FW: Dabhol LNG Terminal

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Sheetal Kanka

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Oct 11, 2013, 7:26:16 AM10/11/13

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From: S.Pokhriyal [mailto:spokh...@ddn.upes.ac.in]
Sent: Friday, October 11, 2013 4:29 PM
To: Geo Jos Fernandez; Dr. Sheetal Khanka; Vikas Kumar; Pankaj Mohan Prasad; Sonal Gupta; Somya Sharma
Cc: Vimal Prasad Mathur; P.C.Bahuguna
Subject: Dabhol LNG Terminal

Dabhol LNG Terminal-: GAIL okays signing of Framework Agreement for utilizing upto 80% of LNG terminal's capacity : GAIL, in 2012, had entered into a Framework Agreement (FA) with Ratnagiri Gas and Power Private Limited (RGPPL) -- which operates the 2,150 MW Dabhol power plant, along with an integrated 5 MMTPA LNG terminal, located in the Ratnagiri district of Maharashtra -- to utilize upto 80% of the LNG terminal's capacity. The contract with RGPPL was to be valid for a period of 25 years starting from 2012-13.
Tough the Framework Agreement, in the form of a Term Sheet, was executed in 2012, the detailed agreement -- called the LNG Terminal Commercial Operation and Regasification Agreement (LTCORA) -- was not hammered out.
The Term Sheet with RGPPL was approved by the company's Director (Marketing) as per delegation of powers in the company. However, later it was pointed out by the Company Secretariat that as per provisions of the Companies Act, the proposal has to be approved by the company's Board as well as the government.
In light of this, the GAIL's Board of Directors have now given the go-ahead to sign a final agreement with RGPPL for a period of 25 years. The final agreement is being developed and executed between GAIL and RGPPL based on the provision contained in the already agreed Term Sheet.
The LTCORA is under discussion between GAIL and RGPPL. However, the execution of the final agreement will be taken up only after obtaining the requite clearance from the Ministry of Corporate Affairs.
With the signing of the LTCORA, GAIL will formally get commercial operatorship of the Dabhol Terminal.
Dabhol LNG Terminal: Salient features of the agreement : The salient features of the Framework Agreement are as below:
Contract period: Initially, the contract will be valid for a period of 25 years which will have a provision for further extension as per terms and conditions mutually agreed by parties.
Review of contract: Every three years, there will be a periodic review of re-gasification charges and other terms and conditions so as to ensure recovery of O&M cost, debt servicing, any additional capex required for modifications or up-gradation on account of technical obsolescence and post tax equity IRR of 15.5% for envisaged life of the project.
Re-gasification charge: Rs 44.96/mmBtu for the first year, with an annual escalation of 5%.
Effective date: The commencement date shall be April 1, 2012, or a later date when the terminal is commissioned and ready for commercial operations in all respects
Conditions precedent: GAIL and RGPPL will make reasonable endeavour to commission and utilize the terminal in 2012-13. From April 2017 onwards, commitment of utilisation of facilities and slots of a higher quantum by GAIL shall be subject to completion of breakwater by RGPPL.
Committed slots: 80% of the capacity available, except for 2012-13 which is on areasonable endeavour (RE) basis
Non-utilisation charges: Non-utilisation charges will be applicable in case GAIL does not utilise the re-gas capacity to the extent committed. GAIL shall compensate RGPPL for non-utilisation of its slots. Such non-utilisation charge shall be 75% of the re-gas tariff with deemed cargo volume of net 3.2 TBTU of LNG (excluding voyage boil-off and heel). However, the payment of non-utilisation charge, shall be subject to Make Up Rights of GAIL. Non-utilization charges shall be invoiced on a quarterly basis and will have to be cleared by GAIL in 10 business days.
Invoicing and payments: GAIL shall pay fortnightly re-gas charges within 10 business days of receipt of invoice from RGPPL.
Taxes: All taxes and duties applicable on LNG/R-LNG shall be borne by GAIL or the common users, as the case may be.

