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Coal News Commentary: August – September 2016

India

For those of us wired to criticise the government for perennial scarcity of coal, these are challenging times.  There is apparently so much coal in India that the MoC is looking at export markets. CIL was reported to be in ‘deep consultation’ with Bangladesh to export coal as there was a ‘sharp decline in demand for coal as well as an inventory of over 80 MT at the pitheads and power plants’ according to the MoC. India has signed an agreement with Bangladesh to construct a 1,320 MW coal-fired power plant, the biggest project under bilateral cooperation. But the probability of this venture succeeding is not very high. The geo-politics of climate change has painted coal as a villain and the geo-politics of South Asia tends to paint India as the villain. The combination of the two (coal from India) has proved to be irresistible to both political and climate change entrepreneurs who are busy constructing colourful conspiracy theories. The reality is that India is big and not bad and coal is cheap but not clean. But South Asian economies have kept their people in abject poverty that they cannot pay for less dirty (there is no such thing as clean energy) energy.  Burning cheap Indian coal to climb out of energy poverty will not just ensure South Asia’s energy security but also drive economic growth in the region. Consumption of cheap energy is established as the cause of economic growth by academic studies.

The rating agency Fitch said that India was well on its way to boost self- sufficiency in coal with a 5.1 percent year-on-year output growth in the first half of 2016. The higher prices of seaborne coal has apparently prompted power plants to increase the use of domestic coal causing imports to drop by 13.1 percent year on year. The agency also said that the doubling of clean energy cess increased demand for high-caloric-value coal, with increased imports from South Africa and Australia at the expense of low-grade Indonesian coal. According to a PricewaterhouseCoopers report India would have to spend $149 billion (four times India’s annual defence budget) to increase coal production to 1.5 BT by 2020. Many have cited this as the reason to scale down coal production.  But this is wrong headed thinking.  Spending more to fight energy poverty might actually contribute to more national security than armoured tanks and fighter jets.

Meanwhile a report from the industry body Assocham stated the obvious when it said that India would have to reduce dependence on coal fired electricity and work on climate friendly transport and urban planning and also keep up the pressure on the rich nations to fulfil their obligations for contributing $100 billion for technology development and transfer to reduce carbon emissions.  Anyone who knows the political economy of India and the geopolitics of climate change will know that both – reducing coal use in India and getting rich countries to pay up – are close to impossible.  As long as we live in a world that rewards only economic performance cheap will be more valuable than clean.

The announcement by the Indian Railways that it will rationalise coal tariff by reducing long-distance transportation rates while raising it for short distances and impose a terminal surcharge of ` 110/tonne at loading and unloading for distances beyond 100 km was not received well by coal consumers. Given that the average lead distance of coal shipments is declining (486 km in FY 16 versus 545 km in FY15) it makes sense to increase short distance tariff for coal.

Rest of the World

Just as India is seeking to double coal production by over 500 MT in the next 2-3 years, China is reportedly aiming to reduce 500 MT of coal production (9 percent of its capacity) capacity in the same period. According to Bloomberg, China can produce 5.7 BT of coal but only 3.9 BT was in operation. China is also said to have suspended approvals of new coal mines for the next three years to reduce over-capacity. But the Chinese are also reportedly increasing thermal coal imports as the 40-percent increase in prices for Australian thermal coal suggest. The Australian price rise is seen to be the result of a regulatory change in China, where the annual hours miners can operate were cut to 276/year from 330/year in 2015 to reduce rampant overcapacity and industrial smog.

Chinese imports have apparently pushed the premium over Europe to more than $10/tonne offering miners with easy access to the Atlantic and Pacific basins opportunities for arbitrage. Australian cargoes from its Newcastle terminal, a benchmark for Asia/Pacific, currently cost $70/tonne. European import prices into Amsterdam, Rotterdam or Antwerp are reportedly at $58/tonne due to strong competition from renewables and cheap natural gas. China which has been indulging in coal price arbitrage is expected to increase supply by 200,000 tonnes/day if prices gain for two consecutive weeks and climb above $75/tonne.  Coal is also reported to be leading a surge in trading volumes on west European energy exchanges in the first half of this year as traders took advantage of low commodity prices. Wholesale trading of coal on the exchanges soared 46 percent from a year earlier to 3.5 BT.

