The government has made it clear that no cess will be levied on crude and petroleum products to garner capital for the Rs 80,000 crore refinery upgradation programme to meet new fuel emission norms.
8The Parliamentary Standing Committeefor the petroleum ministry had strongly urged the ministry to take a decision on the recommendation to levy a High Sulphur Cess of 75 paise per litre on BS-III fuel to raise Rs.10,000 crore and special fuel upgradation cess of 75 paise per litre on all gasoline and diesel sold in India to mobilize another Rs.64000 crore to fund fuel upgradation projects of refineries as envisaged in the Auto Fuel Vision and Policy 2025.
8The government has now rejected the claim for levy of a cess, claiming that there is no real need for one.
8In its reply, the petroleum ministry said, "as both diesel and petrol are deregulated products, the OMCs can pass on the additional costs to consumers and imposition of cess is no longer necessary."
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The jury is till out on whether the merger of ONGC Mangalore Petrochemicals Ltd with MRPL will provide for better synergy or will it be too unwieldy.
Pros
8There are those who argue amalgamation to be beneficial. The key feedstock (naphtha and aromatics streams) for the operations of OMPL is sourced from MRPL, which would be met captively post the amalgamation while providing flexibility to the management in sourcing of crude so as to maximise the yield depending upon the market dynamics and crack spread available for the respective products. With the amalgamation, the plants of MRPL and OMPL can be operated at optimum utilisation to allow for maximization of Gross Refining Margin (GRM) and maximisation of combined margins.
Cons
8The counter view is that MRPL will be remain vulnerable to exposure in the movement in crack spreads between naphtha and aromatic streams and the finished products which are cyclical in nature, as well as to import duty differentials between finished products and feedstock, and exchange rate movements.
8Owing to depressed crack spreads as the capacity additions are currently out pacing demand, coupled with inadequate feedstock from MRPL which was in the midst of its own capacity expansions, OMPL reported sizeable losses in its first year of operations.
8The company’s cost structure is also elevated because of usage of liquid hydrocarbons as a fuel for process requirement and power generation instead of natural gas which was envisaged at the time of conceiving of project.
The market for petrochemicls is highly competitive and MRPL will find the going tough in this market, which is dominated by big players such as RIL.
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The PNGRB has set a tough Minimum Work Programme (MWP) for each Geographical Area, thereby making it challenging for City Gas Distribution (CGD) units to stick to it.
8The first year target has been set at 15% of the total connections, and this is the toughest to achieve given the high amount of initial clearances and approvals required to commence operations.
8The implementation and operation of a city gas distribution network requires a host of approvals from a number of agencies, such as the National Highways Authority of India, municipal corporations, public works departments, and pollution control boards. Obtaining multiple approvals from various civic and governmental agencies and authorities calls for extensive liaison work, besides time and this will stretch the manpower resources of smaller companies.
8Further, the Right of Way (RoW) and Right of Usage (RoU) have to be acquired from private land owners which can be a long drawn process.
8Thus, there are several hurdles that the CGD players can face resulting in delays in implementing projects.
8While there have been instances in the past when companies have been granted extensions upon requests citing delays in obtaining approvals, this remains under the discretion of PNGRB.
8The Performance Bank Guarantees (PBGs), which were not in the bidding criteria in earlier rounds, were also significantly lower (up to Rs 0.5 billion) in the past as compared to some of the PBGs that have been furnished by companies in Bid-Round 4 (upto Rs 45 billion). The significant increase in PBGs submitted is on account of the changed nature of the bidding process as per which, in the case of a ‘tie’ in network/compression charges bid for by two or more companies, the company furnishing the higher PBG wins the bid.
8However, submission of a higher PBG can turn out to be counter-productive if the company does not meet the first year MWP and PNGRB decides to take action against the company by encashing the proportionate amount (one-fifth) of the PBG.
8The high probability of delays in implementation and the resulting risk of invocation of the PBG would continue to weigh on the credit profile of recent bid winners.
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This website has reported sometime ago that a different policy paradigm is needed for offtake of gas from small and marginal fields in remote areas of the North East.
8The petroleum ministry seems to have acted on the suggestion.
8The guidelines stipulate that buyers have to offtake gas within 90 days from the readiness expressed by the National Oil Companies to supply gas.
8The demand for liberalization of this norm was made by industries based out of the North East. A longer lead time was desired.
8Accordingly, the government has now allowed North East based buyers to offtake gas within one year from the date of readiness assigned by the NOCs.
