PAC seeks inquiry into approval of RIL’s gas field cost without third party validation
The Parliament’s Public Accounts Committee has sought an inquiry into oil regulator DGH-led panel approving Reliance Industries’ $1.529 billion plan for developing four satellite gas discoveries in KG-D6 block without an independent validation and sought disciplinary action against guilty officers. Eastern offshore KG-D6 block, once considered the most prolific in India, had courted controversies when allegations of gold-plating or inflating the cost were levelled against RIL when it had in 2007 revised estimated investment to $8.836 billion from $2.47 billion proposed in 2004, and then failed to deliver on the promised output. It brought in caution in the establishment and demands for the appointment of an independent validation when RIL in December 2009 submitted a field development plan for four satellite gas discoveries in the same block. The optimized field development plan (OFDP) was approved by block oversight panel, called Management Committee (MC), which is headed by Director General of the Directorate General of Hydrocarbons (DGH), in January 2012. “The Ministry of Petroleum and Natural Gas had directed DGH to engage a third party for validation of capex but no third party could be engaged and the MC approved OFDP without waiting for the decision of MoPNG in this regard,” the PAC said in a report tabled in Parliament Wednesday. It did not agree with the ministry’s submission that actual capital expenditure gets independently validated when the annual accounts are audited and the cost recovery is restricted to actual expenditure irrespective of the estimates projected by an operator. “In the opinion of the Committee, the reply of the Ministry renders the whole process of validation of estimates, plans etc. redundant. Further, when the Ministry had asked for independent validation, the direction should have been followed scrupulously and the Ministry instead of accepting its lackadaisical monitoring and taking action against the MC is giving lame excuses,” the report said. The PAC felt that the decision of not appointing the third party for validation could be deliberate so that the ministry gets flexibility in the decision making. “The Committee desires that the decision for not appointing the third party for validation may be inquired into and disciplinary action taken against the officers found responsible,” it said. It did not accept the ministry’s submission that “the MC was to approve the development plan as per the Production Sharing Contract (PSC) timelines and since no third party could be appointed, the proposal was approved without third-party validation based on consensus decision of DGH.” RIL had in July 2008 submitted a development plan for nine satellite gas discoveries for approval of the MC which it found unviable at the then prevailing gas price of $4.2 per million British thermal unit. Subsequently, in December 2009, RIL submitted an OFDP for four satellite discoveries which after considering changes in certain assumptions was approved in January 2012. The $8.836 billion cost was for Dhirubhai-1 and 3 gas fields, the first two of the 19 discoveries in the block. The cost for four satellites was additional and was to produce 10.36 million standard cubic metres per day of gas by 2016-17 but the start of work was delayed because of technical and commercial factors. Gas is now expected by 2022. The PAC went into the 2011 CAG report that castigated the Petroleum Ministry for allowing RIL to retain its entire eastern offshore KG-D6 block in contravention of the PSC. The PAC submitted its first report in April 2016 in which it had stated that exploration cost on unviable finds cannot be disallowed. In the second report on the subject tabled in Parliament Wednesday, the PAC asked the government to bring out a comprehensive policy on how discoveries can be declared commercially viable. “Constant efforts may be made to cut down procedural delays especially wherever huge financial implications are involved,” it said. It also wanted timelines for approvals to be prescribed and internal controls adequately strengthened. The PAC was, however, critical of inordinate delays in submission of final action taken replies on its April 2016 report. “The Committee is dismayed to note the callous attitude of both Ministry of Petroleum and Natural Gas and Ministry of Law and Justice in the delayed submission of Action Taken Replies and opine that instances of such nature should definitely be obviated in future,” the report said. Government auditor CAG did not say in its September 2011 report if the capital expenditure for KG-D6 being raised from $2.4 billion proposed in 2004 to $8.8 billion in 2006 was unjustified or inflated.
