[OIL PRICES] The Oil price profiteering to be curbed at ICE Futures Europe and New York Mercantile Exchange

Two of the world's largest energy exchanges have forced traders to deposit significantly more money when investing to curb volatility in energy markets and drive out speculators.

The exchanges and related clearing houses have found themselves at the centre of the growing storm over claims that speculators have been behind the recent rise in oil prices to record levels.

The New York Mercantile Exchange (Nymex) and ICE Futures Europe in London, the former International Petroleum Exchange, have now tripled "margin calls" for some contracts.

They hope the increased margin calls will reduce volatility and force out some of the more speculative players. Nymex has announced a threefold increase in margin calls for long-dated Brent crude futures in New York. As a result margin calls on some contracts will jump from $100 to $300 for clearing members.

On more popular contracts, such as Brent for one-month delivery, the margin call will rise by 12.5pc to $450 for clearing members.

For investors with sizeable positions, the increase could mean the difference between a profit and a loss and appears to have already forced some speculative traders to close their positions.

The move, introduced by ICE earlier in the week and followed by Nymex yesterday, has coincided with a fall in the price of oil by around $7 a barrel from last week's record high of more than $135. In London yesterday, a barrel of Brent crude for July delivery was up 88 cents at $127.77 in late trading. In New York, a barrel of sweet crude was up $1.34 at $127.96.

Rob Laughlin, senior energy broker for MF Global in London, said that, as a result of the increases, many "smaller speculators have finally taken their money and run". However, Walter Lukken, acting chairman of the US Commodities Futures Trading Commission, yesterday dismissed the idea that raising margin calls would help long- term, saying it would just force speculators to go elsewhere.

A spokesman for New York Mercantile Exchange would not explain why the margin calls had been raised, except to say that the calls are based on a formula linked to volume and volatility and are assessed on a daily basis.

The ICE in London, where the contracts are cleared by LCH. Clearnet, has also increased margin calls - for a "lot" of Brent crude, for example, the initial margin call has risen by a third to $10,000.

LCH.Clearnet said the margin call was raised because of "a change in the nature of the volatility across the oil curves".Lehman Bros' chief energy economist Edward Morse blamed the spike in oil prices on Wall Street analysts repeatedly raising their forecasts. The investment bank described the price rise as a repeat of the dotcom bubble of the late 1990s.

In a research note, entitled "Oil dotcom", Mr Morse and Lehman's fixed income and commodities research team argue that the ratcheting up of forecasts for oil is partly to blame for the recent increase.

"Fundamental changes cannot explain sudden, severe price or curve movements," wrote Mr Morse. "As in the dotcom period, when "new economy" stocks became popular, a growing number of Wall Street analysts have been repeatedly raising their forecasts as oil prices have risen."

Source: The Telegraph|By James Quinn

[INDIA] Auto fuel prices to go up from Saturday

The prices of auto fuels are likely to go up from Saturday. The government is understood to have taken an in-principle decision to increase the prices of petrol and diesel, even as the policy managers are debating a cut in customs duty on both crude and petroleum products. A reduction in duties — customs or excise — would soften the impact of the price hike on the consumer, as both the levies built into the retail price.

Government sources said the key members of the Cabinet, who met on Friday afternoon, proposed that petrol prices be increased by a maximum of Rs 5 per litre and diesel by Rs 2. Cooking gas, whose prices have been kept unchanged for about four years, may be tinkered with if there is a political consensus.

They have also suggested a cut in customs duty on crude oil from 5% to 2.5% and a reduction in import duty on petrol and diesel by 2.5% from the current 7.5%. Since customs duty is included in the import/trade parity prices on which the retail price is fixed, a duty cut will bring down the retail prices, while a reduction in import duty on petro products will help oil refiners a relief of nearly Re 1 per litre, sources said.

It was learnt that the finance ministry is unwilling to reduce excise duty, although a minor adjustment is not ruled out, given the political pressures. Finance minister P Chidambaram had removed the 6% ad-valorem component from the excise duty in the Budget to forgo any windfall gains due to surging crude prices. Excise duty on petrol has been made specific at Rs 14.35 litre (from 6% + Rs 13/litre earlier) and diesel at Rs 4.60 per litre (from 6% + Rs 3.25/litre).

The group has also made some other proposals like imposing duty on exports of petroleum products by private refiners like Reliance Industries and Essar and revisiting their export-oriented unit status considering the fuel crisis. Petroleum ministry is understood to have turned down the proposals, pressed mainly by the Left allies.

But sources in government said that such proposals could be considered at the political level even against the wishes of the oil ministry. The sources said the twin proposals of a price hike and duty rejig are no longer in the hands of either petroleum minister Murli Deora or finance minister P Chidambaram.

The core group of the Congress party is expected to deliberate the various options on Saturday and a final decision would be taken in the Cabinet meeting on the same day. They said even the Congress Working Group could discuss the proposals informally before a final announcement is made.

Source: Indian Economic Times

[EUROPE] Golar loss cites new LNG economics

A weak market for carriers of liquefied natural gas was cited along with interest rates for a Golar LNG net loss of $15.7 million for the first quarter of 2008, down from a $54.3 million gain a year ago.

Revenues for the quarter, at $58.8 million, were a quarter of the levels from the year-ago span. Day rates for carriers were down some $500 to $53,068 over late 2007 figures. Interest-rate and other “financial instrument” mechanisms were blamed for a some $20 million in clipped earnings.

The company in June will sell the Golar Frost to the Livorno LNG joint-venture and, with two vessels slated to become floating LNG plants, exposure to falling rates will be cut, a statement said.

Meanwhile, the Golar board has decided to start right away on the conversion of the carrier Hilli into a floating LNG plant on “speculation”. The market for floating production is still said to be good.

Source: Scandinavian Oil & Gas

[OPEC] Indonesia quits Organization of Petroleum Exporting Countries

Declining oil reserves and investment have forced Indonesia to quit the Organization of Petroleum Exporting Countries even as other members cash in on soaring global prices, the energy minister said Wednesday. Susilo Bambang Yudhoyono, said Southeast Asia's only Organization of Petroleum Exporting Countries member no longer belonged among exporting heavyweights like Saudi Arabia, Venezuela and Kuwait.

"Indonesia is pulling out of OPEC," he told reporters, days after his government slashed fuel subsidies that have long protected the poor, forcing prices at the pump to jump by nearly 30 percent. "We are not happy with the high oil price."

Indonesia is the region's largest oil producer, but the nation of 235 million people has had to import for years because of aging wells and disappointing exploration efforts. A weak legal system and red tape has scared foreign investors away, even as consumption rises.

Purnomo said the decision to leave Organization of Petroleum Exporting Countries was made by the Cabinet of President Susilo Bambang Yudhoyono, who said earlier this month the country needed to concentrate on increasing domestic production.

