A delegation from GIC, led by its managing directors, Kunna Chinniah and Chua Lee Ming, visited Gujarat last month and met Chief Minister Narendra Modi to explore the possibility of investing in GSPC, a top finance department official said.

“Whether the fund raising for the state PSU will be through equity dilution or some other route is still not clear, as talks between GSPC and GIC are still underway and a final decision has not been taken yet,” he said.

The Gujarat government now holds 91.35% equity stake in the company. Government of Singapore Investment Corporation (GIC) is one of the world’s leading sovereign wealth fund, established by the Singapore government.

SBI Capital Markets Ltd and nine other companies had acquired 5% equity stake in GSPC for a cash infusion of over Rs 1,000 crore in December, 2009. Deen Dayal West (DDW) field, in Krishna Godavari (KG) basin, on coast of Andhra Pradesh, is amongst the major assets of the company having production area covering around 17 km.

On conservative estimates, the Director General of Hydrocarbon (DGH) has certified 2 trillion cubic feet (tcf) of gas in GSPC’s Deen Dayal block in KG basin. According to GSPC estimates, for the field development plant of DDW, around $1,801.04 million (Rs 8,464.80 cr) shall be required. Of this, $1,270 million (Rs 5,971.80 cr) shall be the fund requirement by financial year 2013, to start commercial production. The cost of developing DDW has escalated further with an appreciating dollar.

GSPC, had last year tied up for Rs 3,000 crore term-loans through a consortium of 15 banks, led by Bank of Baroda, to finance its Deen Dayal field.

The state-run energy major was to come out with an IPO in June last year, to raise over Rs 3,000 crore but it didn’t not materialise.
Agencies

The two firms intend to complete negotiations and execute fully-termed LNG sales and purchase agreement early next year.

BG Group Chief Executive Sir Frank Chapman said: “This is a landmark agreement for BG Group, establishing long-term LNG sales into one of the world’s largest and fastest growing energy markets. We have been in the Indian gas market for more than 15 years and this agreement brings essential new supplies of natural gas to the country. It adds another important new dimension to the Group’s expanding global LNG business.”

BG Group, formerly known as British Gas, is world leader in natural gas. Active in more than 25 countries, BG Group has a broad portfolio of exploration and production, LNG and transmission and distribution business. GSPC is a Gujarat government company.
Agencies

The order is the second received by L&T from GSPC. Last year, the company had bagged GSPC’s first offshore wellhead platform contract for development of the Deen Dayal West Field in the KG Basin, it added.
Agencies

“Cambay-76H well at Cambay Field near Khambat will be spuded this month using proven horizontal drilling multi-stage fracturing technology of Canada for enhanced output and production,” a top GSPC official said.It is a ‘tight reservoir’ where vertical drilling will not fetch expected production levels, so for the first time we have opted for this unique horizontal drilling process to exploit the reserves, he said.

The exploration and subsequent drilling of the well is likely to take approximately 35 days. A two-month production test will then be conducted, the official said. Cambay Field is a joint venture between GSPC and Australia-based Oilex, where the former holds 55 per cent stake and the latter 45 per cent.

The reserves from the basin are subject to certification, a GSPC official said adding that a US-based international reserve certifying agency, Netherlands Sewell Associates Inc (NSAI) will certify the reserves. The agency is in the process of completing the mandatory Independent Reserves Certification of the well, he said.

Once NSAI certifies reserves, we shall be approaching the management committee comprising of representatives from Directorate General of Hydrocarbons (DGH), Ministry of Oil, Petroleum and Natural Gas (MoPNG), and one representative each of the two consortium partners for final certification of reserves, the official said. Oilex, the field operator has advised that Black Pearl Drilling Services will be the drilling contractor for the onshore well.

The drilling of this well will be a proof of this concept and shall be proving the efficacy of the technology, which can be adopted in ‘tight reservoirs’ for enhanced productions, the official said.

The Cambay Field contract area has considerable oil and gas resources. The field operator intends to further evaluate and exploit these through proven North American tight gas and ’shale gas’ technology, including horizontal drilling and fracture stimulation, the official added.
Agencies

The 350-Mw power plant in Hazira is being set up by the Gujarat State Energy Generation (GSEG), a special purpose vehicle formed by GSPC to generate power in Gujarat. The company operates 156 MW combined cycle power plant near Hazira, which is being further expanded in the first phase by 350 Mw. While GSPC Pipavav Power Company (GPPC), a subsidiary of GSPC, is in the advanced stage of setting up the first 350 MW gas-based power plant at Kovaya village in Rajula taluka of Amreli district.

