Wednesday / June 26.


ogNEW DELHI: With global energy firms refusing to participate in the ambitious TAPI gas pipeline, India may propose getting a Chinese company to lead a consortium that will build the USD 10 billion Turkmenistan-Afghanistan- Pakistan-India (TAPI) gas pipeline.


French giant Total SA had initially envisaged interest in leading a consortium of national oil companies of the four nations in the TAPI project, but backed off after Turkmenistan refused to accept its condition of a stake in the gas field that will feed the pipeline.


Since the four state-owned firms, including GAIL of India, neither have the financial muscle nor the experience of cross-country line, an international company that will build and also operate the line in hostile territories of Afghanistan and Pakistan, is needed.


Sources said Turkmenistan has clearly indicated that its law does not provide for giving foreign firms an equity stake in upstream gas field, without which western energy giants will not be interested to take the risk.


The issue of quickly getting a consortium in place will be discussed at the 19th Steering Committee meeting of TAPI pipeline project in Turkmenistan tomorrow where India will be represented by Oil Minister Dharmendra Pradhan.


New Delhi, sources said, may present three options at the meeting. First, to get a US firm as the consortium leader after Turkmenistan allows US to enter its upstream sector.


Alternatively, the consortium of four partner countries or Turkmen Gas of Turkmenistan can become the leader, they said, adding that this option was acceptable to Afghan side and in case India agreed, the Pakistan side too may agree. But this option is fraught with funding and regional security issues.


As a last option, a Chinese company can be brought in as a consortium leader. The Chinese are less likely to insist on an upstream stake in this project as they are already present in Turkmenistan, they said.


Last week, state-run gas utility GAIL, along with national oil companies of Turkmenistan, Afghanistan and Pakistan set up TAPI Pipeline Company, a firm that will build, own and operate the gas pipeline across the four countries.


The Asian Development Bank is helping the four nations build a 56-inch diameter pipeline from Turkmenistan’s giant Galkynysh gas field to serve energy markets in Afghanistan, Pakistan and India.


The TAPI pipeline will have a capacity to carry 90 million standard cubic metres a day (mmscmd) gas for a 30-year period and will be operational in 2018. India and Pakistan would get 38 mmscmd each, while the remaining 14 mmscmd will be supplied to Afghanistan.


TAPI will carry gas from Turkmenistan’s Galkynysh field, better known by its previous name South Yoiotan Osman that holds gas reserves of 16 trillion cubic feet. From the field, the pipeline will run to Herat and Kandahar province of Afghanistan, before entering Pakistan. In Pakistan, it will reach Multan via Quetta before ending at Fazilka (Punjab) in India.

(Source: The Financial Express, November 19, 2014)





AMRITSAR: India expects foreign investment in the petroleum sector, Oil Minister Dharmendra Pradhan said today.


He said Indian trade has got a boost after Narendra Modi became the Prime Minister.


“Now the entire world is looking at India and want to invest here. Various multi-national companies are showing interest,” he told reporters here.


Pradhan, who will represent India at the 19th Steering Committee meeting of TAPI pipeline project in Turkmenistan tomorrow, said the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline will benefit India enormously.


He further added that the matter of quickly getting a consortium in place will be discussed at the meeting.


The TAPI pipeline will have a capacity to carry 90 million standard cubic metres a day (mmscmd) gas for a 30-year period and will be operational in 2018. India and Pakistan would get 38 mmscmd each, while the remaining 14 mmscmd will be supplied to Afghanistan.


TAPI will carry gas from Turkmenistan’s Galkynysh field, better known by its previous name South Yoiotan Osman that holds gas reserves of 16 trillion cubic feet. From the field, the pipeline will run to Herat and Kandahar province of Afghanistan, before entering Pakistan. In Pakistan, it will reach Multan via Quetta before ending at Fazilka (Punjab) in India.


Pradhan later paid obeisance at the sanctum sanctorum of the Golden Temple.

(Source: The Economic Times, November 19, 2014)




A week-long road show (November 17-23) has begun for the sale of 5% stake by the government in ONGC under the disinvestment programme for the current financial year. The oil explorer is first off the block in the planned sell-offs which are targeted to generate R58,000 crore that would be crucial to the government for adhering to the 4.1% fiscal target. Coal monopoly CIL and hydropower major NHPC are the other companies on the disinvestment radar.


