Government likely to appoint regulator for natural gas pricing

The Indian government may appoint a regulator to help it determine the price of natural gas that is supplied by oil and gas explorers, such as Reliance Industries Ltd (RIL), to power and fertilizer firms.
An empowered group of ministers (eGoM) looking into the issue of allocating gas to fertilizer, power and some other companies has directed the oil ministry to “suggest an appropriate regulatory authority to aid and advise eGoM on the issue”. Mint has reviewed a copy of the minutes of the eGoM meeting on 24 February.
The suggestion follows a plea by RIL in 2010 to increase the price of gas midway through its five-year supply contracts with consumers on the grounds that the price it is charging is at a discount to global prices.
RIL started supplying gas from its D6 fields in the Krishna-Godavari (KG) basin in April 2009 to power and fertilizer companies at a base price of $4.2 (around Rs. 214 today) per million British thermal units. The supply contracts end in 2014, after which they have to be renegotiated.
“EGoM further noted that the gas prices fixed in 2009 were valid for a period of five years, and on this ground, the request of the contractor for revised prices was turned down in 2010 itself when international prices were comparatively lower,” according to the minutes of the meeting.
An oil ministry spokesperson declined to comment.
“We are not privy to such eGoM-ministry communications, therefore, cannot comment,” an RIL spokesperson said in a response to an emailed query.
To be sure, the oil and gas industry is already governed by two regulatory bodies. The Directorate General of Hydrocarbons (DGH) advises the oil ministry on technical and economic issues related to the sector. It comes under the oil ministry’s administrative control. The Petroleum and Natural Gas Regulatory Board (PNGRB) oversees transportation tariffs and other costs of petroleum commodities related to refining, processing, storage, transportation, distribution, marketing and sale.
Unlike DGH, PNGRB was created by an Act of Parliament and functions independently.
S. Krishnan, chairman of PNGRB, said he was not sure if the agency would be asked to regulate gas pricing. “I cannot say if such a move would contravene any existing guidelines,” he said.
Sunjoy Joshi, a former oil ministry official and director of the New Delhi-based Observer Research Foundation, said that in all likelihood, the government would go in for a new regulatory body. Observer Research Foundation is funded by RIL.
“The government needs an independent upstream regulator to regulate prices. So, it might go in for a new body,” Joshi said.
Dipesh Dipu, director of the consulting practice at Deloitte Touche Tohmatsu India Pvt. Ltd, disagreed.
“If the government does want to regulate natural gas prices, it will probably modify regulations to mandate the existing regulator (PNGRB) for that, otherwise there could be turf issues,” Dipu said.
RIL is facing criticism for declining gas production from the KG-D6 basin, and is involved in a dispute with the oil ministry over the denial of $1.24 billion in costs claimed by the company for developing the D6 field.
The group of ministers has also sought the advice of the law ministry and the attorney general on the issue.
On Friday, Prime Minister Manmohan Singh said that his government may change the gas pricing policy to offer incentives to producers of natural gas.
“We are conscious that remunerative energy prices are needed to ensure expanded energy supply,” Singh said at the 7th Asia Gas Partnership Summit 2012 in New Delhi on Friday. “Oil and gas are national resources and, therefore, should be within the framework of government and regulatory oversight.”
EGoM has also provided a temporary reprieve to non-urea fertilizer plants by declining to suspend gas supply from the KG-D6 field to them till at least May.
The proposed move has been “kept in abeyance” till 24 May and the fertilizer ministry has been asked to come up with guidelines on the move, which will then be reviewed by the group of ministers, according to the minutes of the eGoM meeting.
The oil ministry has held that companies producing non-urea fertilizers should be ordered to buy gas at market prices since the retail prices of non-urea fertilizers have been freed from the government control, and they can pass on the changes in input prices to consumers, Mint reported on 23 December.
Prices of non-urea fertilizers, including diammonium phosphate, muriate of potash and various categories of complex fertilizers, were freed in April 2010.
The government still regulates the retail price of urea, but is working on a draft policy to free this from its control.
The group of ministers also accepted the oil ministry’s view that existing and future allocations of gas discovered under the new exploration licensing policy to power plants be subject to the condition that the entire electricity produced shall only be sold at tariffs determined by the tariff regulator of the power plant.

India’s GAIL eyes up to 2 mln t/yr LNG import deal

GAIL India is
likely to sign a three-year deal within three months to buy up
to 2 million tonnes of LNG annually, Chairman B. C. Tripathi
said on Saturday.

The gas will supply the 5 million tonne-a-year Dabhol LNG
terminal in western India.

India is the world’s eighth-largest importer of LNG and
those imports could rise as much as five-fold in the next decade
as domestic gas output falls and demand surges.

“We are talking to various parties. We will decide on the
deal in next three months,” Tripathi told reporters at Asia Gas
Partnership Summit. “It all depends on how successful are we in
commissioning the terminal.”

He said a consortium of Indian companies which own the
Dabhol terminal was considering doubling the plant’s capacity to
10 million tonnes a year.

He did not specify when a decision on raising the capacity
would be taken.

The Dabhol terminal, which is due to start up later this
month, will initially operate at 50 percent capacity as the
breakwater is not yet ready, he said.

India needs gas to help power electricity generation, its
fertiliser sector, city gas distribution and for industries.

GAIL, Oil India keen on buying RGTIL

In a bid to make the best out of the opportunity, the state-run GAIL and Oil India has evinced keen interest in buying Reliance Gas Transport Infrastructure Ltd (RGTIL), which is currently up for sale, said the sources in the know of development.

