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South India will have a network of pipelines  

Network of gas pipelines in South India by 2012

By the year 2012, South India will have a network of pipelines carrying natural gas and petroleum products, the Union Petroleum Secretary, Mr S. Sundareshan, said today.

The Kakinada-Chennai pipeline and the Chennai-Tuticorin natural gas pipelines have been authorised and the work has commenced, he said, at a press conference addressed by the Union Minister of Petroleum and Natural Gas, Mr Murli Deora, here today.

A branch of the Kochi-Mangalore product pipeline will go to Coimbatore and Erode. The Chennai-Bangalore product line is also progressing, Mr Sundareshan said.

Pointing out that Mr Deora met the Chief Minister of Tamil Nadu, Mr M. Karunanidhi, Mr Sundareshan said that the Minister raised the issue of additional land for Chennai Petroleum Corporation Ltd's expansion plans. The public sector company intends to scrap an existing 2.5-tonne refinery and build a new nine million tonne refinery.

Mr Sundareshan said that the Chief Minister was told that IndianOil was doing a feasibility study on a project to put up LNG importation and re-gasification facilities at Ennore.

Addressing the media, Mr Deora observed that the prices of crude oil in the international markets was growing and the government would have to take a call on whether and by how much to raise the prices of petrol, diesel, kerosene and LPG.

Mr Deora today consulted with members of Parliament on how best to tackle the issue of under recovery of cost on the sale of these products by oil marketing companies (such as IOC, HPCL, BPCL). "We would not like to raise the prices (of petroleum products) but some times it is just not possible (not to) because the cost of import of oil is prohibitive," Mr Deora said. India imports 80 per cent of the oil it consumes, he noted.

Business Line, New Delhi, May 25, 2010

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On airlifting of petrol, diesel and kerosene to Imphal (Manipur)  

IOC airlifts fuel for Manipur

IndianOil (IOC) has resorted to airlifting of petrol, diesel and kerosene to Imphal (Manipur) from here to tide over the acute fuel crisis in the landlocked state due to indefinite blockade at the arterial National Highway 39.

Manipur government spokesman and Cabinet minister N Biren Singh today informed that it would take some more time for restoration of normal supply of petroleum fuels in the state. The IOC has requisitioned an IL76 aircraft of Indian Air Force (IAF) to airlift fuel to Imphal from Assam.

The Manipur minister informed that yesterday 100 trucks carrying essentials rolled into Manipur under heavy security through NH-53 while 56 more trucks, including some oil tankers entered the state through the same route today.

"However, the crisis of essentials and fuel is far from over and it will take some more time for restoration of normal supply," he informed.

The IOC airlifted 48,000 litres of diesel from Guwahati to Imphal on Saturday and that would suffice to partly cater to the need of VVIPs, police and security forces. The IOC also airlifted 32,000 litres of kerosene to Imphal.

The NH-39 is the normal route for sending petroleum fuels to Manipur through oil tankers. However, in view of the blockade at the highway by Naga Students Federation (NSF) and Naga students of Manipur, the IOC has diverted eight tank lorries and two LPG bullets via Silchar, Aizawl, Churachandpur, and Imphal route along the NH-150.

Manipur Food and Civil Supplies Minister Y Erabot supervised escort for 300 trucks carrying essentials and medicines to Imphal through-NH 53 on Saturday.

Meanwhile, the Naga students continue to block the NH-39 in protest against Manipur government's opposition to the proposed visit of NSCN-IM leader TH Muivah to his birthplace Somdal in Ukhrul district of Manipur. Even as Muivah who has pitched his camp at Viswema village near Nagaland -Manipur boundary, has reiterated his firmness to visit Somdal, Manipur CM Okram Ibobi Singh has said Manipur government would never allow Muivah to enter Manipur.
Economic Times, Kolkata, May 23, 2010

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Subsidies on petroleum products  

‘Do away with fuel subsidies'

Dr Raghuram Rajan
Mumbai, May 24

India should do away with inefficient subsidies on petroleum products and remove bottlenecks in the acquisition of land for setting up infrastructure projects to promote higher economic growth, according to Dr Raghuram G. Rajan, Professor of Finance at the Booth School of Business, University of Chicago. While underscoring the fact that India is in a relatively sweet spot, Dr Raghuram said the subsidies on petroleum products were misdirected as it was promoting consumption of precious fuel by the rich. The economist suggested that with the international crude oil prices ruling low, the time was ripe for the Government to remove the subsidies and improve the fiscal position. On the issue of land acquisition by infrastructure companies in India, Dr Raguhram said land acted as a barrier to entry and only those with ‘connections' could successfully execute infrastructure projects. —
…from the pages of THE HINDU BUSINESSLINE

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Maharatnas and board vacancies  

3 maharatnas shackled by board vacancies

The government on Wednesday named SAIL, ONGC, IOC and NTPC maharatnas, but all except NTPC will have to wait for the government to appoint 50 per cent independent directors before exercising the powers that come with the coveted status. Maharatna status gives the giant public sector companies the right to make equity investments up to 15 per cent of their net worth, subject to a ceiling of Rs 5,000 crore, in Indian and overseas projects without any regulatory approval from the government.

SAIL, ONGC and IOC will not be able to exercise the powers till they complete the quorum of their respective boards, department of public enterprises secretary Bhaskar Chatterjee told Financial Chronicle. ONGC chairman and managing director RS Sharma told FC that the company had four independent directors and needed five more as per the guidelines set by the Securities and Exchange Board of India (Sebi), the capital market regulator.

“This (appointment of independent directors) is not in our hands. The process is on and we hope it will be completed soon,” he said.
Department of public enterprises data show that IOC requires four independent directors and SAIL nine. IOC chairman and director business development B M Bansal could not be reached for his comments. SAIL spokesperson R K Singhal said the vacancies would be filled up in due course. As per clause 49 of Sebi’s listing agreement, the board of a company with an executive chairman must have 50 per cent non-executive directors. Non-official directors of public sector units are appointed by the respective ministries.

Chatterjee said his department had sent letters to the ministries of steel, and petroleum and natural gas to take steps to induct the required number of non-official directors on the boards of SAIL, IOC and ONGC. The maharatna status is a boon to the four companies, which have been aggressively exploring coal and oil assets abroad. NTPC and SAIL are seeking properties in coal-rich countries like South Africa, Indonesia, and Mozambique. Government has asked oil companies like ONGC to acquire one big producing asset or company every year.

The boards of maharatna companies will also be empowered to get into technology tie-ups, joint ventures, and make organisational restructuring without any interference from the government. At present, these navratna (nine jewels) companies were permitted to take independent decisions for investment up to Rs 1,000 crore. The main objective of the maharatna scheme is to empower mega central public sector enterprises to expand operations and become globally competitive.
……by……Sarita C. Singh / Financial Chronicle

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On Oil PSU board decisions  

Oil PSU board decisions must now get Jr Minister's nod

In a move that may curb the autonomy of blue chip oil PSUs, the Petroleum Ministry wants decisions made by boards of firms like ONGC and IOC to pass muster with junior oil minister Jitin Prasada.For the first time ever, the Petroleum Ministry has asked government directors on the board of oil PSUs to not only report decisions made by the company, but also submit minutes of the board meetings to Minister of State for Petroleum and Natural Gas Jitin Prasada.