The Cabinet Committee on Economic Affairs has approved disinvestment in the three PSUs, which is expected to fetch the government R44,000 crore. The balance will be mopped up by selling the government’s residual stakes in non-government companies such as Hindustan Zinc and Balco.


The government’s sell-off programme fared poorly in FY14 owing to unfavourable market conditions. Only R15,819 crore could be mobilised through PSU stake sales against a target of R40,000 crore. But since then market has improved significantly, raising hopes  that  planned sell-offs will sail through. However,  the government has yet to test the waters.



The upcoming stake sale in ONGC assumes added significance because it is expected to set the tone for other sell-offs that will follow.


The government has shown its determination to reform the domestic energy market by hiking the natural gas price by 33% and decontrolling the retail sales of diesel, which bolstered investor sentiments in companies operating in the sector. But it has balked at politically difficult reforms like phase-out of subsidy on LPG cylinders and kerosene oil. Since these subsidies have to be shared by ONGC, this aspect could weigh on investors’ mind, according to analysts.


But that aside, ONGC’s fundamentals remains strong, with the oil explorer maintaining a reserve-replacement ratio (RRR) of more than 1%, which means it is adding reserves at a faster pace than its production rate. RRR is a key parameter used by industry consultants to assess value of an upstream oil company.


The company earned a gross revenue of R84,201 crore in the FY14. It earned a net profit of R22,095 crore despite paying discounts to the tune of R56,384 crore to oil marketing companies towards its subsidy sharing liability. However, the majority of ONGC’s oil fields are old where production is stagnating or declining. The company is implementing projects to slow production decline in these fields. However, according to industry experts, there is a limit to such technological measures. The company has also been slow in starting production from its explored fields, which could have offset the output drop in ageing blocks.


The PSU continues to invest in exploration and production at a healthy rate. It invested as much as R1,42,899 crore during the last five years. ONGC subsidiaries ONGC Videsh and MRPL are doing well.


ONGC has also forayed into petrochemical and power generation businesses through its ventures like ONGC Petro-additions, ONGC Mangalore Petrochemicals and ONGC Tripura Power Company. According to ONGC, it is also studying the feasibility of setting up a gas-based fertiliser plant in Tripura. Meanwhile, the company has signed a pact with Mitsui and BPCL to start the LNG business.


The success of the disinvestment programme will also depend on spacing between sell-offs and market liquidity. If stakes sales get bunched or if liquidity rules low when the offers hit the market, investor response could be less enthusiastic than expected. Devendra Kumar Pant, chief economist at India Ratings, told FE: “Achievement of the fiscal target will depend on the success of the disinvestment programme. Clubbing of sell-offs could create liquidity issue and impact the call market.”

(Source: The Financial Express, November 19, 2014)




New Delhi: India will receive its biggest shipment of liquefied natural gas (LNG) by ship next month as it prepares to import the fuel from North America.


The Q-Max LNG vessel, the largest in its class with a capacity of about 260,000 cubic meters, is expected to reach Dahej in Gujarat in the first week of December, Petronet LNG Ltd. chief executive officer Ashok Kumar Balyan said in an interview. “We will receive the LNG cargo at our new jetty and will be supplied to Indian Oil Corp.,” he said.


State-run Gail India Ltd. has agreed to buy 3.5 million tonnes of LNG a year for two decades from Houston-based Cheniere Energy Inc.’s Sabine Pass terminal in western Cameron Parish, Louisiana. The New Delhi-based company also booked 2.3 million tonnes a year capacity in the Cove Point LNG liquefaction terminal at Lusby, Maryland. The shipments are expected to start in 2017 or 2018.


“India needs to build capabilities to receive bigger vessels,” said Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance. “This is a crucial infrastructure as it builds appetite for more and more LNG from distant markets.”


In April, Petronet signed a short-term contract with Qatar’s Ras Laffan Liquefied Natural Gas Co. to import 800,000 tons of LNG over 12 months to supply Indian Oil refineries.

(Source: Mint November 19, 2014)




New Delhi: It will be a double bonanza for domestic LPG customers going in for the direct benefit transfer scheme. For such customers will end up with a cash advance of Rs. 568 a cylinder for the first booking.