RGTIL is closely held company by Mukesh Ambani and is involved in gas pipeline business. As per the sources, Ambani has selected JPMorgan, Citi and SBI Caps for the sale and is likely to seek a valuation close to Rs 10,000 crore.

The company was put up for sale after the Ambani noticed the continuous fall in the output from KG D6 Basin following which RGTIL was unable to justify large investments in the pipelines.

Currently, RGTIL operates the Rs 15,000 crore East-West gas pipeline (EWPL) that connects Kakinada to industrial hubs of Karnataka, Maharashtra and Gujarat. In 2007, following the booming output from the Basin, RGTIL was granted the licence to build two pipelines connecting Kakinada-Vizianagaram-Srikakulam and Kakinada-Ennore-Nellore-Chennai. However, the projects were put on hold due to the unavailability of gas.

Bangalore to get piped gas in 2013

If all goes well, Bangaloreans need no longer apply for for LPG cylinder refills and wait for its delivery; and this is bound to happen in 2012-13. The infrastructure to supply piped gas to Bangaloreans is expected to be ready this fiscal (2012-13) to allow residents the luxury of cooking gas supplied directly to their homes through a city gas distribution (piped) network.
Chief minister DV Sadananda Gowda, presenting the state budget on Wednesday, said the work of laying a natural gas pipeline from Dabhol (in Ratnagiri, Maharashtra) to Bangalore by Gas Authority of Indian Limited (GAIL) is expected to be completed in this fiscal year. A joint venture company with GAIL and Karnataka State Industrial Infrastructure & Development Corporation (KSIIDC) was formed in June 2011 to provide clean fuel for power plants, transport vehicles, industries and households in and around Bangalore.
According to an earlier GAIL statement, the project involves setting up natural gas infrastructure in industrial estates and clusters, besides city gas distribution networks as well as distributed power generation projects in industrial areas across the state.
It is the distribution networks that would supply piped gas to Bangaloreans’ homes, and compressed natural gas (CNG) to commercial vehicles, including state transport vehicles. This would also include distributing fuel through pipelines to industrial areas in the various parts of the state.
GAIL’s about `5,000-crore project of laying the 1,413-km Dabhol-Bangalore gas pipeline will enable carrying 16 million metric standard cubic metres (mmscm) of gas per day, and is expected to be competed by 2013.
KSIIDC hold 26% equity in the project while 24% is held by GAIL, while the rest 50% will be made up of holdings by private investors, financial institutions and strategic partners in varying equities.
Urban environmentalists say the most striking meritorious outcome of this project being completed and ready for operations would be the resulting drastic fall in pollution levels, as has been witnessed in Mumbai and New Delhi where compressed natural gas is being used by commercial vehicles.
Bangalore, at present, is experiencing severely high air pollution levels because of the absence of CNG, which in turn was because of the absence of a pipeline to deliver CNG to Bangalore. Things are expected to change for the better on this front from next year onwards.

PNGRB awards Rs 855 crore pipeline project to GSPL

Petroleum and Natural Gas Regulatory Board (PNGRB) of India awarded Rs 855 crore inter-state gas pipeline project in Jammu and Kashmir to Gujarat State Petronet (GSPL) led consortium.The project, Bathinda-Jammu-Srinagar gas pipeline project, will ensure unabated gas supply throughout the year to the state especially winters when energy needs rise. The 750 km long project passes through Bathinda in Punjab via Jammu to Srinagar.
Government called for close coordination between agencies and urged concerned parties to fast track the project. Assistance of the state government was also sought for future development of city gas distribution networks and clearance issues and other related matters.

‘No gas to power sector from ONGC fields’

The Empowered Group of Ministers (EGoM) stayed on the path suggested by the Petroleum Ministry of maintaining top priority in natural gas allocation for the fertiliser sector, followed by LPG, power and city gas distribution.
It also agreed with the recommendations that pre-NELP gas, sold under administered pricing mechanism, would be kept out of this pecking order. The Power Ministry was pushing for this gas to be diverted from non-priority sectors such as petrochemical plants.
“There is very little gas available (for diversion) in the first place... EGoM decided that things better be left as it is,” Oil Minister S Jaipal Reddy told reporters after the 70-minute meeting.
Power sector had been lobbying for diversion of the APM gas in view of a sharp dip in output from Reliance Industries' KG-D6 gas fields to about 35 million standard cubic meters per day from 61.5 MSCMD achieved in March 2010.
Reddy said the EGoM took note of the fall in output from KG-D6 but did not discuss price changes or pooling of rates as they were not on agenda.
The EGoM felt there was only 3.84 MSCMD of APM gas from state-owned ONGC's fields that currently goes to non-priority sector. Of this, only 1.92 MSCDM could be diverted as users of the rest cannot be switched due to reasons like low pressure.
Most of this gas is dedicated for priority sectors of fertiliser and power and there was 5.23 MSCMD that goes to CGD companies. The EGoM felt that CGD was also a priority sector as without APM gas, which is priced at one fourth the price of imported gas, prices of CNG and piped cooking gas would spiral.
In fertiliser, gas allocations will be made only to urea plants and fuel supply to phosphates and potassium producers would be ‘suspended’ not stopped, Reddy said.
APM gas and KG-D6 gas are currently sold at $4.2 per million British thermal unit.

IGL looks for expansion oppurtunity in Africa

Bombay Stock Exchange-listed city gas distribution company Indraprastha Gas Limited is mulling to spread its footprint into African countries. The gas utility company officials visited Trinidad & Tobago and Nigeria to study market dynamics.

