The nation’s credit risk and debt costs for state refiners are climbing from the lowest levels since mid-2011 after crude in New York surged 15% in the past quarter. The cost of insuring against non-payment of State Bank of India’s notes, seen as a proxy for the sovereign, has climbed 13 basis points (bps) from 191 on 9 January. Credit default swaps for China rose 7 bps to 68. The yield on the 2021 debt of Indian Oil Corp. Ltd has added 16 bps from 3.95% on 24 January.
Costlier oil is threatening finance minister P. Chidambaram’s plan to pare energy subsidies by 17% and cap the budget deficit at a five-year low, as he boosts efforts to avert a sovereign rating downgrade. Higher fuel expenses may feed the fastest inflation among the largest emerging markets and extend the rupee’s 25% tumble in the past five years, raising the risk of voters’ ire before next year’s elections.
Brent crude traded in London, a benchmark followed by Indian refiners, advanced more than 10% in the past three months to $117.85 a barrel. The nation’s monthly petroleum imports averaged $14.6 billion last quarter, up from $13.1 billion in the preceding period, according to official data.
Goldman Sachs Group Inc. and BNP Paribas SA forecast oil prices in New York will rise above $100 a barrel this quarter for the first time since May last year, while Credit Suisse Group AG and Deutsche Bank AG predict the level to be breached later in 2013, according to a Bloomberg survey.
The shortfall in India’s current account, the broadest measure of trade, widened to a record $22.4 billion in the three months ended 30 September, the most recent central bank data show. The gap in public finances was 5.8% of gross domestic product (GDP) in the fiscal year through March 2012, after the government missed a target to narrow it to 4.6% amid rising subsidy payments.
The two deficits fuelled a decline in the rupee to a record low of 57.3275 per dollar in June, and prompted Standard and Poor’s (S&P) and Fitch Ratings to cut their outlooks for India’s debt rating to negative in the first half of 2012. The local currency declined 0.6% during the week to 53.5050 per dollar in Mumbai, the biggest drop since the five days through 21 December, according to data compiled by Bloomberg. Both the rating companies rank India at BBB-, the lowest investment grade. S&P said in a report in December that the nation faces at least a one-in-three likelihood of a downgrade.
Chidambaram said on a tour of Asia and Europe to woo investors in January that fiscal prudence will be a key theme of his budget this month.
India’s patchy performance on policy implementation, and the approach of elections in 2014 could impede fiscal consolidation, Art Woo, Hong Kong-based director of sovereign ratings at Fitch, said in the statement. The Union budget will be an important gauge. Political and implementation risks remain significant.
State refiners sell diesel, kerosene and cooking gas below cost to help curb inflation. The government compensates the companies for such losses, which totalled Rs.738,20 crore in the last three quarters, while oil producers including Oil and Natural Gas Corp. Ltd give discounts on crude.
India plans to trim its subsidy bill for food, fuel and fertilizers to Rs.1.9 trillion, or 2% of GDP, this fiscal year from 2.4% in the previous period, finance ministry data shows.
As part of an economic policy overhaul that started five months ago, India let oil firms to raise retail diesel prices on 18 January for the first time since September. They will be allowed to increase rates by as much as Rs.0.50 every month until the deficit from discount sales is wiped out, oil minister M. Veerappa Moily said on 20 January.
“If crude oil prices continue rising, it’ll erode the benefit of planned monthly diesel price hikes,” said Mayur Patel, a Chennai-based analyst with Spark Capital Advisors, who has a sell rating on the three state-run refiners. Prices may be increased gradually for a time, but we expect at least a no-hike window of five-six months before the next general election. Bloomberg
ONGC SEEKS $2.2 BILLION RUSSIAN REDEMPTION
NEW DELHI/MOSCOW: Oil and Natural Gas Corp. Ltd (ONGC), stung by criticism its biggest Russian acquisition has failed to pay off, is banking on crude trapped in Siberian shale rocks to redeem its $2.2 billion wager.
