Energy efficiency and renewable energy use in MSME in India: Gas suppliers need to keep watch

An interesting government sponsored experiment is on way in 12 MSME clusters -- ranging from brass to ceramics and handtools -- in using new energy efficiency methodologies and renewable energy.

The idea seems to be to then scale up the model to the national level. It will also help provide inputs into policy making. Does a model like this have implications for the gas sector in India?

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Gujarat expansion refinery: Details

EIL has put together the configuration study for IOC's Gujarat refinery expansion from 13.7 MMTPA to 18.0 MMTPA. The estimated cost is Rs15000 crore.
The configuration has new units like Atmospheric Vacuum Unit, Indmax unit, Motor Spirit (MS) block units, Kerosene Hydro De-sulphurization unit and Sulphur recovery unit.
along with associated utilities and off sites.
For reference purposes, the website also carries here project-wise details of money spent by IOC so far this year

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Is GAIL exploiting its monopoly powers with its customers: The truth will be out soon

There have always been allegations that GAIL uses its monopoly powers to exploit its customers.
The source of this power emanates from the fact that it is both a monopoly pipeline owner as well as a marketer of gas.The allegations, however, have never been entirely proved but a comprehensive investigation by the Competition Commission will soon nail the truth once and for all.
GAIL's claim has always been that back to back obligations force an onward imposition of Take or Pay (ToP) conditionalities on customers and its conduct has never been one where it abuses its monopoly supplier status.

The Commission is now going to dig up all the relevant information needed to either prove or disprove GAIL's claim, by looking into:

The different sources of gas procurement by GAIL and the nature of arrangements with each supplier including price and ToP liability under each such arrangement. Whether the gas supplied to the customers is supplied from a commingled stream, in which case, what is the basis for price determination/ revision from time to time. Whether ToP liabilities are always imposed on GAIL by its upstream suppliers which are then passed on to customers

Whether GAIL suffers losses, as it claims it does, on account of non off-take or under-drawl of gas by its contracted customers. What were the total ToP liabilities levied by the GAIL on all its customers located across India in recent years. Whether GAIL has indeed adopted any discriminatory practice in the imposition of ToP liability across its customer base.

Whether GAIL imposed full ToP liability only in cases where the concerned buyer contested the legality of the ToP claim or resorted to litigation or arbitration proceedings Details of policy, if any, of GAIL regarding the imposition of different liability upon different classes of customers. 

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Former IOC chairman dismisses EV threat: But the future can come knocking sooner than he believes

In a recent interview, recently retired IOC chairman B. Ashok in an interview dismissed the EV threat as something way away in the future, but the future may come knocking sooner than he thinks. India is the first country to officially declare that it will move all electric vehicle supply (EV) system by 2030 and this is no doubt a very tall claim by any yardstick, but the oil and gas industry must take note of fresh . odeling exercises that seem to show that India can come quite close to target by 2030.
The exercise answers the following questions:
How does the total vehicle ownership cost of EVs compare with the cost of conventional vehicles in India?
What is the additional load due to BEV charging in India?
What is the impact on power-sector investments, costs, and utility revenue?
How can smart EV charging help RE grid integration?
What is the impact on crude oil imports?
What is the impact on GHG emissions?
Dramatic new insights are available and they may be a cause for alarm for those who are adherent for a sharp increase in refining capacity.

EVs will be cheaper than conventional cars: By 2030, the net electric owner’s benefit is more than Rs 9,200/yr as against a conventional car. When the difference of only the annual fuel costs of conventional vehicles and EVs is taken, it will work out to about Rs 20,000/yr. Between 2015 and 2030, the incremental capital cost of EVs over conventional vehicles is expected to drop by over 60%–70%, eventually making EV owners switch from conventional vehicles.

What is more, the load on the electricity grid will not be unmanageable at all, the exercise shows. By 2030, the all electric load will be only 3.3% of India’s total electricity load. The total peak BEV charging load is 23 GW, typically on weekends or holidays, which is about 6% of the total peak load by 2030 (402 GW). Smart charging and metering can take on the load with alacrity and will push renewable energy use, the projections show.

Find out more on what the projections are for crude imports and what kind of savings are possible on this front. Working backwards, how will refining capacities be hit by such a revolution or CNG supplies?
Analysts in oil companies will have their hands full figuring out how all these changes will impact the future of today's oil marketing companies.

