: Should the new gas price based on the Rangarajan Committee formula -- as and when it is notified -- be based on Gross Calorific Value or Net Calorific Value?
 
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This is a question that is sought to be addressed through a background note under circulation in the petroleum ministry.
 
8The current formula -- SP (in $ / mmbtu) = 2.5 + (CP - 25) A 0.15 -- is expressed in NCV terms, based on the thermal equivalence of natural gas with crude oil.

 
8Under the Rangarajan formula, the weights given to Henry Hub (HH) and the National Balancing Point (NBP) are based on total consumption in North America and EU along with FSU countries.
 
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In these two markets, there is no single basis for gas prices. Many contracts are volume based or based on thermal equivalence, either as NCV or GCV terms.
 
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The paper claims that it will not be correct to conclude that HH / NBP prices will be only on GCV basis.
 
8The note goes on to add that the gas pricing formula approved by the CCEA only provides for an approximate arm`s length price to which extant practice of using NCV shall be applied or gas prices should be notified in terms of GCV @ 90.2 % of the price arrived at by using the Rangarajan Committee formula.
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Arbitration notices filed by BP and Niko in D-6 block: What should the government do?

April 16: The petroleum ministry seems to be in a bit of a tight corner over how to handle the arbitration notices served by BP and Niko.
8The government`s position before the Supreme Court was that Niko and BP were not entitled to a higher gas price that the new gas price formula was meant to provide as they were not a part of the arbitration proceedings that RIL had instituted against the recovery of capital cost in the D-6 block.
8But the situation has now changed subsequent to the filing of arbitration notices by the two other partners of RIL in the block.
8The minsitry has thrown the ball to the court of Dushyant Dave, the advocate who represents the ministry before the Supreme Court.
8Should the government accept the notices or not is the what is being debated.
8And if it does, what should its response be?
Click on Details for more
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Dominion Cove Point Pipeline-I: GAIL increases its LNG capacity from 4,20,000 Dth/day to 4,30,000 Dth/day

April 16: GAIL has decided to increase the LNG capacity booked in the Dominion Cove Point (DCP) Pipeline in the US from the present 4,20,000 Dth/day to 4,30,000 Dth/day for a period of 20 years.
 
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Accordingly, necessary amendments will be carried out in the Pipeline Precedent Agreement (PPA) signed with DCP.
 
8It is pertinent to note that
GAIL had signed a terminal service agreement with Dominion, a Fortune 500 gas transportation company in the US, for booking 2.3 mmtpa (approximately 4,30,00Dth/day) liquefaction capacity in the Cove Point LNG liquefaction terminal project located at Lusby in the state of Maryland.
 
8Dominion is setting up the liquefaction facilities in the premises of its existing 11.7 mmtpa regasification terminal which are expected to be put into service in 2017. Dominion is marketing 4.6 mmtpa and GAIL has booked 50% of such capacity for 20 years. The balance 50% capacity is held by US-based Pacific Summit Energy (PSE) which is a wholly-owned subsidiary of the Japanese major Sumitomo Corporation.

 
8Under the PPA executed with DCP, GAIL has booked 4,20,000 Dth/day in the Cove Point Pipeline (CPPL), while the Sumitomo subsidiary has booked 4,30,000 Dth/day capacity in the CPPL.
 
8As GAIL has the option to book an additional 10,000 Dth/day of capacity in the pipeline as per the PPA, it decided to increase it to 4,30,000 Dth/day from the existing 4,20,000 Dth/day.
 (Click on Details for more information)
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Dominion Cove Point Pipeline-II: Liquefaction and LNG cargo cost to get reduced by around $2/Dth

April 16: It makes sense for GAIL to increase the LNG capacity in the Dominion Cove Point (DCP) Pipeline as the liquefaction and LNG cargo cost gets reduced by around $2/Dth.
 
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In other words, with an increase of 10,000 Dth/day in the pipeline, there will be savings to the tune of around $20,000/Dth. The net benefit per annum works out to $2.74 million.
 
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As per the Terminal Service Agreement (TSA) signed with the Dominion Cove Point LNG LP (DCP), any LNG produced from the plant beyond the contractual amount of 4.6 mmtpa would be available to GAIL and the Sumitomo subsidiary Pacific Summit Energy (PSE) in equal amount.
 
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This additional quantity has been termed as Authorized Overrun Service (AOS) LNG. The additional quantity can range between 0.65 mmtpa and 1.15 mmtpa.
 