Indonesia, which was among the first to join after Organization of Petroleum Exporting Countries was founded in 1960, will remain a member until the end of the year. It will leave open the option of returning if it can build up a surplus. But right now, the energy minister said, we "are a consuming country."

The nation's oil production of roughly a million barrels a day is at its lowest level in 30 years.

Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said pulling out of Organization of Petroleum Exporting Countries will save Jakarta the $3.1 million annual fee, but cost it some prestige on the international scene.

"I don't see any substantive loss, other than on the prestige," he said. "They have been an oil importer ... they really have not had much influence within the OPEC organization."

Former Organization of Petroleum Exporting Countries Secretary General Subroto, who like many Indonesians goes by only one name, said giving up the seat on the 13-member body would strip the country of its ability to influence global oil prices during times of crisis.

"If we remain in Organization of Petroleum Exporting Countries there is some obligation from other members, if problems arise, to assist us," he said, adding that in his mind there was "no benefit" to leaving.

Indonesia, which has heavily subsidized fuel for decades, was facing a deficit with global oil prices now hovering at around US$130 a barrel. Its 2008 budget was drafted using an average price of US$85 a barrel for the whole year — a figure later revised to US$95.

The government began reducing fuel subsidies in 2000, but still spends billions of dollars to help consumers cover the costs of gasoline, diesel, and kerosene, which is used by low-income families for cooking.

Even after last week's hike, the rich and poor alike still pay just US$2.80 for a gallon of gas.

Purnomo said the long-term policy was to eliminate subsidies altogether, because they undermine market forces and encourage smuggling to other countries. But he said another increase was not expected this year.

Last week's subsidy cut triggered small but rowdy protests by students and workers, but was hailed by economists who said Susilo Bambang Yudhoyono, had taken the biggest step he could without threatening economic growth.

Others argued that with the government still subsidizing 57 percent of retail transport and cooking fuels, it did not go far enough.

Indonesia joined Organization of Petroleum Exporting Countries two years after it was founded. An oil boycott by Arab members of the cartel against Western countries in 1973 was responsible for sparking an oil crisis, which quadrupled world crude prices to previously unknown levels.

Source: Associated Press|By ANTHONY DEUTSCH

[ENERGY STOCKS] ExxonMobil shareholders meet

Energy stocks dipped on Wednesday as oil prices cooled off, with petroleum and natural gas shares extending losses for the second straight day this week.

The Amex Oil Index (XOI: 1,562.75, -2.98, -0.2%) subtracted 0.8% to 1,553, with Hess Corp. (HES: 121.79, -4.21, -3.3%) down 3% to $122.10 and Valero Energy (VLO: 49.00, +1.53, +3.2%) gaining 3.5% to $49.14.

The Amex Natural Gas Index (XNG: 705.71, -0.64, -0.1%) fell 0.8% to 701. Component Chesapeake Energy (CHK: 51.99, -1.20, -2.3%) dropped 2.5% to $51.85. Southwestern Energy (SWN: 44.18, +0.35, +0.8%) rose nearly 2% to $44.69.

The Philadelphia Oil Service Index ($OSX: 337.84, +0.89, +0.3%) dropped 0.9% to 334, falling back from gains in the previous session. Component Halliburton (HAL: 47.88, -0.24, -0.5%) dropped 1.5% to $47.38. Schlumberger (SLB: 100.69, -0.34, -0.3%) fell 1.7% to $99.34. Crude oil prices subtracted $1.48 to $127.37 on the heels of a slack Memorial Day driving weekend in the U.S. See Futures Movers. Even so, gasoline prices remained at the record level of $3.94 a gallon for the second day, according to the AAA Daily Fuel Gauge Report.

Among stocks in the spotlight, ExxonMobil (XOM: 89.65, -0.15, -0.2%) fell 31 cents to $89.49 ahead of its annual shareholders meeting. Some shareholders are calling for the separation of its chairman and chief executive officer and for the oil giant to spend more of its billions on alternative energy research.

Chairman and CEO Rex Tillerson currently holds both jobs. The company's management opposes the measures, which are non-binding. Descendants of John D. Rockefeller, the founder of ExxonMobil predecessor Standard Oil Corp., and a variety of institutional investors in the U.S. and abroad have lined up behind the separation proposal, which drew the support of 40% of shareholders at last year's meeting.

PEMEX's E&P subsidiary has awarded Baker Hughes' (BHI: 87.94, +0.46, +0.5%) a $469 million contract to drill and complete wells, according to federal procurement Website cited by a research note Wednesday by Pritchard Capital Partners. The fields are all in the Gulf of Mexico off the coast of Tabasco state. Work is due to begin on June 30 and run nearly two years. Baker Hughes fell 0.8% to $86.70.

Frontier Oil (FTO: 29.83, +0.89, +3.1%) rose nearly 5% to $30.30. The company drew an upgrade to peer perform from underperform at Bear Stearns. Basic Energy Services (BAS: 28.12, -0.55, -1.9%) dropped 2.4% to $27.97. The company was downgraded to neutral from buy at UBS.

In the alternative energy arena, Verenium Corp. (VRNM: 2.40, +0.03, +1.3%) said it'll hold a dedication ceremony on Thursday for its demonstration plant in Jennings, La. The demonstration plant is rated to produce 1.4 million gallons of ethanol per year using enzymes to convert non-food biomass into fuel. The Cambridge, Mass. company said it's on track to begin construction in the middle of next year on a 30 million gallon per year commercial plant, which will be the first of its kind. Shares rose 2% to $2.42.

Source: MarketWatch|by Steve Gelsi

[INTERNATIONAL AFFAIRS] International Atomic Energy Agency, Accuses Iran of Willful Lack of Cooperation

The International Atomic Energy Agency, in an unusually blunt and detailed report, said Monday that Iran’s suspected research into the development of nuclear weapons remained “a matter of serious concern” and that Iran continued to owe the agency “substantial explanations.”

The nine-page report accused the Iranians of a willful lack of cooperation, particularly in answering allegations that its nuclear program may be intended more for military use than for energy generation.

Part of the agency’s case hinges on 18 documents listed in the report and presented to Iran that, according to Western intelligence agencies, indicate the Iranians have ventured into explosives, uranium processing and a missile warhead design — activities that could be associated with constructing nuclear weapons.

“There are certain parts of their nuclear program where the military seems to have played a role,” said one senior official close to the agency, who spoke on the condition of anonymity under normal diplomatic constraints. He added, “We want to understand why.”

The atomic energy agency’s report highlights the amount of work still to be done before definitive conclusions about the nature of the program can be made, a task that the official associated with the agency said would require months.

