Gas migration case: What exactly is the dispute between Reliance and ONGC?
A division bench of the Delhi High Court on Thursday sought a response from Reliance Industries Ltd. (RIL) and its partners on the government’s appeal that accused the Mukesh Ambani-owned conglomerate and its partners of committing an “insidious fraud” and “unjust enrichment of over $1.729 billion” by siphoning gas from deposits they had no right to exploit. The dispute over the gas migrating from ONGC’s block to the adjacent block of RIL and its partners dates back to 2014, and has been through several judicial and arbitration processes. How it all started In 2014, state-run ONGC approached the court, complaining that gas from its blocks was being produced by RIL. ONGC claimed that RIL had deliberately drilled wells close to the common boundary of the blocks and that some gas it pumped out was from its adjoining block. RIL is the operator of the said KG-D6 block with 60 per cent interest while BP holds 30 per cent. The remaining 10 per cent is with Niko Resources. ONGC claims that RIL has benefited from gas flow between their adjacent fields during the 2009-2013 period and took RIL to court over the matter. RIL maintained that it had followed the Production Sharing Contract in letter and spirit and done no wrong. It has drilled all wells within its boundary walls. The two companies appointed US-based consulting agency DeGolyer and MacNaughton (D&M), to examine the issue. D&M said that natural gas worth over Rs 11,000 crore had migrated from idling KG fields of the state-owned firm to the adjoining KG-D6 block of RIL. The Justice Shah committee report After the consultant’s report, a committee was set up under Justice A.P. Shah in 2015 to quantify unfair enrichment, if any, by RIL and to recommend ways to compensate ONGC and the government. The Justice Shah Committee opined that RIL should pay the government for the natural gas it has drawn from an adjacent block of ONGC in the KG basin of the Bay of Bengal in the past seven years. The arbitration panel rejects govt contention The Oil Ministry in November 2015 issued a notice to RIL, Niko and UK’s BP Plc seeking $1.47 billion for producing in the seven years ended March 31, 2016 about 338.332 million British thermal units of gas that had seeped or migrated from the state-owned ONGC blocks into their adjoining KG-D6 in the Bay of Bengal. After deducting $71.71 million royalty paid on the gas produced and adding an interest at the rate of Libor plus 2 per cent, totalling $149.86 million, a total demand of $1.55 billion was made on RIL, BP and Niko. In 2016, RIL-BP-Niko sent an arbitration notice, thereby showing intent of quickly resolving the sticky issue. Next year, a three- member arbitration panel was set up to judge the validity of the government’s demand of $1.55 billion compensation from Reliance Industries for “unfairly” producing ONGC’s gas. Favouring RIL-led consortium in the so-called gas migration dispute case, the three-member tribunal headed by Singapore-based arbitrator Lawrence Boo in its 2:1 award in 2018 rejected the government’s contention. It said that the production sharing contract (PSC) doesn’t prohibit the contractor from producing gas—irrespective of its source—as long as the producing wells were located inside the contract area. It also had held that the consortium was not liable to pay any amount to the government and had also directed the latter to pay $8.3 million as the cost of arbitration to the consortium. The government moves court Soon after, the government moved the court, seeking setting aside of the arbitration award on the grounds that “the award strikes at the heart of the public policy and has given a premium to a contractor (RIL) that has amassed vast wealth by committing an insidious fraud as well as criminal offence …” “The unjust enrichment amassed by the contractor had already reached more than $1.729 billion today (at the time of filing petition), and is since increasing as the production of migrated gas is still continuing,” it had stated in its petition. On Thursday, September 14, Delhi High Court’s division bench sought a response from Reliance Industries and others on the government’s appeal. Attorney General R Venkentaramani and former AG KK Venugopal, appearing for the government, argued that RIL in 2003 knew about the connectivity of its block with that of the adjoining ONGC block. They also accused RIL of ‘consciously and deliberately’ extracting and selling the adjoining ONGC gas without the government’s knowledge. The senior lawyers also argued that RIL had earlier taken a categorical stand that “there is no connectivity and continuity” between RIL’s and ONGC’s block. And the impugned arbitral award is in conflict with the public policy of India, they added. RIL through counsel Sameer Parekh opposed the government’s appeal, arguing that these issues cannot be reopened under Section 37 of the Arb Act. Public trust doctrine and other points raised by the govt have been looked into both by the arbitral tribunal as well as the single judge. Citing the director general of hydrocarbons report, the lawyer argued that the study of migration of gas could have been done by the ministry in 2009 itself, much before the gas block was given to RIL, but the ministry chose not to do so. The adjoining ONGC gas block was underdeveloped when RIL started extracting gas and it would have been “infeasible” to extract gas from the ONGC’s block which was at a different stage of development then, it said.