ANALYSIS: Rising LNG demand to exert more pull on US natgas prices
US liquefied natural gas (LNG) export capacity is on the brink of doubling in 2019, which will boost the super-cooled fuel’s influence on the US natural gas market, where volatility surged in 2018 after several years of slumber. LNG exports have been the fastest growing source of US natural gas demand since the country started ramping up exports in 2016, and is expected to expand deliveries in coming years as several more export terminals enter service. Its imprint is being felt in the US gas futures market, which in November experienced its longest stretch of extreme volatility in nine years due to demand, low inventories and unseasonably cold US weather. LNG currently accounts for just a small amount of overall domestic gas demand. But as the country opens more facilities for export to meet growing needs abroad, analysts said more ups and downs in prices are expected. “As LNG exports increase, so will future gas prices,” said Tom DiCapua, managing director of wholesale energy services at Con Edison Energy, a provider of energy management services, including the purchase of gas, for power plants owned by several companies. Prices at the US Henry Hub benchmark in Louisiana hit $4.929 per million British thermal units (mmBtu) in November – their highest in four-and-a-half years. That was also well above the five-year average from 2013-17 of $3.25/mmBtu. EXPORT GROWTH SOARS The United States is on track to export about a trillion cubic feet of LNG by year-end, or about 3 percent of overall US gas demand in 2018. But LNG exports are expected to rise to 5 percent of overall US gas demand in 2019 and to 10 percent in 2024, according to the US Energy Information Administration (EIA), boosting LNG’s potential to affect prices. “LNG exports will be one of the most bullish demand factors for US natural gas prices over the coming two years, when several terminals are set to come online,” Raymond James analyst Muhammed Ghulam said. There are three LNG export terminals presently in operation in the United States. Those include Corpus Christi in Texas, which shipped its first cargo in December. Three more terminals are expected to enter service in 2019, boosting US LNG export capacity to 8.9 billion cubic feet per day (bcfd) of gas, making it third largest in the world behind Australia and Qatar. US production is expected to rise 11 percent to a record 83.3 bcfd in 2018, the biggest year-over-year increase since 1951, according to EIA projections. One billion cubic feet is enough gas to fuel about 5 million US homes for a day. INVESTMENTS EYED Investment decisions are imminent on another three US Gulf Coast projects worth an estimated $20 billion, in 2019, while several other facilities are in the planning stages in the Pacific Northwest. “The first half of 2019 will be an especially busy one for the US,” said Alex Munton, Americas LNG analyst at energy consultant Wood Mackenzie. Some consumers say there may not be enough gas production and pipeline capacity to support growing domestic markets in addition to LNG exports. “Pressure on US gas prices at peak demand mounts with every additional LNG export,” said Paul Cicio, president of Industrial Energy Consumers of America, an industry lobby group. He said the United States should not approve new LNG export terminals until the government determines the country can first meet domestic demand. Houston-based Cheniere Energy Inc, the biggest US buyer of natural gas, said its LNG exports are not causing market volatility. “Cheniere’s demand is not variable, it is steady,” Cheniere spokesman Eben Burnham-Snyder said. “We’ve encouraged more natural gas production and pipeline development in basins all across the country because of our consistent demand for natural gas.”
Poland signs long-term deal to buy natural gas from the US for 20 years
Poland has signed a long-term deal with a US company for supplies of liquefied natural gas as part of an effort to reduce its dependence on Russian energy. Port Arthur LNG, a subsidiary of Sempra Energy, and Poland’s state gas company PGNiG jointly announced Wednesday the agreement for the sale of 2.7 billion cubic meters per year of gas to Poland over a 20-year period. In a statement, they said that is enough to meet about 15 percent of Poland’s daily gas needs. “This agreement marks an important step toward Poland’s energy independence and security,” US Secretary of Energy Rick Perry said. Sempra Energy’s CEO Jeffrey Martin said the deal helps his company “advance our vision to become North America’s premier energy infrastructure company.” No financial details were disclosed, in line with the secretive nature of gas deals, which are sensitive politically given Russia’s dominance of Europe’s energy market. In recent weeks Poland also signed long-term deals for gas with American suppliers Cheniere and Venture Global Calcasieu Pass and Venture Global Plaquemines LNG. These deals have been sealed as both Poland and the United States have been trying to stop Nord Stream 2, a pipeline under construction that, when finished, would transport gas from Russia to energy-hungry Germany. Poland, along with several other European countries, see Nord Stream 2, which bypasses Ukraine, as a political project meant to weaken that country and gain leverage over Europe by making it more dependent on Russian gas. Officials for the Nord Stream 2 dispute that view, saying it is merely a commercial project and would not cut off Ukraine. Also Wednesday, US Deputy Secretary of State John Sullivan met with Polish Foreign Minister Jacek Czaputowicz in Warsaw, the last stop in a visit to several countries in the region. Ahead of his visit, the State Department said he would meet with Polish leaders to discuss shared concerns over Nord Stream 2, among other issues.
