There is a common perception that Russia’s move on Crimea shows its strength. A closer examination suggests it is more complicated that it may seem. Like the bully at the school yard, the aggressiveness conceals weaknesses.
Simply put, Russia felt threatened and for good reason. The democratic coup in the Ukraine threatened a potentially strategic loss for Russia. For months, it had been using both carrot and stick to pressure Ukraine, Moldova and Georgia from shifting more to the EU. Reports indicate that Putin had drawn his own line on Ukraine and made it clear to the EU and US that Russia would not accept a Ukraine in unfriendly hands.
Yanukovych was brought to heel and at the last minute embarrassed and frustrated the EU (and by extension, the US) and struck a deal with Russia. A democratic coup toppled Yanukovych, and there are reasons to suspect that Europe and/or the US may have helped facilitate the political uprising. Among the first acts, the new government abolished Russian as the second official language.
There was a realistic fear (on the part of Russia) that the new government would move to retract the 2010 agreement that arguably was struck under duress, to renew and extend the Russia’s lease on the Sevastopol naval base. The lease, first struck by Yeltsin was to expire in 2017. Fisticuffs broke out in the Ukrainian parliament over the issue that eventually led to a 25-year extension of the lease. >> Read More
The chances of Reliance Industries’ (RIL) partners BP and Niko Resources getting a higher price for gas from the D1/D3 fields in the KG-D6 block have taken a hit with the government modifying its affidavit in the Prashant Bhushan case in the Supreme Court.
While the earlier affidavit of February 20 quoted the Cabinet Committee on Economic Affairs (CCEA) as having decided “that Contractor (RIL, BP and Niko consortium) shall be allowed to sell the natural gas…at the revised price formula…on the basis of the Bank Guarantee (BG) provided by RIL…”, the new affidavit seeks to draw a distinction between RIL, BP and Niko.
The affidavit, filed on February 25, cites the original affidavit and instead of “Contractor (RIL, BP and Niko consortium)” simply talks of “Contractor” without now mentioning RIL, BP and Niko.
On the face of things, this should not make a difference since all the firms are defined as “contractor” in the production-sharing contract, but it matters since the oil ministry bureaucrats have taken the view that since only RIL is party to the arbitration with the government — the government has withheld payments to the consortium on grounds it was hoarding gas — only it could get the higher Rangarajan-formula-based price from April 1. >> Read More
With new gas price announcement being held hostage to technicalities, British energy giant BP and Niko Resources of Canada have told the oil ministry that they are party to the arbitration initiated by Reliance Industries Ltd. (RIL) on KG-D6 gas production lagging targets.
A market-based gas pricing regime is to kick-in from next month but the cabinet in December conditioned its applicability to gas being produced from the main field in KG-D6 block to RIL furnishing a bank guarantee equivalent to the incremental revenues it will get from the new rates.
The bank guarantee will be encashed if it is proved in the legal proceedings, called arbitration, that RIL deliberately produced less than targeted gas from D1 & D3 fields in KG-D6.
RIL, which says the current D1 & D3 output being a tenth of previously projected 80 million standard cubic metres per day (mmscmd) was purely because of unanticipated geological complexities like drop in reservoir pressure and water and sand ingress, agreed to give bank guarantees, official sources said.
BP and Niko, which hold 30% and 10% interest in KG-D6 respectively, too agreed to give bank guarantees in proportion to their stake. >> Read More
Niko Resources and BP, which partner Mukesh Ambani-promoted Reliance Industries Ltd (RIL) in the KG-D6 block, might not get to increase the price of gas produced from the block, in spite of Cabinet intervention. According to a senior government official, to avail of higher prices, the two companies will need to furnish bank guarantees and be part of the arbitration process initiated by RIL against the government.
The issue now threatens to impact gas buyers, since sales and purchase agreements signed by RIL are valid only till the end of this month.
The Cabinet Committee on Economic Affairs (CCEA) had on December 19 last year decided to allow RIL to almost double the price of natural gas produced from KG-D6 from April 1, provided the company gave a bank guarantee to cover its liability if charges of hoarding gas against it were proved. The officials clarify this bank guarantee will apply only to RIL, as it is the only company that has gone ahead with the arbitration.
