Environment Issues:-
One key concern from environmental groups is that the Sakahlin II project will harm the western gray whale population. The whales summer feeding grounds are close to the project's offshore platforms in the Sea of Okhotsk.
In 2006 IUCN set up the Western Gray Whale Advisory Panel. Its members are marine scientists who give independent advice to Sakhalin Energy about managing any potential risks to the western gray whales. The Russian Academy of Sciences has identified an increasing population of western gray whales in the Sea of Okhotsk during a photo identification research programme.The Far Eastern Regional Hydrometeorological Research Institute (FERHRI) are involved in regular monitoring of the western gray whales near the oil and gas developments on the Sakhalin Shelf.
Other concerns are that the project will threaten the livelihood of tens of thousands of fishermen, destroy the key salmon fishing area off the island by dumping one million tons of dredging spoil waste into the sea, and imply a long-time threat of a large oil spill in the Sea of Okhotsk and Sea of Japan Dredging of Aniva Bay was completed in 2005. In 2005 the salmon harvest was recorded as an all-time high of more than 134,000 tonnes. In 2007 this record was overturned with a salmon catch of 144,181 tonnes.. Environmental monitoring reports are publicly available.
Sakhalin Energy paid compensation of $US110,000 to the Russian Federation to cover potential fish impacts from the Sakhalin II project. This compensation was paid regardless of whether any impact was recorded on the fishing industry or not. Part of these funds was used to set up thriving salmon hatcheries on Sakhalin Island.
Here by i am also adding a Blog written by Mr. Eric Watkins
Can Russia reliably supply Japan with LNG?Tokyo Electric Power Co and Tokyo Gas Co this week said they expect to receive their first shipment of LNG from Russia's Sakhalin-2 project on April 6.They said that Tokyo Gas’s LNG carrier Energy Frontier, which loaded about 67,000 metric tons of LNG at Sakhalin-2, sailed from the Prigorodnoye liquefaction plant and is bound for their shared import terminal at Sodegaura.Tepco and Tokyo Gas are the first buyers to receive LNG from the Sakhalin-2 project, and the cargo aboard the Energy Frontier is to be divided equally by both companies for use as a fuel for city gas and power generation.Sakhalin-2, the first LNG development project in Russia, produces 9.6 million tons per year of LNG, supplying about 6 million tons per year to Japan to be used by four electric power companies and five gas companies.Altogether, Tepco will purchase 2 million tons per year and Tokyo Gas, 1.6 million tons per year on an FOB basis. Looking ahead, though, how reliable will Russia be as a supplier?As we all know, Japan has been looking to diversify its supplies of LNG away from Indonesia, which has proven to be unreliable regarding supply, price, and regularity.Will Japan’s move to Russia amount to an improvement over Indonesia as a supplier or will it face similar problems there, too?
I want ur comments on this topic.
Saturday, October 10, 2009
Sakhalin Project 2
The Sakhalin II LNG plant is the first of its kind in Russia. It is located in Prigorodnoye in the south of Sakhalin Island, 13 kilometres (8 mi) east of Korsakov. It will receive, treat, process and liquefy natural gas. Construction of the LNG plant was carried out by OAO Nipigaspererabothka (Nipigas) and the KhimEnergo consortium, together with two Japanese companies Chiyoda Corporation and Toyo Engineering.
A special gas liquefaction process was developed by Shell for use in cold climates such as Sakhalin, based on the use of a double mixed refrigerant (DMR). This advanced technology was adapted to ensure maximum production efficiency in the very, cold conditions of Sakhalin’s winters.
The complex includes:
Two 100,000 m³ LNG storage tanks
An LNG jetty
Two LNG processing trains, each with a capacity of 4.8 million tons of LNG per annum
Two refrigerant storage spheres, 1,600 m³ each (gross capacity) for propane and ethane storage
A diesel fuel system
A heat transfer fluid (HTF) system for the supply of heat to various process consumers
Five gas turbine driven generators with a total capacity of around 129 MW electrical power
Utility systems including instrument air and nitrogen plants and diesel fuel systems
A waste water treatment plant to treat both sewage water and coil-containing water.
The plant has been designed to prevent major loss of containment in the event of an earthquake – i.e. no major loss of LNG - and to ensure the structural integrity of critical elements such as emergency shut down valves and the control room of the plant. If necessary, the plant can safely be shut down. Royal Dutch Shell estimates that the LNG plant will have the ability to meet eight percent of the world’s current LNG demand, 9.6 million tonnes of LNG per year.The consortium is examining the possibility of adding another train.
The LNG plant has two LNG double-walled, storage tanks with a capacity of 100,000 m³ each. LNG will be exported via an 805 metres (2,640 ft) jetty in Aniva Bay. The jetty is fitted with four arms – two loading arms, one dual purpose arm and one vapour return arm. The upper deck is designed for a road bed and electric cables. The lower deck is used for the LNG pipeline, communication lines and a footpath. LNG is pumped from the storage tanks into the parallel loading lines which are brought to the LNG jetty. At the jetty head, the pipelines are connected with the jetty's four loading arms. The water depth at the tail of the jetty is 14 metres (46 ft). The jetty will service LNG tankers which have capacities of between 18,000 m³ and 145,000 m³. Loading operations are estimated to take from six to 16 hours, depending on vessel capacity. The jetty will be able to handle loading of around 160 LNG carriers per year.
The LNG plant was inaugurated on 18 February 2009. The first cargo is expected to load to the LNG carrier Grand Aniva at the end of March 2009. Contracts for the supply of LNG have been signed with:
Kyūshū Electric Power Company: 0.5 million tonnes per annum - 24 years (June 2004)
Shell Eastern Trading Ltd: 37 million tonnes over a 20 year period (October 2004)
Tokyo Gas: 1.1 million tonnes per annum - 24 years (February 2005)
Toho Gas: 0.5 million tonnes per annum - 24 years (June 2005)
Korea Gas Corporation: 1.5 million tonnes per annum - 20 years (July 2005)
Hiroshima Gas Co.Ltd: 0.21 million tonnes per annum -20 years (April 2006)
Tōhoku Electric Power Company: 0.42 million tonnes per annum - 20 years (May 2006)
Osaka Gas: 0.20 million tonnes per annum - 20 years (February 2007)
Chūbu Electric Power Company: 0.5 million tonnes per annum - 15 years (August 2007)
A special gas liquefaction process was developed by Shell for use in cold climates such as Sakhalin, based on the use of a double mixed refrigerant (DMR). This advanced technology was adapted to ensure maximum production efficiency in the very, cold conditions of Sakhalin’s winters.
The complex includes:
Two 100,000 m³ LNG storage tanks
An LNG jetty
Two LNG processing trains, each with a capacity of 4.8 million tons of LNG per annum
Two refrigerant storage spheres, 1,600 m³ each (gross capacity) for propane and ethane storage
A diesel fuel system
A heat transfer fluid (HTF) system for the supply of heat to various process consumers
Five gas turbine driven generators with a total capacity of around 129 MW electrical power
Utility systems including instrument air and nitrogen plants and diesel fuel systems
A waste water treatment plant to treat both sewage water and coil-containing water.
The plant has been designed to prevent major loss of containment in the event of an earthquake – i.e. no major loss of LNG - and to ensure the structural integrity of critical elements such as emergency shut down valves and the control room of the plant. If necessary, the plant can safely be shut down. Royal Dutch Shell estimates that the LNG plant will have the ability to meet eight percent of the world’s current LNG demand, 9.6 million tonnes of LNG per year.The consortium is examining the possibility of adding another train.
The LNG plant has two LNG double-walled, storage tanks with a capacity of 100,000 m³ each. LNG will be exported via an 805 metres (2,640 ft) jetty in Aniva Bay. The jetty is fitted with four arms – two loading arms, one dual purpose arm and one vapour return arm. The upper deck is designed for a road bed and electric cables. The lower deck is used for the LNG pipeline, communication lines and a footpath. LNG is pumped from the storage tanks into the parallel loading lines which are brought to the LNG jetty. At the jetty head, the pipelines are connected with the jetty's four loading arms. The water depth at the tail of the jetty is 14 metres (46 ft). The jetty will service LNG tankers which have capacities of between 18,000 m³ and 145,000 m³. Loading operations are estimated to take from six to 16 hours, depending on vessel capacity. The jetty will be able to handle loading of around 160 LNG carriers per year.
The LNG plant was inaugurated on 18 February 2009. The first cargo is expected to load to the LNG carrier Grand Aniva at the end of March 2009. Contracts for the supply of LNG have been signed with:
Kyūshū Electric Power Company: 0.5 million tonnes per annum - 24 years (June 2004)
Shell Eastern Trading Ltd: 37 million tonnes over a 20 year period (October 2004)
Tokyo Gas: 1.1 million tonnes per annum - 24 years (February 2005)
Toho Gas: 0.5 million tonnes per annum - 24 years (June 2005)
Korea Gas Corporation: 1.5 million tonnes per annum - 20 years (July 2005)
Hiroshima Gas Co.Ltd: 0.21 million tonnes per annum -20 years (April 2006)
Tōhoku Electric Power Company: 0.42 million tonnes per annum - 20 years (May 2006)
Osaka Gas: 0.20 million tonnes per annum - 20 years (February 2007)
Chūbu Electric Power Company: 0.5 million tonnes per annum - 15 years (August 2007)
Sakhalin project----A challenging location explored
Sakhalin II is the world’s biggest integrated oil and gas project. It is being built from scratch in the harsh subartic environment of Sakhalin Island in the Russian Far East. Phase 1 involved the installation and first oil production from the Vityaz Production Complex at the Piltun-Astokhskoye field in 1999. The complex incorporated an offshore platform “Molikpaq”, a single anchor leg mooring and a floating storage and offloading unit. Phase 2 includes the installation of two further platforms, 300 kms of offshore pipelines connecting all three platforms to shore, more than 800 km of onshore oil and gas pipelines, an onshore processing facility, an oil export terminal and the construction of Russia’s first liquefied natural gas (LNG) plant and associated export facilities.
Two oil and gas fields are being developed offshore Sakhalin Island in the Sea of Okhotsk: Piltun-Astokhskoye and Lunskoye. Associated infrastructure has been constructed onshore. Piltun-Astokhskoye is primarily an oil field and Lunskoye is primarily a gas field. The project is managed and operated by Sakhalin Energy Investment Company Ltd. (Sakhalin Energy).
Sakhalin II is of vital importance to Russia's future energy policy. For this reason, in 2006 the Russian government targeted the foreign owners of the development, forcing them to sell a majority stake to Gazprom.
The field is situated in an area previously little touched by human activity, causing various groups to criticize the development and the impact it will have on the local environment.
The two fields contain an estimated 1,200 million barrels (190,000,000 m3) of crude oil and 500 billion cubic meters (18 trillion cubic feet) of natural gas; 9.6 million tonnes of liquefied natural gas a year and about 180,000 barrels per day (29,000 m³/d) of oil will be produced.The total project cost until 2014 was originally estimated by Shell to be between US$9 and $11 billion. However, the costs turned out to be substantially underestimated and in July 2005 Shell revised the estimate upwards to $20 billion, causing much consternation among analysts and Russian business partners alikeThe two fields contain an estimated 1,200 million barrels (190,000,000 m3) of crude oil and 500 billion cubic meters (18 trillion cubic feet) of natural gas; 9.6 million tonnes of liquefied natural gas a year and about 180,000 barrels per day (29,000 m³/d) of oil will be produced. The total project cost until 2014 was originally estimated by Shell to be between US$9 and $11 billion. However, the costs turned out to be substantially underestimated and in July 2005 Shell revised the estimate upwards to $20 billion, causing much consternation among analysts and Russian business part.
Sunday, October 4, 2009
Clean Development Mechanism
Before starting about CDM let us understand, what is Kyoto Protocol?
The Kyoto Protocol (Article 12 of this protocol states all the regulating framework of the CDM) was established in 1997 as an international agreement on emission reduction of greenhouse gases (GHG). The Protocol defines mandatory GHG emission targets for industrialized countries (Annex I countries), and voluntary participation for developing countries (Non-Annex I countries). The Kyoto protocol has 175 member countries, and 36 of these countries have committed to reduce their GHG emissions by five percent in the period from 2008 to 2012 compared to emissions in 1990. The rest of the countries have no legal binding emission targets. There are many gases that contribute to the green house effect. The Kyoto Protocol deals with six of them.
Gas Global Warming Potential
Carbon dioxide (CO2) 1
Methane (CH4) 21
Nitrous oxide (N2O) 310
Hydro fluorocarbons (HFCs) 140-11,700
Per fluorocarbons (PFCs) 7,000-9,200
Sulphur hexafluoride (SF6) 23,900
The Kyoto protocol has defined three mechanisms to ensure flexibility and cost effectiveness:
Emission quota trading: Annex I countries are allowed to trade emission quotas. Example: The European Trading System (ETS). In January 2005, several European sectors including energy, metals, minerals and pulp and paper came under EU Emissions trading directive which sets carbon dioxide gas emission limits. If a company emits lower than its allowed limit, it may sell its extra allowance to other companies who are not meeting their targets. The penalty for violation is 40 Euro for every tonne of Carbon dioxide over the limit, and a requirement to purchase the missing emission allowances.
Joint Implementation (JI): Annex I countries are allowed to invest in emission reduction projects in other Annex I countries as an alternative to emission reduction in their own country.
Clean Development Mechanism (CDM): Annex I countries are allowed to invest in emission reduction projects in Non- Annex I countries as an alternative to emission reduction projects in their own country.
Also, CDM allows Annex I (industrialized) countries to meet their emission reduction targets by paying for green house gas emission reduction in non-Annex I (developing) countries.
For example: - A company in Brazil (a non Annex I country) switches from coal power to biomass. The CDM board certifies that by doing this the company has reduced Carbon dioxide emissions by 100,000 tonnes per year. It is issued with 100,000 CER’s (Certified Emission Reductions). Under the Kyoto Protocol, the United Kingdom (an Annex I country) has to reduce its green house gas emissions by 1 million tonnes of carbon dioxide each year. If it purchases the 100,000 CER’s from the Brazilian company, this target reduces from 1million tonnes/year to 900,000 tonnes per year making the goal easier to achieve. [A CER is given by the CDM Executive Board to projects in developing countries to certify they have reduced green house gas emissions by one tonne of carbon dioxide per year].
Where is CDM Applicable?
· Wind, Solar, Biomass, Hydro power projects.
· Waste Management Process.
· Energy Efficiency measures.
· Fuel Switching. Like switching from fossil fuel to green fuel like Biomass. Following is the table showing the quantity of CO2 being saved from various projects.
-Electricity Saving
1KWh= 0.8 to 0.9 kg CO2
-Power Generation (Renewable)
1MW= 4000-5000 ton CO2
-Coal Saving
1Kg= 1.3-1.6 kg CO2
-Oil Saving
1litre Oil= 0.35-0.45 kg CO2
-NG based Power Generation
1 kg NG burning/ Saving= 2.4-2.5 kg CO2
Parties to a project finance?
PROJECT COMPANY
The project company is the legal entity that will own, develop, construct, operate and maintain the project. The project company is generally an SPV created in the project host country and therefore subject to the laws of that country
PROJECT SPONSOR
The project sponsor is the entity that manages the project. The sponsor generally becomes equity owner of the SPV and will receive any profit either via equity ownership (dividend streams) or management contracts (fees). The project sponsor generally brings management, operational, and technical experience to the project. The project sponsor may be required to provide guarantees to cover certain liabilities or risks of the project. This is not so much for security purposes but rather to ensure that the sponsor is appropriately incentivized as to the project’s success.
BORROWER
A project may in fact have several ‘borrowers’, for example, the construction company, the operating company, suppliers of raw materials to the project and purchasers (off-takers) of the project’s production.
FINANCIAL ADVISER
The project sponsor may retain the services of a commercial or merchant bank to provide financial advisory services to the sponsor. The financial adviser theoretically will be familiar with the project host country and be able to advice on local legal requirements and transaction structures to ensure that the loan documentation and financial structure are properly assembled.
THE LENDERS
The large size of projects being financed often requires the syndication of the financing. The syndicated loan exists because often any one lender individually does not have the balance sheet availability due to capitalization requirements to provide the entire project loan. Other reasons may be that it wishes to limit its risk exposure in the financing or diversify its lending portfolio and avoid risk concentration.