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The rate for AOS LNG is 30% of the bidirectional rate (BDR) for LNG received against the contractual (4.6 mmtpa) LNG.
 
8Therefore, the LNG received through AOS is highly profitable for GAIL as the liquefaction and LNG cargo cost gets reduced by approximately $2/Dth.
 (Click on Details for more information)
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Overlapping of GAIL's existing LPG pipeline with IOC's new pipeline: Ministry to mediate

April 16: The petroleum ministry has decided to mediate between IOC and GAIL so that there is no duplication of effort as both the companies are either planning to lay or augment LPG pipelines serving the same hinterland.
 
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While IOC has proposed to lay a new LPG Pipeline of 3.7 MMTPA capacity from Kandla to Panipat, GAIL is planning to augment the capacity of its existing Jamnagar-Loni LPG Pipeline (JLPL) from 2.5 MMTPA to 4.5 MMTPA.
 
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If both companies were to go ahead with their plans, it will lead to duplication of facilities, resulting in unutilized capacity.
 
8Additional secretary, Rajive Kumar, is working out a solution to the impasse as of now.
 (Click on Details for more information)
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Marketing of CNG-I: Authorized entities should be allowed to supply CNG in contiguous areas as well, says GAIL Gas

April 16: The government is currently in the process of formulating guidelines for granting marketing rights for CNG as a transportation fuel, which would also include setting-up of CNG stations.
 
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As part of the brainstorming exercise, the ministry had invited suggestions from all the stakeholders involved. One such party, GAIL Gas Ltd, has pointed out that an area that needs immediate attention is of supply of CNG in the contagious area by the authorized entity.
 
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A case in point is the Sonipat Geographical Area (GA), under GAIL Gas, wherein though the GA extents till the Barhi Industrial Area, the entity is not authorized to cater to the cities in Samalkha or Panipat districts which are in the vicinity of the existing gas networks.
 
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Similarly, a gas pipeline is passing through the Ambala district and a CNG station there could have seen the completion of the much awaited green corridor from Delhi to Chandigarh.
 
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An in-house study has indicated that out of more than 110 cities with a population in excess of four lacs, around 30 cities already have city gas distribution (CGD) networks, 16 cities are on the gas network and another 30 cities can be brought on the gas network without any major investments if marketing rights are allowed in contagious areas.
 
8If the authorized entity is allowed to supply CNG in the contiguous area more than 150 CNG stations can come up in the next six months, GAIL Gas has claimed.
 (Click on Details for more information)
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Marketing of CNG-II: GAIL Gas bats for CNG supplies to industries through cascades

April 16: GAIL Gas is in favour of supplies of CNG to industries through cascades as the costs involved in providing gas to industry clusters as per the existing regulations is quite high.
 
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Keeping in mind the high costs involved, the company is of the view that providing gas to industries through cascades would be a viable option.
 
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The viability will be much higher in cases where the terrain is such that it prohibits the laying of a pipeline. Such areas can easily be catered to by supplying gas through cascades.
 
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Jumbo cascades of composite materials which are much lighter in weight are in vogue in many countries abroad. Use of jumbo cascades can further optimize not only the CNG dispensing costs but also  significantly increase the reach of supply.
 
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GAIL Gas feels that there should not be any problem with setting up of such stations where CNG is dispensed through cascades (known as daughter stations in industry parlance) as they are already governed by PESO regulations and involve comprehensive checks and balances with clearances mandatory from all the requisite departments, including municipal authorities.
 
8In light of this, GAIL Gas feels that it is imperative that the present restrictions on the setting up CNG stations are set aside at least for a period of five to 10 years until the market matures as it would help build a nation-wide infrastructure in a quicker period of time.
 (Click on Details for more information)
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Ethanol Blended Petrol Programme: BPCL complains of hurdles faced in UP and Karnataka

April 16: Bharat Corporation Petroleum Limited (BPCL) has sought the petroleum ministry's intervention in approaching the state governments of Uttar Pradesh and Karnataka so that the hurdles in the inter-state movement of ethanol can be removed.
 
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OMC depots in Haryana, Delhi, Punjab and Rajasthan have complained about the problems they are facing because of procedural delays on account of movement of ethanol from producing states such as Uttar Pradesh and Karnataka to the state where blending is taking place.
 
