How does a deepwater pipeline become cheaper than LNG?
8According to SAGE, this is essentially because there are no liquefaction and regasification cost involved.
8That knocks off around $3/mmbtu in liquefaction cost and $1/mmbtu in regasification cost.
8The company assumes a transportation cost of $2.25/mmbtu for its deepwater pipeline in comparison to LNG ferrying cost of 0.5/mmbtu from Iran, $1/mmbtu from other parts of Asia and $2.25/mmbtu from the US.
8It is only with the onland pipeline from Iran that there are no other charges except a transportation cost of $2.35/mmbtu which makes it the cheapest option.
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Indian companies will need to watch out for possible impact on them from the 2015 Paris Climate Conference.
Decisions will include:
8Increasing energy efficiency in industry, buildings and transport
8Phasing out the use of least efficient coal fired power plants
8Increasing investment in renewables, including hydro
8Gradual phasing out of inefficient fossil fuel subsidies
8Reducing methane emissions from oil and gas production
The target seems to be to ensure that emissions peak by 2020 before they begin coming down.
The window seems to be very narrow to be able to limit temperature change to two degress centigrade. Already around 40 per cent of the allowable emissions to keep temperature change to 2 degrees have been exhausted, and the entire quota will be over by 2040.
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All energy companies are at crossroads today and BPCL is no exception. The company has drawn up a very ambitious plan to spend a whopping Rs 100,000 crore in the next four years, according to a presentation vailable with this website.
8The company will have to speed up its capex by a whopping 2.5 times annually from its current level of Rs 10,000 crore a year, and all of it in the next four years.
8Where exactly will this money go?
8There is no clarity yet but a lot of it is likely to be sunk in its upstream assets, including funding its 10% stake in the Rovuma basin in Mozambique, where gas reserves are estimated at between 50 to 70 TCF..
8More money will go into the Whaoo basin in Brazil, where reserves are estimated at 200 MMBOE and where the company holds a stake in partnership with Videocon.
8BPCL also has an assortment of rather lackluster E&P assets in India in which it holds stakes of between 20 to 40%. Cash calls have to be attended in these assets as well.
8Investments are also planned in upgradation and expansion of refineries, gas and marketing infrastructure in India.
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Due to limited storage spaces on rigs, a shore-based supply facility shall be invariably required to provide logistic and other support to the drill rig that will carry out the activity.
8RIL's existing supply base at Kakinada, Andhra Pradesh, which were established for the on-going exploratory and development projects in the D-6 block will be used for this drilling campaign also.
8Helibase facilities of RIL at Gadimoga and Pondicherry airport (Pondicherry) will be used for the helicopter movement to and from from rig for manpower movement.
8RIL said that it will engage an offshore drilling rig and attendant service providers based on international competitive bidding processes.
8It is not planning to create any new shore based support for this drilling campaign.
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Operating a downstream distribution network for dispensing petroleum products is not an easy job.
8An example of this is evident from how CPCL transfers its products via pipeline to different marketing terminals at Chennai.
8The pipelines transfers are carried out round the clock.
8The process involves ensuing positive isolation (Sealing of Inlets) of other tanks from the dispatch tank at CPCL and the receiving tank at any of the other oil marketing companies.
8Positive isolation is achieved by sealing tap off points to other locations which are not receiving the product before giving clearance for transfer.
8The need is to gauge the supply tank at CPCL and receiving terminal tank; record the temperature, density, before and after, for each pipeline transfer (PLT)
8Recordording and maintaining all the planned or effected PLTs with signatures of the officers concerned for each PLT in dip memos are also part of the work.
8All this data has to be collated and validated to rule out discrepancies in receipt
8Details have to be collected from Tondiarpet, Korukkupet & Fore shore Terminal of CPCL (or its parent company, IOC) and from BPCL's Tondiarpet and HPCL's Cossimodu terminals.
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It seems BPCL has no option but to shelve its Rs 20,000 crore expansion of the Numaligarh Refinery after the central government has decided to suspend fresh registration of industrial units under the North East Industrial and Investment Promotion Policy (NEIIPP), 2007 as the committed liabilities under the package were already far greater than its annual budget allocation.