TECHNICAL ADVISER:
Technical experts advise the project sponsor and lenders on technical matters about which the sponsor and lenders have limited knowledge (oil, mining, fuel, environmental). Such experts typically prepare reports, such as feasibility reports, for the project sponsor and lenders, and may monitor the progress of the project.
LAWYERS:
Project finance lawyers provide legal experience with specific experience of project finance structures, experience with the underlying industry and knowledge of project contracts, debt and equity documents, credit enhancement and international transactions.
Project finance lawyers provide advice on all aspects of a project, including laws and regulations; permits; organization of project entities; negotiating and drafting of project construction, operation, sale and supply contracts; negotiating and drafting of debt and equity documents; bankruptcy; tax; and similar matters.
EQUITY INVESTORS:
These may be lenders or project sponsors who do not expect to have an active management role as the project goes on stream. In most cases, the equity investment is combined with agreements that allow the equity investor to sell its equity to the project owner if the equity investor wishes to get out. Third party investors normally look to invest in a project on a much longer time scale than a contractor who in most cases will want to sell out once the construction has reached completion.
CONSTRUCTION COMPANY:
Since most project financings are infrastructural, the contractor is typically one of the key players in the construction period. Construction can be either of the EPC or ‘turnkey’ variety. EPC, or engineer, procure, and construct, is when the construction company builds the facility as per already designated specifications. Turnkey, on the other hand, is when the contractor designs, engineers, procures and constructs the facility, assuming all responsibility for on-time completion. In both cases, it is important that the construction company selected has a track record of successful project management and completion.
REGULATORY AGENCIES:
Projects naturally are subject to local laws and regulations. These may include environmental, zoning, permits and taxes. Publicly owned projects also will be subject to various procurement and public contract laws. It is important to ensure that a project has received the entire requisite per- missions and licenses before committing financial resources. In many markets, such ‘roadblocks’ may require extensive and time-consuming preparation for applying for the requisite government permission followed by indeterminate waiting.
EXPORT CREDIT AGENCIES:
Government-supported export financing includes pre-export working capital, short term export receivables financing and long term financing. ECAs play important roles in infrastructure and other projects in emerging markets by stimulating international trade. They normally provide low cost financing arrangements to local manufacturers who wish to transport their technology to foreign lands. ECAs also provide political risk insurance to projects.
HOST GOVERNMENT:
The host government is the government of the country in which the project is located. The host government is typically involved as an issuer of permits, licenses, authorizations and concessions. It also might grant foreign exchange availability projections and tax concessions. In some projects, the host government is an owner of the project, whether majority or minority, or will become the owner of the project at the end of a specified period, such as in a build-own-transfer (BOT) structure. It might also be involved as an off-take purchaser or as a supplier of raw materials or fuel.
CONSTRUCTION CONTRACTORS:
These include the engineers and contractors responsible for designing and building the project. Any or all of these parties may be contractually part of the financing. The contractor is the entity responsible for construction of the project; to the extent construction of a facility is a part of the overall project. It bears the primary responsibility in most projects for the containment of construction-period costs.
SUPPLIERS:
Suppliers provide raw materials or other inputs to the project, since sup- ply arrangements are key to project success, project sponsors and lenders are concerned with the underlying economic feasibility of supply arrangements and the supplier’s ability to perform the contracts. Closely linked to inputs are the matter of appropriate transportation links and the ability to move the requisite materials or machinery through customs.
PURCHASERS:
In large infrastructure projects, the project company will seek in advance to conclude long term agreements to sell the good or service being produced by the project (e.g. selling coal to electric power plants). This is known as an ‘off-take agreement’. The output purchaser provide a crucial element of the credit support for the underlying financing by seeking to stabilize the acquisition of the raw materials over time and protect itself from market volatility. Such support can be seen as a credit enhancement (such as guarantees) to make the project more attractive to the financing banks.
LEASING COMPANIES:
If capital allowances are available for the writing-down of plant and machinery or other assets, the project structure might involve one or more financial leasing companies. Their role will be to lease out assets to the project company in return for a rental stream. In addition to the tax advantages are the financial ones of keeping the assets off the project company’s balance sheet.
INSURERS:
The sheer scale of many projects and the potential for incurring all sorts of liabilities dictates the necessity of arranging appropriate insurance arrangements. Insurers therefore play a crucial role in most projects. If there is an adverse incident affecting the project then the sponsor and the lenders will look to the insurers to cover them against loss.
The project company is the legal entity that will own, develop, construct, operate and maintain the project. The project company is generally an SPV created in the project host country and therefore subject to the laws of that country
PROJECT SPONSOR
The project sponsor is the entity that manages the project. The sponsor generally becomes equity owner of the SPV and will receive any profit either via equity ownership (dividend streams) or management contracts (fees). The project sponsor generally brings management, operational, and technical experience to the project. The project sponsor may be required to provide guarantees to cover certain liabilities or risks of the project. This is not so much for security purposes but rather to ensure that the sponsor is appropriately incentivized as to the project’s success.
BORROWER
A project may in fact have several ‘borrowers’, for example, the construction company, the operating company, suppliers of raw materials to the project and purchasers (off-takers) of the project’s production.
FINANCIAL ADVISER
The project sponsor may retain the services of a commercial or merchant bank to provide financial advisory services to the sponsor. The financial adviser theoretically will be familiar with the project host country and be able to advice on local legal requirements and transaction structures to ensure that the loan documentation and financial structure are properly assembled.
THE LENDERS
The large size of projects being financed often requires the syndication of the financing. The syndicated loan exists because often any one lender individually does not have the balance sheet availability due to capitalization requirements to provide the entire project loan. Other reasons may be that it wishes to limit its risk exposure in the financing or diversify its lending portfolio and avoid risk concentration.
TECHNICAL ADVISER:
Technical experts advise the project sponsor and lenders on technical matters about which the sponsor and lenders have limited knowledge (oil, mining, fuel, environmental). Such experts typically prepare reports, such as feasibility reports, for the project sponsor and lenders, and may monitor the progress of the project.
LAWYERS:
Project finance lawyers provide legal experience with specific experience of project finance structures, experience with the underlying industry and knowledge of project contracts, debt and equity documents, credit enhancement and international transactions.
Project finance lawyers provide advice on all aspects of a project, including laws and regulations; permits; organization of project entities; negotiating and drafting of project construction, operation, sale and supply contracts; negotiating and drafting of debt and equity documents; bankruptcy; tax; and similar matters.
EQUITY INVESTORS:
These may be lenders or project sponsors who do not expect to have an active management role as the project goes on stream. In most cases, the equity investment is combined with agreements that allow the equity investor to sell its equity to the project owner if the equity investor wishes to get out. Third party investors normally look to invest in a project on a much longer time scale than a contractor who in most cases will want to sell out once the construction has reached completion.
CONSTRUCTION COMPANY:
Since most project financings are infrastructural, the contractor is typically one of the key players in the construction period. Construction can be either of the EPC or ‘turnkey’ variety. EPC, or engineer, procure, and construct, is when the construction company builds the facility as per already designated specifications. Turnkey, on the other hand, is when the contractor designs, engineers, procures and constructs the facility, assuming all responsibility for on-time completion. In both cases, it is important that the construction company selected has a track record of successful project management and completion.
REGULATORY AGENCIES:
Projects naturally are subject to local laws and regulations. These may include environmental, zoning, permits and taxes. Publicly owned projects also will be subject to various procurement and public contract laws. It is important to ensure that a project has received the entire requisite per- missions and licenses before committing financial resources. In many markets, such ‘roadblocks’ may require extensive and time-consuming preparation for applying for the requisite government permission followed by indeterminate waiting.
EXPORT CREDIT AGENCIES:
Government-supported export financing includes pre-export working capital, short term export receivables financing and long term financing. ECAs play important roles in infrastructure and other projects in emerging markets by stimulating international trade. They normally provide low cost financing arrangements to local manufacturers who wish to transport their technology to foreign lands. ECAs also provide political risk insurance to projects.
HOST GOVERNMENT:
The host government is the government of the country in which the project is located. The host government is typically involved as an issuer of permits, licenses, authorizations and concessions. It also might grant foreign exchange availability projections and tax concessions. In some projects, the host government is an owner of the project, whether majority or minority, or will become the owner of the project at the end of a specified period, such as in a build-own-transfer (BOT) structure. It might also be involved as an off-take purchaser or as a supplier of raw materials or fuel.
CONSTRUCTION CONTRACTORS:
These include the engineers and contractors responsible for designing and building the project. Any or all of these parties may be contractually part of the financing. The contractor is the entity responsible for construction of the project; to the extent construction of a facility is a part of the overall project. It bears the primary responsibility in most projects for the containment of construction-period costs.
SUPPLIERS:
Suppliers provide raw materials or other inputs to the project, since sup- ply arrangements are key to project success, project sponsors and lenders are concerned with the underlying economic feasibility of supply arrangements and the supplier’s ability to perform the contracts. Closely linked to inputs are the matter of appropriate transportation links and the ability to move the requisite materials or machinery through customs.
PURCHASERS:
In large infrastructure projects, the project company will seek in advance to conclude long term agreements to sell the good or service being produced by the project (e.g. selling coal to electric power plants). This is known as an ‘off-take agreement’. The output purchaser provide a crucial element of the credit support for the underlying financing by seeking to stabilize the acquisition of the raw materials over time and protect itself from market volatility. Such support can be seen as a credit enhancement (such as guarantees) to make the project more attractive to the financing banks.
LEASING COMPANIES:
If capital allowances are available for the writing-down of plant and machinery or other assets, the project structure might involve one or more financial leasing companies. Their role will be to lease out assets to the project company in return for a rental stream. In addition to the tax advantages are the financial ones of keeping the assets off the project company’s balance sheet.
INSURERS:
The sheer scale of many projects and the potential for incurring all sorts of liabilities dictates the necessity of arranging appropriate insurance arrangements. Insurers therefore play a crucial role in most projects. If there is an adverse incident affecting the project then the sponsor and the lenders will look to the insurers to cover them against loss.
Some common misconceptions about project finance?
· The assumption that lenders should in all circumstances look to the project as the exclusive source of debt service and repayment is excessively rigid and can create difficulties when negotiating between the projects participants.
· Lenders do not require a high level of equity from the project sponsors. This may be true in absolute terms but should not obscure the fact that equity participation is an effective measure to ensure that the project sponsors are incentivized for success.
· The assets of the project provide 100% security. Whilst lenders normally look for primary and secondary sources of repayment (cash flow plus security on project assets), the realizable value of such assets (e.g. roads, tunnels and pipelines which cannot be moved) are such that the security is next to meaningless when compared against future anticipated cash flows. Security therefore is primarily taken in order to ensure that participants are committed to the project rather than the intention of providing a realistic method of ensuring repayment.
· The project’s technical and economic performance will be measured according to pre-set tests and targets. Lenders will seek flexibility in interpreting the results of such negotiations in order to protect their positions. Borrowers on the other hand will argue for purely objective tests in order to avoid being subjected to subjective value judgments' on the part of the lenders.
· Lenders will not want to abandon the project as long as some surplus cash flow is being generated over operating costs, even if this level represents an uneconomic return to the project sponsors.
· Lenders will often seek assurances from the host government about the risks of expropriation and availability of foreign exchange. Often these risks are covered by insurance or export credit guarantee support. The involvement of a multilateral organization such as the World Bank or regional development banks in a project tends to ‘validate’ a project and reassure lenders’ concerns about political risk.
· Lenders do not require a high level of equity from the project sponsors. This may be true in absolute terms but should not obscure the fact that equity participation is an effective measure to ensure that the project sponsors are incentivized for success.
· The assets of the project provide 100% security. Whilst lenders normally look for primary and secondary sources of repayment (cash flow plus security on project assets), the realizable value of such assets (e.g. roads, tunnels and pipelines which cannot be moved) are such that the security is next to meaningless when compared against future anticipated cash flows. Security therefore is primarily taken in order to ensure that participants are committed to the project rather than the intention of providing a realistic method of ensuring repayment.
· The project’s technical and economic performance will be measured according to pre-set tests and targets. Lenders will seek flexibility in interpreting the results of such negotiations in order to protect their positions. Borrowers on the other hand will argue for purely objective tests in order to avoid being subjected to subjective value judgments' on the part of the lenders.
· Lenders will not want to abandon the project as long as some surplus cash flow is being generated over operating costs, even if this level represents an uneconomic return to the project sponsors.
· Lenders will often seek assurances from the host government about the risks of expropriation and availability of foreign exchange. Often these risks are covered by insurance or export credit guarantee support. The involvement of a multilateral organization such as the World Bank or regional development banks in a project tends to ‘validate’ a project and reassure lenders’ concerns about political risk.
What is Capital Structure?
Capital Structure is one of the financing decisions. It is a composition of a firms long term financing consisting mainly of equity, preference capital and long term debt i.e. mainly consists a mix of owner’s capital and borrowed capital. The decision is to make to collect the funds in the cheapest possible manner. In other words, the capital structure is how a firm finances its overall operations and growth by using different sources of funds.
It is a critical decision for any organization. It comes under the financing decision of the financial management. This decision is important because of the need to maximize returns to equity shareholders. It deals with best selection related to finance from large number of alternatives from where we can select our funds. It deals with long term funding requirement for more than one year. The capital structure of a company is the particular combination of debt, equity and other sources of finance that it uses to fund its long term financing. The key division in capital structure is between debt and equity. These decisions are strategic rather than tactical. Such decisions affect the profitability of a firm. They also have a bearing on the competitive position of the enterprise mainly because of the fact that they are related to fixed assets. Such decisions once made are not easily reversible. Thus factors which will help to design an optimal capital structure are:-
· Accept- Reject Criteria.
· Mutually Exclusive choice Criteria.
· Capital Rationing decision.
The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term debentures, while equity is classified as common stock, share holders equity. So it is a mixture of finance raised from equity share holders and long term debt. The makeup of the liabilities and stockholders' equity side of the balance sheet, especially the ratio of debt to equity. It should not be 100% equity neither 100% borrowed capital as this does not give good impact on our organization. So we have to determine optimum capital structure which is an appropriate mix which gives maximum profit to the equity shareholders. Some portion of capital should be borrowed in order to fulfill the objective of the financial management i.e. wealth maximization.
It is a critical decision for any organization. It comes under the financing decision of the financial management. This decision is important because of the need to maximize returns to equity shareholders. It deals with best selection related to finance from large number of alternatives from where we can select our funds. It deals with long term funding requirement for more than one year. The capital structure of a company is the particular combination of debt, equity and other sources of finance that it uses to fund its long term financing. The key division in capital structure is between debt and equity. These decisions are strategic rather than tactical. Such decisions affect the profitability of a firm. They also have a bearing on the competitive position of the enterprise mainly because of the fact that they are related to fixed assets. Such decisions once made are not easily reversible. Thus factors which will help to design an optimal capital structure are:-
· Accept- Reject Criteria.
· Mutually Exclusive choice Criteria.
· Capital Rationing decision.
The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term debentures, while equity is classified as common stock, share holders equity. So it is a mixture of finance raised from equity share holders and long term debt. The makeup of the liabilities and stockholders' equity side of the balance sheet, especially the ratio of debt to equity. It should not be 100% equity neither 100% borrowed capital as this does not give good impact on our organization. So we have to determine optimum capital structure which is an appropriate mix which gives maximum profit to the equity shareholders. Some portion of capital should be borrowed in order to fulfill the objective of the financial management i.e. wealth maximization.
What is Time Value of money?
The Time Value of Money (abbreviated as TVM) is a concept in which both the present value of cash inflows and that of cash outflows is taken into consideration. Time Value of Money (TVM) is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. TVM is based on the concept that a rupee that you have today is worth more than the promise or expectation that you will receive a rupee in the future. Money that you hold today is worth more because you can invest it and earn interest. After all, you should receive some compensation for foregoing spending. Let us take an example to understand the concept better:-
Receive $10,000 now OR receive $10,000 in three years. Which option would you choose?