NATIONAL: OIL

India set to buy Iran oil for emergency reserves

September 20: India is set to buy 6 million barrels of Iranian crude for its strategic oil reserves as negotiations with the United Arab Emirates’ national oil company for supplies are stuck over commercial terms. Such purchases by the world’s No.3 crude importer would boost Iran’s drive to ramp up its oil shipments as it looks to regain market share following the lifting of sanctions over its disputed nuclear programme. Oil markets have been keenly focused on Iranian export volumes over the last few weeks as they get closer to pre-sanction levels – a milestone that Tehran has said is a precondition for discussing a global output freeze to boost crude prices. India, seeking to hedge against energy security risks as it imports about 80 percent of its oil needs, is building emergency storage in vast underground caverns to hold a total of 36.87 million barrels of crude, enough to cover almost two weeks of demand. India would buy 6 million barrels of Iranian Mix crude from the National Iranian Oil Co in October and November to fill half the Mangalore storage facility in the south-western state of Karnataka. State firm Bharat Petroleum Corp will buy 4 million barrels in two very large crude carriers (VLCCs) and Mangalore Refineries and Petrochemicals Ltd will import 2 million barrels. The step comes as Iran’s daily crude exports to India surged to the highest level in 15 years in August. India in 2014 began talks to lease part of its strategic storage to Abu Dhabi National Oil Co (ADNOC). Under such a deal, India would have first rights to the stored crude in case of emergency, while ADNOC would be able to move cargoes to meet any shift in demand.

Source: Reuters

IOC’s investment plans not to affect credit profile: Fitch

September 19: Indian Oil Corp (IOC)’s Rs1.8 lakh crore capital investment plan over the next six years will not affect the company’s credit profile, Fitch Ratings said. IOC had said its capex would be Rs 1.7-1.8 lakh crore over the next six years, including around Rs15,000 crore in the current fiscal and around Rs 25,000 crore each in 2017-18 and 2018-19. Fitch said it has not factored in IOC’s investment in the proposed mega refinery project in coastal Maharashtra though. This project is planned along with the other state-owned oil-marketing companies – Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd.

Source: Business Standard

September 30, last date to get LPG linked with Aadhaar

September 19: Those who have still not linked Aadhaar with their LPG connections need to do it before September 30, as their parked subsidy amount (with banks) for the period between July and September will lapse after September end. As per earlier instructions of the Union ministry of petroleum and natural gas, people have to buy cylinder at the non-subsidised (market) rate and later have to get subsidy credited into their account. For this, they had to either link their bank account numbers or Aadhaar number to their LPG connection number to get the subsidy credited into their account. From July 2016, the ministry has mandated linking connections with Aadhaar. People who had linked earlier need not worry but those who had linked only bank account numbers need to get Aadhaar linking too. The government gave these people a buffer time of three months to get the Aadhaar linking done and released their three months’ LPG subsidy into respective banks. However, the banks were asked to hold on to the release of subsidy till the time consumer links Aadhaar with the connection. Once Aadhaar card is connected before September 30, the three months’ subsidy would be released.

Source: The Times of India

Mangalore Refinery under lens for alleged excise duty evasion

September 18: Mangalore Refinery and Petrochemicals Ltd (MRPL), a subsidiary of Oil and Natural Gas Corp, has come under the scanner of central revenue authorities for alleged excise duty evasion of at least Rs 10 crore. The Directorate General of Central Excise Intelligence here has started a probe in the case and sought certain clarification from the Mangalore-based MRPL. The case relates to alleged wrong classification of mixed xylene — a clear colourless aromatic hydrocarbon liquid having sweet odour — produced by it. Mixed xylenes are extracted or distilled from reformate, a stream derived from the refining of high-octane motor gasoline.

