Vol 15, Issue 3 (11 Aug 11)

Petrowatch Information (India) Pvt. Ltd. | World Trade Centre | 83-84 UGF | Delhi - 110 001

Tel: +91 11 2341 4181 | Fax: +91 11 2341 4182 | [email protected]

Volume 15, Issue 3 11 August 2011

News in Brief

Apurva Chandra…BP to Bandra…Shiv Vani rig…Murugappa gas…Champang proposal…Discoverer at ONGC…ONGC gas complex…Sri Lanka visit…North Tapti gas…Sagar Samrat race…Shiv Vani angry…Oilex drilling record

Ministry, Politics & People

1. Reddy welcomes operators with ‘exit’ strategy2. No more ‘freebies’ for oil ministry employees3. Punj in high drama evacuation of Libya rig crews4. Tuff in court battle with GSPC over rig contract5. Invest in gas-based power stations at your peril6. Vijay Mallya owes $141.3m but wants credit7. Welspun worries for Labanyendu Mansingh

Exploration & Production

8. Reliance sublets DD-KG2 to Petronas off Brunei9. DGH summons Hardy to explain PY-3 shutdown10. Another ONGC win for Abu Dhabi-based NPCC11. Surprises in ONGC Mumbai High jack-up tender12. BG and ONGC might ‘pool’ rigs for short-term job13. Mumbai High tender for OBC ‘high resolution’ 3D14. Shiv Vani to enter offshore seismic business

Midstream & Downstream

15. Essar in possible 22-cargo LNG deal with Shell16. Gas in January from two ONGC fields in Andhra17. No more domestic gas allocations for Gujarat18. LNG terminal FEED award from IOC this month19. Mundra to Bhatinda pipeline damaged by ‘leak’20. Adani set to begin gas supplies to Khurja in UP21. Bawana will need 5.8m cm/d by next March

Copyright © 2011 PETROWATCH. All rights reserved

1




2

Unauthorised redistribution of this report, or sections of this report, via e-mail, hard copy, or any other

means, to any person, company, subsidiary, or organisation in India, Europe, the US or elsewhere, who

is not a subscriber, is an infringement of Indian and international copyright. Trade East Ltd, publisher of

PETROWATCH, reserves the right to cancel the subscription without compensation and to initiate legal

action for breach of copyright and damages against the employer of any individual found to have

redistributed PETROWATCH, or sections of PETROWATCH, to anyone that is not a paid subscriber.

News in Brief

Apurva Chandra

Oil ministry joint secretary marketing Apurva Chandra moved to the ministry of human resource development on August 3. For the past two months, Chandra could hardly function in his job given oil minister Jaipal Reddy’s open hostility. “Reddy was not signing any files from Chandra,” we learn. “Over 70 files from Chandra are languishing on Reddy’s desk!” Rumour is rife that Chandra and Reddy fell out over decisions related to domestic gas allocations. Reddy’s earlier unsuccessful plan, we hear,

was to move Chandra to the Department of Personnel and Training (DoPT) in a swap with DoPT joint secretary Rajiv Kapoor. This was followed by a failed attempt to move Chandra to the ministry of micro, small and medium enterprises. Chandra joined the civil service in 1988 from Maharashtra and was appointed in January 2009 as oil ministry joint secretary gas and marketing. Usually, he should have stayed in the post until January 2014. Nobody has replaced him at the oil ministry till date. (Back)

BP to Bandra

BP is shifting its focus to Mumbai from Delhi as it gears up to help Reliance reverse declining D6 gas production and bring on stream ‘satellite’ discoveries at KG-DWN-98/3. This month BP identified a new office in the Bandra Kurla Complex in Mumbai where it will deploy a team of “close to 50”. BP closed its Gurgaon office in May and opened a smaller office in the Gopal Das building in Delhi’s Connaught Place to deal with government matters. Sashi Mukundan, BP’s country manager, will be based in Mumbai.

India’s cabinet approved Reliance’s proposal to let BP ‘farm-in’ to 21 of 23 blocks for $7.2bn on July 22, but written confirmation from oil minister Jaipal Reddy is awaited; so too is completed paperwork transferring 30% of 21 blocks through ‘deeds of assignment’ in the PSCs. Until this is done BP is holding off on any active participation in the day-to-day running of Reliance’s assets but expects formalities to be completed before the December to April good weather window. (Back)

Shiv Vani rig

Delhi-based Shiv Vani has emerged the lowest bidder in an ONGC tender

to hire a 1000-hp rig for three years at its Ahmedabad asset in Gujarat.




3

When ONGC opened price bids on August 1, it discovered Shiv Vani had quoted a day rate of $10,200 for its onland rig against the $11,400 rate quoted by sole competitor John Energy. “Our in-house estimate for this contract was $7500/day,” says an ONGC source. “So we plan to negotiate the rate with Shiv Vani.” If awarded the contract, Shiv Vani must mobilise its rig to Ahmedabad by September 15. ONGC wants the selected contractor to drill five

horizontal wells in the first year under a Schlumberger-supported programme to boost production from the depleting Ahmedabad asset. ONGC and Schlumberger have successfully drilled and completed two horizontal wells in the past year, using rigs hired from John Energy. Ten companies originally bought bid documents for the three-year contract floated on May 25, but only John and Shiv Vani bid. (Back)

Murugappa gas

Chennai-headquartered Murugappa Group needs 200,000 cm/d gas for its steel manufacturing factory at Kakinada in Andhra Pradesh. “We produce 100-tonnes of steel every hour at this factory,” says a company source. “We want to source domestic gas supplies as R-LNG is very expensive and don’t want to use liquid fuels like naphtha, which will be as expensive as R-LNG.” Murugappa has a diverse range of businesses and is involved in everything from producing

fertilisers, pesticides and engineering products to selling insurance. Among its better-known products are the popular Hercules and BSA brand bicycles. Sharing space with its Kakinada steel complex are a sugar refinery and a 35-MW station, for which it is receiving 100,000 cm/d of D6 gas. Of the 35-MW of electricity generated, Murugappa uses 10-MW for its own power needs and sells the rest to the local power grid. “Any gas left over is used to produce steel,” we hear. (Back)

Champang proposal

An unnamed mining company is strangely trying to entice E&P players into assuming the operatorship of the Champang oil and gasfield in Nagaland, abandoned by ONGC about 17 years ago. Take little-known drilling contractor MB Petroleum, a 100% subsidiary of Oman-headquartered Petrogas. Sometime in July, MB Petroleum executives were approached by ‘independent consultants’ acting on behalf of the mysterious Nagaland-based mining company, and reportedly supported by state chief

minister Neiphiu Rio. “Discussions are at a preliminary stage,” says an MB Petroleum source. “But we have little interest in operating Champang because of the threat of militancy in Nagaland, and the difficult terrain.” ONGC discovered Champang in 1970 and drilled 59 wells in total, of which 31 oil wells and two gas wells were put on production in 1981. But the company exited the state in 1994 after its employees received death threats from local militant groups with threats of beheading. (Back)




4

Discoverer at ONGC

ONGC has re-hired Transocean deepwater drillship Discoverer Seven Seas for six months, as predicted by this report. PETROWATCH learns Transocean agreed to ‘extend’ Discoverer’s ONGC contract for another 173 days on July 25. “ONGC must be happy as it is saving money,” says an industry source. Many had expected Transocean to press ONGC for a better rate than the $316,000/day it has been paying for Discoverer since July 2008. But one report suggests ONGC has managed to somehow get itself a

rate of just $290,000/day from Transocean for the extension. ONGC is believed to have issued a Letter of Intent (LoI) to Transocean confirming the extension sometime last week. Discoverer is currently drilling an exploration well at ONGC’s NELP-IV Mahanadi basin block NEC-DWN-2002/2, spud sometime in the last two weeks. “Drilling is progressing smoothly,” confirms a Transocean source. Discoverer was previously working at ONGC’s pre-NELP KG-OS-DW-III block. (Back)

ONGC gas complex

ONGC is considering locations on the south Gujarat and north Maharashtra coast for a proposed new gas processing facility for output from its Tapti-Daman block offshore Mumbai. “We are considering both government and privately-owned land,” we hear. ONGC, he adds, needs about 2100-acres (850-hectares) to set up the proposed complex, which will be similar to its 46m cm/d capacity Hazira gas processing complex near Surat. In July, ONGC hired IL&FS Energy Development Company (IEDC) as its

land survey and scouting consultant. IEDC should submit a land acquisition report by July 2013. ONGC is also investigating the possibility of acquiring land through state-owned development agencies Gujarat Industrial Development Corporation (GIDC) and Maharashtra Industrial Development Corporation (MIDC). Separately, ONGC hired L&T on August 23 to expand its Hazira gas processing capacity to 51.6m cm/d in a Rs370cr ($81.6m) job for completion by July 2012. (Back)