Here’s how this will happen. “On the first booking under the scheme, a customer will get a fixed subsidy of Rs. 568 a cylinder. Actual subsidy will also be transferred into the customer’s bank account on the date of delivery. So, in effect, the customer will get the cash benefit twice for the first booking under the scheme,” a senior Petroleum & Natural Gas Ministry official said.


However, from the second booking onward, a customer will only get cash benefit of actual subsidy, while they can retain the earlier fixed subsidy amount ( Rs. 568/cylinder).


“The fixed subsidy can also be termed as a security deposit, so that at no point is a customer denied a cylinder,” the official told BusinessLine . For customers already enjoying the DBTL benefit before it was wound up last year, the fixed subsidy limit will remain Rs. 435 a cylinder. The fixed subsidy amount has been worked out based on an average subsidy rate of Rs. 40 a kg.


At present, subsidised domestic LPG in Delhi is sold at Rs. 417 a cylinder, while the same in Mumbai is sold at Rs. 452 a cylinder. The prices change due to the value-added tax component. The prevailing market rates of domestic LPG range between Rs. 865 and Rs. 905 a cylinder. DBT on LPG is estimated to save Rs. 12,000- Rs. 14,000 crore for the Government on subsidy outgo.


When the scheme was wound up, it was operational in 291 districts across the country.


On October 18, the Government re-launched the scheme, which was rolled out, with modifications, from November 15 in 54 districts, covering a customer base of 2.33 crore. Of this, 72.50 per cent, or 1.69 crore people, are ready to receive cash transfers.


The Government proposes to expand the scheme to rest of the country from January 1, 2015. LPG dealers, too, do not foresee any hiccups in implementation as the scheme has been tried and tested.

(Source: Business Line November 19, 2014)





Mumbai: A weak outlook for natural gas prices will likely keep the price of domestically produced gas within the band of $5-6 per million metric British thermal units (mmBtu) for at least two years although the government’s new pricing formula allows for a revision every six months.


This means Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL) will not get to raise the gas price periodically under the formula unveiled in October, which prescribed a much lower price than the $8.4 per mmBtu approved by the previous government.


A third producer, Reliance Industries Ltd, and its partners in the D6 field of the Krishna-Godavari basin are locked in arbitration proceedings with the government over cost recovery from the D1 and D3 fields in the D6 block.


The gloomy outlook for gas prices may also deter foreign firms from taking part in the 10th round of bidding for the new exploration licensing policy (NELP X) expected to take place in the next fiscal, experts said.


Under the formula proposed by the Cabinet Committee on Economic Affairs (CCEA), the price applicable from the start of November was pegged at $5.61 per mmBtu, 33% higher than the earlier price of $4.2 per mmBtu.


That’s perhaps the last major increase in Indian gas prices for at least the next two years, experts say, given the muted outlook for all four benchmarks used to determine the price—the US Henry Hub, Alberta Hub of Canada, the National Balancing Point (NBP) of the UK and the gas price in Russia.


“We are factoring in a natural gas price of $5-6 per mmBtu for the next two years in India,” said Somshankar Sinha, director, Asia ex-Japan oil and gas research at Barclays Plc., over the phone from Hong Kong.


While it is difficult to estimate domestic prices in Russia as they appear regulated, prices of the other three benchmarks may rise only in the next five years with only limited gains over the next two years.


In fact, the Henry Hub price, which has a weightage of 41% in the new Indian gas pricing formula, is expected to fall.


“Our view is that Henry Hub in 2015 will be lower priced than in 2014, about 17% lower averaging $3.7 per mmBtu, but then adding some value in 2016,” said Trevor Sikorski, head of natural gas, coal and carbon, at Energy Aspects Ltd, a London-based energy research consultancy which gives forecasts on European and US energy prices.


On the UK benchmark of NBP, Sikorski said the forward prices for January 2015 are 23% lower year-on-year (y-o-y).


NBP has a weightage of 33% in the new Indian gas pricing formula, while the Russian gas price has 21% and Alberta Hub of Canada has 5% weightage.


Sinha also said the domestic price that will be set in April 2015 will be lower than the current price of $5.61 as the formula takes into account the average of last one year with a lag of one quarter, that is, January to December 2014. NBP prices have been much lower so far this year.