8No new registrations are being entertained from December 2014.
8New investments in refineries in the North East are no longer viable as the key incentives for setting up additional capacities have been suspended.
The following incentives were given under the policy:
--Central Capital Investment Subsidy @ 30% of investment in Plant and Machinery
--Central Interest Subsidy @ 3% of working capital loan availed for a period of 10 years from the date of commencement of commercial production (DOCP)
--Reimbursement of insurance premium paid towards insurance of fixed capital assets for a period of 10 years from DOCP
--Excise Duty exemptions for a period of 10 years from DOCP
--Income Tax exemption for a period of 10 years from DOCP
8Clearly, what BPCL had sought was a capital subsidy of a whopping Rs 8,800 crore that in fact goes well beyond the 30% limit laid by the now defunct policy.
8Over and above that the excise exemption would have been a large amount of money too.
8"Given that the policy has been withdrawn because the obligations are already more than the annual allocation under the head, it seems unlikely that the government would have taken on the onus of a Rs 20,000 crore investment by BPCL. And while Assam is going to polls and every kind of promise is likely to be made in the run up to the polls, it will indeed be foolhardy in today's day and age -- when disruptive technology can make the use of diesel and petrol redundant -- to mount such a massive investment ridding piggyback on a government subsidy regime," a government official said.
8There is a already a demand to reduce subsidies on fossil fuel investments because of global warming and in this context, any fresh investment that does not earn an IRR beyond the hurdle on free market economics should be actively discouraged by the petroleum ministry.
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The following details are also carried about the project:
8Geological setting of the deepwater block
8Map showing the proposed drilling locations
8Drilling process to be adopted
8Deepwater drilling technology to be used
8Deepwater well abandonment process to be followed
8Subsea equipment, pipelines and architecture
8Offshore processing facilities
8Risks in exploratory drilling operations
8Risk mitigation measures
8Response of marine ecosystems to oil spills
8Oil spill contingency plan
8H2S protection in drilling operations
8Coordinates of the proposed locations
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ONGC has completed the environmental clearance process for drilling 45 development wells along with a Floating, Production, Storage and Offloading (FPSO) system and a fixed offshore platform at a cost of Rs 53,085 crore in the block.
8The company on November 17 submitted all the relevant papers -- including the EIA report, risk assessment studies, public hearing meetings, certified monitoring reports and NOCs for working in the CRZ,
8The final environment clearance is now likely to come through soon.
8Besides the surface facilities, the E&P major also plans to set up subsea production systems (SPS) and subsea pipelines connecting to the landfall point from the existing onshore terminal for custody transfer to GAIL.
8The drilling depth of the wells is between 2,000 to 3,000 meters from the sea bed. The water depth in the area ranges from 320 m to 3100 m.
8Each well will take around 90-100 days to drill.
8As this proposed block is located in deep and ultra-deep water, a drill ship with Dynamic Positioning (DP) and specialized deep water technology tools will be used for drilling activities.
8Then again, because of extreme temperature and pressures at these depths, special drilling muds will have to be used to prevent formation of hydrates at the sea bed level and to combat dual gradients.
8The NELP-I offshore block KG-DWN-98/2 is located 22-45 kms off the coast of Godavari Delta in the east coast of India.
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The website carries here the latest landed price of LNG in key markets around the world.
8The data has been collected from the US Federal Energy Regulatory Commission and is depicted in US $/mmbtu.
8Landed prices are based on a netback calculation.
8Prices are the monthly average of the weekly landed prices traded during the prior month. The data is available for October.
8The calculations show that the landed price of LNG is the highest in India, at $ 6.84/mmbtu while the price in China is $6.63/mmbtu.
8Japan's price is $6.78/mmbtu while Korea pays $6.78/mmbtu.
In the UK the price tag is $6.28, $6.22 in Spain.
8In South America the price is between $6.75 to $6.77/mmbtu.