Iran’s nuclear program has long been a flashpoint, with critics fearing that suggestions that Iran is developing weapons could embolden factions within the administration who have been pushing for a confrontation with Iran.

Iran has dismissed the documents as “forged” or “fabricated,” claimed that its experiments and projects had nothing to do with a nuclear weapons program and refused to provide documentation and access to its scientists to support its claims.

The report also makes the allegation that Iran is learning to make more powerful centrifuges that are operating faster and more efficiently, the product of robust research and development that have not been fully disclosed to the agency.

That means that the country may be producing enriched uranium — which can be used to make electricity or to produce bombs — faster than expected at the same time as it a replaces its older generation of less reliable centrifuges. Some of the centrifuge components have been produced by Iran’s military, said the report, prepared by Mohamed ElBaradei, the director general of the agency, which is the United Nations nuclear monitor.

The report makes no effort to disguise the agency’s frustration with Iran’s lack of openness. It describes, for example, Iran’s installation of new centrifuges, known as the IR-2 and IR-3 (for Iranian second and third generations) and other modifications at its site at Natanz, as “significant, and as such should have been communicated to the agency.”

The agency also said that during a visit in April, it was denied access to sites where centrifuge components were being manufactured and where research of uranium enrichment was being conducted.

The report does not say how much enriched uranium the Iranians are now producing, but the official connected to the agency said that since December, it was slightly less than 150 kilograms, or 330 pounds, about double the amount they were producing during the same period about 18 months ago.

“The Iranians are certainly being confronted with some pretty strong evidence of a nuclear weapons program, and they are being petulant and defensive,” said David Albright, a former weapons inspector who now runs the Institute for Science and International Security. “The report lays out what the agency knows, and it is very damning. I’ve never seen it laid out quite like this.”

Ali Asghar Soltanieh, Iran’s ambassador to the atomic energy agency, however, said that the report vindicated Iran’s nuclear activities. It “is another document that shows Iran’s entire nuclear activities are peaceful,” the semi-official Fars News Agency quoted him as saying.

A National Intelligence Estimate published in December by American intelligence agencies concluded that Iran suspended its work on a weapons design in late 2003, apparently in response to mounting international pressure. That report added that it was uncertain whether the weapons work had resumed. It concluded that work continued on Iran’s missiles and uranium enrichment, the two other steps that would be necessary for Iran either to build and launch a weapon or to announce that it is able to construct one quickly.

The Bush administration, in its waning days, seems powerless to modify Iran’s behavior. The question seems to have been pushed to the future with the forceful disagreements in recent days between the presumptive Republican presidential nominee, Senator John McCain, and Senator Barack Obama, contending for the Democratic nomination, over whether an American president should negotiate with Iran’s leadership.

Still, Javier Solana, the European Union’s foreign policy chief, announced in Brussels on Monday that he would go to Iran soon — possibly “within the month” — to present a new offer of political, technological, security and trade rewards for Iran if it halts its uranium enrichment program.

Mr. Solana will travel with senior foreign ministry officials from five of the six countries involved in the initiative — Britain, France, Russia, China and Germany — but not the United States, which has refused to hold talks with Iran. The incentives, agreed on by the six countries in London this month but still not made public, repackaged and clarified an incentives package presented to Iran in 2006.

Iran rejected it at the time, saying that relinquishing its uranium enrichment program was non-negotiable. After the London meeting this month, the Iranian foreign minister, Manouchehr Mottaki, said the new package should not cross Iran’s “red line” — shorthand for its uranium-enrichment program.

On May 13, Iran responded with its own package of proposals, calling for new international talks on political, economic and security issues, including its nuclear program and the Arab-Israeli peace process.

The proposal, made in a letter from Mr. Mottaki to the United Nations secretary general, Ban Ki-moon, includes the creation of international fuel production facilities in Iran and other countries — a longstanding goal of Iran — as well as improved supervision of Iran’s nuclear program by the atomic energy agency, which is based in Vienna.

Over the years, the United States and France have led the way in opposing the idea of a fuel-production facility in Iran, contending that it would allow Iranian experts to master the complex process of enriching uranium and to use that knowledge in a secret bomb-making project.

Iran insists its uranium enrichment program is devoted solely to producing fuel for nuclear reactors that generate electricity.

The report, which was released on Monday to the agency’s 35-country board of directors and the United Nations Security Council, will be formally discussed by the board next week.

Source: The New York Times|By ELAINE SCIOLINO

[NORTH AMERICA] The mexican President, Felipe de Jesus Calderón pleads for energy reform

Mexican President Felipe de Jesus Calderón issued a desperate plea to Congress at the weekend to approve his energy reform proposals after figures showed that oil production had slumped to a nine-year low.

The rapidly declining production in one of the world's top 10 oil-producing nations comes amid a global supply crunch that has sent the price of international crude to records in recent weeks.

On Friday, PEMEX, Mexico's state oil monopoly, reported that April average daily production had fallen to 2.77m a day compared with 2.85m the previous month and 3.18m barrels in April 2007.

According to PEMEX, production at Cantarell – one of the world's largest oil complexes, which accounts for roughly half of Mexico's total daily output – has shrunk 24 per cent in the past 12 months alone.

The latest data highlight the increasing difficulties faced by PEMEX, which has long suffered from insufficient funds for exploration, ageing existing fields, and Mexico's constitution, which prohibits it from entering joint-risk contracts with third parties.

"The rate of decline is much quicker than we had anticipated," Jordy Herrera, under-secretary for energy, told the FT this month.

The situation for Mexico, which relies on oil revenue to fund about 40 per cent of total government income, has been made worse by the fact that proven reserves have also been deteriorating so fast that the country could become a net oil importer within a few years.

A recent study published by the energy ministry and PEMEX, showed that the country's total proven reserves had plummeted from 20.1bn barrels equivalent in 2002 to just 14.7bn barrels last year.

On Saturday, President Felipe de Jesus Calderón told an audience in the coastal resort of Acapulco: "My government has presented a proposal to make PEMEX, stronger, more transparent, with greater operational and technological capacity and, importantly, to stop falling production."

One of the main ideas is to give PEMEX, greater flexibility to associate with third parties and, at the same time, to give private companies working with PEMEX, financial incentives linked to performance. Most analysts view the proposed changes as a tepid reform and woefully short of what Mexico needs to turn the situation around. But even this proposal has faced stiff opposition in Congress.

Ordinary sessions ended on April 30 without any sign of progress, and leftwing members of the opposition have since managed to force a so-called national debate. The debate, which began on May 13 and is scheduled to last for 71 days, includes legislators, experts and other members of Mexican society.

However, industry analysts fear the delay diminishes the chances of a reform being approved.