“We are trying to participate in all free and fair discussions wherever they (African countries) want our advice or guidance. We would like to expand this model. IGL has been a role model for any CGD business,” IGL managing director M Ravindran said in an interview with Financial Chronicle.

“We have visited and tried to enter into a dialogue and understand their lookout. There have to be many policy changes that they have to make at their end such as subsidy for gas and kit manufacture.

Gail, one of IGL’s promoters, has an office in Egypt. We do interact on several proposals from Egypt also,” Ravindran said.

IGL’s promoters – Gail and BPCL – have spread business portfolios to several countries offering an edge to this city gas distribution company to enter into talks with overseas players. “Various business opportunities are coming up to understand the markets there (overseas). Frequent delegations come and they show interest to capitalise on gas reserves in their countries. Our people have already visited Trinidad & Tobago.

This time, our team has gone to Nigeria. We are trying to understand the business model there and what are the pricing policies. Every country has unique model of doing business. We are trying to understand dynamics of pricing policy,” Ravindran said.

At present, IGL sees an annual volume growth of 60-70 per cent from industrial customers, 15-16 per cent from CNG users and 40-50 per cent from domestic cooking gas buyers. Now, the gas utility supplies nearly 3.4 mmscmd of gas that is about 2.7 mmscmd of APM gas and remaining from imported and spot market.

“We have a mix of 70-75 per cent of APM and 18-19 per cent of LNG. Remaining 1-2 per cent is sourced from spot market. We do not want to increase the spot purchases and put burden on consumers. But we will have to live with 2-2.5 per cent of spot gas in the long run also. We are trying to source long-term gas from our promoters – BPCL and Gail,” Ravindran said.

RIL to charge $0.15 marketing margin on CBM gas

While the government has sent RIL's $0.135 marketing margin on the sale of KG-D6 gas to the oil regulator for approval, the Mukesh Ambani-led company has proposed to charge a $0.15 levy in lieu of marketing costs on the sale of gas produced from coal seams (CBM).
In newspaper advertisements issued on Friday calling for bids to purchase 3.5 million cubic metres a day of coal-bed methane (CBM) gas it plans to produce from its Sohagpur block in Madhya Pradesh by 2014-end, RIL said it will charge $0.15 per million British thermal units as a marketing margin over-and-above the gas sale price.
The Oil Ministry had on December 26 referred the $0.135 per mmBtu marketing margin RIL charges over-and-above the KG-D6 gas sale price of $4.205 per mmBtu to the Petroleum and Natural Gas Regulatory Board (PNGRB) after the levy was questioned by users like the fertiliser industry.

"The government of India hereby entrusts the determination of the quantum of marketing margin chargeable on sale of natural gas to end-consumers by each marketing entity on the basis of its actual marketing cost to the PNGRB," the ministry stated in its December 26 letter to the regulator.

RIL had originally proposed a $0.15 per mmBtu marketing margin for KG-D6 gas to cover risks like seller liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes, but later agreed to a charge of $0.135 per mmBtu.

The levy is less than the $0.20 per mmBtu marketing margin charged by state-owned GAIL on the sale of gas produced from the BG Group-operated Panna-Mukta and Tapti fields in the western offshore and LNG imported by Petronet LNG Ltd.

RIL, in Friday's advertisement, proposed to price CBM as per the formula used to pay Qatar for import of liquefied natural gas (LNG) on a long-term contract.

It proposed a price of 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26, plus 'V', where 'V' is the biddable number that users have been asked to quote. 'V' can be positive or negative.

The formula is the same at which Petronet, the nation's largest liquefied natural gas importer, buys 7.5 million tonnes per annum of LNG from RasGas of Qatar. RasGas charges 12.67% of JCC and Petronet a further $0.26 per mmBtu for shipping the gas in its liquid form from Qatar.

The price sought by RIL is in sharp contrast to the $4.205 per mmBtu rate fixed for natural gas produced from its Krishna-Godavari Basin D6 fields for five years ending March, 31, 2014.

Great Eastern Energy Corp (GEECL) sells CBM produced from its Raniganj block in West Bengal at $6.79 per mmBtu while Essar Oil has proposed a rate of $4.20 per mmBtu for CBM it plans to produce in the same state.

City inching closer to pipeline dream

It seems that there is hope round the corner for the industrial aspirations of the energy-starved north Kerala. If the Rs 3,100-crore project of laying a natural gas pipeline from Kochi LNG terminal takes shape, Kozhikode will enter the big league of cities with a direct-to-home piped gas distribution network.

The 720-km-long Kochi-Koottanad-Bangalore-Mangalore pipeline (KKBMPL) project is being implemented by Kerala Gail Gas Limited, a joint venture project between Kerala State Industrial Development Corporation (KSIDC) and Gail Gas Limited. Currently the firm is in the process of obtaining a right of way from landowners along the 720km stretch. In Kerala, the pipeline would pass through Ernakulam, Thrissur, Palakkad, Malappuram, Kozhikode, Kannur and Kasargod. The work on this is likely to be completed by March 2013. Meanwhile, the work on the 44-km-long first phase of the pipeline from Kochi to Kalamassery is nearing completion.

According to KSIDC officials, the company will also bid for setting up a city gas distribution network in Ernakulam in the first phase when the Petroleum and Natural Gas Regulatory Board (PNGRB) issues notification. The proposed network for Kozhikode would provide households with a direct supply of piped natural gas. Further it will free up city-based gas cylinders, which could be used for gas distribution in the rural areas.

