Government sets up expert panel to resolve oil and gas disputes
With overhang of disputes choking investments in the oil and gas sector, the government has constituted an expert committee for time-bound resolution of exploration and production disputes without having to resort to tardy judicial process. The ‘Committee of External Eminent Persons/Experts’ for dispute resolution will comprise former oil secretary G C Chaturvedi, Oil India former head Bikash C Bora and Hindalco Industries managing director Satish Pai, according to an official notification. The panel will have a tenure of three years and the resolution will be attempted to be arrived at within 3 months. India’s oil and gas sector has been plagued by disputes from cost recovery to production targets, and companies as well as the government have resorted to lengthy and costly arbitration followed by judicial review — a process that takes years to resolve differences. The notification said the committee will arbitrate on a dispute between partners in a contract or with the government over commercial or production issues for oil and gas. “Any dispute or difference arising out of a contract relating to exploration blocks/ fields of India can be referred to the committee, if both parties to the contract agree in writing for conciliation or mediation and further agree to not invoke arbitration proceedings thereafter,” it said. Once a resolution has been referred to panel, the parties cannot resort to arbitration or court case to resolve it. “The committee shall exercise all powers and discharge all functions necessary for carrying out conciliation and mediation proceedings for resolution of the disputes between the parties as per the provisions of the Arbitration and Conciliation Act, 1996, and endeavour that the parties arrive at a settlement agreement within three months from the date of the first meeting of the committee,” it said.
Delhi Cabinet approves policy on electric vehicle to curb pollution
The Aam Aadmi Party (AAP)-led Delhi government on Monday approved a policy on electric vehicles (EVs) with a focus on two-wheelers and commercial vehicles to lead the change to switch, at a time when the state is grappling with severe levels of pollution. “The Delhi electric vehicle policy has been passed by the cabinet today. This policy in its scope and vision is very ambitious. Pollution levels are very high in Delhi and vehicles have a lot to contribute to that. We had circulated the first draft in November 2018. After several rounds of discussions and taking their comments, this policy has been made. By 2024, we want that 25% vehicles be electric vehicles. The aim is to reduce air pollution and create large scale jobs. The emphasis is on two-wheelers and public transport because they operate more,” Kejriwal said at a state cabinet briefing By 2024, one-fourth of the new vehicles registered in the state should be electric, Kejriwal said, adding that the policy will have special emphasis on having more electric two-wheelers, buses, and goods carriers, as these are one of the key contributors to air pollution. “Currently, electric two wheelers are less 0.2% and three wheelers are close to zero today. We hope that in the next year there will be 35,000 vehicles and 250 charging stations. In five years, we hope that 5,00,000 electric vehicles will be registered,” he added. The government will also set up a state EV fund and board to manage it. Subsidy amounting to ₹30,000 per vehicle will be given to electric auto rickshaw and e-rickshaw, along with subsidy on loans, the minister said, adding that ride hailing service providers such as Ola, Uber will get special provisions for electric two-wheelers. The AAP government had come out with a draft report in November last year. The government is also looking to put in place measures to support the creation of jobs in driving, selling, financing, servicing and charging of EVs. In September, a report by Dialogue and Development Commission of Delhi and Rocky Mountain Institute had suggested that Delhi will need to register approximately 5,00,000 new EVs in the next five years to achieve the target of having 25% EVs and these EVs are estimated to avoid approximately ₹60 billion in oil and liquid natural gas imports and 4.8 million tonnes of CO2 (carbon dioxide) emissions.
Why the govt asked a court to restrain $15 bn Saudi Aramco-RIL deal
The government has taken the unusual step of asking a court to restrain a $15 billion deal in which the world’s most profitable company and top oil exporter Saudi Aramco would acquire a stake in India’s biggest conglomerate Reliance Industries Ltd, controlled by India’s biggest billionaire Mukesh Ambani. ET looks at the issues involved. The Dispute Govt has a dispute with Panna, Mukta and Tapti oilfield contractors Shell and RIL (which holds 30%) Govt has accused them of wrongly accounting for costs and profits in the fields, which reduces the state’s share of income Govt says cos calculated state’s share of profit by deducting higher income tax than actually paid It also says contractors reduced govt share by not including marketing margin in field revenue The tribunal’s rulings so far favour the govt in many points, and the companies in a few Timelines The 25-year old contract for oil and gas fields expired last week The depleting fields are now under full control of ONGC The dispute is under international arbitration for 9 years Initial ruling that upheld several points of the govt came in 2016 Next ruling in 2018 upheld some issues raised by the contractors Final phase of arbitration is in March and April 2020
Is LNG Actually The Future Of Energy?