While the government has two to three directors on the board of PSUs to represent its interest as the largest shareholder, board decisions have never before been put up to ministers.Sources said Petroleum Minister Murli Deora has never interfered with the functioning of the oil PSU boards, which are considered independent by all standards. That independence now stands challenged, with board decisions subject to scrutiny by Prasada.

"Officers on the board of various oil PSUs are directed to keep Minister of State (Prasada) informed about decisions taken in the meeting of the (company) board," an oil ministry order dated May 19 said. "The minutes of the meeting of the board may (also) be put up to Minister of State."Terming the order as "retrograde", bureaucrats who have served on the board of Navratna PSUs said in the past only the Secretary of the Ministry was consulted on matters connected to government policy. It wasn't clear why board decisions have to be reported to Prasada when senior officials of the ministry were part of the decision-making process.

"If any item in the agenda for a board meeting had a bearing on government policy, we would inform the secretary and take directions. But never were things like minutes of the meeting submitted to the secretary, leave alone the minister," a senior IAS officer who served on the board of a Navratna oil PSU said.The move, industry observers said, will curb PSU autonomy, as their decisions will now be subject to scrutiny by political appointees.

Also, sensitive information like bids made by India's flagship overseas firm, ONGC Videsh Ltd, for acquisition of oil and properties, which are minuted, may be leaked after going out of the company domain. They said any bid that OVL made was till now confined to a panel of top bureaucrats or the Cabinet, which clears it. Prasada is a part of neither.OVL, which had in the past lost out on big projects because its bids were leaked, now submits only coded names of acquisition targets to the government panel approving it. But the board minutes have details of the entire bid.
Press Trust of India

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Four PSUs got Maharatna status  

Maharatna status for four PSUs

Government has approved the maharatna status for NTPC, IOC, ONGC and SAIL but only the power major can enjoy the autonomy that goes with the coveted status for the PSUs. "The competent authority has approved the grant of maharatna status IOC, NTPC, ONGC and SAIL," the department of public enterprises said in an inter-ministerial communication.

While the four blue-chip PSUs have been given the new status, only NTPC "has the requisite number of non-official directors on its board and is therefore eligible to exercise the Maharatna powers", it said.

The other three companies also met the norms set by the Cabinet on December 24, their Boards do not have the adequate number of independent directors, the DPE said. The Boards will now have powers to make equity investment up to Rs 5,000 crore to set up financial JVs and wholly-owned subsidiaries in India or abroad without government approval.

Times of India, New Delhi, May 21, 2010

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On unconventional” hydrocarbon deposits  

Tar sands oil extraction 'spreading rapidly'
The successful development of Canada's tar sands has triggered a rush
by Shell and other oil companies to set up similar operations in
Russia, Congo and even Madagascar, a new report reveals.Soaring crude
prices and a growing shortage of drilling sites have encouraged the
energy industry to look at a series of "unconventional" hydrocarbon
deposits threatening vulnerable environment and communities in places
such as Jordan, Morocco as well as the U.S., Friends of the Earth says
in a review called Tar Sands: Fuelling The Climate Crisis.
The revelations came a day before Shell's annual general meeting and
on the day Ceres, a coalition of a investors and environmentalists,
launched its survey warning that Canadian tar sands extraction could
pose an even bigger risk to an oil company share price than the U.S.
rig disaster, which knocked $30bn off the value of BP.Tar sands and
oil shale are considered by green groups to be more damaging than
normal oil operations because extraction is highly carbon and
water-intensive."Tar sands — bitumen that is extracted and upgraded to
produce synthetic crude — has been heavily criticised for its poor
environmental and social outcomes, locally and globally. Canada is
currently the only major centre of production but investment is
expanding, including by European oil companies such as BP, Shell,
Total and ENI," the Friends of the Earth report says.
The group wants the European Union to use its fuel quality directive
to take into account the different carbon footprints of oil-based
fuels entering the EU by assigning them a value to represent the
strength of their greenhouse gas effect. Otherwise "it will encourage
the global expansion of tar sands, putting vulnerable communities at
risk, and will slow progress towards the EU's wider climate and energy
goals."BP is developing tar sands in Alberta and also in Venezuela,
the world's second largest reserves after Canada, where it is active
on the Petromonagas block and is also considering the Ayacucho 2
block.Shell, which led the charge into Alberta, has been working with
Tatneft to produce tar sands crude at the Ashalchinskoye field in
Tatarstan, in the Russian Federation. ENI of Italy has signed an
agreement with the energy ministry in Congo-Brazzaville to invest in
tar sands, although it says it will not use the methods being employed
by others in Canada.
BP and Shell contest claims by Friends of the Earth and others that
tar sands are up to five times as carbon-intensive to exploit as
normal crude. Shell says it hopes to mitigate the impact by using
carbon capture and storage techniques, although the technologies are
unproven on a large scale.Oil shale, a rock containing kerogen from
which synthetic crude can be extracted, is in abundant supply in
Jordan. Shell finalised a deal last year to operate on the AzraQ and
Al-Jafr blocks via its Jordan Shale Company.A spokesman for Shell said
its operations in Jordan were at an early stage and claimed that
although tar sands made headlines they were a small part of the
company's business. "They make up 2.5 per cent of our overall
production and even after planned expansion in Canada they will only
make up 4 per cent," he said. — © Guardian Newspapers Limited, 2010
Terry Macalister ………….from the pages of THE HINDU newspaper

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India's Hydrocarbon diplomacy  

Hydrocarbon diplomacy …
While nuclear power and non-conventional energy from the sun, wind,
and other as yet untested sources will be an essential part of India's
energy security in the long run, there is no getting away from the
fact that the short and medium term is going to be dominated by oil
and gas. Despite some onshore oil finds and the promise of major flows
of natural gas from the Krishna-Godavari basin, the country remains
dependent on overseas producers for the bulk of its hydrocarbon needs.
While the acquisition of oil and gas assets abroad has been an article
of faith, India's efforts in this direction have been plagued by stiff
competition from other global players, official indifference, and
plain bad luck. Despite political goodwill, the country has not
managed a major breakthrough in Russia. Energy relations with Iran
remain fraught in the face of the threat of international sanctions.
In Angola, Nigeria, and other oil-rich African nations, India seems
unable to offer the sort of inducements Chinese companies manage with
their larger foreign exchange reserves and flexible business
practices. Likewise, big energy deals remain elusive in Central Asia.
Even the initial efforts made to develop pan-Asian energy cooperation
during 2004-05 have not been followed up. Despite heady talk of
pipeline grids stretching from Turkmenistan and Iran to Myanmar and
China, not one cubic foot of gas has crossed our land border so far.
Seen against this backdrop, the involvement of Indian companies in the
Venezuela's Carabobo heavy oil project is good news indeed. Venezuelan
President Hugo Chavez has long sought greater Indian involvement in
his country's energy sector as a way of lessening its dependence on
the United States and encouraging South-South cooperation. Last week,
ONGC Videsh Ltd, IOC, and Oil India Limited committed themselves to
investing more than $2 billion for their 18 per cent stake in the
project that is expected to give India 3.6 million tonnes of crude a
year. Venezuela's state oil company will own 60 per cent of the
stakes, with the balance held by the Malaysian and Spanish national
oil companies. Closer home, Indian companies are keen to make a big
play in Iran, where the field is wide open, provided New Delhi is
prepared to support them. Given the capital outlay required and the
uncertainty over prices and politics, energy investments involving
overseas partners will not be free from risk. The Manmohan Singh
government is willing to gamble on nuclear cooperation with the U.S.
despite glaring differences with Washington over how the bilateral
agreement is to be interpreted. Surely, it can afford to be bolder in
its hydrocarbon diplomacy, given the country's immediate energy
editorial in THE HINDU newspaper.