If you are choosing Option A, your future value will be $10,000 plus any interest acquired over the three years. The future value for Option B, on the other hand, would only be $10,000. So how can you calculate exactly how much more Option A is worth, compared to Option B? If you choose Option A and invest the total amount at a simple annual rate of 4.5%, the future value of your investment at the end of the first year is $10,450, which of course is calculated by multiplying the principal amount of $10,000 by the interest rate of 4.5% :-
Future value of investment at end of first year: =($10,000x0.045)+$10,000 = $10,450
If the $10,450 left in your investment account at the end of the first year is left untouched and you invested it at 4.5% for another year, how much would you have?
Future value of investment at end of second year: =$10,450x(1+0.045) =$ 10,920.25
Or we can say:-
So, the equation for calculating the three-year future value of the investment would be:
This calculation shows us that we don't need to calculate the future value after the first year, then the second year, then the third year, and so on. If you know how many years you would like to hold a present amount of money in an investment, the future value can be calculated by the following:
Let's walk backwards for Option B. Remember; the $10,000 to be received in three years is really the same as the future value of an investment. If today we were at the two-year mark, we would discount the payment back one year. At the two-year mark, the present value of the $10,000 to be received in one year is represented as the following:
Present value of future payment of $10,000 at end of year two:
Continuing on, at the end of the first year we would be expecting to receive the payment of $10,000 in two years. At an interest rate of 4.5%, the calculation for the present value of a $10,000 payment expected in two years would be the following:
Present value of $10,000 in one year:
Of course, because of the rule of exponents, we don't have to calculate the future value of the investment every year counting back from the $10,000 investment at the third year. We could put the equation more concisely and use the $10,000 as FV. So, here is how you can calculate today's present value of the $10,000 expected from a three-year investment earning 4.5%:
So the present value of a future payment of $10,000 is worth $8,762.97 today if interest rates are 4.5% per year. In other words, choosing Option B is like taking $8,762.97 now and then investing it for three years. The equations above illustrate that Option A is better not only because it offers you money right now but because it offers you $1,237.03 ($10,000 - $8,762.97) more in cash! Furthermore, if you invest the $10,000 that you receive from Option A, your choice gives you a future value that is $1,411.66 ($11,411.66 - $10,000) greater than the future value of Option B.
So, Time value of money is an important aspect of wealth maximization. As it is one of the objectives of wealth maximization. From this concept we have learnt that money received today is more valuable than money received tomorrow.
Receive $10,000 now OR receive $10,000 in three years. Which option would you choose?
If you are choosing Option A, your future value will be $10,000 plus any interest acquired over the three years. The future value for Option B, on the other hand, would only be $10,000. So how can you calculate exactly how much more Option A is worth, compared to Option B? If you choose Option A and invest the total amount at a simple annual rate of 4.5%, the future value of your investment at the end of the first year is $10,450, which of course is calculated by multiplying the principal amount of $10,000 by the interest rate of 4.5% :-
Future value of investment at end of first year: =($10,000x0.045)+$10,000 = $10,450
If the $10,450 left in your investment account at the end of the first year is left untouched and you invested it at 4.5% for another year, how much would you have?
Future value of investment at end of second year: =$10,450x(1+0.045) =$ 10,920.25
Or we can say:-
So, the equation for calculating the three-year future value of the investment would be:
This calculation shows us that we don't need to calculate the future value after the first year, then the second year, then the third year, and so on. If you know how many years you would like to hold a present amount of money in an investment, the future value can be calculated by the following:
Let's walk backwards for Option B. Remember; the $10,000 to be received in three years is really the same as the future value of an investment. If today we were at the two-year mark, we would discount the payment back one year. At the two-year mark, the present value of the $10,000 to be received in one year is represented as the following:
Present value of future payment of $10,000 at end of year two:
Continuing on, at the end of the first year we would be expecting to receive the payment of $10,000 in two years. At an interest rate of 4.5%, the calculation for the present value of a $10,000 payment expected in two years would be the following:
Present value of $10,000 in one year:
Of course, because of the rule of exponents, we don't have to calculate the future value of the investment every year counting back from the $10,000 investment at the third year. We could put the equation more concisely and use the $10,000 as FV. So, here is how you can calculate today's present value of the $10,000 expected from a three-year investment earning 4.5%:
So the present value of a future payment of $10,000 is worth $8,762.97 today if interest rates are 4.5% per year. In other words, choosing Option B is like taking $8,762.97 now and then investing it for three years. The equations above illustrate that Option A is better not only because it offers you money right now but because it offers you $1,237.03 ($10,000 - $8,762.97) more in cash! Furthermore, if you invest the $10,000 that you receive from Option A, your choice gives you a future value that is $1,411.66 ($11,411.66 - $10,000) greater than the future value of Option B.
So, Time value of money is an important aspect of wealth maximization. As it is one of the objectives of wealth maximization. From this concept we have learnt that money received today is more valuable than money received tomorrow.
What are Forwards, Futures, options & Swaps?
Derivatives are financial instruments that do not represent ownership rights in any physical asset but, rather, derive their value from the value of some other underlying commodity or other asset.
Derivatives are efficient and effective tools for isolating financial risk and hedging to reduce exposure to risk. Derivative is a product whose value is derived from the value of one or more basic variables, called bases or underlying asset in a contractual manner. The underlying asset can be equity, forex, or commodity like crude oil, agri-products. Derivatives allow investors to transfer risk to others who could profit from taking the risk. Because of their flexibility in dealing with price risk, derivatives have become an increasingly popular way to isolate cash earnings from price fluctuations.
The most commonly used derivative contracts are forward contracts, futures contracts, options, and swaps.
1. Forwards
A forward contract is an agreement between buyer and seller parties for delivery of a specified quality and quantity of a good at an agreed date in the future at a specific price or at a price determined by formula at the time of delivery to the location specified in the contract.
Characteristics of Forward Contract:
· Terms and conditions are negotiated
· Illiquid market
· Credit risk
· Unregulated market (not exchange-traded)
The specifications included in a forward contract are:
· Product
· Price – The price at which delivery will be made in the future
· Quantity – Any number of units as mutually agreed
· Quality – Type
· Future Delivery date
· Delivery Place – How and where delivery will be made at maturity
2. Futures
A Futures contract is an agreement between two parties to buy (long position) or sell (short position) an asset at a certain time in the future at a certain price. Future contracts are standardized exchange-traded contracts. The quantity of the underlying, quality of the underlying, the date and month of expiry and minimum price change are standardized. Like a forward contract, a futures contract obligates each party to buy or sell a specific amount of a commodity at a specified price. Unlike a forward contract, buyers and sellers of futures contracts deal with an exchange, not with each other.
3. Options
Options are derivative instruments that provide the holder with the right, but not the obligation, to, pay or receive some quantity of cash or commodity, at an agreed strike price. An option is a contract that gives the buyer of the contract the right to buy (a call or put option) or sell (a put or call option) at a specified price (the “strike price”) over a specified period of time.
Advantages of Call option:
· Protection against rising markets
· Benefit from falling markets
· Flexibility to deal at the money level or at higher level
· Flexibility in physical supply
Advantages of Put Options (Floors):
· Protection against falling market
· Benefit from rising markets
· Physical flexibility
4. Swaps
A swap can be most simply defined as an agreement between two parties to exchange, at some future point, one product, either physical or financial, for another. But, in derivative form swap is purely cash settled.
Derivatives are efficient and effective tools for isolating financial risk and hedging to reduce exposure to risk. Derivative is a product whose value is derived from the value of one or more basic variables, called bases or underlying asset in a contractual manner. The underlying asset can be equity, forex, or commodity like crude oil, agri-products. Derivatives allow investors to transfer risk to others who could profit from taking the risk. Because of their flexibility in dealing with price risk, derivatives have become an increasingly popular way to isolate cash earnings from price fluctuations.
The most commonly used derivative contracts are forward contracts, futures contracts, options, and swaps.
1. Forwards
A forward contract is an agreement between buyer and seller parties for delivery of a specified quality and quantity of a good at an agreed date in the future at a specific price or at a price determined by formula at the time of delivery to the location specified in the contract.
Characteristics of Forward Contract:
· Terms and conditions are negotiated
· Illiquid market
· Credit risk
· Unregulated market (not exchange-traded)
The specifications included in a forward contract are:
· Product
· Price – The price at which delivery will be made in the future
· Quantity – Any number of units as mutually agreed
· Quality – Type
· Future Delivery date
· Delivery Place – How and where delivery will be made at maturity
2. Futures
A Futures contract is an agreement between two parties to buy (long position) or sell (short position) an asset at a certain time in the future at a certain price. Future contracts are standardized exchange-traded contracts. The quantity of the underlying, quality of the underlying, the date and month of expiry and minimum price change are standardized. Like a forward contract, a futures contract obligates each party to buy or sell a specific amount of a commodity at a specified price. Unlike a forward contract, buyers and sellers of futures contracts deal with an exchange, not with each other.
3. Options
Options are derivative instruments that provide the holder with the right, but not the obligation, to, pay or receive some quantity of cash or commodity, at an agreed strike price. An option is a contract that gives the buyer of the contract the right to buy (a call or put option) or sell (a put or call option) at a specified price (the “strike price”) over a specified period of time.
Advantages of Call option:
· Protection against rising markets
· Benefit from falling markets
· Flexibility to deal at the money level or at higher level
· Flexibility in physical supply
Advantages of Put Options (Floors):
· Protection against falling market
· Benefit from rising markets
· Physical flexibility
4. Swaps
A swap can be most simply defined as an agreement between two parties to exchange, at some future point, one product, either physical or financial, for another. But, in derivative form swap is purely cash settled.
Sampling Procedures in Petrol Pumps
Correct Sampling procedures are extremely important if accurate information is to be obtained from the sample being taken.
Improper containers or badly drawn non-representative samples can cause laboratory results to be meaningless.
It is most important that the person assigned to take samples must be trained for this responsibility and is competent.
Sampling is very important phenomenon for the quality control. Samples are drawn for the purpose of ascertaining the conformity of the stock/product to the relevant specifications. For taken the samples from storage tanks we use the weighted sampling cage. To ensure the good sample we follow a sampling procedure:
1. The sampling bottle and sample containers shall always be kept clean.
2. Before use, they shall be rinsed with the product under sampling.
3. Only the type of sample required for the relevant specification to be tested, shall be taken.
4. The sample quantity collected shall be sufficient for carrying out the relevant tests.
5. Sample shall be taken preferably during the cooler part of the day and under shade.
6. The sample container shall be filled maximum 95% of the container capacity. Properly closed and it shall be ensured that there are no leaks.
7. Sample details shall be entered in the form as applicable and fixed to the container.
8. An depot attendant / dealer well conversant with the procedure shall personally supervise sampling and filling of the sample container.
Improper containers or badly drawn non-representative samples can cause laboratory results to be meaningless.
It is most important that the person assigned to take samples must be trained for this responsibility and is competent.
Sampling is very important phenomenon for the quality control. Samples are drawn for the purpose of ascertaining the conformity of the stock/product to the relevant specifications. For taken the samples from storage tanks we use the weighted sampling cage. To ensure the good sample we follow a sampling procedure:
1. The sampling bottle and sample containers shall always be kept clean.
2. Before use, they shall be rinsed with the product under sampling.
3. Only the type of sample required for the relevant specification to be tested, shall be taken.
4. The sample quantity collected shall be sufficient for carrying out the relevant tests.
5. Sample shall be taken preferably during the cooler part of the day and under shade.
6. The sample container shall be filled maximum 95% of the container capacity. Properly closed and it shall be ensured that there are no leaks.
7. Sample details shall be entered in the form as applicable and fixed to the container.
8. An depot attendant / dealer well conversant with the procedure shall personally supervise sampling and filling of the sample container.
Oil and gas industry in India
Oil & Gas Sector in India
Ministry of Petroleum & Natural gas
Petroleum Industry
Exploration & production
Refining
Marketing
ONGC
ONGC VIDESH
OIL
NG processing by:
GAIL
ONGC & OIL
Indian Oil Corporation
Bharat Petroleum Corporation
Hindustan Petroleum Corpn.
Numaligarh Refineries Ltd
Chennai PCL (now in IOC)
BRPL (now in IOC)
Kochi Ref. (now in BPC)
MRPL (Mangalore Refinery & Petrochemicals Ltd.)
In Pvt. Sector:
Reliance Petroleum
Essar
Indian Oil Corporation
Bharat Petroleum Corporation
Hindustan Petroleum Corpn.
IBP Co. Ltd
Balmer Lawrie & Co. Ltd
NRL
Reliance
Essar
Shell
Other Organizations under Ministry of Petroleum & Natural gas:
DGH (Directorate General of Hydrocarbons)
Petroleum Planning & Analysis Cell
OISD (Oil Industry Safety Directorate)
PCRA (Petroleum Conservation Research Association)
PII (Petroleum India International)
CHT (Centre For High Technology)
Petrofed (Peetroleum Federation of India)
Important Data (All India – Industry)
(2007-08)
(MMT)
Refinery Crude Thru’put: 156.1
Product Production: 144.93
Crude Production: 34.117
Imports:
-Crude: 121.67 equivalent to Rs. 2726.99 billion
-Products: 22.72 Rs. 764.43 billion
-Total Imports: 144.39 Rs. 3491.42 billion
Exports : Products 39.33 Rs. 1076.03 billion
Product Sales: 131.01
Imports as %age of India’s
Total exports:
-Gross Imports: 55.8%
-Net Imports: 38.6%
Natural Gas:
- Gross Production: 32.274 Bn. Cub.meter
Marketing Infrastructure
(As on 01.04.2007)
Number of retail outlets: 32149
SKO Dealers: 6607
LPG Distributors 9365
Projected Production Crude oil Nat. Gas
Year (MMT) (MMSCMD)
2009-10 42.49 151.86
2010-11 41.19 150.79
2011-12 39.52 173.23
Ministry of Petroleum & Natural gas
Petroleum Industry
Exploration & production
Refining
Marketing
ONGC
ONGC VIDESH
OIL
NG processing by:
GAIL
ONGC & OIL
Indian Oil Corporation
Bharat Petroleum Corporation
Hindustan Petroleum Corpn.
Numaligarh Refineries Ltd
Chennai PCL (now in IOC)
BRPL (now in IOC)
Kochi Ref. (now in BPC)
MRPL (Mangalore Refinery & Petrochemicals Ltd.)
In Pvt. Sector:
Reliance Petroleum
Essar
Indian Oil Corporation
Bharat Petroleum Corporation
Hindustan Petroleum Corpn.
IBP Co. Ltd
Balmer Lawrie & Co. Ltd
NRL
Reliance
Essar
Shell
Other Organizations under Ministry of Petroleum & Natural gas:
DGH (Directorate General of Hydrocarbons)
Petroleum Planning & Analysis Cell
OISD (Oil Industry Safety Directorate)
PCRA (Petroleum Conservation Research Association)
PII (Petroleum India International)
CHT (Centre For High Technology)
Petrofed (Peetroleum Federation of India)
Important Data (All India – Industry)
(2007-08)
(MMT)
Refinery Crude Thru’put: 156.1
Product Production: 144.93
Crude Production: 34.117
Imports:
-Crude: 121.67 equivalent to Rs. 2726.99 billion
-Products: 22.72 Rs. 764.43 billion
-Total Imports: 144.39 Rs. 3491.42 billion
Exports : Products 39.33 Rs. 1076.03 billion
Product Sales: 131.01
Imports as %age of India’s
Total exports:
-Gross Imports: 55.8%
-Net Imports: 38.6%
Natural Gas:
- Gross Production: 32.274 Bn. Cub.meter
Marketing Infrastructure
(As on 01.04.2007)
Number of retail outlets: 32149
SKO Dealers: 6607
LPG Distributors 9365
Projected Production Crude oil Nat. Gas
Year (MMT) (MMSCMD)
2009-10 42.49 151.86
2010-11 41.19 150.79
2011-12 39.52 173.23
CHARACTERISTICS OF FUTURES TRADING
A "Futures Contract" is a highly standardized contract with certain distinct features. Some of the important features are as under:
a. Future trading is necessarily organized under the auspices of a market association so that such trading is confined to or conducted through members of the association in accordance with the procedure laid down in the Rules & Bye-laws of the association.
b. It is invariably entered into for a standard variety known as the "basis variety" with permission to deliver other identified varieties known as "tenderable varieties".
c. The units of price quotation and trading are fixed in these contracts, parties to the contracts not being capable of altering these units.
d. The delivery periods are specified.
e. The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts. In case he decides to deliver goods, he can do so not only at the location of the Association through which trading is organized but also at a number of other pre-specified delivery centres.
f. In futures market actual delivery of goods takes place only in a very few cases. Transactions are mostly squared up before the due date of the contract and contracts are settled by payment of differences without any physical delivery of goods taking place.
a. Future trading is necessarily organized under the auspices of a market association so that such trading is confined to or conducted through members of the association in accordance with the procedure laid down in the Rules & Bye-laws of the association.
b. It is invariably entered into for a standard variety known as the "basis variety" with permission to deliver other identified varieties known as "tenderable varieties".
c. The units of price quotation and trading are fixed in these contracts, parties to the contracts not being capable of altering these units.
d. The delivery periods are specified.
e. The seller in a futures market has the choice to decide whether to deliver goods against outstanding sale contracts. In case he decides to deliver goods, he can do so not only at the location of the Association through which trading is organized but also at a number of other pre-specified delivery centres.
f. In futures market actual delivery of goods takes place only in a very few cases. Transactions are mostly squared up before the due date of the contract and contracts are settled by payment of differences without any physical delivery of goods taking place.