Sri Lanka visit

Indian oil ministry officials could visit Sri Lanka in early September on a mission to secure oil and gas exploration acreage. Vikram Misri, deputy high commissioner in Colombo, wrote to oil ministry joint secretary international cooperation Vivek Kumar on July 22 about a meeting the same day between Indian high commissioner Ashok K. Kantha and Lalith Weeratunga, secretary to the Sri Lankan president. In the meeting Kantha suggested Indian companies could get blocks in Sri Lanka, to which

Weeratunga responded positively. “An Indian delegation from the Petroleum & Natural Gas ministry would be welcome to visit Sri Lanka in late August or early September,” writes Misri. “I would request you to give us two sets of convenient dates in the first fortnight of September for this visit.” OVL is already interested in acquiring exploration blocks C1, C2 and C3, while Cairn India on August 5 spud the first of three wells planned at its block using Chikyu from Japan Drilling Company. (Back)

http://economictimes.indiatimes.com/cairn-india/stocks/companyid-18772.cms




5

North Tapti gas

China Light & Power has set its sights on North Tapti gas as a future source for its 655-MW gas-based power station at Paguthan in the Bharuch district of Gujarat. PETROWATCH learns the Hong Kong-based utility wrote to the oil ministry in July asking for future North Tapti production for the GPEC (Gujarat Paguthan Energy Corporation) plant because of sharply declining supplies from the Cairn-operated Gauri and Lakshmi fields at CB-OS/2, and because of unreliable D6 gas supplies. “North Tapti gas should be

available next year,” confirms a GPEC source, without revealing more. GPEC needs 3.2m cm/d to fire its 655-MW plant and in theory has rights to 4.2m cm/d: around 2.3m cm/d from Lakshmi and Gauri, and 1.3m cm/d from D6, allocated by the government in April 2009. But Cairn’s supplies have trickled to just 126,000 cm/d, while D6 gas supplies are sporadic and unreliable. When production begins, ONGC expects North Tapti production to scale up to 2m cm/d over eight years. (Back)

Sagar Samrat race

Four Indian-led consortia are competing for ONGC’s $185m contract to convert its decommissioned jack-up Sagar Samrat into a Mobile Offshore Production Unit (MOPU). PETROWATCH learns ONGC received bids on August 1 from Larsen & Toubro, bidding in partnership with Singapore’s Global Process Systems; ABG Shipyard with Singapore’s Gas Services; Kochi Shipyard with Malaysia’s Kencana; and Mercator with Abu Dhabi’s Gulf Piping. Sharjah’s Lamprell Shipyard was widely expected to bid, but

stayed away. “Lamprell is very busy with other orders,” we learn. There are also doubts about whether ABG’s partner Gas Services is technically qualified for this assignment. “Judging by the Gas Services website they haven’t worked on a MOPU before,” we are told. “But maybe they simply haven’t updated their website.” Otherwise, all the bidders are said to be equally technically qualified. ONGC wants Sagar Samrat converted by March 2013 for deployment at the WO-16 ‘wellhead platform.’ (Back)

Shiv Vani angry

Delhi-based driller Shiv Vani wants ONGC to re-tender for a semisubmersible that can drill in water depths of 600 metres, as Transocean was the only bidder to respond by the July 25 deadline. PETROWATCH learns Shiv Vani chief Prem Singhee wrote to ONGC director technology and field services UN Bose on August 2, complaining about ONGC’s refusal to extend the

bid submission deadline from July 25 to August 17. Shiv Vani twice requested this extension, on July 20 and July 22. “We explained we couldn’t submit the bid by the scheduled date and time,” writes an angry Singhee. “We needed several certificates from third party inspection agencies.” Shiv-Vani, he adds, had identified “a 2000-feet floater in excellent condition” and




6

would have submitted a “very competitive” bid. ONGC, he laments, has effectively deprived “an Indian company” of the opportunity to bid.

Transocean has offered GSF-135 and GSF-140 to ONGC. Still unclear is if and when ONGC will open price bids. (Back)

Oilex drilling record

Australian operator Oilex claims it set a new industry record last month by drilling India’s ‘longest’ horizontal well. PETROWATCH learns Oilex spud well Cambay 76-H on June 8 at its onland Cambay field where it partners GSPC, using 2000-hp rig Black Pearl hired from Dubai-based Black Pearl Services. This well was drilled to a ‘measured depth’ of 2740 metres to test the Eocene Pay-IV ‘tight gas reservoir’ and was completed on July 31. “Drilling was mostly incident free,” says a company source. “But we did have a

few technical problems with the rig.” Well Cambay 76-H ‘deviates’ at an angle of 90 degrees from the ‘reservoir section,’ which begins at a depth of 1960 metres. Oilex began an eight-stage $16m ‘frakking’ operation at the well on August 2, using 300,000 pounds (136,077-kg) of sand/stage. ‘Frakking’ is likely to take a week after which the well will be cleaned for 10 days, followed by a month of ‘extended production testing.’ Gas production should begin soon after. (Back)

Ministry, Politics & People

1. Reddy welcomes operators with ‘exit’ strategy

Erudite and composed, Jaipal Reddy (left) is not a man to shirk uncomfortable questions. Seven months into his job as India’s new oil minister, the 69-year old cabinet ‘heavy-hitter’ readily admits that the prolonged delay in approving Vedanta’s acquisition of Cairn India has sent a damaging signal to foreign investors. Yet he’s unapologetic. “There were intractable issues

with this deal,” Reddy told London-based PETROWATCH, in an exclusive interview on (Friday) July 29. “But they have been sorted out. I have had meetings with (Cairn Energy chairman) Bill Gammell and (Vedanta chairman) Anil Agarwal and the unmistakable impression I get is they are reconciled to the ‘conditionalities’ (as a pre-requisite to government approval). I am not saying they are happy, but they are reconciled.” Reddy blames a badly drafted and ‘ambiguous’ pre-NELP contract for the deadlock. “In pre-NELP days our government didn’t know any better,” he said. “To be fair to Cairn it was not their PSC, it was Shell’s PSC. Some people got it craftily drafted. In this PSC it is not written royalty should be cost-recoverable. But in the Annexure it is written that royalty should be cost recoverable. Nobody denies the ambiguity, but Cairn and Vedanta wanted the ambiguity construed in their favour.” Reddy stresses that siding with Cairn against ONGC would have been politically impossible. “How can you ask ONGC to pay 100% royalty but take only 30% of the profit?” he asks. “It is a huge sum, more than $500m a year for ‘cess’ and ‘royalty’ together. Who am I to write off such a sum; how would I answer questions in parliament; can I say I want to give a positive signal to foreign investors; would that be a viable argument? We




7

politicians are just ‘birds of passage’. After I am dead and gone CAG (Comptroller and Auditor General) will say Jaipal Reddy did this. I will be held accountable.” NOTE: Reddy urges foreign investors not to be put off by the delayed Cairn-Vedanta deal. “India needs more such deals,” he says. “We are importing 84% of our oil and our vibrant economy can’t afford to depend on imported oil; it’s untenable.” Reddy is also sympathetic to complaints that foreign investors won’t prepare an ‘entry’ strategy for India unless they have in place an ‘exit’ strategy. “These concerns are well-placed,” adds Reddy. “I have done all in my power to facilitate their exit too, of Cairn in particular. Nobody would invest in India unless they are certain they can stage an exit. We have no problem with companies taking their money out.” Yet Reddy warns foreign investors they ignore the domestic political climate at their peril. “If a businessman does business without understanding the political climate he has a missing component in his strategy,” adds Reddy. “Sitting in London you are not feeling the impact of this 2G (telecom) scandal,” he adds. “It is not influencing policy, but it is definitely influencing the response of the system. Bureaucrats, technocrats and politicians are all thinking twice before taking action.” (Back)

