Amlekhgunj oil pipeline to be extended to Chitwan
Nepal Oil Corporation has decided to extend the Motihari-Amlekhgunj oil pipeline to Chitwan with the construction of the country’s first pipeline being built with Indian assistance nearing completion. According to the corporation, the pipeline being laid from Motihari, India to Amlekhgunj is expected to be finished next month. Only 5 km of the pipeline passing through Parsa National Park, out of the total length of 36.2 km that falls within Nepal, remains to be built. Officials of the state-owned oil monopoly said tenders would be invited to conduct a detailed project report to extend the pipeline to Lothar of Chitwan district. “The corporation is likely to call for bids in May.”The source said that Nepal Oil Corporation had already conducted a pre-feasibility study for the Amlekhgunj-Chitwan pipeline. India has expressed its willingness to help Nepal extend the pipeline. Birendra Kumar Goit, the spokesperson for Nepal Oil Corporation, said the corporation had started groundwork to finalize whether to adopt a government-to-government (G2G) or business-to-business (B2B) modality for the construction of the pipeline. The government has given priority to building the pipeline in a bid to reduce the import costs of petroleum products and check gasoline theft in transit. Following the construction of the cross-border pipeline, Nepal Oil Corporation is expected to save more than Rs2 billion being spent on gasoline imports. Goit said the corporation was working on determining the distribution modality of the fuel imported via the pipeline. According to him, the enterprise has upgraded three out of its four fuel storage tanks at the Amlekhgunj depot. These tanks can stock 16,000 kilolitres of fuel. Nepal Oil Corporation has decided to import diesel first after the pipeline is ready. It has the capacity to transport fuel at a rate of 291 kilolitres per hour. “Later on, we will be using the system to import petrol too,” said Goit. The construction of the pipeline was proposed in 1995, but the project gained shape only after the two governments signed an agreement on August 25, 2015. Nepal has identified the Amlekhgunj-Raxaul-Motihari oil pipeline as a national priority project. The estimated cost of the project is Rs4.4 billion. Of the total outlay, India is spending Rs3.2 billion while Nepal is putting up the rest of the money, mainly to build the related infrastructure of the project, according to the bilateral agreement.
India’s new thrust on oil and gas hunting: Prospects and challenges
After opening almost entire sedimentary basins in India for oil and gas exploration in 2017, India came out with far-reaching policy reforms notification in February this year. This may turn out to be a game changer in the oil and gas sector in India if implemented in its true spirit. It makes drastic changes in the Hydrocarbon Exploration Licensing Policy (HELP) and the Open Acreage Licensing Policy (OALP) in order to attract more domestic and foreign investment in exploration of oil and gas. Let us have a close look at some of its salient features. First, all the 26 sedimentary basins have been classified into three categories based on the current status of exploration and production in the respective basins. Seven basins having commercial production have been put in category-I. Five basins where hydrocarbon discoveries are there but yet to be converted to recoverable reserves and commercial production are in Category-II and 14 basins having no discovery but have prospective resources are in category-III. Second, as the different categories of basins carry a different level of risk and reward, the licence for exploration and production will be awarded on differential fiscal and contractual terms. In categories II and III, the contractors will not have to share with the Government any revenue or production from the blocks. This is a significant departure from the existing terms of an award under the HELP. Only royalty and statutory levies will be payable. However, the revenue sharing with the Government will commence only in case of a windfall gain on a graded scale ranging from 10% to 50% on incremental revenue over US$ 2.5 billion in a financial year. Third, in order to encourage investment in new blocks in producing basins also, a maximum cap of 50 per cent have been imposed for revenue sharing with the government. More emphasis has been given on investment. The biddable parameters for category-I blocks would carry 70% weight to the minimum work programme (MWP) and 30% weight to Revenue share as against the current ratio of 50:50. This will eliminate the tendency to put unviable bids to win the award of blocks. Such biases were seen in Discovered Small Fields (DSF) Bidding Round I and II. Some Bidders got the blocks awarded without committing any investment but by bidding