The power plant is expected to meet the industrial demand for power and improvise local power supply in Saurasthra region of the state. It was scheduled to be commissioned by May 2011, but the gas turbine imported for it from General Electric got damaged in a road accident last year, leading to delay. “The replacement gas turbine for this power plant in Amreli is expected to be dispatched soon from US. And another gas turbine-G9 FA- manufactured in Hyderabad by BHEL for the first time in India is scheduled for delivery in June this year,” Dey said.

In next phase, 350 Mw is proposed to be commissioned by GPCC within next 4-5 months of the commissioning of the first power plant in Amreli, he said
Agencies

Natural gas is the cleanest burning fossil fuel with the lowest CO2 intensity, 45 per cent less than coal and 30 per cent less than oil. It is also highly efficient (produces more output like electric power, mechanical work etc. for the same level of energy input/conversion efficiency). Thus, with natural gas as a powerful tool for reducing the environmental impact of energy use and its high efficiency we understand the strengths of this fuel and have set out in the right direction to build a gas based economy. To meet this objective we have set ourselves an ambitious target for encouraging new gas supplies into the Indian market – domestic, LNG, transnational pipelines, to ensure abundant availability. Connect supply sources to consumers by undertaking to build pipeline transmission and distribution infrastructure across the country and put in place policy & regulation to enable more players to participate in building every aspect of our natural gas market.  

The share of gas in India’s fuel mix at nine per cent lags well behind the world average of 23 per cent and our per capita energy consumption is also the lowest amongst the emerging and developed countries. Besides, the demand for natural gas is expected to grow three fold from ~170  metric million standard cubic meter per day (mmscmd) in 2010 to ~500 mmscmd by 2020. In light of this, 2010 saw a determined effort to bring additional gas to market. Reliance’s KG D6 field significantly increased production in 2010 to ~60 mmscmd from ~40 mmscmd in 2009. This substantially closed the demand, supply gap in 2010.  Coal Bed Methane (CBM) is also expected to augment domestic natural gas supply. In July 2010, the Government signed 7 Production Sharing Contracts (PSC) for CBM blocks  under the fourth round of CBM bidding, with an estimated production potential of 9 mmscmd. The Government also signed 31 production sharing contracts (PSCs) with 20 companies under the New Exploration and Licensing Policy (NELP) eighth round in June 2010.

Liquified NaturalGgas (LNG), which accounts for 20 per cent of gas supply, also saw some developments in 2010. The board of Petronet LNG took the decision to expand capacity of Kochi terminal from 2.5 million tonnnes per anum (mtpa)-10 mmscmd) to 5.00 mtpa (20 mmscmd). The Kochi terminal will commence commercial operations in 2012 – 2013 creating a LNG supply source in Southern India. Petronet LNG also took the decision to build a second LNG jetty at Dahej terminal in 2010. This is expected to be operational by Q1 2013 and will increase handling capacity from 10 mtpa to 12.5 mtpa. It will also allow for berthing of Q-Max and Q-Flex LNG vessels (with a carrying capacity of 260,000 m3 of LNG). We also continue to make strong efforts to source term LNG and are at various stages in our discussions with LNG producing countries for securing term supplies. However, spot LNG imports saw good activity in 2010, with Hazira LNG (Shell, Total JV), BG, GSPC, Petronet LNG and GAIL importing spot cargoes round the year. 

Of the several transnational pipeline opportunities being pursued, like Iran – India, Oman – India, Myanmar – India, Turkmenistan – India etc. The Turkmenistan – Afghanistan – Pakistan – India (TAPI) project saw renewed momentum in 2010. Representatives of the four nations signed the Inter Governmental Agreement and the Gas Pipeline Framework Agreement at Ashgabat, Turkmenistan on Dec. 11th 2010. The two agreements provide the framework for implementation of the TAPI project. TAPI will cover a distance of 1700 km to deliver 40 mmscmd to India at Fazilka, Punjab. If all goes well, Turkmenistan gas could be delivered to India by 2013-14.

