THE OIL & GAS: EZINE August 2015

Sabarmati Gas Limited v. Bharat Petroleum Corporation Limited and Anr., Case No. 123/2015
June 23, 2015

The Petitioner (i.e., Sabarmati Gas Limited) initiated a petition before the Petroleum and Natural Gas Regulatory Board (Board) under Section 25 read with Sections 12(b)(v), 11(a) and 13)(1)(g) of the Petroleum and Natural Gas Regulatory Board Act 2006 (Act) alleging use of restrictive trade practices and violations of provisions of the Act in supply of re-gasified LNG from Dahej LNG Terminal by the respondents BPCL (i.e., R-1) and GAIL India Ltd. (i.e., R-2). The Board directed BPCL to cease restrictive trade practices with immediate effect and to claim the transmission tariff from the Petitioner on such rate as fixed by the Board for Gujarat State Petronet Limited (GSPL)’s pipeline. On appeal made by BPCL to the APTEL (Tribunal), the Tribunal remanded the matter back to the Board for adjudication observing that the Petitioner has a vested right to be heard by the Board in the process of determination of provisional initial tariff. The Petitioner then lodged a petition to ensure compliance of the directions of the Tribunal.

The present matter involved the following issues:
a) Whether 500 metre connectivity pipeline is a part of Dahej-Vijaipur (DVPL) pipeline or not?

b) Whether DVPL tariff is applicable on this 500 metre connectivity or not?

On the basis of the pleadings, evidences and submissions of the parties, the Board observed that there is no linkage of 500 metre connectivity with Hazira -Vijaipur- Jagdishpur (HVJ)-GREP and DVPL-GREP upgradation as it was built under the Gas Sales Agreement (GSA) for sale of RLNG by GAIL to Gujarat State Petroleum Corporation Limited (GSPCL). The volume of gas flowing through this 500 metre pipeline till the GSPL inter-connection point was not taken into account by the Board while determining capacity of HVJ-GREP-DVPL pipeline and the volume of RLNG under GSA between the Petitioner and BPCL or any third party including GSPL, as transported, till delivery point located 500 metre outside Dahej LNG facility were not considered by the Board for period from 20.11.2008 to 31.3.2012 in the capacity determination process for HVJ-DVPL pipeline. Moreover, GAIL in its data furnished to the Board, pertaining to the said period did not include transmission of volume of gas over this 500 metre connectivity facility. Also, the provisional initial unit natural gas pipeline tariff, as determined by the Board for HVJ-GREP-DVPL-GREP upgradation also recognizes separate tariff for this 500 metre connectivity.

On the basis of these observations, the Board concluded that 500 metre pipeline deserves to have a separate and specific tariff and the volume of gas transported through HVJ-GREP-DVPL-GREP would not have any relevance for this exercise.

The Board held that the petition is pre-mature and hence, dismissed it.

Pricing of gas produced from small/isolated fields
April 1, 2015

Ministry of Petroleum and Natural Gas (Ministry) has revised paragraph 2(ii) of the Ministry’s guidelines dated December 19, 2014 on pricing of gas produced from small/isolated fields. As per revised paragraph, in case of new supplies of gas, the price would be determined by National Oil Companies’ by calling bids through an open competitive bidding process.

Guidelines for polling of gas in fertiliser (Urea) sector
May 20, 2015

Government of India has notified the ‘Guidelines for Pooling of Gas in Fertiliser (Urea) Sector’ (Guidelines). As per the Guidelines, the domestic gas will be pooled with Re-gasified Liquefied Natural Gas (RLNG) to provide natural gas at uniform delivered price to all natural gas grid connected Urea manufacturing plants for the purpose of manufacturing of Urea. The Guidelines are effective from July 1, 2015.

Carry Forward Gas

Carry forward gas provision under a Gas Sales Agreement (GSA) enables the buyer to moderate/lessen its take or pay commitments in light of unpredictable operational requirements. Carry-forward gas provision is diagonally opposite to a make-up gas provision under a GSA. 