According to Bloomberg, from 1 January till 11 November, the price of Henry Hub has averaged $4.4 per mmBtu with a high of $7.92 per mmBtu recorded on 4 March and a low of $3.51 per mmBtu on 28 October. During the same time, the NBP average has been at £49 per therm or $7.77 per mmBtu and Canada’s Alberta Hub prices have averaged $3.6 per mmBtu.


It is the opacity of the Russian natural gas price which irks consultants. “Although the hike in gas prices in India is a welcome move, the change from the earlier formula in the indexation to Russia has the potential of making the price estimation less transparent as Russian prices are typically more difficult to track,” said Rahool Panandiker, partner and director at the Boston Consulting Group (BCG). “Russia does not have a market price for gas and as has been seen historically, political considerations play a role in keeping the price artificially low,” he added.


The weak outlook for gas prices is bad news for ONGC and OIL, which had been banking on a periodic rise in gas price to ensure proper returns on investments. “The price going forward could go up or down based on the formula, and based on the current trends, we do not expect any major change. A mere $1.41 increase is not good,” said an official from ONGC, on condition of anonymity.


As per estimates shared by ONGC chairman and managing director D.K. Sarraf, for every one dollar increase in gas price, ONGC’s revenue rises by `4,000 crore and profit by almost `2,350 crore.


BCG’s Panandiker said the gas pricing formula could be less appealing to investors— Indian and foreign.


“Global firms are unlikely to invest in India without the right price for their products, especially when options are available to invest globally in global sectors,” said Sanjeev Prasad, senior executive director and co-head (strategy), Kotak Securities Ltd.

(Source: Mint November 19, 2014)




MUMBAI: State-run gas utility GAIL India is likely to sign a gas-supply agreement with Houston-based Vega Energy Partners shortly, sources said. The deal is for supplying gas to the Cove Point LNG Terminal project located at Lusby in Maryland, US.


“We have been looking to book gas supply for Cove Point and this deal would be a step forward,” said an official from GAIL India, without divulging further details.


Vega Energy Partners is engaged in the management, optimisation, and development of natural gas assets.


The $3.8-billion Cove Point LNG project is owned by Dominion Cove Point LNG, LP with which GAIL had signed a terminal service agreement in April 2013 (through GAIL Global (USA) LNG LLC) for booking 2.3 million tonnes per annum (mtpa) liquefaction capacity in Cove Point LNG Terminal.


The project is being built by Dominion Resources – of which Dominion Cove Point LNG is a subsidiary – and it is expected to be completed in by June 2017. Although the official cited above refused to mention the pricing details and the quantity, he said GAIL has negotiated the gas at a competitive price and that it is not expensive. US gas, linked to US Henry Hub rates, would be cheaper than LNG imports from other countries. Cove Point is a premier facility in terms of direct access to the Marcellus and Utica shale plays, two of the most prolific shale gas basins in North America.


“Our upstream acquisition efforts for gas sourcing and hedging would now intensify in US. This deal would also provide GAIL with an opportunity to trade part of the volume in the international market apart from organising the ships required to transport rest of the volume to India,” B S Tripathi, chairman and managing director, GAIL had said in April 2013.


GAIL had then said that it had a positive outlook on Henry Hub indexed LNG exports from US, which prompted it to sign this terminal service agreement.


“The contracts signed with Cheniere (Energy Partners) and Dominion make GAIL one of the largest Henry Hub LNG portfolio holders and provide us an opportunity to market about 6 mtpa of LNG from the US,” Tripathi had said.


Under the terminal service agreement, GAIL will procure its own natural gas and deliver for liquefaction at the terminal. LNG will then be loaded into ships arranged by GAIL, which will pay service charges to Dominion Cove for liquefaction of natural gas.


GAIL already holds a 20 per cent stake in Carrizo Oil & Gas’ Eagle Ford Shale and has a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from Sabine Pass Liquefaction, a subsidiary of Cheniere, from 2017-18.


Last month, the US Energy Department approved Dominion Resources’ proposal to export liquefied natural gas from the Cove Point terminal.

(Source: Business Standard, November 19, 2014)




MUMBAI: A month after diesel prices were market linked, it is business as usual for the oil marketing companies with the private sector petroleum companies yet to re-enter the market.


On October 18, the government market linked the diesel prices opening up the fuel retail sector which was so far largely a preserve of the three state run oil marketing companies (OMCs) — Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited.


