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BusinessDay 11 Apr 2018

Wednesday

Wednesday 11 April 2018 gas Brief India: India sets October target for gas trading exchange India plans to set up a natural gas trading exchange as early as October this year to prepare for a surge in supply from India’s east coast and a slew of liquefied natural gas (LNG) terminals. Oil Minister Dharmendra Pradhan in a meeting with industry officials set a deadline of October 1 for the country’s primary natural gas distribution regulator to set up the exchange, according to sources. The exchange is aimed at standardizing natural gas prices so that domestic prices are not set at such a discount to international market rates. India currently imports LNG at global rates of around $7.50 per million British thermal units (mmBtu), while the government sets domestic gas prices at $3.06 per mmBtu. The exchange will also help to reduce the risks associated with the pricing differences. Indian Prime Minister Narendra Modi has laid out a plan to increase the share of gas in India’s energy mix to 15 percent by 2030 from below 6.5 percent now. India currently produces close to 90 million standard cubic meters per day (mscmd) of gas and imports another 70 mscmd as LNG, according to government figures for 2016-17. Norway: Significant gas discovery made offshore Norway New natural gas discoveries on the Norwegian continental shelf could hold “significant” quantities of reserves, a subsidiary of Austria’s OMV said. The Norwegian subsidiary said it made discoveries at the Hades and Iris targets in the Norwegian Sea. The company put the combined reserve estimate at between 40 million and 245 million barrels of recoverable oil equivalent. “Hades and Iris could be of significant size and the licensees will evaluate and further investigate the potential of the discoveries,” Knut Mauseth, the managing director of OMV Norge, said in a statement. The targets are close to existing infrastructure from fields already in production in the Norwegian Sea. The Norwegian Petroleum Directorate, which confirmed the discovery, said the partners would progress with a view toward future development. Apart from Russia, Norway is the largest oil and natural gas producer for the European market, designating nearly all of its offshore output for exports. Total production for February, the last full month for which data are available, was down 2.2 percent from January and 2.5 percent lower than the same month last year. KELECHI EWUZIE C002D5556 BUSINESS DAY 03 WEST AFRICA ENERGY intelligence Why West Africa must drive her untapped natural gas supplies potential Natural gas is one of the most widely-used energy resources; it is however sad to note that West Africa with its huge natural resources in the last three decades had lagged behind in natural gas production. However, the story is taking a look for the better with governments in West African countries increasing their efforts to secure stable gas supply to enhance power generation capacity coupled with renewed interest by investors across the spectrum who are now tapping into the regions’ abundant supply. According to the International Energy Agency (IEA), natural gas will take the lead in meeting the world future energy needs, and demand will grow faster than oil and coal over the next five year. The report expounded on the many positives of the future of natural gas. It was based on the insatiable appetite for natural gas, the growth in natural gas supply and increasing use of natural gas in transportation. There are some 500 global companies exploring natural gas deposits throughout West Africa. The international energy agency projected that by 2022, gas demand will grow at 1.6 percent per year. By this, indication are that annual gas consumption may reach 4, 000 billion cubic metres (bcm) with an almost 90 percent of the antici- pated growth in demand coming from developing economies. Gas discoveries are stimulating sector growth and infrastructure development in the region as large percentage of gas production continues to come from Nigeria among other countries in the region. Growth in the sector will be stimulated by low prices, abundant supply, as well as its role in producing a cleaner energy source. Report indicates that the rise of West Africa within the natural gas market will be just as beneficial to the multinational corporations as it will to the small, local participants. The success of natural gas development is incumbent on the participation of governments, NGOs and the corporate sector. Strategic planning is an essential component in the process. Industry experts opine that even though Nigeria is among the leading countries with huge natural gas reserves in Africa in general and West Africa in particular, obstacles such as regulatory measures, infrastructure development and malfeasance at the government level need to be overcome in order to develop her vast natural gas resources. Analysts observe that gas exploration requires massive investment and a strategic commitment. So while the rewards look huge, the road to unlocking their full potential is still long and rocky. They observe that the challenges associated with developing West Africa’s vast natural gas resources are real, and careful consideration is needed in terms of how best to achieve the objectives of socioeconomic and infrastructural development. Industry close watchers are of the views that as West African countries move toward gas-based economies and deregulate the market, the result will be greater investment in all areas of the supply chain, from utilising flared gas to transportation of gas from offshore fields. To them, West Africa with its vast quantities of natural gas is well harnessed have the potential to fundamentally transform the global landscape by uplifting communities, and even entire regions.