If in any contract year the buyer has taken delivery of and has paid for a quantity of gas which is greater than the ATOPQ for that contract year then such additional quantity of gas is normally classified as ‘Carry Forward Gas’. Such carry forward gas shall be credited to the buyer’s account and applied as an adjustment to the Annual Contract Quantity (ACQ) for the next contract year thereby reducing the ATOPQ of that contract year. The quantity of gas which can be so applied for adjustment is typically limited to fixed percentage of the ACQ for the contract year in which the carry forward gas arose.

In a contract year the buyer may increase its taking of delivery of gas and can thereby reduce its take or pay commitment for the next year.

Carry forward provision expresses the economic metrics of the buyer’s obligations under the GSA. Carry forward gas right acts as an important mechanism for a buyer for flexible gas management.  

However, from a seller’s perspective, the buyer’s carry forward right may lead to revenue instability and unpredictability over consecutive years to seller as it reduces the ATOPQ for following contract year.  To avoid above said likelihood, a seller should insist on a provision under a GSA stating that the recoverability of carry forward gas in each year shall be limited to a defined percentage of the ACQ. Under a GSA, a seller may desire to limit or even exclude completely a buyer’s right to carry forward gas.

Other provisions of GSA in respect of shortfall gas, undertake gas, overtake gas, off-specification gas normally apply in the same manner in respect of any carry forward gas.

A GSA must contain restrictions on the exercise of carry forward rights for instance; there may be limit on the number of years that such quantity of gas can be carried forward. There is an inescapable possibility of overlap between the accrual of carry forward gas and the recovery of accrued make up gas rights in the same contract year.

To avoid such overlapping, a GSA must contain a provision stating order of priority for delivery/taking of gas. GSA must contain a provision stating that where the buyer is recovering accrued make up gas entitlements in a contract year then the quantity of gas taken delivery of by the buyer in excess of the ATOPQ shall not be classified as carry forward gas.

A provision under GSA should clearly state that any quantities of gas taken delivery of by the buyer in a contract year which are in excess of the ATOPQ shall be applied first towards the reduction of any accrued make up gas entitlements and only then will such quantities of gas be classifiable as carry forward gas.

To understand the inter-relationship between the ATOPQ, take or pay payments, make-up gas and carry forward gas, it is helpful to prepare an illustrative table – a simple, yet very useful exercise.

Next Issue

December 2015

In-house contributors

  • Sakshi Bawa, Oil & Gas Team – Downstream
  • Neha, Oil & Gas Team – Upstream

Sources

  • Norwegian Petroleum Directorate
  • S. Energy Information Administration
  • The International Energy Agency
  • Organisation of the Petroleum Exporting Countries
  • The Oil and Gas Journal
  • Official web-sites of various oil & gas companies

Peter Roberts, Gas Sales and Transportation Agreements, Principles and Practice, Sweet and Maxwell, 2004 Edition

Alaya Legal presents its eighth issue of the Oil and Gas: Ezine to its Readers. Web-links are provided for ready access to certain reference material. The contents are presented with a view to allow comprehensive update in a systematic manner, from the legal perspective.

Reference Material

MARKET DEVELOPMENTS

ONGC Energy Centre received US patent on hydrogen generation process
April 1, 2015

United States Patent and Trademark Office has issued a Patent to ONGC Energy Centre and Trust and Institute of Chemical Technology, Mumbai for the innovative research work on ‘Hydrogen Production Method by Multi-step Copper-Chlorine Thermochemical Cycle’.  Hydrogen is considered as one of the most efficient and clean emerging sources of energy for transport and power generation applications.

Reliance Industries Limited (RIL) commissioned 650 KTA PET Resin Plant
April 10, 2015

RIL has commissioned a PET resin (Polyethylene Terephthalate) capacity at Dahej, Gujarat. The plant consists of two lines with a combined manufacturing capacity of 650 KTA. The plant has been built with Invista Technology for Continuous Polymerization and Buhler AG Technology for Solid State Polymerization.