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Deepwater costs continue to plummet: Under $ 40/bbl price now possible

Deepwater production costs are falling at a dramatic pace and it will have massive implications for around $ 15 billion in investments eventually lined up in the KG Basin.  Costs are already down 30% from 2014.
A period of aggressive cost compression has brought average breakeven costs for projects down from $70/bbl in 2014 to approximately $40-50/bbl in 1Q 2017. This breakeven analysis reflects full life-cycle economics that includes government take, development drilling, facilities, equipment, subsea, and operating expenditure with a 10% allowance for return on capital. 

While commercial gains primarily drove 2015 breakeven estimates to $55/bbl, engineering re-designs and efficiency improvements are driving the additional $10-15/bbl impact on breakeven projections for 2017 estimates. The focus is now shifting to get to successful execution of $40/bbl or lower breakeven costs. This will need step changes in efficiency and performance.
But not impossible.

Where have the cuts taken place?

Which are the major areas where deepwater costs are coming down?
Find out which components are contributing most to the cost decrease.
There is a direct cost reduction, there an overrun reduction, there are savings on shorter time cycles and standardizations. In direct cost reductions, component wise reductions are highlighted in the analysis. Standardization impact is measured as also faster completion time.
Additional benefits include:
-- Lower capex
-- Purchase rationalization
-- More effective engineering hours

Can ONGC ever join hands with RIL?

Modeling exercises have shown that a multi-operator approach, co-developments and partnerships can make a big difference. Performance driven commercial collaborations between suppliers and producers is the new norm. One example of the collaboration model is to build a cross-operator inventory of follow-on activities that provides opportunities for tiebacks to existing deepwater facilities.
This multi-operator approach could accelerate development activities at a reduced cost, significantly improving rates of return and supporting continued investment.
Other opportunities for operator collaboration include sharing logistics costs, such as helicopter flights, within a basin. Collaboration initiatives are already under way in the North Sea, where offshore operators announced in 2016 that they were in talks to merge substantial parts of their operations, including procurement, logistics, and finance departments
Gulf of Mexico has seven upstream operators collaborating to reduce costs
In India however, the best collaboration can be between ONGC RIL tenders contracts regime in the KG Basin
The economics of scale can be massive.
Nevertheless, political compulsions of the new government do not allow for such collaborations as of the moment but there is no harm in conducting a broader study on the benefits of multi-operator approach in the KG Basin, it will be a helpful first step.
If the economics can be established, selling it to all stakeholders can be a subsequent exercise

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BPCL's Kochi makeover: Pricing model for

BPCL is undertaking a massive expansion of its Kochi refinery complex. Like IOC did with the Paradip refinery, BPCL is trying out the "over the fence" gas utility supply model in Kochi.
The website carries here a detailed pricing mechanism for such a model, taking into consideration two model with gas as a feed and fuel, one involving power from a captive plant owned by the Build Own Operate entity or with power from provided by BPCL or procured from other sources.
The pricing of syngas, hydrogen and steam will depend on the operating efficiency at varying capacities. There will be a fixed and a monthly charge. The outsourced gas supply complex will cost Rs 2500 crore.

State of art features: The Kochi expansion to 15 MMTPA along with a petrochemical complex is a big one by any yardstick.
But BPCL claims that it has built in a lot of state of art features
And this includes:
Heat recovery belt
Power recovery expander
Electrostatic precipitators, among others

What is it going to do with its propylene output?

How is BPCL's Kochi refinery going to use the 500 TMT of polymer grade propylene that it will make out of its petrochemical complex?
A lot of it will go into specialty polymers and chemicals
Total project cost for manufacturing is $ 700 million

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Setting up an FRSU in India-: Advantage of time and cost