ECONOMIC BENEFITS OF THE FUTURES TRADING AND ITS PROSPECTS
Futures contracts perform two important functions of price discovery and price risk management with reference to the given commodity. It is useful to all segments of economy. It is useful to producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. It enables the consumer get an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. The futures trading is very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby secure export contract in a competitive market. Having entered into an export contract, it enables him to hedge his risk by operating in futures market. Other benefits of futures trading are:
(i) Price stabilization-in times of violent price fluctuations - this mechanism dampens the peaks and lifts up the valleys i.e. the amplititude of price variation is reduced.
(ii) Leads to integrated price structure throughout the country.Facilitates lengthy and complex, production and manufacturing activities.
(iii) Helps balance in supply and demand position throughout the year.
(iv) Encourages competition and acts as a price barometer to farmers and other trade functionaries.
Future trading is also capable of being misused by unscrupulous speculators. In order to safeguard against uncontrolled speculation certain regulatory measures are introduced from time to time. They are:
a. Limit on open position of an individual operator to prevent over trading;
b. Limit on price fluctuation (daily/weekly) to prevent abrupt upswing or downswing in prices;
c. Special margin deposits to be collected on outstanding purchases or sales to curb excessive speculative activity through financial restraints;
d. Minimum/maximum prices to be prescribed to prevent future prices from falling below the levels that are un remunerative and from rising above the levels not warranted by genuine supply and demand factors.
e. During shortages, extreme steps like skipping trading in certain deliveries of the contract, closing the markets for a specified period and even closing out the contract to overcome emergency situations are taken.
(i) Price stabilization-in times of violent price fluctuations - this mechanism dampens the peaks and lifts up the valleys i.e. the amplititude of price variation is reduced.
(ii) Leads to integrated price structure throughout the country.Facilitates lengthy and complex, production and manufacturing activities.
(iii) Helps balance in supply and demand position throughout the year.
(iv) Encourages competition and acts as a price barometer to farmers and other trade functionaries.
Future trading is also capable of being misused by unscrupulous speculators. In order to safeguard against uncontrolled speculation certain regulatory measures are introduced from time to time. They are:
a. Limit on open position of an individual operator to prevent over trading;
b. Limit on price fluctuation (daily/weekly) to prevent abrupt upswing or downswing in prices;
c. Special margin deposits to be collected on outstanding purchases or sales to curb excessive speculative activity through financial restraints;
d. Minimum/maximum prices to be prescribed to prevent future prices from falling below the levels that are un remunerative and from rising above the levels not warranted by genuine supply and demand factors.
e. During shortages, extreme steps like skipping trading in certain deliveries of the contract, closing the markets for a specified period and even closing out the contract to overcome emergency situations are taken.
Upcoming & ongoing Refinery projects
1. The Hindustan Petroleum Corp Ltd and its partners, including Total S A of France, will decide in April/May 2009 on setting up a 14-15 million tonnes oil refinery cum petrochemical project at Visakhapatnam in Andhra Pradesh.
Besides HPCL and Total, other partners in the project that may cost $US10 billion are gas utility GAIL India Ltd, Oil India Ltd and Mittal Energy Investments Pte Ltd. Mittal has already put on hold investing in the project, due to the global financial woes.
2. Mangalore Refinery and Petrochemicals Ltd (MRPL) has stated that mechanical completion of its capacity enhancement project's third phase at its refinery will be delayed till Oct 2011 from Jun 2010. The estimated cost of the project has gone up to Rs12,412 crore from Rs7,943 crore. The company has been affected by overheated market, which has adversely affected appointment of process licensors, delay in land acquisitions and rise in steel and cement prices since 2007.
3. BPCL-Kochi Refinery Ltd intends to set up refinery bottoms upgrading facilities at Kochi with an investment of Rs8,000 crore. BPCL currently has Bina Refinery in MP which is a JV Bharat Oman Resources Ltd. (BORL). Cost-Around Rs. 10,300 crore and will end at dec.2009. Both the refineries after their completion will lead to the production of 30 MMTPA.
4. IOCL is to start construction on Paradip refinery in Orissa by April 2009. It will be commissioned by 2011-12. Capacity-15MMTPA, Cost-Rs25,000 crore.
5. Guru Gobind Singh Refinery at Bhatinda in Punjab, promoted by HPCL-Mittal Energy at a cost of Rs18,900 crore, will be commissioned by Mar 2011. While Hindustan Petroleum Corporation Ltd (HPCL) and Mittal Energy Ltd hold 49 percent stake each in the project, the financial institutions hold the remaining stake.
6. ONGC has exited the Rs. 25,600 crore Kakinada Refinery project and is replaced by GMR group which will held 51% stake in the project. After completion it will produce 15MMTPA of refined products.
7. IOC is planning to expand its Panipat refinery from 3MMTPA to 15MMTPA in 2009. Also it is planning to commission a Hydrocracker project at Haldia this year.
8. Partners Irving Oil and BP plan to extend the construction period on their planned 300,000 b/d Eider Rock refinery in Nova Scotia, eastern Canada, from four to as many as eight years, Irving says. The slowdown of the $8bn project comes as global refining capacity appears set to exceed demand for the next few years. Construction at Eider Rock is still planned to begin in 2011.
9. Saudi Aramco is deferring construction bids for its 2 refineries(400,000 b/d) at Yanbu and Jubail to first half of2009. Saudi Aramco is working with a JV with Conoco Philips and Total SA of France. They are aiming to cut project costs that are estimated to have risen $12 billion for each refinery. They are planned to start production by 2013. Aramco's 400,000 b/d expansion at the 550,000 b/d Ras Tanura refinery is on course for completion in 2013.Yanbu is the first major project in the Saudi oil sector to be officially delayed due to the global financial crisis and economic slowdown, but Aramco and Conoco insist they remain committed to the 400,000 b/d venture.
10.The completion date for Qatari state-owned QP's 250,000 b/d al-Shaheen refinery has been put back by two years to 2012 because of delays in bidding for contracts. Finance difficulties and expectations of falling costs are prompting Oman to delay its $12bn, 200,000-300,000 b/d Duqm refinery-petrochemical complex. Construction is expected to take five years, although no start-up date has been set.
Besides HPCL and Total, other partners in the project that may cost $US10 billion are gas utility GAIL India Ltd, Oil India Ltd and Mittal Energy Investments Pte Ltd. Mittal has already put on hold investing in the project, due to the global financial woes.
2. Mangalore Refinery and Petrochemicals Ltd (MRPL) has stated that mechanical completion of its capacity enhancement project's third phase at its refinery will be delayed till Oct 2011 from Jun 2010. The estimated cost of the project has gone up to Rs12,412 crore from Rs7,943 crore. The company has been affected by overheated market, which has adversely affected appointment of process licensors, delay in land acquisitions and rise in steel and cement prices since 2007.
3. BPCL-Kochi Refinery Ltd intends to set up refinery bottoms upgrading facilities at Kochi with an investment of Rs8,000 crore. BPCL currently has Bina Refinery in MP which is a JV Bharat Oman Resources Ltd. (BORL). Cost-Around Rs. 10,300 crore and will end at dec.2009. Both the refineries after their completion will lead to the production of 30 MMTPA.
4. IOCL is to start construction on Paradip refinery in Orissa by April 2009. It will be commissioned by 2011-12. Capacity-15MMTPA, Cost-Rs25,000 crore.
5. Guru Gobind Singh Refinery at Bhatinda in Punjab, promoted by HPCL-Mittal Energy at a cost of Rs18,900 crore, will be commissioned by Mar 2011. While Hindustan Petroleum Corporation Ltd (HPCL) and Mittal Energy Ltd hold 49 percent stake each in the project, the financial institutions hold the remaining stake.
6. ONGC has exited the Rs. 25,600 crore Kakinada Refinery project and is replaced by GMR group which will held 51% stake in the project. After completion it will produce 15MMTPA of refined products.
7. IOC is planning to expand its Panipat refinery from 3MMTPA to 15MMTPA in 2009. Also it is planning to commission a Hydrocracker project at Haldia this year.
8. Partners Irving Oil and BP plan to extend the construction period on their planned 300,000 b/d Eider Rock refinery in Nova Scotia, eastern Canada, from four to as many as eight years, Irving says. The slowdown of the $8bn project comes as global refining capacity appears set to exceed demand for the next few years. Construction at Eider Rock is still planned to begin in 2011.
9. Saudi Aramco is deferring construction bids for its 2 refineries(400,000 b/d) at Yanbu and Jubail to first half of2009. Saudi Aramco is working with a JV with Conoco Philips and Total SA of France. They are aiming to cut project costs that are estimated to have risen $12 billion for each refinery. They are planned to start production by 2013. Aramco's 400,000 b/d expansion at the 550,000 b/d Ras Tanura refinery is on course for completion in 2013.Yanbu is the first major project in the Saudi oil sector to be officially delayed due to the global financial crisis and economic slowdown, but Aramco and Conoco insist they remain committed to the 400,000 b/d venture.
10.The completion date for Qatari state-owned QP's 250,000 b/d al-Shaheen refinery has been put back by two years to 2012 because of delays in bidding for contracts. Finance difficulties and expectations of falling costs are prompting Oman to delay its $12bn, 200,000-300,000 b/d Duqm refinery-petrochemical complex. Construction is expected to take five years, although no start-up date has been set.
LAB- LINEAR ALKYL BENZENE
LAB (Linear Alkyl Benzene):-
For more than 30 years, UOP has been a leading innovator in the production of LAB. During that time, we’ve developed the state-of-the-art technology you’ll need to ensure that your new or revamped LAB complex operates most efficiently and produces the highest quality product.LAB is the primary raw material used in the production of linear alkyl benzene sulfonate (LAS). LAB is produced from benzene and long chain normal paraffins. Normal paraffins are commonly derived from kerosene using the Molex process.UOP technology is a key element in the production of LAB. Almost all new LAB complexes built in the last two decades have used UOP technology. UOP also specializes in the development of the catalysts, adsorbents and equipment that enable both new and existing operations to produce high quality LAB.
Linear alkyl benzene (LAB), a basic petrochemical intermediate is derived by alkylation of benzene starting from n-paraffins feedstock, is used to produce LAS (Linear Alkyl benzene Sulphonate). Linear alkyl benzene sulfonates (LAS) for laundry detergents, light-duty dishwashing liquids, industrial cleaners, for household cleaners. In India IOCL’s Gujarat Refinery, Reliance Jamnagar Refinery too produces LAB for companies like Nirma, P&G, and Godrej.
LAB History ,Uses and Properties:-
In 1939, the soap industry began to create detergents using surfactants that were supplied to the soap manufacturers by the petrochemical industry. Because the synthetic detergents produced from these surfactants were a substantial improvement over soap products in use at the time, they soon gave rise to a global synthetic detergent industry.In the late 1940s, UOP developed a process to economically produce commercial quantities of dodecylbenzene sulfonate (BABS), which became one of the surfactants most widely used in synthetic detergents at that time.In the late 1950s, it was found that BABS had a slow rate of biodegradation that resulted in generation of large amounts of foam in surface waters, such as rivers and streams. UOP responded to the industry need for more biodegradable detergents by developing process technology in the 1960s to produce linear alkyl benzene (LAB), a new surfactant raw material used to make linear alkyl benzene sulfonate (LAS). The focus became biodegradability. And LAS was selected because of its high rate of biodegradability.LAS were deemed to be a much more biodegradable surfactant, and to this day is one of the main building blocks in the manufacture of detergents. The popularity of LAB can be attributed to excellent LAS surfactant properties, its biodegradability, and its low cost of manufacture compared to other surfactant raw materials. Over the past several decades, worldwide demand for LAB has continued to grow, and in response, UOP process technology has continued to advance. Today, UOP is the leading licensor of LAB process technology in the world. Linear alkyl benzene sulfonate (LAS), is the most cost-effective surfactant available for use in detergent formulations. Environmentally proven LAS has the largest volume among existing surfactants. For the production of LAB, usually C10 to C13, C11 to C14, or C10 to C14 n-paraffins are used. LAS eliminate dirt by its physicochemical mechanism and it is one of the surfactants most widely used in liquid cleaners and in powder. LAS have been used for years in the manufacture of detergents and it is known for its excellent quality price ratio.
Under normal weather conditions, linear alkyl benzene is a transparent, odourless liquid. Linear Alkylbenze and linear alkyl benzene sulfonate are entirely biodegradable and do not accumulate in the environment. In brief, linear alkyl benzene is the combination of a paraffin molecule and a benzene molecule. The benzene molecule has an affinity for that of paraffin. On the other hand, the paraffin molecule is not ready to receive the benzene molecule. Modifications are thus necessary.
The total world LAB production capacity in 2002 was estimated at 2.5 million tons, with 300, 000 tons being consumed in Western Europe. LAS currently represents one-third of the active ingredients in detergents worldwide. Virtually all LAB is transformed into LAS.
Intro to Six- Sigma
Six Sigma at many organizations simply means a measure of quality that strives for near perfection. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects (driving towards six standard deviations between the mean and the nearest specification limit) in any process -- from manufacturing to transactional and from product to service. Six Sigma seeks to identify and remove the causes of defects and errors in manufacturing and processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization ("Black Belts" etc.) who are experts in these methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified financial targets (cost reduction or profit increase).
The statistical representation of Six Sigma describes quantitatively how a process is performing. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a defect. Process sigma can easily be calculated using a Six Sigma calculator.
The fundamental objective of the Six Sigma methodology is the implementation of a measurement-based strategy that focuses on process improvement and variation reduction through the application of Six Sigma improvement projects. This is accomplished through the use of two Six Sigma sub-methodologies: DMAIC and DMADV. The Six Sigma DMAIC process (defines, measure, analyze, improve, control) is an improvement system for existing processes falling below specification and looking for incremental improvement. The Six Sigma DMADV process (define, measure, analyze, design, verify) is an improvement system used to develop new processes or products at Six Sigma quality levels. It can also be employed if a current process requires more than just incremental improvement. Both Six Sigma processes are executed by Six Sigma Green Belts and Six Sigma Black Belts, and are overseen by Six Sigma Master Black Belts.
According to the Six Sigma Academy, Black Belts save companies approximately $230,000 per project and can complete four to 6 projects per year. General Electric, one of the most successful companies implementing Six Sigma, has estimated benefits on the order of $10 billion during the first five years of implementation. GE first began Six Sigma in 1995 after Motorola and Allied Signal blazed the Six Sigma trail. Since then, thousands of companies around the world have discovered the far reaching benefits of Six Sigma.
The statistical representation of Six Sigma describes quantitatively how a process is performing. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a defect. Process sigma can easily be calculated using a Six Sigma calculator.
The fundamental objective of the Six Sigma methodology is the implementation of a measurement-based strategy that focuses on process improvement and variation reduction through the application of Six Sigma improvement projects. This is accomplished through the use of two Six Sigma sub-methodologies: DMAIC and DMADV. The Six Sigma DMAIC process (defines, measure, analyze, improve, control) is an improvement system for existing processes falling below specification and looking for incremental improvement. The Six Sigma DMADV process (define, measure, analyze, design, verify) is an improvement system used to develop new processes or products at Six Sigma quality levels. It can also be employed if a current process requires more than just incremental improvement. Both Six Sigma processes are executed by Six Sigma Green Belts and Six Sigma Black Belts, and are overseen by Six Sigma Master Black Belts.