Imperial Energy Corp., which India’s biggest oil explorer bought in 2009, is seeking bids from surveyors to assess the Bazhenov formation, ONGC chairman Sudhir Vasudeva said in an interview, without giving details. Bazhenov may hold as much as 360 billion barrels of recoverable reserves, Bloomberg said in a 19 December report, citing estimates by Russian subsoil agency Rosnedra. Venezuela holds 296.5 billion barrels, the world’s biggest known oil reserves.
The US shale boom, which reinvigorated industry and is leading the world’s largest economy toward energy independence, has spurred oil companies to blast open shale rocks in other parts of the world. ONGC, seeking to raise overseas production more than sixfold by 2030, is also betting Russian tax breaks on oil extraction will help stem Imperial’s 35% decline in output in the last three years.
“ONGC’s challenge will be to find a viable way to produce the oil,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt. Ltd, who has a buy rating on the stock. “Tight oil requires specialized technology and costs are high. The tax benefits will be a first step.”
ONGC shares fell 2% to Rs.313.60 at the end of trading in Mumbai. The shares have advanced 17% this year, beating a 0.3% advance in the BSE’s benchmark Sensex.
Bazhenov, which has yet to yield oil, has proved to be a tougher shale block to drill than areas in the US, prompting Russian oil majors such as OAO Rosneft and OAO Gazprom Neft to seek partnerships with Exxon Mobil Corp., Royal Dutch Shell Plc and Statoil ASA.
Tight oil is so called because it is trapped in non-porous shale rock formations, also found in the Bakken area in North Dakota that has helped the US cut crude imports. The oil can be extracted by cracking open the rocks using a mixture of water and chemicals at high pressure, a process pioneered in the 1990s in the US. Different technologies need to be used and modified for different types of shale and tight reservoir structures, Vasudeva said.
“It may turn out to be very important for us in Russia,” said Vasudeva. “It’s still very early days and we have to see how it turns out in the months to come.”
Current output at Imperial’s fields in western Siberia has declined to 11,000 barrels a day from about 17,000 barrels in April 2010. Production may drop 17% to 512,900 tonnes, or about 10,000 barrels a day, this year from 621,100 tonnes in 2012, according to a 17 January statement on Imperial’s website. The decline is because the company is searching for an economically feasible technology to recover oil from tight reservoirs, according to the website.
“We’re hoping the shale and tight oil will help revive that,” Vasudeva said. “We’re getting more confident.”
Imperial is also seeking an exemption from the Russian government from paying taxes for oil production from tight reservoirs, according to the website. The nation’s energy ministry has proposed 15-year tax exemptions on oil extracted from the Bazhenov deposits, according to a ministry document. While export duties would remain, the tax cut would be worth an additional $20 a barrel to producers, based on a price of $100 a barrel, according to the document.
ONGC is planning to spend Rs.11 trillion by 2030 as it seeks to add assets and boost production at home and abroad. ONGC Videsh Ltd, the company’s overseas unit and owner of Imperial Energy, needs $20 billion as it targets production of 20 million tonnes (mt) of oil equivalent by March 2018 and 60 mt by March 2030 from 8.75 mt in the year ended 31 March, according to the company’s annual report. Bloomberg
DEFENCE MINISTRY MAY RELENT ON ‘NO-GO’ AREAS
NEW DELHI: Under pressure from the Prime Minister’s Office to quickly clarify its position on the remaining seven oil and gas blocks that fall under “no-go” areas for security reasons, the defence ministry has indicated its willingness to further relent and consider giving conditional nod to these last of blocks to prevent any disruption in production.
The defence ministry has raised objections over 46 oil and gas blocks awarded under different rounds of the New Exploration and Licensing Policy (NELP) as it interfered with the operations of air and naval bases in the vicinity of the blocks. It later agreed to give conditional nod to 32 of these blocks and acceded to pressure again to give conditional clearance to another seven blocks.
The Reliance Industries-BP combine’s KG-D6 gas fields and gas discovery area NEC-25 are among the seven oil and gas blocks still falling under the defence ministry’s no-go area. The issue came up for discussion between oil and defence ministries earlier this week where, sources said, the latter indicated its willingness to adopt a flexible approach even in case of these remaining blocks. Both ministries are scheduled to hold more talks in the coming week where defence ministry is expected to come up with a possible formula to break the logjam.