8For the oil companies though, the liberalization of policy should not be a problem. It just needs to be sure when it will ready to supply gas and issue an auction notice accordingly instead of at the nick of time as is the case at present.
8But care has to be taken to ensure that the gas is indeed supplied on the stipulated date and take or pay arrangements must be in place for either parties.
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The construction arm of L&T won business worth Rs 1178 crore in December, 2015.
8But an analysis will show that while it bagged orders in the Metallurgical and Material Handling, Power Transmission & Distribution segments, it drew a blank in the oil & gas space last month.
8Overall, orders from the oil and gas business in India has slowed down considerably but the reasons why there is a slowdown in India seems to be different from stagnation noticed in this sector in the world as a whole.
8The main bottleneck on the E&P side seems to be the stalemate over pricing of domestic gas. This has held up big ticket investments by ONGC and RIL, among others.
8Between them the investment planned is close to Rs 80,000 crore over a three year period, going up to Rs 100,000 crore if the wind blows in the right direction.
8On the downstream side, new fuel quality norms will witness an investment of around Rs 80,000 crore by Indian refineries over the next few years, giving this segment a fresh impetus.
8The midstream sector too will need investments as the pipeline laying business is expected to build momentum once capital approvals come through for new LNG terminals and City Gas Distribution projects.
8There is no doubt that low oil prices have a bearish impact on investments but except for Cairn India which is holding back investments waiting for prices to firm up, the public sector duo of OIL and ONGC or not holding back any plans for the time being.
8The main investment in the E&P sector is in gas assets and here, it is the tangle over government policies that seems to be the main constraining factor as of now.
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For reference purposes, the website carries here a map showing the following features
8Kochi Mangalore pipeline with major towns and cities on its route
8Kottanad Bangalore pipeline along with major towns and cities enroute.
8Kochi Kayamkulam pipeline
The pipeline stretches are depicted in terms of:
8Segments which have been delayed
8Stretches which have been completed
8And segments where no decision has been taken
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Methane emissions in oil and gas installations is a major problem associated with global warming as it is a tremendously potent greenhouse gas, having a “global warming potential” at least 84 times that of carbon dioxide over a 20-year time frame.
8Substantial quantities of carbon dioxide can also be generated by the burning off (“flaring”) of methane gas associated with oil production,
8Already US regulations adopted in 2012 require green completions at newly completed gas wells to maximize capture of gas, and avoid flaring or venting.
8Technical experts generally agree that cost-effective emission reduction measures are currently available to substantially reduce methane and other air emissions.
8India's methane emissions are not properly tracked and the next effort of the government should be to evolve transparent benchmarks for emission control.
8A set of parameters can surely be evolved, including reductions in NOX and VOC emissions from emission control efforts.
8Other measures to take on emissions could well include converting a percentage of corporate vehicle fleets to lower emission fuels; bringing down methane emission rates from drilling, completion, and production operations; replacement of a certain targeted percentage or number of high-bleed valves replaced with lower emission valves; and defining the scope and frequency of leak detection and monitoring exercises.
8The International Energy Agency has identified minimizing methane emissions from upstream oil and gas production as one of four key global greenhouse gas mitigation opportunities, noting that reductions in such emissions could account for nearly 15% of the total greenhouse gas reductions needed by 2020 to keep the world below a 2°C increase in temperature, a level above which catastrophic global impacts are predicted to occur
8How far down this road has Cairn gone in this direction in Barmer is not known yet.
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IOC has got the authorization from the PNGRB to build the evacuation network from its Ennore LNG terminal.
8Permission has been granted to build the Ennore-Thiruvallur-Bangaluru-Nagapattinam-Madurai-Tuticorin pipeline gas pipeline.
8Eliciting the go ahead from the regulator is the easy part of the job.
8The tough part starts when it comes to acquisition of land for the ROU, especially in the face of strong opposition from farmers and the Tamil Nadu government for laying of pipelines through agricultural land.
8Work is till stalled over the construction of GAIL's Kochi-Bangalore pipeline that traverses through the state.
8IOC however seems confident of handling the problem as it claims that it will lay the gas pipeline on the ROU of an existing product pipeline and wherever fresh ROU Is needed, the company said it would follow state government guidelines.
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Is the growth of demand for gas stymied by substitution from liquid fuels such as naphtha and LDO?
8The answer could well be "yes", given the furious pace at which substitute petroleum liquids are growing this year even as gas consumption stagnates.
8Pertinently, the situation was just the reverse when crude prices were high: demand for naphtha, FO/LHSH and LDO were then on the decline while there was a sharp rise in the consumption of gas
8For the current analysis, a fair comparison of prices will have to be between the landed cost of LNG -- because shortage of domestic gas means that only LNG can be used in industrial furnaces -- with that of naphtha and other fuels.