Source: Financial Times|By Adam Thomson

[ENERGY COOPERATION] Libya signs exploration accord with Sonatrach + Indian Oil Corp and Oil India Ltd

Libya, holder of Africa's largest oil reserves, said it signed a final agreement granting exploration and production rights to Algeria's state oil company Sonatrach, Indian Oil Corp and Oil India Ltd.

The three companies will spend 152 million dollars on exploration works that include drilling eight wells in Libya's Ghadames region, the country's National Oil said. They will pay 10 million dollars as a bonus to National Oil when the government approves the accord, it said.

Source: Indian Economic Times

[EUROASIA] Dmitry Medvedev pledges to build strategic partnership with China

President Dmitry Medvedev said on Saturday that Russia and China will continue to develop their strategic partnership despite any objections from third countries.

The president, on the second day of his official visit to Beijing, told students at Peking University: "Perhaps such strategic cooperation between our countries does not please everyone, but we understand that interaction is in the interests of our nations, and we will strengthen it in all possible ways - whether people like it or not."

Russia and China have taken a shared stance on many global issues in recent years, often opposing the position of the United States.

On Friday, the Russian leader signed a joint declaration with his Chinese counterpart Hu Jintao, condemning U.S. moves to establish a global missile defense system, and saying the plans threaten the global strategic balance.

The plans also weaken "confidence-building measures between countries and the consolidation of regional stability," yesterday's statement said.

Medvedev told the group of students: "Russian-Chinese cooperation is now becoming a key factor in international security - a factor without which it would be impossible to take fundamental decisions through international cooperation."

He also said new spheres of cooperation should be developed through the Shanghai Cooperation Organization (SCO), particularly the sphere of energy.

The SCO, a regional bloc comprising Russia, China, Kazakhstan, Tajikistan, Kyrgyzstan, and Uzbekistan, primarily addresses security issues, but has recently moved to embrace various economic and social projects. The SCO has been widely seen as a counterweight to NATO in the region.

"Within the framework of this organization we are able to coordinate new directions of cooperation, including on the energy issue," Medvedev said.

Earlier in the day, the president visited a monument on Tiananmen Square, and later met with the chairman of the National People's Congress.

He laid a wreath at the Monument to the People's Heroes, built in the 1950s to commemorate those who died defending China in the 19th and 20th centuries.

During his meeting with National People's Congress Chairman Wu Bangguo, Medvedev stressed the importance of parliamentary ties between the two countries.

"These are vital contacts. It is good that our contacts are being developed not only on the level of the top leadership... We hope that parliamentary cooperation will continue in the future," Medvedev said.

The president also expressed his condolences to the Chinese people over the May 12 earthquake in the Sichuan province, which has claimed between 60,000 and 80,000 lives.

Wu told Medvedev his country highly values Russia's support in the quake-hit area.

Russia "sent humanitarian aid, and swiftly came to us with a team of Russian rescuers. Real friendship is shown in difficult times, as we say in China. This is a genuine reflection of the nature of our relations," the chairman said.

Russia will send nine military planes to China later today carrying equipment for the ongoing relief operation, in line with instructions issued by Medvedev to Defense Minister Anatoly Serdyukov.

Gen. Vladimir Isakov, a deputy defense minister, said: "Nine planes will urgently be sent to deliver 23 mobile kitchens, 300 large army tents, and 3,000 woolen blankets."

A Russian Mi-26 helicopter left for China today carrying two rescue teams to help with the relief operation.

Chinese Premier Wen Jiabao said earlier that the death toll in the Sichuan province could rise to 80,000 as most of the missing are presumed dead. The disaster has left over five million people homeless.

Source: Russian News & Information Agency

[EUROASIA] Russia + China see nuclear power as a priority in economic ties

Russia and China consider cooperation in nuclear power to be a priority of bilateral economic ties, a communique rounding off President Dmitry Medvedev's two-day visit to the country said on Saturday.

"The heads of state consider cooperation in nuclear power to be a priority area of economic cooperation, and express their satisfaction with the success that has been achieved in this sphere, and the readiness of the two countries to continue mutually beneficial cooperation," the document said.

On Friday, Russia signed a contract with China to build a uranium enrichment plant in the country and to supply uranium. The cost of a fourth uranium enrichment facility to be built near Lanzhou in north China's Gansu province will exceed $1.5 billion, according to Russian nuclear chief Sergei Kiriyenko.

Russian nuclear equipment and services exporter Atomstroyexport completed the first phase of the Tianwan power plant in eastern China's port city of Lianyungang in September last year, under a 1992 accord.

Source: Russian News and Information Agency

[RUSSIA] Moscow Energy Investment Doubled

Investment into the Moscow energy distribution system will be almost doubled through 2010, Unified Energy System chief executive Anatoly Chubais said Saturday at the opening of a new power unit.

Anatoly Chubais and Mayor Yury Luzhkov, a longtime political adversary, signed an amended version of the power grid's investment plan, under which 898 billion rubles ($39 billion) will be spent in the capital through 2010, up from the 2006 agreement between City Hall and Unified Energy System to spend 430 billion rubles on upgrades and new infrastructure.

The signing took place at the opening of a 500-kilowatt Siemens-produced power unit at the Beskudnikovo transformer station on the northern outskirts of Moscow.

"The money will first of all come from the budgets of the companies controlling the networks," Anatoly Chubais said. "Another part of the investment will be funded by tariffs and the fee for connection to the grid."

Fourteen major elements of the Moscow electricity distribution network will be financed by state-run VTB, the country's second-largest bank, Luzhkov said Saturday without elaborating.

VTB subsidiary VTB-Kapital Stolitsa said in July 2007 that it was planning to invest 30 billion rubles in Moscow electricity distribution through 2010.

The country's electricity network companies, united under the Federal Grid Company, will remain under state control after Unified Energy System ceases to exist on July 1.

The agreement signed Saturday said transformer capacities would increase from 17,700 megawatts to 32,900 megawatts by 2010. It will also help provide for the capital's energy security, creating a reserve capacity of 1.5 megawatts to 2 megawatts by 2012, Yury Luzhkov said.

The standoff between Unified Energy System and City Hall first surfaced in 2001, when Yury Luzhkov publicly attacked the power-sector reform undertaken by Anatoly Chubais and resisted the ouster of then-Mosenergo chief Alexander Remezov, a Yury Luzhkov ally.

Tensions hit a low during a major blackout in May 2005, which Yury Luzhkov and then-President Vladimir Putin blamed on Anatoly Chubais. After a fire at a substation, a rolling blackout saw as many as 2 million people in the capital plunged into darkness for several hours. It also closed metro lines and disrupted everything from the stock market to water supplies.

Yury Luzhkov and Anatoly Chubais were ultimately forced to work out their differences in January 2006, when bitterly cold weather threatened to send temperatures to minus 30 degrees Celsius.