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IndianOil to buy 1.6 million cubic metres of natural gas a day from Reliance Industries Ltd  

IOC to buy gas from RIL to save cost

STATE-OWNED IndianOil (IOC) will buy 1.6 million cubic metres of
natural gas a day from Reliance Industries Ltd (RIL) to replace
costlier liquid fuel at its refineries.

IOC currently uses crude oil or fuel oil for production of hydrogen at
its refineries, and natural gas from RILs eastern offshore KG-D6 field
will replace the costlier fuel, a senior company official said.

"We have tied up with GAIL India for transportation of the gas and are
now waiting to initial the gas sale and purchase agreement (GSPA) with
RIL," he said.

Last year, an Empowered Group of Ministers (EgoM) had allocated 5.384
mmscmd of gas from KG-D6 to public and private sector refineries,
against their demand for 22.8 mmscmd of gas.

IOC had demanded 6.58 mmscmd of gas for Its Gujarat, Mathura and
Panipat refineries, but since refinery as a sector was allocated less
than one-fourth of its demand, the firm is being proportionately given
1.6 mmscmd, he said.
Mail Today, New Delhi, May 13, 2010

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JV for oil project in Venezuela  

Murli Deora, minister for petroleum and natural gas, along with S.
Sundareshan, petroleum secretary and chairman of IndianOil and Oil
India Limited, MD, ONGC Videsh Limited and other senior officials
participated in the signing ceremony presided over by Hugo Chavez
Frias, president, Bolivarian Republic of Venezuela, for signing a
joint venture agreement with the Corporacion Venezolana del PetroIeo
S.A. (CVP) for the development and production from Carabobo-1 Project,
in Orinoco Region of Venezuela. The new joint venture is called
PetroCarabobo S.A. Alongwith OVL, IndianOil and OIL, the other two
partners of the consortium i.e, Spanish major Repsol and Petronas,
Malaysia also signed the joint venture agreement.

Source:Times of India, New Delhi, May 14, 2010

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Government considering representation to workers on company boards  

Govt revives talks on workers in boards

The United Progressive Alliance (UPA) government has initiated a move to revive a 20-year-old controversial bill which seeks to give representation to workers on company boards. As a first step, Union Labour Secretary Prabhat Chaturvedi today met human resource directors and other senior officials of 12 'Navratna' PSUs in Delhi. In the two-hour meeting, Chaturvedi is believed to have asked the officials if they had any objections to the proposal. Written views of the leading industry chambers were also tabled. Among those present were representatives of BHEL, NTPC and Coal India. A representative of the International Labour Organization (ILO) was also present, sources said.

The Participation of Workers in Management Bill was introduced by the government during the prime ministership of V P Singh between 1989 and 1990. It had sought 25 per cent representation of workers on the board of directors and had proposed a fine of up to Rs 20,000 on a company failing to do so. The bill was moved in the Rajya Sabha, but it did not make much headway.
"The private sector had vehemently opposed the bill...and it still continues to do so," Tapan Sen, general secretary, Centre of Indian Trade Unions (CITU), told Business Standard. "I don't know if the government will muster enough courage to bypass this pressure."

Since the bill was moved in the Rajya Sabha, which is a continuing house, it is still alive. At present, only some public sector banks give trade unions a seat on their boards. The labour ministry is hopeful that if the PSUs take the lead, it will be easier for the government to convince the private sector to create a quota for workers on their boards. The ministry has told the PSUs and the industry bodies that business should not be seen only through the perspective of production and profit but also in the light of greater participation of workers. It also made it clear that roping in workers at the lower level of management will not be enough.

Trade unions, affiliated to the Left parties are, however, cautious of the move."It is too early to comment because we are yet to see the exact proposal," Sen of CITU said. "The trade unions should be given a meaningful participation at all levels of the company. In a big bunch of bankers and independent directors, if there is just one or two workers' representative, it will be a meaningless exercise."
The representative of the workers, Sen added, should not be a hand-picked man of the management. "Representatives must be elected through secret ballots."
................Saubhadro Chatterji / Business Standard

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Emailing: spaceball  

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PSU asks for bond from employees who have undergone training  

PSUs seek to ground execs taking flight after training

FACED with the exodus of technical personnel after expensive,
company-funded training, public sector companies such as RITES,
National Thermal Power Corp (NTPC) and Steel Authority of India Ltd
(SAIL) have asked their staff to sign a bond to serve the organisation
for a fixed number of years. The state-owned firms earlier mandated
only new recruits to work for at least 2-3 years, failing which they
had to compensate the company according to the service agreement. In a
number of instances, technical staff left the companies engaged in
consultancy and infrastructure development just after a company-funded
foreign training programme.

"We require that executives sign a bond for serving the company after
they return from the training," a senior RITES official, who did not
wish to be identified, said. Private firms often poach employees from
their public sector counterparts for quality manpower. After the
implementation of Sixth Pay Commission recommendations, the
differential between the salaries of state-owned companies and those
of the private sector has come down but it still remains significant.

"Though the Sixth Pay Commission has done a lot to align compensation,
it is still a far cry from the emoluments such professionals can make
in the corporate world," Transearch International head of
infrastructure practice Rahul Mathur said. In a bid to check flight of
talented personnel, some of the state-controlled firms requires the
person to pay all the expenses incurred on him by the company.

Steel major SAIL spokesperson said the company makes employees sign
bonds in case of some specific training programs. "If the cost being
borne by the company on one employee is an average of Rs 4-5 lakh, it
becomes imperative to get these bonds signed. Usually, the time period
is 2-3 years," he said. NTPC, another public sector company, gets a
one-year bond signed if an employee goes for a week-long training. The
number of years of mandatory service is linked to the period of
training one undergoes. The power sector utility sends around 100
employees across levels for training abroad, which includes technical
training in a new technology as well as managerial training. "Sectors
such as oil & gas and power have attracted private investment
relatively recently, because of which PSU talent is in hot demand for
its obvious exposure to manage such large and complex projects," Mr
Mathur said.
..................Mahima Puri & Nirbhay Kumar / The Economic Times

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Oil Spill-are we ready?  

Can we handle the muck?

MURPHY'S LAW - "anything that can go wrong, will go wrong" - seems to
be the operative rule in the Gulf of Mexico oil spill - Time Magazine
said in its latest cover story.