“We had a meeting on Monday where we kept our point of view, however, we will be meeting next week again and hopefully we will come up with some solution,” said a ministry official who did not wish to be named.
The issue has now been taken up at the highest level of the Cabinet Committee on Investment (CCI), which is chaired by Prime Minister Manmohan Singh. The CCI in its first meeting on January 28 had directed the two nodal ministries to find solutions within 30 days on the blocks that have been awaiting necessary clearances for oil and gas exploration.
The defence ministry originally had declared 14 blocks including RIL-BP’s KG-D6, as no-go areas because they overlapped or were close to proposed a naval base or missile launching range/air force exercise area. Out of the 14 blocks, the ministry had given approvals to six blocks on the west coast for oil exploration and one block in the Andaman area later.
RIL’s most prolific KG-D6 block, awarded in 2000 by the government after all clearance from various ministries, and which saw an investment of around $15 billion, came into production in September 2008.
The gas production from the basin peaked at 62 mmscmd, after which it witnessed a steep decline. The current gas production from the block is around 23 mmscmd.
There are also several blocks owned by ONGC, Cairn India and Australia’s BHP Billiton that come under the no-go classification and clearances for which have subsequently been withdrawn.
CII DRILLS HOLES IN RANGARAJAN PANEL REPORT ON PRICING OF NATURAL GAS
NEW DELHI: Industry body CII has drilled holes in the Rangarajan Panel report on pricing of natural gas based on average of global indices, saying the proposed formula was not in line with contractual provisions.
“The proposed formula is not in line with the intent of the Production Sharing Contracts (PSCs) as it neither provides for an element of price discovery through competitive arms-length bidding nor provides import parity prices,” CII said commenting on the Rangarajan panel report.
The Rangarajan panel had suggested taking a weighted average of the US, Europe and Japanese gas hubs or market price and then averaging it with the net imported price of liquid gas (LNG) to arrive at a sale price of domestically produced gas.
Price according to this formula would come to USD 8-8.5 per million British thermal unit, higher than current USD 4.2 per mmBtu, but it tantamounts to government dictating the rate rather than discovering what customers are willing to pay.
“In effect, domestic gas is discriminated vis-à-vis crude oil and the Committee’s recommendations lead to a price which is at a 40-50 per cent discount to import parity,” CII said.
CII said the proposed price setting mechanisms were not driven by the realities of the demand supply dynamics of the Indian market.
“There is substantial linkage to the US which is a mature market and very different from the Indian market. Hence, the resultant price produced by the formula does not take into account the risks and cost of exploration and development in India and is unlikely to incentivise investment in existing discoveries and future explorations in technically challenged areas like deep water, High Pressure-High Temperature (HPHT) and frontier areas,” it said.
Stating that the proposed formula was complex and difficult to implement as it comprises too many variables with complex adjustments, CII suggested simplifying it by using an arithmetic average of Henry Hub, National balancing Point and Asia LNG delivered prices to reflect market prices at different markets/HUBs – Americas, Europe/FSU and Asia.
It also wanted provision of additional premium for technologically challenging areas as these are only viable at higher prices as also a roadmap for moving towards arms-length market determined pricing.
“While the report recognises that India needs to move towards achieving market determined pricing under gas-on-gas competition in the next 5 years, there are some concerns on the gas pricing recommendations and formula proposed by the Committee,” it said.
ENERGY PRICES NEED TO GRADUALLY ALIGN WITH GLOBAL MARKET: CHATURVEDI
NEW DELHI: Describing India as a highly price sensitive market, a senior Planning Commission official today said energy prices need to be gradually aligned with the international market and that cannot be done overnight.
Speaking at the India Energy Congress here, Planning Commission member B. K. Chaturvedi said there should be a fair pricing system for oil, gas and coal.
“India is a highly price sensitive market… we should ensure that input cost does not become so high that output price becomes highly uncompetitive,” he said.
The comments come against the backdrop of concerns over high international coal prices that could result in a higher power tariff. Coal is a major fuel for electricity generation in the country.
Chaturvedi said pricing of coal is a major issue for the power sector.
“I cannot really say whether there is great convergence between power producers and Coal India on pricing,” he added.