After a month, OMCs said they would see a visible impact of the deregulation on their sales volume only two-three months down the line when private fuel retailers re-open most of their outlets.


Of the private players, Reliance Industries has one of the largest network with state-of-the-art infrastructure. It is, however, still negotiating with its retailers for re-starting their outlets. The retailers are demanding a higher commission.


“Against our expectation, there is not much impact that we have seen. However, we have been informed that private fuel retailers would be re-opening their fuel retail outlets in the next few months. We may see some possible impact on our sales then,” said a senior official from Hindustan Petroleum Corporation Limited.


Essar Oil with 1400 operational retail outlets currently, is expecting a gradual pick up in diesel sales from its outlets. The company had been selling only petrol through its outlets till the deregulation. It will be selling diesel from its outlets in a phased manner.


A senior official from IndianOil Corporation said though there was no impact of diesel deregulation so far, it is monitoring the market situation.


The three oil marketing companies reported a mixed set of numbers for the September quarter. While muted growth impacted their overall profitability, lesser interest cost burden following gradual diesel price deregulation and timely compensation by the government towards under-recovery in retail sales, provided some comfort.


Overall operational profitability remained under pressure. IOC slipped into the red with a net loss at Rs 899 crore against net profit of Rs 1,684 crore a year-ago and BPCL saw net profits halve to Rs 464 crore. A low base in the year ago quarter and over-recoveries, helped HPCL post a strong growth of 16% in net profit.


The government also more than doubled the excise duty on petrol and diesel on Thursday to Rs 2.7 per litre and Rs 2.96 per litre, respectively. Currently, the OMCs are making over-recoveries of Rs 2 a litre on petrol and diesel each. The excise duty hike will partially reduce that.


However, for the benefits that would accrue from diesel deregulation, analysts remain positive on the OMCs.

(Source: Business Standard, November 19, 2014)




In an interview with ET Now, Vikash Kumar Jain, Investment Analyst, CLSA India, talks about their investor conference and shares his views on whether India is a favourite spot amongst the emerging markets. Excerpts:


ET Now: Firstly give us a flavour of how the conference has been, what day one was like and is India a favourite spot amongst the emerging markets?


Vikash Kumar Jain: That is exactly what the feeling is over here. The general view is that amongst the emerging markets and to top it up with what happened with Brazil yesterday, reminds everyone that India is possibly one of the most exciting place. So it is a combination of two things what we are seeing in the Indian markets.


Number one, there is a possibility that a lot of reforms happening, a lot of the potential — which was always talked about in India — will be unleashed over the next few years. Secondly, a little bit of TINA factor, there are actually not too many alternatives when it comes to the emerging markets space.


ET Now: Let us chat about the sectors that you track closely, like the oil and gas sector. Major reforms are coming in the sector, be it diesel deregulation, gas price hike. Would it be fair to say that policy overhang has lifted right now? What are investors now doing and how are you recommending for them to approach the sector now?


Vikash Kumar Jain: We actually came out with this big report, titled Sunrise, three to four months back where we give out a list of our wish list. Now if I look back, four of those reforms have actually happened, namely diesel deregulation, gas price hike, the LPG one which is not very well appreciated, but that is a major one which has happened, and finally giving some ease to the whole E&P working in the way the blocks have worked.


There is a lot that has happened, but one biggest reform for companies and stocks is still pending and if that happens, that is going to be the biggest trigger. That is a clear and transparent subsidy sharing formula. If that happens, then we will be more comfortable in calculating how the benefits will flow into for the companies and the stocks.


ET Now: The point came about in Q2 on the subsidy front because a lot of investors were caught unawares and people that I spoke to did mention that it was a shocker really. My question then would be that until that clarity on subsidy sharing comes out, would these stocks be an avoid?


Vikash Kumar Jain: You can wait until then, but the catch up will be very significant. You will have to look at the sector in two parts. One is the downstream one and the other is the upstream ones.


The downstream ones are IOC, BPCL and HPCL. Those are the ones which are really building and a lot of expectation, a lot of hope after the rally that they have seen, I do not like that sector so much.


I in fact downgraded BPCL recently to underperform, HPCL to sell just last week. There is a lot of expectation and possibility of marketing margins increasing and all of those things happening. So that is what is already there in the price.