In view of the given skepticism about India's disaster preparedness,
the scale of the Mexico spill could arouse serious apprehensions -
after all the country has huge petroleum assets like the Bombay High.
There have already been leaks that were not handled at best, like in
Orissa and over five years ago off the Gulf of Kutch. Then, there is
the controversial Alang shipbreaking yard, Asia's largest, which has
often aroused concern over the toxic environment effects, though not
necessarily because of oil spills.

Nonetheless, India's oil sector majors claim they are well equipped.
FC Edge takes a look:

India's largest explorer Oil and Natural Gas Corporation (ONGC) claims
to follow all measures.

"ONGC has not experienced any such mishap in its history," said UN
Bose, director (technology and field services) of ONGC, referring to
the Mexico spill.

"ONGC has a health, safety and development vertical that takes care of
safety and preventive measures," he added.

There may be two kinds of oil spills, explains another senior official
of ONGC who did not want to be quoted. In Mexico, it happened because
of failure of dead man valve. It happened after a deepwater horizon
rig exploded, rupturing the well. A dead man switch is used to stop
the activity when human operations fail. In such a spill the immediate
step is to shut the source of oil. Then, the spilled oil can be soaked
with soaking pads if the volume is less or is flowed out using a
pipeline. So does ONGC have the technological wherewithal to tackle a
disaster of the scale in the Gulf of Maxico? Well, it may well claim
to be following the requisite safety precautions, what would be the
fallout when a disaster happens?

Preparing for the worst

The ONGC official said another spill occurs from leaks from tankers
anchored on the shore. India has experienced this kind of spill at the
eastern coast in Orissa. Such a spill is treated with microbes.

IndianOil (IOC) has developed oilivorous technology - (S) to clean oil
spills, said Anand Kumar, director (R&D) of IOC. The Energy and
Resources Institute (TERI) had developed the technology for treating
sweet crude spills. IOC developed it to treat sour crude, he said. Oil
sludge is generated during a spill. It is also seen during the process
of crude oil refining and storage in large tank farms. This oil sludge
is totally made ecologically friendly through bio-remediation within
60-90 days.

"The technology has been successfully used to remove recent oil spills
in Haldia," Kumar said. Generally, a blend of five microbes is
selected to bio-degrade a wide range of hydrocarbon contaminants.
Consisting of natural bacterial isolates, it is safer to handle and
has no disease causing organisms. It has excellent capability to
degrade wide range of hydrocarbon contaminants, including
organo-sulphur compounds and is totally environmentally safe. But it
works better on spills on land areas. Extending the same application
on aquatic or marine systems where the conditions are altogether
different in terms of nature of medium (microbes don't thrive and
survive very effectively in saline water) and concentration, requires
a focused approach and specialised application.

At present, IOC and TERI are working on an Indo-Australian joint
project to extend the scope of application of the technology on
aquatic and marine systems as India has a long coastal belt and many
sea ports that handle transportation of crude oil and petroleum
products. Ruias-promoted Essar Exploration & Production India (EEPIL)
is presently drilling at onshore locations.

"Among the land blocks where drilling is being carried out, EEPIL
charters rigs from contractors. The company carries out a rigorous
technical audit of these rigs to check pressure control equipment.
These rigs are also checked to ensure they operate optimally while
controlling the formation pressure. Periodic testing and safety
meeting is carried out while the rigs are operating." EEPIL said in
response to FC Edge's queries on their preparedness.

"In addition, the key people involved in running the rig operations
are carefully checked for competency training and relevant
certifications. An updated emergency response plan is also in place in
line with the operations carried out, to ensure safe operations,"
EEPIL added. Reliance Industries (RIL) did not respond to FC's
queries. Sourav Das, the official spokesman of Cairn India, the
operator of India's biggest onshore oil field in Rajasthan declined to
comment saying: "We cannot reveal details on our safety techniques for
security reasons."

The government has also notified safety rules for offshore operations.
Petroleum and Natural Gas Rules 2008 were promulgated and Oil Industry
Safety Directorate (OISD) was asked to administer them. OISD reviews
safety recommendations periodically and looks into any incident on
Indian territory.
Financial Chronicle, New Delhi, May 11, 2010

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Chennai Petroleum Corporation (CPCL) hedging on MCX  

Chennai Petro looks to hedge on MCX
Chennai Petroleum Corporation (CPCL), an IOC group company, will shortly begin hedging on MCX joining companies such as IOC, Tata Petrodyne and SpiceJet which hedge themselves partly against crude oil price risk and volatility by taking exposure to crude oil futures traded on the commodity bourse.

MCX is understood to be in talks with BPCL and HPCL, the other two state-owned refiners, and Air India to use its trading platform for hedging and thus adding to the liquidity of the crude contracts. "We are in the process of getting into the over-the-counter (OTC) market for hedging ourselves against volatility by buying crude oil and selling petroleum products forward," said NC Sridharan, director, finance, CPCL. "We have decided to test the market by enrolling with MCX. By June-end, we would have done half a dozen transactions on the bourse. We propose to enter the offshore OTC market by July with IOC having vetted the agreements being signed between us and the counterparties, which are the ones that IOC does forward transactions with. We will use MCX to hedge our African and Gulf crude oil exposure and the OTC market to sell petroleum products forward." State-owned firms as well as private refiners such as Essar use the more liquid over-the-counter (OTC) market to sell forward the spread or difference between products such as a barrel of diesel and a barrel of crude to banks and trading outfits of major oil companies operating out of Singapore, Hong Kong, Dubai, Tokyo and Sydney.

Metals and energy exchange MCX has been offering futures trading since late 2003 and its average daily volume of crude oil traded in the calendar year through April has been 13 million barrels. However, Indian commodity futures markets are yet to achieve the scale that will enable genuine users to increase their presence in the market. This is because an important legislation (FCRA Act, 1952 Amendment) that will facilitate the entry of banks mutual funds into the market is pending passage by Parliament. "We have been hedging on MCX, albeit not in a big way, for the past two years. Our exposure has to be covered typically for nine months to a year so far. Month contracts must have liquidity, which we find on the OTC market where we do most of our hedging," said SV Narasimhan, director, finance, IOC.

Forward contract is customised

An exchange-traded futures contract facilitates the purchase or sale of an asset at a predetermined price for delivery at a future date, thereby allowing an entity to lock in the price of its raw material or end product A forward contract is similar to a futures contract except that, unlike a futures, which is a standardised contract traded on an exchange, it is a customised contract entered into between two counterparties on the over-the-counter market A benefit that a futures transaction affords over an OTC contract is the removal of counterparty default risk, which is borne by the exchange.

Economic Times, New Delhi, May 10, 2010

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IndianOil to commission its first natural gas pipeline  

IOC set to open first gas pipeline by end of month

IndianOil (IOC) will commission its first natural gas pipeline by month-end. The 132-km-and 30-inch diameter pipeline from Dadri in Uttar Pradesh will supply gas to IOC's Panipat refinery.

The country's largest oil marketing company has partnered with Gujarat State Petroleum Corporation (GSPC) to bid for gas pipeline projects coming up in the country.

"IOC's first gas pipeline will start operating by month-end with an initial capacity of 1.5-2 million metric standard cubic metres per day (mscmd)," K K Jha, director (pipelines) at IOC told Financial Chronicle. On full capacity, the pipeline will flow in 10-mscmd natural -gas.