Noting that fuel has become a major issue in the country, he said a careful approach should be adopted while fixing energy prices.
According to him, nearly 80 per cent of our oil needs, 30-40 per cent of our gas requirement and about 25 per cent of coal needs are met through imports.
NEED FOR A FAIR PRICING SYSTEM FOR OIL, GAS & COAL, SAYS CHATURVEDI
NEW DELHI: With global energy prices staying high, Planning Commission member BK Chaturvedi said there should be a fair pricing system for oil, gas and coal.
Speaking at the India Energy Congress on Friday, he said: “Energy prices need to be gradually aligned with the international market.”
With government increasing power tariffs and price of regulated fuels, the official said: “India is a highly price-sensitive market… pricing of coal is a major issue for the power sector. We should ensure that the input cost does not become so high that output price becomes highly uncompetitive.”
According to estimates, India imports about 80% of oil, 30% of gas and about 25% of coal.
Emphasising on the need for raising domestic fuel prices, Planning Commission deputy chairman Montek Singh Ahluwalia earlier said that diesel, liquefied petroleum gas (LPG), coal and natural gas are underpriced in India.
“Indian coal is under-priced; some part of coal is sold through auction and the auction price is 30-40% higher. If this under-pricing is not altered then… incentives to invest have to be maintained by giving budgetary sops, which is simply not feasible,” he said.
MID-DAY MEALS, CHARITABLE BODIES NOW ELIGIBLE FOR SUBSIDISED GAS CYLINDERS
NEW DELHI: Cooking gas customers falling under the exempt category such as the military, police mess, Government organisations, approved charitable organisations and mid-day meals scheme in schools, will now be treated as domestic customers eligible for subsidised LPG cylinders.
Effective February 8, the public sector oil marketing companies will treat the non-domestic exempt category customers (14.2 kg/cylinder) as domestic customers and supply LPG cylinders at subsidised rates till the cap, as applicable for domestic customers, official sources told Business Line.
Domestic LPG customers are entitled for nine cylinders annually at a subsidised rate of Rs 410.50 a cylinder. Beyond the limit, customers have to buy cylinders at a market price of Rs 942 a cylinder in Delhi.
Following this Government directive, for this fiscal the exempt category will be eligible for two subsidised cylinders till March 31. From fiscal 2013-14, they will be eligible for nine cylinders.
In September last year, the Government had introduced the cap on subsidised cylinders for each household annually. However, at that time this category was not included in this scheme and had to pay market price for its entire consumption. The Government order also clearly states that no refund will be available for customers who have bought cylinders at market rates.
Though customers falling in the exempt category are fewer, the volumes are high, an LPG distributor said. The category accounts for 6-7 per cent of the total sales.
BABUS TURN HIGH-PAID HONCHOS
NEW DELHI: Life begins at 60. This is true for many public sector employees and bureaucrats who joined the corporate sector after retirement and are earning more than three to four times of what they did in their last-held government posts.
When RS Sharma retired as the chairman of India’s largest public sector company, ONGC two years back, when his annual salary package was about R60 lakh. After a short cooling-off period, he joined as the Southwest Asia head of Lloyd’s Register, a global business insurance company, and now earns more than Rs. 2 crore a year. That’s a three-fold rise.
Sharma said he was flooded with offers from the likes of Reliance, Essar and the Hindujuas after retirement. “But I wanted to give myself a year of cooling off before I started again.”
Sharma is not alone. In the past five years, people like him jumping ship from the public sector to lucrative offers is on the rise. Some do it even before the official age of retirement. In fact, that is the emerging trend (See graphic)
“Private sector acknowledges leadership and competence and so the offers vary anywhere between Rs. 1 crore and 4 crore per annum and some even more,” said a top corporate executive.
“Earlier bureaucrats use to look at joining the private sector only after they retired but there are many now at a senior level who are ready to take risks and leave the power and charms offered by civil services,” said the HR head of a leading corporate house.
“The domain experience, talent, corporate governance, you name it and they bring along,” said Adi Malia, group president, HR at the Essar Group, which employs half-a-dozen former public sector or government leaders.