Dabhol LNG Terminal- :oose end that needs to be tied up in final agreement: There are some loose ends that need to be tied up while hammering out the LNG Terminal Commercial Operation and Re-gasification Agreement (LTCORA).
--As per the Term Sheet signed between GAIL and RGPPL, there is a clause related to Right of First Refusal (ROFR). The spirit behind the Clause was to offer RGPPL the first right of refusal for re-gasified LNG limited up to its requirement, that is, 2.1 MMTPA.
--Though RGPPL was given the ROFR, it was to be ensured that such right did not prohibit GAIL to market the RLNG (spot, mid-term or long-term) from the Dabhol terminal to other consumers.
--As giving ROFR to RGPPL upto a quantity of 2.1 MMTPA on the one hand and ensuring that such right did not prohibit GAIL to market the RLNG were contradictory in nature, it was felt that there is an ambiguity in interpretation of the clause as provided in the Term Sheet.
--Both GAIL and RGPPL have mutually agreed to address the issue while finalizing the detailed LTCORA which is currently under discussion.
8Revenue from re-gasification likely to go up from Rs 225 crore in 2013-14 to Rs 2,766 crore by 2036-37: The revenue from re-gasification tariff payable to RGPPL varies from Rs 225 crore in 2013-14 to Rs 2,766 crore in 2036-37 at a 100% utilization rate.
--For 2012-13, the regas tariff will be as per GAIL's utilisation (on a reasonable endeavour basis).

US allows natural gas exports from Cove Point-I: GAIL took the risk and now it can enjoy the rewards : In what is going to come as huge confidence booster to GAIL, the US Department of Energy (USDOE) has allowed the export of LNG to Non-Free Trade Agreement countries -- that means to India -- from the Dominion Cove Point LNG facility on the Chesapeake Bay in Lusby, Maryland.
The approval has come after the Dominion Cove Point LNG, the US-based company with which GAIL recently signed an agreement for booking 2.3 MMTPA liquefaction capacity in US, applied for Non-FTA (Non-Free Trade Agreement) approval to facilitate gas exports to countries like India which do not have such agreements in place.
Previously, Dominion Cove had federal approval to only export gas to countries having Free Trade Agreement with the US. In other words, as India did not have an FTA with US, gas imports were not possible to India.
It is pertinent to note that Houston-based Cheniere Energy Partners LP's Sabine Pass terminal is the only one with the approval to export the LNG to nations that don't have a free-trade agreement with the US.
The capacity of the Dominion's facility is fully subscribed, with signed 20-year terminal service agreements. Pacific Summit Energy, LLC, a U.S. affiliate of Japanese trading company Sumitomo Corporation, and GAIL Global (USA) each have contracted for half of the marketed capacity.
Dominion Cove Point has robust existing infrastructure, including connections to the pipeline grid, LNG storage capacity and an updated pier. Construction will chiefly entail adding liquefaction capability.
Dominion would be setting up liquefaction facilities is expected to cost anything between $3.4 billion to $3.8 billion. Construction work is expected to start in 2014, so as to put the liquefaction facilities into service by 2017.
As per the agreement, GAIL will procure its own natural gas and deliver for liquefaction at the terminal. Thereafter, LNG would be loaded into the ships arranged by GAIL.
GAIL would be paying service charges to Dominion Cove for liquefaction of natural gas.
Notably, the liquefaction charge would be one of the components in the final delivered LNG price to India. Other components would be purchase price of natural gas, transportation charges for delivery of gas to the LNG terminal, shipping charges etc.
Comment: GAIL took the business risk of booking capacity and is now reaping the benefits. The capacity was booked after knowing well that there was no safety net available in case of an adverse US decision. Doratiminion had made it clear it would not take the financial risk involved in case the US administration decided against allowing exports to India. It was a calculated risk by the Indian gas major and it paid off.