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The government of Uttar Pradesh has recently changed its method of issuing export permissions from an annual basis to a quarterly basis for ethanol supplies. As a result of this, there have been delays in getting the requisite permissions for transport of ethanol from Uttar Pradesh. An example is the delay in eliciting permissions from the state to export ethanol: permissions for the January-March quarter 2014 were received only during February. Though the vendors are regularly following up with the state government for issue of export permits in time, they are experiencing difficulties in maintaining supplies.
 
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Then again, even though the Commissioner of Excise, Government of Karnataka, has given permission for 10% ethanol blending in petrol, at some of the locations the licensed quantity has not been increased in line with the requirement of the 10% blending quantity. As a result, the annual licensed quantity at the blending locations is getting exhausted much before the stipulated time.
 
8As the state governments of Uttar Pradesh and Karnataka are involved in this, BPCL has sought the petroleum ministry's intervention so that the issues are resolved at the earliest.
 (Click on Details for more information)
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KG-D6 production update: Average gas output drops for week ending March 30, 2014

April 16: Figures collated by the DGH for the week ended March 30, 2014, show gas output at 12.91 MMSCMD, down from 13.28 MMSCMD recorded for the week ended March 9, 2014, and 3.63 MMSCMD for the week ended February 16, 2014. The production on February 3, 2014 stood at 13.58 MMSCMD.
8The output projection for the week commencing March 31, 2014 was still lower at 12.70 MMSCMD.
8There were e
ight wells on production during the week out of the total of 18 wells that have been drilled, completed and put on production in the field, so far. 10 wells were kept closed - wells A1, A2, A6, A10, B2, B4, B6 and B13 were closed due to high water cut; B1 was closed due to sand incursion; and B7 was closed due to low pressure and associated high water production.
8The following is an update on the production status of RIL`s D1, D3 and MA fields in the KG-D6 block as on March 31, 2014:
--The average gas production in the period between March 24, 2014 and March 30, 2014 was about 12.91 MMSCMD. 
--The production from D1 and D3 fields for the week stood at 8.05 MMSCMD as compared to 8.17 for the week ended March 9, 2014 and 8.32 MMSCMD for the week ended February 16, 2014.
--The balance 4.86 MMSCMD of gas was obtained from the MA field, as against 5.11 MMSCMD, 5.31 MMSCMD and 5.33 MMSCMD during the week ending March 9, 2014, February 16, 2014 and February 3, 2014, respectively.
8Oil production from MA field declines:
--The average oil production from the field was recorded at 5,883 barrels per day for the week ended March 30, 2014 which was lower than 6,520 barrels per day for the week ended March 9, 2014 and much lower than 6,743 barrels per day for the week ended February 16, 2014.
--Out of seven wells in the field, four wells are on production, while the well MA-6H is under work-over since January 16, 2014, and MA-7H is kept under shut-in, and MA-3H is ceased due to high water cut.
--The average condensate production at the Onshore Terminal was 966 barrels per day and the average gas sale from onshore terminal was 4.86 MMSCMD during the week ended March 30, 2014, down from 1,038 barrels per day 5.11 MMSCMD, respectively for the week ended March 9, 2014.
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Spares for mud handling equipment-I: ONGC signs Rate Contract with Continent Projects

April 16: ONGC has signed a Rate Contract with Singapore-based Continent Projects Technologies Pte. Ltd for supply of Kemtron-make spares for mud cleaning systems (LMSS) installed on its onshore rigs at different locations.
 
8The Rate Contract has been signed on an Original Equipment Manufacturer (OEM) basis.
 
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Notably, Continent Projects is the authorized exclusive Indian distributor for US-based Kemtron Technologies Inc.
 
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A total of 132 spares have been included in the Rate Contract which will be procured on an "as and when required" basis.
 
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The validity of the Rate Contract is upto December 31, 2016.
 
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The contractor will quote separate prices for 2014, 2015 and 2016.
 
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The prices (ex-works, Houston, USA in US dollars) shall remain firm and valid for each calendar year.
 