Tougher regulations loom for Colorado’s gas and oil industry
Colorado oil and gas producers could soon face a tougher permitting process as newly elected state officials take office and revamp regulations, the incoming speaker of the state’s House of Representatives said on Wednesday. The change comes after voters in the fifth-biggest US oil-producing state in November elected a wave of Democratic lawmakers who want restraints on fossil-fuel production. At the same time, however, state voters rejected a proposal that would have required at least 2,500 feet (762 meters) of separation between new wells and homes, schools and parks. Newly elected officials want increased local control over the development of oil and gas activities, potentially creating new hurdles for some projects, KC Becker, House speaker-elect, told oil industry analysts and investors on a conference call hosted by Robert W. Baird & Co. “Some things the industry is not going to like,” she said during the call. “I think they’re always nervous about anything that could slow down permitting. That could end up happening.” This week, the state’s oil regulator revised drilling setbacks near school properties. The change requires a 1,000-foot (305 m) setback be measured from outdoor playgrounds and athletic fields rather than from buildings. Colorado’s oil output is nearing half a million barrels per day, according to the latest data from the US Energy Information Administration. Newly elected state officials have outlined plans to diversify its energy mix and environmental groups have pledged to bring tougher regulations to the oil industry. Colorado Governor-elect Jared Polis, a Democrat, has said he wants all the electricity on the state’s grid to come from renewable energy by 2040. Meanwhile, Colorado Rising, a group that pushed the failed November setback initiative, has formed an exploratory committee to begin looking at a 2020 ballot initiative to “address the dangers of oil and gas extraction,” the group said in a release last week. Oil producers with operations in Colorado, including Anadarko Petroleum Corp and Noble Energy Inc, contributed hundreds of thousands of dollars to efforts to thwart the 2018 setback measure. Anadarko said modifying the setback rule “was a meaningful step forward”, and Noble referred questions to the Colorado Oil and Gas Association, which said it was “proud of what has been accomplished” from meetings with school districts and environmental groups to develop the revised setback.
How India extricated itself from an energy squeeze
India experienced a combination of external pressures in 2018. These included the rise in global oil prices which pushed up retail prices of gasoline in the country by around 9pc between mid-August and early October, a weakening of the rupee, and US pressure to cut crude oil imports from Iran, which comprise around 13pc of total oil imports, ahead of the re-imposition of sanctions. India arguably emerged from these none the worse for wear. The government, facing the prospect of unhappy consumers ahead of a general election in 2019, intervened to cut excise duties by 1.5 rupees ($0.02) a litre. It also asked state refiners to reduce their margins by 1 rupee a litre. Following this, the softening of global oil prices in late 2018 almost entirely reversed the retail price increase. Although the growing demand for oil has tended to fluctuate with changes in the oil price, it is currently underpinned by economic expansion, including massive government-funded programmes of road building and extending access to petroleum products such as LPG in rural areas. This was reflected in a rebound of demand at roughly 234,000 bl/d in the year to September 2018, compared with roughly 51,000 bl/d to September 2017. The country consumes around 4.8mn bl/d, of which roughly 80pc is imported. Looking ahead to 2035, India’s demand for oil is expected to account for around one third of global growth. The 2019 general election is unlikely to alter energy policy significantly. Driven by fiscal concerns, the Modi government in 2015 set a target to reduce oil (and gas) imports by 10pc by 2022, and 50pc by 2030. And so far it remains focused on pursuing this goal. The pressures experienced in 2018 will accelerate government efforts to secure access to diverse supply sources that can meet rising energy demand while mitigating the fiscal impacts of any future potential supply disruptions. This is specifically with a view to keeping the fiscal deficit within 3.3pc of GDP. This is why, despite having reportedly secured a waiver from US sanctions on Iran, India has simultaneously ramped up efforts to attract international investment in upstream exploration. Contracts for a second round of bidding under its two flagship policies— entitled “Discovered Small Fields” and “Open Acreage Licensing”—will be signed in 2019, with a third round also planned. The country is also seeking private investments to develop the second phase of its Strategic Petroleum Reserve (SPR) for oil. When this is completed, it is expected to amount to 11.8mn tons (87mn boe) in total, and is likely to be expanded further. India’s importance as a future driver of global energy