Energy News Monitor | Volume XIII: Issue 31 |
Power News Commentary: December 2016 – January 2017
India
The fact that average monthly spot market price of electricity remained unchanged at Rs 2.32/kWh on the Indian Energy Exchange in December compared to November raised concerns this month. One would have hoped that with the onset of winter and fog in Northern India increase in demand for power for heating would perk up prices. The fact that demand for power has been far below projections is a concern that has failed to get the attention that it deserves.
Those who have put some thought into the issue have attributed low demand for power to growth in generation from renewable energy but this appears to be a lazy explanation that is rooted in ideological faith in renewable energy rather than in factual analysis. Data on generation from renewable energy is not as systematic and established as it is for generation from traditional sources. While the CEA reports that data is collected from renewable energy generators and the respective SLDCs, there is a built in incentive for over-reporting renewable energy generation as the financial rewards are tied to the extent of generation.
The power market received another blow from the CERC which has proposed to increase the short and medium-term transmission corridor charges for open access by 35 percent and 25 percent, respectively, from the current levels. While the regulator has comforted the market stating that this would compel participants to move towards long-term access which is critical for efficient planning of transmission networks, stake holders such as power exchanges, private transmission companies and generators are worried. Though the volume of power traded at power exchanges has increased, the price of traded power has fallen dramatically and stakeholders are concerned that further increase in access charges will serve as a disincentive for market participants.
Demand for power generating capacity is estimated at 200 GW by 2017 but current demand is reportedly lower at 150 GW. But this glut in power generation capacity does not mean that lack of access to electricity is eliminated. 60 percent of schools and 40 percent of homes in Odisha were reported to be without power. This contradiction has a simple explanation. After functioning as a provider of a social good for over five decades, power distribution companies and other players in the power sector value chain are all now expected to function as providers of a private good mediated by the market. Schools and households in Odisha and elsewhere in India cannot demand this private good unless they have the ability to pay for the good.
The central government has policies for increasing energy access (electricity as a public social good) as well as policies for decreasing power sector losses (electricity as a private good) such as the UDAY scheme which states are expected to embrace. If the central government purchases the surplus electricity in the market and distributes it to schools in Odisha it will be meeting both objectives-that of increasing electricity access and increasing profitability of state electricity boards (as the electricity will be paid for). The scheme may not only stimulate the economy but also prove to be a vote winner in this election season!
Rest of the World
Low electricity prices in the USA was the most interesting piece of news in the international press this month. Cheap natural gas, subsidised wind and solar are all blamed. Industrial slowdown and increase in efficiency of energy use are also blamed. Price in the most actively traded region was reportedly at $28.78/MWh which is said to be the same price of power more than a decade ago. At current exchange rates this is just over Rs 1.9/kWh which means that power in USA is cheaper than power traded on Indian exchanges.
Moving on, China’s investments in the power sector of various countries continued to stream in this month with news of Chinese investments in the power sectors of Ivory Coast, Greece, Tajikistan, Brazil and Pakistan. China Energy Engineering Corp is said to be leading construction of the €500 million 372 MW Songon power station (gas and coal) in Ivory Coast. Greece’s state controlled power company PPC is also reported to be selling a stake in the country’s electricity grid operator to China’s State Grid in a €320 million deal. A Chinese firm has reportedly completed a power plant worth $350 million in Tajikistan’s capital Dushanbe. The State Grid Corp of China is reported to have asked the Brazilian government and regulators to speed up environmental licensing of a planned power line connecting to the Belo Monte dam in the Amazon forest. State Grid, the world’s biggest utility is said to be worried that it may have to delay construction of the line, possibly forcing the third-largest hydroelectric power dam to begin operating in 2019 below full capacity. State Grid of China is also said to be helping Pakistan build a 4,000 MW power transmission line in a project valued at $1.5 billion. The high-capacity transmission line would be the first of its kind in Pakistan and will link Matiari town in the south, near a new power station, to Lahore. Last but not the least China’s Shanghai Electric is said to have plans to spend $9 billion overhauling electricity infrastructure in Karachi. China is said to be steeping up investment in Pakistan as part of a $46 billion project that will link its far-western Xinjiang region to Gwadar port with a series of infrastructure, power and transport upgrades.
Accusations of hacking between Russia and USA touched the power sector when a US utility reportedly found a malware code on a laptop that the FBI and DHS had touted as associated with Russian hackers. It was not clear if this is fake news or real news.
NATIONAL: OIL
India’s 2016 fuel sales growth highest in at least 16 yrs
January 10, 2017. India’s fuel demand in 2016 grew at its highest pace in at least 16 years as low oil prices for most of the year boosted demand for gasoline and aviation fuels. Consumption of fuels, a proxy for oil demand, surged 10.7 percent to 196.48 million tonnes in 2016, data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed. India’s refined fuel demand grew at 4.3 percent in December, its slowest pace in three months, but use of diesel-fired generator sets and vehicles by political parties for canvassing in state polls could result in higher demand this quarter. Gasoline demand rose 12.2 percent in 2016 on top of strong growth in 2015, with diesel demand rising 5.6 percent, its fastest in four years, driven by a surge in domestic automobile sales. Cooking gas or liquefied petroleum gas (LPG) sales rose 11.3 percent to 21.19 million tonnes.