The pipeline is expected to achieve its full capacity by October, depending on the availability of gas.

Initially, the pipeline will flow regasified LNG sourced from GAIL (India). Later, natural gas from Reliance Industries (RIL)-operated D6 block in Krishna Godavari (KG) basin will be sourced through this pipeline. IOC has spent nearly Rs 300 crore to lay the pipeline.

"Domestic gas is cheaper than imported LNG. So, we are keen to buy more KG gas," Jha said. IOC has been allocated more than three mscmd of KG gas that also includes the allocation done on fallback basis.

IOC has signed gas transportation- agreement with GAIL. It is in the process of signing gas sale and purchase agreement with RIL. GAIL's pipeline will supply natural gas from KG basin to IOC's pipeline.

IOC is in the process of changing feedstock of its refineries in Koyali, Mathura and Panipat from fossil fuel to natural gas. IOC is aggressively stepping into gas pipeline business, said Jha.

"We intend to bid for any gas pipeline project in the country", Jha added.

IOC in partnership with GSPC has submitted bids for three trunk pipelines Mehsana-Bhatinda; Bhatinda-Jammu-Srinagar and Mallavaram-Bhilwara-Vijaipur-Bhopal.

Petroleum and Natural Gas Regulatory Board (PN-GRB) that had invited bids for these gas pipelines, has extended the deadline to bid till this month's end. Earlier deadline was February. When asked if IOC will partner any private players such as Reliance Gas Transportation India (RGTIL) for working on gas pipeline projects, Jha said the company is open for private partnerships depending on the projects.
- Financial Chronicle, New Delhi, May 10, 2010

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IOC- a strong competitor to Reliance in Polymers  

IOC poses a polymer challenge to RIL

Public sector refiner Indian Oil Corporation (IOC) is coming up as a strong competitor to India’s largest petrochemical producer, Reliance Industries Ltd (RIL), especially in polymers. IOC is working on a strategy to add more value to naphtha produced from its refineries instead of dumping the liquid fuel in the market. RIL currently holds 75-80% of the polymer market in the country and has the power to set prices. However, this scenario could change soon, with IOC marking its big-bang entry into the polymer business by commissioning the country’s largest naphtha cracker project at Panipat.

While heightened competition could bring benefits to the downstream plastic processing industry, there is tremendous growth potential for the upstream petrochemical industry as well. The domestic demand for petrochemicals is growing fast from a low base, even as there is a big export market out there to be tapped. India exports polypropylene even as it produces enough polyethylene to meets its requirements. Domestic capacity expansion provides opportunities for both exports as well as import substitution.

India has established itself as a leading exporter of petroleum products like petrol and diesel. The country also has the potential to emerge as a petrochemical export hub if the government’s policy to create mega integrated complexes called petroleum, chemicals and petrochemicals investment regions (PCPIRs) is implemented. This is expected to attract investment of $280 billion. RIL has 62 million tonnes per annum (mmtpa) refining capacity while IOC has 60.2 mmtpa. But IOC is in the process of adding another 18 mmtpa—3 mmtpa through expansion of existing Panipat refinery and 15 mmtpa through a greenfield project at Paradip. Both companies can easily meet feedstock requirement for their petrochemical projects from their own refineries.

Petrochemical is one of the fastest growing sectors in the country. Despite a sharp fall in the petrochemicals market in 2009-10, RIL’s revenue from the vertical petrochemical business increased from Rs 52,758 crore to Rs 55,251 crore on the back of high volumes. Its Ebit margin for the segment was 15.5%. However, competition for marketshare is going to be fierce given that IOC is an emerging player unlike RIL, which has strong foothold in the petrochemical business.

The working group on chemicals & petrochemicals has identified the demand potential in commodity polymers to go up from 5.3 million tonnes in 2006-07 to 12.5 million tonnes by 2011-12. For example, IOC’s Panipat naphtha cracker plant will source feedstock from the company’s refineries at Koyali, Mathura and Panipat. That means there is no risk of feedstock price volatility for the plant. Naphtha currently sells at $700 a tonne. However, if naphtha is further process naphtha into petrochemicals, the revenue generation will swell to $1,100-1,300 per tonne. So, the superior cost economics of the petrochemical business is obvious. To take advantage of this, the company has planned an investment of Rs 30,000 crore in the petrochemical projects over the next few years.

IOC has built the Panipat naphtha cracker project to add value to excess naphtha from its existing refineries. However, its 15 mmtpa-capacity Paradip refinery is coming up as an integrated petrochemical complex. That signals a basic shift in the company’s refining business model towards more value added products. The downstream plastic processing industry is set to benefit from the growing price competition in the domestic polymer market. The Panipat naphtha cracker will produce 800,000 tonnes per annum (tpa) of ethylene, 600 tpa of propylene, 125 tpa benzene, and other products like LPG, pyrolysis fuel oil, components of petrol and diesel. Non-petrochemical products will be sent back to the IOC’s Panipat refinery for further processing.

IOC’s Panipat naphtha cracker is designed to produce 600 tpa of polypropylene, 300 tpa high-density polyethylene (HDPE), 350 tpa linear low density polyethylene (LLDPE) with 350 tpa swing production of HDPE and 325 tpa mono ethylene glycol (MEG) plant.
The polypropylene (PP) unit is designed to produce high quality and high value niche grades, including high-speed bi-axially oriented polypropylene (BOPP), high clarity random co-polymers and super-impact co-polymer grades and polyethylene.
BOPP is used for food packaging and laminations while high clarity random co-polymers are used as raw material for manufacturing food containers and thin walled products. Polyethylene finds applications in batteries, automobile parts, luggage and heavy duty transport containers whereas polyethylene is used for making injection moulded caps, heavy duty crates, containers, bins, textile bobbins, luggage ware, thermoware, storage bins, pressure pipes for gas and water, blow-moulded bottles and jerry cans.

It is not that IOC is to the petrochemical business. It is already producing methyl tertiary butyl ether (MTBE) and butene-1, linear alkyl benzene (LAB) paraxylene and purified terephthalic acid (PX/PTA) at its various refineries. RIL’s polymer production increased 33% to 4.1 million tonnes in 2009-10 because of polypropylene production from its new SEZ facility and higher polyethylene production. Ethylene production increased 5% to 1.8 million tonnes and propylene production from cracker units increased 6% to 735 thousand tonnes.
Propylene production from refineries at Jamnagar has increased by 101% from 8.64 tonnes to 1.73 million tonnes due to the incremental production from SEZ refinery. Polyester production volume increased 9% to 1.7 million tonnes. During the year, production of RIL’s fibre intermediates (PX, PTA and MEG) increased to 4.6 million tonnes.

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Rs 14,000-cr oil bonds to state-owned oil retailers  

Rs 14,000-cr oil bonds to make up for OMC losses
Financial Express, New Delhi, May 06, 2010

The finance ministry has agreed to give extra Rs 14,000 crore to state-owned oil retailers IndianOil, Bharat Petroleum and HPCL to make up for most of the losses they incurred last fiscal year on selling cooking fuel below cost, petroleum minister Murli Deora said on Wednesday.