Source: India Today

Petrol price up by 58 paise a litre; diesel cut by 31 paise

September 16: Petrol price was hiked by 58 paise a litre while diesel rate was cut by 31 paise per litre in line with international trends. Petrol+ will cost Rs 64.05 a litre from midnight as against Rs 63.47. Similarly, diesel will cost Rs 52.63 a litre as compared to Rs 52.94 a litre. This is the second increase in rates of petrol this month while in case of diesel it wipes away a part of the hike effected earlier this month. Petrol price+ was last hiked on September 1 by a steep Rs 3.38 per litre and diesel by Rs 2.67 a litre. The current level of international product prices of petrol and diesel and rupee-US dollar exchange rate warrant increase in selling price of petrol and decrease in selling price of diesel, the impact of which is being passed on to the consumers with this price revision, Indian Oil Corp (IOC) said.

Source: The Times of India

Petrol, diesel monthly consumption at new high

September 15: Consumption of petroleum products grew at the quickest pace on a monthly basis in five years during August, rising 11.4% year-on-year (y-o-y) to 15.8 million tonnes. It increased 9.5% y-o-y on an average in the preceding three months. The ban on diesel vehicles in the NCR (National Capital Region) and increased sales of two-wheelers and passenger vehicles led to a surge in petrol consumption that hit a new high, analysts tracking the sector said. Diesel and petrol led the way, growing at 14% and 25% on a y-o-y basis respectively during the month. Diesel consumption surged to a near-five-year high on a monthly basis in August, primarily driven by commercial transportation. In June 1976 crude oil was $ 51/- and after 40 years it is hovering around $ 42/- Indeed Modi govt is very lucky to churn out more tax from the people.

Source: The Times of India

India’s new motorcycle owners drive gasoline boom

September 15: India’s gasoline consumption is growing rapidly as millions of additional households buy motor cars and especially motorcycles as a status symbol amid growing prosperity. Gasoline consumption averaged 550,000 barrels per day between June and August, an increase of nearly 15 percent from 480,000 bpd a year earlier. Gasoline consumption hit a new record of 600,000 bpd in August, according to the Ministry of Petroleum and Natural Gas. The number of registered vehicles on India’s roads has been doubling every seven years and hit 182 million in 2013, according to the Ministry of Road Transport and Highways.

Source: Reuters

Petroleum products to come under GST regime

September 14: Petroleum products, including crude and some intermediate products, could be taxed under the proposed goods and services tax (GST), a move that will reduce the imperfections in the new levy and also narrow the inflationary impact of the tax. A proposal favouring imposition of a modest tax on these products is being examined and is expected to be taken up by the newly constituted GST Council where the government will try and convince states of its merit. The idea is to have some minimal tax of about 2-3 percent so that seamless flow of credit is not broken and cascading is removed. These products are at present proposed to be covered within the GST but zero rated till the time the council decides to impose a tax. States will continue to have freedom to levy local sales tax on it. States have been opposed to a change in tax regime for petroleum goods, an easy way of quickly mopping up revenues if needed. But now thinking has veered around to having some minimal tax from the beginning as it could help in bringing down the overall tax rate and allow the industry to get credit. The Arvind Subramanian committee has recommended a standard GST rate of around 18 percent. There are concerns GST could stoke inflation. Some policymakers are in favour of rate as low as 16 percent. Tax at marginal rate would not hurt consumers much but will benefit industry in a big way. The government has put implementation of GST, which seeks to replace plethora of central taxes including excise duty, service tax, cesses and state taxes such as value-added tax, octroi, entry tax with a single levy, on fast track and the newly set up GST Council will meet to take a call on crucial issues.

Source: The Economic Times

Indian govt seeking investors for 67 small oil, gas fields

September 14: Some companies interested in small discovered fields being auctioned by the oil ministry are keen to explore adjoining areas also but government officials say they can expand their exploration area subsequently with a competitive bid under the new licensing policy. The government is seeking investors for 67 small oil and gas fields in an auction that is underway and allows participants until October 31 to place their bids. The government is hosting roadshows in India and key global financial centres such as London and Singapore to showcase the opportunity these fields offer and explain in greater details the nuances of the new policy governing these fields. Some of the potential investors have raised concern about the smaller size of the contract areas on offer and urged the government to consider offering a bigger area. The private sector executive has been involved in the country’s oil and gas sector for two decades and said the contract areas offered under previous bid rounds were in hundreds of square kilometres while in this it is mostly just a few square kilometres, making it less attractive. On the other hand, officials say that a proven field cannot be considered less attractive than a bigger exploration area where oil and gas has not been discovered. About 40 of the 67 fields being offered are less than 25 square kilometres in area. Nearly 20 are less than 10 sq km with one field being as small as 2.35 sq km. All 67 fields have been grouped in 46 contract areas that are being auctioned. The oil ministry said some investors have indeed raised this concern but the government will not be able to do anything about it. The additional areas surrounding these discovered fields will be auctioned in future separately for exploration under the government’s new exploration policy, Hydrocarbon Exploration and Licensing Policy (HELP).