Source: Reuters
Petrol pumps will accept cards for now as govt steps in
January 9, 2017. Petrol pumps across the country have decided to postpone till at least January 13 their protest against the banks’ decision to levy an extra charge on credit and debit card transactions. The petrol dealers had announced earlier that they would not accept the debit and credit cards of banks that would levy the extra charge. The government has assured the dealers that the merchant discount rate (MDR) fee won’t be applied till January 13. The intervention came after the petroleum dealers’ association had written to Finance Minister Arun Jaitley, informing him about the sudden decision by the banks to levy the transaction charge and their resolution to refuse card payments. The decision by fuel dealers could have hit the consumers as well the government’s efforts to push cashless transactions amid a nationwide cash shortage following the scrapping of Rs 500 and Rs 1,000 notes. Cashless transactions have gone up at petrol pumps since the government’s demonetisation move announced on November 8. To promote cash-less transactions, the government had waived the Merchant Discount Rate (MDR) on fuel purchase post demonetisation for consumers. But after the expiry of the 50-day window, the banks have decided to levy MDR on petrol pump owners. In their letter to Jaitley, the All India Petroleum Dealers’ Association said since there has been no word of passing the charge to consumers, the dealers will sustain a loss. The pumps have been notified that 1% charge will be levied on all credit card transactions and between 0.25% and 1% on all debit card transactions from January 9, 2017. The banks have quoted a circular issued by the Reserve Bank on December 16 as the reason for the extra charges, the letter said.
Source: NDTV
ONGC close to solution for $800 mn projects stuck post swiber crash
January 9, 2017. Oil and Natural Gas Corp (ONGC) is close to finalising ways to complete its $800 million projects stuck midway after the contractor, Singapore’s Swiber Holdings Ltd, collapsed last year following an oil slump. ONGC’s three projects off the western coast faced delays after Swiber, the offshore construction and support services provider for oil and gas field development, filed for liquidation in Singapore following deep financial trouble. A final decision will be taken by mid-January, ONGC said. ONGC is considering using subcontractors to complete the C-26 cluster development project, which is about 90 percent done. Terms and conditions for subcontractors will remain the same as before. Swiber was supposed to provide sub-sea pipelines and carry out platform modifications in this. ONGC has in the past used subcontractors to finish when the contractor left a project midway. Wells have already been drilled in the C-26 cluster and completion will unlock about 2.5 million metric standard cubic meters a day (mmscmd) of natural gas, helping enhance India’s domestic output falling for years. About 60 percent of the project at Daman is complete, where five platforms and associated pipelines were to be built by Swiber. A pipeline replacement project at Bombay High is also stuck. ONGC may issue limited tenders for the completion of these projects. ONGC had earlier attempted to invoke Swiber’s performance bank guarantees but following the Singapore firm’s objection and a judicial intervention, it agreed to use the money to finish the projects.
Source: The Economic Times
India’s oil demand growth will outpace China’s for the third year in a row
January 6, 2017. Platts Analytics has predicted a 7% rise to 4.13 million barrels per day in Indian oil demand in 2017, compared with a 3% rise in Chinese oil demand to 11.50 million barrels per day. Platts expects China and India to boost their imports of liquefied natural gas (LNG) respectively by 28% and 38%. The first OPEC-led global production cut in 15 years underpins an emerging but fragile recovery, with 2017 set to see a huge stock overhang disappear by the third quarter. The oil market will move from over-supply to a more balanced supply-demand situation, according to Platts Analytics.
Source: The Economic Times
Moody’s Investor Service retains rating on all three Indian OMCs
January 6, 2017. Moody’s Investor Service retained its Baa3 rating for all three state-run Indian Oil Marketing Companies (OMCs) — Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp on the basis of continued improvement in their credit metrics. Baa3 rating indicates moderate credit risk. Moreover, OMCs’ earnings have improved as the commissioning of new capacity and higher marketing margins have more than offset weaker refining margins, Moody’s said.
Source: The Economic Times
RIL pumps offer diesel at lower price than PSUs to regain market share
January 4, 2017. Reliance Industries Ltd (RIL) has slashed the price of fuel to snatch back market share lost to state pumps in the days after demonetisation, when the latter accepted old notes for some time and currently offer a discount on digital purchases. Filling stations run by RIL have begun offering diesel to customers at 1 discount to the price offered by pumps run by state companies such as Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp. State-run pumps are already feeling the heat in a little more than a week since RIL’s diesel price discount began. The All India Petroleum Dealers Association will discuss, among other things, ways to neutralise RIL’s move. To be sure, RIL operates just 1,100 filling stations, mostly in Gujarat and some in southern states. But in the business of fuel sales, the slightest discount per litre can effectively wean away customers from a rival pump as the overall gains can be significant due to big volume play. Diesel sales are about three times that of petrol in the country.