Air Fares Poised To Skyrocket As EU Adopts Green Fuels For Aviation
Back in 2008, Virgin Atlantic made history after flying a Boeing 747 between London and Amsterdam partly powered by a biofuel made from Brazilian babassu nuts and coconuts. Although Virgin Atlantic founder Sir Richard Branson hailed the event as a “vital breakthrough”, many people dismissed it as just another one of his marketing stunts. And they were right. In November 2023, Virgin Atlantic will operate the world’s first transatlantic flight powered entirely by green aviation fuels in yet another one-off demo. A decade and a half since Virgin Atlantic’s 2008 demo, only five airports have regular biofuel distribution today (Bergen, Brisbane, Los Angeles, Oslo and Stockholm). On a global level, aviation biofuels account for less than 1% of the 1.5 billion barrels of aviation fuels, or ~15% of global oil supply, that commercial airlines burn through in a typical year. Indeed, the global aviation industry is a leading polluter; it would rank among the top 10 emitters if it were a country. But this is about to change in Europe. On Wednesday, EU lawmakers approved new rules that require at least 2% of jet fuel used by airlines to be sustainable as of 2025, with that share to increase every five years to hit 70% by 2050. The new legislation is part of the EU ’s “Fit for 55” package, which has set a goal to cut greenhouse gas emissions by least 55% by 2030. Whereas 2% might not seem like much, consider that currently less than 0.05% of Europe’s aviation fuel is sustainable, meaning airlines within the bloc will have to increase their share of clean fuels by more than 40x in the space of just two years. For a sustainable aviation fuel (SAF) to qualify as sustainable, it must be able to cut greenhouse gas emissions by at least 50% compared to conventional fossil fuel-based jet fuels. At the top of the sustainability hierarchy are fuels made from biomass including crop residues, animal waste, forestry residue, algae and even everyday rubbish, such as product packaging and food leftovers that can typically lower CO2 emissions by 85-95%. But achieving cleaner flights will not come cheap. SAF are significantly more expensive than conventional jet fuel, and this cost premium is the key barrier to their wider adoption. Fuel costs constitute the biggest line item for airlines, typically accounting for ~22% of their overheads. Using renewable air fuel would likely necessitate passing the extra costs to customers by increasing ticket prices, something that would not work well unless everybody did it at once because airline-specific fare changes are highly price elastic. The economics of some SAF are just egregious: earlier in the year, Exxon Mobil (NYSE:XOM) pulled the plug on its 14-year-long algae biofuels project because it found that crude would have to hit ~$500/bbl for algae biofuels to compete successfully. Either way, air travel is about to get a lot more expensive, so much so that the “demand reduction impact” that would result from people being priced out is expected to account for ~14% of the required cuts to hit the EU emissions target. Bright Future For Synthetic Fuels The latest move by the EU improves the outlook for synthetic fuels even further. Synthetic fuels are liquid fuels produced from natural gas, coal, peat, and oil shale, and include synthetic diesel, synthetic kerosene and green methanol. According to the IEA, synthetic fuels are vital in the decarbonization of transport and industry by 2050. Carbon-neutral synthetic fuels are manufactured using captured carbon dioxide or carbon monoxide from the atmosphere or an industrial process such as steel making and also from biomass that is gasified before being catalyzed with hydrogen using thermal or chemical means. German multinational engineering and technology company BOSCH is a leading advocate of synthetic fuels. According to the company, synthetic fuels will help the roughly half of the current fleet of vehicles expected to still be on the roads by 2030 to play a part in cutting CO2 emissions (synthetic fuels are 100% compatible with current fossil fuel engines). Synthetic fuels can also be blended in fossil fuels or can completely replace them in existing ships, airplanes or industrial technologies. Studies have found that sustainable aviation fuels including synthetic or bio-based jet fuels, are so far the most promising option for the decarbonization of the carbon-heavy aviation sector. Two years ago, the Netherlands demo’ed the first passenger flight powered by synthetic fuels with an energy density only marginally lower than that of fossil-based kerosene. The IEA has predicted that by 2030, 15% of total fuel consumption in aviation will be SAF, rising to 75% by 2050.