According to the Six Sigma Academy, Black Belts save companies approximately $230,000 per project and can complete four to 6 projects per year. General Electric, one of the most successful companies implementing Six Sigma, has estimated benefits on the order of $10 billion during the first five years of implementation. GE first began Six Sigma in 1995 after Motorola and Allied Signal blazed the Six Sigma trail. Since then, thousands of companies around the world have discovered the far reaching benefits of Six Sigma.
Types of CNG stations
TYPE OF CNG STATIONS:-Four types of CNG stations are as follow:
Mother Station: Mother stations are connected to the pipeline and have high compression capacity. These stations supply CNG to both vehicles and daughter stations (through mobile cascades). Typically they have the facility of filling all types of vehicles – buses/autos/cars. The Mother station requires heavy investment towards compressor, dispensers, cascades, pipelines, tubing etc.
Online Station: CNG vehicle storage cylinders need to be filled at a pressure of 200 bars. “On line Stations” are equipped with a compressor of relatively small capacity, which compresses low pressure pipeline gas to the pressure of 250 bar for dispensing CNG to the vehicle cylinder. The investment in an online station is midway between daughter station and mother station.
Daughter Station: The “Daughter Stations” dispenses CNG using mobile cascades. These mobile cascades at daughter stations are replaced when pressure falls and pressure depleted mobile cascade is refilled at the “Mother Station”. The investment in a daughter station is least among all types of CNG stations. There is reduction in storage pressure at daughter stations with each successive filling. As the storage pressure drops, the refueling time increases, while the quantity of CNG dispensed to vehicle also decreases.
Daughter-Booster Station: Installing a booster compressor can eliminate drawbacks of daughter stations. The mobile cascade can be connected to the dispensing system through a booster. Daughter booster (compressor) is designed to take variable suction pressure and discharge at constant pressure of 200 bars to the vehicle being filled with CNG. The investment in daughter booster station is slightly higher than that of daughter station.
CNG- ADVANTAGES & DISADVANTAGES
Advantages of CNG
It is the most economical & environment friendly fuel available. Though the initial cost of conversion kit may seem to be high, the same can be recovered in less than 2 years because of low operating cost.
It is the most economical & environment friendly fuel available. Though the initial cost of conversion kit may seem to be high, the same can be recovered in less than 2 years because of low operating cost.
CNG is environment friendly, No cancer causing particulates, less carbon monoxide & hydro carbon emissions, less ground level ozone contamination & Green House gases effects. CNG is much safer than Gasoline, diesel fuels or LPG.
CNG reduces engine wear, more than doubling engine life because CNG burns clean & leaves no carbon deposits.
CNG offers lower maintenance cost. It is a dry gaseous fuel & does not dilute the lubricating oil, thus saving on oil filters & oil changing. Intervals between tune ups for CNG vehicles are stated to be more than 70,000 kms.
If CNG is used, there is complete freedom from adulteration by solvents, kerosene or any other harmful substance.
As far as safety is concerned, CNG is considered to have advantage over liquid fuels. Refueling is through a sealed fail-safe system so no vapours are released to atmosphere. CNG storage cylinders are considerably stronger and usually better sited on the vehicle than mild steel liquid fuel tanks. In the unlikely event of a CNG cylinder leaking after an accident, the gas would rise and diffuse rapidly whereas the liquid fuels would spread over a wide area, with a high risk of ignition, before eventually evaporating to form a dispersing heavy vapour.
Disadvantages CNG
Shorter distance covered before refilling is required – This problem may be partially addressed with a higher coverage of CNG refilling stations, particularly on a contiguous basis.
Higher re-fueling time – This is being addressed to through continuous technological innovations and having more number of online mother stations, more so in the bus depots so that larger vehicles (like, buses) are catered to separately to reduce the overall waiting time.
Loss of engine power- Power losses in dual fuelled CNG vehicles can be in the range of 5 to 30%. These losses are reduced when the vehicle is optimized to run on CNG. If acceleration times are not important for the vehicle’s normal duty, power losses are compensated by an improvement in engine efficiency of up to 15% due mainly due to the efficient combustion of the fuel/ air mixture.
Loss of space & additional weight – As the CNG compressor are made from high quality steel and is of significant thickness, positioning of another container in duel-fuelled vehicles is an issue.
High conversion cost – The conversion cost, when CNG is introduced in a city, is high as the economics of manufacturing kit is low, due to lesser number ordered, imports & presence of less OEMs’. However, as the conversion number increases, the unit cost of conversion is bound to come down with vehicle manufacturers in a position to offer factor-fitted kits at significantly lower costs.
It is the most economical & environment friendly fuel available. Though the initial cost of conversion kit may seem to be high, the same can be recovered in less than 2 years because of low operating cost.
It is the most economical & environment friendly fuel available. Though the initial cost of conversion kit may seem to be high, the same can be recovered in less than 2 years because of low operating cost.
CNG is environment friendly, No cancer causing particulates, less carbon monoxide & hydro carbon emissions, less ground level ozone contamination & Green House gases effects. CNG is much safer than Gasoline, diesel fuels or LPG.
CNG reduces engine wear, more than doubling engine life because CNG burns clean & leaves no carbon deposits.
CNG offers lower maintenance cost. It is a dry gaseous fuel & does not dilute the lubricating oil, thus saving on oil filters & oil changing. Intervals between tune ups for CNG vehicles are stated to be more than 70,000 kms.
If CNG is used, there is complete freedom from adulteration by solvents, kerosene or any other harmful substance.
As far as safety is concerned, CNG is considered to have advantage over liquid fuels. Refueling is through a sealed fail-safe system so no vapours are released to atmosphere. CNG storage cylinders are considerably stronger and usually better sited on the vehicle than mild steel liquid fuel tanks. In the unlikely event of a CNG cylinder leaking after an accident, the gas would rise and diffuse rapidly whereas the liquid fuels would spread over a wide area, with a high risk of ignition, before eventually evaporating to form a dispersing heavy vapour.
Disadvantages CNG
Shorter distance covered before refilling is required – This problem may be partially addressed with a higher coverage of CNG refilling stations, particularly on a contiguous basis.
Higher re-fueling time – This is being addressed to through continuous technological innovations and having more number of online mother stations, more so in the bus depots so that larger vehicles (like, buses) are catered to separately to reduce the overall waiting time.
Loss of engine power- Power losses in dual fuelled CNG vehicles can be in the range of 5 to 30%. These losses are reduced when the vehicle is optimized to run on CNG. If acceleration times are not important for the vehicle’s normal duty, power losses are compensated by an improvement in engine efficiency of up to 15% due mainly due to the efficient combustion of the fuel/ air mixture.
Loss of space & additional weight – As the CNG compressor are made from high quality steel and is of significant thickness, positioning of another container in duel-fuelled vehicles is an issue.
High conversion cost – The conversion cost, when CNG is introduced in a city, is high as the economics of manufacturing kit is low, due to lesser number ordered, imports & presence of less OEMs’. However, as the conversion number increases, the unit cost of conversion is bound to come down with vehicle manufacturers in a position to offer factor-fitted kits at significantly lower costs.
Carbon Sequestration- Curbing Global Warming
Before starting up with the topic let us see what is Carbon Capture and Storing. Carbon capture and storage (CCS) is an approach to mitigate the contribution of fossil fuel emissions to global warming. It is based on capturing carbon dioxide (CO2) from large point sources such as fossil fuel power plants. It can also be used to describe the scrubbing of CO2 (A CO2 scrubber is a device which absorbs carbon dioxide) from ambient air as a geoengineering technique. The concept of geoengineering is usually taken to mean proposals to deliberately manipulate the Earth's climate to counteract the effects of global warming from greenhouse gas emissions. The captured carbon dioxide can then be permanently stored away from the atmosphere. Carbon dioxide is been extensively used for crude oil EOR operations in US.
Carbon sequestration is the storage of carbon dioxide through biological, chemical or physical processes, for the mitigation of global warming. Mitigation of global warming involves taking actions to reduce greenhouse gas emissions and to enhance carbon sinks aimed at reducing the extent of global warming. A Carbon Sink is a natural or manmade reservoir that accumulates and stores carbon containing chemical compound for an indefinite period.
1. The main Natural sinks are:-
· Absorption of CO2 by the oceans.
· Photosynthesis by plants and algae.
2. The main Manmade sinks are:-
· Landfills- A landfill, also known as a dump is a site for the disposal of waste (here waste is CO2 ) materials by burial and is the oldest form of waste treatment.
· Carbon capture and storage proposals.
Carbon capture and sequestration begins with the separation and capture of CO2 from power plant flue gas and other stationary CO2 sources. At present, this process is costly and energy intensive, accounting for the majority of the cost of sequestration. However, analysis shows the potential for cost reductions of 30–45 percent for CO2 capture. Post-combustion, pre-combustion, and oxy-combustion capture systems being developed are expected to be capable of capturing more than 90 percent of flue gas CO2.
The next step is to sequester (store) the CO2. The primary means for carbon storage are injecting CO2 into geologic formations or using terrestrial applications. Geologic sequestration involves taking the CO2 that has been captured from power plants and other stationary sources and storing it in deep underground geologic formations in such a way that CO2 will remain permanently stored. Geologic formations such as oil and gas reservoirs, unmineable coal seams, and underground saline formations are potential options for storing CO2. Storage in basalt formations and organic rich shales is also being investigated.
Terrestrial sequestration involves the net removal of CO2 from the atmosphere by plants and microorganisms that use CO2 in their natural cycles. Terrestrial sequestration requires the development of technologies to quantify with a high degree of precision and reliability the amount of carbon stored in a given ecosystem.
In September 2008, a Coal-fired power plant in Spremberg, Eastern Germany, became the world's first coal using plant to capture and store carbon dioxide. The Swedish electricity provider Vattenfall has invested 70 million Euros in this project. The idea is simple. Carbon dioxide is captured, turned into liquid and transported hundreds of kilometers. It is then stored 3,500 meters underground in natural gas caves. But this project has been heavily criticized by environmentalists. This new technology needs more coal to produce the same amount of electricity as with conventional means. And no one is sure whether the stored CO2 may not cause an increase in the temperature underground.
Carbon sequestration is the storage of carbon dioxide through biological, chemical or physical processes, for the mitigation of global warming. Mitigation of global warming involves taking actions to reduce greenhouse gas emissions and to enhance carbon sinks aimed at reducing the extent of global warming. A Carbon Sink is a natural or manmade reservoir that accumulates and stores carbon containing chemical compound for an indefinite period.
1. The main Natural sinks are:-
· Absorption of CO2 by the oceans.
· Photosynthesis by plants and algae.
2. The main Manmade sinks are:-
· Landfills- A landfill, also known as a dump is a site for the disposal of waste (here waste is CO2 ) materials by burial and is the oldest form of waste treatment.
· Carbon capture and storage proposals.
Carbon capture and sequestration begins with the separation and capture of CO2 from power plant flue gas and other stationary CO2 sources. At present, this process is costly and energy intensive, accounting for the majority of the cost of sequestration. However, analysis shows the potential for cost reductions of 30–45 percent for CO2 capture. Post-combustion, pre-combustion, and oxy-combustion capture systems being developed are expected to be capable of capturing more than 90 percent of flue gas CO2.
The next step is to sequester (store) the CO2. The primary means for carbon storage are injecting CO2 into geologic formations or using terrestrial applications. Geologic sequestration involves taking the CO2 that has been captured from power plants and other stationary sources and storing it in deep underground geologic formations in such a way that CO2 will remain permanently stored. Geologic formations such as oil and gas reservoirs, unmineable coal seams, and underground saline formations are potential options for storing CO2. Storage in basalt formations and organic rich shales is also being investigated.
Terrestrial sequestration involves the net removal of CO2 from the atmosphere by plants and microorganisms that use CO2 in their natural cycles. Terrestrial sequestration requires the development of technologies to quantify with a high degree of precision and reliability the amount of carbon stored in a given ecosystem.
In September 2008, a Coal-fired power plant in Spremberg, Eastern Germany, became the world's first coal using plant to capture and store carbon dioxide. The Swedish electricity provider Vattenfall has invested 70 million Euros in this project. The idea is simple. Carbon dioxide is captured, turned into liquid and transported hundreds of kilometers. It is then stored 3,500 meters underground in natural gas caves. But this project has been heavily criticized by environmentalists. This new technology needs more coal to produce the same amount of electricity as with conventional means. And no one is sure whether the stored CO2 may not cause an increase in the temperature underground.
FIXED AND VARIABLE COST COMPONENTS INCURRED IN THERMAL POWER PLANT AND WAYS TO IMPROVE COST EFFICIENCY
Electricity is the only form of energy which is easy to produce, easy to transport, easy to use and easy to control. So, it is mostly the terminal form of energy for transmission and distribution. Electricity consumption per capita is the index of the living standard of people of a place or country.
Electricity in bulk is produced in power plants, which can be of the following types:
1. Thermal power plant.
2. Nuclear power plant.
3. Hydraulic power plant.
Thermal, nuclear power plants work with steam as the working fluid. Thermal power plants generate more than 80% of the total electricity produced in the world. Fossil fuels like fuel oil, coal, natural gas are the energy source and steam is the working fluid.
LOCATION OF POWER PLANTS:-
a) Availability of cooling water.
b) Availability of fuel.
c) Cost of land.
d) With coal-fired stations, disposal of ash.
e) Rail and road connections.
Thus, these are the main factors on which concern should be given before erecting a power plant.
POWER PLANT ECONOMICS:-
A power plant should provide a reliable supply of electricity at minimum cost to the consumer. The cost per kWh is determined by:
· Fixed costs(FC), mainly interest, depreciation, insurance, taxes, depending on the capital invested, i.e. on the construction costs of the plant, cost of the building, machinery and the cost of the land.
· Operating and maintenance costs (i.e. the variable costs) costs covering the salaries, wages, overhauling of equipments, repairs including spare parts and miscellaneous expenses.
· Fuel cost (i.e. coal here in the case of thermal power plant), depending on the amount of electricity generated.
The total annual costs (C) in a power plant can be calculated from:
Where I is the interest %, D is the depreciation %, T is the taxes and insurance %, Cc is the construction cost, W is the wages and salaries, R is the repairs, M is the miscellaneous costs, and Cf is the fuel cost.
The costs in the power generation can be reduced by:
1) Selecting equipment of longer life and proper capacities.
2) Running the power station at high load.
3) Increasing the efficiency of the power plant.
4) Carrying out maintenance of power plant equipment to avoid plant breakdowns.
5) Keeping proper supervision, since good supervision is reflected in lesser breakdowns and extended plant life.
6) Using a plant of simple design that does not need highly skilled personnel.
Essential requirements of steam power station design
1) Reliability.
2) Minimum capital cost.
3) Minimum operating and maintenance cost.
4) Capacity to meet peak load effectively.
5) Minimum losses of energy in transmission.
6) Low cost of energy supplied to the customers.
7) Reserve capacity to meet the future demands.
For the power economics let us define some related points.
Capital Cost: Capital costs are those costs which occur only once and are usually limited to the costs of procurement and construction of the facilities prior to the time of commercial operation. Land, building, interest, machinery, installation, taxes, insurance, depreciation costs come under the capital cost.
Operational Cost: It includes
· Fuel cost
· Operating labour cost
· Maintenance cost
· Suppliers
· Supervision
· Operating taxes.
Thus, in the Capital costs land , building, interest, machinery, installation, taxes, insurance, depreciation costs come under the fixed costs. The fixed costs are those which remain fixed irrespective of the number of units we produce.
Thus, in the Operational costs fuel costs, Labour cost (salary & wages), raw materials, maintenance cost, supervision cost, cost of transportation (i.e. bringing the coal and transmission of produced electricity) etc.
TOTAL COST INCURRED= TOTAL FIXED COSTS+ TOTAL VARIABLE COSTS.