Source: The Economic Times
ONGC, Cairn India demand lowering of cess on crude ahead of Union Budget
January 4, 2017. Ahead of the Budget, state-owned oil producer Oil and Natural Gas Corp (ONGC) and private sector Cairn India have asked the government to cut cess on crude oil saying the switchover from fixed to ad valorem rates had turned things from bad to worse. The producers want the government to cut the cess to 8 percent of the price they realise on sale of domestically produced crude oil. In the previous Budget, Finance Minister Arun Jaitley had converted Rs 4,500 per tonne fixed cess on crude oil to 20 percent ad valorem. The Oil Industry (Development) Act, 1974 provides for collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus forms part of cost of production of crude oil. The cess was levied at Rs 60 per tonne in July 1974 and subsequently revised from time to time.
Source: The Economic Times
NATIONAL: GAS
ONGC gets price guarantee from GSPC in $1 bn KG Basin deal
January 10, 2017. Gujarat State Petroleum Corp (GSPC) will buy entire output at a predetermined price from the Krishna-Godavari (KG) Basin gas field that it has agreed to sell to Oil and Natural Gas Corp (ONGC) for $1billion, a key provision that addressed gas pricing concerns of India’s largest crude producer and helped seal the deal. ONGC agreed to acquire the entire 80% participating interest of GSPC along with the operatorship in the Deen Dayal West field where geological challenges have delayed the commercial production by several years while mounting the Gujarat firm’s development cost and overall debt. ONGC said the agreement provides for GSPC buying gas for the field’s lifetime at a price linked to forward prices, which are available for next five years. The forward prices for the fifth year have been taken for the remaining life of the field. The government publishes the maximum price producers can charge for gas from difficult fields such as Deen Dayal West twice a year. If government prices were to slide below the forward prices, GSPC will compensate ONGC for the deficit. Price of gas and the reserves GSPC’s field held were the two prickly issues between the two companies. The government ceiling for the gas price is $5.30 per unit.
Source: The Economic Times
Global companies offer ONGC deepsea drilling rigs for KG gas find
January 5, 2017. As many as 10 international offshore drilling contractors including Transocean Inc have offered best-in-class deepsea drilling rigs to Oil and Natural Gas Corp (ONGC) for its KG-D5 gas field developments. ONGC had floated a tender to charter hire two deepwater drilling rigs and one anchor moored rig for bringing gas in Bay of Bengal block KG-DWN-98/2 or KG-D5, which sits next to Reliance Industries’ flagging KG-D6 fields, to production. ONGC is among the very few explorers around the world who are actually going ahead with the development campaign despite low oil prices. ONGC is investing $5.07 billion for developing Cluster-II discoveries in KG-D5 block to flow natural gas from June 2019 and oil by March 2020. The 7,294.6-sq-km deepsea KG-D5 block has been broadly categorised into Northern Discovery Area (NDA — 3,800.6 sq km) and Southern Discovery Area (SDA — 3,494 sq km). The NDA has 11 oil and gas discoveries while SDA has the nation’s only ultra-deepsea gas find of UD-1. These finds have been clubbed in three groups — Cluster-1, Cluster-II and Cluster-III. Gas discovery in Cluster-I is to be tied up with finds in neighbouring G-4 block for production but this is not being taken up currently because of a dispute with Industries Ltd (RIL) over migration of gas from ONGC blocks. From Cluster-II, a peak oil output of 77,305 barrels per day is envisaged within two years of start of production. Gas output is slated to peak to 16.56 million standard cubic meters per day (mmscmd) by end-2021. Cluster-2A mainly comprises of oil finds of A2, P1, M3, M1 and G-2-2 in NDA, which can produce 77,305 barrels per day (3.86 million tonnes per annum) and 3.81 mmscmd of gas. Cluster-2B, which is made up of four gas finds – R1, U3, U1, and A1 in NDA – envisages a peak output of 12.75 mmscmd of gas. Cluster-III is the UD-1 gas discovery in SDA in ultra- deepsea that poses technological challenges.
Source: The Economic Times
ASSOCHAM plea to revoke notification vis-a-vis input tax credit withdrawal on natural gas by Gujarat govt
January 4, 2017. In the larger interest of industries, ASSOCHAM has urged the Centre to immediately revoke the notification vis-a-vis withdrawal of input tax credit on inter-state sale/branch transfer of natural gas issued by Finance Department of Gujarat government on November 28 last year. Considering that many industries are stuck with long-term supply agreements with PSU distributors of costly regasified liquefied natural gas (RLNG) and, therefore, cannot switch over to cheaper alternate source of energy due to “take or pay” clause in said agreements.
Source: Business Standard
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