Drillers and investors who are getting pummeled in the threadbare LNG market might not be sold anymore on the idea that natural gas is the fuel of the future, but it’s not only the future: It’s the key to every major global energy strategy in the world right now. It’s the key to dominion, and there’s every reason to be patient. Patience is hard when gas prices have tumbled to multi-year lows. Gas futures NGc1 prices have dropped to $2.29 per million British thermal units (mmBtu) at the time of this writing, down more than 40% over the past 12 months and the lowest level since May 2016. A big part of the blame can be pinned on a supply glut coupled with not nearly enough pipeline capacity to transport the commodity. Gas prices have even turned negative for some Permian Shale drillers Gas prices at the Waha Hub in West Texas have remained severely depressed, touching a record low of negative $9/mmBtu in April; in essence meaning some drillers are paying other producers to take their gas. This rather quirky situation happens because drillers who failed to commit to shipments in advance are only allowed to flare their gas for a certain amount of time–up to 6 months in Texas–when faced with low prices after which they must pay other drillers with pipeline space to take it. Oil and gas output in the Permian has doubled over the past three years making it tough for pipeline infrastructure to keep up despite concerted efforts to add new capacity. Yet, against this rather depressing backdrop, to be narrowly rational and overly focused on the short-term outlook could mean leaving big money on the table. Gas demand continues to grow at a torrid pace (4.9% in 2018, the highest clip since 2010), while big-time infrastructure spending continues to flow into the industry (~$360 billion in 2018)–low gas prices be damned. Indeed, some industry experts have nailed their colors to their masts with bullish long-term projections for the natural gas industry. The International Gas Union (IGU) has presented yet another strongly bullish yet compelling forecast for the industry. The bottom line in the bullish theory is that LNG is the kingmaker when it comes to energy strategies. As far as two decades out, this is the key to energy dominion, if not immense geopolitical power. Cost Competitiveness The biggest reason why gas is likely to remain the cornerstone of our green economy is, ironically, the same reason why many investors are fleeing for the hills–low gas prices. Gas prices have become very competitive vis-a-vis other energy sources. While low spot prices at key hubs due to LNG surplus continue to hog the limelight, the media is missing the big picture here: Deep structural changes including new technology in the upstream market continue to lower breakeven costs, making it economical for drillers to continue production at prices that would have put them out of business just five years ago. Nearly 70% of the world’s proven gas reserves are fields with an average breakeven price of less than $3/MMBtu. In the midstream section of the market, LNG prices have dropped by an average of 20% over the past two decades while growth of carbon pricing is helping close the gap between natural gas and coal. In 2018, natural gas cost 1.72x per MMbtu more than coal compared to 2.2x in 2014. The closing price gap, coupled with carbon pricing, are a big reason why natural gas is rapidly replacing coal as the favored fuel for electricity generation across the globe. In fact, natural gas prices have been falling much faster than any other energy sources–the commodity fuel index that tracks oil, gas, and coal prices has declined just 9% vs. 40.2% by natural gas over the past 12 months. Better Supply Security We’re a lot more flexible now. The globe no longer has to rely on a narrow pool of producers with a stranglehold on supply thanks to no less than 21 new producers joining the fray over the past decade. Supply has also become a lot more diversified with the US and Australia becoming major exporters. Further, the LNG market has become much more liquid with spot and short-term sales representing 30% of global sales–a record high. The pool of natural gas reserves keeps growing every year. According to the EIA, proved reserves of natural gas by the United States increased 9% to 504.5 Tcf at year-end 2018, making the country the fourth largest producer and owner of natural gas reserves. Qatar, the world’s largest natural gas producer, has vowed to become the world’s largest LNG producer as well, while production in Australia, the world’s second largest natural gas producer, has been growing at a quick pace. Gas as a sustainable resource The sui generis credential that makes natural gas a standout