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Dramatic changes are sweeping the oil and gas market.
8In the past, just a word from OPEC could send the oil markets into turmoil. The mere mention of a need to curtail output will send oil prices soaring to dizzying heights.
8Not any more.
8The unity of OPEC has since taken a dent after Saudi Arabia refused to allow OPEC to try to raise prices by pumping less crude, in the hope that a low price would drive competitors, especially America’s shale-oil producers, out of business.
8OPEC members are now fighting a grim battle among themselves and with other producers to carve out more market share. Saudi Arabia for example has fought with Russia and fellow OPEC members to sell oil to China. It has recently sought to displace Russian crude going into refineries in Sweden and Poland, and cut prices across Europe.
8The market now reacts to a different kind of news. Market move on news of an oil-workers’ strike in Brazil; cuts to Iraq’s investment budget; a Saudi bond issue that may enable it to withstand lower prices for longer.
8These kind of factors were never at play earlier but they are now.
8But beyond this, in the longer run, the cancellation of at least $150 billion of investments this year, with more cuts to come next year, will hurt supply.
8On the other hand, developing countries like India are showing record growth in use of hydrocarbons. Overall the IEA expects demand to grow by 1.9% this year, well above the average for the past decade, of 0.9%.
8But this demand-supply juxtaposition may not impact prices in the way it normally should.
8IEA predicted that a relatively sluggish recovery in demand and decline in supply would yield a price of $80 a barrel in 2020. But it also aired an alternative scenario in which oil stays in a range of $50-60 a barrel until well into the 2020s. One of the main reasons it hedged its bets is American shale oil, which has not been responding as promptly to changes in the price as analysts had assumed and has shown a surprising resilience so far.
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It is pertinent to note that the indigenous oil and gas industry stands opposed to the revenue-sharing contracts.
8The industry has objected to one of the major assumption for moving to the revenue sharing model: that the PSC (with cost recovery) system encourage contractors to inflate costs.
8This argument has been faulted on the ground that the operator in fact recovers less and not more under the cost recovery model than what he spends (as the financing cost is not recoverable under the contracts) in the blocks.
8Thus a higher expense is a net loss to the contractor. In addition, higher investment increases risks, delaying full cost recovery. In light of these facts, the industry had earlier argued that no prudent investor will inflate the capex because he stands to lose more than he gains
8The industry is of the view that the interests of the contractor and the government in the PSC are perfectly aligned and there is no need to tinker with the Pre-Tax Investment Multiple (PTIM) model.
Comment: How would a company know by scanning sparse seismic data made available in a DGH data room on a deepwater block whether it will have enough oil or gas for it to come up with a revenue share number while bidding for the block? A deepwater well can cost anywhere above $ 25 to 100 million and it is not possible for anyone to accurately project what kind of revenue it will generate at the very beginning, even before exploration work can starts in the block. The revenue share model can work when there is some kind of certainty on the prospectivity of a block or the exploration work has been completed and a Field Development Plan has been drawn up. Then again, there is so much uncertainty on the gas pricing front that it will be difficult to get investors to make long term commitments without more clarity on the future gas price. There is also uncertainty over how the oil and gas sector will fare in the years ahead given changes on the ground brought about by global warming and disruptive technologies. Lobbies are already calling for keeping most of the global oil and gas reserves untapped in order to ensure that global warming does not cross the 2 degree threshold. This website predicts that the revenue share model will fail in India. And the sooner policy makers realize it, the better it is for the country. The best way to encourage the industry will be to retain the PTIM Model despite its obvious disadvantages.
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India has made a massive commitment for raising its non fossil fuel based energy base on the eve of Paris Conference of Parties.
8Achieving the targets will be a huge challenge in itself and calls for an extraordinary amount of background work.
8But the challenges are massive with its vast number of poor but aspiring people who yet to have full access to energy resources.
8The website carries here a detailed template on the work done so far and what is to be done going ahead to get to a total renewable grid capacity of 175 GW.
8Know more about all that the government plans to do for the renewal sector.