An earlier notification issued by PNGRB for Ernakulam geographical area got cancelled in November 2011 and a re-notification is expected soon. The gas pipeline will use 2.5 MMTP of natural gas that will be made available after the LNG terminal in Kochi is commissioned for industrial and infrastructure development across the state.

A top KSIDC official said the gas network will provide a reliable supply of clean and cheap source of energy. Industrial clusters will also get an opportunity to set up captive gas-based power generation units using the gas feed. "This is going to be an attractive option for Kozhikode as it has several power intensive industrial units," he said.

The 720-km-long Kochi-Koottanad-Bangalore-Mangalore pipeline would pass through Ernakulam, Thrissur, Palakkad, Malappuram, Kozhikode, Kannur and Kasargod

Competition Commission closes case against GGCL

Competition Commission of India on Monday ordered closure of case filed by the Gujarat Government against BG group subsidiary, Gujarat Gas Company Ltd (GGCL), accusing it of arbitrarily hiking CNG prices in Surat.

"The commission, prima facie, is of the opinion that the conduct of GGCL is not abusive in terms of the provisions of the Act. There is no prima facie case made out for referring it to investigation," CCI stated in the order on Monday.

Since Petroleum and Natural Gas Regulatory Board Act is a special legislation for regulating the price mechanism and to ensure fair trade and competition among the entities, the Competition Act cannot be invoked complaining of increase in price, etc, the order said.

The commission on Monday passed the order after conducting hearing in two separate cases: one filed by the Gujarat Government and the other by the Gujarat Textile Processors Association (GTPA).

Both the complaints essentially alleged that GGCL had abused its dominant position by creating artificial scarcity of natural gas and increasing prices by 25 per cent during 2010-11 to reap windfall gains.

GGCL, a city gas distribution (CGD) company in Gujarat, supplies natural gas to domestic consumers, commercial establishments and industry in Surat, Bharuch and Ankleshwar. The company has a gas pipeline network of around 3,200 km.

The Gujarat Government had moved CCI against GGCL in November last year, saying it had received a lot of complaints against the company, regarding its price hike.

In June 2008, GGCL had raised the prices of natural gas from Rs 27.50 per kg to 39.75 per kg, according to the government.

The CCI order observed that operating margins of Indraprastha Gas Limited, a peer company operating in Delhi, were higher than that of GGCL.

Gujarat government was of the view that the case should be probed as the price hike was not driven by market forces and the company had hiked the prices as it was enjoying a monopoly.

Gujarat Textile Processors Association had also moved Competition Commission saying GGCL had arbitrarily hiked the gas prices though it was sourcing it cheap.

GGCL currently distributes around 3.5 million metric standard cubic meters per day (mmscmd) of natural gas to nearly 3.30 lakh customers.

GAIL opposes move to regulate marketing margin for LNG; ok with control on domestic gas

State-run Gail India has opposed the government's move to regulate marketing margin for imported liquefied natural gas but accepted its control on domestically produced gas.
"We have taken up the matter with the government. An attempt to control marketing margin for regassified-LNG would discourage its import," Gail chairman & managing director BC Tripathi said.
Gail supports the government decision to regulate marketing margin for gas produced domestically as per the Supreme Court decision that the government is the owner of natural resources, Tripathi said.
Oil ministry officials, however, said that the government's directive to the Petroleum & Natural Gas Regulatory Board (PNGRB) would be applicable to "all marketers" of natural gas in the country including imported gas.
"The matter is with PNGRB and it will decide whether the marketing margin for imported gas should be regulated or not? The regulator is to protect gas consumers from a monopolistic situation where few companies own LNG and gas transportation facilities," a government official with direct knowledge of the matter said requesting anonymity.
ETwrote first on Dec 27 that the government had decided to regulate natural gas marketing charges levied by companies such as Reliance Industries and Gail to protect domestic consumers in the short-supplied market.
Reliance Industries had already sent a letter to the oil ministry questioning the legality of the government's move to regulate marketing margins for KG-D6 gas and told the ministry that such a step would be discriminatory as state-run firms also used a similar levy to cover costs and risks. It argued that the levy was purely a matter between buyers and sellers.
Rebuffing RIL earlier this month, the oil ministry had said that the petroleum regulator would determine marketing margins for all natural gas on the basis of costs.
Until now, marketing margins were negotiated between buyers and sellers. While Reliance charged $0.135 per unit marketing margin for supplying its KG-D6 gas, Gail levied $0.17 per unit for supplying imported gas and gas supplied from the Panna-Mukta and Tapti fields.
Gail also charges $0.11 per unit marketing margin on administered price mechanism (APM) gas, which was approved by the cabinet on May 31 last year. APM gas is produced from nominated fields operated by ONGC and Oil India, but Gail markets their output.
According to industry executives, marketing efforts include supply management, contract negotiations, market tie-up, market surveys, dispute resolution, customer facilities, risk of take or pay, expenses in the form of bad debts, inventory carrying costs and maintaining administrative infrastructure all over the country.