Pipeline transmission and distribution infrastructure is the backbone of the natural gas industry. Unlocking demand by connecting supply sources to markets. Transmission infrastructure has grown rapidly in the last 5 years approaching 11,000 km in 2010 with a carrying capacity of 200 mmscmd. In 2010 we set ourselves an ambitious target of doubling the pipeline network to 20,000 km by 2014-15. The national gas grid is expected to have a carrying capacity of 500 mmscmd by 2014-15. While the three major pipeline companies i.e. GAIL, Gujarat State Petronet Ltd. (GSPL), and Reliance Gas Transportation Infrastructure Ltd. (RGTIL) have big plans, 2010 saw some major developments. The GSPL led consortium (with IOCL, HPCL and BPCL) successfully bid for the 1600 km, Mallavaram (AP) to Bhilwara (Rajasthan); the 1670 km, north Mehsana (Gujarat) to Bhatinda (Punjab) and the 740 km, Bhatinda (Punjab) to Jammu (J&K) trunk pipelines. These will have a collective carrying capacity of 85 to 90 mmscmd and are expected to be operational by 2013-14. GAIL with a strong track record of building trunk pipelines commissioned the 610 km Dahej (Gujarat) to Vijaipur (MP) and the 250 km Chainsa (Haryana) to Gurgaon (Haryana) to Jhajjar (Haryana) pipeline, adding 45 mmscmd of additional carrying capacity. �
       �
‘With clean fuel urbanisation, now not an option, but a necessity’ we have identified 200 cities for implementing CGD projects. In 2010, PNGRB invited bids for city gas distribution  (CGD) networks in 16 new geographical areas across eight different states in the third and fourth rounds of bidding. With bids received, we hope to see these networks awarded and under implementation in 2011. �
    �
Successful markets are characterized by a strong and independent regulatory authority. The Petroleum & Natural Gas Regulatory Board (PNGRB) established in October 2007 has played a vital role in developing the natural gas market. It has since, developed and issued codes, regulations, orders and guidelines to foster fair trade and competition, protect consumer interest by specifying market service and retail service obligations, lay down standards and safety norms etc. In 2010, it continued the good work by issuing guidelines for protection of consumer interest in respect of dedicated pipelines for natural gas. Issued regulation for capacity determination of natural gas pipelines.  Amended the principal regulations for determination of pipeline tariff, exclusivity for CGD networks and authorizing entities to lay, build, operate or expand CGD networks. Amongst the orders issued in 2010, the ‘provisional initial unit natural gas pipeline tariff’ for the East – West pipeline of RGTIL and the existing HVJ-GREP-DVPL & DVPL/GREP upgradation pipeline of GAIL was particularly noteworthy.

The regulator was also in the spotlight for its power to authorize any company to lay and build pipelines and city gas projects. With the controversy around notification of section 16 of the PNGRB Act 2006 by the government, it has created uncertainty regarding award of bids received and selected for city gas and pipeline projects. Hopefully, this is resolved in 2011 so that progress in building the much needed gas infrastructure is not impeded.        

Natural gas pricing, which has seen much deliberation, saw a landmark decision in June 2010 to more than double gas price under APM supply, from US $1.80 metric million British thermal unit (mmBtu) to US $4.20 mmBtu. RIL sells gas at this price from KG D6. APM gas which accounts for 30 per cent of the total gas supply in 2010 will now provide better returns to ONGC and OIL, the two PSU’s producing APM gas. Both are now better placed to meet the growing energy needs of the country with additional funds to invest in their E&P activities. 2010 also saw a fair amount of deliberation on uniform gas pricing mooted by the Government through the MoPNG without any firm outcome. This at best can be considered as an interim step to market determined pricing in view of the current and near term maturity of the gas market in India.

Having reviewed our progress in 2010 a sense of optimism is justified. Hence, we approach 2011 with greater enthusiasm to carry forward our collective efforts in building a gas based economy. The year 2011 will no doubt present challenges of its own besides the ones we carry from 2010. But progress on the ground should not, to the extent possible, be compromised on account of deliberations around policy, regulation, pricing, balancing the interest of stakeholders etc. We must remain alert to unconventional supply sources like Shale Gas, Underground Coal Gasification etc. and vigorously develop these. Maintain and refine the good work set in motion through NELP bidding rounds, LNG capacity expansion, transnational pipelines and the efforts of the regulator and policy makers to develop a competitive and integrated market for natural gas in India.      

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Ms. Jain, is a senior director & Mr.  Kumar, Senior Manager are with international consultancy firm Deloitte Touche Tohmatsu India Pvt. Ltd (Deloitte). Views expressed herein are personal views of the author and not that of Deloitte.

The Petroleum and Natural Gas Regulatory Board (PNGRB) has invited Expression of Interest (EoI) for a pipeline from Chennai (in Tamil Nadu) to Nellore (in Andhra Pradesh), according to an advertisement by the Board.