"We had sought Rs 19,620 crore in compensation but they (the finance ministry) have agreed to give Rs 14,000 crore," Deora said.

The funds will reach the companies at a later stage, but they can use the authorisation (of the extra subsidy) while preparing their financial results for the 2009/10 fiscal, the minister said. Minister of state for petroleum Jitin Prasada told the Rajya Sabha on Tuesday that oil marketing companies have incurred under-recoveries (revenue loss on account of selling fuel below cost) of Rs 46,051 crore last fiscal.

Of this, state-run upstream companies such as ONGC, GAIL and Oil India contributed Rs 8,364 crore by way of discount on crude in the first three quarters. The finance ministry has released a budgetary support of Rs 12,000 crore in cash subsidy as the government's share. Wednesday's grant of Rs 14,000 crore subsidy is in addition to this. Deora said the fresh subsidy support would help retailers but did not say how the remaining Rs 5,620 crore would be met.

Oil secretary S Sundareshan met expenditure secretary Sushma Nath earlier in the day seeking Rs 19,620.95 crore to fully compensate oil marketing companies' revenue loss on PDS kerosene and domestic LPG in 2009-10, agencies reported.

"Oil price at $80-81 is too high. It should come down. Oil price at $60-70 is comfortable. Beyond $75 is unmanageable," Sundareshan recently told FE in an interview. In global markets, oil price fell $3 on Wednesday to below $80 a barrel for the first time since March, as the Greek debt crisis shook markets. Oil had scaled a19-month high of $87.15 on Monday.

IndianOil, Hindustan Petroleum and Bharat Petroleum currently lose Rs 272.5 crore a day on selling fuel below cost and may end the current fiscal with a Rs 90,150 crore revenue loss. They currently sell petrol at a loss of Rs 6.63 a litre while the loss is Rs 6.25 per litre on diesel, Rs 19.74 per litre on PDS kerosene and Rs 254.37 per 14.2-kg LPG cylinder.
Financial Express, New Delhi, May 06, 2010

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Things to know about Venezuela  

The Economics, Culture, and Politics of Oil in Venezuela

Sourced from

Perhaps the most important thing to know about Venezuela is that it is an oil exporting country, the fifth largest in the world, with the largest reserves of conventional oil (light and heavy crude) in the western hemisphere and the largest reserves of non-conventional oil (extra-heavy crude) in the world. This fact is of immense importance to understanding Venezuela because it has shaped practically every aspect of the country, its history, its economy, its politics, and its culture.

Oil industry history

Venezuela's oil industry history can be roughly divided into four periods: the discovery and initial production of oil (1912-1943), Venezuela's assertion of control over the oil industry (1943-1974), the oil boom and nationalization of the oil industry (1974-1998), and the government's attempt to regain control over an increasingly independent oil industry (1999-2003).

Birth of the Petro-State (1912-1943)

Venezuela has had abundant supplies of oil was since pre-colombian times, when the indigenous peoples of Venezuela made use of oil and asphalt, which seeped to the surface, for medicinal and other practical purposes. However, it was not until 1912 that the first oil well was drilled. Shortly thereafter, first Royal Dutch Shell and then Rockefeller's Standard Oil became major producers of oil in Venezuela. Within a few years, by 1929, Venezuela was the world's second largest oil producer, after the U.S., and the world's largest oil exporter. Between 1920 and 1935 oil's share of exports went from 1.9% to 91.2%.This, of course, had an immediate and dramatic impact on the country's economy, known among economists as "The Dutch Disease". The most important consequence of the "Dutch Disease," was that agricultural production declined to almost nothing and the country fell behind in industrializing, relative to other Latin American countries.

Strengthening of the Petro-State (1943-1973)

In 1943 Venezuela passed a vast reform of its oil policy with the Hydrocarbons Act, which tied the Venezuelan state's income even more tightly to the extraction of oil. The law established that the foreign companies could not make greater profits from oil than they paid to the Venezuelan state. The continually increasing oil income led to an ever increasing reliance of the state on this source of income in lieu of individual income taxes. By the 1950's, however, the world oil industry began to feel the effects of the over-supply of oil, especially following the increased production of oil in the Middle East and the imposition of import quotas in the U.S. The consequence was a chronically low price of oil. So as to combat this problem, in 1960, the world's main oil exporting countries, largely due to the prodding of the Venezuelan government, decided to form the Organization of Petroleum Exporting Countries (OPEC). Also in 1960, Venezuela created the Venezuelan Oil Corporation, which later formed the basis for the nationalization of Venezuela's oil industry.

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Government to sell its stake in 10 more PSUs  

Govt to divest stake in 10 more PSUs; IOC, MMTC also in list

NEW DELHI: Aiming to raise Rs 40,000 crore from disinvestment, the government today said it will sell its stake in 10 more PSUs, including IndianOil, MMTC, Coal India Ltd, SAIL, RINL and Shipping Corporation, in the current financial year. "Engineers India is likely to be disinvested in June, Coal India in August, Hindustan Copper in August-September, SAIL in September and Power Grid in November this year," disinvestment joint secretary Sidhartha Pradhan told PTI. This would be followed by disinvestment in IOC and Manganese Ore India Ltd in December, RINL in January 2011, MMTC in February and Shipping Corporation in March next year, he added. The government is aiming to raise Rs 40,000 crore this fiscal through stake sale in public sector entities and has set a roadmap for the same with the first issue SJVNL sailing off smoothly.

The Budget has upped the revenue target from sale of government equity in CPSUs to Rs 40,000 crore in 2010-11 from the Rs 25,000 crore targeted in the current fiscal. "The Rs 40,000-crore disinvestment target for the current fiscal is on track," Disinvestment Secretary Sumit Bose said. As per the Cabinet decision, all listed profitable PSUs should have a public holding of at least 10 per cent and all profitable unlisted CPSUs should be listed. As per criteria, 60 state-run companies are eligible for disinvestment. Last fiscal, the government had raised Rs 25,000 crore through stake sale in PSUs like Oil India, NMDC, REC and NTPC. The first stake sale of this fiscal -- SJVNL-- has got good response from investors, prompting the government to fix the issue price at the upper end of the band at Rs 26 a share. The stake sale would fetch the Centre over Rs 1,000 crore. 
Press Trust of India

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India, Venezuela keen on expanding ties  

India, Venezuela keen on expanding ties

India and Venezuela have agreed to explore all possibilities for expanding the areas of cooperation between the two countries in the wake of the growing cooperation in hydrocarbon sector.

Speaking to newspersons after his meeting with the Minister of Petroleum and Natural Gas, Mr Murli Deora, here on Wednesday, Venezuela's Vice-Minister for Foreign Affairs, Mr Temir Porras Ponceleon, said his country is currently supplying 1,50,000 barrels per day (bopd) of crude oil to India and there was a potential to raise supplies.

At the meeting Mr Deora conveyed that the Indian companies would help ramp up production in Venezuelan oil fields, which could also be utilised by the upcoming refinery projects in India to herald long-term cooperation in the sector.

"We are ready for extra supplies to other refineries which are duly equipped to receive Venezuelan crude with special characteristics," Mr Ponceleon said.