Among the early jumpers are Prabh Das who left as joint secretary (refineries) in the petroleum ministry to join steel czar LN Mittal’s energy business as MD of HPCL-Mittal Energy Ltd. Das is the man who steered the Rs. 20,000-crore plus Bathinda refinery project in Punjab.
There are risks involved in leaving the government, particularly in foregoing some pension and medical benefits, but the money is a big lure.
Rajiv Talwar 58, executive director at realty major DLF resigned from the government in 2006 when he was the additional director-general in the ministry of tourism to join DLF.
“There is a huge pool of talent inside and even if 10% of this moves out to the private sector, there will still be a lot of talent left to serve the government…but the shift should be when you are happy with the system and not otherwise,” Talwar told HT.
IAS officer Ashok Kumar Khurana left as additional secretary in the power ministry to join the Jai Prakash Group’s JPSK Sports Ltd’s as vice-chairman to steer its Formula 1 track project in Greater Noida and is now director-general of industry lobby group Associated Power Producers association.
“It’s not always the money. Some do it for personal reasons to avoid frequent transfers to remote places,” Khurana told HT.
The list of hoppers includes NTPC’s human resources head KK Sinha who joined Reliance ADAG, former MRPL finance director Lali Gupta who is now MD at Essar Oil and SAIL’s Malay Mukerjee who is part of L.N. Mittal’s steel empire.
The list gets longer as levels below the CXO are considered. But the trend is clear. Sarkari leadership is no longer the be-all and end-all.
GSPC, GDF SUEZ IN TALKS FOR UNDERGROUND GAS STORAGE
NEW DELHI: The state venture Gujarat State Petroleum Corporation (GSPC) is in talks with Storengy, subsidiary of French energy major GDF Suez to explore possibility of underground natural gas storage.
GSPC wants to utilise its depleting oil and gas assets in Gujarat for storing natural gas to develop strategic reserves.
As per the agreement, Storengy will study the GSPC’s data bank to identify potential sites. GSPC is country’s largest natural gas trader in the spot market with revenues in access of Rs 8000 crore. Its subsidiaries are also engaged in natural gas transmission and distribution business large investments on cards.
New entrant in Indian energy market, 90.7 billion strong GDF Suez is in process of forging alliances with Indian energy majors.
Its subsidiary Storengy is considered one of the most experienced players with 13 underground storage sites in operation at various locations. It is yet another effort to explore possibilities to develop underground natural gas storage site in India.
Earlier in 2005, ONGC and Gail also attempted similar project and roped in GDF Suez as consultant. However, it is yet to take concrete shape. In underground storage project, natural gas is injected into depleted reservoirs where existing gas maintains adequate pressure to enable operator to extract it when needed.
“Gujarat alone consumes over 50 mmscmd of natural gas and accounts for one third of Indian demands. However, the state does not have adequate storage capacity in case of disruption in supplies from natural gas fields and LNG terminals,” said a government of Gujarat official engaged with the energy department. He added that GSPC is anticipating investments of about Rs 500 crore depending on the nature of the site and scale of the project.
Earlier in mid-2011, Gujarat based city gas distribution players could not feed natural gas to 3,000 industrial units for 24 hours as bad weather did not permit LNG terminals to operate for five days.
Since then, GSPC is trying to create credible contingency plan. GSPC and Storengy that have been working together for past months inked memorandum of understanding early this month for pre-feasibilities studies.
RELIANCE INDUSTRIES, ONGC CLOSES GAS TAP, RATNAGIRI POWER PLANT, ERSTWHILE DABHOL
MUMBAI: Ratnagiri Gas and Power, the erstwhile Dabhol Power, said it has completely shut down power generation for want of gas since today morning.
“We have stopped generation from all the three units since morning as we are not receiving gas from any of our sources — Reliance and ONGC,” spokesperson of the company, which is promoted mainly by NTPC and Gail, told PTI here.
Due to shortage of gas, the company has been managing to generate only half of the installed capacity of 1,967 mw for the past more than two years.
“With the available gas, we could run only one unit, which too was nearly 50 per cent lower than its capacity at 200-245 mw till yesterday. But since yesterday, we are not receiving gas from any of the sources,” he said.