to share even 99% of revenue with the Government, an unrealistic obligation. Fourth, to expedite exploration and production, the exploration period has been reduced to 3 years for on-land/shallow water blocks and 4 years for deep-water blocks. To incentivize early production, concessions in royalty will be given if production is commenced within 4 years in on-land and shallow water blocks, and 5 years for deep or ultra-deep water. The fiscal incentives may result in early monetisation of discoveries. Fifth, the Contractor will have full marketing and pricing freedom to sell on arm’s length basis. There will be no allocation of the output by the Government. Discovery of prices will be on the basis of transparent and competitive bidding. However, the new Policy does not address the oil companies’ demand for permission to export oil. The exports have not been opened up. Sixth, ONGC and Oil India have been allowed to retain the fields where oil/gas discovery has been made. NOCs may also induct private sector partners including by farming out, joint venture and bidding out. In earlier DSF Rounds I and II, the oilfields discovered by National Oil Companies (NOCs) were put on biddings. The successful bidders were not have to make any payment to the ONGC or OIL against the exploration expenses incurred by them in past. Moreover, the assets created at the site such as production facilities and development/ production wells by the NOCs were handed over to the Contractors without any payment. There was also no signature, discovery or production bonus and no carried interest by National Oil Companies or State participation. The new policy addresses the NOCs’ concerns on the rewards for the value additions done through discoveries after extensive exploration. Though these changes make the investment in Indian oil and gas Sector more attractive, some challenges remain both for the entrepreneurs and the government. First, 37 blocks with acreages measuring 60,000 square km are on offer in the ongoing OALP Bidding Rounds II and III. Policy Reforms in Exploration and Licensing Policy announced in Feb have not been made applicable for these blocks, though bidding is still open and yet to be closed. Why wait for future rounds? It would be prudent to go for speeding implementation of the new policy by modifying the terms of Notice Inviting Offer (NIO) and Model Revenue Sharing Contract (MRSC) incorporating changes made in the new policy. This will require extending the closing date by a month or so. Otherwise, there may be a poor response to the Rounds-II and III, as the prospective bidders would prefer to wait for Round- IV with liberal terms. Second, as stipulated in the contract, the exploration MWP has to be completed within three years of award of onshore and shallow water blocks and four years for deep water in offshore. Speedy environment and other statutory clearance would be needed. Third, to be eligible for early production incentives, production is required to commence within four years for on land and shallow water blocks, and five years for deep-water and ultra deep water blocks. Bringing oil and gas on the surface within reduced period require concerted efforts of the promoters and the government. Fourth, the policy changes introduced earlier through the HELP, OALP and DSF could not boost foreign investment in Indian oil and gas exploration. Out of 55 blocks awarded in OALP-I and 53 blocks in DSF Rounds I and II, not a single block went to the foreign companies; virtually there was almost no participation by them in the bidding. Even some of the existing domestic companies in oil and gas such as Reliance or Tata skipped it. This calls for an in-depth analysis of the obstacles faced by
General Elections 2019: How has the oil & gas sector fared under Modi govt
Oil and gas industry is among the core industries in India and contributes close to 15-16 percent to India’s total gross domestic product (GDP). In our series – Election and Market – SC Tripathi, former oil secretary and RS Sharma, former chairman of Oil and Natural Gas Corp (ONGC) discussed how oil and gas sector has fared under the National Democratic Party (NDA) rule and the ONGC-HPCL deal. Talking about the government’s efforts to boost the oil and gas space, Tripathi said, “The government has done well in the short-term aided by the global economic factors.” “Government was able to reduce the inflation, manage rupee, current account deficit, fiscal deficit and therefore emboldened to come up with price deregulation although the previous government had started moving in that direction but the situation became so easy that this government was able to do that,” he added. On the ONGC-HPCL, Sharma said, “The reason for ONGC acquiring Hindustan Petroleum Corporation (HPCL) was for increasing synergies. ONGC-HPCL deal is positive for both the companies.”