8Low crude oil prices have brought about a concomitantly sharper fall in liquid fuel prices than in LNG.
8Consequently, the substitution effect has come into full play and adversely impacted the acceleration of incremental demand for gas in India that was noticed earlier.
8A glance at the latest consumption figures will show what is happening on the ground.
8Naphtha consumption had gone up by a whopping 39.68% in November, 2015 in relation the same month last year. April-November, consumption went up an unprecedented 22%.
8Similarly, consumption of LDO grew by 10% in November and 13% cumulatively.
8Clearly, low crude prices create a big substitution effect in a country like India and acts as an inhibitor to the growth in consumption of gas.
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While seeking a clear road map to resolve the imbroglio, the government is also seeking to fix responsibility for the mess up by expanding the Committee's mandate to look into the acts of omission and commission leading up to the mess-up.
8"The fact that no one noticed or raised an alarm while the draining the ONGC reservoir went on, is something we need to know more about," highly placed sources in the government told this website.
8When ONGC chairman D.K. Saraf moved the Delhi High Court, those in the petroleum ministry were miffed by his unilateral action.
8It is likely that files will be examined by the one man commission leading up to the point where Saraf was forced to seek the court's help without taking the requisite permission from the government.
8"It is rather surprising that the draining was going on for so many years without anyone raising a red flag," the same official said.
8"The committee will hopefully clear the air on this mystery," he said.
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IOC has unfolded plans to spend a massive Rs 1,75,000 crore over the next seven years.
8The investments will be spread over refining, exploration, marketing and the petrochemical business subject to techno-economic feasibility of the projects.
8A total of 13 projects have been identified.
8Moreover, specific plans have been drawn up for brownfield expansion of refineries over the next five years.
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Will Underground Coal Gasification (UCG) ever take off in India?
8The progress so far has been slow even though the government has now identified seven blocks -- five lignite and two coal -- where the technology can be deployed.
8Some progress is now taking place but the politics of climate change may well have an unpredictable impact on this form of energy.
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Petroleum minister Dharmendra Pradhan has agreed to pick up the subject of excise duty rationalization for the CGD industry with finance minister Arun Jaitley.
8The minister is expected to use his personal rapport with Jaitley to resolve the impasse.
8Meanwhile, Pradhan is keen to bring down emission levels in Delhi by planning more CNG stations in the city.
8During the discussions, Indraprashta Gas Ltd had apprised the minister that it had adequate capacity to immediately cover100% of all needs
8The Minister asked IGL to explore all options to increase CNG usage, including doling out incentives to car owner for refueling during nonpeak hours and incentivizing CNG kit conversion.
8Subsequently officials are advised to see how allotment of additional land can be done to IGL for construction of new CNG stations.
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For anyone interested in the energy sector in India, it is imperative for him to keep track of the ongoing climate change negotiations in Paris.
8The outcome will have far reaching implications on India and on all energy sector stakeholders, from producers of energy to equipment and service suppliers to financiers.
8The ambition, according to a common draft, is to limit warming to 1.5 degree centigrade by the turn of the century or at least not more than 2 degrees (Click on Reports for the Draft Agreement that is now in circulation).
8Oil majors such as BP on the other hand claim that it is not possible to limit warming to two degrees anymore and it can in fact go up to an unacceptable three degrees or thereabout. Big Oil is talking of switching from coal to gas as an interim fuel but there are critics who claim that such a switch will not help curb emissions beyond a point.
8In this context, if the Paris conference promises to peg global warming at two degrees, then two scenarios are possible.
8One scenario, which is not an unlikely one, is that the warming target will not be achieved.
8The second possibility is that global resolve will be such that the energy-use matrix is changed to keep global warming under check.
8Under the second scenario, the transition to a low hydrocarbon based economy will be far quicker, thereby bringing about dramatic changes to how business is done in the energy sector.
8The oil and gas industry will also have to bear the brunt of the changes that will sweep across the world as a result of the steps to be taken to curb emissions.
8There are opportunities too to be gleaned out from the $100 billion per year transfer of funds from the developed to developing countries to target climate change. This over and above the vast amounts of the money that India will have to spend on its own to get its energy use matrix right.
8For service providers and equipment suppliers, the time has come to remain very alert:, to read everything that comes their way for telltale signs of what is in vogue and what is not, and accordingly look for opportunities.
8The good thing is that new opportunities will be available. The idea is to catch them before others do
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