On the other hand, if you were to look at the upstream companies, there is a lot of worry that the government will squeeze them, not allow them to benefit from the fall in subsidies. That is where the subsidy sharing formula will help a lot. So from a risk-reward perspective, upstream oil companies are much better placed than downstream oil companies from here on and that is what I prefer within the state-owned stocks.

(Source: The Economic Times, November 19, 2014)





MUMBAI: The Bombay High Court on Tuesday ruled in favour of Shell in a transfer-pricing order that sought to tax the energy giant’s 2009 investment in its Indian subsidiary. The order will have an impact on other multinationals fighting the tax department on similar grounds.


The income-tax department had sought to add Rs 15,220 crore to Shell India’s taxable income after Shell Gas invested in its local arm at Rs 10 a share. The tax department valued Shell India’s shares at Rs 180 apiece in January 2013 and charged it with undervaluing those to evade tax.


Calling it a tax on foreign direct investment, Shell India moved the Bombay High Court in April last year. The court rejected the tax department’s argument that the Shell case was distinguishable from Vodafone’s case, which won a similar reprieve in October.


“The Shell India case is significant. It follows the earlier Vodafone judgment — the principle being that issuance of shares by an Indian company to its foreign parent is not exigible to transfer-pricing provisions, as there is no income arising therefrom,” said Mukesh Butani, managing partner of BMR Legal, which represented Shell India.


The Bombay High Court judges, M S Sanklecha and S C Gupte, set aside the tax department’s order over jurisdiction and did not get into the valuation of the shares.


Transfer pricing is the value at which companies trade products, services and assets among units in different countries, a regular part of business for a multinational but a practice tax authorities feel is often exploited. The rules require all cross-border transactions among group companies to be valued as if those were with an unrelated company.


“The decision is a relief not just for Shell but for all multinationals that have faced adjustments on share issuance. The court felt the tax department clearly exceeded its jurisdiction to bring to tax a capital transaction,” Butani added.


“Investors should welcome this bold intervention of the court. Hopefully, one of the tax thorns that troubled investors has been removed,” said Gokul Chaudhri, leader of the direct tax unit at BMR & Associates.


When contacted, a finance ministry official said: “The order has to be studied carefully. After that, we will decide whether there is a need to file a special leave petition in the Supreme Court.” He added a decision would be taken on merit.


The government has 90 days to appeal in the apex court. A view will be taken by the Central Board of Direct Taxes once the assessing officer sends his report to the chief commissioner. Sometimes, the matter is also referred to the law ministry and the process takes about two months.


In October, the Bombay High Court had ruled in favour of British telecom major Vodafone Group, saying it did not have to pay the extra Rs 3,200 crore tax demanded from the authorities. The government has not decided whether or not to appeal against the Vodafone judgment yet.


Tax experts welcomed Tuesday’s verdict. “It confirms the concept that the arm’s-length principle for determination of price of a transaction should be applied only when there is income, expense or interest involved,” said S P Singh, senior director at Deloitte Haskins & Sells.


“The tax department must undertake a systematic study of recent decisions from various appellate authorities and issue instructions to avoid frivolous additions. It is necessary that administrative solutions are sought. This will call for substantial review of the process of assessment and dispute resolution,” he added.

(Source: Business Standard, November 19, 2014)




NEW DELHI: Reliance Industries (RIL) has sought one-year extension for development of its two coal bed methane (CBM) blocks — Sohagpur (East) and Sohagpur (West) in Madhya Pradesh — due to a delay in land acqusition. The Ambani firm bagged both these blocks in the first round of the CBM auctioning in 2001 and the development phase expires in 2014.


The upstream regulator Directorate General of Hydrocarbons (DGH) has opined in favour of the explorer to extend the development phase by one year under the Article 10.5 of the CBM contract till 2015, a source told FE. Article 10.5 of the CBM contract provides for extension of the development phase not exceeding one year to complete the development phase.


The development phase for Sohagpur (East) would end on December 1, 2014, while in case of Sohagpur (West) it was valid till October 25, 2014. Currently, CBM production in the country is just 0.60 million metric standard cubic metre per day (mmscmd). It is likely to go upto 4 mmscmd by 2016-17, with substantial gas being produced from the two RIL blocks.


The gross in-place CBM potentials of RIL’s Eastern block is 1.69 trillion cubic feet (47.7 billion cubic metres) while it is 1.96 trillion cubic feet (55.5 billion cubic metres) for the western acreage.