 After an Indian business group's plans to set up a 6 MMTPA Floating Storage Regasification Unit (FRSU) mainly as a captive gas supply source, there is a heightened interest in India about FRSU-based terminals.
The website carries here a very comprehensive template on how an FRSU concept can work in India.
The biggest advantage for an FRSU is that it can typically represent just 60% of an onshore terminal cost and can be delivered in a shorter time. An onshore 3 mtpa terminal with one 180,000 m3 storage tank is likely to cost Rs 3500 to Rs 4000 crore, compared to Rs 2000 to Rs 2500 crore for a similar capacity FSRU.
A component wise comparison of the cost differential is carried here.
What is more, an FRSU can be delivered quicker: an onshore terminal is driven by the construction of the tanks which is typically 36-40 months. New build FSRUs take 27-36 months to delivery but a conversion of an existing Indian LNG projects carrier to an FRSU would be less at typically 18-24 months.
However, the real schedule advantage is if an FSRU is readily available, either reassigned from another project or constructed on a speculative basis.
A recent example of this is the second FSRU for Ain Sokhna which commenced operation in just 5 months after the issue of tender documents. This was possible because the onshore handing infrastructure was already available.
At the buyer end, however, the setting up of onshore infrastructure will have to be taken into account while looking at shorter timelines.

OPEX breakup: For buyers of gas, a clear understanding of operating costs is also very important even though the eventual pricing or tolling model can be different.
The website carries here a component-wise breakdown of operating costs, including:
Provision of personnel – onboard and located on the onshore interface
Ongoing head office support to operations
Fuel gas and oil for power generation and steam generation
Maintenance and inspection
Spare parts
Chemicals and lubricants
Insurance
Harbour fees
Tugs for supply tanker manoeuvering
Service boats for offshore located FSRUs
Dredging
Financing costs
OPEX costs are normally at around Rs 15 lakh per day

The right business model:  Indian LNG projects  Import terminal business models usually take the form of Integrated, Merchant or Tolling arrangements. Full details of how these models work are carried here.
FSRUs are functionally identical to onshore terminals and can use any of these models.
The tolling model seems to be the most popular as it provides a simple arrangement directly with the buyer and the leasing option fits well with shorter term contracts.
The website carries here full details of possible contract structures.
As for the contract period, the first FSRUs were typically leased on a 10-15 year basis. This gave the owner some reassurance of recovering the capital cost of the vessel and finance charges over the lease period. Analysis of the early FSRUs would indicate that 10 years was the minimum lease period and the day rate was calculated on the basis of recovering the capital costs and finance costs over 8 years with the remaining 2 years as profit.
The range of lease periods now spans 5-20 years and is really driven by the gas market demand period.
Leasing charges are typically in the range $110-160,000/day and with an OPEX in the range of $20-45,000/day, the total cost can vary between $130-205,000/day.
 Industry standard FSRUs are essentially limited to 173,000 m3 storage and nominal 6 mtpa throughput. Storage of 263,000 m3 can be offered but this has to be a bespoke model
Capacities of up to 330,000 m3 FSRUs are also available.
Whilst FSRUs are normally leased there is an opportunity to purchase outright subject to Contract arrangements. 

Selection criteria: What are the key considerations which will have to be kept in mind to determine whether an import terminal is best suited for an FSRU or an onshore option?
Looking at the decision factors a FSRU is likely to be preferred over an onshore terminal if the following applies:
There is short term market need – leasing cheaper than sunk cost, FSRU reassigned
There is fast track need to supply gas – onshore terminals take 3-5 years to construct
Capacity is less than 6 mtpa or if it is greater it would need 2 FSRUs
Send out capacity not likely to increase – much easier to add extra vaporizers onshore
No need for strategic storage - largest vessel Qmax 266,000 m3
Major permitting issues for onshore terminal
No space available for an onshore terminal
Offshore FSRU if entrance to harbour too shallow requiring dredging (dredging is an ongoing maintenance cost too)

More data: The FSRU business has grown rapidly since the first vessel was installed in 2011 – just 16 years ago. There are now 27 vessels of which 23 are in operation as terminals and 4 currently assigned to LNG tanker service. A further 10 are currently under construction with options placed with the shipyards for 10 more.
The estimate is that there can as many as 50 vessels in operation by 2025 offering an FSRU-based regas capacity in excess of 200 mtpa, which is 60% of the world’s LNG production in 2016.
That the future is bright is endorsed by the fact that FSRU service providers are ordering new vessels at a cost of around $250m on a speculative basis and that established LNG tanker owners are now entering the market.
The website carries here a detailed list of information on 
-- Current FSRU fleet in operation or delivered and pending start up and operation, including photographs of the vessels
-- Ships ordered or likely to be ordered.

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OPEC production cut: Won't hold up?

OPEC's production compliance cuts are not holding up well, according to latest indications. OPEC oil production continued to rise in June 2017 for the second consecutive month. Compliance by the OPEC cartel declined to 78%.