2. No more ‘freebies’ for oil ministry employees Long overdue, the oil ministry is cracking down on government employees that routinely use state-owned oil marketing companies as a free taxi and personal valet service. In an unprecedented move, the ministry’s director administration PK Singh issued a circular on July 27 to all ministry employees saying “nobody should use the infrastructure or staff of oil marketing companies.” Not just ministry bureaucrats, but even administrative employees at the ministry are well-known for rampantly treating the employees and cars owned by IndianOil, Hindustan Petroleum and Bharat Petroleum as personal property. “Often one of these companies is asked to provide a car and driver because some ministry official’s wife wants to go shopping,” says a frequent oil ministry visitor. “Or officials use these cars to get their children picked up from school or for weekend family holidays!” A source at a state-owned oil company admits that until now it had little choice but to comply with such absurd demands. “Ministry officials use our facilities free but do us no favours in return,” he says. “But they happily do ‘favours’ for private companies.” Still unclear is what prompted this sudden clampdown by the ministry. But it is believed to have been on the instigation of oil secretary Girish Chaturvedi, known for his modesty. On August 1, Singh released another internal note, bluntly asking ministry employees to, “Please confirm if you are using vehicles provided by oil marketing companies?” All ministry officials have likewise been directed to release any ‘borrowed’ PSU employees. Around 115 such employees are on secondment from IOC, BPCL and HPCL and can be found not doing a great deal in various ministry departments. “Use these employees only if there is good reason,” we hear, “like an acute shortage of staff and only with the permission of the oil secretary.” NOTE: Following the crackdown, nervous ministry officials and administrative employees have reluctantly begun using their own cars to come to work. The ministry’s administration department plans to hold periodic reviews to ensure its July 27 circular is taken seriously. The first review was held on August 5; two more are scheduled on August 16 and August 30. (Back)




8

3. Punj in high drama evacuation of Libya rig crews Punj Lloyd could soon be re-deploying two high-spec onland drilling rigs stranded in the Sahara Desert, caught up in the fighting between rebels and troops loyal to Colonel Muammar Gaddafi. PETROWATCH learns Punj drilling subsidiary Punj Lloyd Upstream, owned by Vikram Walia, is in talks to move the two 1500-hp AC-VFD spec rigs from Libya to an undisclosed country in the Middle East. “A contract is likely within two months,” we hear. “Then the rigs will be moved to the Egyptian border; eastern Libya is not under Gaddafi’s control.” Still on contract to Libyan state-owned Waha, one of the rigs is near the embattled Libyan city of Brega; the other near Gialo in the prolific Sirte basin. “Sand dunes are all around,” we hear. “Special equipment is needed to access the rigs, it is very remote.” Punj declared ‘Force Majeure’ in late February and decided to evacuate its 138-strong Indian crew days before the UN imposed a no-fly zone and bombing began. With the road to Tripoli cut off, it was impossible to return the crew’s passports, making evacuation impossible. To the rescue came R. Swaminathan, India’s ambassador to neighbouring Egypt. “Swaminathan told us to get the crew to the Egyptian border and he would take care of the rest,” Punj tells us. Driving at speeds of 200-km/hr, Libyan rebels escorting the Indian contingent completed an 11-hour journey to the border in just 6 hours! “The fighters were desperate to get back to the front line,” adds Punj. “I called their commander to tell his men to drive more slowly but he said, ‘I am helpless, they need to get back to protect their families.’” At the border, two Indian embassy officials greeted the relieved rig crew with vehicles and 138 freshly issued passports so they could board a specially chartered flight from Cairo to India. NOTE: Punj is conspicuous by its absence from onland rig tenders in India, leading some to conclude it is deliberately avoiding the Indian market. “We are not avoiding the Indian market,” retorts Punj. “The Indian market is avoiding us! We want to offer quality sophisticated equipment which the Indian market won’t take.” Libya’s state-owned Waha pays $30,000/day for Punj’s high-spec rigs, equipped with AC cabins for the rig operator. Hardly surprising it finds the Indian market unattractive where rates typically hover between $18,000 to $20,000/day. “In India the operators make you pay for diesel,” adds Punj. “But in Libya the ($5000/day) diesel cost is provided by the operator.” (Back)

4. Tuff in court battle with GSPC over rig contract Tuff Drilling has taken GSPC to the Gandhinagar District Court for terminating its contract to supply a 3000-hp modular rig for the Deen Dayal development. PETROWATCH learns Delhi-based Tuff also initiated separate arbitration proceedings against GSPC on June 9 for awarding its contract to Houston-based Nabors Drilling. In the last hearing of the Gandhinagar court case on July 26, Tuff’s lawyers asked Judge GK Upadhyaya to block GSPC’s award of the contract to Nabors, at least until arbitration proceedings are concluded. Upadhyaya directed GSPC to produce a copy of its Nabors contract and records of any payments by the next court hearing on August 21. Under scrutiny is why GSPC terminated Tuff’s contract in March this year after forfeiting its ‘performance bond’ of Rs15.54cr ($3.4m) “without consultation.” In the first week of April, GSPC awarded the contract without a fresh tender to second-ranked Nabors. Tuff won this contract in March 2010, quoting about $90,000/day against around $93,000/day by Nabors. Tuff was originally meant to construct, ship, customs-clear, transport, install and commission the rig within 13 months of the date of




9

award. That didn’t happen but Tuff lays the blame on GSPC saying the ‘capping beam’ originally to be provided by well-head platform contractor Larsen & Toubro was suddenly shifted into its scope of work. “Last October, Tuff informed GSPC the capping beam would cost $4.93m but received no confirmation on the terms,” we hear. “The modular rig was to be deployed by Tuff only after the platform was ready and the capping beam installed.” Tuff says GSPC also failed to keep it informed about progress on the construction of the platform, despite being obliged to do so. Tuff claims it on the other hand achieved “significant progress in construction of the rig” and kept GSPC informed. NOTE: L&T was to complete the platform by March 15 this year but completed it only by May 28, claims Tuff. Under GSPC’s contract with Tuff, the modular rig was to be deployed 42 days after L&T installed the platform. “But GSPC forfeited Tuff’s performance bond on February 28 and terminated its contract on March 31,” complains a Tuff supporter, “even though it had not finalised the crucial order for the capping beam, without which the rig cannot be installed on the platform.” Equally damaging is Tuff’s allegation that the contract was awarded to Nabors without a fresh tender. “The original tender process ended way back in May 2010 when Tuff and GSPC signed the contract and the bid bonds of the other bidders were returned,” we hear. “So even if Tuff failed to perform its part of the contract, GSPC should have issued an entirely fresh tender.” Further, Nabors has now been given right until May 2012 to mobilise and deploy the rig. Presiding over the arbitration proceedings are retired Supreme Court of India judge MB Shah appointed by GSPC, retired Gujarat High Court Judge DK Trivedi appointed by Tuff, and retired Supreme Court judge RA Mehta. Calls and text messages to GSPC officials for a comment evoked no response. (Back)

5. Invest in gas-based power stations at your peril Brave Indian entrepreneurs who spent millions of dollars to venture into the gas-fired power generation business are wracked with anxiety over depleting domestic gas supplies. Take independent power producer Panduranga Energy, which is building a 480-MW power station in Andhra Pradesh’s West Godavari district. Panduranga is promoted by one of India’s leading rice processing companies, Sree Murali Mohana Boiled and Raw Rice Mill, based in the state’s East Godavari district. “We have already sunk Rs350cr ($76.8m) into the (110-MW Phase-I) of this power project,” laments a company source. “We need 500,000 cm/d to commission Phase-I by November, but cannot source gas!” Sree Murali, he adds, diversified into power after seeing other Andhra Pradesh-based entrepreneurs like GMR, GVK and Lanco. “All these companies own and operate their own power stations in Andhra Pradesh,” he adds. “They’ve grown rapidly since entering the power business. We were also hoping to grow in the same way by entering the power sector (through Panduranga Energy).” But the company didn’t anticipate declining D6 gas production. “Things were not so grim two years ago when we decided to enter this business,” we hear. “Just last year our power station was recommended for a D6 gas allocation by the Central Electricity Authority (CEA) and the power ministry. But now the oil ministry says it is helpless, as there is no D6 gas available.” Panduranga rules out using R-LNG to fire its power station. “The cost of generating one unit of power using D6 gas at $4.20/mmbtu is Rs1.70 paise ($0.04),” we hear. “R-LNG priced at $18/mmbtu ‘delivered’ will result in a unit power cost of more than Rs5 ($0.11). Nobody will buy power at that price!” Sree Murali is among the largest rice growing and processing companies in India, with 16 varieties sold through six brands.