demand has also garnered interest from oil exporters looking to secure markets for their supplies, as illustrated by the $44bn investment in a 1.2mn bl/d refinery involving Saudi Aramco, Adnoc and three Indian state refiners. This fits in with plans to nearly double refining capacity in order to meet an expected increase in demand to 2030. Other global energy majors are similarly likely to enter the Indian downstream market in 2019. India has perhaps most visibly demonstrated its residual bargaining power in the gas sector, shifting its strategy over the last two years towards cultivating more flexible access to LNG imports. Successful renegotiations involving price, delivery dates and volumes in three major long-term LNG contracts with RasGas, ExxonMobil and Gazprom reflect this shift. Efforts are also likely to continue in 2019 to commercialise the use of gas more widely in the Indian economy, thus with limited success. The surge in LNG imports in India over 2015-2017, rising from roughly 20-30pc of total gas consumption to nearly 50pc, was largely driven by the industrial sector which consumed around 50pc of the total. Yet, total annual gas consumption of just over 50bn cm represents a relatively small quantity in global terms and India remains a wildcard in terms of its future contribution to global gas demand. The latter will depend on two key factors – the price competitiveness of gas in the Indian economy relative to competing fuels such as coal and naphtha, and the development of infrastructure and a clear regulatory framework. There is likely to be some progress in 2019 on both fronts. Prices for gas produced from specified under-explored “difficult” deep-water fields are linked to a weighted average of substitutes including coal and naphtha, set at $7.67mn btu for the period September 2018 to March 2019), more closely reflecting the prices of fuels that gas is meant to be replacing in the domestic economy. Plans to set up a gas trading hub in the country to aid a government target of increasing gas’s share in the energy mix to 15pc by 2030, from 6.5pc at present, is forcing authorities to look at the current regulatory framework related to competition and third-party access. They are also looking at the restructuring of state gas company GAIL into separate marketing and transportation (pipeline) businesses. Despite the role that fossil fuels are expected to continue to play in India’s future economic trajectory, the country has already embarked on an ambitious transition towards clean energy. Its leadership on renewable energy, targeting the addition of 175 gigawatts of renewable capacity by 2022, was acknowledged in a 2018 study in Nature Communications. This assessed the relationship between national ambitions to cut emissions and the temperature rise that would result if the world followed India’s example. The study showed that India’s policies put it on track to outperform its COP21 commitments, with a target only slightly off course. The expectation is that a large proportion of the 175 gigawatt target will be achieved – Wood Mackenzie for instance puts it at 76pc. India has had stellar success with its renewable auctions, with record low tariffs continuing in 2018 priced at 2.44 rupees or roughly $0.035 per kilowatt hour. The effects of this capacity expansion are beginning to show up in electricity generation. In August 2018, renewables (mainly wind) contributed a record 13.4pc to electricity generation, representing a year-on-year increase of just
Petroleum ministry asks OMCs to prepare a detailed road map for time bound implementation of PMUY
Minister of Petroleum & Natural Gas, Dharmendra Pradhan interacted with the Chairman/CMDs and Senior Management of Oil Marketing Companies (OMCs) through video conference on the Cabinet decision of the Government to expand the scope of eligible beneficiaries of Pradhan MantriUjjwalaYojana (PMUY) to include all poor families in the country to achieve the universal coverage. The Minister appreciated the efforts and proactive role of OMC officials in successfully implementing the Ujjwala scheme with full commitment and dedication. Under PMUY, 5.86 Cr connections have been released so far. Minister expressed satisfaction to the fact that 48% of the PMUY beneficiaries are SC/ ST households. He thanked the OMCs for expanding LPG coverage in India from 55% in 2014 to near 90% now. The Minister further advised OMCs to disseminate the decision to extend the benefits of PMUY to all poor families at ground level and also prepare a detailed road map for its time bound implementation. They were asked to mobilize required equipment to release connections to PMUY beneficiaries in a mission mode.
Gazprom says completes gas sales on electronic platform
Russian gas giant Gazprom said on Wednesday it has successfully completed the first “day-ahead” gas sales deal on the Electronic Sales Platform (ESP), a new sales tool. Gas sales through the ESP, designed for sales to European consumers, started at the end of September. Over the first 3 months of operations via the ESP, the company has sold more than 1.6 billion cubic metres of gas, having signed contracts with more than 20 clients, Gazprom said.