Currently, Reliance Industries Ltd and Essar Oil are main buyers of Venezuelan crude oil. Other Indian refiners such as MRPL have shown interest in buying the Venezuelan crude oil.

The two Ministers agreed that the fruitful alliance in the energy sector could be replicated by investments in other sectors such as cement, pharmaceutical, and steel, iron ore to foster stronger long-term relations between the two nations.


It may recalled that the Indian public sector oil companies ONGC Videsh Ltd, Indian Oil Corporation and Oil India Ltd together have been recently awarded 40 per cent participating interest along with Repsol of Spain and Petronas of Malaysia to develop the Carabobo 1 Norte and Carabobo 1 Centro blocks in the Orinoco Heavy Oil Belt by the Government of Venezuela.

The remaining 60 per cent will be held by the subsidiary of Petroleos de Venezuela S.A (PDSVA), Venezuela's state oil company. The formal agreement for the project is expected to be signed on May 12.

Earlier OVL was awarded 40 per cent participating interest in San Cristobal field in April 2008. OVL is also carrying out the reserve assessment of Junin Norte area in the Orinoco belt of Venezuela.

Business Line, New Delhi, May 06, 2010

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India acquires Russian oil company  

India acquires Russian oil co, says Prasada

India has acquired a Russian oil company and bought equity stake in an oil field project in Venezuela through consortium route, the Rajya Sabha was informed on Tuesday.

Minister of State for Petroleum and Natural Gas Jitin Prasada said during Question Hour, "we have recently acquired a Russian oil company named Imperial Energy through ONGC Videsh. Apart from this we have acquired 18 per cent equity share in a Venezuelan field project through consortium mode."

Prasada said Oil India Ltd, IndianOil and OVL are the shareholders in the 18 per cent stake. The minister said the recent discovery of an oil reserve in Barmer by the government would help in meeting 25 per cent of the nation's current oil production.

"While the Barmer oil reserve can meet 25 per cent of the country's current oil production, the KG Basin gas reserve has the capability of equalling the total gas production of the country in the coming days," Prasada said. To another query on the 'peak oil theory', the minister said various studies have given different views.

"Some researchers subscribing to the theory have predicted from time to time that the world's oil production has peaked and it is likely to decline in future. However, International Energy Agency in its latest publication, World Energy Outlook 2009, projected world oil production increasing from 83.1 million barrels per day in 2008 to 86.6 million barrels per day in 2014-15 and further to 103 million barrels per day in 2030," he said.

Prasada said to maintain and enhance oil reserves of the country and reduce dependence on world's oil reserves in future, the ministry has been carving out more and more areas of exploration for offer under various rounds of New Exploration Licensing Policy and the Coal Bed Methane policy.

Besides, the government has been involved in construction of a strategic storage of crude oil of 5 MMT capacity at three locations - Visakhapatnam, Mangalore and Padur - for meeting unforeseen situations arising out of short term supply disruptions.
Political & Business Daily, New Delhi, May 05, 2010

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Maharatna status to four state-run firms ONGC, SAIL NTPC and IOC  

Maharatna status for IOC ONGC soon


The Government on Tuesday said it is in the process of granting the Maharatna status to four state-run firms ONGC, SAIL NTPC and IOC. The tag will allow them to take investment decisions of up to Rs 5,000 crore, independent of the government. "These proposals, recommended by the Inter-Ministerial Committee, are now being considered by the Apex Committee," minister of state for heavy industries and public enterprises Arun Yadav informed the Rajya Sabha. Yadav said that the Department of Public Enterprises (DPE) has received proposals for the grant of Maharatna status to four Central Public Sector Enterprises (CPSEs). The four firms fulfill all the criteria, comprising a three-year track record of annual net profits of over Rs 5,000 crore, net worth of more than Rs 15,000 crore and turnover of more than Rs 25,000 crore, besides being listed on stock exchanges.

Economic Times, New Delhi, May 05, 2010

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IndianOil flagged off dispatch of consignment of poly propylene  

IndianOil commences polymer dispatch
Times of India, New Delhi, May 04, 2010

B.M. Bansal, chairman, IndianOil, flagged off the dispatch of the first truck carrying a consignment of a poly propylene grade from the gates of IndianOil's Petrochemicals Complex at Panipat. With this, Panipat is set to emerge as a major hub and the primary driver behind an unprecedented industrialization spree in Northern India, triggering off massive investments in a range of downstream plastic processing and allied industries in the region. IndianOil has showcased its capability to offer a full product slate to customers covering all segments of petrochemicals viz. LAB, PX-PTA and polymers.

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IndianOil and TIDCO to jointly set up LNG terminal and power plant  

IndianOil joins TN to revive Ennore LNG project

Public sector IndianOil and the Tamil Nadu Industrial Development Corporation Ltd (TIDCO) are to jointly set up an Rs 10,000-crore LNG (Liquefied Natural Gas) terminal and power plant near Chennai.

The Tamil Nadu Deputy Chief Minister, Mr M.K. Stalin, announced in the Assembly today that TIDCO will enter into a joint venture with IOC to set up a 5 million tonne LNG terminal close to the Ennore Port, to the north of Chennai. This facility will supply about 20 million cubic feet of natural gas daily to industrial consumers.

A gas-based power plant will also come up along with the LNG terminal, he said. TIDCO will take steps to implement the Rs 10,000-crore project.

The decision follows the growing need for natural gas as a fuel for power plants and industries. It is estimated that by 2015 the demand for natural gas in Tamil Nadu will be about 48 million cubic metres. At present, the availability is a minimal 4.2 million cubic metres, he said.

Distribution network

Through another joint venture, TIDCO and Gas Authority of India Ltd (GAIL) will set up a statewide distribution network to supply natural gas. GAIL is setting up an Rs 3,000-crore, 800-km Kochi-Bangalore gas pipeline, which passes through the districts of Coimbatore, Erode, Salem, Dharmapuri and Krishnagiri. Natural gas will be available to the consumers from the Kochi LNG terminal from 2012, he said.

In June 2008, TIDCO entered into a gas cooperation agreement with GAIL for a preliminary techno-economic feasibility study to assess demand potential, pipeline infrastructure and related facilities that would be needed in Tamil Nadu.

The announcement of the Ennore LNG terminal project marks the revival of a more than a decade-long attempt to implement the project. However, LNG availability had then been an issue that impacted progress of the project.

In 2000, Dakshin Bharat Energy, a consortium led by the CMS Energy and the Aditya Birla Group's Grasim Industries, bagged the international competitive bid floated by TIDCO. The other members in the consortium included Unocal Corp, US; Woodside Petroleum Ltd, Australia; and Siemens Project Ventures GmbH, Germany. Dakshin Bharat was to set up a 2.5 million tonne per year LNG terminal and a 1,886 MW power project at Ennore. But the project did not progress.

In 2003, IOC announced plans to set up the project with LNG sourced from Iran through an international bidding process.
Source:Business Line, New Delhi, May 04, 2010

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Panipat Refinery capacity to be enhanced by 25%  

IOC to raise Panipat capacity by 25%
Business Standard, New Delhi, May 02, 2010

IndianOil, the country's biggest of marketing company, will expand capacity of its Panipat refinery by 25 per cent to 15 million tonnes (mt) from October. This will be done at a cost of Rs 1,000 crore. At present, IOC has a refining capacity of 51.2 mt. After the expansion, this will rise to around 54 mt.