10

NOTE: D6 gas production is down to 44m cm/d against total contracted supplies of 60m cm/d, so Panduranga Energy can forget about getting a D6 gas allocation for its West Godavari power project anytime soon. With hindsight Panduranga is happy it decided to build the power station in two phases (Phase-I of 110-MW and Phase-II of 370-MW) instead of building the total planned 480-MW station together. Panduranga expects two GE-manufactured gas turbines to reach the power station by the month-end from France. It plans to install the turbines so they are ready for commissioning by November. In total, Panduranga will need 2.5m cm/d to generate 480-MW of electricity, if it chooses to construct Phase-II. “But we thought it better to begin with 110-MW,” he says. “Only if we can arrange gas for station will we go ahead with Phase-II.” Panduranga adds it has secured all mandatory environment ministry clearances for the project. (Back)

6. Vijay Mallya owes $141.3m but wants credit Billionaire liquor baron Vijay Mallya is desperately trying to smooth-talk oil ministry officials into giving him jet fuel on credit for his beleaguered Kingfisher Airlines. PETROWATCH learns flamboyant Mallya, who is also a MP, met then oil ministry joint secretary marketing Apurva Chandra twice on July 29 and once on August 1, seeking help. Mallya was hoping Chandra could convince state-owned Hindustan Petroleum to restore its 15-day credit for jet fuel purchases to Kingfisher, according to a ministry official. This was to avoid a repeat of the sorry situation on July 19 when nearly 10 Kingfisher flights from Delhi and Mumbai were grounded for at least an hour because HPCL refused to supply jet fuel on credit. These flights resumed only after Kingfisher hastily paid in cash. Since July 15, HPCL is accepting only cash payments from Kingfisher. This is hardly surprising: by August 4 the airline owed HPCL a staggering Rs650cr ($141.3m) – more than double its standard credit limit of Rs300cr ($65.3m) for jet fuel purchases. At the August 1 meeting with Chandra, Mallya justified his demand for more credit by pointing out Kingfisher receives payments in its bank account for the sale of airline tickets only once every 15 days. But the ministry isn’t convinced and doesn’t want to interfere in a ‘commercial matter.’ “We have no right to say anything to HPCL,” stresses our ministry source. “Only HPCL can decide whether to give credit to Kingfisher or continue to impose a ‘cash and carry’ system.” Kingfisher, we hear, buys about Rs6cr ($1.3m) worth of jet fuel from HPCL every day. Other state-owned oil marketing companies Bharat Petroleum and IndianOil hardly sell jet fuel to Kingfisher because of frequent payment defaults. IOC stopped regular jet fuel supplies to Kingfisher more than three years ago and now sells to the company only occasionally, provided payment is in cash. NOTE: “For Mallya these inconveniences are only temporary,” quips a source, and former Mallya confidant. “He is working on a secret technology to use beer as fuel. Once he has perfected that, he doesn't have to be at the mercy of these oil PSUs. Kingfisher Blue (beer) is also being tested for use in his Formula One racing cars!” BPCL dragged Kingfisher to court in 2009 over unpaid bills. It won the case and now refuses to supply any fuel to the airline. Kingfisher operates over 375 daily flights to 71 destinations in India and abroad. It carried more than 1m passengers in 2009, giving it the highest market share among airlines in India. It began commercial operations in May 2005 with a fleet of four Airbus aircraft flying between Mumbai and Delhi. In September 2008 it began international operations by connecting Bangalore with London. Mallya himself is

http://en.wikipedia.org/wiki/Airbus_A320_family#A320

http://en.wikipedia.org/wiki/Mumbai

http://en.wikipedia.org/wiki/Delhi

http://en.wikipedia.org/wiki/Bengaluru

http://en.wikipedia.org/wiki/London




11

believed to have a personal net worth of $1.4bn as of March 2011, according to Forbes magazine, which ranks him 879 in its World Billionaires Ranking. Known for his lavish parties frequented by Bollywood starlets, Mallya owns one of the largest private yachts in the world, Indian Empress. Other Mallya assets include the Bangalore-based IPL cricket team Royal Challengers and the Formula 1 ‘Force India’ team. Given all this, many were surprised when Mallya’s personal $44.m cheque to HPCL to pay jet fuel arrears bounced in March! (Back)

7. Welspun worries for Labanyendu Mansingh Few would ever dare question Labanyendu Mansingh’s undoubted integrity, but the Petroleum & Natural Gas Regulatory Board (PNGRB) chairman found himself in an acutely embarrassing position of his own making last week. PETROWATCH learns Mansingh and fellow PNGRB members Sudha Mahalingam and YPC Dangay were hearing a complaint filed by Mumbai-based steel manufacturer Welspun Maxsteel against GAIL at the PNGRB office in Delhi on August 4. Welspun was incensed that GAIL had increased its gas price with backdated effect. But before either side could present its case, GAIL lawyer Rajiv Bansal suddenly rose and asked Mansingh to withdraw himself from hearing the complaint. Taken aback, Mansingh refused, insisting he was ‘competent’ to hear the case. But Bansal persisted. “I don’t want to embarrass you,” he said. “So please withdraw yourself from this case.” Bansal reportedly then handed Mansingh and his colleagues a two-page note alleging, “Your house in Gandhinagar has been leased to Welspun. You have a ‘conflict of interest.’ Therefore, you cannot hear this case.” Mortified, Mansingh quickly rose from his seat and left the room. “Mansingh should not have sat on the bench hearing this case,” says an industry source. “His house has been given on lease to Welspun and it is occupied by the company’s chief operating officer.” When contacted, Mansingh admits he leased his house on Plot number-843, Sector-8C, Gandhinagar, in May 2006, but counters that it was to “another Welspun group company” and not Welspun Maxsteel. “But when GAIL objected,” he confirms, “I immediately withdrew myself from the case to avoid a potential conflict of interest.” Welspun formally filed its complaint against GAIL on May 31 and the three-member bench was set up by Mansingh on July 20 to hear the matter. But now he has to find someone else to take his place. NOTE: Welspun filed a complaint against GAIL at the PNGRB on January 13, following GAIL’s decision to increase the price of subsidised gas from $4.2/mmbtu to $5.25/mmbtu backdated from July 1, 2010. GAIL’s move was in response to an oil ministry order issued on November 24, 2010. Welspun went ahead and paid Rs76cr ($16.7m) to GAIL as ‘arrears’ but then demanded a refund, arguing it had already sold products to customers based on the old gas price and could not recover this amount. At first, the PNGRB’s consumer grievance division dismissed Welspun’s complaint and forwarded the file to Mansingh, with a note saying GAIL had raised its price in response to a price increase by gas producer ONGC. On March 31, Mansingh overruled the decision of the consumer grievance division and directed Welspun to file a formal complaint against GAIL under Chapter-V of the Petroleum & Natural Gas Regulatory Board Act, 2006. Welspun Maxsteel is a part of the Mumbai-based Welspun group, which reported $3bn revenue in 2010. (Back)




12

Exploration & Production

8. Reliance sublets DD-KG2 to Petronas off Brunei By the end of August, Reliance will have no rigs deployed at any of its oil and gas blocks offshore India. PETROWATCH learns Reliance has sub-let Transocean deepwater drillship Dhirubhai Deepwater KG2 (DD-KG2) to Malaysia’s Petronas Carigali Brunei. Petronas is expected to use the rig to drill two wells offshore Brunei. “It is not clear how long this assignment will take,” reports a source. “Nor do we know when the rig will return to Indian waters.” DD-KG2 is currently working at D6, drilling well KG-D6 A-22 in water depths of 740 metres. She reached location A-22 around July 25 and spud the well soon after. Reliance originally planned to drill the well to 2200 metres TD by August 17 so the rig could leave for its Brunei assignment, but ‘technical problems’ at the well are delaying plans. “The drill bit reached 2000 metres around August 3 but the drilling ‘tool’ got stuck,” we are told. “They are trying to retrieve the tool.” DD-KG2 will move out of the A-22 well location after the drilling tool is retrieved and return to her shore base at Kakinada in Andhra Pradesh. She is then expected to move to Singapore for maintenance before leaving for the Brunei assignment. Details of the financial terms between Reliance and Petronas are not known. But we do know Reliance hired DD-KG2 from Transocean in March 2010 for five years at $510,000/day. Contractors are dismayed that DD-KG2 is leaving Indian waters as they were banking on long-term business from Reliance. “Many were already upset about Reliance subletting its two other rigs (Discoverer India, to Chevron; DD-KG1, to ONGC),” we are told. “Nobody expected it to also sublet its third rig.” NOTE: Many are surprised that Reliance has sublet DD-KG2 when both the DGH and the oil ministry are demanding it drill 13 more wells at the D6 block by March 2012, in line with the original Field Development Plan. Ministry and DGH officials believe this is the only way to reverse declining D6 gas production, which is down to 44m cm/d against contracted supplies of 60m cm/d. But Reliance disagrees and wants to drill only four additional wells this fiscal, saying it wants to use the results to decide if it should begin drilling more. Reliance’s refusal to commit an additional 13 wells has led to the DGH blocking its proposed $739.43m D6 work programme and budget for 2011-12. Given that Reliance’s sole rig will be out of Indian waters by the end of this month, fears are growing it won’t even be in a position to drill the four wells it had planned. (Back)