Despite better relations lately, Yury Luzhkov and Anatoly Chubais couldn't help but using the seemingly neutral event Saturday to stir up old disputes.

"It is a great pity that, despite all common sense, the Moscow power stations have to supply the region," Yury Luzhkov said, glaring at Anatoly Chubais. The distribution network for the capital and the Moscow region was designed in the Soviet era.

Anatoly Chubais fired back that it would be "unjust if it were not heat," adding that Moscow is the stations' primary heat consumer.

The dispute ended moments later, however, when a loud boom thundered through the station. Several reporters cried out in fright, but a smiling Anatoly Chubais seemed at ease.

"Don't worry," a mechanic said, reassuring startled visitors. "That just means the transformer has been activated."

Source: The Moscow Times|By Nadia Popova

[EUROPE] Goliat enters “ice design” stage. ENI

Italian oil-company Eni has ruled out the use of a ship-based floating production storage and offloading vessel, or FPSO, at its near-arctic offshore field Goliat off northern Norway in favour of a concrete spar or Sevan “round-hulled” FPSO.

A source told Scandoil.com affiliated Scandinavian Oil-Gas Magazine that heavy icing in the western Barents Sea helped decide the issue. The oil company this week handed Aker Engineering & Technology (concrete hull) and Sevan Marine (“round hull”) the front-end engineering and design work for the floater.

The source said refining designs for the solution were now down to drawing up “a safe work environment” which shelters crews and production equipment from icing.

Heavy icing can collapse ship-hulls and create caverns of explosive fumes, while making just about all exposed tasks extra difficult.

Observers see Eni as the oil company most experienced at placing FPSOs, including the Norne FPSO in the Norwegian Sea, hitherto the most northerly placed offshore ship-hull FPSO in the world.

Eni’s $4.9-billion Goliat floater project could be producing 100,000 barrels a day by 2012 if ice-drawings and planning continue apace.

In its next issue, Scandinavian Oil-Gas Magazine pits Eni’s efficient decision-making in the western Barents against the challenge of chosing Arctic technology across the whole of the frigid Barents theatre.

Source: Scandinavian Oil and Gas

[NORTH AMERICA] Mexico April crude oil exports tumble. PEMEX

Mexico's oil exports fell sharply in April and production also slipped, putting pressure on the government to overhaul energy laws as the country's biggest oil field declines.

State oil company PEMEX said on Friday that exports dropped to 1.439 million barrels per day during April, down nearly 12 percent from March levels. Exports this year through April are down 13 percent from the same period last year.

The April data comes as Mexico's left-wing opposition is holding up in Congress an oil reform proposal by conservative President Felipe Calderon aimed at increasing private sector involvement in oil to help boost exploration and production.

Mexico is the world's No. 6 producer of oil by volume and the No. 10 exporter, according to the U.S. Energy Information Administration, but years of underinvestment by past governments have left output and reserves declining.

Skyrocketing oil prices have more than cushioned the blow to federal finances, about one third of which come from PEMEX taxes, but the decline in production is worrying for the United States, which depends on Mexico as one of its top oil suppliers.

Oil output fell in April to 2.767 million barrels per day, remaining below the firm's 3.0 million bpd target for the seventh straight month. Average production over the first four months of the year is down 9 percent from the same period in 2007, PEMEX said.

Mexico has long relied on its huge Cantarell offshore oil field to be the workhorse of its oil industry.

But the field has been declining rapidly in recent years, and Pemex's oil output and exports peaked in 2004 at 3.38 million bpd and 1.87 million bpd, respectively.

However, PEMEX said oil export revenues for the first four months of the year, however, jumped 52 percent from a year ago to $15.404 billion, as Mexican oil sold at an average of $85.70 per barrel -- $36.30 more than a year earlier.

Mexico's natural gas production data was rosier in April, showing a rise to 6.714 billion cubic feet per day from 6.680 bcfd in March. Natural gas imports, used to top up a shortfall in domestic production, fell to 406.4 million cubic feet per day in April from 496.9 mcfd in March.

Source: Reuters| By Jason Lange

[OIL PRICES] Consumers feel the pinch as analysts predict crude may reach $150 a barrel

Fresh from his mauling in the byelection, Gordon Brown met two leaders yesterday. One was the Dalai Lama; the other, Hamad bin Jasim bin Jabir al-Thani, prime minister of oil and gas rich Qatar, may have more influence on the prime minister's chances of political survival.

Brown's spokesman said his boss was "incredibly focused" on oil - little surprise at the end of a week that saw the price of crude rocket to a record $135 a barrel and revived memories of the energy shortages and economic hardship of the 1970s. The memories came flooding back: a seemingly unstoppable rise in the cost of crude; fears that the west would suffer the debilitating combination of rising prices and weak growth known as stagflation; daily comments from the oil cartel OPEC on what it might or might not do to help the developed world out of its fix; demands by British and US leaders that the producers should do more.

Although oil ended yesterday at $132 a barrel, forecasts that crude could soon be changing hands for $150 or even $200 also conjured up images of what life might be like once the cheap oil that has been crucial to the development of modern industrial societies, and is used for everything from food packaging to tourism, runs out.

For the past 10 years or more, the leaders of the G8 countries have concentrated on the problems of the developing world when they gather for their annual summer summit. This year Brown wants oil to be at the top of the agenda and, with every other member apart from oil rich Russia feeling the pinch, he is unlikely to face much opposition. Oil prices are more than six times higher than they were in early 2002, and it took only a fourfold increase in 1973 and 1974 to bring the west's long postwar boom to a shuddering halt. This is the fourth time that oil prices have soared in the past 35 years; on the previous three occasions dearer energy has meant recession.

Graham Turner, of London-based consultancy GFC Economics, said: "Oil prices are on a moon-shoot, with peak oil and a global shortage taking centre stage. Many of the concerns about long term supplies are valid and it is impossible to know how far prices will climb in the coming weeks and months. However, if calls for $150 per barrel are realised by the summer, it will do little to help a world economy struggling with a slide in housing markets across much of the industrialised west."

Opinions differ as to the cause of the recent spectacular rise. Brown blames OPEC. Gerard Lyons, chief economist at Standard Chartered bank, says strong demand from China and India is underpinning prices. Environmentalists say that the world has arrived at a crossroads, when oil reserves start to dwindle from their peak. All these factors have been bandied about for months if not years; last week they were seized upon by energy traders in a speculative frenzy not seen in financial markets since the last days of the dotcom bubble in the late 1990s.