8Based on past three years consumption, the total estimated value of the Rate Contract is pegged at Rs 41.93 crore.
 (Click on Details for more information)
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Spares for mud handling equipment-II: Costing details

April 16: The website carries here, for reference purposes, year-wise rates (for 2014, 2015 and 2016) quoted by Continent Projects for the 132 spares for mud cleaning equipment. Some of the spares for which the rates have been carried are:
 
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Mechanical jack for single-point jack assembly
 
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SP jack, hydraulic hand pump
 
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Single and double cable clamps
 
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Shaker standard jack assembly
 
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High pressure washer
 
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Shaker starter box
 
8Vibrator motors (1.5 Hp and 2.4 Hp)
 Click here for more information
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News Briefs-I

April 16: 8NIC fails to procure license for Oracle software used for its key project of de-duplication of database for LPG: National Informatics Centre (NIC) has failed to procure a license for the Oracle Database Software, which was meant to be used for the underlying RDBMS for de-duplication of its database for LPG.
 --As per Oracle policy, any software being used in the production environment beyond 30 days of its download needs to be licensed by purchasing the license of the software from Oracle, however, NIC is in non-compliance.
 --Oracle has sought petroleum ministry intervention, claiming that despite repeated follow ups, NIC has turned a deaf ear, and given the fact that the project has immensely benefited the Ministry in reducing its outflow for subsidy for duplicate LPG consumers, it is only fair that the software deployed is legal from the license perspective.

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KPCL executes Gas Transmission Agreement with GAIL: Karnataka Power Corporation Limited (KPCL) has recently executed the Gas Transmission Agreement (GTA) with Gas Authority of India Limited (GAIL).
 --State government officials have now sought a meeting with the petroleum secretary on how to go ahead implementing the GTA.
  Details

News Briefs-II

April 16: 8Petroleum Secretary has lead delegation to participate in the 14th IEF Ministerial: Petroleum Secretary Saurabh Chandra is leading a powerful delegation to participate in the 14th IEF Ministerial scheduled during May 15-16, 2014 at Moscow.
 --The delegation consists of P.K.Singh, Joint Secretary (IC), R.S.Butola, Chairman, IOCL, B.C.Tripath, CMD, GAIL and a senior representative from PPAC
8GAIL keen to explore business opportunities with Australia: Gas Authority of India Ltd. (GAIL) is extremely keen to explore business opportunities with Australia in the oil and gas space.
The following areas of opportunity have been identified:
 --
GAIL would like to pursue opportunities to source LNG on a medium to long term basis from existing and upcoming LNG projects in Australia, including NWS, Browse and Pluto, at competitive rates.
 --The gas major would also like to explore farm-in opportunities in producing or near development gas blocks in Australia with the objective of sourcing gas for the domestic market, subject to techno-economic considerations.
 --The company is also keen on exploring other opportunities related to the gas sector in Australia.
 --Notably, PLL, in which GAIL has an equity stake, has already executed a 20 year agreement (wef 2009) with Mobil Australia Resource Company Pvt. Ltd. for sourcing 1.44 mmtpa of LNG from Gorgon LNG project in Western Australia to be re-gasified at PLL's Kochi terminal. GAIL is a 30% offtaker of the RLNG.
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News Briefs-III

April 16:  8Detained LPG vessel at Haldia Port leads to congestion: An LPG vessel -- dubbed Sam Russ -- has been detained at the Haldia Port, since February 9, 2014, by the central government authorities apparently on account of some customs related issues.
 --Initially the vessel was detained at the Haldia Jetty-II (HOJ-II) but was subsequently shifted to HOJ-III to facilitate berthing of another LPG vessel, resulting in congestion at HOJ-I and II.
 --Because of the congestion, IOC is facing inordinate delays in discharge of crude oil and other petroleum products at the Haldia Jetty.
 --In light of this, IOC has sought the petroleum ministry's intervention in taking up the matter with the shipping ministry so that the HOJ-III can be vacated and the congestion on account of waiting crude and POL tankers at HOJ-I and II can be removed.
 
8WPI for petroleum products (March 2014): The index and rate of inflation, for the month of March 2014, calculated on point-to-point basis, in the broad group `fuel and power` (which carries a weight of 14.19%) rose by 0.2 percent to 213.1 (provisional) from 212.6 (provisional) for the previous month due to higher price of high speed diesel and petrol (1% each). However, the price of kerosene (2%) and bitumen and LPG (1% each) declined.