In the figure total fixed cost is indicated by a horizontal line i.e. this cost is constant with respect to output. The total variable cost function begins at the origin and increases at a decreasing rate and then increases at an increasing rate. Total cost has the same shape as the total variable cost but is slightly above it. These functions relate an output rate to the total cost of producing that output rate.
Electricity in bulk is produced in power plants, which can be of the following types:
1. Thermal power plant.
2. Nuclear power plant.
3. Hydraulic power plant.
Thermal, nuclear power plants work with steam as the working fluid. Thermal power plants generate more than 80% of the total electricity produced in the world. Fossil fuels like fuel oil, coal, natural gas are the energy source and steam is the working fluid.
LOCATION OF POWER PLANTS:-
a) Availability of cooling water.
b) Availability of fuel.
c) Cost of land.
d) With coal-fired stations, disposal of ash.
e) Rail and road connections.
Thus, these are the main factors on which concern should be given before erecting a power plant.
POWER PLANT ECONOMICS:-
A power plant should provide a reliable supply of electricity at minimum cost to the consumer. The cost per kWh is determined by:
· Fixed costs(FC), mainly interest, depreciation, insurance, taxes, depending on the capital invested, i.e. on the construction costs of the plant, cost of the building, machinery and the cost of the land.
· Operating and maintenance costs (i.e. the variable costs) costs covering the salaries, wages, overhauling of equipments, repairs including spare parts and miscellaneous expenses.
· Fuel cost (i.e. coal here in the case of thermal power plant), depending on the amount of electricity generated.
The total annual costs (C) in a power plant can be calculated from:
Where I is the interest %, D is the depreciation %, T is the taxes and insurance %, Cc is the construction cost, W is the wages and salaries, R is the repairs, M is the miscellaneous costs, and Cf is the fuel cost.
The costs in the power generation can be reduced by:
1) Selecting equipment of longer life and proper capacities.
2) Running the power station at high load.
3) Increasing the efficiency of the power plant.
4) Carrying out maintenance of power plant equipment to avoid plant breakdowns.
5) Keeping proper supervision, since good supervision is reflected in lesser breakdowns and extended plant life.
6) Using a plant of simple design that does not need highly skilled personnel.
Essential requirements of steam power station design
1) Reliability.
2) Minimum capital cost.
3) Minimum operating and maintenance cost.
4) Capacity to meet peak load effectively.
5) Minimum losses of energy in transmission.
6) Low cost of energy supplied to the customers.
7) Reserve capacity to meet the future demands.
For the power economics let us define some related points.
Capital Cost: Capital costs are those costs which occur only once and are usually limited to the costs of procurement and construction of the facilities prior to the time of commercial operation. Land, building, interest, machinery, installation, taxes, insurance, depreciation costs come under the capital cost.
Operational Cost: It includes
· Fuel cost
· Operating labour cost
· Maintenance cost
· Suppliers
· Supervision
· Operating taxes.
Thus, in the Capital costs land , building, interest, machinery, installation, taxes, insurance, depreciation costs come under the fixed costs. The fixed costs are those which remain fixed irrespective of the number of units we produce.
Thus, in the Operational costs fuel costs, Labour cost (salary & wages), raw materials, maintenance cost, supervision cost, cost of transportation (i.e. bringing the coal and transmission of produced electricity) etc.
TOTAL COST INCURRED= TOTAL FIXED COSTS+ TOTAL VARIABLE COSTS.
In the figure total fixed cost is indicated by a horizontal line i.e. this cost is constant with respect to output. The total variable cost function begins at the origin and increases at a decreasing rate and then increases at an increasing rate. Total cost has the same shape as the total variable cost but is slightly above it. These functions relate an output rate to the total cost of producing that output rate.
What is the current debate of Gas pricing in India
What is the current debate about gas pricing in India?
Prices of oil and natural gas have increased in the world market. And there seem to be four types of disputes. First, under the New Exploration Licensing Policy introduced in 1999, when blocks are awarded to companies for exploration investment, the producers who find gas are allowed to sell at market prices.
Because of the high demand and high global prices, gas producers in India such as RIL (Reliance Industries Ltd) and ONGC are able to get higher market prices but which are neither acceptable to nor affordable by some consumers. Hence the industries and government are debating if producers should be allowed to sell with high margins (mark-up) in a socially sensitive sector.
Second, Reliance ADAG and NTPC have claimed right over supplies from Reliance Industries’ (RIL’s) gas output from KG Basin. Since RIL is going ahead with contracting supplies with other consumers, Reliance ADAG and NTPC have approached the courts. Apparently the Government would not be able to take any decision on pricing or allocation, till the case is settled by the court. The delays in contracting gas supply, which is expected to be available from the middle of next year, are worrying producers as they are unable to ensure a return on billions of dollars invested in the gas ventures.
Third, to overcome the higher cost of tied-up sources of LNG, Petronet LNG has asked old consumers to pay more so that it can supply gas to the Dabhol power project at an affordable rate. Consumers have taken the issue to court seeking enforcement of terms contracted with the supplier.
Finally, in a separate development, States have allowed some investors to go ahead and develop pipeline networks in cities. Gas being a ‘Central’ subject, the Union Government is objecting to such licences being granted to developers.
The adjudication of these four cases will influence India’s gas market development phase.
Would these events affect the interest of investors?
Upstream investments are attracted by reducing underground and above-the-ground risks for investors. Underground risks are reduced by providing data to investors for analysis of hydrocarbon prospects. Above-the-ground risks are reduced by making the business environment conducive to investments. These could include firm policies and plans for commercialising discoveries. In India, unfortunately, investments in Rajasthan and KG Basin are facing hurdles in commercialising the product despite the discovery of oil and gas. These hurdles could discourage investors from placing their stakes in India.
What is the role governments can play and can regulators provide any solution?
Venezuela and Russia are examples of governments nationalising resources. Although India is not in that league, stakeholders wonder if the Government, citing consumer interests, would renege on contractual commitments to investors of offering market-determined prices.
While the producers would be well within rights to discover the best price for their output, regulators would need to oversee the contract procedure to discourage any monopolistic behaviour. This is necessary in India because gas markets are regionalised and pipeline networks are far from competitive.
What is the effect of putting price caps on an important commodity like gas?
Pricing of energy products such as gas must reflect their economic value. The user must pay. Although capping the prices of products is expected to be in the interest of consumers, it has its adverse effects. Energy planners are happy that over the last 3-4 years, the world’s energy elasticity to GDP is dropping, a phenomenon true for many countries. High prices are leading to technological advancements resulting in efficiency. This desired trend would be missing in territories where consumers are not facing high global prices due to artificial caps, resulting in poor economic efficiency, trade and fiscal imbalances.
What then can the Government do for equitable distribution of resource?
Natural gas is a premium energy source and has much wider applications than any other hydrocarbon or fossil fuel product. The supply deficit is likely to exist. Resultantly those consumers who value the product most would be ready to pay more for the fuel. For needy consumers with low ability-to-pay, the Government has some options.
The Indian Production Sharing Contracts (PSCs) have provisions for supply by producers, free of cost, the Government’s share of gas. The Government would be free to use this gas to meet the needs of low-ability-to-pay consumers. Should the Government share not suffice, it would need to subsidise the difference for such consumers.
Why then is the Government not relying on ‘profit petroleum’?
The ‘profit-petroleum’ provision in PSC, which determines the Government’s share of oil or gas, is the attraction of Production Sharing regimes both for investors and the Government. In India, the provisions have not reached any practical acceptability between investors and the Government. The volumes are determined by ‘Investment Multiples’ and, hence, vary every year.
The Government, therefore, cannot plan and off-take sustained volumes of gas for a longer duration. Consequently, it has been accepting the share in cash rather than in kind, depriving itself of the opportunity to offer gas to socially critical sector.
The Government’s desire to keep commitments to off-take at as low as one to five years is not in the interest of investors, since its consumers do not want to suffer shortages if the Government decides to opt for gas in kind. To come out of this situation, it needs to be assessed if the PSC terms can be reset for future contracts to overcome such issues.
Prices of oil and natural gas have increased in the world market. And there seem to be four types of disputes. First, under the New Exploration Licensing Policy introduced in 1999, when blocks are awarded to companies for exploration investment, the producers who find gas are allowed to sell at market prices.
Because of the high demand and high global prices, gas producers in India such as RIL (Reliance Industries Ltd) and ONGC are able to get higher market prices but which are neither acceptable to nor affordable by some consumers. Hence the industries and government are debating if producers should be allowed to sell with high margins (mark-up) in a socially sensitive sector.
Second, Reliance ADAG and NTPC have claimed right over supplies from Reliance Industries’ (RIL’s) gas output from KG Basin. Since RIL is going ahead with contracting supplies with other consumers, Reliance ADAG and NTPC have approached the courts. Apparently the Government would not be able to take any decision on pricing or allocation, till the case is settled by the court. The delays in contracting gas supply, which is expected to be available from the middle of next year, are worrying producers as they are unable to ensure a return on billions of dollars invested in the gas ventures.
Third, to overcome the higher cost of tied-up sources of LNG, Petronet LNG has asked old consumers to pay more so that it can supply gas to the Dabhol power project at an affordable rate. Consumers have taken the issue to court seeking enforcement of terms contracted with the supplier.
Finally, in a separate development, States have allowed some investors to go ahead and develop pipeline networks in cities. Gas being a ‘Central’ subject, the Union Government is objecting to such licences being granted to developers.
The adjudication of these four cases will influence India’s gas market development phase.
Would these events affect the interest of investors?
Upstream investments are attracted by reducing underground and above-the-ground risks for investors. Underground risks are reduced by providing data to investors for analysis of hydrocarbon prospects. Above-the-ground risks are reduced by making the business environment conducive to investments. These could include firm policies and plans for commercialising discoveries. In India, unfortunately, investments in Rajasthan and KG Basin are facing hurdles in commercialising the product despite the discovery of oil and gas. These hurdles could discourage investors from placing their stakes in India.
What is the role governments can play and can regulators provide any solution?
Venezuela and Russia are examples of governments nationalising resources. Although India is not in that league, stakeholders wonder if the Government, citing consumer interests, would renege on contractual commitments to investors of offering market-determined prices.
While the producers would be well within rights to discover the best price for their output, regulators would need to oversee the contract procedure to discourage any monopolistic behaviour. This is necessary in India because gas markets are regionalised and pipeline networks are far from competitive.
What is the effect of putting price caps on an important commodity like gas?
Pricing of energy products such as gas must reflect their economic value. The user must pay. Although capping the prices of products is expected to be in the interest of consumers, it has its adverse effects. Energy planners are happy that over the last 3-4 years, the world’s energy elasticity to GDP is dropping, a phenomenon true for many countries. High prices are leading to technological advancements resulting in efficiency. This desired trend would be missing in territories where consumers are not facing high global prices due to artificial caps, resulting in poor economic efficiency, trade and fiscal imbalances.
What then can the Government do for equitable distribution of resource?
Natural gas is a premium energy source and has much wider applications than any other hydrocarbon or fossil fuel product. The supply deficit is likely to exist. Resultantly those consumers who value the product most would be ready to pay more for the fuel. For needy consumers with low ability-to-pay, the Government has some options.
The Indian Production Sharing Contracts (PSCs) have provisions for supply by producers, free of cost, the Government’s share of gas. The Government would be free to use this gas to meet the needs of low-ability-to-pay consumers. Should the Government share not suffice, it would need to subsidise the difference for such consumers.
Why then is the Government not relying on ‘profit petroleum’?
The ‘profit-petroleum’ provision in PSC, which determines the Government’s share of oil or gas, is the attraction of Production Sharing regimes both for investors and the Government. In India, the provisions have not reached any practical acceptability between investors and the Government. The volumes are determined by ‘Investment Multiples’ and, hence, vary every year.
The Government, therefore, cannot plan and off-take sustained volumes of gas for a longer duration. Consequently, it has been accepting the share in cash rather than in kind, depriving itself of the opportunity to offer gas to socially critical sector.
The Government’s desire to keep commitments to off-take at as low as one to five years is not in the interest of investors, since its consumers do not want to suffer shortages if the Government decides to opt for gas in kind. To come out of this situation, it needs to be assessed if the PSC terms can be reset for future contracts to overcome such issues.
Facts of Petroleum
COMPOSITION:-
The proportion of hydrocarbons in the mixture of crude oil is highly variable and ranges from as much as 97% by weight in the lighter oils to as little as 50% in the heavier oils.
The hydrocarbons in crude oil are mostly alkanes, cycloalkanes and various aromatic hydrocarbons while the other organic compounds contain nitrogen, oxygen and sulfur,
and trace amounts of metals such as iron, nickel, copper and vanadium. The exact molecular composition varies widely from formation to formation but the proportion of chemical elements vary over fairly narrow limits as follows:
1) Carbon -- 83-87%
2) Hydrogen --10-14%
3) Nitrogen--0.1-2%
4) Oxygen--0.1-1.5%
5) Sulfur--0.5-6%
6) Metals-- <1000ppm
Crude oil varies greatly in appearance depending on its composition. It is usually black or dark brown (although it may be yellowish or even greenish). It is mainly garlic in smell. In the reservoir it is usually found in association with natural gas, which being lighter forms a gas cap over the petroleum, and saline water which being heavier generally floats underneath it. Petroleum is used mostly, by volume, for producing fuel oil and gasoline (petrol), both important "primary energy" sources. 84% by volume of the hydrocarbons present in petroleum is converted into energy-rich fuels (petroleum-based fuels), including gasoline, diesel, jet, heating, and other fuel oils, and liquefied petroleum gas.
Due to its high energy density, easy transportability and relative abundance, it has become the world's most important source of energy since the mid-1950s. Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics; the 16% not used for energy production is converted into these other materials.
CHEMISTRY:-
Petroleum is a mixture of a very large number of different hydrocarbons; the most commonly found molecules are alkanes (linear or branched), cycloalkanes, aromatic hydrocarbons, or more complicated chemicals like asphaltenes. Each petroleum variety has a unique mix of molecules, which define its physical and chemical properties, like color and viscosity.
The alkanes, also known as paraffins, are saturated hydrocarbons with straight or branched chains which contain only carbon and hydrogen and have the general formula CnH2n+2 They generally have from 5 to 40 carbon atoms per molecule. The alkanes from pentane (C5H12) to octane (C8H18) are refined into gasoline (petrol), the ones from nonane (C9H20) to hexadecane (C16H34) into diesel fuel and kerosene (primary component of many types of jet fuel), and the ones from hexadecane upwards into fuel oil and lubricating oil. At the heavier end of the range, paraffin wax is an alkane with approximately 25 carbon atoms, while asphalt has 35 and up.
The cycloalkanes, also known as napthenes, are saturated hydrocarbons which have one or more carbon rings to which hydrogen atoms are attached according to the formula CnH2n. Cycloalkanes have similar properties to alkanes but have higher boiling points.
The aromatic hydrocarbons are unsaturated hydrocarbons which have one or more planar six-carbon rings called benzene rings, to which hydrogen atoms are attached with the formula CnHn. They tend to burn with a sooty flame, and many have a sweet aroma.
CLASSIFICATION:-
The petroleum industry generally classifies crude oil by the geographic location it is produced in , its API gravity , and by its sulfur content.
API ( American Petroleum Institute) Gravity:- It is a mathematical equation which is used to measure crude oil’s density. It is given by:-
API Gravity = 141.5/ specific gravity – 131.5
Eg:- API of water = 10. (Because specific gravity of water=1). API values of some other crude oils are:-
1) Crude from Bombay High 40
2) Gulf 25-28
3) Venezuela 15
Crude oil may be considered light if it has low density or heavy if it has high density; and it may be referred to as sweet if it contains relatively little sulfur or sour if it contains substantial amounts of sulfur. The geographic location is also important because it affects transportation costs to the refinery. Light crude oil is more desirable than heavy oil since it produces a higher yield of gasoline, while sweet oil commands a higher price than sour oil because it has fewer environmental problems and requires less refining to meet sulfur standards imposed on fuels in consuming countries.