amongst fossil fuels is its sheer potential to mitigate climate change. When used in power generation, natural gas emits ~50% less CO2 than coal and 30% less than oil, not to mention that it results in negligible emissions of nitrogen oxides, (NOx), mercury (Hg), sulfur dioxide (SO2), and particulates. The sobering reality is that as much as we would love to quickly ramp up our renewable energy initiatives and put fossil fuels out of business, we simply won’t be able to do so fast enough to keep up with rapidly growing energy demand. The fossil fuel trifecta of oil, natural gas and coal supply 80% of the world’s energy and have cemented themselves as powerfully incumbent technologies greatly favored by “system inertia” i.e., the resistance to change. The EIA estimates that natural gas will maintain its current 22% slice in the global energy market by 2040, whereas the fraction by oil+ coal combined is expected to fall quite dramatically. Further, the IPCC (Intergovernmental Panel for Climate Change) has demonstrated a clear and sustained role for natural gas even under the ambitious 1.5° Celsius target wherein natural gas would still supply 19%
Govt mulling premium on petrol, diesel prices on BS-VI switchover
Consumers may feel the pinch of higher fuel prices in coming months as the government is considering a proposal to allow oil marketing companies charge a premium on retail prices of petrol and diesel to recover their investment in producing less polluting fuel. Public and private sector oil marketing companies (OMCs) have appealed to petroleum ministry to support a plan to raise consumer prices of auto fuels to help them recover a portion of investments made in upgrading their refineries to produce BS Stage-VI fuel. If this proposal is accepted by the government, retail prices of petrol and diesel would come at a premium of about Rs 0.80 a litre and Rs 1.50 a litre, respectively for the next five years much to the discomfort of consumers. Global oil market has largely remained flat for past several months due to slower demand. This has also resulted in retail prices of petrol and diesel being cut by OMCs on numerous occasions in past few weeks. But if a premium charge is allowed, retail fuel prices would not reflect global pricing trend but would remain artificially higher at all times. “Allowing increase in retail prices of petrol and diesel is one among several options that we have to cover for incremental investment made in upgrading our refineries. We have approached the petroleum ministry with a complete plan on cost recovery and awaiting a direction,” said a senior executive of a private sector refiner who asked not to be named. Refineries of public sector companies (Indian Oil, Hindustan Petroleum and Bharat Petroleum) have spent close to Rs 80,000 crore to reach BS-VI levels after rolling out BS-IV complaint fuel for national introduction in April 2017. Even private refiners, Nayara Energy (formerly Essar Oil) and Reliance Industries have spent heavily to upgrade their facilities ahead of nationwide launch of BS-VI compliant fuel from April 1, 2020. Recovery of investment without a proper plan may push OMCs into the red if oil market remains subdued and a portion of demand shifts to electric mobility. Government already has indicated that it wants electric to become prime mobility vehicle by 2030. On their part OMCs are also looking to diversify, but face immediate challenge to recover their current investment before consumption of conventional fuels start receding. “OMCs have flagged the issue but government is yet to take a view on the matter. Alternatives would be explored first before a call is taken to revise pricing formula for auto fuels,” said a government official privy to the development. Fuel prices have been deregulated in the country meaning that prices at retail level are determined on the basis of global movement of petroleum product prices. Currently, petrol and diesel prices are revised daily by OMCs based on average price of fuel in previous fortnight. If OMCs are allowed to recover cost on previous investment, pricing of petroleum products would again go back to a regulated regime or not reflect true value. A source said that instead of a direct premium for cost recovery, government may allow OMCs to keep petrol and diesel prices a bit higher in times of falling prices to prevent any public backlash to the measure. This has also been done by state-owned OMCs in times of state and national elections, when a complete price freeze was maintained. Government support on pricing is being explored as there is very little difference in prices of petrol and diesel at pump level and uniformity needs to be given if cost recovery is allowed.