US allows natural gas exports from Cove Point-II: A section of American industry cries foul : America's Energy Advantage -- which is a "not for profit" organization dedicated to educating the American public about the growth in American manufacturing made possible by the country's abundant and affordable supply of natural gas -- has objected to the U.S. Department of Energy's (USDOE) approval granted for natural gas exports to Non-Free Trade Agreement countries such as India.
The organization is of the view that the decision of the USDOE will raise the risk of increased consumer prices and utility bills thereby limiting the prospects for a sustained manufacturing renewal in America.
America's Energy Advantage pointed out that the country was approaching a volume of LNG exports that many experts project will impact price and volatility for natural gas within the country.
The organization expressed concern with the data DOE is using to justify more exports of American natural gas to global competitors. DOE is making decisions that could have far-reaching and potentially irreversible impacts on American economy and manufacturing based on 30-year-old guidelines for natural gas imports, not exports, argued the organization.
In light of this, the organization asked the DOE to immediately undertake a review of its decisions and clearly articulate in advance its criteria for determining the public interest under the law.

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GSPC's Deen Dayal discovery, Part-I: First gas delayed again : After the D-6 block, GSPC's Deendayal West (DDW) discovery in the block KG-2001/3 had fired the nation's imagination when Gujarat Chief Minister Narender Modi had made tall claims about the gas find in the KG basin. The figures have since been brought down drastically but the block continues to invite attention. The latest news is that first oil is expected only by December 2013 as against an earlier tentative schedule of June 2013. The delay in first gas has been attributed mainly to: --Three month strike by local fishermen during which no activity in the Onshore Gas Terminal (OGT) could be taken up. --Uncertainty regarding requirement of separate forest and wildlife clearance which led to suspension of offshore pipeline laying works.
--Late receipt of authenticated map from Andhra Pradesh government outlining Coringa wildlife sanctuary that the block's infrastructure will have to mostly skirt.
--Late receipt of environment clearance for Process-cum-Living Quarter Platform (PLQP) and the OGT
Owing to all these limitations, GSPC said that pipeline project could not started during till mid 2013.
Further, hook-up barges of the Well Head Platform (WHP) and PLQP had to be pulled out during the working season for providing access to pipe laying activities.
More importantly, GSPC has informed that it had also encountered unexpected complications in drilling of HP/HT wells beyond the depth of 5000 m in the block, which caused further delays.

GSPC's Deen Dayal discovery, Part-II: A budget of $541.85 million approved for activities to be taken up in 2013-14 : The GSPC led consortium continues to pump a huge amount of money into theKG-OSN-2001/3 block. The Management Committee has recently approved a combined budget of $541.85 million for all appraisal, development and production activities to be taken up during 2013-14.
The appraisal programme consists of reprocessing of seismic data and has been budgeted at $5.24 million while an amount of $491.28 million has been earmarked for the development activities during the year. A total of $45.32 million have been allocated for production work programme.
The development work programme consists of following activities: --Mobilisation of tie back tools . --HydroFrac (HF) of four wells , --Tieback and completion of four wells , --Re-entry, HF, tieback and completion of three wells , --Load-out, transportation and pre-commissioning of production facilities , --Commissioning and hook-up of WHP and PLQP, --Hook up and testing in line with approved planning package of the pipeline, The production work programme consists of production, evacuation and sale of produced gas.

GSPC's Deen Dayal discovery, Part-III: GSPC failed to use up capex earmarked for 2012-13 : The Management Committee of the block has now approvedl an appraisal budget of only $55.21 million along with a revised development budget of $604.34 millionwas for 2012-13.
This is significantly lower than the initial appraisal budget of $127.36 million and a development budget of 824.47 million for the period. Clearly, GSPC, the operator, could not spend the money that was earmarked for last year. As opposed to the initial plan, drilling and testing of spill over well -- DDW-DT-A1 -- was not carried out during the year. GSPC could drill only one spill over appraisal well -- DDE-A2 -- during the year whereas the plan was for two wells. Further, as opposed to completion of six wells in the initial development plan, only a total of four wells -- dubbed DDW-D1, DDW-D2, DDW-D3 and DDW-D4 -- could be completed. Again, the core analysis of the petroleum reservoir was not conducted during the year even though that was factored into the budget of 2012-13. .
But GSPC said that it did do a lot of work in accordance with the FDP in the year 2012-13 under the following heads: --Well Head Platform (WHP), --Process cum Living Quarter Platform (PLQP), --Submarine Pipeline (SMPL), --Onshore Gas Terminal (OGT)