Saudi Aramco eyes up to 25% in RIL refining & petrochemical business
In what is shaping up into a mega-deal between two corporate behemoths, Saudi Aramco, the world’s most profitable company in history, is learned to be in “serious discussions” to acquire up to 25% in the refining and petrochemicals businesses of Reliance Industries Ltd, India’s largest company. While Saudi Aramco, which is also the world’s largest oil exporter, is known to have first shown interest in Reliance about four months ago, talks gathered momentum following the visit of Saudi crown prince Mohammed bin Salman (MBS) to India in February, during which he met RIL chairman and India’s richest man, Mukesh Ambani. There might be an agreement on valuation around June this year, people with knowledge of the development said. A minority stake sale could fetch around $10-15 billion, valuing RIL’s refining and petrochemicals businesses at around $55-60 billion. At Tuesday’s share price, RIL has a market capitalisation topping $122 billion (or Rs 8500 billion). Goldman Sachs, the storied investment banker, is said to have been mandated to advise on the proposed deal. “RIL has grown too big – from energy to retail to telecom. It needs to compartmentalize. It makes sense to spin off some of itsverticals. It’ll help raise funds and unlock shareholder value,” said a highly placed person in the financial sector who didn’t wish to be quoted since he didn’t have direct knowledge of the matter. RIL has financed Reliance Jio’s high-voltage entry into telecom even as gross debt soared to about Rs 3000 billion. Deleveraging would also allow Jio to pursue its aggressive expansion plans, according to corporate finance specialists. “It’s sensible market policy,” said one of them. TOI has in the past reported about share sale plans in telecom infra and retail. “But Jio is still some way away from being spun off, it’ll take more time,” said a source. RIL may create standalone vertical for downstream biz It was after he attended Mukesh Ambani’s daughter Isha’s pre-wedding festivities in Udaipur in December that Saudi oil minister Khalid al-Falih publicly signaled Aramco’s interest in forming joint ventures, including with RIL, to expand India’s refining capacity, which is currently straining at around 4.6 bpd. Domestic crude oil consumption is expected to more than double to 10 million bpd by the year 2040. India is the world’s third largest consumer of crude oil after the US and China, with daily use topping 4 million barrels per day (bpd). “As a policy, we do not comment on media speculation and rumours. Our company evaluates various opportunities on an ongoing basis,” said a RIL spokesperson in response to emailed queries. A Saudi Aramco spokesperson said he would respond at the earliest but had not reverted till the time of going to press. Sources said RIL would likely look at creating a standalone vertical for its downstream businesses – refining and petrochemicals – in which Aramco would participate. This is somewhat similar to BP’s deal to buy a $7 billion stake in RIL’s upstream natural gas and exploration businesses in 2011. In February, Aramco said it and Indian state oil companies were planning to build a greenfield refinery on the west coast in Maharashtra with a 1.2-million bpd capacity. It is not clear if a big stake purchase in RIL’s downstream assets would alter its broader India plans. MBS wants Saudi to steer away from domestic oil money and look for a meaningful overseas footprint, especially in value-added petrochemicals business. Aramco on Monday announced plans to pick up a 13% stake in Hyundai Oilbank as part of its expansion into South Korea, another large Asian energy consumer.
Japan’s Mitsui OSK Lines beefs up ship fleet with Reliance Industries deal
Japanese shipping group Mitsui OSK Lines Ltd will add six very large ethane carriers (VLECs) to its fleet through an investment deal with Reliance Industries Ltd, the Indian conglomerate said on Wednesday. Mitsui OSK, which has a fleet of over 850 vessels, and a minority investor signed an agreement to buy stakes in six special purpose companies of Reliance Industries which own a VLEC each, Reliance Industries said in a statement https://www.bseindia.com/xml-data/corpfiling/AttachLive/be3c0267-5889-4635-8db4-6e47ba2cba4e.pdf. Given Mitsui OSK is currently the operator of all the six VLECs, the investment will ensure continued safe and efficient operations of these carriers, Reliance Industries said. It did not disclose the value of the deal.