9. DGH summons Hardy to explain PY-3 shutdown PY-3 production offshore Chennai has been ‘shut in’ for nearly two weeks now and there’s no sign of it resuming anytime soon. PETROWATCH learns UK-listed operator Hardy Oil & Gas ceased oil production of 3000 b/d at midnight on July 30. On August 2, concerned DGH director general SK Srivastava summoned representatives from Hardy, including chief executive Yogeshwar Sharma, and a team from consortium partner ONGC to DGH headquarters in Delhi for talks. “Srivastava expressed his unhappiness at the suspension of PY-3 production,” we hear. “He asked Sharma outright if Hardy was unable to operate the field




13

effectively.” Sharma responded that production had to be suspended on July 30 as Chennai-based Aban Offshore had failed to renew its American Bureau of Shipping (ABS) certification for floating production unit Tahara and tanker Endeavour. Srivastava then reportedly asked Sharma to answer the DGH’s queries on the pending Phase-III field development plan for PY-3 and to resume production within a week. Tahara and Endeavour have been deployed at PY-3 uninterrupted since 1997. But on June 29, two government nominees on the block’s management committee (one from the oil ministry and one from the DGH) queried consortium plans to renew Aban’s contract for Tahara and Endeavour for five years without inviting a tender. The MC also blocked the carefully thought-out Phase-III development plan for two new wells. At the next MC meeting on July 29, the Phase-III development plan was again rejected. “Only if the MC had approved the development plan could we have committed to extending Aban’s contract,” explains a source. “Aban was unwilling to extend ABS certification for Tahara and Endeavour without a firm commitment that its contract would be renewed.” But PY-3 partners are unwilling to promise anything unless the Phase-III development plan is approved by the MC. NOTE: Production is unlikely to resume until Aban gets a commitment letter from the PY-3 consortium. “DGH officials have raised queries on the costing and scheduling of the development plan,” we learn. “They want Hardy to rework it.” More, the DGH and the oil ministry are both believed to be unhappy with the “cosy” relationship between Aban and the PY-3 consortium. But operator Hardy (18%), and partners ONGC (40%), Eni-subsidiary HOEC (21%) and Tata Petrodyne (21%) are reluctant to replace Tahara and Endeavour as Aban owns the ‘subsea’ pipelines and other production equipment at the oilfield. “If Tahara and Endeavor are replaced,” we learn, “the consortium will be forced to lay new pipelines or pay hire charges to Aban.” (Back)

10. Another ONGC win for Abu Dhabi-based NPCC Yet again, Abu Dhabi-based National Petroleum Construction Corporation (NPCC) is poised to win a major ONGC offshore EPC assignment. Last December, NPCC won a $227m ONGC tender for the offshore Mumbai B-series platforms and is now expected to win two ONGC tenders to set up platforms and pipelines at the Cluster 7 marginal fields offshore Mumbai, together worth an estimated $470m. NPCC enjoys an advantage over other bidders, explains an industry source, because it is one of the few companies with ‘in-house’ skills and capabilities to deliver both projects. “NPCC has design, installation and production facilities in addition to barges under a single roof,” he says. “So it can exploit economies of scale to quote an aggressive price.” Other companies to submit bids to ONGC on July 5 in its tender to set up five unmanned well platforms at Cluster 7 include L&T; J. Ray McDermott; Essar with Gulf Coast-based Dynamic Industries; Pipavav Defence & Offshore Engineering with Singapore’s Swiber; Hyderabad-based SEW Infrastructure with Malaysia’s Ramunia; and Australia’s Leighton Contractors with Abu Dhabi’s Gulf Piping. Of these, expect NPCC to face stiff competition from L&T if it chooses to deploy its new L&T 3000 barge, which it owns through its JV with Malaysia’s SapuraCrest Petroleum. “But since this is a new barge,” we are told, “it will be expensive to deploy.” NPCC also submitted a bid in mid-July in a related ONGC tender to lay 200-km of interconnecting pipelines at Cluster 7. Other companies to bid were Leighton; Essar with Microperi; L&T with Dolphin Offshore; Hyundai; Swiber; Valentine Maritime; Sairama Engineering Enterprises with fellow Hyderabad-based company Megha Engineering; Mumbai-based




14

Pratibha Industries with Dubai’s Likpin; Great Offshore with Norway’s Cecon; Punj Lloyd with Indonesia’s PT Sempec; and Pipavav Defence. NOTE: Leighton Contractors is NPCC’s main rival for the Cluster 7 pipeline tender. “Leighton too has barges and is hungry for assignments,” we learn. “Besides Leighton, watch out for Valentine Maritime and Swiber.” Neither Hyundai nor J. Ray McDermott bid aggressively for Cluster 7. Few believe the Sairama and Megha team stands any chance, as it has no offshore pipeline experience. Pipavav and Swiber could try to snatch a narrow victory by claiming the 10% price preference which ONGC allows to Indian-led consortia. Pipavav tried this with ONGC’s B-46 platform tender, but ONGC finally awarded the contract to NPCC. Cluster 7 includes marginal fields B-192, WO-24 and B-45. ONGC wants six-slot platforms at each of the following locations: WO-24, B-192-1, B-192-5, and B-192-8. Work to install platforms and pipelines should begin from October 16, 2012. Platforms must be completed by March 31, 2013 and pipelines by April 15, 2013. Cluster 7 is expected to yield 22,000 b/d of oil and 1.57m cm/d of gas over 10 years from 20 wells. (Back)

11. Surprises in ONGC Mumbai High jack-up tender There have been some major surprises in an ONGC tender to re-hire or replace three jack-ups working in the Mumbai High. ONGC wants to hire two Marathon Le Tourneau (MLT) 116C rigs and one ‘slot’ type rig on three year contracts. Many earlier believed Transocean would bid aggressively in both categories with its rig Randolph Yost, sitting idle off India’s west coast. But when ONGC received bids on August 1, it discovered Transocean had bid only in the MLT category and not in the slot category. More, Transocean was the sole bidder in the MLT category, offering FG McClintock and CE Thornton for rehire. Drilling sector sources earlier believed neither of these rigs would qualify in this category as they were believed to be of MLT 53-SC design and not MLT 116C design, as required by ONGC. But an ONGC source tells this report Transocean has ‘upgraded’ both rigs so they do fit for the MLT 116C category. Drillers are also astonished that Transocean chose not to offer Randolph Yost. Less surprising was news that Saipem and Rowan Drilling stayed away in the MLT category. Both were seen as potential strong competitors to Transocean but were also widely expected to prefer assignments in the Middle East, where drilling activity is on the rise and rates are better. In the slot category, Jindal Drilling offered Noble Drilling-owned Noble George McLeod to ONGC for re-hire but faces stiff competition from Aban Offshore which is offering Aban-V. “Aban is certain to have bid aggressively,” comments an industry analyst. “Aban owns this rig which gives it a distinct advantage over Jindal as (rig-owner) Noble Drilling is unlikely to want to go below a certain price.” Aban-V has been sitting idle for the last two months since she came off an ONGC contract, he adds. NOTE: ONGC is expecting price bids of $62,995/day for both categories, based on an April 2010 contract awarded to Jagson Drilling. Expect the winning quote in the slot category to be between $62,000/day and $64,000/day, and certainly no higher than the $67,000/day rate which ONGC recently re-hired each of two Aban rigs – Aban-III and Aban-IV – in April in the ‘cantilever’ category. However, it’s likely to be quite a different story in the MLT 116C category where Transocean is expected to have quoted no less than $74,000/day, similar to what it bid in previous ONGC tenders where it lost to Jagson and Aban. ONGC is now carrying out technical evaluation of the bids and is yet to fix a date to open price




15

bids. Doubts are emerging about whether ONGC will even open Transocean’s price bid in the MLT 116C category where it is the only bidder. It might choose to issue a fresh tender instead. (Back)