 (Click on Details for more information)
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Gas sector-I: Latest update

April 16: The website provides here for reference purposes, a copy of the presentation made by the petroleum ministry's gas division, under the following heads:
8Why natural gas
8Uses of natural gas
8Types of natural gas
8Indian energy sector: an overview
8Natural gas - world scenario
8Top ten gas producing countries in the world
8Top ten gas consuming countries in the world
8Domestic gas production scenario
8Projection of natural gas production in the 12th plan period
8Basis for projections during XIIth plan
8Sector-wise demand
8Availability of KG-D6 gas fro 2009-10
8Source-wise availability
8Sector-wise supply
8EGOM decisions regarding allocation of KG-D6 gas
8Region-wise gas pipeline
8Upcoming pipelines
8Pipeline infrastructure - present and future
8Existing and upcoming R-LNG terminal
8Planned LNG terminals
8Long term LNG tie-up
8City gas distribution (CGD) infrastructure
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Gas sector-II: More data

April 16: The website carries here the following additional head under which the presentation was made to the Petroleum Secretary, by the ministry's gas division:
8Turkmenistan-Afghanistan-Pakistan-India (TAPI)
8Iran-Pakistan-India (IPI) gas pipeline project
8Recent guidelines related to utilization of natural gas
8Guidelines on swapping
8Guidelines on clubbing and diversion of gas between power plants
8Allocation guidelines for small and isolated fields
8EGOM decisions
8Revised guidelines for allocation and supply of domestic natural gas to CGD entities for CNG and PNG segments
8Policy initiatives under considerations
8Allocation of gas; APM, non-APM, pre-NELP and NELP gas
8The LNG chain
8LNG terminals
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Indraprastha Gas Ltd: Latest update (February, 2014)

April 16: The website carries here, for reference purposes, a status update on the activities of Indraprastha Gas Ltd. (IGL) under the following heads:
 8Number of CNG stations
 --mother stations
 --online stations
 --daughter booster stations
 --daughter stations
 8Compression capacity
 8Number of CNG vehicles
 8CNG sale for February, 2014
 8Average gas consumed in terms of CNG, PNG and RLNG
 8PNG consumer profile: a break up in terms of domestic, small commercial, large commercial and small industries
 8Disagregated PNG sales
 8Disagregated RLNG sales
 8Pipeline infrastructure for PNG
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GAIL Gas 2014-15 projections-I: Highlights

April 16: The following are the key parameters in the Memorandum of Understanding between GAIL (India) Limited and GAIL Gas Limited for 2014-15 under the "very good" category:
Financial parameters
8Sales turnover - Rs.903 crore
8PAT/Net worth - 8.45%
8EBITDA/Net Block - 23.16%
8Sales turnover/Net block - 345.13%
Non-financial parameters
8PNG/CNG sales volume - 530 MMSCMD
8Availability of CGD network - 95%
8Consumer base (increase of industrial consumers) - 8%
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GAIL Gas 2014-15 projections-II: Download MOU

April 16: The website carries here for reference purposes a copy of Memorandum of Understanding between between GAIL (India) Limited and GAIL Gas Limited for 2014-15 under the following heads:
8Vision, mission and objectives
8Performance evaluation criterion and other targets
8Commitments and assistance required from GAIL
8Action Plan for implementation and monitoring of the MoU
Supplementary data
8Availability of CGD network
8HSE index of CGD network
8PNG/CNG marketing and distribution matrix
8Human resource management
8Corporate social responsibility
8Major assumptions taken for preparation of MoU
The website also carries for reference purposes a copy of the MoU for the previous financial year, that is, 2013-2014
  Details

Finance division questions policy relaxation in exploration in mining lease areas-I: "Lack of financial modeling makes the argument weak"

April 15: Differences seem to have developed between the finance and exploration divisions of the petroleum ministry over the amendments to be carried out in the policy relating to exploration in mining lease areas.
 
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The agenda on the subject was set rolling by the petroleum secretary Saurabh Chandra in a recent meeting in which he said that a proposal that seeks further relaxations to an already relaxed policy, requires full justification in terms of three issues -- the presence of substantial reserves to justify PSC violation in favour of the stated objective of energy security, the financial implications to the government of such relaxations in policy, and the different blocks (PSCs) which are intended to be covered under this proposal
 
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The finance division of the ministry is now claiming that all the three issues have remained unaddressed in the policy proposal put forward by the exploration division.
 
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The exploration division had said that it would be difficult to quantify the impact on the government take of allowing discoveries in mining lease areas to be developed. The DGH`s inability to do a financial modeling of such discoveries was cited as the reason why exact financial implications could not be assessed.
 
8The finance division however claims that if the argument is that financial modeling will at best be speculative, then it weakens the case for relaxing the existing policy.
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