China National Offshore Oil Corporation (CNOOC) Limited announced that the Kenli 10-1 oilfield has commenced production.
April 23, 2015

CNOOC Limited announced that the Kenli 10-1 oilfield has commenced production. The Kenli 10-1 oilfield is located in the South of Bohai with an average water depth of approximately 17 meters. The main production facilities of this oilfield include one central processing platform, two wellhead platforms and 70 producing wells. There are currently 12 wells producing approximately 10,750 barrels of crude oil per day. The oilfield is expected to reach its overall development plan (ODP) designed peak production of approximately 36 thousand barrels per day in 2016.

Indian Oil Corporation Limited’s (IOCL) state of the art Paradip refinery started crude processing
April 27, 2015

IOCL has augmented its refining capacity by setting up a grassroots refinery at Paradip in Odisha. IOCL’s latest refinery at Paradip makes it capable of processing broad basket of crude including cheaper high sulphur heavy crudes. It is configured to produce LPG, Propylene, Motor Spirit, ATF and HSD. The refinery will produce Euro-IV/Euro-V quality transportation fuels and the distillate yield from the refinery is expected to be best in class with 81.1% with no black oil production.

ONGC notified 4 more discoveries in the Indian sub-continent
April 29, 2015

ONGC has notified four more hydrocarbon discoveries in the fourth quarter of financial year 2014-15 in the states of Gujarat, Andhra Pradesh and Assam, taking the total number of discoveries in the fiscal year 2014-15 to 22.

British Petroleum (BP), started seven year West of Shetland drilling programme with new deep sea Aberdeen rig
April 29, 2015

BP announced the start of drilling on the Loyal field by the new-build, semi-submersible Deepsea Aberdeen, marking the start of a seven year drilling campaign west of Shetland. The sixth-generation, dual derrick rig is the newest addition in Odfjell Drilling’s fleet of mobile offshore drilling units. It has been designed to the highest international safety standards to operate in harsh environments, carrying out ultra-deepwater drilling in depths up to 3,000m. It will initially drill two producer wells and one injector well on Loyal, before moving onto Schiehallion to continue drilling activities. Five wells are planned to be drilled prior to first oil from the new Glen Lyon floating, production, storage and offload (FPSO) vessel at the end of 2016.

British Petroleum (BP) announced start- up of Kizomba satellite fields’ offshore Angola
April 30, 2015

BP confirmed the start of oil production from the Kizomba Satellites phase 2 development in Block 15, offshore Angola. Operated by ExxonMobil, the deepwater project is expected to produce around 70,000 barrels of oil per day at peak. Kizomba Satellites phase 2 is a subsea infrastructure development of the Kakocha, Bavuca and Mondo South fields, tied back to the existing Kizomba B and Mondo Floating Production, Storage and Offloading (FPSO) vessels and is expected to recover around 190 million barrels of oil. The project scope includes subsea wells, FPSO topside modifications and installation of flowlines and subsea equipment. The development is located approximately 150 kilometres off the coast of Angola in water depths of around 1350 metres.

Another key funder of fraudulent Ecuador litigation against Chevron Corporation (Chevron) withdrawn support
May 4, 2015

Chevron has reached a settlement agreement with Woodsford Litigation Funding Limited (Woodsford), a U.K.-based litigation funder that provided $2.5 million in funding to the fraudulent lawsuit against Chevron in Ecuador. Chevron brought conspiracy claims against Woodsford in Gibraltar for the company’s role in funding and advancing the fraudulent lawsuit.  In the settlement Woodsford has resolved those claims by withdrawing all financial support related to the Ecuador litigation and assigning all of its interest in the litigation to Chevron. Chevron, in turn, has agreed to release all of its claims against Woodsford and Woodsford’s Gibraltar-based funding entity, Temeraire Limited. 

Sinopec Fuel Oil Sales Corporation Limited (Sinopec) and British Petroleum (BP) set up marine fuels joint venture
May 19, 2015

Sinopec and BP announced the establishment of a 50:50 marine fuels joint venture in Singapore on May 19, 2015. BP Sinopec Marine Fuels Pte Limited (JV) represents an important continuity of the long-standing partnership between Sinopec and BP, which have cooperated in both China and abroad. The JV will build on the existing fuel supply networks and facilities of the two parties to jointly expand the global marine fuels market. In addition to marine bunkering in Singapore, the JV will also provide services in other major ports around the world, including Fujairah in the UAE, Antwerp in Belgium, Rotterdam and Amsterdam in the Netherlands as well as Tianjin, Qingdao, Shanghai, Ningbo and Shenzhen in China.