Oil Ministry proposes key changes in natural gas allocation policy

The Oil Ministry has suggested key changes in the natural gas allocation policy in the view of sharp drop in output from Reliance Industries’ eastern offshore KG-D6 block.
In a note to the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, the ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff.
Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped.
The ministry has also proposed to revise the priority attached to city gas distribution (CGD) networks and place them next to fertiliser and stranded assets of power sectors and before the new demands of fertiliser and power sector.
Oil Minister S Jaipal Reddy said it is for the EGoM to take a decision on these so that scarce domestic natural gas is available only for core sectors.
KG-D6 gas output has fallen to below 39 million standard cubic meters per day after touching peak of 60 mmscmd in March 2010, prompting the ministry to suggest changes in the allocation policy.
Reddy, who got a first hand account of problems being faced by power producers when corporate leaders, including Anil Ambani of Reliance Power and Ashok Hinduja of Hinduja Group, briefed him about the fuel shortages, said no dates for the EGoM have been fixed yet.
“They (power producers) explained the various aspects of problem which they are facing. I have already circulated a note for EGoM and these aspects will be brought before the EGoM,” he said.
Power producers wanted priority allocation of natural gas to meet energy deficit in the country.
“Decision will be taken at the EGoM. Until EGoM meets, I cannot comment on their demands,” Reddy said.
His Ministry’s agenda for EGoM recommends that “future gas allocations be made only to urea fertiliser plants” as gas allocation to urea has been accorded top priority. It says that supplies to phosphates and potassium fertiliser producers be stopped since the government pays them a fixed subsidy and “cheaper input gas does not lead to lower subsidy burden on the government”.
It wants the EGoM to approve that “all existing and future allocations of NELP gas for power plants will be subject to the condition that the entire electricity produced from allocated gas shall only be sold to the distribution licensees at tariffs determined (or adopted) by the tariff regulator.”
Natural production from KG-D6 has fallen to less than 39 mmcmd from the 61.5 mmcmd peak in March 2010. The output is far short of the 70.39 mmcmd forecast in the Field Development Plan approved in 2006.
The fall forced the oil ministry to first apply a pro-rata cut in supplies to all consumers in July 2010 and with further dip in output it restricted supplies to only core sectors of fertiliser, LPG and power.

Plan to supply piped natural gas to Udyog Vihar in limbo

GURGAON: The year-old plans to supply piped natural gas (PNG) to Udyog Vihar's industries are now in a limbo, thanks to the bureaucratic hurdles faced by the supplier in acquiring a permit. It has now been over one year since Haryana City Gas Distribution Limited, the prime supplier of PNG in the city, first sought permission from the industrial authority, HSIIDC, to set up PNG lines in all the phases of Udyog Vihar. But the official sanction is yet to arrive.
Hamvir Singh, HSIIDC, Gurgaon DGM, said that the matter of giving out the permit was beyond his jurisdiction. "Only the head offices in Panchkula and Chandigarh can give out the permits. The application is with them. I can't say how long the whole process will take," he said.
According to Haryana City Gas representatives, PNG plans for the area have been put on hold indefinitely. "We have not been able to lay pipelines in Udyog Vihar lanes completely due to the delay in getting HSIIDC's permission," said Sandeep Sharma, vice-president, Haryana City Gas. The supply firm has laid down about 70km of pipeline throughout the city, stopping just at the borderlines of Udyog Vihar. "This is where HSIIDC's area begins, and the network of pipelines stops, because to extend further we need HSIIDC's permission," added Sharma.
The original plans of Haryana City Gas were to get the main line till Udyog Vihar Phase 4 and Phase 1 - projects which are already completed - and further lay down the branch lines inside the industrial areas. "We haven't got any response from the HSIIDC as yet. We have no clue as to when the permit will be granted," he said.
Conventional modes of power have either proved too inefficient or too expensive for Udyog Vihar's industrialists. Rising tariff rates in Gurgaon have only been paralleled by a rising power deficit, and diesel based backup systems have driven the costs further up. This is why industry representatives have shown interest in PNG which remains the only viable alternative for the area's power requirements, being efficient and cost-effective in equal measure.
"There are certain advantages of shifting to PNG. With natural gas, inventory management costs are nil, handling hassles don't exist, and it is pollution-free," said a Haryana City Gas representatives.
Certain industries on the peripheries of Phase 1, Udyog Vihar, where the pipelines have just about reached, have already subscribed to PNG supply, and are utilizing the fuel for production as well as backup needs. But small scale units within the main industrial areas have to wait longer, at least as long as it takes HSIIDC to clear the proposal.
"Industries need electricity at least for 16 hrs a day. But we get supply hardly for 5-6 hrs a day," said B B Sharma, an industrialist. He said that diesel generators cost at least Rs 10 a unit today, and peak hour electricity rates have gone up to Rs 8 a unit. "PNG gas would surely be cheaper".

RIL asked to sign gas supply deals with 16 more firms

Concerned that a further slippage in investment could cost the economy dear, the government has asked Reliance Industries (RIL), which accounts for about a third of India’s gas output, to enter into new supply pacts with 16 leading consumers on the priority list.
According to official sources, the petroleum ministry has asked RIL to sign natural gas sale and purchase agreements with these priority consumers in the fertiliser, power and city gas distribution sectors. The company had earlier apprised the ministry of its inability to start supplies to these users in view of the sharp dip in KG-D6 output.
These are the priority customers that were allotted gas by the empowered group of ministers (EGoM) led by Pranab Mukherjee but are yet to ink purchase deals.
RIL has not been ready to commit supplies to more customers as possible supply cuts in future would put these customers in a difficult spot once investments are made counting on such supply contracts. There have been certain precedents of such problems faced by gas users. Companies including Essar Steel have already moved court against gas supply cuts by RIL prompted by reduced supply.
The unmet allocation to priority sector is a little less than 4 million metric standard cubic metres a day (mmscmd), which is roughly a tenth of RIL’s 42 mmscmd gas output from the field now. The company needs about 52 mmscmd of gas to meet its obligation to all priority consumers.
The oil ministry, which is seeking the EGoM’s approval for a road map for supply cuts to even priority sector consumers in the event of a further decline in gas production, is set to inform the ministerial panel that instructions have been issued to RIL in this regard, said an official who is privy to discussions within the government.