To run the project at full capacity, the company needs 8.5 mmscmd gas, of which 7.6 mmscmd should come from RIL and the remaining from ONGC through Gail.
Since last two years, the company is facing the issue of gas shortage, the spokesperson said, adding “in FY12, we received only 6.6 mmscmd gas and in FY13 till January, we received only 3.2 mmscmd. This has resulted in a generation loss of around 7,500 million units.”
Interestingly, last month Gail India commissioned the Dabhol LNG terminal in Ratnagiri, paving way for supply of imported gas to Maharashtra, Goa, Karnataka and Tamil Nadu.
However, a company official said on the condition of anonymity that it will not be able to use the imported gas.
“Imported gas is very costly. If we use this gas, the generation cost will increase and there will be no takers for the power. Power generated from coal is available at Rs 2.50-3 per unit. If we use the imported gas, the power will be as costly as Rs 10 per unit,” the official said.
Currently, the plant supplies 95 per cent of the power generated to Maharashtra and 2 per cent each to Dadra and Nagar Haveli and Daman and Diu, and 1 per cent to Goa.
Shut-down of operations will definitely have an impact on the power supply to these regions, especially Maharashtra, the official said. However the state utility Mahavitaran said “it will not have any adverse impact on load shedding”.
GULF OIL Q3 NET UP AT RS 15 CR
HYDERABAD: Gulf Oil Corporation Ltd has posted a net profit of Rs 15.03 crore for the third quarter ended December 31, 2012 against Rs 13.09 crore in the corresponding quarter last year.
The Hinduja Group company has registered a total income of Rs 247.96 crore during the quarter under review against Rs 242.04 crore in the corresponding period last year.
The company through its step-down subsidiary in the United Kingdom and the US has completed the acquisition of 100 per cent stake in speciality lubricant company Houghton International in December.
The company has informed the exchanges that the board has decided to restructure various businesses including demerger of the lubricants division in to a separate listed company.
The committee of directors of the board were authorised to consider the matter in detail and make necessary recommendations.
CRUDE OIL REBOUNDS IN ASIAN TRADE
SINGAPORE: Oil rebounded in Asian trade today on geopolitical concerns after crude producer Iran rejected a US offer on nuclear talks, and on healthy trade data from China.
New York’s main contract, light sweet crude for delivery in March, increased 23 cents to $96.06 a barrel and Brent North Sea crude for March delivery gained 28 cents to $117.52.
Prices were down in overnight US trade.
“Brent is trading a little stronger on developments in Iran,” said Jason Hughes, head of premium client management at IG Markets Singapore.
Iran’s supreme leader Ayatollah Ali Khamenei had yesterday rejected a US offer to negotiate one-on-one on Tehran’s nuclear ambitions, ruling out such contacts so long as Washington keeps up its threats against the Islamic republic.
Western powers believe Iran is trying to build an atomic weapon, but Tehran says its nuclear research is for peaceful purposes.
Other analysts said investors were also taking heart from robust trade figures from China, the world’s second biggest economy and largest energy consumer.
Official data released today showed that China’s trade surplus rose 7.7 per cent year-on-year to $29.2 billion in January as the country maintained its economic recovery on improving demand.
Exports jumped 25 per cent to $187.4 billion last month, while imports soared 28.8 per cent to $158.2 billion, the General Administration of Customs said in a statement.
Zhang Zhiwei, a Hong Kong-based economist with Nomura International, said the data showed that the Chinese economy “is on track for a cyclical recovery in the first half (of this year)”.
SHALE SURPRISE: BRAZIL MAY HAVE TWICE KNOWN RESERVES
As Brazil prepares for its first-ever auction of shale-gas acreage, it has a message for global prospectors: The country that discovered the world’s biggest offshore oil finds this century may have almost twice as much natural gas onshore as is currently estimated.
Brazil’s energy regulator known as ANP made the assertion in a preliminary estimate of potential reserves, in an e-mail to Bloomberg News. The estimate is 88 percent higher than the U.S. Energy Information Administration’s calculation that Brazil may have 226 trillion cubic feet of gas held in shale, a sedimentary rock increasingly being harvested for fuels around the world.