“Though the bank guarantee will soon be notified by the law ministry, there are certain technical difficulties. Till both BP and Niko become part of the arbitration process, they won’t be allowed to draw higher gas price. Also, Cabinet had cleared the bank guarantee for RIL alone,” said an official. >> Read More
19 January 2014 - 20:26 pm
Having reversed the falling output at KG-D6, Reliance Industries and its partner BP plc will quadruple production at the eastern offshore fields to around 40-45 million standard cubic meters per day by 2020.
With addition of a well this month jacking up output by 2.5 mmscmd to 13.7 mmscmd, RIL-BP is repairing shut wells that will help further raise output to 16 mmscmd.
“At the end of 2013 we were producing around 11 mmscmd of gas (from KG-D6). With the (well) interventions that we are doing right now and also the fact that the oilfield (the block) which is producing most of its oil and now we are getting ready to blow down the gas in that. All this together, we hope to at least increase the production by another 50 per cent (to about 16 mmscmd),” BP India head Sashi Mukundan said.
He said new fields in the KG-D6 blocks will start coming on stream from 2018 and “we get all the right support and approvals from the government then we hope to quadruple our production by 2020.”
The Bay of Bengal KG-D6 fields, which began gas production in April 2009, had hit a peak of 69.43 mmscmd in March 2010 before water and sand ingress led to shutting down of more than one-third of the wells. >> Read More
16 January 2014 - 14:41 pm
A surprise outcome of the Deepwater Horizon disaster may be to eliminate competition for BP’s formidable energy trading business.
The 2010 explosion and spill at a BP oil well in the Gulf of Mexico was invoked repeatedly as the Federal Reserve this week invited comment on whether to continue allowing banks to handle physical commodities such as oil and natural gas.
The Fed has given 12 bank holding companies such as Citigroup and JPMorgan Chase increasing latitude to trade physical commodities over the past decade. It is now having second thoughts, as outlined in a 19-page advance notice of proposed rulemaking.
The costs of BP’s offshore spill are referenced as evidence the Fed may have underestimated the risks of handling commodities. Past Fed approvals required banks to use oil tankers sanctioned “by a major international oil company” – a safeguard that now looks dubious.
“The oil spill involving the Deepwater Horizon drilling unit suggests that current industry safety policies and procedures may not prevent a major environmental disaster and may call into question the effectiveness of such procedures,” the Fed said. >> Read More
13 January 2014 - 14:40 pm
Upstream regulator Directorate General of Hydrocarbons (DGH) has put in a strong note of dissent against the Vijay Kelkar Committee suggestion to continue the present regime of allowing oil and gas producers to recover costs before paying the government its share.
The Director General of Hydrocarbons, R N Choubey, who was part of the Kelkar Committee, said in the note that the panel had exceeded its brief and quoted data that had no attributable author or source.
Sources with direct knowledge of the development said the panel, in Chapter 2 of its report, recommended continuation of the present production sharing contract (PSC) framework for the oil and gas sector, which allows for cost recovery by exploration and production (E&P) companies before they pay the government its share.
This was in contrast to the suggestion by the Prime Minister-appointed Rangarajan Committee to shift to a revenue-sharing model that would require companies to share a biddable amount of oil or gas output with the government from the first day of production, irrespective of cost. >> Read More
29 December 2013 - 14:23 pm
Reliance Industries and its partners BP Plc of UK and Canada’sNiko Resources may have to provide a maximum of $1.2 billion in bank guarantees over three years to get nearly double the rate for natural gas being produced from the main fields in KG-D6 block.
The Cabinet Committee on Economic Affairs (CCEA) had on December 20 decided to allow RIL to almost double the price of natural gas from April, 2014 provided the firm gave a bank guarantee to cover its liability if gas-hoarding charges are proved.
The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block since 2010-11, sources said. >> Read More
21 October 2013 - 6:45 am
Petroleum and Natural Gas Minister M. Veerappa Moily’s optimism over resolving issues related to falling gas output from KG-D6 is not shared by the Reliance Industries Ltd-operated block’s oversight committee or management committee.
The committee stands divided over the issue of in-place reserves, relinquishment of area, and appointment of a third party consultant, among others, leaving arbitration as the only way out.
Though the contractors have the option of appealing to the Government if the committee remains divided, this may not yield results, as the Government has already disallowed cost recovery by the contractors and the matter is under arbitration, sources say.
The members of the committee, which consists of nominees of the Directorate General of Hydrocarbons (DGH), Government, and Reliance-BP-Niko, are yet to agree on the resolution of the meeting held on October 1, an official privy to the developments said. >> Read More