12. BG and ONGC might ‘pool’ rigs for short-term job British Gas and Cairn India are learning the hard way that finding rigs for short-term assignments in India can be frustrating. Some suggest the answer is for smaller E&P players to copy BG and consider pooling resources with larger operators like ONGC, which has enough jack-ups on hire on long-term contracts. BG executives were again disappointed when the company received bids in June in its fourth attempt to hire a rig to drill wells at the Panna and Mukta fields offshore Mumbai. BG wants a jack-up by October 15 to drill six wells at the Panna field and another to drill two wells at Mukta, also by October 15. Only one of the rigs offered by bidders met BG’s mobilisation requirements: Ensco offered jack-up Ensco 53 for the Panna assignment, quoting $93,000/day plus mobilisation and demobilisation charges of $12m. BG began negotiating with Ensco but on July 21 learnt from the market that Ensco 53 had won a better rate with Petronas for a 90-day assignment, followed by a year-long assignment with Talisman Energy. For the Mukta assignment, Transocean offered GSF Magellan and Saipem offered Perro Negro 6. Both Transocean and Saipem were meant to confirm the availability of their rigs by July 15. But Saipem could not confirm Perro Negro’s availability and Transocean said GSF Magellan would be available only from November, too late for the October 15 deadline. BG opened price bids anyway in the last week of July to discover GSF Magellan was offered at the high rate of $140,000/day plus mobilisation/demobilisation charges of $16m. Perro Negro 6 was offered at $124,000/day plus mobilisation/demobilisation charges of $10.6m. BG is now talking to ONGC about sub-contracting a rig for Mukta. NOTE: Cairn India is finding it equally tough to hire a rig to drill two development wells, LAR and LBM, at its Lakshmi field at CB-OS/2 in Gujarat. On June 10, Cairn issued a limited tender to 15 pre-qualified drillers to hire a Marathon Le Tourneau 116 C rig for a 74-day drilling campaign at Lakshmi. But just three days later it was forced to inform partners that drillers had declined to bid. “Cairn issued tenders for this assignment twice before in 2010-11 but failed to get a rig on those occasions too,” says an industry source. “It’s looking highly unlikely that it will get a rig for Lakshmi.” Day rates for short-term drilling assignments tend to be very high and the mobilisation/demobilisation charges can be exorbitant, making it attractive for smaller operators to synchronise their drilling plans with a large operator like ONGC, which tends to hire a number of rigs at good rates on three to five year contracts. ONGC could easily insert a clause into its rig contracts, clarifying the rig must be deployed in the eastern or western offshore and earn some good money by subletting the rigs to other domestic operators for short-term assignments. (Back)

13. Mumbai High tender for OBC ‘high resolution’ 3D ONGC wants to shoot ‘high-resolution’ seismic at its producing Mumbai High oil and gasfield so it can reassess the field’s remaining reserves. ONGC announced the eagerly-awaited $120m tender to shoot 1500-sq km 3D using Ocean Bottom Cable (OBC) technology in a tender published on July 22. “This is one of the largest and most eagerly awaited ONGC seismic tenders this year,” says a likely bidder. “It’s going to be a long and complex job because ONGC wants to use the




16

OBC method.” Normally, he explains, seismic survey ships trail ‘streamers’ and pull cables and sensors across a specific area. But the OBC method uses cables and sensors spread along the seabed to get high resolution images of the ‘sub-surface. “Cables and sensors on the seabed can easily get washed away during rough weather,” we learn. “This is what makes OBC so challenging.” It is expected that the selected contractor could take more than two and a half years to complete the high resolution seismic job for ONGC. “At least two seasons are needed for this,” says an industry source. “Another eight months is needed to process and interpret this data so the job will be completed only by the middle of 2013.” ONGC, he adds, is also likely to soon invite bids from companies that can acquire 375-sq km of similar high resolution seismic data at its producing Heera oil and gasfield. Only a few companies worldwide are equipped to carry out such surveys, adds an observer. Among those expected to bid are Paris-headquartered CGGVeritas, Houston-based Geokinetics, Texas-based Global Geophysical, Schlumberger-subsidiary WesternGeco and Norway-based Reservoir Exploration Technology. Interested companies must submit bids by September 23. NOTE: ONGC is holding a pre-bid for this tender on August 26 at its Mumbai headquarters. “Once ONGC receives technical and price bids on September 23,” we learn, “it could take nearly a month to evaluate them.” Discovered in 1974, Mumbai High has produced 428m tonnes of crude oil till date. Average production is 320,000 b/d crude, and 40m cm/d gas from 2000 wells. “ONGC wants to remodel and reassess remaining oil and gas reserves at Mumbai High so it can efficiently implement EOR (Enhanced Oil Recovery) and IOR (Improved Oil Recovery) techniques,” we learn. (Back)

14. Shiv Vani to enter offshore seismic business Rahul Talwar, new head of Shiv Vani’s seismic division, says the company has aggressive plans to expand its onland seismic acquisition business and to enter the offshore seismic market. More, the Delhi-based oilfield services contractor also hopes to improve the quality and efficiency of its current seismic survey operations. “I am ‘revamping’ our entire business to ensure Shiv Vani becomes a top-notch oilfield service contractor with the seismic division leading from the front,” says Talwar. “Our immediate focus is to improve the quality of the 2D and 3D data we shoot and to ensure the timely delivery of data to our clients.” Talwar says his vision for Shiv Vani is to make it a global seismic industry player. “Shiv Vani will enter the offshore seismic industry soon,” we hear. “We plan to do this by partnering established players.” Still unclear is which established players Shiv Vani hopes to partner to enter the offshore seismic business. But it is contemplating a long-term strategic partnership for its onland seismic business with 65-year old Russian seismic contractor Saratoneftgeofizyka, which has significant experience working in CIS countries – the central Asian region of the former Soviet Union. “The idea is to introduce new technology and the best international practice into our business,” we are told. Talwar joined Shiv Vani in June from Petroleum Geo-Services (PGS) where he worked for five years as area business manager, South and East Asia. He was based out of Singapore overseeing the Indian market. Previously he worked with Schlumberger for 13 years and also headed its subsidiary WesternGeco. “I introduced Q-Marine seismic acquisition technology into India when I worked with Schlumberger,” said Talwar. “At PGS, I oversaw the launch of GeoStreamer technology in India.”




17

NOTE: A consortium of Shiv Vani and Saratoneftgeofizyka is believed to have bid aggressively in an estimated $30m tender to shoot and process 1517-sq km of 3D at Oil India’s (60%) Rajasthan onland block RJ-ONN-2005/2, which it shares with BSE-listed HOEC (20%) and HPCL-Mittal Energy (20%). Oil India wants the selected contractor to shoot this 3D with ‘Vibroseis’ technology, which involves using a vehicle larger than a bulldozer fitted with a mechanical hammer which creates vibrations so strong it has the potential to damage nearby crops or buildings. Shiv Vani, we hear, might have to spend nearly Rs40cr ($8.8m) on equipping itself for such a Vibroseis job. (Back)

Midstream & Downstream

15. Essar in possible 22-cargo LNG deal with Shell Essar is rumoured to be talking to Shell about signing a 22 cargo short-term LNG import deal. PETROWATCH learns Essar is expected to sign the deal with Shell sometime this month for 12 ‘firm’ LNG cargoes and 10 ‘optional’ cargoes to be imported at the Hazira LNG terminal in Gujarat. “One cargo a month is expected to land at Hazira for Essar over 22 months beginning this October,” reports an industry source. Essar, he explains, is being forced to think of using R-LNG to plug the gap resulting from severe restrictions on D6 gas supplies to its Hazira steel mill complex for the past 90 days. Still unclear is how much Essar will pay for the LNG but Shell is expected to source the cargoes from its own gas liquefaction facilities around the world, as well as those of junior partner Total. When contacted by this report, a Hazira LNG source unsurprisingly denied any such emerging development. “The LNG market is very dull at the moment,” he quipped. “There's nothing to report. Why don’t you write about the good rainfall in Ahmedabad instead?” Yet well-placed industry sources insist a deal between Essar and Shell is imminent. In April, the oil ministry directed Reliance to curb D6 gas supplies to steel producers like Essar, in light of declining production from the D6 block. In its notice the ministry said steel producers are not among government-designated ‘priority’ sector customers for D6 gas, unlike fertiliser factories or power producers. Essar has signed contracts with Reliance for up to 3.2m cm/d of D6 gas for its Hazira steel mill complex, but is receiving around 600,000 cm/d. Until last year Essar Steel was buying R-LNG from Shell. But today, Essar receives R-LNG from GSPC (1.9m cm/d); IndianOil (1.12m cm/d); GAIL (1m cm/d) and BPCL (400,000 cm/d); and 700,000 cm/d domestic subsidised gas from GAIL. NOTE: Essar filed a case against the government and Reliance in the Delhi High Court on May 25, challenging the cut in its D6 gas supplies. In July, Essar vice-president (corporate affairs) Vaidyanathan Ramchandran told the court his company is losing Rs3cr/day ($2m) because of the D6 gas supply cut. The next hearing is scheduled for August 17. Essar’s steel mill complex has a 5m t/y ‘sponge iron’ plant; a 4.6m t/y ‘hot rolled coils’ facility; a 1.5m t/y ‘plate facility’; a 600,000 t/y ‘pipe mill’ and a 1.4m t/y ‘cold rolling’ mill. Separately, Petronet-LNG landed a 134,272-cubic metre spot LNG cargo at its Dahej LNG terminal in Gujarat on July 25. This cargo arrived at Dahej aboard 138,000-cubic metre capacity LNG tanker Iberica Knutsen, flying the Norwegian flag, and owned and operated by Norway’s Knutsen OAS Shipping. Iberica was loaded with this cargo at the Nigeria LNG liquefaction facility at Bonny Island in Nigeria on July 6 before