Exxon Mobil Corporation (ExxonMobil) discovered significant Oil offshore Guyana
May 20, 2015

ExxonMobil announced a significant oil discovery on the Stabroek Block, located approximately 120 miles offshore Guyana. The well was drilled by ExxonMobil affiliate, Esso Exploration and Production Guyana Limited, and encountered more than 295 feet (90 meters) of high-quality oil-bearing sandstone reservoirs. It was safely drilled to 17,825 feet (5,433 meters) in 5,719 feet (1,743 meters) of water. Stabroek Block is 6.6 million acres (26,800 square kilometers).

GAIL signed Heads of Agreement with Rajasthan State Gas Limited for supply of Natural Gas
May 28, 2015

In a significant step towards dispensing of CNG along Delhi-Jaipur Highway corridor and distribution of Natural Gas to various industrial clusters in Rajasthan, Rajasthan State Gas Limited (RSGL) has signed Heads of Agreement (HoA) with GAIL (India) Limited to procure natural gas. The HoA will facilitate RSGL’s strategy to execute Phase-1 of its project comprising of construction of mega CNG station at Neemrana and daughter booster station at Kukas near Jaipur. The Government of Rajasthan had recently declared RSGL as a nodal agency for setting up retail infrastructure for gas distribution in the state after entering into a MoU with Rajasthan State Industrial Development and Investment Corporation (RIICO) for strategic tie up in promoting clean energy.

Exxon Mobil Corporation (ExxonMobil) Alaska LNG Project LLC receives conditional authorization to export LNG to non-free trade agreement countries
June 1, 2015

The application to export up to 20 million metric tons per year of liquefied natural gas from Alaska for a 30-year period was submitted to the U.S. Department of Energy in July, 2014. Authorization to export to nations with existing free trade agreements with the U.S. was previously received in November 2014 and now it conditionally further expands the authorization to include non-free trade agreement countries as well.

Reliance Holding USA, Inc. (Reliance) signed definitive agreements for the sale of its interest in Midstream Joint Venture in the Eagle Ford to Enterprise Products Partners L.P. for $1.07 Billion
June 1, 2015

Reliance, a subsidiary of Reliance Industries Limited (RIL), announced the signing of definitive agreements for the sale of its entire holding of 49.9% interest in EFS Midstream LLC (EFS) to an affiliate of Enterprise Products Partners L.P. (Enterprise) for a total consideration of approximately $1,073 million. EFS provides gathering, treating and compression services and condensate stabilization operations in the Eagle Ford Shale for the Reliance-Pioneer Upstream Joint Development and to third parties.

Schlumberger introduced depth domain inversion services
June 23, 2015

Schlumberger has launched the Depth Domain Inversion Services. Schlumberger petro-technical experts use the services to improve the reliability and consistency of seismic structural and quantitative interpretation in complex environments. Performing seismic inversion in the depth domain fully integrates the inversion with the imaging products to improve the reliability of estimating rock properties for reservoir characterization. This is done by correcting for depth space and dip dependent illumination effects during seismic amplitude inversion directly in the depth domain.

National Iranian Oil Company phase 13 drilling to speed up
June 28, 2015

The speed of drilling operations at Phase 13 of the massive South Pars gas field is scheduled to triple once three state-of-the-art drilling rigs become operational at Jacket C. Two new rigs are to be set up. Sahar I rig, which belongs to North Drilling Company will also restart its operation at Platform B of the phase, stepping up drilling speed at the phase.

Disclaimer

The information in this private circulation is not legal advice and should not be treated as such. The information is taken from public domain and is purely for private and non- commercial purposes. We do not represent that the information is correct, accurate, complete or non- misleading.

This disclaimer will be governed by and construed in accordance with laws of India, and any disputes relating to this disclaimer will be subject to the exclusive jurisdiction of the courts of the Republic of India.

Doc ID: 3O&G15

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