Source: The Economic Times

IOC announces Rs 1.8 tn investment plan in next 6 yrs

September 14: Announcing its plan of investing ` up to 1.80 trillion across verticals in next six years, Indian Oil Corp (IOC) said it also is talks with foreign entities to co-invest in the investment that includes setting up a mega refinery in coastal Maharashtra. IOC said about Rs 50,000 crore will be invested in setting up refining capacity where it plans to add at least 24 million tonnes per annum over the next five years, followed closely by marketing infrastructure including new plants, new terminals, LPG import infrastructure and pipelines. IOC will be investing Rs 15,000 crore in the current fiscal and will accelerate to over Rs 25,000 crore each over the next two fiscals. It has budgeted for a Rs 72,000 crore investment over the next three years. IOC said the ambitious project to set up the largest refinery project in the country in coastal Maharashtra is on and the state government has shown six potential sites where it can come up. IOC, which is taking leadership in the project that is estimated to cost Rs 1.76 trillion, will be holding a 50 percent stake in the refinery while the remaining will be split evenly between its sister companies HPCL and BPCL. IOC said working of the entire modern refinery complex will help bolster its gross refining margins by up to $3 per barrel.

Source: Business Standard

NATIONAL: GAS

NGT asks govt to make its stand clear on shale gas exploration

September 20: The southern bench of the National Green Tribunal (NGT) directed the State government to submit its stand in next three weeks on shale gas exploration allegedly undertaken by the Oil and Natural Gas Corp (ONGC) in the Cauvery delta region. ONGC said that the oil ministry, had entrusted the ONGC with R&D efforts for exploring and assessing the potential of shale gas in the sedimentary basins under its operation. Accordingly, in the Cauvery basin, one location was identified in Kuthalam for preliminary investigation. ONGC was at present carrying out only geophysical or seismic surveys in Tiruvarur for oil exploration which doesn’t cause any harm.

Source: The New Indian Express

GAIL may scrap tender for hiring LNG vessels

September 19: GAIL (India) Ltd will likely scrap the tender for hiring liquefied natural gas (LNG) ships after failing to negotiate acceptable terms with bidders in what would hurt India’s ambition to build high-tech LNG carriers at home under the ‘Make in India’ programme. GAIL had issued a tender last September seeking to charter at least nine LNG vessels to bring home from the US up to 5.8 million tonne of gas annually from early 2018. Successful bidders were supposed to locally build a third of all ships they make under the Make in India plan. GAIL received bids from two Japanese consortiums after the deadlines for submissions were extended more than once. GAIL is now running out of time to hire ships as the supplies of its contracted gas from the US will start flowing in a little more than a year. The bidders for GAIL ships had to tie-up with shipbuilders who would in turn partner local shipyards. Vessels from foreign shipyards had to be delivered between January and May 2019 and from Indian shipyards between July 2022 and June 2023. An LNG vessel on average costs about $200 million.

Source: The Economic Times

Need to promote natural gas-based fuel cell technology: Oil Minister

September 18: More than half the power requirement here of IT multinational Intel’s Indian subsidiary is produced from fuel cells using natural gas, Oil Minister Dharmendra Pradhan said. GAIL (India) Ltd and US-based Bloom Energy signed an agreement to deploy revolutionary natural gas-based fuel cell technology to generate electricity. Gas is already being supplied by GAIL for energising a multi-megawatt Bloom Energy project at the Technology Park. The technology is currently being used by over 100 of the Fortune 500 companies that are diversified majors in IT, Telecom, retailing, e-commerce and consumer goods.