Brazil’s President Dilma Rousseff is seeking to cut dependency on liquefied natural gas imports, used in electricity generation. Photographer: Jonathan Ernst/Bloomberg
The forecast may assure that Royal Dutch Shell Plc and billionaire Eike Batista take part in the Dec. 14-15 government auction of shale-gas blocks. Europe’s biggest energy company and the billionaire who controls Brazil’s second-largest oil company by market value both expressed interest in joining the nascent shale boom in Latin America, six years after Brazil’s so-called pre-salt basins proved to hold the biggest finds since 2000.
President Dilma Rousseff is seeking to cut dependency on liquefied natural gas imports, used in electricity generation. While more than 80 percent of Brazil’s power is hydroelectric, a dry spell that pushed dam levels to the lowest since 2000 has forced authorities to order the use of fossil fuel-burning plants without having enough domestic gas to feed them.
“There is a gas shortage,” Ruaraidh Montgomery, a senior analyst at oil and gas researcher Wood Mackenzie, said by phone from Houston. Domestically produced shale gas “will be very good looking from a below-ground perspective. The challenges are above ground,” to secure available workers, satisfy local content rules, and the size of the service sector, he said.
The U.S. estimate includes only one basin, and there could be another 200 trillion cubic feet of gas spread through four other areas, Brazil’s regulator said, in response to questions. Given the country’s gas demand of 885 billion cubic feet in 2011, if 10 percent of the additional reserves are pumped, they alone could supply the country for about 22 years at its current consumption rate.
The U.S. estimates are the best published so far, ANP said. The regulator reached its larger estimate by drawing an analogy between the geology of four Brazilian on-shore basins and the U.S. Barnett shale basin, it said. The analogy is not a firm projection, only a point of reference, it said.
Natural gas has gained in world markets less than oil in the past decade. Next month gas traded on the U.K.’s ICE exchange declined in three of the last 10 years, while Brent oil futures have increased in all but one year in the period.
Shale deposits exceed Brazil’s so-called pre-salt gas reserves, ANP head Magda Chambriard said last month to reporters, in Rio de Janeiro. Brazil also holds other types of unconventional gas, such as so-called tight sands and carbon gas, according to the ANP. Pre-salt refers to Brazil’s off-shore deposits, the world’s biggest crude discoveries this century.
Shell, already Brazil’s third-largest oil producer, is preparing to drill its first on-shore gas well in the second half of the year while it waits for the ANP to issue rules for the December auction, the company’s press office said in an e- mailed response to questions.
Shell will drill in the state of Minas Gerais, where closely-held Petra Energia SA is becoming the leading unconventional gas explorer in Brazil, focusing on so-called tight gas sandstones and tight gas carbonates, according to an e-mailed response to questions. The company has discovered gas in 12 of 14 wells it drilled in the Sao Francisco basin.
Unconventional gas gives companies an opportunity to operate blocks in Brazil where state-run Petroleo Brasileiro SA, or Petrobras, is guaranteed a majority stake in all pre-salt operations.
Discovered in 2007, the pre-salt reserves hold at least 50 billion barrels of oil equivalent, according to ANP. They lie below a layer of salt under the Atlantic seabed as far as 300 kilometers from the coast of Rio de Janeiro.
Brazil’s main source of gas imports today is Bolivia, which supplies more than one-third of its demand. The country also imports liquefied natural gas, or LNG, to process at two plants.
LNG imports reached 8.6 million cubic meters a day in 2012 and are expected to rise to about 10 million cubic meters a day this year, driven by demand from power plants, Jose Santoro, Petrobras’s head of gas and energy, told reporters Feb. 5.
Given the need to use gas to produce power, discovering shale gas and other unconventionals would be “ideal” for Brazil, Mauricio Tolmasquim, head of the government’s energy policy agency, or EPE, said Jan. 28.
“Unconventional could be more competitive than pre-salt,” Marcelo Mendonca, an official at Gas Energy, a Brazilian consulting firm, said in an interview in Rio de Janeiro. “Currently our gas in Brazil is expensive so it makes all the sense to develop technologies to produce gas.”