18

leaving for India on July 7. Petronet-LNG bought this cargo from Spanish company Gas Natural which in turn sourced it from Nigeria LNG. (Back)

16. Gas in January from two ONGC fields in Andhra Factories and industries in Andhra Pradesh will soon be asked to apply for gas from two ONGC marginal fields. PETROWATCH learns outgoing joint secretary marketing Apurva Chandra held a meeting in July with ONGC and GAIL to discuss the ONGC-operated Kammapalem (near Nellore) and Vyagreshwaram (near Rajahmundry) marginal fields, where commercial quantities of gas will become available from January next year. During the meeting, ONGC told Chandra the Vyagreshwaram and Kammapalem fields have already started producing gas. Chandra directed GAIL to connect both fields to its local pipeline grid in time for commercial production in January. During the meeting, GAIL said it would start laying pipelines after monsoon rains, once it has made an investment decision. Chandra directed GAIL to use the monsoon period for pre-project activities to ensure early work completion. Vyagreshwaram is currently producing 50,000 cm/d, all of it flared. With expected peak production of 120,000 cm/d, Vyagreshwaram has already been connected to ONGC’s Early Production System (EPS) at Mandapeta (West) but Mandapeta (West) is not yet connected to the GAIL pipeline 2.5-km away. ONGC has drilled one well at Vyagreshwaram, which holds estimated ‘in place’ reserves of 142.8m, and is planning to drill two more. At Kammapalem, ONGC is installing an EPS from where 50,000 cm/d gas will be delivered to GAIL’s pipeline grid 3-km away. With estimated gas ‘in-place’ of 518m cubic metres, peak production at Kammapalem will be around 110,000 cm/d, believes ONGC. Anyone lucky to be nominated for this gas can expect to pay $4.75/mmbtu, but selection will be in line with the Gas Utilisation Policy that favours ‘priority’ power and fertiliser companies over ‘non-priority’ sectors. But if production is less than 50,000 cm/d, the Gas Utilisation Policy does not apply and the gas can be allocated by the ministry to any customer.

NOTE: ONGC has a third marginal field near Rajahmundry called Malleswaram, where it is flaring 5000 cm/d gas from one well. ONGC plans to drill five more wells within the next three years to boost production. An EPS has been set up at Malleswaram but it is located around 10-km from GAIL’s pipeline network. During the ministry meeting, ONGC said Malleswaram gas could be supplied to mitigate a severe shortfall faced by customers in Lingala-Kaikalur region. But GAIL said present gas production would not make a pipeline commercially viable. (Back)

17. No more domestic gas allocations for Gujarat Two upcoming gas-fired power projects in Gujarat will have no alternative but to use expensive R-LNG as fuel. PETROWATCH understands that oil minister Jaipal Reddy wrote to Gujarat chief minister Narendra Modi in July saying there’s not enough domestic gas available for any further gas allocations to Gujarat’s power sector. Reddy was responding to a letter he received in May from Modi requesting D6 gas to commission the first 351-MW unit of GSPC’s proposed 2100-MW Pipavav power project, built in partnership with Mumbai-based Swan Energy; and a proposed 195-MW expansion to the 156-MW Hazira power project promoted by GSPC sister company Gujarat State Energy Generation (GSEG). This Hazira expansion is expected to be commissioned by September, while the Pipavav 351-MW unit is expected to be commissioned next year. Gujarat already gets more domestic gas for its gas-fired power stations than any other Indian state, nearly




19

13.8m cm/d. But Modi loves to blame Delhi for not allocating enough domestic gas to Gujarat, which has the fastest growing economy in the country. Gujarat’s total installed electricity generation capacity is an impressive 13,354-MW, of which 31% is gas-fired. Another 3000-MW of electricity generation capacity should be commissioned by March 31, 2012, of which a third will be gas-fired power. In India at large, the gas supply forecast for power stations is looking grim. On July 8, the oil ministry called a meeting to get a better understanding of gas demand in the power sector, attended by representatives from ONGC, GAIL, IndianOil, Petronet-LNG, GSPC, and Shell. Ministry officials wanted details of current R-LNG supplies to different sectors, in addition to details of plans to expand re-gassification capacity at domestic LNG terminals. This information was then forwarded to the Prime Minister’s Office (PMO) for review. NOTE: In the first week of August, the average daily availability of gas in India across all sectors was 166.17m cm/d. ONGC emerged as the largest gas supplier, accounting for 50.78m cm/d, while Reliance ranked second with 47.17m cm/d. Next was imported R-LNG, which accounted for 46.33m cm/d. The Panna, Mukta and Tapti fields offshore Mumbai supplied another 11.87m cm/d, while Oil India supplied 6.63m cm/d. Other smaller producers supplied 3.39m cm/d. Of the gas available, the power sector took 61.41m cm/d. Not counting R-LNG, the power sector across India receives 56m cm/d of domestic gas. (Back)

18. LNG terminal FEED award from IOC this month State-owned companies are jokingly said to cut red tape lengthwise. But companies competing for a contract to prepare the Front End Engineering and Design (FEED) for IndianOil’s proposed Ennore LNG terminal in Tamil Nadu have few complaints. “IOC is moving really fast on this project,” said a contractor on August 4. By July 29, he said, IOC representatives had personally met four of the contract bidders. “They plan to meet the remaining four for technical clarification sometime this week,” he adds. On July 6, a raft of companies including Sofregaz, Foster Wheeler, Engineers India, Black and Veatch, Tractebel, Whessoe, Technip and WorleyParsons submitted technical and price bids in IOC’s tender for the Ennore LNG terminal FEED contract. “This week we are expecting IOC to issue an ‘addendum’ to the tender after incorporating the changes to technical parameters discussed with bidders,” we hear. “They want to receive ‘revised’ price bids by August 20; these will either be opened on the same day or within one week of submission.” A senior company source adds IOC plans to award the FEED contract for the 5m t/y LNG terminal project before the end of August. Yet one bidder isn’t convinced. “It will be nice if it actually happens,” he says, sarcastically. “IOC is being a bit ambitious in saying it can award the FEED this month.” Even if IOC does award the FEED this month, our source points out it has yet to appoint a Project Management Consultant (PMC) for Ennore. Worse, IOC’s board hasn’t even approved plans to set up this LNG terminal. Yet that hasn’t stopped IOC’s gas division from setting aside around Rs130cr ($28m) for pre-project activities like preparing a FEED, scouting to source gas, and appointing a PMC. “We will take a Final Investment Decision on building the Ennore terminal only after the FEED is prepared,” confirms IOC. NOTE: Even If IOC hires a contractor this month, the FEED report can be ready only by April 2012,” we hear. “It could take another eight months before the project is approved by the company board and then at least another 36 months to construct a terminal this size.” So don’t expect the proposed Ennore LNG