Ministry rejects RIL's stand on marketing margin

The Petroleum Ministry has rejected Reliance Industries' (RIL) contention that charging of marketing margin on gas was an issue between the buyer and the seller and has said that the Petroleum and Natural Gas Regulatory Board (PNGRB) will take a final call on the issue.

In a letter to RIL Executive Director P. M. S. Prasad, on Thursday, Petroleum Ministry Under Secretary Arunoday Goswami states: “the question of the quantum of marketing margin applicable on sale of gas by any marketer has since been considered in the Ministry and a decision has been taken to refer the matter to the PNGRB. Under Sec. 11(j) of the Petroleum and Natural Gas Regulatory Board Act 2006, the board has now been entrusted with the determination of the quantum of marketing margin chargeable on sale of natural gas to end-consumers by a marketing entity, on the basis of the marketing costs incurred by it.”

The Hindu had, on January 6, reported that the matter was likely to be referred to the PNGRB. The stand taken by the Petroleum Ministry is certainly going to create problems for RIL in marketing its present and future gas produce and impact its profit margins. At present, RIL charges $0.135 per mBtu (million British thermal unit) as marketing margin over-and-above $4.2 mBtu. The company has claimed that the marketing margin is required to cover for the risk and cost associated with marketing. It had stated that it was an issue mutually settled between the buyer and the seller and as per the Production Sharing Contract (PSC), for levying any marketing margin, government intervention was not required. The government had maintained that it had referred the issue to the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee on the insistence of the Department of Fertilisers.

The letter points out that the issue of marketing margin charged by RIL was raised by the Fertiliser Association of India followed by the Department of Fertilisers. Subsequently, on receipt of a reference from the Central Vigilance Commission alleging that RIL had unauthorisedly levied marketing margin, a reference was made by the Department of Fertilisers asking for certain clarifications in this regard.

Adani Group, Oil India to bid for BG Group's 65% stake in GGCL

The Adani group and state-run oil companies have signed confidentiality agreements to bid for the controlling stake of the BG Group in India's biggest private-sector city gas distribution venture Gujarat Gas Co Ltd, industry officials said.
State-run companies, such as Oil India Ltd and GSPC, are among the companies that have signed non-discosure agreements with the BG Group for the controlling stake in Gujarat Gas which BG is exiting, they said. Torrent Power, which was also considering a bid, is learnt to have shelved its plan, sources said. Gail India Ltd has still not got the approval to bid.
BG Group's adviser Citigroup has opened a virtual data room with past 10 years financial records of GGCL besides gas contracts details.
"Interested bidders will submit their expression of interests by January 10. The picture would be clear once the bids are shortlisted," said GGCL chairman Hasmukh Shah. Incorporated in 1980, GGCL caters to around 3.50 lakh gas customers in South Gujarat market. Indian and foreign institutions and retail investors together hold 35% stake in GGCL.
BG Group is aiming to sell off its entire 65.12% stake in GGCL. Besides overall sentiment, the capitalisation of GGCL is eroded on account of rising dollar against Rupee, high LNG prices and BG Group's announcement to exit from CGD business in November last year.
On Tuesday, GGCL scrip traded at 355-360 on BSE, down from its 52 week high 463 on September 2, 2011. From almost 6,000 crore valuation in September last year, GGCL's capitalisation has fallen to 4,600 crore. The successful bidder will have to shell out close to 4,000 crore to acquire 65% stake of BG Group and make mandatory open offer to purchase 26% stake from the non-promoter shareholders.

2011 Marked by Important Initiatives in Oil and Gas Sector

The Year 2011 has been marked by significant developments in the Oil and Gas sector as the Ministry of Petroleum and Natural Gas took several important initiatives for the growth of the sector. Some of these include approvals for induction of new partners in upstream-projects, commissioning Bina Refinery, bidding for NELP-IX blocks and acquisition of 25% equity stake by OVL in Satpayev block in Kazakhstan.  The prices of sensitive petroleum products i.e. Diesel, domestic LPG and PDS Kerosene were maintained at affordable levels by substantial duty cuts,  Government’s cash assistance   to OMCs and contribution of upstream PSUs.

Exploration and production

To give a boost to domestic exploration & production efforts, bidding process for exploration blocks under Ninth Round of New exploration Licensing Policy (NELP-IX) was completed with a number of Indian and Foreign oil companies bidding for these blocks. The decision on award of blocks would be taken soon.  The government also approved the induction of BP  as RIL’s partner in their fields and the strategic sale by Cairn PLC, UK of its stakes in Cairn India Ltd to Vedanta Resources PLC. These measures are expected to accelerate the E& P activities  in the country.

Augmenting supply of natural gas

Besides efforts to increase domestic gas production, discussions were further held in the direction to implement proposed cross border Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project.  The Iran-Pakistan-India (IPI) pipeline project is also under consideration/discussion for sourcing natural gas. Liquefied Natural Gas(LNG) imports have picked up to meet domestic needs. Along with other projects, LNG import terminal is being built at Kochi which is progressing well. India is increasing its current RLNG regasification capacity from the current 13 million tons per annum to well over 30 million tons, by 2015. The Government is also endeavouring to increase the pipeline infrastructure in the country especially in southern and eastern regions of the country. To carry gas across the length and breadth of India, 8,000 kms of gas pipelines are being laid while another 5,000 kms are under the bidding process. The City Gas Distribution projects to supply Piped Natural Gas (PNG) and Compressed Natural Gas (CNG) are also being encouraged to expand availability of cleaner fuels.