USES:-
The chemical structure of petroleum is composed of hydrocarbon chains of different lengths. Because of this, petroleum may be taken to oil refineries and the hydrocarbon chemicals separated by distillation and treated by other chemical processes, to be used for a variety of purposes. The most common distillations of petroleum are as various fuels. These include:
Ethane and other short-chain alkanes
Diesel fuel (petrodiesel)
Fuel oils
Gasoline
Jet fuel
Kerosene
Liquefied petroleum gas (LPG)
Natural gas
Bitumen
Aviation Turbine Fuel(ATF)
Naptha
Parrafin Wax
Asphalt
The proportion of hydrocarbons in the mixture of crude oil is highly variable and ranges from as much as 97% by weight in the lighter oils to as little as 50% in the heavier oils.
The hydrocarbons in crude oil are mostly alkanes, cycloalkanes and various aromatic hydrocarbons while the other organic compounds contain nitrogen, oxygen and sulfur,
and trace amounts of metals such as iron, nickel, copper and vanadium. The exact molecular composition varies widely from formation to formation but the proportion of chemical elements vary over fairly narrow limits as follows:
1) Carbon -- 83-87%
2) Hydrogen --10-14%
3) Nitrogen--0.1-2%
4) Oxygen--0.1-1.5%
5) Sulfur--0.5-6%
6) Metals-- <1000ppm
Crude oil varies greatly in appearance depending on its composition. It is usually black or dark brown (although it may be yellowish or even greenish). It is mainly garlic in smell. In the reservoir it is usually found in association with natural gas, which being lighter forms a gas cap over the petroleum, and saline water which being heavier generally floats underneath it. Petroleum is used mostly, by volume, for producing fuel oil and gasoline (petrol), both important "primary energy" sources. 84% by volume of the hydrocarbons present in petroleum is converted into energy-rich fuels (petroleum-based fuels), including gasoline, diesel, jet, heating, and other fuel oils, and liquefied petroleum gas.
Due to its high energy density, easy transportability and relative abundance, it has become the world's most important source of energy since the mid-1950s. Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics; the 16% not used for energy production is converted into these other materials.
CHEMISTRY:-
Petroleum is a mixture of a very large number of different hydrocarbons; the most commonly found molecules are alkanes (linear or branched), cycloalkanes, aromatic hydrocarbons, or more complicated chemicals like asphaltenes. Each petroleum variety has a unique mix of molecules, which define its physical and chemical properties, like color and viscosity.
The alkanes, also known as paraffins, are saturated hydrocarbons with straight or branched chains which contain only carbon and hydrogen and have the general formula CnH2n+2 They generally have from 5 to 40 carbon atoms per molecule. The alkanes from pentane (C5H12) to octane (C8H18) are refined into gasoline (petrol), the ones from nonane (C9H20) to hexadecane (C16H34) into diesel fuel and kerosene (primary component of many types of jet fuel), and the ones from hexadecane upwards into fuel oil and lubricating oil. At the heavier end of the range, paraffin wax is an alkane with approximately 25 carbon atoms, while asphalt has 35 and up.
The cycloalkanes, also known as napthenes, are saturated hydrocarbons which have one or more carbon rings to which hydrogen atoms are attached according to the formula CnH2n. Cycloalkanes have similar properties to alkanes but have higher boiling points.
The aromatic hydrocarbons are unsaturated hydrocarbons which have one or more planar six-carbon rings called benzene rings, to which hydrogen atoms are attached with the formula CnHn. They tend to burn with a sooty flame, and many have a sweet aroma.
CLASSIFICATION:-
The petroleum industry generally classifies crude oil by the geographic location it is produced in , its API gravity , and by its sulfur content.
API ( American Petroleum Institute) Gravity:- It is a mathematical equation which is used to measure crude oil’s density. It is given by:-
API Gravity = 141.5/ specific gravity – 131.5
Eg:- API of water = 10. (Because specific gravity of water=1). API values of some other crude oils are:-
1) Crude from Bombay High 40
2) Gulf 25-28
3) Venezuela 15
Crude oil may be considered light if it has low density or heavy if it has high density; and it may be referred to as sweet if it contains relatively little sulfur or sour if it contains substantial amounts of sulfur. The geographic location is also important because it affects transportation costs to the refinery. Light crude oil is more desirable than heavy oil since it produces a higher yield of gasoline, while sweet oil commands a higher price than sour oil because it has fewer environmental problems and requires less refining to meet sulfur standards imposed on fuels in consuming countries.
USES:-
The chemical structure of petroleum is composed of hydrocarbon chains of different lengths. Because of this, petroleum may be taken to oil refineries and the hydrocarbon chemicals separated by distillation and treated by other chemical processes, to be used for a variety of purposes. The most common distillations of petroleum are as various fuels. These include:
Ethane and other short-chain alkanes
Diesel fuel (petrodiesel)
Fuel oils
Gasoline
Jet fuel
Kerosene
Liquefied petroleum gas (LPG)
Natural gas
Bitumen
Aviation Turbine Fuel(ATF)
Naptha
Parrafin Wax
Asphalt
Origin of petroleum
The Petroleum was formed millions of years ago. According to the widely accepted organic theory, when microscopic plants and animals living in the ancient seas died and they felled to the bottom of the ocean. Gradually with the passage of time thick layers of organic ooze was formed and sediments buried this ooze deep within the earth creating an anaerobic environment. Eventually, pressure from overlying sediments. Heat from the depths and other forces transformed the organic matters into petroleum.
The oil was sparsely distributed in sediments underground the earth, pressure moved this widely dispersed oil and forced it upward through porous & permeable rocks which is its pint of origin. After this process the oil reached the surface to form an oil seep (or spring) and accumulated in rock formations underground.
A trap is an arrangement of rocks in which oil and gas hydrocarbons accumulated. In other words, a trap contains hydrocarbons in a porous and permeable rock bed. Just as a sponge has openings or pores, a porous rock also has openings. However, the pores in a rock are usually very small, even microscopic and if oil and gas occur they occur in these very small pores.
A porous and permeable rock also has microscopic passage ways which connects to the pores. Oil and gas move from pore to pore through the passage ways. In a trap an impermeable bed lies above the porous permeable bed. Since it has no passage ways for oil and gas to move through, this impermeable bed keeps hydrocarbons from moving out of the permeable bed.
Thus we can conclude that all the available evidence points to a recent catastrophic origin for the world’s vast oil deposits, from plant and other organic debris, consistent with the biblical account of earth history. Vast forests grew on land and water surfaces in the pre-Flood world, and the oceans teemed with diatoms and other tiny photosynthetic organisms. Then during the global Flood cataclysm, the forests were uprooted and swept away. Huge masses of plant debris were rapidly buried in what thus became coal beds, and organic matter generally was dispersed throughout the many catastrophically deposited sedimentary rock layers. The coal beds and fossiliferous sediment layers became deeply buried as the Flood progressed. As a result, the temperatures in them increased sufficiently to rapidly generate crude oils and natural gas from the organic matter in them. These subsequently migrated until they were trapped in reservoir rocks and structures, thus accumulating to form today’s oil and gas deposits.
Crude oil reservoirs:-
Three conditions must be present for oil reservoirs to form: a source rock rich in hydrocarbon material buried deep enough for subterranean heat to cook it into oil; a porous and permeable reservoir rock for it to accumulate in; and a cap rock (seal) or other mechanism that prevents it from escaping to the surface. Within these reservoirs, fluids will typically organize themselves like a three-layer cake with a layer of water below the oil layer and a layer of gas above it, although the different layers vary in size between reservoirs.
Because most hydrocarbons are lighter than rock or water, they often migrate upward through adjacent rock layers until either reaching the surface or becoming trapped within porous rocks (known as reservoirs) by impermeable rocks above. However, the process is influenced by underground water flows, causing oil to migrate hundreds of kilometres horizontally or even short distances downward before becoming trapped in a reservoir. When hydrocarbons are concentrated in a trap, an oil field forms, from which the liquid can be extracted by drilling and pumping.
The reactions that produce oil and natural gas are often modeled as first order breakdown reactions, where hydrocarbons are broken down to oil and natural gas by a set of parallel reactions, and oil eventually breaks down to natural gas by another set of reactions. The latter set is regularly used in petrochemical plants and oil refineries.
There are two theories on the origin of crude oil:-
A) The biogenic theory.
B) The abiogenic theory.
The two theories have been intensely debated since the 1860s, shortly after the discovery of widespread petroleum. There are several differences between the biogenic and abiogenic theories.
Raw material:
Biogenic: remnants of buried plant and animal life.
Abiogenic: deep carbon deposits from when the planet formed.
Events before conversion:
Biogenic: Large quantities of plant and animal life were buried. Sediments accumulating over the material slowly compressed it and covered it. At a depth of several hundred meters, it gets converted in to bitumens and kerogens (It is defined as the fraction of large chemical aggregates in sedimentary organic matter that is soluble in solvents).
Abiogenic: At depths of hundreds of kilometres, carbon deposits are a mixture of hydrocarbon molecules which leak upward through the crust. Much of the material becomes methane.
Evidence supporting abiogenic theory:-
In the late 19th century it was believed that the Earth was extremely hot, possibly completely molten, during its formation. One reason for this was that a cooling, shrinking, planet was necessary in order to explain geologic changes such as mountain formation. A hot planet would have caused methane and other hydrocarbons to be out gassed and oxidized into carbon dioxide and water, thus there would be no carbon remaining under the surface. Planetary science now recognizes that formation was a relatively cool process until radioactive materials accumulate together deep in the planet. Although this theory was support by a large minority of geologists in Russia, where it was intensively developed in the 1950s and 1960s, it has only recently begun to receive attention in the West, where the biogenic theory is still believed by the vast majority of petroleum geologists.
Evidence supporting biogenic theory:-
It was once argued that the abiogenic theory does not explain the detection of various biomarkers in petroleum. Microbial consumption does not yet explain some trace chemicals found in deposits. Materials which suggest certain biological processes include tetracyclic diterpane, sterane, hopane, and oleanane. Although extremophile microorganisms exist deep underground and some metabolize carbon, some of these biomarkers are only known so far to be created in surface plants. This shows that some petroleum deposits may have been in contact with ancient plant residues, though it does not show that either is the origin of the other.
The oil was sparsely distributed in sediments underground the earth, pressure moved this widely dispersed oil and forced it upward through porous & permeable rocks which is its pint of origin. After this process the oil reached the surface to form an oil seep (or spring) and accumulated in rock formations underground.
A trap is an arrangement of rocks in which oil and gas hydrocarbons accumulated. In other words, a trap contains hydrocarbons in a porous and permeable rock bed. Just as a sponge has openings or pores, a porous rock also has openings. However, the pores in a rock are usually very small, even microscopic and if oil and gas occur they occur in these very small pores.
A porous and permeable rock also has microscopic passage ways which connects to the pores. Oil and gas move from pore to pore through the passage ways. In a trap an impermeable bed lies above the porous permeable bed. Since it has no passage ways for oil and gas to move through, this impermeable bed keeps hydrocarbons from moving out of the permeable bed.
Thus we can conclude that all the available evidence points to a recent catastrophic origin for the world’s vast oil deposits, from plant and other organic debris, consistent with the biblical account of earth history. Vast forests grew on land and water surfaces in the pre-Flood world, and the oceans teemed with diatoms and other tiny photosynthetic organisms. Then during the global Flood cataclysm, the forests were uprooted and swept away. Huge masses of plant debris were rapidly buried in what thus became coal beds, and organic matter generally was dispersed throughout the many catastrophically deposited sedimentary rock layers. The coal beds and fossiliferous sediment layers became deeply buried as the Flood progressed. As a result, the temperatures in them increased sufficiently to rapidly generate crude oils and natural gas from the organic matter in them. These subsequently migrated until they were trapped in reservoir rocks and structures, thus accumulating to form today’s oil and gas deposits.
Crude oil reservoirs:-
Three conditions must be present for oil reservoirs to form: a source rock rich in hydrocarbon material buried deep enough for subterranean heat to cook it into oil; a porous and permeable reservoir rock for it to accumulate in; and a cap rock (seal) or other mechanism that prevents it from escaping to the surface. Within these reservoirs, fluids will typically organize themselves like a three-layer cake with a layer of water below the oil layer and a layer of gas above it, although the different layers vary in size between reservoirs.
Because most hydrocarbons are lighter than rock or water, they often migrate upward through adjacent rock layers until either reaching the surface or becoming trapped within porous rocks (known as reservoirs) by impermeable rocks above. However, the process is influenced by underground water flows, causing oil to migrate hundreds of kilometres horizontally or even short distances downward before becoming trapped in a reservoir. When hydrocarbons are concentrated in a trap, an oil field forms, from which the liquid can be extracted by drilling and pumping.
The reactions that produce oil and natural gas are often modeled as first order breakdown reactions, where hydrocarbons are broken down to oil and natural gas by a set of parallel reactions, and oil eventually breaks down to natural gas by another set of reactions. The latter set is regularly used in petrochemical plants and oil refineries.
There are two theories on the origin of crude oil:-
A) The biogenic theory.
B) The abiogenic theory.
The two theories have been intensely debated since the 1860s, shortly after the discovery of widespread petroleum. There are several differences between the biogenic and abiogenic theories.
Raw material:
Biogenic: remnants of buried plant and animal life.
Abiogenic: deep carbon deposits from when the planet formed.
Events before conversion:
Biogenic: Large quantities of plant and animal life were buried. Sediments accumulating over the material slowly compressed it and covered it. At a depth of several hundred meters, it gets converted in to bitumens and kerogens (It is defined as the fraction of large chemical aggregates in sedimentary organic matter that is soluble in solvents).
Abiogenic: At depths of hundreds of kilometres, carbon deposits are a mixture of hydrocarbon molecules which leak upward through the crust. Much of the material becomes methane.
Evidence supporting abiogenic theory:-
In the late 19th century it was believed that the Earth was extremely hot, possibly completely molten, during its formation. One reason for this was that a cooling, shrinking, planet was necessary in order to explain geologic changes such as mountain formation. A hot planet would have caused methane and other hydrocarbons to be out gassed and oxidized into carbon dioxide and water, thus there would be no carbon remaining under the surface. Planetary science now recognizes that formation was a relatively cool process until radioactive materials accumulate together deep in the planet. Although this theory was support by a large minority of geologists in Russia, where it was intensively developed in the 1950s and 1960s, it has only recently begun to receive attention in the West, where the biogenic theory is still believed by the vast majority of petroleum geologists.
Evidence supporting biogenic theory:-
It was once argued that the abiogenic theory does not explain the detection of various biomarkers in petroleum. Microbial consumption does not yet explain some trace chemicals found in deposits. Materials which suggest certain biological processes include tetracyclic diterpane, sterane, hopane, and oleanane. Although extremophile microorganisms exist deep underground and some metabolize carbon, some of these biomarkers are only known so far to be created in surface plants. This shows that some petroleum deposits may have been in contact with ancient plant residues, though it does not show that either is the origin of the other.
Objective of maintenance
The purpose of maintenance is to attempt to maximize the performance of equipment by ensuring that such equipment performs regularly and efficiently, by attempting to prevent breakdowns or failures, and by minimizing the losses resulting from breakdowns or failures. In fact it is the objective of the maintenance function to maintain or increase the reliability of the operating system as a whole.
Many steps can be taken to ensure that such an objective is achieved, but only a few of these are normally considered to be the responsibility of the maintenance department. For Example, each of the following will contribute to the reliability of the operating system:
(a) improvement of the quality of equipment and components through improved design and/or tighter manufacturing standards;
(b) improvements in the design of equipment to facilitate the replacement of broken items and inspection and routine maintenance work;
(c) improvements in the layout of equipment to facilitate maintenance work, i.e. providing space around or underneath equipment;
(d) providing ‘slack’ in the operating system, i.e. providing excess capacity so that the failure of equipment does not affect the performance of other equipment;
(e) using work-in-progress to ensure that the failure of equipment is not immediately reflected in a shortage of materials or parts for a subsequent piece of equipment;
(f) establishing a repair facility so that, through speedy replacement of broken parts, equipment down-time is reduced;
(g) Undertaking preventive maintenance, which, through regular inspection and/or replacement of critical parts, reduces the occurrence of breakdowns.
Types of failure
- The term ‘failure’ here will be discussed in the context of replacement decisions. There are two types of failure:
(1) Gradual failure, and
(2) Sudden failure.
Gradual Failure
Gradual failure is progressive in nature. That is, as the life of an item increases, its operational efficiency also deteriorates resulting in
Increased running (maintenance and operating) costs.