Wednesday 11 April 2018 04 BUSINESS DAY C002D5556 WEST AFRICA ENERGY intelligence power New power sector meter regime: Business Questions CHIJIOKE MAMA Amidst the numerous interventions witnessed since the privatisation of the Nigerian power sector in 2013, the recent (March 2018) Meter Asset Provider (MAP) Regulation by NERC is notable for one reason; It is targeted at the last mile of the value chain which doubles as the revenue collection point for the preceding, problematic and connected stages; from gas supply to transformer installation. The MAP regime as envisaged by the regulation appears promising on a cursory look, but there are several points and questions that should be robustly thought through by both the Distribution companies (Discos) and the potential Meter Asset Providers (MAPs). Although previous regulations such as the Metering Service Provider (MSP) regulation has provided some structure to the anticipated Disco-MAP relationship and has even created a pool of potential MAPs (though with multiple, distinct permits), the new MAP regulation is sufficiently distinct that there will be little or no economies of experience to leverage on both sides. The novelty, nascence and almost fluidity paint a business risk portrait that both Discos and MAPs should carefully study. A notable fluid feature is that, unlike previous regulations from NERC, the MAP regulation gives DISCOs a lot of leeway in the regulatory requirement of engaging a Meter Asset Providers, which is both an opportunity and a risk for all stakeholders (compare with the Nigerian Mini Grid Regulation). For example, the Metering Service Agreement (MSA) and the Service Level Agreements (SLA) are two instruments that DISCOs and MAPs should use to govern their relationship. But their form and structure appears to be largely undefined, which is unsuitable for the complexity of this frontier (although NERC demands filing and eventual approval). Strategically speaking; plugging the rampant, last mile revenue losses, through effective metering is a great step. But this step calls for a huge investment. Confirmed demand for about 5 million meters in the 11 Discos means an initial capital investment of about $400 million is needed, excluding meter installation and service costs, all of which would be amortised. Operating this segment of the sector will need a high level conversation on proper de-risking, financing and asset securitization. Plugging-in a third party provider of meter assets and metering services introduces a whole new dimension and unique considerations to the electricity business in Nigeria. The DISCO-MAP relationship that now needs to be birthed and midwifed in Nigeria has inherent risks and opportunities, and its eventual form and terms would be as negotiated by each DISCO, which empties a bucket of related core business queries; What are the best models for collecting metering service charge and their risks given wide rampant consumer apathy to payments and power theft proclivities?; What should form the core components of the Meter Service Agreement (MSA) and the Service Level Agreement (SLA) between Discos and MAPS in other to allocate risks to the parties best able to handle it?; What asset financing requirements should be factored into the MAP procurement bid process viz-a-viz the regulation’s required ring fencing of metering service charge?; What are the economic benefits of outright meter purchase by customers (to both Discos and MAPs) and how can it is incentivized? Other questions include; The MAP regulation is silent on the Repair and Replacement terms for out rightly purchased meters (Non Amortised meters). What are the issues with MAPs - Customer engagements in this scenario and the concerns for revenue losses to Discos? ; Which of the parties in the NERC-Disco-MAP nexus has the obligation of monitoring Service Level Agreement (SLA) and Meter Service Agreement (MSA)? There is an apparent (unaddressed) opportunity to create and support a sharing economy between Discos and MAPs for potentially interwoven resources. What are the possible models and how can the Meter Service Agreement and the Service Level Agreement capture it? Disco can leverage existing physical resources to accrue economic benefits from the partnership; What are the best securitization options/partners available to Discos for complying with the securitization requirements of the MAP regulation? The MAP regulation requires the procurement of MAPs to be concluded by the Discos, 120 days from April 03, 2018. The metering solution to the power crises in Nigeria has been birthed with promises of delivering much awaited relief to consumers, but the solution - evidently - has to scale and survive several business and political tests. Chijioke MAMA is CEO of MeiraCopp Nigeria Limited (MNL); a Transaction Advisory and Project Management Company and also a Doctoral Researcher in Business Management. m.chijioke@meiracopp. com Brief Tanzania: Tanzania launches 240MW power plant in bid to ease shortages Tanzania launched a power plant with a capacity of 240 megawatts (MW), part of a plan to end chronic energy shortages in East Africa’s third-biggest economy. The natural gas-powered Kinyerezi II plant, which has begun operation, was built on the outskirts of Tanzania’s commercial capital Dar es Salaam by Japan-based Sumitomo Corp using combined-cycle technology for 798 billion shillings ($353.72 million). Eighty-five percent of the cost was covered through a loan from a Japanese bank, a Tanzanian presidency statement said. “We expect to complete two more projects here in Kinyerezi, which will also employ natural gas and generate 600 megawatts,” Medard Kalemani, Energy Minister said. The government aims to South Africa: South African IPP secures projects totalling 620MW After the much anticipated signing of the REIPPPP Power Purchase Agreements (PPAs), a South African IPP, Pele Green Energy (PGE), has signed their outstanding contracts for round 3.5 and 4 projects. The project’s generation capacity total of 620MW takes the company’s total project portfolio to 884MW. source more of Tanzania’s electricity from natural gas above the current 50 percent, authorities say. Tanzania boasts reserves of over 57 trillion cubic feet (tcf) of natural gas, but faces periodic power shortages as it relies on hydro-power dams in a drought-prone region for about a third of its 1,570 megawatts of installed capacity. Last year President John Magufuli said the country needed to invest $46.2 billion over the next 20 years to revamp its ageing energy infrastructure and meet soaring electricity demand. Gqi Raoleka, Managing Director of Pele Green Energy, said “REIPPPP has enabled our emergence as a 100 percent Black-owned independent power producer, operating along the full value chain of the power generation sector. We have, thus, made substantial investments in our capabilities and therefore welcome the signing of the PPAs as this gives us an opportunity to firmly position ourselves as a globally competitive South African company.” Raoleka added: “We remain humbled by the opportunity our government has given us to continue to deliver clean energy to South African society and in so doing, create jobs and add value to the economy.”

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