Sushil Wadhwani, a former member of the Bank of England's monetary policy committee who now runs his own hedge fund, said that, as with every bubble, the initial rise in prices was justified - by under-investment by oil companies on exploration, poor output from countries outside the OPEC cartel such as Nigeria, Russia and Mexico, and by strong growth in countries such as India, which has boosted demand for cars. At present oil production of about 86m barrels per day is just enough to meet global demand; by 2050, on some forecasts, demand for crude could have almost doubled to 160m barrels per day.

Absorbed
Few economists doubt that further sharp increases in oil prices - particularly if sustained - would have seriously damaging consequences for the UK and other western economies. The past month has seen the cost of industry's fuel and raw material costs rising by more than 20% - the highest rate since records began in the mid-1980s. Ian McCafferty, chief economist at the CBI, said manufacturers had at first absorbed the cost increases by accepting lower profit margins but the scale of the increase was now so big that firms were starting to pass them on to customers.

Dearer fuel and food has already pushed the government's measure of the cost of living, the consumer prices index, to 3% - a full point above its 2% target and within a whisker of the level at which the Bank of England would have to explain its actions to the Treasury. Fearful of setting off an inflationary spiral, the Bank signalled last week that it is in no mood to cut interest rates, despite signs that house prices are falling, unemployment is rising and retail spending is weak.

Downing Street, too, is concerned: "In the past a rise in the oil price of the sort we have seen recently would have tipped the economy into recession. We are not saying that's going to happen, but the oil price is and will continue to have a big impact on household incomes." The fact that tax accounts for so much of the cost of fuel at the pumps means the impact of rising crude prices has been less marked in Britain than some other countries. Even so, a litre of unleaded is up by about 20p in the last year.

In the medium to long term, Brown believes that high oil prices mean Britain has to look at energy efficiency and diversifying supply. With the oil futures markets indicating that prices will stay at current levels - or even rise - between now and 2015, the economics of alternative sources of energy - including coal and renewables - changes. But in the short term the prime minister's solution has been to turn up the heat on OPEC, which last week was threatening to regain the bogeyman status it had in the 1970s. Brown said: "It is, as people will recognise, a scandal that 40% of the oil is controlled by OPEC, that their decisions can restrict the supply of oil to the rest of the world, and that at a time when oil is desperately needed and supply needs to expand, that OPEC can withhold supply from the market."

OPEC's response has been to say that the market is adequately supplied with oil and the $35 rise in crude prices since the start of April are purely down to speculation. Peter Odell, professor of international energy studies at Erasmus University in Rotterdam, agreed, saying there is no fundamental mismatch between demand and supply. "At the moment the price depends on what is happening on the trading floor, where they are all on a high."

Wadhwani said pension funds, hedge funds and rich individuals had all been piling in. "We are now at the bubble stage."



If speculators keep driving the price higher, pressure on the G8 to respond will increase. Nick Parsons, head of strategy at NAB Capital, said a deal to support the US dollar would bring the price of crude down. Another option would be for the US and European Union countries to flood the market with oil from reserves. Even so, there were few if any last week willing to predict that the cost of crude would return to the levels seen before the toppling of Saddam Hussein, let alone the sub-$10 a barrel prices that helped create the economic boom of the late 1990s.

'Resource nationalism'
Robin Batchelor, manager of BlackRock's BGF World Energy fund, said: "High oil prices have increased 'resource nationalism' as oil-rich countries demand a larger share of the industry's profits. This has also hit supply as oil majors delay production or pull out of projects altogether. Oil production in Russia, for example, has been falling as the government seizes control of the country's assets, and is flat this year after a decade of sharp growth. Other countries, such as Venezuela, are also experiencing production delays as a result of government intervention."

Economic theory suggests that rising prices encourage rising supplies, but investment in the oil industry is expensive and takes a long time to bear fruit. In the past, oil companies have had their fingers badly burned when prices have crashed and they are wary of over-committing. The International Monetary Fund said the boom has led to higher investment but much of it has been soaked up by shortages of equipment and skilled personnel.

"Oil will increasingly come from unconventional sources, because output has declined from peak levels at conventional fields in many countries, and the size of oilfields is getting smaller on average. This does not mean that the world is about to run out of oil, but it suggests that higher oil prices are needed to induce the additional investment required to balance the market over the medium term."

Turner said it was worrying that the markets ignored the Saudis' announcement that they would pump an additional 300,000 barrels per day. "Saudi Arabia is struggling to stem a long term reversal in production, and any offer to boost output raised the prospect of a steeper drop from 2009, when the decline in global supplies is expected to accelerate. It is perhaps telling that futures prices have climbed even more quickly than the spot market, underlining the very real fears of peak oil."

If the peak oil theories are right, the market frenzy seen this week is likely to return even if prices drop back temporarily when the bubble bursts. "Because the price of oil is particularly vulnerable to global events, it will always be volatile, displaying peaks and troughs like a hospital monitor tracking an irregular heartbeat," said Andrew Simms of the New Economics Foundation.

"What's different today is that there is no way back compared to the price hikes of the 1970s. There are no 'swing producers' to fill the gap. Even the more conservative estimates for the global peak of oil production give us little more than a decade before supplies plateau and begin a long decline."

Source: The Guardian|by Larry Elliott

[NORWAY] StatoilHydro to float “spar” wind turbine

StatoilHydro has okayed the world’s first full-scale floating wind turbine, dubbed Hywind, for two years of tests offshore southwestern Norway at Karmøy. The company is investing NOK400 million for a planned start-up in autumn 2009.

A floating 2.3 Megawatt turbine on a familiar concrete-spar design will aim to exploit stronger winds long out to sea.

"If we succeed, then we will have taken a major step in moving the wind power industry offshore", StatoilHydro new energy boss, Alexandra Bech Gjørv, said in a statement.

The floating stem will be submerged up to 100 metres below the waves. Planners hope for wind parks in seas up to 1,000 m deep.

The wind turbine will be built by Siemens. Technip will build the floatation element and have responsibility for the installation offshore, while Nexans will lay cables to shore. State entity Enova will prop up the project with NOK60 million.

Scandoil.com affiliate Scandinavian Oil-Gas Magazine has seen the model mock-up built by SINTEF at its Marinetek wave tank in Trondheim, including parts indicating the turbine's five-point mooring and weather-vaning attributes.

The Offshore Northern Seas energy conference and tradeshow in Stavanger this August will feature renewable energy for the first time.

Source: Scandinavian Oil & Gas

[ENERGY STOCKS] The stocks rise with broad market

Shares of natural gas, oil producers and oil services companies rose Thursday, with oil prices falling back from a fresh record above $135 a barrel and the broad market advancing.

The Amex Oil Index (XOI: 1,626.49, +1.20, +0.1%) rose 0.4% to 1,632. The Amex Natural Gas Index (XNG: 729.15, -2.73, -0.4%) rose 0.4% to 735. The Philadelphia Oil Services Index ($OSX: 341.43, -3.68, -1.1%) rose 0.5% to 347. Sector leader ExxonMobil (XOM: 93.04, -0.63, -0.7%) rose 22 cents to $93.89.