20

project to be ready for commissioning before the end of 2015. Yet IOC says it has already begun talking to potential customers in and around Tamil Nadu for R-LNG from Ennore and has signed Heads of Agreement to sell 3m t/y R-LNG of the terminal’s total 5m t/y capacity. “HoAs have been signed with fertiliser companies and power generation companies,” adds our source without sharing details. IOC also believes its own twin refineries in Tamil Nadu, one at Manali town in the Thiruvallur district and the other at Nagapattinam on the east coast, could consume up to 3m cm/d of R-LNG from Ennore. These refineries together have a capacity to process 10.5m t/y crude oil and are managed by IOC subsidiary Chennai Petroleum Corporation. Separately, IOC has yet to decide whether it will award just one major EPC contract to set up the Ennore terminal or if it will split the contract into three parts: LNG storage tanks, regasification terminal, and ‘marine’ facilities. (Back)

19. Mundra to Bhatinda pipeline damaged by ‘leak’ Hindustan Mittal Energy (HMEL) has dismissed reports of a ‘leak’ in its 1024-km pipeline to transport crude from Mundra port in Gujarat to its upcoming Bhatinda refinery in Punjab. A well-placed source reports that a section of the Mundra to Bhatinda pipeline sprung a leak on July 30 during ‘commissioning trials’. Still unclear is whether it was crude oil or water that leaked. But the incident is believed to have happened on the 544-km stretch of pipeline laid by Kazakhstan-headquartered KazStroyService, somewhere near ‘valve station’ SV-23 in Punjab. Hindustan Mittal Energy (HMEL), a joint venture between Hindustan Petroleum and steel tycoon Lakshmi Mittal, hired KazStroyService to lay this stretch of the pipeline to its 9m t/y Bhatinda refinery in February 2009. Mumbai-headquartered Kalpa-Taru was hired to lay the remaining 480-km stretch. Both companies were meant to complete the job within 17 months of the contract award, and were given one additional month to commission the pipeline. So the entire pipeline should have been commissioned by August 2010. “But KazStroyService only completed ‘hydro-testing’ and handed over its stretch of the pipeline for commissioning trials to HMEL this February,” says a source close to KazStroyService. “KazStroy’s employees are working with HMEL at the site to oversee the commissioning trials.” Our source confirms there has been a leak in the pipeline at SV-23 and says KazStroy has isolated the damaged pipeline stretch for repairs. “Repair work can be completed in a week or ten days,” we learn. “It will not delay the commissioning schedule of the pipeline by much.” KazStroy believes local villagers who were trying to steal crude oil supplies are to blame for damaging the pipeline. “It is not KazStroy’s fault,” we are told. “It’s a case of pilferage.” When contacted, a defensive HMEL spokeswoman denied any leak. “Your information is false,” she said. NOTE: Accusations about the alleged leak are flying thick and fast. A rival pipeline laying contractor claims KazStroy failed to properly check its welding work during a ‘radiography’ survey. “A welding joint in the pipeline cracked,” alleges this source. “It is the fault of the welder.” Another industry source believes repairing the “damage” at the pipeline could take at least a month. “An entire section of the pipeline must be removed and welded again,” we hear. “Then it has to be hydro-tested before it is re-buried.” KazStroy and Kalpa-Taru blame local farmers and HMEL for the delay in laying and commissioning. “Villagers held up our work and land acquisition was a major hurdle,” says a Kalpa-Taru source. “But we successfully completed commissioning trials on our stretch (running from Mundra in Gujarat to Jalor in Rajasthan, with nearly 15




21

valve stations).” KazStroy, on the other hand, blames HMEL for the delays at its pipeline stretch running from Jalor to the Bhatinda refinery, with nearly 14 valve stations. KazStroy says HMEL delayed work on the pipeline because construction at its own Bhatinda refinery was behind schedule. But HMEL denies this. “We are on schedule for both the pipeline and refinery,” asserts HMEL. "Bhatinda will be commissioned this year.” (Back)

20. Adani set to begin gas supplies to Khurja in UP Pottery and ceramics manufacturers in Khurja will be happy that old rivals Adani Gas and GAIL have resolved their long turf war over this Uttar Pradesh industrial hub where chimneys dot the skyline. PETROWATCH learns Adani is expected to begin piped gas supplies to local businesses within the next two months. Located just 85-km from Delhi, Khurja is often described as ‘Ceramics City’ because of its 500 pottery and ceramics manufacturers. Many of these businesses have waited anxiously for gas supplies to fire their kilns ever since 2006-07 when Adani laid an 8-inch diameter, 20-km gas pipeline to connect Khurja to a ‘tap-off’ point on a nearby GAIL pipeline. But GAIL stubbornly and inexplicably refused to grant gas pipeline connectivity to Adani for nearly four years. “Adani made repeated attempts to secure gas pipeline connectivity from GAIL,” says an industry source. “But GAIL wasn’t ready to listen.” Thankfully, he adds, GAIL reversed its stance a few months ago. “GAIL has accepted the inevitable that Adani is here to stay in Khurja,” we learn. In the next few days, Adani is expected to complete physical work to connect its pipeline to GAIL’s tap-off point and to install a ‘metering skid’ to measure gas quantities. After this, GAIL and Adani must sign a Gas Transportation Agreement. Given Khurja’s small population of around 100,000, Adani does not expect large business volumes. Most of Khurja’s ceramics and pottery manufacturers use inexpensive and polluting coal as fuel. But Adani expects about 100 diesel-fired pottery and ceramics factories to switch to gas. “Many of these businesses are very small,” explains Adani. “If they get gas (cheaper than diesel) they could grow rapidly.” Adani expects initial gas sales in Khurja to be around 50,000 cm/d, rising to 250,000 cm/d in three years. NOTE: Between 2006 and 2009, Adani invested Rs40cr ($8.8m) to lay an 8-inch diameter, 30-km steel pipeline encircling Khurja, and another 30-km of plastic pipeline to supply gas to businesses in the city centre. Adani plans to supply R-LNG to Khurja, as it does in Ahmedabad and Vadodara in Gujarat and Faridabad in Haryana. “For Khurja, we’ll use surplus gas contracted for Faridabad from GAIL.” Adani received a No Objection Certificate (NOC) from Uttar Pradesh state authorities back in November 2005 for Khurja. This NOC was renewed in February 2008 by the UP State Industrial Development Corporation. (Back)

21. Bawana will need 5.8m cm/d by next March Thanks to the Prime Minister’s Office, Pragati Power’s gas-fired Bawana power station in northwest Delhi will begin generating around 750-MW of electricity next month. PETROWATCH learns TKA Nair, then principal secretary to Prime Minister Manmohan Singh, intervened to ensure Bawana gets the full 2.4m cm/d of gas it needs to generate 750-MW. On July 17, Nair chaired a meeting at his Delhi office to review gas supplies to Delhi-based power stations, and Bawana in particular. Nair argued no coal-fired thermal power station should be allowed in the Delhi region because of strict anti-pollution rules set by the local pollution control board. “The only other option is a gas-fired power station,” Nair told a team of




22

assembled power ministry officials. “Hence, it is imperative to allocate gas to the (Bawana) power station in Delhi as a ‘special case.’” Barely a fortnight later, on July 27, power ministry director (thermal) Alok Kumar wrote to the influential Central Electricity Authority (CEA), asking it to “explore the possibility of sparing 850,000 cm/d of gas for Bawana by re-allocating (subsidised) gas previously allocated to the power sector.” As for the remaining 1.55m cm/d needed at Bawana, this is likely to come from ONGC’s western offshore C-Series and Bandra formation marginal fields in line with an oil ministry assurance made to the power ministry more than two months ago. “We sought the Prime Minister’s help,” confirms a senior Pragati Power source. “It was Manmohan Singh himself who laid the foundation stone of the Bawana station (on March 24, 2008).” Another 750-MW capacity is expected to be added to the Bawana power station by March 2012. When that happens, Bawana’s total electricity generation capacity will be 1500-MW, needing 5.8m cm/d in total. NOTE: Bawana’s power station was meant to be ready in time to power the 2010 Commonwealth Games in Delhi. But the first 225-MW unit was commissioned only on October 11, 2010, just days before the Games closing ceremony on October 14, 2010, using up to 700,000 cm/d of gas from GAIL. Bawana will eventually receive 6m cm/d R-LNG from Dahej under a contract signed in October 2006. (Back) Trade East Ltd, publisher of PETROWATCH has made every effort to check and verify that the

information contained in this report is accurate at the time of inclusion. However, we shall not be liable

to any individual or entity with respect to any damage or loss caused, directly, indirectly, especially or

consequentially, by what is included or not included in this fortnightly publication. Any decision taken

based on information from this report is the sole responsibility of the reader and his/her employer.

Vol 15, Issue 3 (11 Aug 11)

Documents

Transcript of Vol 15, Issue 3 (11 Aug 11)