Two exempt OPEC members -- Libya and Nigeria -- have been raising output at a furious pace and it is likely that cuts will now have to be extended to these countries as well. Moreover, with Iraq targeting a production rate of 5 mb/d and Iran adding new oilfields, it is also a possibility that the OPEC pack may just come apart.

Fear of losing market share as a result of the production cuts -- as the cartel looks with consternation as large buyers like India begin contracting for oil parcels from the US -- will be another factor weighing on OPEC in forthcoming discussions.

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Gas demand: Changing narrative is causing a credibility problem for the IEA

The narrative on where the demand for gas is going to come from seems to be changing rapidly. Even established research agencies like the IEA is giving up on the power sector as the main pillar of Gas demand and supply in India. The continued rise of renewables seems to be posing a problem.

The focus now is on industrial demand, from petrochemicals to fertilizers. The changing narrative is beginning to put pressure on the IEA's credibility as an independent research agency which is not just as a votary of the oil & gas lobby.
The moot question is how fast and how quickly will demand will go up in the non-power segments?
What is more, according to the IEA, China and India are meant to be largest drivers of gas demand in the coming decade.
How dependable are these markets?

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Mozambique LNG project: Is there hope for the Indian trio?

At the beginning of June 2017, a final investment decision (FID) was taken for the Coral Floating LNG in Mozambique underpinned by a portfolio player's commitment to offtake all production.

The LNG project will tap into a super gas reservoir in Mozambique, the other end of which -- known as the  Rovuma Area 1 Offshore block -- is owned by Anadarko Petroleum, in which the Indian trio -- made up of ONGC RIL tenders contracts, Bharat Petro Resoures Ltd (BPRL) and Oil India Ltd  (OIL) -- are involved.

The reserves are estimated at a massive 50 to 70 TCF of gas just for Rovuma Area 1.
Does the go-ahead for the Coral Floating Indian LNG projects mean that a similar kick-up is expected for the Anandarko operated project?

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Gas in power generation: Flat data

Gas suppliers are watching with some trepidation the data coming out on the fate of investments in gas turbines to generate electricity. The electricity sector was projected to be the biggest buyer of gas as coal fired power plants are gradually retired.

In 2016, investments have been just steady and not rising, with bulk of it taking place in countries where gas is cheaper. In Europe, although 4 GW of new capacity came online based on investment decisions made years ago, retirements of gas-power plants exceeded the amount of new capacity that was given the green light for construction.

The incremental demand for gas worldwide therefore may not come from the electricity sector anymore as renewable energy gets cheaper, leaving demand to emanate from other sources, including emerging economies. The biggest uncertainty today is how and when gas demand is going to ramp up globally.

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Renewable power in India: Fossil fuel companies are stepping in

In India, renewable energy is being seen as a business opportunity now by large Indian corporates and more of them are throwing in their hat into the business. This is not to say that smaller players are being squeezed out, as the government targets both utility-scale projects, which are more suited to large industrial corporations, and distributed projects, which should make up 40 GW of the 100 GW capacity target.

The point to note is that the transition to a renewable power system is being seen as a business opportunity by major corporations, with traditional interests in the fossil fuel sector.  For reference purposes, the website carries here a reduction in investment cost of solar and wind energy in India over the last 8 years.

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3D printing will be the next disrupter

Advances make 3D printers a more potent option for industrial production and may have a dramatic impact on the Indian job market. Adidas intends to use the 3D-printed soles to make trainers at two new, highly automated factories in Germany and America, instead of producing them in the low-cost Asian countries to which most trainer production has been outsourced in recent years. 

The firm will thus be able to bring its shoes to market faster and keep up with fashion trends. At the moment, getting a design to the shops can take months. The new factories, each of which is intended to turn out up to 500,000 pairs of trainers a year, should cut that to a week or less. As this trend gains momentum in other segments of the industry, it will have serious implications for India. But from shows, it is now moving to industrial valves, and before long the oil and gas industry will feel its impact too.

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Pubic funding of fossil fuels: Why is India not in the frame?

India figures way down in a list of companies which provide public finance for promotion of fossil fuels.
This analysis shows that G20 governments are providing nearly 4 times more public finance to fossil fuels than to clean energy. Public finance is defined as financing that is controlled by governments and includes funding by multilateral and development agencies.
What is the reason why India is not on the radar here?
The reason could well be that bulk of the funding comes from internal accruals of public sector companies.