The 5 South American Countries With The Largest Natural Gas Reserves
South America is fast emerging, once again, as one of the world’s hottest drilling locations, with the continent believed to contain considerable volumes of commercially extractable natural gas. While offshore Guyana is garnering the lion’s share of attention from foreign energy companies, it isn’t the only country in South America benefiting from significant hydrocarbon wealth. Argentina, despite its economic woes, is profiting from a massive unconventional hydrocarbon boom that could see the country emerge as a regional natural gas hub, while production from Brazil’s offshore oil fields is growing at a steady clip. These events are challenging South America’s traditional energy dynamics, with Venezuela, Colombia and Bolivia no longer the continent’s leading hydrocarbon producers. Here are South America’s five leading countries by proven natural gas reserves. #5 Peru The troubled Andean country of Peru, which is locked in a lengthy political crisis, possesses the fifth-largest proven natural gas reserves in South America. Those reserves, at the end of 2022, totaled 8.4 trillion cubic feet, which is 19% less than a year earlier and nearly half of the 15.4 trillion cubic feet reported a decade earlier. During August 2022, Peru pumped an average of 1.27 billion cubic feet of natural gas per day, which was 2% higher than a month earlier and a notable 16% greater than the same period during 2022. Those numbers demonstrate Peru is successfully scaling up natural gas output in response to growing domestic energy demand but needs to attract greater investment in hydrocarbon exploration and development to boost reserves. Peru’s hydrocarbon sector has been roiled by crisis and conflict for many years. Frequent anti-government and oil industry protests in Peru’s remote Amazon region have forced the shuttering of oilfields and Peru’s northern pipeline, which connects those fields to the Pacific Coast. Those protests are triggered by the immense environmental damage caused by oil industry operations and the lack of spending by the government in Lima on crucial infrastructure in Peru’s Amazon. This is weighing on Lima’s efforts to attract crucial foreign energy investment needed to boost proven reserves and production. #4 Bolivia Once known as the beating heart of South America’s natural gas industry, Bolivia’s fossil fuel fortunes are fading. It is estimated that the landlocked Andean country has proven natural gas reserves of nearly 9 trillion cubic feet, down from 11 trillion cubic feet a decade ago. That isn’t the only sign of an industry in decline. For June 2023, Bolivia pumped 1.25 billion cubic feet of natural gas per day, which, despite being 3% greater than a month prior, was a worrying 15% lower year over year. Natural gas production has plunged sharply in recent years, with 2022 output of 1.400 billion cubic feet per day 11% lower than 2021 and considerably less than the 1.85 billion cubic feet per day extracted a decade earlier. For these reasons, there is growing uncertainty regarding the future of Bolivia’s hydrocarbon sector, which was once responsible for keeping the lights on in neighboring Argentina. Indeed, Bolivia’s natural gas production has been steadily declining since 2015 and is expected to plunge well below one billion cubic feet per day in coming years due to aging mature gas fields, a lack of discoveries and a dearth of industry investment. Industry analysts believe that the end of the country’s once-mighty natural gas industry is close, with natural gas output expected to decline calamitously over the near-term. According to industry consultancy Wood Mackenzie, Bolivia’s natural gas production could fall to as low as 400 million cubic feet per day by the end of this decade. #3 Argentina In a surprising development, Argentina, which recently avoided yet another sovereign debt default and is struggling with triple-digit inflation, now has the fourth-largest proven natural gas reserves in Latin America. At the end of 2022, data from the Ministry of Economy showed that proven natural gas reserves totaled 15.4 trillion cubic feet, which is not only an 11% increase over a year earlier but a stunning three times greater than a decade earlier. That incredible growth can be attributed to the ongoing exploitation of the Vaca Muerta shale formation, which didn’t start in earnest until 2013 after the government of Cristina de Kirchner nationalized Repsol-owned YPF. The ongoing exploitation of the Vaca Muerta saw Argentina’s natural gas production surge to an all-time high of nearly 5 billion cubic feet per day during August 2022. While output has declined since then, Argentina still lifted an average of 4.9 billion cubic feet for August 2023. Production will keep growing with YPF budgeting investment of $2.3 billion for its shale operations during 2023 with a view to boosting natural gas production by 15% compared to 2022. The Vaca Muerta, with an estimated 16 billion barrels of oil and 308 trillion cubic feet of natural gas, is believed to contain the second-largest shale gas reserves in the world. The ongoing development of the geological formation, which has been compared to the prolific Eagle Ford shale in Southern Texas, will see Argentina emerge as a major hydrocarbon producer and exporter in Latin America. This will allow Argentina to dial down energy imports, especially natural gas from neighboring Bolivia, which will go a long way to reducing a massive trade deficit and repairing a broken economy. #2 Brazil South America’s largest oil producer, Brazil, also possesses the second-largest natural gas reserves on the continent, which total 14.4 trillion cubic feet. Most of those reserves are contained within Brazil’s prolific offshore pre-salt fields and are associated with oil production. During July 2023, Brazil’s hydrocarbon output soared to a record high of 4.48 million barrels of oil equivalent, 78% weighted to oil, which was 3.6% greater than a month earlier and a whopping 17.5% higher year over year. Natural gas output for the month hit an all-time high of 5.4 billion cubic feet per day, which was 1.2% higher month over month and a notable 13.6% greater than a year earlier. Natural gas production in Latin America’s largest economy will continue