Reliance tears into govt affidavit, says no final arbitration award due
Reliance Industries has mounted a strong counter to the government petition in the Delhi High Court seeking to block its USD 15 billion deal with Saudi Aramco, saying the petition is an abuse of process as no arbitration award has fixed any final liability of dues on the company. In a counter affidavit, Reliance said it was a “falsehood” to say that the arbitration tribunal had passed an award requiring the company and its partners to pay USD 3.5 billion to the government. It said the petition is an abuse of process as “it portrays that a sum of money is due and payable under the final award and purports to compute the money payable on a basis neither found in the arbitration award nor disclosed in the petition.” The government, it said, has calculated on its own volition the revised figure of its share of profit from oil and gas production allegedly due by extrapolating the purported finds. The affidavit came in response to the government moving the Delhi High Court seeking to block Reliance selling 20 per cent stake in its oil and chemical business to Saudi Aramco for USD 15 billion, in view of pending dues of USD 3.5 billion in Panna-Mukta and Taoil and gas fields. An international arbitration tribunal issued a partial award in October 2016 in the dispute between the Government of India (GoI), BG Exploration & Production India Limited (BG) and Reliance Industries Limited (RIL) regarding the Panna-Mukta and Tapti Production Sharing Contracts (PSC). The tribunal in its 2016 award determined certain issues of principles. Pending determination of all issues before it, appropriately, it did not award any monetary sums. Quantification of amounts, if any, by the tribunal is to be done when all issues have been decided. Certain parts of the 2016 award were challenged by BG/RIL before an English court wherein it decided some parts of challenge in favour of BG/RIL and directed the arbitration tribunal to reconsider those parts of the 2016 award. The tribunal, having reconsidered, issued another partial award in December 2018 which was in favour of BG/RIL. While this challenge was pending in the English court, GoI unilaterally calculated certain amounts, based upon its interpretation of the 2016 award, which the government alleges are payable by Oil & Natural Gas Corporation (ONGC), BG and RIL. Reliance said pursuant to the 2018 award, GoI’s claim comes down very significantly — a fact which the government has not taken cognisance of and approached the Delhi High Court prematurely for enforcement of its claim computed based on its interpretation of the 2016 award. RIL maintained that except as quantified by the tribunal, no amount can be said to be payable at this stage. GoI has challenged the 2018 award and the English court is yet to pronounce its judgment. One of the most significant issues pending before the tribunal is an increase in the Cost Recovery Limit under the PSC. The arbitration tribunal is scheduled to hear BG/RIL’s application for increase of PSC Cost Recovery Limit next year. If the tribunal decides in favour of BG/RIL, then GoI’s computation of sums allegedly payable by ONGC, BG and RIL is expected to further come down. Final amounts payable, if any, by the parties (ONGC 40 per cent, BG 30 per cent and RIL 30 per cent) can only be determined by the arbitration tribunal in the quantification phase of the arbitration which will be scheduled after it has decided on all the issues before it, it said. ONGC, who was directed by GoI in 2011 not to participate in the arbitration proceedings but be bound by the award, wrote to the stock exchanges in May 2018 that the government’s demand is premature. The 2016 award, in part superseded by the 2018 award, cannot be said to have attained finality and attempts to enforce the 2016 award are premature, RIL said.
DoT seeks Rs 1.7 lakh crore from GAIL in telecom dues
The department of telecommunications (DoT) has sought Rs 1.72 lakh crore in past statutory dues from state-owned gas utility GAIL India following the Supreme Court’s ruling on revenues that need to be taken into consideration for payment of government dues. Sources said DoT sent a letter to GAIL last month seeking Rs 1.72 lakh crore in dues on IP-1 and IP-2 licences as well as internet service provider (ISP) licence. In response, GAIL has told DoT that it owes nothing more than what it has already paid to the government. The firm told DoT that it had obtained ISP licence in 2002 for 15 years, which expired in 2017. But GAIL never did any business under the licence and since no revenue was generated it cannot pay any amount. On IP-1 and IP-2 licences, GAIL has told DoT that it generated Rs 35 crore of revenue since 2001-02 and not Rs 2.59 lakh crore that has been considered for levying past dues, they said. Sources said the dues being sought are more than three times the net worth of GAIL and several times the actual revenue earned. The apex court had on October 24 ruled that non-telecom revenues earned by firms using spectrum or airwaves allocated by the government will be considered for calculating statutory dues. While telcos such as Bharti Airtel and Vodafone Idea may have had non-telecom revenues generated from using the government licence and spectrum, firms such as GAIL had no such revenue.
