The news of gas supply from the high profile Reliance Industries Limited (RIL) operated KG-DWN-98/3 field off Andhra coast (better known as KG-D6) drying up by 2020 has come as a shocker for energy deficient India that imports 80% of its oil and nearly 40% of its gas requirements for running fertilizers, power plants, households etc and is aspiring to move rapidly towards building indigenous production capability. Prior to 2000, domestic gas supplies were coming primarily from major gas finds in the Bombay High and South Bassein area in west offshore discovered in late 70s with total production of around 75 million standard cubic meter [mmscmd]. A second bout of major discoveries came around the turn of present century. This...
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Category: Production vs imports
Low commodity prices – good omen for stronger India
Only about 18 months ago, there was an all round mood of despondency due to skyrocketing international price of crude oil and gas for which India depends heavily on imports for its energy requirements. This was the single most important factor responsible for high current account deficit [CAD], pressure on the Rupee and the inflationary effect on the economy. The scenario on the subsidy front was equally grim. Oil and gas being key ingredients in production of fertilizers and petroleum products [POL], this also led to ballooning subsidy in the face of control on retail prices of latter at low level. During 2013-14, fertilizers and POL subsidies alone were around Rs 240,000 crores putting huge stress on the budget and...
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Fuel price – have consumers been taken for a ride?
The international price of crude oil has plummeted from a high of US$ 110 per barrel in June 2014 to a low of US$ 36 per barrel [lowest in 11 years] at present. In the back drop of the decision of OPEC [it accounts for 40% of world supplies and 85% of India’s import] not to take recourse to any output cut [a normal tactics employed by it in the past to prevent price from sliding], substantial pumping of oil by Iran, high production of shale gas in US and continuing slowdown in global demand, the price will continue to slide. Goldman Sachs predicts this to touch US$ 20 per barrel. Considering India’s heavy dependence on import of crude for...
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Why falling imported gas price brings no relief
As per reports, Petronet LNG Limited, a consortium of four PSUs (ONGC, GAIL, IOCL and BPCL) is shelling out Rs 400 crore every quarter in demurrage charges for ships idling because of its PSU buyers are refusing to purchase expensive imported gas. This is just the tip of iceberg. At the outset, let us capture a few facts. Petronet had entered in to a long-term 25 year contract with RasGas of Qatar for import of 7.5 million tonnes a year LNG or around 30 million standard cubic metre per day (mmscmd). For transportation to its terminal at Dahej, it had entered in to a time-charter agreement with Mitsui OSK Lines et al. The PSUs (sans ONGC) had committed to buy...
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Gas allocation must be ‘policy’ driven
A 2-judge bench of the Delhi High Court [DHC] in an interim order, has ordered the department of fertilizers [DOF], ministry of chemicals and fertilisers to resume supply of natural gas to Deepak Fertilizer and Petrochemicals Corporation Limited [DFPCL] – a company manufacturing complex phosphate fertilizers – which was suspended last year. The order is on an appeal by Government of India [GOI] seeking stay on an earlier order of a single-judge [July 7, 2015] which had directed resumption of gas supply. The bench has stated that gas supply to DFPCL will continue till such time government finalizes the guidelines on supply of gas to fertilizer companies and implements the policy decision against two other manufacturers of complex phosphate fertilizers...
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Gas policy: Don’t drag courts into executive domain
The Union government has received a notice from the Supreme Court (SC) on a petition filed by Independent Gas-based Power Producers Association (IGPPA) seeking priority in allocation of gas produced from the Reliance Industries Limited (RIL) operated Krishna – Godavari (KG) basin. The IGPPA has contended that the gas allocated from the KG basin was not allotted to them on priority basis but was given to fertilizer units. The Federation of Farmers Associations (FFA) has also filed a PIL in SC backing the IGPPA demand. Earlier, in its order delivered in January, 2015, the Andhra Pradesh High Court (APHC) had refused to interfere with the government policy decision on the issue, saying the Centre has powers to fix priorities as...
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Gas policy – judiciary must not enter executive domain
Union government has received a notice from Supreme Court [SC] on a petition filed by Independent Gas-based Power Producers Association [IGPPA] seeking priority in allocation of gas produced from the Reliance Industries Limited [RIL] operated Krishna – Godavari [K-G] basin. IGPPA has contended that the gas allocated from KG basin was not allotted to them on priority basis but was given to fertilizer units. Besides, they wanted a direction to the Central government to frame a policy for country’s energy security. Federation of Farmers Associations [FFA] has also filed a public interest litigation [PIL] demanding more allocation to power sector so as ensure “adequate” electricity supply to farmers. Major companies in steel sector viz., Essar Steel, Welspun Maxsteel and others...
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Gas supply ‘conundrum’ – haunting India
In its Performance Audit Report on Supply and Infrastructure Development for Natural Gas (tabled in the Parliament on May 5, 2015), the comptroller and auditor general (CAG) has pulled up the government for failing to create infrastructure for domestic gas production and supply. CAG said that India lost subsidy savings of Rs 11,800 crores between 2010 and 2013 on this account. Infrastructure for domestic gas – CAG revelations It noted that non-availability of long-term gas supply and inadequate pipeline connectivity were the main constraints in increasing of urea production capacity. During 2011-12 and 2012-13, urea production was only 44.6 million tons against the requirement of 60.4 million tons. The shortfall of 15.8 million tons was imported at much higher cost...
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KG-D6 gas fiasco – defending the ‘indefensible’
In any natural resource-based industry where exploration, development and commercialization of a resource involves substantial investment, the investor has to be extremely careful and circumspect. Before initiating the project and spending money, through a rigorous and scientific process involving inter alia surveys and complex exploration techniques, the company must make a credible assessment of the quantum of resources in place and projection of viability taking in to account the production and likely price. For a resource like gas which belongs to the nation and where necessary investment running in to billions of dollars are allowed to be fully recuperated ‘up front’ by the operator under production sharing contract (PSC), the bar in terms of ‘credibility’ and ‘authenticity’ of reserves in...
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Hike in price of domestic gas – defaulter rewarded
In June, 2013, Cabinet had decided to double price of domestic gas from US$ 4.2 per mBtu to US$ 8.4 per mBtu from April, 2014 based on recommendations of a Committee under Dr C Rangarajan, Chairman, PM’s Economic Advisory Council (EAC). However, a notification in this regard was held back in view of a dispute with RIL-BP-Nikko operator of the D 1, 3 fields in KG basin off the AP coast. The bone of contention was a huge shortfall in supply of gas versus the committed quantity under the PSC (production sharing contract). While, Ministry of Petroleum & Natural Gas (MPNG) argued that this was due to a deliberate act on part of RIL not to drill required number of...
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