Crude prices rose 65 cents to $133.82, but traded lower than the new record of $135.09 set earlier in the day. See Futures Movers. The Wall Street Journal reported the IEA is attempting to assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but it is clear that future crude supplies could be far tighter than previously thought, the report notes.

The IEA has predicted previously that supplies of crude and other liquid fuels will keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently, according to the report, which added that the agency now is concerned that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

Royal Dutch Shell (RDSA: 87.11, -0.21, -0.2%) was upgraded to buy from hold at ING, which also lifted its oil price estimates to $115 a barrel this year and next, up 21% and 44% from an earlier view, and its oil view for the long term by 50% to $90 a barrel.

StatoilHydro (STO: 42.70, +1.60, +3.9%) was upped to hold from sell. "The market continues to ignore fundamentals," the broker said. "Instead, forward curves assume straight-line demand growth with no substitution, efficiency gain or high price economic offsets. The market also sees only a limited supply-side response at best. While we remain cautious of the speculative support in prices, and the daily trading of up to six times daily oil demand, our view on oil industry cycles or medium-term supply/demand elasticity is unlikely to affect momentum."

Shares of Royal Dutch Shell fell 23 cents to $87.09. Statoil rose 4.5% to $42.94. Among coal shares, Alpha Natural (ANR: 73.00, +1.33, +1.9%) rose 3% to $73.82. Merrill Lynch upgraded the stock to buy from neutral.

Source: MarketWatch|by Steve Gelsi

[WESTERN HEMISPHERE] Biofuels, trade dominate European Union - Latin American summit

Leftist Bolivian President Evo Morales said he feared the poor could suffer as his regional counterparts rush to sign free-trade deals with Europe, and others warned of a looming world food emergency.

European and Latin American leaders called for action to tackle surging food prices and global warming at a summit in Peru on Friday, despite differences over biofuels and free trade.

Leftist Bolivian President Evo Morales said he feared the poor could suffer as his regional counterparts rush to sign free-trade deals with Europe, and others warned of a looming world food emergency, which some attribute in part to greater use of biofuels.

"If the crisis deepens, hundreds of millions of people will be threatened by hunger," Peruvian President Alan Garcia told the fifth gathering of heads of state from Europe, Latin America and the Caribbean.

The European Union and Brazil, the world's top ethanol exporter, back biofuels, but many Latin American countries blame them for pushing up food prices and causing hunger in a region where a third of the population lives in poverty.

Critics say the EU should scrap its target of having renewable fuels make up 10 percent of road transport fuels by 2020, saying the goal will contribute to hunger and environmental damage around the word. European leaders played down the risks.

"The impact of biofuels (on food prices) should not provoke such alarm, because from my point of view the relationship isn't that clear," Spanish Prime Minister Jose Luis Rodriguez Zapatero told reporters.

Even as many poor nations in Latin America criticize the use of food crops such as corn and soybeans to make fuels, they are increasingly worried about climate change and say rich states must cut carbon emissions.

Peru created an environment ministry this week to help cope with the impact of rising global temperatures, which studies show could melt its Andean glaciers within 25 years.

While there was broad support for initiatives to combat global warming, including carbon trading programs and reforestation, leaders struggled to agree about trade.

Divided on trade
Proponents say opening up borders would lower food prices by removing tariffs, but skeptics say trade pacts could hurt food production by slashing subsidies.

The issue has exposed ideological disagreements between Peru and Colombia, both free-trade enthusiasts, and leftist leaders like Bolivia's Morales, a former coca grower who says trade deals could hurt peasant farmers.

Peru and Colombia called on Friday for their countries to be put on a "fast track" in trade talks between the EU and Andean countries.

Europe is keen to boost trade with resource-rich Latin America and pushed talks with three trade blocs in the region. Michelle Bachelet, president of staunch free-trader Chile, called for a global trade agreement.

"I'm making an urgent plea for us to successfully wrap up the Doha round," she said. "If we have freer and fairer agricultural trade, we'll have more food."

Although the summit's final statement included few concrete measures, some leaders used the occasion to patch over differences.

Chavez, who often insults conservative leaders, apologized to German Chancellor Angela Merkel only days after calling her a political descendant of Adolf Hitler. "I haven't come here to fight," Chavez said after they shook hands. "I told her that I was sorry if I'd been harsh."

Chavez irritated some leaders at a summit in Chile last year, prompting the king of Spain to tell him to "shut up."

Source: Eitb24

[ENERGY STOCKS] Oil producers rise as crude sets fresh record of $129 a barrel

Chevron pushed to an all-time high for its fourth straight session as part of a bevy of energy stocks moving into new territory Tuesday, with the shares of petroleum producers moving up on the heels of a new record price for crude.

The energy sector shrugged off deep losses in the broad market and followed the price of crude into the green. Hedge fund manager and Texas oil man T. Boone Pickens predicted $150 a barrel oil this year on CNBC-TV, adding further fuel to petroleum bulls. June oil futures settled at a record close of $129.07 a barrel, up $2.02, as they expired on the New York Mercantile Exchange. During the session, the contract set an intraday high of $129.60 a barrel. On Wednesday, July futures begin to trade.

The Amex Oil Index (XOI:1,625.29, -4.80, -0.3%) rose 1% to 1,630, a record level. Hess Cop. (HES:130.78, -3.02, -2.3%) rose 2.4% to $133.80 and Occidental Petroleum (OXY:96.45, -1.40, -1.4%) advanced 2.5% to $97.85 as leading gainers from the group. The Amex Natural Gas Index (XNG: 731.88, -9.36, -1.3%) rose 1.2% to 742. The Philadelphia Oil Service Index rose 0.7% to 351.

Chevron Corp. (CVX:103.02, -0.07, -0.1%) rose 89 cents to $103.09. Earlier, the stock, which is a component of the Dow Jones Industrial Average ($DJ:2,601.19, -227.49, -1.8%) , touched $103.25 a share for its fourth straight day of all-time highs.

Several other energy companies hit 52-week highs on Tuesday including Continental Resources (CLR:60.19, -2.65, -4.2%) , which soared 23% to $62.84 after the Enid, Okla. company said it was pleased with the results of its first well drilling in the North Dakota Bakken Shale area.

Other 52-week highs include: Arena Resources (ARD:53.32, -1.85, -3.3%) , up 8% to $55.17, Forest Oil Corp. (FST:67.20, -2.01, -2.9%) , up 4% to $69.21, Suncor Energy Inc. (SU:143.84, -2.06, -1.4%) , up 5% to $145.90 and Enbridge Inc. (ENB:45.65, -0.02, 0.0%) , up 3% to $45.67.