Decrease in its productivity.
Decrease in the resale or salvage value.
Mechanical items like pistons, rings, bearings, etc. and automobile tyres fall under this category.
Sudden Failure
This type of failure occurs in items after some period of giving desired service rather than deterioration while in service. The period of giving desired service is not constant but follows some frequency distribution which may be progressive, retrogressive or random in nature.
Progressive failure: - If the probability of failure of an item increases with the increase in its life, then such failure is called progressive failure. For example, light bulbs and tubes fail progressively.
Retrogressive failure: - If the probability of failure in the beginning of the life of an item is more but as time passes the chances of its failure become less, then such failure is said to be retrogressive.
- Random failure: - In this type of failure, the constant probability of failure is associated with items that fail from random causes such as physical shocks, not related to age. For example, vacuum tubes in air-born equipment have been found to fail at a rate independent of the age of the tubes.
WHAT IS SUPPLY CHAIN MAMANGEMENT?
Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM.
1. Plan – This is the strategic portion of SCM. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.
2. Source – Choose the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments.
3. Make – This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.
4. Deliver – This is the part that many insiders refer to as logistics. Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
5. Return – The problem part of the supply chain. Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products.
1. Plan – This is the strategic portion of SCM. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.
2. Source – Choose the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments.
3. Make – This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.
4. Deliver – This is the part that many insiders refer to as logistics. Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
5. Return – The problem part of the supply chain. Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products.
Basic of refinery
Crude oil is a mix of hydrocarbons, and refining process involves the breaking up of crude oil into a number of products with varying arrangements of atoms of hydrogen and carbon. The refinery process can be bifurcated as under.
· Primary processing
· Secondary processing
· Primary processing
The components of crude oil, which have to be broken up, have different boiling temperatures. Primary processing involves heating of crude oil up to a maximum of about 430º C and subsequent vaporizing of each of the components. The main part of the primary processing unit is the fractionating tower/ crude distillation unit, which is a tall and a cylindrical column through which a mixture of hot vapor and liquid crude is allowed to pass. The lighter compounds/ fractions are collected at the top of the tower and the heavier components are pushed down. The fractionating tower consists of a number of trays filled with special contacting devices and each of the fractions with varying boiling temperatures flow down the respective trays through a cooling process. The compounds, which are normally fractionated from distillation, are Gas & LPG, Naphtha, SKO and HSD. All products except SKO & HSD would require further treatment. The liquid that is still unvaporized flows down as atmospheric residue.
The atmospheric residue, which flows out of the fractionating column, is then heated in the range of 400ºC-600ºC and passed into a High Vacuum Column (HVU). The atmospheric residue is broken up to VGO (Vacuum Gas Oil) and VAC residue (also known as Short residue). VGO is the feed for secondary processing and VAC residue is used for manufacture of FO, LSHS and Bitumen.
· Primary processing
· Secondary processing
· Primary processing
The components of crude oil, which have to be broken up, have different boiling temperatures. Primary processing involves heating of crude oil up to a maximum of about 430º C and subsequent vaporizing of each of the components. The main part of the primary processing unit is the fractionating tower/ crude distillation unit, which is a tall and a cylindrical column through which a mixture of hot vapor and liquid crude is allowed to pass. The lighter compounds/ fractions are collected at the top of the tower and the heavier components are pushed down. The fractionating tower consists of a number of trays filled with special contacting devices and each of the fractions with varying boiling temperatures flow down the respective trays through a cooling process. The compounds, which are normally fractionated from distillation, are Gas & LPG, Naphtha, SKO and HSD. All products except SKO & HSD would require further treatment. The liquid that is still unvaporized flows down as atmospheric residue.
The atmospheric residue, which flows out of the fractionating column, is then heated in the range of 400ºC-600ºC and passed into a High Vacuum Column (HVU). The atmospheric residue is broken up to VGO (Vacuum Gas Oil) and VAC residue (also known as Short residue). VGO is the feed for secondary processing and VAC residue is used for manufacture of FO, LSHS and Bitumen.
Guidelines for funding infrastructure projects by RBI
Banks and financial institutions are free to finance technically feasible, financially viable and bankable projects undertaken by both public and private sector undertakings, subject to the following conditions: * The amount sanctioned should be within the overall ceiling of the prudential exposure norms prescribed by RBI for infrastructure financing. * Banks/ FIs should have the requisite expertise for appraising technical feasibility, financial viability and bankability of projects, with particular reference to the risk analysis and sensitivity analysis. * In respect of infrastructure projects, where financing is by way of term loans or investment in bonds issued by government owned entities, banks/FIs should undertake due diligence on the viability and bankability of such projects to ensure efficient utilisation of resources and creditworthiness of the projects financed.
*Banks should also ensure that the individual components of financing and returns on the project are well defined and assessed. Lending and investment decisions in such cases should be based solely on commercial judgment of banks/FIs. State government guarantees may not be taken as a substitute for satisfactory credit appraisal and such appraisal requirements should not be diluted on the basis of any reported arrangement with the RBI or any bank for regular standing instructions/periodic payment instructions for servicing the loans/bonds. * Banks may also lend to special purpose vehicles (SPVs) in the private sector, registered under the Companies Act for directly undertaking infrastructure projects, which are financially viable and not for acting as mere financial intermediaries. Banks may ensure that the bankruptcy or financial difficulties of the parent/sponsor should not affect the financial health of the SPV. *Infrastructure would include developing, maintaining and operating projects in power, roads, highways, bridges, ports, airports, rail systems, water supply, irrigation, sanitation and sewerage systems, telecommunication, housing, industrial park or any other public facility of a similar nature. Relaxation in ceiling Credit exposure limits: Credit exposure to borrowers belonging to a group may exceed the exposure norm of 40 per cent of the bank's capital funds by an additional 10 per cent (i.e. up to 50 per cent), provided the additional credit exposure is on account of extension of credit to infrastructure projects. Credit exposure to single borrower may exceed the exposure norm of 15 per cent of the bank's capital funds by an additional 5 per cent (i.e. up to 20 per cent) provided the additional credit exposure is on account of infrastructure projects. Credit exposure would also include investment exposure. Risk weight for capital adequacy purposes: Banks may assign a concessional risk weight of 50 per cent for capital adequacy purposes, on investment in securitised paper pertaining to an infrastructure facility, subject to compliance with certain conditions. Asset-liability management: The long-term financing of infrastructure projects may lead to asset-liability mismatches, particularly when such financing is not in conformity with the maturity profile of a bank's liabilities. Banks would, therefore, need to exercise due vigil on their asset-liability position to ensure that they do not run into liquidity mismatches on account of lending to such projects. Take-out financing/liquidity support Take-out financing structure is essentially a mechanism designed to enable banks to avoid asset-liability maturity mismatches that may arise out of extending long tenor loans to infrastructure projects. Under the arrangements, banks financing the infrastructure projects will have an arrangement with IDFC or any other FI for transferring to the latter the outstanding in their books on a predetermined basis. IDFC and SBI have devised different take-out financing structures to suit the requirements of various banks, addressing issues such as liquidity, asset-liability mismatches, limited availability of project appraisal skills etc. RBI has prescribed guidelines on prudential norms, income recognition and provisioning on take-out finance by financial institutions. Assets classification of projects A time overrun of up to 50 per cent of the time contracted is permitted for downgrading the asset to sub-standard category. A one-time re-fixing of the time period of the project is allowed with the approval of the Board of the FI even if the time overrun is more than 50 per cent and in that case, the asset could be treated as standard till the time so re-fixed by the Board. The projects under implementation are classified into three categories for the purpose of determining the date when the project ought to be completed: * Category I: Projects where financial closure had been achieved and formally documented * Category II: Projects with original project cost of Rs.100 crore or more * Category: III: Projects with original project cost of less than Rs.100 crore For each of the three categories, the date when the project ought to be completed and the classification of the underlying loan asset is sought to be determined. Guarantee In respect of infrastructure projects, banks would be permitted to issue guarantees favouring other lending institutions provided the bank issuing the guarantee takes a funded share in the project at least to the extent of 5 per cent of the project cost and undertakes normal credit appraisal, monitoring and follow up of the project.
*Banks should also ensure that the individual components of financing and returns on the project are well defined and assessed. Lending and investment decisions in such cases should be based solely on commercial judgment of banks/FIs. State government guarantees may not be taken as a substitute for satisfactory credit appraisal and such appraisal requirements should not be diluted on the basis of any reported arrangement with the RBI or any bank for regular standing instructions/periodic payment instructions for servicing the loans/bonds. * Banks may also lend to special purpose vehicles (SPVs) in the private sector, registered under the Companies Act for directly undertaking infrastructure projects, which are financially viable and not for acting as mere financial intermediaries. Banks may ensure that the bankruptcy or financial difficulties of the parent/sponsor should not affect the financial health of the SPV. *Infrastructure would include developing, maintaining and operating projects in power, roads, highways, bridges, ports, airports, rail systems, water supply, irrigation, sanitation and sewerage systems, telecommunication, housing, industrial park or any other public facility of a similar nature. Relaxation in ceiling Credit exposure limits: Credit exposure to borrowers belonging to a group may exceed the exposure norm of 40 per cent of the bank's capital funds by an additional 10 per cent (i.e. up to 50 per cent), provided the additional credit exposure is on account of extension of credit to infrastructure projects. Credit exposure to single borrower may exceed the exposure norm of 15 per cent of the bank's capital funds by an additional 5 per cent (i.e. up to 20 per cent) provided the additional credit exposure is on account of infrastructure projects. Credit exposure would also include investment exposure. Risk weight for capital adequacy purposes: Banks may assign a concessional risk weight of 50 per cent for capital adequacy purposes, on investment in securitised paper pertaining to an infrastructure facility, subject to compliance with certain conditions. Asset-liability management: The long-term financing of infrastructure projects may lead to asset-liability mismatches, particularly when such financing is not in conformity with the maturity profile of a bank's liabilities. Banks would, therefore, need to exercise due vigil on their asset-liability position to ensure that they do not run into liquidity mismatches on account of lending to such projects. Take-out financing/liquidity support Take-out financing structure is essentially a mechanism designed to enable banks to avoid asset-liability maturity mismatches that may arise out of extending long tenor loans to infrastructure projects. Under the arrangements, banks financing the infrastructure projects will have an arrangement with IDFC or any other FI for transferring to the latter the outstanding in their books on a predetermined basis. IDFC and SBI have devised different take-out financing structures to suit the requirements of various banks, addressing issues such as liquidity, asset-liability mismatches, limited availability of project appraisal skills etc. RBI has prescribed guidelines on prudential norms, income recognition and provisioning on take-out finance by financial institutions. Assets classification of projects A time overrun of up to 50 per cent of the time contracted is permitted for downgrading the asset to sub-standard category. A one-time re-fixing of the time period of the project is allowed with the approval of the Board of the FI even if the time overrun is more than 50 per cent and in that case, the asset could be treated as standard till the time so re-fixed by the Board. The projects under implementation are classified into three categories for the purpose of determining the date when the project ought to be completed: * Category I: Projects where financial closure had been achieved and formally documented * Category II: Projects with original project cost of Rs.100 crore or more * Category: III: Projects with original project cost of less than Rs.100 crore For each of the three categories, the date when the project ought to be completed and the classification of the underlying loan asset is sought to be determined. Guarantee In respect of infrastructure projects, banks would be permitted to issue guarantees favouring other lending institutions provided the bank issuing the guarantee takes a funded share in the project at least to the extent of 5 per cent of the project cost and undertakes normal credit appraisal, monitoring and follow up of the project.
evolution of gas pricing in India
Historically, natural gas prices in India have been regulated using a variety of mechanisms.
Until the 1970s, gas prices were based on recommendations made by expert
committees. During the 1970s and most of the 1980s, prices were determined by the
monopoly gas producers — ONGC and OIL — on a negotiated basis. Since 1987,
the government has set uniform gas prices across the country, with an exception of
the north east region, which receives gas at concessional prices.
In 1997, natural gas prices were pegged to the import parity price of a basket
of internationally traded fuel oils. Prices were set to increase progressively as a
proportion of the fuel oil basket price, from 55 per cent in 1997-98 to 85 per cent
in 2000-01. To curb any major fluctuations in gas prices, the government set a
price band, with a floor price of 2150 Indian rupees per thousand cubic metres
and a ceiling price of 2850 Indian rupees per thousand cubic metres. However,
in 1999-2000 gas prices reached the ceiling price, as international fuel oil prices
continued to increase. The process of raising gas prices to achieve full import parity
was stalled and gas prices remained at this ceiling until 2005-06.
In July 2005, the gas price for priority sectors — electricity generation and fertiliser
sectors and other users specified on occasion by the government or court — was
revised upwards to 3200 Indian rupees per thousand cubic metres. The price
of gas in the north east region was pegged at 60 per cent of the revised price.
However, the price of gas for consumers in all other sectors more than doubled to
6893 Indian rupees per thousand cubic metres .
Administered gas prices were revised further in 2006, with prices for non-priority
sectors such as steel raised by around 23 per cent, and by 20 per cent for city
gas distribution companies and customers consuming less than 18.25 million
cubic metres a year. The priority sectors continue to pay 3200 Indian rupees per
thousand cubic metres. Further rises in gas prices are anticipated once the Tariff
Commission under the Ministry of Commerce and Industry makes recommendations
on prices for gas sold under the administered pricing mechanism.
There have been recent disputes over privately produced gas not subject to administered pricing, including the pricing formula for gas sourced from RIL fields in the KG basin. RIL proposed a landed price of US$4.33 per million British thermal units to the government for approval in mid-May 2007 and stated that there would be
delays in the commencement of production should prices remain unresolved.
The price for gas proposed by RIL is substantially higher than the prices paid by
customers who currently have access to subsidised gas. The government subsequently made changes to the pricing formula proposed by RIL where the landed price of KG basin gas would be US$4.20 per million British thermal units. However, as of late September 2007, the issue remained unresolved (Platts 2007c).
Until the 1970s, gas prices were based on recommendations made by expert
committees. During the 1970s and most of the 1980s, prices were determined by the
monopoly gas producers — ONGC and OIL — on a negotiated basis. Since 1987,
the government has set uniform gas prices across the country, with an exception of
the north east region, which receives gas at concessional prices.
In 1997, natural gas prices were pegged to the import parity price of a basket
of internationally traded fuel oils. Prices were set to increase progressively as a
proportion of the fuel oil basket price, from 55 per cent in 1997-98 to 85 per cent
in 2000-01. To curb any major fluctuations in gas prices, the government set a
price band, with a floor price of 2150 Indian rupees per thousand cubic metres
and a ceiling price of 2850 Indian rupees per thousand cubic metres. However,
in 1999-2000 gas prices reached the ceiling price, as international fuel oil prices
continued to increase. The process of raising gas prices to achieve full import parity
was stalled and gas prices remained at this ceiling until 2005-06.
In July 2005, the gas price for priority sectors — electricity generation and fertiliser
sectors and other users specified on occasion by the government or court — was
revised upwards to 3200 Indian rupees per thousand cubic metres. The price
of gas in the north east region was pegged at 60 per cent of the revised price.
However, the price of gas for consumers in all other sectors more than doubled to
6893 Indian rupees per thousand cubic metres .
Administered gas prices were revised further in 2006, with prices for non-priority
sectors such as steel raised by around 23 per cent, and by 20 per cent for city
gas distribution companies and customers consuming less than 18.25 million
cubic metres a year. The priority sectors continue to pay 3200 Indian rupees per
thousand cubic metres. Further rises in gas prices are anticipated once the Tariff
Commission under the Ministry of Commerce and Industry makes recommendations
on prices for gas sold under the administered pricing mechanism.
There have been recent disputes over privately produced gas not subject to administered pricing, including the pricing formula for gas sourced from RIL fields in the KG basin. RIL proposed a landed price of US$4.33 per million British thermal units to the government for approval in mid-May 2007 and stated that there would be
delays in the commencement of production should prices remain unresolved.
The price for gas proposed by RIL is substantially higher than the prices paid by
customers who currently have access to subsidised gas. The government subsequently made changes to the pricing formula proposed by RIL where the landed price of KG basin gas would be US$4.20 per million British thermal units. However, as of late September 2007, the issue remained unresolved (Platts 2007c).
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