Source: The Economic Times

Mahanagar Gas increases prices of CNG, PNG

September 18: Mahanagar Gas Ltd (MGL) has revised its rates for compressed natural gas (CNG) and domestic piped natural gas (PNG) upwards after the Maharashtra government hiked VAT by 1% to 13.5%. MGL supplies CNG to 4 lakh vehicles, including public transport and BEST buses and piped gas to 8 lakh households in Mumbai. In view of increase in VAT rates from 12.5% to 13.5% by the Maharashtra government from 17 September, MGL is constrained to revise its CNG and domestic piped gas prices to the extent of revised tax implication, the company said.

Source: Livemint

NGT asks Haryana, UP to mull installation of CNG pumps in NCR

September 15: The National Green Tribunal (NGT) asked Uttar Pradesh (UP) and Haryana governments to mull over the possibility of installing CNG stations in NCR while refusing to grant permission to over 10- year-old diesel vehicles to ply in these areas. It asked both the States to consider the proposal after it was informed that there was no CNG station in Karnal and Meerut. The NGT directed UP and Haryana to inform it about the stand of both the State governments by October 1, the next date of hearing. The tribunal was hearing petitions filed by a Meerut-based Transport Union and Karnal Independent Schools Association seeking permission to ply diesel vehicles over 10 years old until adequate number of CNG filling stations are set up in their city that falls in the NCR. The school association has sought permission for its members to ply diesel school buses over 10 years old till CNG installation and fitment kits are made available. On July 18, the green panel had directed authorities in Delhi-NCR to cancel the registration of all diesel-powered vehicles which are more than 10 years old.

Source: The Hindu

PM Modi should also offer safer cylinders to poor, not just cooking gas

September 15: Narendra Modi’s government is helping lakhs of poor families take clean cooking gas to their kitchens. Kitchen accidents, including cylinders blowing up and stove bursts, kill about 4,000 people every year in the country. In the 14 years to 2014, the toll from gas cylinders and stove bursting stands at about 53,000 people, some 41,000 of them women, according to National Crime Records Bureau (NCRB) data. Composite cylinders will be launched by Hindustan Petroleum in the Western states of Gujarat and Maharashtra in the next few months. In the first phase, it’s going to be just about 5000 cylinders, a small number given that India has 17 crore active cooking gas consumers and plans to add 3 crore this fiscal year. Prime Minister (PM) Narendra Modi should direct state oil firms to give away these safer composite cylinders to poor households being offered cooking gas connection under the Pradhan Mantri Ujjwala Yojana because they need it the most due to safety reasons.

Source: The Economic Times

Petroleum ministry moots market price for CBM gas

September 14: In a boost to hydrocarbon exploration firms Reliance Industries Ltd (RIL) and Oil and Natural Gas Corp (ONGC), the oil ministry has proposed to offer market price for natural gas produced from the coal bed methane (CBM) blocks. RIL is targeting to start production of CBM from its Sohagpur (West) block in Madhya Pradesh in FY17, while state-run ONGC is developing the Bokaro block in Jharkhand. The oil ministry has proposed a revised policy for CBM blocks which is in similar lines to the policy rolled out for the ongoing auction of 67 discovered small and medium oil and gas fields. The Narendra Modi government has unveiled a policy for the small fields that provide an investment opportunity in already discovered fields with no signature bonus, no requirement of prior technical experience and no mandatory work programme. The new policy is based on revenue sharing contract model with the aim of simplifying the operating regime and making it more transparent. In addition, the explorers would get market price for the hydrocarbon produced.

Source: The Financial Express

India, Russia explore building of ‘energy bridge’ for Russian gas supply

September 14: India’s Ministry of External Affairs (MEA) announced that the country and Russia have agreed during the 22nd Session of the India-Russia Inter-Government Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC-TEC) to launch an industry level Working Group to create an “energy bridge” — or pipelines — for potential Russian gas supplies to be transported to the energy deficient South Asian country. Strong growth in domestic energy demand together with inadequate supply from local oil and gas fields have led India to depend on foreign petroleum supplies, including Russia. According to BP Statistical Review of World Energy, India consumed 4.159 million barrels per day of crude oil in 2015, while domestic production stood at 876,000 barrels per day, with imports providing around 78.9 percent of the country’s oil demand. Like oil, India depended on gas imports to bridge the supply gap.