RIL has told the government that both the CBM blocks are located in tribal districts of Shahdol and Annuppur in Madhya Pradesh. The major portion of the land falls under the category of tribal or forest land and therefore land acquisition has been a major challenge to make progress.


“The contractor has informed that development activities are under progress, but land acquisition process is getting delayed due to land owner’s unwillingness and new land acqusition of 2013,” said the official quoted above.


Earlier in December 2012, the government accepted RIL’s plea to consider commencement of development phase from the date of grant of mining lease, which was December 2, 2009 for Sohagpur (East) and October 10, 2009 for Sohagpur (West). This was because RIL lost about two years in the process of getting mining lease before it could commence any activity for the development phase. Moreover, this delay was not because of any fault of the contractor, the Ambani firm had told the petroleum ministry.


On the other hand, RIL, which started development drilling in February 2011, suspended the work in March 2012 pending clarity on pricing of gas produced from the CBM blocks. The latest gas pricing policy, approved by Prime Minister Narendra Modi-led government on October 18, has set gas price at $5.61/mBtu from all sources including CBM blocks.


Earlier reports suggest that RIL came up with gas pricing hovering around $12-13/mBtu, while carrying out the price discovery for these blocks.

(Source: The Financial Express, November 19, 2014)





Natural gas is one of the favourite commodities for traders as its price swings gives them an opportunity to make handsome returns in a short period of time.


Although there are risks associated with this, the momentum gives the commodity the much-needed attention most of the times.


The cyclical nature of the commodity and the supply and demand factors, inventory situation, along with the climate changes play a dominant role for setting the price trend for this commodity.


Prices of natural gas have been volatile in recent weeks with the commodity rising eight per cent on Monday.


Earlier, NYMEX natural gas prices has touched a high of $4.544 mmbtu in mid-November before heading downwards to $3.994.


Inventory build-up in recent weeks coupled with moderate climate was the main factor that led to fall in natural gas prices.


To start with, natural gas inventories as on March 31, 2014 were 826 billion cubic feet, the lowest since April 2003. Since natural gas prices react largely on inventory positions, it becomes important how the injection season (which starts in April and ends in October) fares.


Heading into the injection season this year, producers of natural gas began stocking at a slower pace in April.


However, in later months, producers quickly ramped up inventories and exceeded five-year average level for 28 weeks in a row till October 31. As on October 31, inventories were 3,571 billion cubic feet – a record increase of 2,734 billion cubic feet during the injection season.


These high level of injections happened because of relatively low gas demand from the electric power sector as well as substantial increase in domestic gas production.


Mild summer temperatures led to low demand for air conditioning, which in turn helped to build the inventory.


Report released from Bentek Energy, a US agency, for April-October 2014 indicated that consumption of natural gas averaged lower at about 2 per cent compared with the same period a year ago and also 16 per cent lower that the same period in 2012.


On the supply side, there has been quite a revolution over the last few years in re-shaping energy supply scenario in the US. Ample supplies from shale gas have led to high natural gas production from lower 48 states this season too.


According to the latest report from Bentek Energy, natural gas output in October 2014 was 6 per cent higher year-on-year and is the tenth consecutive record breaking month in 2014.


Natural gas production averaged 68.5 billion cubic feet (bcf) a day in this year’s injection season. This is 3.6 bcf/day higher than average production in 2013, which was at 64.9 bcf/day.


In the first six months of this season, production averaged 36.4 bcf/day, an increase of 15 per cent compared with the same period a year ago.


The report further points towards a positive impetus on production side and estimates production to climb to 67.9 bcf in 2014, when compared to 55.1 bcf in 2009.


Although prices have corrected due to higher inventory levels along with rising production, prediction of a winter colder than normal in the US may likely lead to enhanced demand for heating.


This will result in higher natural gas demand in the coming weeks.


On basis of the same, NYMEX natural gas prices (CMP: $4.27/mmbtu) can head towards $4.5 per mmbtu and MCX natural gas prices (CMP: Rs. 256/mmbtu) may touch Rs. 280 per mmbtu levels in next 1-2 months.


The writer is Associate Director – Commodity & Currencies, Angel Commodity Broking. Views are personal.

(Source: Business Line November 19, 2014)

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