Oil diplomacy in higher gear

In order to achieve the objective of oil security, the Ministry of Petroleum and Natural Gas engaged several countries/for a in bilateral/multi-lateral talks.  These include attending/holding international meets like International Energy Forum meet at Riyadh, ASEAN Energy Ministers Summit at Brunei, WPC at Doha,  India-Africa Hydrocarbon  Conference in Delhi and 4th Asian Energy Ministerial Roundtable at Kuwait. Indian delegations also had bilateral talks with various oil rich countries including   Saudi Arabia, Canada, Iran, Qatar, UAE, Nigeria, Oman, Kazakhstan, Bahrain, Turkmenistan, Indonesia, etc. to enhance cooperation in hydrocarbon sector. These engagements create conducive environment and lead specific projects and activities for mutual benefits.

Among major successes in the oil diplomacy during the year include signing of an agreement between national oil company of Kazakhstan   and ONGC Videsh Ltd. (OVL), for 25% participating interest in  Satpayev field. The Indian proposal for formulating a joint strategy to maintain stability in global oil prices  endorsed by 60 odd countries at the International Energy Forum (IEF) meet in Mexico, was re-enforced at the Extra-ordinary Ministerial IEF meeting at Riyadh.

Augmenting Surplus refining capacity for value addition

The refining capacity in the country has been augmented to about 194 Million Metric Tonnes Per Annum (MMTPA), with the completion of commissioning of  the refinery project at Bina, (6 MMPPA). The refining capacity is well above the annual demand of about 142MMTPA. This is significant for a heavily import-dependent country like India as domestic value addition helps earn foreign exchange by way of exports. Oil sector maintained its status of the highest export revenue earner amongst mercantile products with the country exporting about 59 MMTPA finished petroleum products valued at US$ 43 billion during 2010-11. The momentum has been sustained during current fiscal with an exports of about 42 MMT in the period April-November 2011 valued at US $ 38 billion. Further,  other refinery projects both grass-root and expansion are underway so as to increase the refining capacity to 238MMTPA by 2013.

Expanding infrastructure for LPG to rural households

To provide clean cooking fuel in rural areas and to achieve 75% population coverage with domestic LPG a number of LPG distributorships are being set up transparently under Rajeev Gandhi Grameen LPG Vitrak Yojna (RGGLVY). Launched in March 2010,  Oil Marketing Companies (OMCs)  have so far advertised over 3700 locations in rural areas to open LPG agencies under this scheme.  Nearly, 800  RGGLVs have already been commissioned.  This measure will greatly improve the cooking conditions in the kitchens of rural house-holds.  The scheme also provides new employment opportunities for the rural population leading to overall economic prosperity.  Youth in the age group of 21-45 years are being appointed as distributors under the scheme.

Equitable burden-sharing marks pricing reforms

As part of major pricing reforms, prices of Petrol  were reduced twice by OMCs in the second half of the year. The OMCs are revising petrol prices since its deregulation on 26.6.2010. The Government effected significant central duty reductions on diesel, crude oil and petrol products in June in order to keep prices at affordable level in case of diesel, domestic LPG and PDS Kerosene. Despite this,  OMCs are expected to incur under-recoveries of over 1,30,000 crore during the current fiscal year. Thus consumers have been greatly insulated from the impact of high global oil prices which have ruled at about US $ 110/bbl this fiscal against US$ 84.09/bbl in 2010-11.

Promoting Ethanol blending with petrol

Petroleum Ministry continued to pursue implementation by the Ethanol Blended Petrol (EBP) programme during the year. Though faced with shortage of supply by ethanol manufacturers, the OMCs still managed to procure 36.19crore litres of ethanol during the supply cycle October, 2010 to September 2011 for blending with petrol at the level of 5 % against 55.87 crore litres committed by them. Besides non-supply of sufficient quantity  by ethanol manufacturers, the programme also faced the challenge of state specific issues in some states. The OMCs further issued tender notice to seek supply of 101 crore litres   of ethanol in the annual season commencing October 2011. However, the response by the ethanol manufacturers accounts for only about 60% ethanol needed for 5%  EBP in the notified States/UTs.

Anti - Adulteration Drive intensified

The drive to check adulteration of petroleum products and prevent its misuse, the Ministry directed OMCs to intensify their drive against the malpractices in  distribution. The support of OMCs was offered to State Governments to introduce vehicles tracking system for transportation of PDS Kerosene by the state Government administration. OMCs also introduced transparency portal carrying information about PDS Kerosene dispatches from OMC depots and about the domestic LPG Cylinders supplied by distributors. These information now available in public domain could help the consumers and the discerning public so that any misuse is reported to appropriate authorities for strict action. The OMC have carried out intensive inspections across their distribution networks to ensure better products/services to the consumers.

         The year 2011 has thus been very significant in terms of taking the sector ahead in exploration and production, effective harnessing of oil diplomacy for oil security, increasing refining capacity, ensuring affordable prices of sensitive petroleum products, intensive drive to ensure availability of better products & services.

RGTIL to commission four pipelines in 2013-14

Reliance Gas Transportation and Infrastructure Ltd. (RGTIL), a company promoted by Mukesh Ambani to transport gas from KG Basin, will complete four gas pipelines in next two years. These pipelines are:

• 928 km long Kakinada-Vasudevpur-Haldia pipeline with a design capacity of 26.7 mmscmd
• 577 km long Kakinada-Chennai pipeline with a design capacity of 26.7 mmscmd
• 538 km long Chennai-Bangalore-Mangalore pipeline with a design capacity of 13.3 mmscmd
• 585 km long Chennai-Tuticorin pipeline with a design capacity of 13.3 mmscmd

All four pipelines will be commissioned in 2013-14. Presently the company has commissioned just one pipeline, 1385 km long East-West pipeline, connecting Kakinada-Hyderabad-Uran-Ahemdabad. This pipeline was commissioned in April 2009.