8Also if you want a detailed 200 page report on the latest development in the solar sector, click on our Research Report segment and call our sales people. They will send you the Table of Contents.
8If you are in the oil and gas sector, you cannot ignore the solar segment any longer. Even if you are not an investor in the segment, you need to stay abreast for developments here as they will have far reaching implications for the oil and gas sector.
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Turkmenistan has fired the starting pistol on the ambitious TAPI natural gas pipeline
8President Gurbanguly Berdymukhamedov announced he had ordered the beginning of the construction oft his end of the pipeline on November 6 during a weekly Cabinet meeting.
8The work on the Turkmen section will be done by state-run gas company Turkmengaz, which was named project consortium leader for TAPI Pipeline Company Limited in August.
8The other three countries -- Afghanistan, Pakistan and India -- had promised start of the construction too by December, 2015.
8But it is still anybody's guess on whether the pipeline -- that will have to traverse what is arguably some of the most dangerous territories in the world -- will eventually go through.
8Turkmenistan has a reason to look for another avenue to sell its gas as it has found itself in a situation where China maintains a stranglehold on its gas exports, effectively keeping Ashagabat as a client state. And with gas prices going down, China is twisting the gas rich neighbour's tail quite a bit. Similarly, Russia's Gazprom has been accused too of not paying up past dues.
8To escape the dragon's grip and Russia's intransigence, Ashagabat is building a pipeline to Azerbaijan for onward transportation of its gas to the EU. But this is a move that is implicitly opposed by Russia whose own exports of gas to the EU will then stand threatened.
8For Turkmenistan, the TAPI line is both a political and economic imperative.
8Comment: It is unlikely that the TAPI pipeline will ever be built this way. Turkmengaz does not have the technology or the muscle power to build the pipeline and there is too much of distrust between India and Pakistan for the pipeline to run through. Then there is the Taliban to handle in Afghanistan as an insolated pipeline -- even if running underground -- is not very difficult to sabotage. The oil and gas dynamics have changed too, so much so that even if Turkmenistan were to offer a stake in its gas field -- a demand put forward by some multinational consortiums in the past as a prerequisite to build the pipeline -- there will be no one coming forward at this point in time. The game has changed. So have the price economics. And even if the pipeline is viable, the risks far outweigh the benefits.
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If the future is uncertain in the oil and gas industry, where do those companies who have known just this business and nothing else go from here? How do they hedge for the future? Should it be by transiting to holding more ecological friendly fossil fuels like gas instead of oil, or should they look for new business opportunities altogether?
8Where should an ONGC or an IOC or GAIL or a Cairn India be headed from here?
Buying more oil and gas assets not longer makes sense, not until there is more clarity all around.
8All these companies are very badly equipped to handle disruptive change.
8The thinking process is just not right and internal processes do not allow for innovation.
8They would rather take the risk of sinking another few billion dollar in hydrocarbon reserves than spend the same money investing in cutting edge Carbon Capture and Storage technology firms.
8It is unlikely that the ONGC chairman will ever think of putting some of his surplus money in a battery start-up firm -- that promises to come up with a disruptive yet low cost, low weight and quickly chargeable energy storage technology. He will be happier picking up a stake in a remote Siberian gas field where the reserves are high and the acquisition cost is attractive.
8It is equally unthinkable that Oil India will ever pick up a small stake in an electric vehicle manufacturing start-up somewhere in California.
8GAIL would know no better than to invest in one more LNG terminal with the ostensible aim of supplying gas to India even though there is now such a glut of new LNG terminals all over the world that it is impossible for many of them to make money for a long time to come.
8IOC cannot ever think of planning how to use their massive network of retail outlets should they become redundant when battery powered cars become cost competitive within the next 10 years. Should IOC then start a food business in strategic collaboration with chef Gordon Ramsay, or tie up with McDonalds or buy out Haldiram? For all you know the company can make more money converting their COCO outlets in big cities into fine dining restaurants and selling burgers and samosas in thousands of other outlets across the country than it ever did dispensing petrol and diesel.
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