GSPC's Deen Dayal discovery, Part-IV: Drilling matrix approved : The Management Committee of the block has approved two development wells but held up permissions for an appraisal well. The review of Declarations of Commerciality of six new discoveries have also been put on hold.
The MC has also held up the drilling of an appraisal well in the block on the ground that it is not in accordance with new regulations involving exploration in mining lease areas.
Meanwhile, the DGH has declined to review the Declaration of Commerciality (DOC) for six discoveries -- KG-16, KG-19, KG-21, KG-22, KG-31, and KG-20SS -- in the KG-OSN-2001/3. It has said that the review would take place only after the DGH has submitted its report to the committee.
Approval was given by the MC for two development wells -- DDW-D-5 and DDW-D-6 -- will be drilled with an objective to develop the lower Cretaceous hydrocarbon reservoirs in the DDW area.
While the well DDW-D-5 will be drilled at a depth of 4780 m, the well DDW-D-6 will be dug upto a depth of 4840 m.

GSPC's Deen Dayal discovery, Part-V: GSPC directed to seek special government dispensation for awarding contracts on nomination basis to EIL : To a request by GSPC seeking approval of award of contract for Onshore Gas Terminal (OGT) to Engineers India Ltd. (EIL) on nomination basis, the Management Committee (MC) has asked the operator to approach the petroleum ministry for its regularization.
GSPC had engaged EIL on a nomination basis as a consultant for project management for creating the entire surface facilities and also as a contractor on an Open Book Estimate (OBE) basis to execute the Onshore Gas Terminal.
The operator has said that an experienced Project Management Consultant (PMC) on nomination basis was thought to be prudent as compared to conventional tendering process for saving time and costs..
GSPC said that EIL was handed over the contract as it is a PSU and has a PMC experience of more than 200 offshore oil and gas platforms, associated inter-connected pipelines and terminal facilities for companies such as ONGC, GAIL and IOC.
Further, the price quoted by the EIL was also found to be competitive and GSPC issued Purchase Order (PO) only after getting it duly approved by the JV. The company said that even the CAG audit for 2011-12 found no discrepancy in the contract.
The MC however has played it safe, claiming that there is no provision in the PSC for award of contract on a nomination basis even if it is awarded to a public sector company and has directed GSPC to seek a special dispensation from the petroleum ministry.

GSPC's Deen Dayal discovery, Part-VI: Operator and MC fail to see eye to eye on procurement methodology : An attempt by the GSPC to modify the procurement methodology for sourcing of goods and services in the block KG-OSN-2001/3 has been rejected by the Management Committee (MC).
The MC has asserted that the revised procurement manual forwarded by the operator cannot be approved in the present form. Earlier, the DGH's had opined that the manual seeks "blanket permission" for purchase of materials and services.
A lot has been going on with regard to GSPC's effort to get the revised procurement manual approved. The manual was first submitted in January 2013, subsequent to which queries were raised by the DGH. 8GSPC did reply to these queries subsequent to which meetings were held with the regulator in which the provisions were debated upon at length.
Subsequently, the procurement manual was revised for the second time incorporating DGH's suggestions but even this has been found to be unsatisfactory by the regulator and further revisions were sought.
Eventually, the MC withheld permission for the new manual.
The DGH has said that any modification in the procurement procedures is possible only in accordance with Article 8.3(f) and 23.2 of the Production Sharing Contract (PSC).
The DGH has also informed that it is examining the operator's request for approval of following procurement cases on nomination basis:
--Contract for providing technical support and consultancy for HF design, execution and completion of development wells to Blade Energy
--Purchase of chemical cutter locator for development wells from Halliburton Offshore Services
--Hiring of milling and retrieving tools services for 7" HPHT bridge plug, FB-3 packer & PBR tools
--Up-gradation and procurement of G&G related software.