Ensco International (ESV:74.11, -1.92, -2.5%) rose 3% to $76.03, a new 52-week high, as well as Unit Corp. (UNT:76.50, -2.07, -2.6%) , up 3% to $78.57, and Encana Corp. (ECA:95.09, -1.80, -1.9%) , up 2% to $96.89.

Soleil Securities analyst Jacques H. Rousseau said in a note to clients that refiners' share prices have fallen about 50% since the middle of last year, compared to a 7% decline in the S&P 500 on weak demand for gasoline. "We don't envision conditions deteriorating from these levels as refiners have reduced supply to be more in line with lower demand," Rousseau said.

Of the group, however, Tesoro's (TSO:24.27, -1.40, -5.4%) share price has the most potential downside from current levels and Frontier Oil (FTO:27.93, +0.67, +2.5%) has the least, he said. Tesoro rose 2 cents to $25.67. Frontier Oil fell 2% to $27.26.

Among energy shares in the spotlight, ExxonMobil (XOM: 93.67, -0.89, -0.9%) agreed to a $2 billion loan to help revive existing projects that have been held back by funding delays in Nigeria. The money will help Nigeria National Petroleum Corporation fund its portion of a joint venture with ExxonMobil this year. ExxonMobil stock rose 20 cents to $94.56.

And NorthWestern Corp. (NWE:25.25, +0.17, +0.7%) rose 3% to $25.08 as it debuted on the New York Stock Exchange after trading on the Nasdaq.

Among alternative energy shares, China Sunergy Co. Ltd. (CSUN:12.39, -0.34, -2.7%) fell 2.5% to $12.73. The company said its first-quarter net income fell to $545,000, or 1 cent a share, from $2.25 million, or 17 cents a share, in the year-ago period. The Nanjing, China, solar cell manufacturer's sales rose 32% to $77 million from $58.2 million a year earlier. Ethanol maker Aventine Rewable Energy (AVR:5.35, -0.57, -9.6%) fell 2% to $5.92 on the heels of a 25% rally in the previous session.

Source: MarketWatch|by Steve Gelsi

[EUROPE] Xcite Energy reports StatoilHydro well data trade

Xcite Energy Limited has concluded an agreement to trade key well data with Statoil (U.K.) Limited, the UK arm of StatoilHydro, the Norwegian oil major with a significant international position in heavy oil and responsible for around half of the proven, but not yet developed, heavy oil deposits on the UK continental shelf. This Agreement follows from ongoing dialogue with StatoilHydro that commenced in 2007 and is another step forward in the progression of the heavy oil sector in the UK North Sea.

The Agreement allows for the pre-exchange of data from the 9/3b-5 appraisal well on the Bentley field, successfully drilled by Xcite Energy, which will be reciprocated with the data from the 3/28a-F(6) appraisal well on the StatoilHydro operated Bressay field, which is anticipated to be completed by mid November 2008. The Bressay field is located principally in Blocks 3/27 and 3/28, adjacent and to the north-west of Block 9/3b.

Richard Smith, Chief Executive Officer of Xcite Energy, commented, "This agreement to trade well data is an important step forward towards a wider data sharing environment for heavy oil in the UK North Sea, which in turn will potentially accelerate development of the heavy oil sector in the region. It is also another step forward for Xcite Energy as we focus on maximising the value of the Company's resources and move towards a development solution for the Bentley field, one of the largest undeveloped heavy oil fields in the North Sea."

Source: Scandinavian Oil & Gas

[GREEN ENERGY] In INDIA, the renewable energy grows, but not much finds its way to the grid

Despite the growth of renewable energy — solar, wind and biomass — in the country, not much of it reaches the power grid, which transfers electricity across long distances.

The reason: Only 14 out of 28 states have set quotas for sourcing renewable energy for their grids. This, despite the Electricity Act, 2003, specifically mentioning that states must set a certain proportion of power consumed from renewable sources.

In grid-interactive renewable energy systems, the power generated is transferred to the power grid and back according to requirement and output.

According to estimates from the ministry of new and renewable energy (MNRE), India generated 12,403 mw of cumulative grid-interactive renewable power by the end of March 2008, and is now planning to achieve a target of 20,000 mw by 2020. However, the use of renewable energy through power grids is negligible. Renewable energy accounts for only 8% of the total installed power capacity in India, said a ministry official.

In an effort to make use of more renewable energy and minimise dependence on conventional sources, the Electricity Act, 2003 asks state commissions to “promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee.”

The Act wants each State Electricity Regulatory Commission (SERC) to make it mandatory for distribution companies to use a certain percentage of renewable energy. SERCs are also directed, under the Act, to set preferential tariff for purchase of electricity from a renewable source. However, not every SERC has followed the Act in spirit. “There is a sheer need of regulatory commission’s inclination to push the intent of the Act,” said TERI director and senior fellow Amit Kumar.

According to Mr Kumar, there is no time-frame to put things in order and no minimum quota allocated. This creates uncertainty in tariff pacts with the suppliers of renewable energy. “While promotion of renewable energy has been the responsibility of both the Central Electricity Regulatory Commission (CERC) and various SERCs, it is the latter, which is required to set percentage quotas for sourcing green energy,” said the official. CERC plays a vital role as it provides the guidelines to SERCs.

While some states have not yet taken the first step towards fixing tariff, some are doing it actively. Tamil Nadu set the trend even before the legislative requirement. Gujarat, Chhattisgarh, Tamil Nadu, Haryana, Jammu & Kashmir, Karnataka and others are among SERCs that have set percentage quotas and tariff rates for purchase of different renewables.

Orissa has also recently joined the race.

Wind seems to be the cheapest bet in Tamil Nadu, Rajasthan and Gujarat with the tariff range being 2.70/kwh to 3.37/kwh. Gujrat and Tamil Nadu also have fixed tariffs. As estimated by MNRE, Tamil Nadu, Madhya Pradesh and Karnataka have set the highest quota of 10% - most of which is sourced from biomass and cogeneration bagasse and wind energy. UP and Rajasthan have set a 7.5% quota, whereas Andhra Pradesh has a 5% quota.

While wind and biomass are the most preferred sources, MNRE recently launched a new incentive scheme for grid connected solar power projects. “Under this scheme, MNRE will provide a generation-based incentive of a maximum of Rs 12 kwh for the electricity generated from solar photo voltaic and the maximum of Rs 10 for the electricity generated through solar thermal power plants. The project is set up on a demonstration basis in order to promote solar energy,” said the official. “Such incentives from the government are important to popularise solar power since these are often not picked up because of cost,” said Mr Kumar.

Source: India Economic Times