GSPL to tie up funds for Mehsana-Bhatinda line in January

Gujarat State Petronet Ltd (GSPL) — a Gujarat Government-owned GSPC Group company — plans to achieve financial closure for the 1,670-km Mehsana (Gujarat)-Bhatinda (Punjab) gas grid in January, according to sources.

The project, estimated to cost Rs 3,500 crore, is being implemented by a special purpose vehicle, with 52 per cent majority holding of GSPL.

In addition to the natural gas sources in Mehsana, the proposed trunk pipeline is scheduled to connect the LNG terminals of Petronet LNG (Dahej) and Shell (Hazira) and others through the existing Dahej-Vijaipur Pipeline (DVPL) operated by GAIL. PSU oil refiner Indian Oil has a 20 per cent participatory interest in the project, and Bharat Petroleum and Hindustan Petroleum 11 per cent each.

The Rs 1,000-crore GSPL is a listed subsidiary of the State Government-owned Gujarat State Petroleum Corporation and owns 1,600 km of transmission network in Gujarat.

The company has already transferred nearly 400 km of distribution network to group city gas arm GSPC Gas and is planning to add another 1,000 km of transmission network in the State.

The Mehsana-Bhatinda segment is one of the three legs of the proposed 4,000-km grid connecting the KG Basin's natural gas sources at Mallavaram (Andhra Pradesh) to Srinagar in J&K, which were auctioned by the Petroleum and Natural Gas Regulatory Board (PNGRB).

The GSPL-led consortium owns the right to construct and operate the two other legs Mallavaram- Vijaipur (Madhya Pradesh) connecting DVPL; Mehsana (Gujarat)-Bhatinda (Punjab) and Bhatinda-Srinagar (J&K).

The total estimated project cost of the three legs is nearly Rs 12,500 crore.

According to GSPL sources, of the three projects, the Mehsana-Bhatinda and Bhatinda-Jammu sections have been put into one SPV, while the Mallavaram-Vijaipur project will be undertaken by a separate SPV.

Petroleum and Natural Gas Regulatory Board pushes for deregulation of gas prices

The Petroleum and Natural Gas Regulatory Board (PNGRB) is aggressively pushing for deregulation of gas prices to encourage private investment and lure oil companies to invest in exploration and ramp up production from existing fields, a senior regulatory official said.

The government has fixed the price of natural gas at $4.2 per unit for most of the domestic output, less than a third of the price of imported liquefied natural gas, creating a wide disparity in the market.

"Pricing freedom is a must if we have to encourage companies to invest in the gas sector so in the coming few months I will focus on trying to convince the government to move towards deregulating gas prices," a senior PNGRB official, who did not want to be identified, told ET.

"The government could introduce a sector-specific pricing model where gas producers could do a separate price-discovery for various sectors like fertiliser, power and city-gas distribution (CGD) to arrive at a proper pricing benchmark that truly reflects the appetite for gas in a particular sector," the official added.

This view, coming from a regulator, is significant as industry experts believe that companies have no incentive to invest in the sector until gas prices are deregulated. They say pricing freedom is imperative as natural gas production in the country has fallen sharply.

Output at Reliance Industries' (RIL) D6 block in the Krishna-Godavri basin, home to the country's largest gas finds, has fallen to 39 mmscmd from 60 mmscmd.

While the regulator is pushing for deregulation of gas prices, the petroleum ministry has not articulated such a view. In October, petroleum minister Jaipal Reddy told ET that "deregulation of gas pricing is a very complex issue and carries a lot of historical baggage especially as a number of empowered groups of ministers has deliberated on the subject and no definite consensus has emerged as yet. It is being discussed although I cannot give a definite timeframe to when the government will take a decision."

Currently, gas from RIL's D6 block is priced at $4.2 per million British thermal units, and other domestically produced gas is sold at a wide range of $1.8-5.7 per mBtu while imported gas in its liquid form (liquefied natural gas, or LNG) costs upward of $13-14 per mBtu.

Discussing the delay in the third round of the city-gas distribution (CGD) auctions the PNGRB official said, "The bidding process for the third round of CGD auctions has been delayed as the feasibility reports submitted by some companies seem uneconomical as some financial parameters outlined by them seem unviable. We are also waiting for our new members to join and take a combined view on the matter. We plan to announce the winning bids by Jan-Feb 2012."

In the third round for CGD auctions that concluded on February 18, 2011, bids were invited for installing and running a CGD network in Asansol-Durgapur (West Bengal), Bhavnagar, Gandhidham-Anjar, Bhuj-Mundra and Jamnagar (Gujarat), Ludhiana and Jalandhar (Punjab) and Panipat (Haryana). The round saw 51 bids from 26 companies, including IOC, Adani Energy, Gujarat State Petroleum Corp, Engineers India, GAIL Gas, British Gas and IGL.

Discussing new pipeline projects, the PNGRB official said, "We have just finalised the bids for four major trunk pipelines and companies like GSPL, IOC, HPCL, BPCL and GAIL have lined up close to Rs 15,000 crore of investments for these projects." He said that the consortium of GSPL, IOC, HPCL and BPCL have won the bids for building the pipelines from Bijaipur-Bhilwara, Mehsana-Bhatinda and Bhatinda to Srinagar.