GSPC's Deen Dayal discovery, Part-V: GSPC directed to seek special government dispensation for awarding contracts on nomination basis to EIL : To a request by GSPC seeking approval of award of contract for Onshore Gas Terminal (OGT) to Engineers India Ltd. (EIL) on nomination basis, the Management Committee (MC) has asked the operator to approach the petroleum ministry for its regularization.
GSPC had engaged EIL on a nomination basis as a consultant for project management for creating the entire surface facilities and also as a contractor on an Open Book Estimate (OBE) basis to execute the Onshore Gas Terminal.
The operator has said that an experienced Project Management Consultant (PMC) on nomination basis was thought to be prudent as compared to conventional tendering process for saving time and costs..
GSPC said that EIL was handed over the contract as it is a PSU and has a PMC experience of more than 200 offshore oil and gas platforms, associated inter-connected pipelines and terminal facilities for companies such as ONGC, GAIL and IOC.
Further, the price quoted by the EIL was also found to be competitive and GSPC issued Purchase Order (PO) only after getting it duly approved by the JV. The company said that even the CAG audit for 2011-12 found no discrepancy in the contract.
The MC however has played it safe, claiming that there is no provision in the PSC for award of contract on a nomination basis even if it is awarded to a public sector company and has directed GSPC to seek a special dispensation from the petroleum ministry.

GSPC's Deen Dayal discovery, Part-VII: GSPC wants partner expelled but Management Committee doesn't play ball The Management Committee of the block KG-OSN-2001/3 has declined to take a view on a request by the GSPC for expulsion of Geo Global Resources Barbados Inc (GGR) as a co-promoter in the block, claiming that the issue is beyond its purview.

GSPC had wanted an amendment in the existing PSC which would have rescinded GGR`s participation in the block on account of an alleged "default" in payment. This would leave GSPC with a 90% stake, once GGR`s 10% stake supposedly devolves on GSPC, with the rest being held by Jubilant.
The operator had wanted GGR to be declared as a defaulter and sought that consequent amendments to the contract be carried out in accordance with Clause 6.11 of the PSC.
But GGR had claimed that it had a "carry" agreement in place with GSPC that seems to be "watertight". In this context, it will not be easy for GSPC to push through the amendment.
GSPC had previously intimated the ministry and the DGH that it had repudiated the Carried Interest Agreement (CIA) -- dated August 27, 2002, signed between GSPC and GGR -- as "void" and had declared that GGR had no participating interest in the block. However, GGR contested this argument.
To argue its case effectively, GGR had even expressed a desire to be represented by its senior management from Calgary, Canada. But now it seems that the case will have to be sorted out by the petroleum ministry itself.

GSPC's Deen Dayal discovery, Part-VIII: Approval of audited accounts deferred by Management Committee for want of GGR's consent : The Management Committee (MC) of the block KG-OSN-2001/3 has deferred approval of audited accounts for 2011-12 and 2012-13 as the operator GSPC, could not elicit an endorsement from its estranged partner, Geo Global Resources Barbados Inc. (GGR). GGR holds a 10% Participating Interest (PI) in the block and while GSPC has been trying to throw its partner out, it is turning out to be as easy as it seems. .
The audited accounts for both fiscal years were submitted to the MC with an affirmative vote of 90% as per article 5.6 of the Joint Operating Agreement (JOA). However, the DGH said that the audited account should be submitted with complete approval of the Operating Committee (OC) which means that GGR`s stamp of approval is a must.
For 2012-13, a total expenditure of $659.56 million was submitted to the MC. Of this $604.34 million was submitted as development cost while another $55.21 million was presented as exploration cost incurred during the year.
For 2011-12, GSPC submitted an audit account amounting to $434.22 million to the MC. Of this, $362.94 million was submitted as development cost while another $71.28 million was put under the head of exploration cost during the year.
Now adoption of audited accounts for both 2011-12 and 2012-13 will be undertaken only when GGR`s consent is elicited or the petroleum ministry makes a special dispensation, which is ulikely any time soon, in this regard.

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