How the drive against industrial pollution is set to boost natural gas consumption in India
A strong push by the National Green Tribunal (NGT) to curb the usage of dirty and polluting industrial fuels including coal, petcoke and fuel oil is set to boost consumption of natural gas in India. The trend will benefit companies like Petronet LNG and GAIL apart from City Gas Distribution (CGD) entities. The NGT has taken a serious view on curbing industrial pollution and has called for strict action against the Pollution Control Boards (PCBs). “Our broad calculation suggests that replacement of dirty fuels could easily result in incremental demand of 100 million standard cubic metre per day (mmscmd) for natural gas,” equity research firm Motilal Oswal said in a note. In its July 2019 order, the tribunal had asked PCBs to evaluate the cost of damage caused by the critically and severely polluted industrial clusters to the environment for the past five years. It had also asked that the report in that respect be submitted within 3 months of the order. However, discontented with inaction on part of the PCBs, the NGT in an order last month called for “…replacement of persons heading such PCBs/PCCs…or direction for stopping their salaries..deterrent compensation to be recovered from state PCBs/PCCs.” India consumed 896 million tonne (MT) coal in 2017-18. Of this, 71 per cent was used for electricity generation and in steel industry while around 241 MT was used in “others”. Even if 10 per cent of this is replaced by natural gas, it would generate 76 mmscmd of incremental gas demand. Of the total fuel oil consumption of 6.6 MT in 2017-18, manufacturing and miscellaneous applications accounted for 74 per cent. Even if metallurgical applications are excluded, replacement of 4 MT of fuel oil could generate around 11 mmscmd of incremental gas demand. Similarly, 6.8 MT of petcoke could be replaced out of total estimated consumption of 22 MT in the current financial year, generating incremental 14 mmscmd of demand. India imports around 54 per cent of its total consumption of natural gas. Additional import capacity of 105 mmscmd is expected to become operational over the next five years through new LNG terminals. The incremental demand from replacement of dirty fuels would address concerns surrounding the utilization of the additional capacity. The implementation of the NGT order would help address three main concerns of Petronet LNG – competition, cash usage and long-term growth and also drive higher transmission and trading volumes for GAIL. The benefit to CGD entities could be limited as they can only supply to companies that consume volume less than 50,000 standard cubic metre per day.
Pavilion Energy, Total sign binding deal to develop LNG bunkering in Singapore
Pavilion Energy Singapore and a unit of French oil major Total said on Friday they have signed a 10-year deal to develop a liquefied natural gas (LNG) bunker supply chain in the port of Singapore. The binding agreement between Pavilion, which is owned by Singapore’s Temasek Holdings, and Total Marine Fuels Global Solutions follows an initial non-binding one in June last year. The cooperation includes the shared long-term use of the newly built 12,000-cubic metres GTT Mark III LNG bunker vessel that will allow each party to supply LNG bunker to its customers. Singapore aims to position itself as an LNG trading hub for Asia to capitalise on an expected rise in LNG imports in the region, driven by depleting gas production and growing electricity demand. Shipowners are looking at fuelling vessels with LNG as part of a number of options to comply with new rules by the International Maritime Organization that will go into effect in 2020. The new regulations slash the amount of sulphur allowed in the fuel that ships burn.
Patna to get 30 CNG buses by March next year
The Bihar State Road Transport Corporation (BSRTC) has decided to introduce 30 new compressed natural gas (CNG) buses in the city from March 2020 and convert the 100 existing diesel-driven buses into CNG by the end of next year. The BSRTC has initiated the bidding process for procuring 200 new AC and non-AC buses, including 30 CNG buses. “The initiative has been taken to curb pollution in the city. The state government has decided to ban all diesel-based autorickshaws after March 31, 2021,” said transport secretary Sanjay Kumar Agarwal, adding that CNG is not only an eco-friendly fuel, but cheap as well. While diesel and petrol are sold at Rs 71.45 and Rs 79.64 per litre respectively, the cost of one kilogram of CNG is just Rs 63.47 in Patna. “Maintenance cost of CNG vehicles running is also less when compared to diesel and petrol vehicles. The system in which CNG fuel is sealed doesn’t usually leak. Hence, it is safer too,” a transport department official said. There are, however, only three CNG fuelling stations in the city. The transport department official said the number of CNG stations in the city would be increases to 10 by March next year. “Talks in this regard are on with Gas Authority of India Limited (GAIL),” he added. GAIL deputy general manager Rajnish Kumar said the city will get two new CNG stations soon. “The city already has CNG stations at three places – Rukanpura, Zero Mile and Patna-Bakhtiyarpur NH-30 toll plaza. Another CNG station will come up at Saguna Mor by the end of this month. Work on developing a CNG station at Naubatpur will commence in the first week of January,” he added.