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GEEC's CBM foray: Profitable so far

Even as ONGC RIL tenders contracts struggles with its Bokaro CBM block on account of high overheads, there are others who are making money. One example is Great Eastern Energy Corporation Ltd (GEEC) in the Raniganj block.
Operations are small scale -- total revenues are at around $ 30 million -- but the gas price elicited is good enough to generate cash.
The company claims to have an OIGP of 2.62 TCF, 3P reserves of  595 BCF.
There are a total of 114 gas producing wells under operations as of now.

Saddled with litigation: While posting a positive cash flow, GEECL seems to have run into trouble, both with the DGH, the PNGRB as well as its contractors. A primary contractor of the company has taken it to court for unpaid dues, and there are now a bitter series of claims and counter claims. The PNGRB has slapped a penalty for an unauthorised gas pipeline.
The DGH too has claimed that dues have not been paid.
The allocation for another CBM block is currently under contest.
Most of these these issues are currently under litigation or arbitration.

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Qatar to to build 30 MMTPA of new capacity: Domestic gas producers will be under pressure

Qatar's decision to add an extra 30% to its existing LNG capacity by 2024, taking the total up to 100 MMTPA is likely to dramatically upset the projected demand-supply balance in the global LNG market. This will mean that the supply gap that was initially meant to emerge by 2021, later postponed to 2024, is likely to be put off by another few years.

Given that there will be excess supplies coming in from the US and Australia as well, Qatar is likely to fight hard to retain and deepen its market share in proximate markets like India where it has a comparative advantage in relation to other suppliers. In likelihood, Qatar is likely to under cut other suppliers to India.

The upshot of all of this is that the new gas to be produced by ONGC RIL-BP tenders contracts will have to stay competitive to the landed price of LNG set essentially by Qatar, essential for the life of these projects. Peak production from these fields will happen at a time when Indian LNG projects prices will be under pressure.
Qatar's new plans will work to hamstring Indian producers, curtailing their pricing power, keeping their margins under stress.

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City Gas Distribution companies: Cashing in on their monopolies

City gas distribution companies are enjoying a good run given their monopoly over their geographical areas. While they may sit on their monopolies and not do much, the going will remain good until their exclusive periods come to an end. An example is Green Gas Ltd, which enjoys PNG and CNG distribution rights in Lucknow for five years and exclusive city gas infrastructure development rights for 25 years in Agra and Lucknow.

GGL thus has a significant monopoly in the City Gas Distribution (CGD) business in its areas of operation.
Consequently, the company is unlikely to experience any competitive pressures over the near to medium term even though it has been modest in the development of its infrastructure and it can do much more than what it is doing now. Its CNG infrastructure is limited and as for PNG, it has been able to garner only 16,000 PNG customers as of now.

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The future is renewable says new study

Latest research shows that the levelized cost of electricity from solar PV, which is now almost a quarter of what it was just in 2009, is set to drop another 66% by 2040.  By then a dollar will buy 2.3 times as much solar energy than it does today. Solar is already at least as cheap as coal in Germany, Australia, the U.S., Spain and Italy.

By 2021, it will be cheaper than coal in China, India, Mexico, the U.K. and Brazil as well.
China and India are a $4 trillion opportunity for the energy sector.  China and India account for 28% and 11% of all investment in power generation by 2040.  Electric vehicles bolster electricity use and help balance the grid. In Europe and the U.S., EVs account for 13% and 12% respectively of electricity generation by 2040. Charging EVs flexibly, when renewables are generating and wholesale prices are low, will help the system adapt to intermittent solar and wind. The growth of EVs pushes the cost of lithium-ion batteries down 73% by 2030.

Coal-fired power collapses in Europe and the U.S., continues to grow in China, but peaks globally by 2026. One of the big questions for the future of electricity systems is how large amounts of variable wind and solar generation can be accommodated, and yet keep the lights on at all times.
Skeptics worry about ultra-cheap renewables depressing power prices and squeezing out base-load coal, gas and nuclear plants.

But smart charging by electric vehicles during day time, small-scale battery systems in business and households, plus utility-scale storage on the grid, playing a big part in smoothing out the peaks and troughs in supply caused by variable wind and solar generation.

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