This section is part of the 600-km Kakinada (in Andhra Pradesh) to Chennai pipeline that RIL was authorised to lay to transport natural gas from its eastern offshore KG-D6 fields.

PNGRB has similarly invited bids for a line from Kakinada to Visakhapatnam and Srikakulam in Andhra Pradesh, which form part of RIL’s under-implementation 1,100-km Kakinada to Basudevpur (in Orissa) pipeline.

The Board invited bids even through the question whether the regulator is empowered to give firms the authorisation to lay pipelines is to be decided by the Supreme Court.

PNGRB had previously invited bids for 1,585-km pipeline from Mallavaram on the east coast of Andhra Pradesh to Bhilwara in Rajasthan, 1,680-km line from Mehsana in Gujarat to Bhatinda in Punjab and 740-km Bhatinda to Srinagar via Jammu line.

A consortium led by Gujarat State Petronet Ltd (GSPL) emerged winner in the bids but PNGRB is yet to issue formal authorisation in absence of Court decision on its authority to do so.

Section 16 of the PNGRB Act, which gives the Board the powers to authorise entities to lay pipelines and build city gas distribution networks, was notified only on July 15 this year.

Irrespective of the Section 16, PNGRB had during past three years gone ahead with invitation of bids for city gas projects and pipelines, a move that has been challenged in the Supreme Court.

The Apex Court has posted the matter for hearing in August 2011.  A PNGRB official said RIL has been slow in implementing the two pipelines as well as the 670-km Chennai to Tuticorin pipeline and so the board invited EoI to lay the sections.

RIL on the other hand has written to the PNGRB saying it has already completed acquisition of right-of-user (ROU) for the pipelines and the delay, if any, in the implementation was due to the uncertainty over who the government is going to allocate gas from KG-D6 fields.

The company says it does not have freedom to market the gas and a pipeline will become infructuous if the gas was allocated to regions other than where the line has been laid.

RIL was authorised to lay the two pipelines besides the Kakinada to Bharuch in Gujarat, which is already operational.

PTI

HPCL, Bharat PetroResources Ltd., subsidiary of the  Bharat Petroleum Corporation Ltd. (BPCL), Gujarat State Petroleum Corp (GSPC) and Videocon Industries each have 14 per cent interest in the block. Post divestment, their stakes will reduce to 8.4 per cent each.

Besides, South African energy firm Sasol has 30 per cent interest and Australia’s Oilex Ltd holds the remaining 14 per cent stake in the gas field. Post Apache entry, Sasol and Oilex holdings will be reduced to 18 per cent and 8.4 per cent, respectively.
“Apache, which will take operatorship of the block from Oilex, will bear all of the cost of first exploration well on the block,” he said, adding that HPCL and its partners would not have to bear any expense on drilling or testing of the well.

Rig has been contracted for drilling the first well, which will be spud by early 2011. WA-388-P permit, located on the North West Shelf, contains seven prospects ranging in potential size from 0.3 to 2.8 trillion cubic feet of prospective gas resource.

The block lies north of the Pluto, Wheatstone, Gorgon and North West Shelf fields, offshore Western Australia. Apache has contracted the Stena Clyde drilling rig to drill the first exploration well. The well will target a prospect in the Intra Mungaroo channel zone and is expected to spud in early 2011.

Economic Times

Earlier market was abuzz with IPO plans of GSPC who had even filed a DRHP.  As we have tied up funds, IPO is some time away, said senior GSPC official. “The money raised would be largely used for funding the DeenDayal West field. Development of the field is on track. We have already floated tenders.

A consortium of banks led by Bank of Baroda have arranged for the funds. A senior bank executive said, “GSPC is one of the best-run public sector units owned by the Gujarat government. The company has prudent working standards and its asset base in gas and oil sector is robust. It is very particular about taking debt only to the extent needed for operations and keep check on interest costs.”

The field, in the Krishna Godavari basin, off the east coast, was discovered in June 2005 and awarded to GSPC under the third round of the New Exploration Licensing Policy (NELP).  However official admitted project is slightly delayed and it won’t be completed in the first quarter of FY 13 as estimated earlier.

The Director General of Hydrocarbons (DGH) has certified two tcf (trillion cubic feet) gas reserves in GSPC’s Deendayal blocks in the KG basin. The company had invested around Rs 5,922 crore as of September 30, 2009 (including exploratory costs prior to formulation of the Field Development Programme) in the KG block.
Business Standard