"Most modifications have been done. A shutdown will be done during the lean month of August to expand the capacity from 12 mt to 15 mt. The shutdown period will be about one-and-a-half month at the crude distillation unit and the coker plant," Chairman B M Bansal told reporters at a company event in Panipat.

Bansal today flagged the first set of polymers from the company's recently inaugurated naphtha cracker plant at Panipat, marking IOC's entry into the polymer business. IOC's competitor in oil refining and marketing, Reliance Industries, is the largest domestic player in polymer with an estimated market snare of 75 per cent. IOC has been making efforts to diversify into petrochemicals from the liquid fuel business, where its margins remain under pressure as it is required to sell products such as petroleum, diesel, kerosene and LPG at government-determined prices.

IOC's naphtha cracker plant, built at a cost of Rs 14,400 crore, is the country's biggest operating cracker plant. The company will source about 2-mt naphtha, the primary feedstock for the plant, from its refineries at Koyali, Panipat and Mathura.

At present, the plant is operating at 50-60 per cent of its capacity of 850,000 tonnes. The company's naphtha export wills come down gradually as its internal naphtha consumption goes up. "When the plant becomes fully operational in the next two-three months, our naphtha exports will come down by 65-70 per cent from the current 2.5 mt," said B N Bankapur, director (refineries).

The naphtha cracker plant comprises downstream units for producing ethylene, propylene, benzene and associated products. These find application in manufacture of films, toys, tanks, pipes, furniture, auto components and electrical equipment.

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Losses due to sale of fuel  

Rising consumption fuels oil PSUs' fear of losses
..................Ajay Modi / Business Standard

Rising losses due to sale of fuel products like petrol and diesel at government-controlled prices is not the only concern for public sector oil marketing companies (OMCs). These companies are faced with a sharply rising petrol and diesel consumption in tune with the economic recovery and improving industrial activity. The spurt in consumption points to a widening loss since prices of petrol and diesel are capped by the government. In the year ended March 31, 2010, petrol consumption grew by a handsome 13.9 per cent, the highest in more than a decade. Diesel consumption rose by 8.7 per cent, marginally better than 8.4 per cent of 2008-09.

While the OMCs purchase crude oil at international prices, the sale price of products like petrol, diesel, kerosene and LPG are not maintained in line with the international prices. Currently, the OMCs — Indian Oil, Bharat Petroleum and Hindustan Petroleum — lose Rs 5.57 on every litre of petrol they sell, while the loss on every litre of diesel and kerosene is Rs 4.84 and Rs 17.58, respectively. They are also losing Rs 265 on every cylinder of domestic LPG.The OMCs’ underrecovery on the sale of these products is estimated to be Rs 46,051 crore during 2009-10. Under the burden-sharing mechanism for 2009-10, the public sector upstream oil companies will fully compensate the loss on petrol and diesel. The loss on kerosene and LPG is supposed to be made good by the government. However, of the Rs 31,620 crore losses estimated on account of kerosene and LPG, only Rs 12,000 crore has been compensated. Now, along with the rising crude oil price, an added concern for OMCs is the fast rising consumption which will lead to higher losses.

“Rising fuel consumption is a good sign for the economy but it is putting a pressure on the oil industry, especially the OMCs. Other than the evident factor of economic growth, another reason behind the rising consumption is the subsidised price of fuel. Consumers do not feel the pinch of rising price and, therefore, have no urge to conserve,” said R S Sharma, chairman and managing director, ONGC.
The OMCs are concerned if the underrecovery will be fully compensated though there had been assurance from the government. “We are committed to meet the rising consumption. However, if the rising under-realisation is not met, it will add to our miseries,” said G C Daga, director (Marketing), Indian Oil.

According to a recent report by the International Energy Agency, the rise in transportation fuels continues to be supported by car sales. Car sales in India soared 25 per cent — the highest gain in six years — to 1.53 million in the financial year ended March 31. Industrial output rose by over 15 per cent year on year in February. This suggests that the Indian economy, which was less affected by the global recession, remains buoyant, said the report. The report also said that six large non-OECD countries — India, China, Saudi Arabia, Russia, Brazil and Iran — are expected to account for almost three-quarters of the global oil demand growth in 2010. Nonetheless, total oil demand may record subdued growth over the next few months given the structural decline of naphtha and residual fuel oil (which are expected to account for a still significant 22 per cent of the total demand). However, total oil consumption will arguably bounce back strongly in the years ahead as the share of other fuels in the demand pool become larger.

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Visa cap may hurt oil sector  

Visa woes may delay IOC’s Paradip refinery.......Utpal Bhaskar / Mint

New Delhi: After the power sector, it is the turn of oil refining to suffer due to the government’s new limits on the number of overseas workers.State-run Indian Oil Corp. Ltd (IOC), the country’s largest refiner, is lobbying with the government to lift the cap of 20 visas per project as the restriction threatens to delay the commissioning of its new refinery at Paradip, Orissa.IOC needs a number of overseas experts for setting up the refinery, with a capacity of 15 million tonnes per annum (mtpa), at a cost of Rs29,777 crore.

The crude distillation unit of the project is slated to be commissioned by March 2012, and the overall project by November that year.
“There will be an impact on the Paradip refinery project due to visa issues,” said B.M. Bansal, chairman of IOC.B.N. Bankapur, director of refineries at IOC, said the ministry of petroleum and natural gas, under which the firm operates, has raised the issue with the government. “We are facing problems due to this cap in the number of visas, that has led to productivity loss,” he said.

IOC has an installed capacity of 60.2 mtpa from 10 refineries. It expects the new plant to help meet new fuel emission standards, process more low-quality crude and tap export markets in South-East Asia.India has emerged as a major Asian refining hub, with an installed capacity of 177.97 mtpa through 19 refineries, and is exporting petroleum products worth $25 billion (Rs1 trillion) a year. The country is aiming for a refining capacity of 255.78 mtpa by 2012, but a delay in commissioning the Paradip refinery may undercut this target.

The visa cap is already hurting the power sector. The latest case was the cancellation of a contract awarded to China’s Shandong Electric Power Construction Corp., or Sepco, by Indiabulls Power Ltd for its Amravati project, as reported by Mint on 19 March. Though the number of work visas allowed per electricity generation project has been doubled to 40 at the behest of the power ministry, a shortage of Chinese workers is still stalling the construction of some power plants.“The timely delivery of energy and infrastructure projects requires efficient access to the global workforce—drillers, engineers, divers,” said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors.“India should continue to build its capabilities and capacity without imposing visa constraints as these hurdles can cause project delays in the short term and limit skill transfer opportunities in the medium to long term,” he added.

IOC registered a net profit of Rs2,950 crore on revenue of Rs2.85 trillion in 2008-09. From April-December, it earned a profit of Rs4,664 crore on a revenue of Rs70,415 crore. The company’s under-recovery for the nine months was Rs7,936 crore, after taking into account upstream discount and oil bonds.

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